HIROSHIMA BANKANNUAL REPORT 2017

Profile
Founded in November 1878, The Hiroshima Bank, Ltd. (the “Bank”) is a regional financial
institution headquartered in Hiroshima Prefecture, operating primarily in Hiroshima and the threeneighboring prefectures of Okayama, Yamaguchi and Ehime. In addition to Branches and Offices
in Japan, the Bank has representative offices in Shanghai, Bangkok and Singapore covering theentire area of East and Southeast Asia. Taking advantage of its extensive network, the Bank isproviding comprehensive financial services including deposit taking, lending, money transfers,
foreign currency exchange, and trustee services, along with investment trust sales and life
insurance policies and other commercial banking activities.
Hiroshima Bank Head Office■ Management Policy■ Financial Results(As of March 31, 2017, non-consolidated)

Management Vision
Building a reliable Hiroshima Bank Group united throughtrusting relations with the regional community

Code of Conduct
The Hiroshima Bank Group shall rigorously implement soundmanagement based on the following code of conduct:
1. W
 ork in step with regional communities to actively contributeto their development
2. Strive to enhance customer satisfaction and peace of mind
3. Continuously enhance the Bank’s corporate value
4. Create a cheerful, rewarding workplace
5. E xercise a high level of compliance

Balance of deposits + NCD¥7,308.5 billion

Balance of loans¥5,605.1 billion

Net income¥29.9 billion

Profit attributable toowners of the parent¥31.2 billion

Capital adequacy ratio(Consolidated)      11.10%(Non-consolidated) 10.82%■ Corporate Data (As of March 31, 2017, non-consolidated)
Established

November 1878

Common Stock¥54,573 million

Employees

3,381

Head Office

3-8, Kamiya-cho 1-chome, Naka-ku,
Hiroshima 730-0031, Japan

Branches
and Offices

151 domestic branches, 16 offices, and 3 overseas
representative offices (Shanghai, Bangkok, Singapore)■ Business Operations (As of June 1, 2017)
Banking operations• Head Office and branches: 151• Offices: 16

Other operations• Consolidated subsidiaries: 7

Hiroshima Bank

Contents

Hirogin Securities Co., Ltd.
(Financial instruments brokerage operations)
Shimanami Servicer Co., Ltd.
(Administration and recovery of receivable debts)
Hirogin Card Service Co., Ltd.
(Credit card operations)
Hirogin Business Support Co., Ltd.
(Consolidated financial reporting, printing, and publishing operations)
Hirogin Guarantee Co., Ltd.
(Credit guarantee operations)
Hirogin Mortgage Service Co., Ltd.
(Real estate collateral assessment operations)
Hirogin Wealth Management Co., Ltd.
(Insurance agency operations)• Equity-method affiliates: 2

Hirogin Lease Co., Ltd.
(Lease operations)
Hirogin Auto Lease Co., Ltd.
(Automobile lease operations)• Unconsolidated subsidiary: 1

HB Asset Funding Corporation(Factoring operations)1   Hiroshima Bank’s Network
2  Profile of Hiroshima Prefecture3  Message from the President
4  Summary of Business Performance in FY2016
6  Mid-Term Management Plan 2017
(FY2017–FY2021)

17  Corporate Governance24   Risk Management System
27  Financial Section
60  Corporate Information

Hiroshima Bank’s Network(As of March 31, 2017)

JAPANThe leading regional financial institution in the Chugoku and Shikoku regions

Branch network
Shimane:
Yamaguchi:

Okayama:1

10

Branches and Offices:
Hyogo:

7

Hiroshima:

136

Tokyo:

Osaka:

Fukuoka:

167

2

2

Ehime:

6

1

Aichi:

1

1*The number of branches within Hiroshima Prefecture includes
one branch dedicated for bank transfers and one Internet branch.

OVERSEAS
Covering the entire area of East Asia and Southeast Asia

Representative Offices
Shanghai Representative Office

Bangkok Representative Office

Singapore Representative Office

Room 1713, Shanghai International Trade
Centre 2201, Yan An West Road,
Shanghai 200336, China
Tel: +86-(0)21-62752755

14th Fl, Nantawan Building,
161 Ratchadamri Road, Pathumwan,
Bangkok 10330, Thailand
Tel: +66-(0)2-650-5099

65 Chulia Street, #27-03 OCBC Centre,
Singapore 049513
Tel: +65-6438-5882

Associated Bank

Associated Banks (China)

Associated Bank

Standard Chartered Bank

Bank of China
Bank of Communications
Bank of Dalian

The Hongkong and Shanghai Banking Corporation(Covers 16 countries in Asia)(Covers countries and regions with over 80 group bases)
Associated Bank (Mexico)

Associated Bank (Taiwan)

Alliance Partner (China)

CTBC Financial Holding

Wuxi Municipal People’s Government

Shanghai
Representative
OfficeAssociated Banks (Korea)

Korea Exchange Bank
Korea Development BankBANCO NACIONAL
DE MÉXICO, S.A.,
INTEGRANTE DELGRUPO FINANCIERO
BANAMEX
Alliance Partners (Mexico)

Associated Banks (Vietnam)

Joint Stock Commercial Bank for Foreign
Trade of Vietnam
Joint Stock Commercial Bank for Investment
and Development of Vietnam (BIDV)State of Aguascalientes
State of Jalisco
State of GuanajuatoState of Nuevo León

Bangkok Representative Office
Associated Bank (Philippines)

Associated Bank

Metropolitan Bank and Trust Company

Bank of America, N.A.
(Covers Mexico)

Associated Bank (Indonesia)
Associated Banks (Thailand)

Bangkok Bank
Kasikorn Bank

PT. Bank Negara Indonesia (Persero) Tbk

Singapore Representative Office

Associated Bank (India)

Associated Bank

Associated Bank (Brazil)

State Bank of India

Credit Agricole Corporate & Investment Bank

Banco do Brasil(Covers Thailand, Vietnam and India)

HIROSHIMA BANK   ANNUAL REPORT 20171

Profile of Hiroshima Prefecture■ Characteristics of Hiroshima Prefecture
Hiroshima Prefecture, where the Bank’s operations are based, has an outstanding economic advantage within the ChugokuShikoku region of Japan, about 2.3% share on most major national economic indicators, and ranks roughly 11th among the
47 prefectures. Hiroshima Prefecture is a market with high growth potential.
National ranking and share

Hiroshima Prefecture compared with national averages
Actualfigure8,479

Land area
Regional

Economic

km2

108.3

2016/1

1,291

11/47

2.3

2016/1

10.8

12/47

2.1

FY2013

139

11/47

2.3

2014

9.5

10/47

3.1

2014

10.2

9/47

2.3

2012

3,060

10/47

—

FY2013

12.4

11/47

1.7

2016/12thousandNominal grossprefectural producttrillion yen

Total number of offices,
factories, etc.

thousand

Shipments ofmanufactured goods, etc.

trillion yen
trillion yen

Prefectural income
per capita

thousand yen

Balance of deposits

trillion yen

9.0

trillion yen

Prefectural income
per capita

2016/102.2

No. of households

Balance of loans

2.2

12/47

thousandFinancial

11/47

105.4

As of

2,863

Population

Wholesale andretail sales

Land area

National National
ranking share

11/47

1.9

2016/12150

Population
105.1

100

50

Wholesaleandretail sales

No. ofhouseholds

0

106.5

102.8

Nominal grossprefectural product

Shipments ofmanufactured goods, etc.
147.8

100.2

Total number of offices,
factories, etc.
110.0

- National average - Hiroshima Prefecture
Note: 100 = national average
Source: Hirogin Research Institute■ Hiroshima Prefecture’s Economic Scale
The four local prefectures (Hiroshima, Okayama, Yamaguchi, and Ehime) served by Hiroshima Bank make up an economic
base that rivals Japan’s three metropolitan areas in terms of population and number of business establishments. Even byinternational comparison, the GDP of this economic base is nearly the same as Singapore.
Hiroshima Bank’s operating baseNominal GDP of the four local prefectures
Nominal GDP(Trillions of yen)

Share in Japan
(%)

Total

28.7

5.6

—

1

Hiroshima

10.8

2.1

100.0

2

Okayama

7.3

1.4

67.1

3

Yamaguchi

5.8

1.1

53.3

4

Ehime

4.8

0.9

44.1

Ranking

2. Okayama
1. Hiroshima
Hiroshima City

3. Yamaguchi

Prefecture Name

Relative GDP(Hiroshima = 100)

4. Ehime(¥ trillion)
50
40
30

16.7

20
10
0

2

5.5
Myanmar

10.5

10.8

MoroccoHiroshima

Vietnam

22.0

Portugal

HIROSHIMA BANK   ANNUAL REPORT 2017

25.7

26.3

26.6

27.0

28.7

29.5

GreeceFinland

Philippines

Chile

Total

Singapore

32.8

Denmark

35.8

South Africa

41.0

ThailandMessage from the President

Aiming to be
a comprehensive financial
services group that
continues to grow withlocal customers

Koji Ikeda, President

The management environment encompassing regional financial institutions is one of unprecedented
harshness as the population and number of branches both decrease in addition to the prolonged low
interest environment.
Even under such circumstances, Hiroshima Bank has practiced even greater customer-oriented
operations as we believe that contributing to customers’ growth and development is the duty of aregional financial institution.
However, to fulfill that duty and grow together with customers, merely continuing along existinglines is not sufficient. For that reason, the previous mid-term management plan, which was intended tocontinue through fiscal 2017, was ended one year early and the new Mid-Term Management Plan 2017
started in April this year.
This Mid-term Management Plan has the three pillars of reforming the earnings structure based on
implementing value-added sales focused on customer needs, nurturing a corporate culture that promotes
workstyle reform and a desire to take on challenges, and active commitment to regional revitalization.
The Hiroshima Bank Group will gather its collective capabilities and grow together with customers whileaiming to become a comprehensive financial services group. In particular, the Bank will move ahead on
asset management operations for customers’ asset formation by strengthening collaboration with theGroup’s securities company.
Moreover, in addition to advancing diversity by strengthening initiatives to provide greater
opportunities for women and by recruiting specialized personnel, the Bank will provide one-stop services
by collaborating with other businesses in areas that it cannot provide service alone.
In addition, we are striving to protect our customers through such initiatives as the strengtheningof cybersecurity and prevention of billing fraud, as well as further enhancing value in the region throughactive involvement in various CSR-related areas such as contributing to society and preserving theenvironment.
Through these efforts, we will make the Hiroshima Bank Group a high-value, reliable banking groupthat is trusted by all of its stakeholders.

HIROSHIMA BANK   ANNUAL REPORT 20173

Summary of Business Performance in FY2016

In FY2016, core banking profit declined ¥5.4 billion year on year to ¥34.4 billion, owing mainly to a decrease in net interest
income as spreads narrowed under negative interest rates. However, net income was unchanged at ¥29.9 billion, thanks toa considerable increase in gains on securities.
On a consolidated basis, profit attributable to owners of the parent declined slightly by ¥0.2 billion to ¥31.2 billion,
keeping profits near the record-high level set last fiscal year.

[Non-Consolidated](¥ billion)
Result for FY2016

Operating income

YoY change (Change rate)

134.7

3.9 ( 3.0 %)Net interest income

71.4

(3.3)

Net fees and commissions income

17.7

(1.1)

Core gross banking profit

89.1(4.4) ( (4.6)%)

Expenses

54.7

1.0

34.4

(5.4) ((13.4)%)

Gains/Losses on securities

11.5

6.5

Credit costs

2.7

1.0

Ordinary profit

43.2(1.9) ( (4.2)%)

Net income

29.9(0.1) ( (0.0)%)

Operating income

138.2

3.8 ( 2.9 %)Ordinary profit

45.0(2.2) ( (4.5)%)

Profit attributable to owners of the parent

31.2(0.2) ( (0.5)%)

Core banking profit[Consolidated]

Earnings
Core gross banking profit¥89.1

Core banking profit¥34.4

billion(¥(4.4) billion)(¥ billion)
100
95.4

19.9
75

75.5

93.5
18.8
74.7

Net income¥29.9

billion(¥(5.4) billion)(¥(0.1) billion)(¥ billion)
50

89.1
17.7

(¥ billion)
30

41.2
40

billion

39.8

25

30.0

29.9

FY2015FY2016

23.9

34.4

71.4

20
30
15

50
20

10
25

0

10

FY2014FY2015FY2016

Net fees and commissions income
Net interest income

4

HIROSHIMA BANK   ANNUAL REPORT 2017

05

FY2014FY2015FY20160

FY2014

(As of March 31)(As of March 31)

Loans

ROE (Consolidated)

Compared with the end of FY2015, the loan balance expanded ¥337.9 billion (+6.4%) to ¥5,605.1 billion
on growth in both corporate loans and individual loans. The balance of corporate loans stood at ¥4,187.6
billion, an increase of ¥262.3 billion (+6.7%) from the end of FY2015, as a result of promoting loans
based on feasibility studies and efforts to unearth needs for financing through consulting-based financial
products. Of this, the balance of loans to SMEs was ¥2,293.5 billion, an increase of ¥99.4 billion (+4.5%).
The balance of individual loans expanded ¥75.6 billion (+5.6%) to ¥1,417.5 billion compared with the endof FY2015, owing to a broader selection of new products and services and efforts to promote housing andconsumer loans through promotion campaigns targeting each life stage.

As an indicator of business efficiency, Hiroshima
Bank’s return on equity (ROE) remained at a highlevel of 6.97%.

Loan balance

Loans to SMEs

¥5,605.1

billion(+¥337.9 billion)(¥ billion)
6,000

5,102.1
3,821.3

5,267.2
3,925.3

ROE¥2,293.5

6.97

billion(+¥99.4 billion)(¥ billion)
2,500

5,605.1

2,130.7

4,187.6

2,194.1%((0.12) point)

(%)
8.00

2,293.5

6.69

2,000

7.09

6.97

6.00

4,000
1,500
4.00
1,000
2,000

1,280.8

1,341.9

1,417.5

2015

2016

2017

0

2.00

500

0

2015

2016

0

2017

FY2014FY2015FY2016

Corporate loans, etc.
Individual loans(As of March 31)(As of March 31)

Deposits

Capital adequacy ratio

The Bank’s balance of deposits and NCD stood at ¥7,308.5 billion, an increase of ¥284.0 billion (+4.0%)
from the end of FY2015, thanks to marketing activities tied to local communities. Of this, corporate
deposits grew ¥87.5 billion (+4.1%) to ¥2,242.0 billion, and individual deposits rose ¥154.0 billion(+3.4%) to ¥4,645.2 billion. Individual custody assets totaled ¥5,482.5 billion, an increase of ¥134.6
billion (+2.5%) compared with the end of FY2015, resulting from consulting-based marketing tailored tocustomer needs amid efforts to enhance customer-oriented operations (fiduciary duty).

Hiroshima Bank’s consolidated capital adequacy
ratio was 11.10%, a decline of 0.23 of a percentage
point from the end of FY2015, reflecting an increasein risk assets accompanying growth in the balanceof loans. Nonetheless, the ratio remains well above
Japan’s domestic standard of 4%.

Deposits and NCD¥7,308.5

billion(+¥284.0 billion)(¥ billion)
8,000

6,803.5
6,000

7,024.5

2,058.0

2,154.5

4,376.9

4,491.2

7,308.5

Individual custody assets¥5,482.5

11.10

billion(+¥134.6 billion)(¥ billion)
6,000

5,263.7

2,242.0

4,000
4,000

Consolidated capital adequacy ratio

4,645.2

5,347.9

5,482.5

56.7 277.0 57.8
63.8
293.4 121.0 297.2 94.1 410.4 91.9
408.7
408.6
4,645.2
4,491.2
4,376.9

2,000%((0.23) point)

(%)
12.00

11.15

11.33

11.10

8.00

4.00

Domestic standard (Regulatory floor)

2,000

0

368.6

378.8

421.1

2015

2016

2017

Corporate deposits
Individual deposits
Public and finance institution deposits

0

2015

2016

2017

0

2015

2016

2017

Public bonds
Financial products brokerage
Investment trust sales
Insurance
Individual deposits

HIROSHIMA BANK   ANNUAL REPORT 20175

Mid-Term Management Plan 2017 (FY2017–FY2021)
The business environment continues to be challenging with the declining birthrate and aging population, ongoing low interest
rates, and enhanced Basel regulations. Recognizing that following the same trajectory would not bring us closer to creating abetter cycle in the local economy, we decided to revise our mid-term management plan one year before it was due to finish,
and embark on the new Mid-Term Management Plan 2017. We are designating the next five years as a period for establishing
new growth drivers by bringing together the comprehensive capabilities of the Hiroshima Bank Group and promoting
customer-oriented business operations.
“Aiming to be a comprehensive financial services group that continues to grow with local customers”— A “True First Call Bank Group” —SloganBasic Policy of the Mid-Term Management Plan
Basic Policies
Three Pillars of the MidTerm Management Plan

1. Reform the earnings structure based on implementing value-added sales focusedon customer needs
2. Nurturing a corporate culture that promotes workstyle reform and a desire to
take on challenges
3. Active commitment to regional revitalizationge

Toward a New Growth Sta¥23.1 billion¥30 billion
or moreManagement Targets (FY2021)
Profit attributable to owners of the parent¥30 billion or more
Consolidated ROE
Around 6%
NEW
Corporate and individual deposit assets (average) ¥10 trillion or more
Non-interest income ratio
40% or more
Consolidated capital adequacy ratio
10% or moreCore overhead ratio
50% level

Diversifying
customerneeds

Hirogin Securities(formerly Hirogin Utsumiya Securities)

Becomes a wholly owned subsidiary
FY2017FY2018FY2019FY2020

FY2021Strategies in the Mid-Term Management Plan
Key
initiatives

Major
strategies

6

I. Further development of measures toward high value-added banking business
II. Promotion of measures for asset management business that meet the asset formation needs of customers
III. Enhancement of the profit base

1. Marketing strategy(1) Enhance value-added marketing based on customer needs
i. Enhance consulting sales (such as feasibility studies) and provide comprehensive solutions
ii.	Expand asset management business based on long-term relationships, including the next
generationiii. Promote efforts for regional development, tourism promotion, and local medical support

2. Securities strategy(1) Ensure stable income with proper risk-taking based on market conditions

3. Workstyle reform(1) Promote a thorough reduction of labor burden(2) Improve labor productivity using Tomorrow Navi

4. Human resource
strategy(1) Foster human resources able to quickly respond to changes and create value for local
communities(2) Conduct human resource development measures that fit the banking and asset managementbusiness framework and establish career paths(3) Promote diversity
i. Employ professional people with various values and skills
ii. Implement measures to help advance the careers of women

5. Enhance new service
development(1) Focus on ICT*, especially FinTech*ICT means Information and Communication Technology.
(2) Improve development of new services by collaborating with other non-financial companies

HIROSHIMA BANK   ANNUAL REPORT 2017

Enhancement of High Value-Added Banking Business— Promotion of Feasibility Studies —The Bank will enhance high-value-added banking operations that meet the needs of customers and provide comprehensive
solutions for corporate customers. We will also aim to increase the balance of loans to SMEs and income from investmentbanking operations by promoting our own consulting-based financial products, offering mid-term planning support services,and enhancing personnel training by augmenting training programs related to feasibility studies.

Main target incorporate loan strategy

Classification by scale of net sales(sales)Percentage of corporate loans
Top: Borrowers
Bottom: Balance

Large-scale listed companies(over ¥3 billion)

About 5%(about 65%)

Upper-middle scale

About 6%(¥1–3 billion)(about 16%)

Low-middle scale

About 18%(¥0.2–1 billion)(about 11%)

Points for promotion
Expand volume and income by providing
comprehensive solutions based on stronger
efforts in feasibility studies

Specific measures
 L
everage the Bank’s unique consultingtype loans•Loans with principal exemption

Small scale (less than ¥0.2 billion)
Of which, sales under ¥10 million

security measures, etc.

 Promote mid-term planning support
services

About 71%
(about 8%)
About 16%(—)

Results of feasibility studies based on
qualitative analysis
Interest on loans toborrowers subject tofeasibility studies

First in in case of earthquake
Japan •Loans for supporting cyber Foster HR development by increasing
training courses for feasibility studies

Accumulate investment banking income by capturingneeds through feasibility studies

Compared with averageinterest on loans to all
borrowers, about +0.2%(¥ billion)
20(No. of loans)
260

Compared with
FY2016, about(¥ billion)
5.00+¥1.5 billion

209
4.00

175

15

195

3.70
0.24
0.56

71

14.6

17.4

130
Nine months

2.00

3.10
0.26
0.50

3.00
10

Final fiscal year:
about¥5.00 billion

2.15
1.58

5

65
1.00

0.43

3.0
0

FY2014FY2015

Amount of loans executed (left)

FY2016
No. of loans (right)

FY2021 (Forecast)

0

0

0.45

1.58
1.58

FY2016FY2017

M&A
Derivatives

Corporate bonds, public bonds
Business matching

FY2021
Syndicated loans

HIROSHIMA BANK   ANNUAL REPORT 20177

Enhancement of High Value-Added Banking Business— Promotion of Personal Loans —The Bank aims to expand housing loans by providing attractive products and services, such as housing loans with enhanced
coverage and riders, and promoting Flat 35. For consumer loans, we will establish a promotion structure with the headquartersfunctions including telemarketing, and improve efficiency by going paperless and concentrating the administrative functions at
the headquarters.
Offer housing loans with enhanced
coverage and riders
InsuredDebtorConditions

Accumulation of average balance ofconsumer loans

Coverage• Death or serious disability• Diagnosis of one of threemajor diseases

Loan balance reduced to zero(fully repaid by insurance)• Hospitalization

One-time benefit of¥100,000 andrepayment forgiven duringhospitalization• Diagnosis of cancer in situ/
skin cancer

One-time benefit of¥300,000First in Japan(¥ billion)
150

Compared with
FY2016, about

120+¥69.0 billion

90

84.5

Spouse(female)Technical fee foradvanced medical care:up to ¥10 million in total• Diagnosis of female-specificcancerOne-time benefit of¥1 million

60

41.5

32.1

Hiroshima Bank’s share of new housing
loans in Hiroshima Prefecture
29% (FY2015) ➞ about 40% (FY2021)
Final fiscal year:
about¥1,140.0 billion(¥ billion)
1,200

994.8

1,030.0

900

600

300

0

8

FY2016FY2017 (Forecast)

FY2021 (Forecast)

HIROSHIMA BANK   ANNUAL REPORT 2017about 60.0

30

0

39.0

43.0

FY2016FY2017 (Forecast)

Limited-purpose loans

Accumulation of average balance of housing loans(including Flat 35)

about 80.0

71.1

(females insured)• Advanced medical care forcancerFinal fiscal year:
about¥140.0 billion

FY2021 (Forecast)

Card loans

Improve administrative efficiency for
personal loans

AcceptReview

ExecuteImplement Shorten review periods
 Paperless and no need for personal seal
 Everything done by the headquartersEnhancement of Asset Management Business
Amid growing inheritance/donation needs, we are focusing more on services for elderly customers and business owners. We
aim to pivot from a flow-type to a stock-type business model through measures that contribute to stable asset formation
for customers by promoting sales of level premium insurance. By advancing these measures, we aim to expand the balanceof corporate/personal deposit assets, including at Hirogin Securities, to more than ¥10 trillion by the final fiscal year of the
mid-term management plan. We also aim for a non-interest income ratio of at least 40% through the accumulation of asset
management business income.
Enhancement of inheritance-related services

Acquire level premium insurance policyholders tostrengthen stock-type business income

Increasing needs for inheritance-related services(In Hiroshima Prefecture)

No. of policies soldin FY2016
Third among first-classregional banks

No. of taxable heirs(ratio to the total)

Inheritance tax exemption amount<2014><Up until December 2014>

2,839¥50 million + ¥10 million ×
No. of legal heirs
Double<From January 2015>(+30.7% yoy)<2015>

60,0355,724¥30 million + ¥6 million ×
No. of legal heirs+14,228 policies(Policies)
80,000(3.3%)

60,000(6.6%)

46,407(Source: Hiroshima Regional Taxation Bureau)
40,000

Providing services that meet needs
What

By whom• Private trusts• Living trusts• Testamentary trusts• Calendar year gift
trusts, etc.

• Private bankers (Headquarters)• Salespersons in branches

No. 1 among
regional banks

280 (as of April 2017)

Increase in average balance of corporate/personal
deposit assets (including Hirogin Securities)
Compared with
FY2016, about+¥1.2 trillion(¥ billion)
10,0008,000

20,000(Cumulative policy sales)

No. of employees with the 1st grade financial
planner qualification (asset consultation business)About

8,814.5

9,060.0

1,507.0

1,620.0

Final fiscal year:over¥10 trillion

32,5710

FY2014FY2015FY2016FY2021

Improvement of non-interest income ratio through expansion in
asset management business income (deposit assets)
Compared with
FY2016, about(¥ billion)
15

about 2,300.0

33.3%(30.8%)

35.7%(32.6%)+¥6.7%

Final fiscal year:
about

12

Compared with
FY2016, about

6.7

4,000

7,440.0

7,307.5

about 7,700.0

6

6.6

0.32
0.37
0.79

3

0

0

FY2016FY2017 (Forecast)

Real deposits + NCD

FY2021 (Forecast)

Corporate/personal non-deposit products(including Hirogin Securities)

30

20

0.40
0.93
0.72

3.11
2,000

¥10.5 billion+¥4.0 billion

9

6,000

(%)

Final fiscal year: 40
40% or more

10

2.33

2.15

2.22

FY2016FY2017 (Forecast)Investment trusts
Intermediary products

Insurance
Trusts

FY2021 (Forecast)0

Foreign currency deposits
Non-interest income ratio(Non-consolidated shown in parenthesis)

HIROSHIMA BANK   ANNUAL REPORT 20179

Enhancement of Asset Management Business— Collaboration between Banking and Securities Businesses —On June 1, 2017, Hirogin Utsumiya Securities became a wholly owned subsidiary, and changed its name to Hirogin Securities Co.,
Ltd. The Hirogin Group will provide products and services in line with the needs and true interests of customers while emphasizing
customer-oriented business operations (fiduciary duty). Specifically, we will promote collaboration between banking and securities
businesses with a focus on expanding the product lineup, enhancing inheritance-related business, and increasing the number ofjoint branches.
Promotion framework for collaboration between banking and securities businesses

Customer classification(by balance of deposit assets)%		Upper: Number
Lower: Balance

Promotion framework

Hiroshima Bank

Hirogin Securities

Wealthy investors(¥30 million or more)

0.8%(21.8%)

3.8%(38.6%)

Middle-class asset management customers(¥10–30 million)

5.5%(36.4%)

11.4%(30.4%)

Mass-class asset formation customers(less than ¥10 million)

93.7%(41.8%)

84.8%(31.0%)

Hiroshima Bank

Hirogin Securities
Actively managed productsStocks
Structured bonds
Foreign bonds

Theme-type funds
Etc.

Stably managed productsDepositsPublic bonds
Foreign currency
deposits

Core funds(active trusts)
Insurance
Etc.

Expand product lineup

Realize stable asset formation for customers by providing high-quality
customer-oriented financial products and services via a unified group

Promotion of unified management of banking andsecurities businesses

Build up average balance of assets under management(Hirogin Securities)

Introduction of needs for securities(young and new customers)(¥ billion)
1,000

Compared with
FY2016, about+¥200 billion
750

Hiroshima
Bank•Expand the product lineup•Enhance inheritance-related business•Increase joint branches•Unification of securities accounts•Share customer information

622.4

Hirogin
Securities

Final fiscal year:
about¥820.0 billion

670.0

500

250

0

Introduction of needs for inheritancerelated services (the elderly, etc.)

10

HIROSHIMA BANK   ANNUAL REPORT 2017

FY2016FY2017 (Forecast)

FY2021 (Forecast)Enhancement of Efforts for Regional Development
We aim to secure earnings opportunities by strengthening collaboration with government agencies and becoming a core
player in regional revitalization by being actively engaged in regional development, tourism promotion, and local medical
support ahead of other banks. We will continue to focus efforts on start-up support to boost job creation by promoting
start-up support loans and holding start-up support seminars.
Strengthen initiatives for “regional development,” “tourism promotion,” and “local medical support”
Initiative

Regional
development

Business development/expected return•	Prepare the Town Creation
Plan (for the Kamiya-cho/
Hatchobori areas) in linewith the Central Urban
Revitalization Plan*• Use loans and funds for development• Support development of water infrastructure• Facilitate participation by local companies in regional development
plan, etc.
Expected return (five-year total) About¥0.4 billion* A central urban development plan created by Hiroshima City and Hiroshima Prefecture for revitalizing the center of the city.

•	Upgrade tourism
infrastructure
Tourism
promotion• Support establishment/growth of tourism operators• Support infrastructure development for airport privatization• Facilitate participation by local companies in tourism infrastructuredevelopment projects, etc.

•	Support establishment ofDMO•	Establish loan system fortourism operators

Local
medicalsupportExpected return (five-year total) About•	Collaborate more withgovernment agencies throughregular communication¥0.5 billion• Business succession due to aging of business owners• Support capital investment, etc.

•	Identify problems facing
medical institutions andprovide solutions

Expected return (five-year total) About¥0.1 billion

Strengthen start-up support to boost job creation■ No. of start-ups supported■ Promotion through start-up support loans(Policies)
300(¥ billion)
300

200

190

207

200

220

100

0

100

103
142

187

106
213

58

(Policies)
120

80

40

FY2014FY2015

Amount loaned (left)

Number of loans (right)

FY20160■	Establishment of card loans for quick start-up (March 2017)•Existing bank customers are eligible
0

FY2014FY2015FY2016FY2021 (Forecast)•Start-ups can use loaned money if capital suddenly
deteriorates after starting business■	Start-up support seminar for women (March 2017)•Jointly held with Hiroshima Industrial Promotion
Organization•Provide forum for creating a future vision
HIROSHIMA BANK   ANNUAL REPORT 201711

Strategies for Securities
We aim to secure stable earnings via appropriate risk-taking depending on market conditions, while paying due consideration
to the Basel Accords (new regulations on interest rate risk and capital adequacy ratios), avoiding negative interest rates oncurrent account deposits held at the Bank of Japan, and monitoring liquidity, profitability and stability. We also aim to create
new earnings opportunities by reinforcing the equity business, including subsidiary funds.

Points to watch(1)	Uncertain market environment(3)	Cash position• S igns to exit include low inflation, low interest rates,
and low growth• Policies
under the new US administration(2)	Basel Accords• Avoid negative interest rates on current account deposits at
the Bank of Japan(4)	Liquidity, profitability, and stability of individual
investments•N ew interest rate risk regulations (introduction of IRRBB)• Capitaladequacy regulations

Strategy for managing marketable securities

BalancetrendManagement policy

Yen bonds• Gradually reduce Japanese government bond holdings and actively trade bonds withan eye on market conditions

Foreign bonds• Gradually reduce US Treasury Bond holdings and actively trade bonds with an eye onmarket conditions

Interest rate

CreditStocks, J-REITs, etc.
(including cross-held shares)

Equity business

Investment trusts, etc.

Total

12

HIROSHIMA BANK   ANNUAL REPORT 2017

• Purchase highly liquid and safe products, such as Government Housing Loan
Corporation mortgage-backed securities• Increase holdings of highly liquid assets able to provide a stable and high dividend• Increase balance by structuring and contributing to subsidiary funds(under consideration)• Increase holdings of multi asset-type investment funds with the aim of securing stable
income• Balance of securities declines due to reducing holdings of yen bonds and foreignbonds

Workstyle Reform— Emphasis on Reducing the Labor Burden —We believe we must promote workstyle reforms in order to provide high-value-added services. We seek to foster a workplaceculture that values efficient workstyles while increasing the number of marketing personnel. We will take bold, speedy, andthorough measures to reduce the labor burden by utilizing FinTech and outsourcing, while eliminating, centralizing, andsystemizing work processes. We will promote self-service systems in the front offices of bank branches, as well as paperlessand personal seal-less processes in a pivot toward consulting-oriented operations, and review our branch strategy.

Workstyle reforms• Review work processes• Promote flexible workstyles

Branches

Reform of Culture• Reform awareness and actions of all employees• Encourage reduction of meetings, materials, andreporting

Reform of Operations

Take bold, speedy,
and thorough measures toreduce the labor burden
Eliminating

Concentrating

Use of FinTech

Ideal workstyle• Workplace culture that encourages effective workstyles• Increase sales/marketing staff• Hire excellent people, etc.

Systemizing

Outsourcing(1) Promote self-service systems in front offices at bank branches(2) Pivot to consulting-oriented business• Reduce use of paper and personal seals for various documentation• Reduce back-office tasks (in loan and sales sections), combine
duties• Low-cost operations in personal loans• Review branch strategy

Headquarters(1) Drastically improve the speed of decision-making(2) Promote collaboration across business sections

Reform of Systems• Enhance measures to reduce working hours• Make an environment that further promotes
diversity• Create an environment conducive to efficient work both internallyand externally• Create an environment where everyone can work creatively andshare information• Improve operational efficiency by reviewing business processes

HIROSHIMA BANK   ANNUAL REPORT 201713

Workstyle Reform— Initiatives to Improve Productivity —Taking advantage of the temporary relocation of the Head Office for rebuilding, we are using this time effectively tointroduce electronic approval workflows, digitize existing documentation, and start non-designated seating in the office andadvancing initiatives to provide high value-added services. We are considering initiatives to improve productivity at branches
based on the outcome of advanced implementation at headquarters.
Initiatives to improve productivity (headquarters)

Drastically speed up
decision-making
Introduce electronic
approval workflows

Reduce printing/storage costs
Digitize existing documentation

Introduce
non-designatedseating areas

Use time effectively
and provide highvalue-added services
Promote collaboration
across business sections

Set up acollaboration area

Introduce
laptop PCs formobility

Introduce internal
mobile phones and addgroupware functions

Using the opportunity of the Head Office rebuild (temporary relocation)
Image of the new Head Office building

Basic concepts of the new Head Office building

Deepen regional development and CSR(Contribute to the local community)

Provide cutting-edge financial services(Improve customer satisfaction)

Enhance BCP(Improve safety for customers)

Generate group synergies(Sustain improvement in corporate value)

Improve productivity and efficiency(Provide better working environments)

Improve productivity through Company-wide efforts

14

HIROSHIMA BANK   ANNUAL REPORT 2017

Human Resource Strategies
We will move ahead with various measures to enhance human resource development and promote diversity to improving
employee job satisfaction. Regarding enhancing human resource development, we aim to augment specialized training
to nurture professionals who can meet requirements for the banking and asset management business. To this end, weare promoting the use of the Meister System to certify professionals with exceptional knowledge, abilities and leadershipskills. We have reviewed the performance evaluation system to improve motivation and newly established an award system
resulting in the creation of the Dream Challenging System. Regarding promoting diversity, we are encouraging female
employees and enhancing support for their career advancement, while also strategically placing mid-career hires.
Focus points

Major measures

Foster professional personnel who can meet the requirements
for banking/asset management operations
Support•Establish a career path for each job that can show a vision of the future•Enhance professional training and use the Meister System*•Review the performance evaluation system to improve motivation and establish a newaward system➞ Newly create the Dream Challenging System
The Dream Challenging System is a system that provides opportunities to
employees who excel in their current position and can serve as role models to try
to move to a position they desire without restriction.
* T his system recognizes employees who demonstrate excellent knowledge and ability in six operations, comprising corporate loans,personal loans, international business, financial planning, deposits, and sales administration, and who can give on-the-job training(OJT) inside the Bank.

Encourage female employees
SupportStrategically assign mid-career hires•Enhance career advancement support
for employees using systems forbalancing work and family life
•Hire women who have experienceat other companies (place them inmanagement positions at headquarters)(Reference) Examples of strategic assignments
Date ofemployment

Previous
position

Assignment

DutiesJune 2015

IT company

IT Planning &Administration
DivisionCyber
security

April 2016

HR service
company

Personnel &General Affairs Recruitment
Division

June 2016

LawyerInvestment
Banking
DivisionTarget number of female managers

126(As of April 1, 2017)170(Target in FY2021)

M&A
supportHIROSHIMA BANK   ANNUAL REPORT 201715

Enhance New Service Development
We aim to provide services that enhance convenience and offer apps that utilize cloud-computing and mobile devices. We
also strive to increase efficiency, save labor, and enhance the sophistication of operations by using AI and robotics. Leveraging
the information and creditworthiness of the Group as management resources, we are seeking partnerships with companies inother sectors, including non-financial companies, in order to offer customers value we would not be able to provide on ourown in an integrated format. In this way, we are creating new earnings opportunities.

ICT initiatives centered on FinTech
FinTech technology element

Projects under consideration

Cloud/Mobile• Continuouslydevelop and provide new services such as apps for family budgeting and asset
management and making branch visit appointments• Consider

constructing a platform for business customers with loan application and business support
functions• Usecloud-based systems, especially for distributed and internal operations

AI/Robotics• Create
an app with advanced AI functionality that offers dialogue-style consultation andrecommendations• Improveefficiency of loan reviews by building an AI-based loan review model, and enhance earning
power in the banking business• Implementmeasures to improve operational efficiency at branches and centers– Improve operational efficiency by introducing RPA (Robotic Process Automation)– Use an AI-based FAQ system to support the Direct Marketing Center and branches– Save labor and improve the customer/internal referral system using speech recognition and text
miningAPI• Provide accounting and household budgeting services by collaborating with cloud-based accounting
service companies and personal financial management service companies• Consider small-amount loan products with simplified (automatic) reviews offered via cloud-based
accounting services• Spur innovative services by continuing to hold hackathon/ideathon events

Blockchain technology• Consider and specify a low-cost, convenient small-amount payment service that could replace Zengin
System/SWIFTNew services in collaboration with other sectors• Forge partnerships with other sectors (non-financial) and provide valuable one-stop services we would not be able to provide on our own
Utilize the management resources (information and creditworthiness) of the Group16

HIROSHIMA BANK   ANNUAL REPORT 2017

Corporate Governance
Basic Approach to
Corporate Governance
The Bank’s management policy is to improve management
efficiency and transparency to receive high evaluation fromand build unshakable bonds of trust with our stakeholders,
including both customers and shareholders. To attainthis goal, we have positioned more stringent corporate
governance as a top management priority, and are working
to raise standards through a range of measures.

1. Outline of corporate governance structure
The Bank has adopted an Audit & Supervisory Board systemas part of its efforts to strengthen corporate governance forthe following reasons and purposes:• For responding promptly and accurately to changes
in the management environment and ensuring theappropriateness of the Bank’s business operations, it
is important to have a system in which internal Bank
directors, who have a wealth of expert knowledge andexperience in the banking business and bank management
and a deep understanding of the operation and executionof the Bank’s business, oversee as members of the Boardof Directors the management’s decision-making and theexecution of duties by the other directors;• Having the Audit & Supervisory Board whose members,
including external Audit & Supervisory Board members,
audit the execution of duties by the directors is effective
and serves as a management monitoring function; and• The highly independent external directors and external
Audit & Supervisory Board members provide theirsupervising and auditing functions in a fair and objective
manner from a neutral perspective and give appropriate
suggestions and advice on the execution of the duties by
the directors and on the status of the operation of internal
controls, thereby ensuring an adequate management
supervisory system.
The Bank’s Board of Directors consists of 10 members,
including 3 external directors, as of June 29, 2017.
The board convenes once a month, in principle, andis responsible for making management decisions andoverseeing business execution. The Bank has established theManagement Board under the Board of Directors as a bodyfor discussing and determining important matters relating tooverall management based on the basic policy determinedby the Board of Directors. The members of the committee
are the Chairman, President and directors in charge of therespective divisions, and the committee convenes once aweek, in principle. In addition, the Bank has established the
Directors’ Loan Evaluation Board as a body to discuss anddetermine important loan projects based on the basic policy
formulated by the Board of Directors. The members of thecommittee are the Chairman, President, Senior Managing
Directors, and directors in charge of the respective divisions,and the committee convenes once a week, in principle.
The Articles of Incorporation of the Bank prescribe that the
number of directors of the Bank does not exceed 15 andthat terms of office are for one year, to clarify management
responsibility and build a management framework to
respond rapidly to changes in the management environment.
The Bank has also introduced an executive officer
system. Under the supervision of the Board of Directors,
the system has duties executed by the President and Chief
Division Officers, as well as Chief Area Officers. The decisionmaking functions related to important management items
that directors should carry out and duties that directors andexecutive officers conduct in each role are divided, thereby
appropriately ensuring operations and enhancing sustainablecorporate value.
The external directors receive reports on the resultsof internal audits, Audit & Supervisory Board members’audits, and accounting audits as well as reports on the stateof internal control from the division in charge of internal
control during meetings of the Board of Directors as part oftheir roles of providing management supervisory functions
in a fair and objective manner from a neutral and external
perspective. In particular, the external directors receive
detailed explanations of the agendas for the meetings of theBoard of Directors and reporting materials in advance fromthe divisions in charge of internal audit and internal control,
respectively, and provide appropriate suggestions and advice
during such advanced explanation or meetings of the Boardof Directors, thereby endeavoring to raise the effectivenessof their management supervisory functions.
In addition, for the purpose of conducting
investigations, research, or discussions and coordination
about specific matters, the Bank has established various
other committees, including the Long-Term Management
Planning Committee, the Sales Strategy Committee, the
ALM Strategy Committee, the IT Strategy Committee, theComprehensive Risk Management Committee, the Strategic
Equity Holdings Verification Committee, the Compliance
Committee, the Award Reprimand Committee and the
HIROSHIMA BANK   ANNUAL REPORT 201717

Pleasant Workplaces Promotion Committee, whose membersof an external director from a neutral standpoint and withconsist mainly of the directors and general managers

fairness in places including Board of Directors meetings.

in charge of the respective divisions. These committees

One of the Company’s external Audit & Supervisory Board

convene periodically or as required and make efforts tomembers uses their abundant experience as a lawyer, broad

address major management issues and review cross-sectional

knowledge and perceptive insight to offer objective opinions

measures and issues. Matters agreed or discussed by theand the like, fulfilling the responsibilities of an external Audit

committees are submitted for deliberation or reported at& Supervisory Board member from a neutral standpoint

the meetings of the Board of Directors, Management Board,

and with fairness in places including Board of Directors

etc., thereby contributing to strengthening the Bank’s

meetings. The Bank appointed the other two external Audit

corporate governance and enhancing the soundness and& Supervisory Board members as it was judged that they

appropriateness of its business operations.

could be expected to use their abundant experience as a

The Audit & Supervisory Board consists of fivecertified public accountant and a company executive, andmembers, including three external Audit & Supervisory Board

their broad knowledge and perceptive insight to offer fairmembers, as of June 29, 2017. It convenes once a monthand objective opinions from a neutral standpoint in places

and as required. The Audit & Supervisory Board members

including Board of Directors meetings and the like, fulfilling

participate in meetings of the Board of Directors andthe responsibilities of external Audit & Supervisory Board

provide appropriate suggestions and advice on management

members.

decision-making. The Audit & Supervisory Board members,

The Bank has not stipulated original standards

including external Audit & Supervisory Board members,

regarding the appointment of external directors and external

are striving to implement efficient audits by maintaining

Audit & Supervisory Board members, but moves ahead withclose coordination with the division in charge of internal

appointing external directors and Audit & Supervisory Board

audits and accounting auditors through the active exchange

members with the objective of strengthening supervisoryof opinions and information and by attending audits ofand monitoring functions of management and has the policy

branches by the division in charge of internal audits andof using as a reference for the appointment of external

on-site audits by accounting auditors. In addition, thedirectors and external Audit & Supervisory Board members

Audit & Supervisory Board members receive reports on

the guidelines laid out for independent officers as stipulated

the progress of the tasks of developing sub-systems in theby the Tokyo Stock Exchange, Inc. The Bank has notified

internal control system and important matters that affect the

the Tokyo Stock Exchange that there is no risk of a conflict

effectiveness of the sub-systems from the division in chargeof interest between the three external directors and two ofof internal control, including the status of the response

the three external Audit & Supervisory Board members andto such matters, periodically or as required. The Audit &general shareholders and judged their appointments to be

Supervisory Board members are endeavoring to develop andappropriate.

strengthen the internal control system from their standpoint
as Audit & Supervisory Board members by requesting
explanations and providing suggestions and advice as
required on such occasions.
One of the Bank’s external directors has been a Bank ofJapan branch manager and worked as an executive manager
of a regional financial institution. The director is expected
to use that abundant experience, broad knowledge andperceptive insight to offer objective opinions and the like,fulfilling the responsibilities of an external director froma neutral standpoint and with fairness in places including
Board of Directors meetings. The other two external
directors have abundant experience in academia and as acompany manager. They are expected to use that abundant
experience, broad knowledge and perceptive insight to offer
objective opinions and the like, fulfilling the responsibilities
18

HIROSHIMA BANK   ANNUAL REPORT 2017

2. Status of internal audits, Audit & Supervisory
Board members’ audits and accounting audits
With respect to internal auditing, the Board of Directors is
engaged in building an effective internal audit framework
according to types and degree of each risk in order to realize
compliance. Based on internal audit regulations—whichwere formulated with the aim of contributing to sound andappropriate operations of the business—the internal audit
department (61 staff members as of the end of the fiscal
year under review), which is independent from the audited
departments, conducts internal audits on items related tocompliance, risk management and internal control associatedwith financial reporting, among other areas, for eachdepartment and branch, subsidiary, and affiliated company,as well as outsourced contractors. Specifically, these audits
are conducted by conforming to the basic internal audit

3. Status of the internal control system andthe risk management framework

plan established by the Board of Directors every half fiscal
year. The results of the audits are reported every month to

The Bank, based on a management vision of building

the Board of Directors. Also, the internal audit departmenta reliable Hiroshima Bank Group united by trusting

notifies the audited departments of the internal audit results

relations with the regional community and the five acts

in writing, requests improvement or recommends correction

comprising the Corporate Philosophy, aims at sound andregarding items necessary to be improved or corrected, andtransparent management to secure the sincere trust of all its

reports the status of these actions on a regular basis to thestakeholders, including customers, the regional community,

Board of Directors.

shareholders, the market and its employees.

Regarding Audit & Supervisory Board members’ audits,

In addition, the Bank is continuously working oneach Audit & Supervisory Board member conducts audits

strengthening its corporate governance and the internalon the status of duties executed by directors. Specificcontrol system, such as by appointing external directors whomeans include verifying attendance at the meetings of themeet the standards of independent officers stipulated by

Board of Directors and other important meetings, listening

Tokyo Stock Exchange, Inc.

to directors regarding the status of their performancein executing their duties, accessing important approval
documents and other documents, investigating the status ofoperations and assets of each department and branch, andmonitoring and verifying the status of the internal control
system. These audits are implemented based on Audit &Supervisory Board members’ audit standards establishedby the Audit & Supervisory Board, auditing standards
associated with the internal control system, the Audit &Supervisory Board members’ audit plan, which is formulated
every fiscal year, and division of duties. The results of theseaudits are reported to the Board of Directors every month,and in addition, Audit & Supervisory Board members
exchange views with the President on a regular basis toprovide appropriate suggestions, advice or requests, thereby
implementing effective audits.
One of the external Audit & Supervisory Board
members has qualifications as a certified public accountant
and is highly knowledgeable about financial affairs andaccounting.
Regarding accounting audits, KPMG AZSA LLC
conducts audits on financial statements as well as internal
control audits associated with financial reporting. As foraccounting audits, they are executed in a reciprocal mannerwith the internal audit department which is in charge ofaudit administration, such as by exchanging informationand opinions at meetings held regularly or as necessary or
conducting branch audits in the presence of the internal
audit department.

(1) S ystem for ensuring that actions taken by directors
and/or their agents are in keeping with laws andregulations and the Articles of Incorporation
The Bank has formulated Ethics Regulations, Service
Regulations and Compliance Regulations to clarify the codeof conduct and other standards expected of its employees.
At the same time, the Bank has positioned rigorouscompliance as one of its utmost management priorities,
and strives to ensure that its business activities are sincere
and in strict compliance with all relevant laws, regulations
and rules. In addition to legal compliance, the Bank has
established Customer Protection Management Regulations toserve as a guideline to secure a structure aimed at protecting
and enhancing convenience for customers. The Bank strives
to execute its business—such as providing information tocustomers or responding to their requests for advice or
customers lodging a complaint—in a sincere and fair mannerfrom the customers’ perspective, with all employees being
fully aware of the Bank’s social responsibility and public
mission. To this end, as a rigorous and specific action planfor compliance with laws and regulations and the protectionof customers, the Board of Directors approves an updated
Compliance Program every six months. In addition, forproblems that may arise in our efforts to comply with thelaw, cases where circumstances prevent decisions frombeing reached at the department level, or where reports
or consultations are not properly carried out, we haveestablished a hotline system, allowing employees to report orconsult directly with the Compliance Management Division
and/or outside legal counsel.
Furthermore, through Ethics Regulations, the Bankhas built a structure that blocks all relations with anti-social

HIROSHIMA BANK   ANNUAL REPORT 201719

elements. The basic policy of Ethics Regulations states thatthe Bank will prevent any and all connections to anti-social
elements that might threaten the order and safety of civil(2) S ystem for the preservation and managementof information used by members of the Board of
Directors in the execution of their duties

society, including transactions that involve offering financial

The Bank’s rules for the Board of Directors stipulate that

services via other companies (such as consumer credit

minutes of board meetings be preserved for 10 years.

companies). In the unlikely event the Bank becomes a target

In addition, important information, such as minutes ofof extortion, it will contact and coordinate with police

the Management Board and the Directors’ Loan Evaluation

authorities, and employ all necessary legal measures to

Board, is also preserved and managed appropriately inresolutely fight such demands.

accordance with the Bank’s internal regulations.

Moreover, as part of Ethics Regulations, the Bank
makes every effort to disclose business information fully

Status of implementationand fairly and to ensure the transparency of its business

Minutes of Board of Directors meetings have been preserved

operations, so that management can reflect the opinions

and managed appropriately as important informationof a broad range of concerned parties. We have also

concerning the directors and the execution of their duties.

established accounting regulations and internal regulations

Other important pieces of information have also been

on financial reports to ensure that we report financial

preserved and managed appropriately by the relevant

information in a timely and appropriate manner.

departments and branches.

As for the Bank’s response to facilitating seamless
financial operations or responding to Guidelines on
Management Guarantees, it has formulated Basic Principles
and Regulations on Credit and Basic Policies on theManagement of Facilitating Seamless Financial Activities. Bysuch means, the Bank has a structure in place that enables
an appropriate response, such as offering funds to customers
in a seamless manner in addition to providing support for(3) S ystem for managing the danger of losses andother systems
To respond appropriately to various risks that surround its
operations, the Bank has formulated the Comprehensive
Risk Management Regulations and analyzes and accurately
gauges the overall magnitude of each risk it faces. In
doing so, the Bank strives to prevent the emergence ormanagement consultations and improvements.

escalation of losses that could have a severe impact on

Status of implementation

updated Comprehensive Risk Management Policy and strives

The Board of Directors receives various reports, such as
the compliance program execution report, to confirm thatbusiness operations are adhering closely and appropriately
to all management policy guidelines and regulations.
Where improvement is needed, we take the necessary steps
including improvements and corrections. To ensure rigorouscompliance with laws and regulations and uphold corporate
ethics, we have also established a Compliance Committee
to deliberate and review compliance-related matters andprevent the occurrence of legal violations.
All employees have received a copy of the Compliance
Manual, which gives simple descriptions of Ethics
Regulations and other regulations mentioned above, as wellas the Compliance Committee and the hotline system. We
also conduct study sessions to discuss this manual, to ensurethat all employees are familiar with its contents.

its management. Every six months, the Bank approves an
to exercise a suitable level of balanced risk management tomaintain its financial health and profitability.
The Bank is also appropriately managing its capital,
including its adherence to capital adequacy regulations as
set by Basel III, by establishing the Capital Management
Regulations with an aim of securing an adequate level ofcapital that is in line with the Bank’s risks and maintaining
sound management.
In addition, in the Emergency Management
Regulations, the Bank has set forth a Business Continuity
Plan (BCP) prioritizing the continuity of important operations
to ensure that it is able to respond appropriately toearthquakes or other natural disasters that might disrupt its
continuous operation.
Status of implementation
By receiving various reports including the comprehensive
risk management report, the Board of Directors has
confirmed that risks have been managed appropriately andthat the Bank has adequate capital for responding to risks.

20

HIROSHIMA BANK   ANNUAL REPORT 2017

Management Committee have been held as required to(5) E nsuring appropriate business operation by the
Bank and the Hiroshima Bank Group

monitor the risks as well as discuss and examine the Bank’s

To promote sound and smooth Group management in an

responses.

integrated way, the Bank has formulated the Group Company

At the same time, meetings of the Comprehensive Risk

Furthermore, the Bank has built an appropriate crisis

Operations and Management Regulations, clarifying Group

response framework by holding regular drills in preparation

firm operations and management policy as well as thefor disasters.

organizational structure of management and internal control
divisions.

(4) Ensuring efficiency in performance of duties by directors
The Bank has established a Management Board anda. System for reporting the execution of business duties byDirectors’ Loan Evaluation Board. The Board of Directors

the directors and officers of subsidiaries to the Bank

decides the Bank’s basic management policy and, basedGroup companies are reporting to and consulting withon this, delegates important decisions regarding thethe Bank on a regular basis, and as the need arises, inBank’s management in general to the Management Board.

accordance with the Group Company Operations and

Likewise, important loan assessments are delegated to theManagement Regulations, enabling the Bank to respond in

Directors’ Loan Evaluation Board.

an appropriate and timely manner.

To streamline the execution of business duties
approved by the Board of Directors, regulations have also
been developed to clarify the separation of duties and thedelegation of duties and authorities within the Bank.

b. R
 egulations and other systems for managing risks oflosses at subsidiaries
The Bank’s guidance and management of risk management
and crisis management activities at Group companies

Status of implementation

are conducted in accordance with the Comprehensive

The Management Board has made important decisions on

Risk Management Regulations and Crisis Management

management in general and the Directors’ Loan Evaluation

Regulations.

Board has made important loan assessments. In addition,
reports have been submitted to the Management Board
and Directors’ Loan Evaluation Board according to internalc. System for ensuring the efficient execution of duties by
the directors and officers of subsidiaries

regulations. In these ways, the Bank conducts efficient

The Bank’s guidance and management of business

operational management.

operations at Group companies are conducted as a

Business duties have been separated to ensure thatcoordinated operation between the administration

effective checks and balances are in place, with the Bank’s

departments and business departments of all Groupdivisions executing their respective duties in coordinationcompanies.

with one another.
At the same time, the Bank has established a system

d. S ystem for ensuring that the business duties executedof Chief Division Officers, as well as a system of Chiefby the directors, officers, and employees of subsidiaries

Area Officers. Under these systems, the Board of Directors

comply with laws and regulations and the Articles of

appoints directors and executive officers in charge ofIncorporation

planning and supervising the business operations of

The Bank’s guidance and administration regarding

respective divisions, and also executive officers who devotecompliance with laws and regulations at Group companies

themselves to specializing in managing the operation ofare conducted in accordance with the Compliancebranches in certain geographical areas. By clearly separating

Regulations.

the roles and responsibilities of the executive officers, thesystems enhance the sound and appropriate management of

Status of implementation

business operations and strengthen the earnings capability

The Board of Directors has established a Group Companyof the Bank.

Summit Meeting for discussion and reporting on important
items related to the overall management of Group
companies, receiving a report every six months on the stateof operations at Group companies and confirming the results
HIROSHIMA BANK   ANNUAL REPORT 201721

and status of each of these companies.
Divisions engaged in operational duties of Groupthe Compliance Management Division reports promptly to
the Audit & Supervisory Board members.

companies conduct operations for those Group companies
efficiently and provide guidance and management, while theb. S ystem enabling the directors, Audit & Supervisory Board

Bank also monitors and supervises operations and execution

members, executive officers and employees of Groupof operations of Group companies by dispatching directors,

subsidiaries, as well as those receiving reports therefrom,department heads, or others who are in charge of divisions

to report to the Audit & Supervisory Board members

overseeing respective Group companies, to serve as the

The Bank has established a Group-wide hotline system,

directors and auditors of those Group companies.

along with the rules for reporting acts in violation of laws

In addition, the Bank has built an appropriate

and regulations to the Audit & Supervisory Board members,

framework for operating and managing the Groupin its Group Company Operation and Managementcompanies. As a part of this framework, the Bank’s internal

Regulations. This system enables the Bank’s directors,

audit department conducts audits of the Group companies

officers and employees involved with Group companies

and reports the findings to the Bank’s Board of Directors.

to directly report and consult with the Bank’s ComplianceManagement Division and/or outside legal counsel in the(6) Matters related to personnel when an Audit &Supervisory Board member requests assigningpersonnel to assist their duties and mattersrelated to the independence of the personnel
from corporate directors, and matters concerning
ensuring the validity of instructions given to
the personnel by the Audit & Supervisory Board
memberevent of problems that may arise in the Group company’s

The Bank set up the Audit & Supervisory Board Office infor reporting it promptly to the Bank’s Audit & Supervisory

April 2006 as an organization aimed at assisting Audit &Board members.

efforts to comply with the law, cases where circumstances
prevent decisions from being reached at the Group company
level, or where reports or consultations are not properly
carried out. Furthermore, when such a situation is indeed
found to be in violation of laws and regulations, the headof the Compliance Management Division is held responsible

Supervisory Board members and to be supervised directly by
the Audit & Supervisory Board.

Status of implementation
Rules for reporting to the Audit & Supervisory Board

Status of implementation

members have been established in the Bank’s internal

Under the Bank’s Employment Regulations, the manager

regulations. Furthermore, each branch and departmentof the Audit & Supervisory Board Office follows the orders

provides necessary reports or explanations on the status ofof the Audit & Supervisory Board members to assist them

operations based on requests or demands by the Audit &in their duties. Moreover, the Bank’s Personnel & General

Supervisory Board members.

Affairs Division must consult the Audit & Supervisory Board
members on personnel matters regarding the manager ofthe Audit & Supervisory Board Office, including transfer,compensation and disciplinary action.

(8) S ystem for ensuring that people making
reports as described above are not subjected todisadvantageous treatment for having done so
The Bank has established rules for protecting people(7) System for reporting to Audit & Supervisory Board
members

reporting (or requesting consultation) on compliancea. System enabling the Bank’s director and employees

Compliance Regulations and Group Company Operation andto report to the Audit & Supervisory Board members

and other issues in its Service Employment Regulations,Management Regulations.

and other systems relating to reports to the Audit &Supervisory Board members

Status of implementation

The Bank has established rules for reporting to the Audit

The Bank has set forth the necessary provisions for& Supervisory Board members in its Service Employment

protecting the anonymity of people making reports

Regulations and Compliance Regulations. These rules

or requesting consultations and preventing theirstipulate that in the event of activities in violation of laws or

disadvantageous treatment, along with making theregulations, the Bank has built a system where the head ofprovisions public to all employees.

22

HIROSHIMA BANK   ANNUAL REPORT 2017

Status of implementation(9) Policy on the reimbursement of expenses andother financial obligations incurred by the Audit& Supervisory Board members in executing theirdutiesThe Audit & Supervisory Board members have attended
important meetings such as those of the Board of Directors,
Management Board, and Directors’ Loan Evaluation Board.

The Bank’s policies on budgets submitted and expenses

They also have attended important meetings of committees

incurred by the Audit & Supervisory Board members

such as the Comprehensive Risk Management Committee.

in executing their duties are set out in the Head Office

Furthermore, the Audit & Supervisory Board members haveSettlement Authorization Regulations.

met regularly with the President to exchange informationand opinions related to key audit issues, and have actively

Status of implementation
In compliance with the Companies Act of Japan, each fiscal
year the Board of Directors hold discussions with the Audit& Supervisory Board members to form a budget for covering
the projected expenses for their activities. The Bank also
promptly reimburses the Audit & Supervisory Board members
for the expenses and other financial obligations they incur,or the prepayment invoices they submit, in executing theirduties.

exchanged information with the accounting auditor at
regular meetings. The Audit & Supervisory Board members
have also maintained a sound auditing environmentby holding regular meetings with other directors andemployees.
In addition, the Audit & Supervisory Board members
strive to conduct efficient audits and improve theeffectiveness of audits by coordinating closely with theinternal Audit Division by regularly exchanging opinions and(10) Other systems for assuring that audits are
performed effectively by the Audit & Supervisory
Board members

information with the division, while also attending auditsof branches by the internal Audit Division as needed andrequesting audit results.

The Bank’s Board of Directors Regulations and other internal
rules stipulate that the Board of Directors must request theattendance of Audit & Supervisory Board members when
they convene a meeting, and that the Audit & Supervisory
Board members are also entitled to attend the meetingsof the Management Board and Directors’ Loan Evaluation
Board.
Compliance system
Audit & Supervisory Board Office
Audit & Supervisory Board members (Audit & Supervisory Board)
Audits operations
Reports

Board of Directors
Reports

Reports

Audit division(Compliance audits)
Internal audits

Compliance Committee(Secretariat: Compliance Management Division)

HotlineReports

Compliance Management Division
Guidance

Guidance

Reports, inquires, and consults

Head office(Compliance manager)

Consults and confirms

Reports, inquires, and consults
Reports, inquires, and consults
Support and guidance

Branch office(Compliance manager)
Group company(Compliance officer)

HotlineLegal office

HIROSHIMA BANK   ANNUAL REPORT 201723

Risk Management System
In order to fully justify the trust of customers andshareholders, the Bank must be able to ensure appropriate
levels of earnings and stable operations, by dealing
appropriately with various kinds of risk its operations are
subject to, while remaining a soundly managed institution.
Based on our Comprehensive Risk Management
Regulations laid down by the Board of Directors, the Bank
decides on a detailed risk management policy for each fiscal
year, and manages all categories of risk on an integrated
basis.
For management of major categories of risk—credit,
market, liquidity and operational risk—we have dedicatedoffices. The Risk Management Division manages risk centrally
and comprehensively. To position us to deal appropriately
with the increasing diversification and complexity of risk,
we have established a Comprehensive Risk Management
Committee and carry out regular audits through the Audit
Division into the appropriateness and effectiveness of ourrisk management systems.
Under this risk management regime, we aim to ensure
sound, profitable banking operations, while striking an idealbalance between capital adequacy, risk management andearnings imperatives.

Comprehensive Risk Management
Comprehensive risk management is undertaken bymeasuring the various risks faced by the Bank using uniform
benchmarks such as value at risk (VaR) and then measuring
such risk against the Bank’s corporate strength.
We set ceilings (risk capital allocations) for riskmonitored assets in the categories of credit risk, market
risk, and operational risk, with dedicated offices controllingrisk-monitored assets. Centralized appraisal of risk-monitored
assets as a proportion of Bank capital is undertaken by the
Risk Management Division. We have also created a system
for risk management reports to be submitted regularly to
the Board of Directors, with implementation of appropriate
countermeasures.
In addition, we evaluate and review the adequacyof our capital ratio through periodic stress tests, whichclarify the possible impact on capital and earnings of losses
arising from risk that could not be evaluated using statisticalmethods.

Risk management framework (as of April 1, 2017)
Audit & Supervisory Board Office
Audit & Supervisory Board members (Audit & Supervisory Board)

Board of Directors

Management Board

Directors’ Loan Evaluation Board

Comprehensive Risk Management Committee

Compliance Committee

Risk Management Division (Overall risk management)

Risk Management Division
Credit risk

Market risk

Liquidity risk

Operational risk

Administrativerisk(Banking Operation
Management Div.)

System risk

Human risk

(Information Technology
Planning &Administrative Div.)(Personnel &General Affairs Div.)

Tangible
asset risk
(Personnel &General Affairs Div.)

Reputational risk

Legal risk

(Management
Planning Div.)(ComplianceManagement Div.)

Head and branch offices and the Hiroshima Bank Group

Audit Division

24

HIROSHIMA BANK   ANNUAL REPORT 2017

Risk Management System■ Credit risk
Credit risk is the risk of sustaining losses due to reduction
or loss in value of assets due to deteriorating credit
circumstances at a borrower.
Credit screening structure
For all major loans made by our branches, the Bank has inplace a system of rigorous credit-screening carried out by acredit-screening department, which is independent of themarketing department. In addition to establishing teams foreach sector, the credit-screening department has establisheddedicated teams to ensure sounder borrower finances andeffective corporate rehabilitation, and also offers support tomanagement trying to improve operations.
In approving a loan, the Bank not only follows the basic
principles and rules for credit extension laid down by the Boardof Directors, turning down any application that runs counterto the law or public morals, but also takes careful accountof profitability and public benefit, in addition to fund use,
repayment source, and guarantee and collateral arrangements.
In cases where customers apply for a review ofborrowing terms, the Bank will give a considered response
accounting for actual circumstances faced by the customer, inline with the Board of Directors’ basic policy for managementof funding facilitation. Appropriate and prompt credit
screening is carried out after joint appraisal of a customer’s
needs and concerns—and is not just based on a mechanical,
uniform judgment informed only by financial statements andother superficial statistics and industry-specific guidelines.
To strengthen and expand the credit screening system,
the Bank seeks to appraise the creditworthiness of a given
company through case-by-case credit management and takes
continuous measures to improve the credit-screening skills of
employees such as various kinds of training programs.
Risk-management using the borrower category system
We have introduced the borrower category system toclearly identify objective credit risk on loans we extend.
Based on financial and other data indicating the level ofcreditworthiness of the borrower, we have divided borrowers
into 12 grades, and continuously monitor changes in credit
risk. We then carry out credit risk quantification basedon these grades to assess credit risk on loan assets andmanagement risk capital allocations.
We also accumulate and organize the data necessaryfor quantification of credit risks, such as the default rate
within each grade and progress in asset recovery from
customers in default, combined with our highly sophisticatedquantification technologies, to obtain a still more detailed
picture of risk-monitored assets.
Bank’s own assessment
In parallel with the borrower category system, we conduct
strict checks into the soundness of loan assets through annual
assessment carried out by ourselves. Screening is carried out
by particular Bank branches in light of the financial situation

faced by the borrower, and the results are checked by thecredit-screening department of the Head Office. In addition,
the Risk Management Division extracts important informationand conducts a rigorous review of screening due process andaccuracy, and the Audit Division carries out the process audit.
Based on this in-house assessment, in cases where there is no
realistic prospect of asset recovery, provisions are made to thereserve for possible loan losses to cover the entire value of thesum at risk. This provision is then recorded as a loss for the fiscal
year under review. In this way, we ensure asset soundness.
■ Market risk
Market risk is the risk of incurring losses due to fluctuation ininterest rates, stock and bond prices and foreign exchange
rates, leading to changes in the market value of assets we hold.
The Bank seeks to stabilize earnings by controllinginterest rate and other market risk by expanding andstrengthening asset-liability management (ALM), including
not only securities holdings but also deposits and loans.
Findings of ALM analysis and simulations are incorporated
into annual management policy as a significant element inmanagement planning judgments.
In addition, we have created frameworks to ensurestable earnings through rigorous management of market risk,
enabling us to respond swiftly and appropriately to market
movements. We set limits on risk-monitored assets and lay
down hedging policy and reporting and consulting rules forwhen asset value falls. We monitor compliance with ceilings
and other limits through major measures such as total valueof positions, amount of risk-monitored assets and earnings
performance, as well as management on a daily basis.
In addition, accounting is rigorously based on a
holding-purpose category, using mark-to-market accounting
principles, that enables us to reflect changing market prices
appropriately and accurately in financial data.
Trading account risk
With regard to our trading accounts (for securities and offbalance-sheet transactions that involve short-term gains onsales or purchases and trading at the behest of customers), we
have special management mechanisms in place, since thesetransactions differ qualitatively from banking account transactions(involving deposits and loans, investment securities, and relatedtransactions). The Bank has set up designated trading accounts,
and is strengthening their management using transparent
accounting procedures based on mark-to-market principles.
For proprietary position dealing, we limit our position
by complying with strict rules in terms of position limits andloss-cutting measures. For positions and transactions onbehalf of customers, we follow a policy of square positions
by fully covering them through the interbank market.
■ Liquidity risk
Liquidity risk is the risk of losses arising from unforeseenfund outflows leading to a drying up of cash flow, and thenecessity of raising funds at higher rates than normal.
The Bank prepares for capital outflow under short-term
stress conditions by holding highly liquid assets such as
HIROSHIMA BANK   ANNUAL REPORT 201725

government bonds. Furthermore, to alleviate long-term fundprocurement risk, the Bank manages the gap between loans
with low liquidity and stable procurement.
Furthermore, we monitor liquidity risk, cash flow, andmatters that could affect cash flow, and have in place measures
to ensure a swift and appropriate response to unexpected events.

to respond rapidly in the event of a cyber attack, thereby
strengthening its security management stance.
Furthermore, to prepare for unexpected situations,cyber security incidents, and other events that can jeopardize
the stable operation of computer systems, the Bank has
formulated contingency plans and conducts regular drills.
* Computer Security Incident Response Team

■ Operational risk
Operational risk is the risk of losses arising due to failures inwork processes and employee activities, computer system
irregularities and the impact of external events.
To comprehensively and accurately manage operationalrisk, the Bank has divided such risk into a number ofsubcategories: administrative risk, system risk, human risk,
legal risk, tangible asset risk, and reputational risk. Such risk
is managed comprehensively.
Administrative risk
Administrative risk is the possibility of losses arisingfrom negligent processing by employees, accidents, orunauthorized activities.
Through various training programs, the Bank ensuresrigorous performance of administrative duties to highstandards of accuracy, speed, propriety and courtesy. It has
also compiled a procedure for administrative duties based on
the five principles of making a record of everything, keeping
a hard copy, self-responsibility, checking and confirming.
The Bank has a reporting system for relaying complaints
and opinions from customers and details of major clericalerrors and incidents. To better meet in-house regulations andensure deeper staff commitment, we analyze factors andtrends in matters raised in this feedback, and, where necessary,take effective countermeasures. In addition to proactively
using underlying data to prevent recurrence of clerical errors,
incidents and the like, we also identify and analyze potential
administrative risk and take preventative measures.
System risk
System risk is the possibility of a loss arising from the failure,malfunction, or unauthorized use of computer systems.
The Bank has established a basic security policy for due
protection of information assets and specific operating rules.
Their management is geared to the degree of importance of
information systems and of data.
Depending on their importance, IT systems use duplicatedcomputers, communication lines, power supplies and otheritems. For core systems, we have backup centers locatedin both Hiroshima and Fukuoka, operated jointly with the
Fukuoka Financial Group. We have taken measures to ensurethat we can stay in business even in cases of major disasters.
For critical customer information (data), we use strict
security controls, such as encryption and other measures, toprevent unauthorized external access and information leaks.
Moreover, in response to increasingly sophisticatedand serious cyber attacks, the Bank has made the issue amanagement priority and conducts constant informationcollection and analysis regarding attack trends. The Bank has
also established Hiroshima Bank CSIRT* as an organization
26

HIROSHIMA BANK   ANNUAL REPORT 2017

Human risk
Human risk is the risk of losses arising from a fall in employee
productivity or employee resignations, and employee acts
leading to a loss of public confidence in the Bank.
We seek to optimize personnel management throughemployee education, training and work guidance, by
ensuring appropriate personnel management based on job
description and personnel policy. We also have in place
preparations for dealing with pandemic influenza andother major disasters that could interrupt operations, withmeasures in place for each stage in the development of a
possible pandemic. By increasing key staff at our Head Office,we aim to create a framework for continuing operations.
Legal risk
Legal risk is the risk of sustaining losses due to penalties or legal
liabilities arising from legal violations or a breach of contract.
In addition to daily awareness-raising and training incompliance, we ensure appropriate management throughsteady implementation of legal checks and establishment of alegal consultation framework.
Tangible asset risk
Tangible asset risk is the risk of losses arising due todamage to tangible assets caused by disasters, illegal acts or
inappropriate asset management.
We keep full records on locations and status of movable
assets and real estate that we own, borrow or lend out, andhave in place management mechanisms for anticipateddamage caused by disaster, illegal behavior, etc.
Reputational risk
Reputational risk is the risk of losses arising due to a lossof confidence in the Bank on the part of customers andmarkets, as a result of the spreading of false information.
In addition to ensuring the highest standards oftransparency in disclosure, we seek to prevent reputationalrisk from arising by monitoring the Bank’s reputation.

Crisis Management System
In addition to the above risk management measures, wehave compiled a business continuity plan (BCP), a plan
to continue major operations on a priority basis in our
Emergency Management Regulations to deal properlywith risk in cases where earthquakes and other large-scale
natural disasters disrupt our services. In this way, we haveestablished our crisis management framework appropriately.

Financial Section

Consolidated Balance Sheets

For more details about the financial information contained inthis annual report, please refer to the financial informationthat has been made public on the Hiroshima Bank website.

http://www.hirogin.co.jp/eng/financial_info.
html#FY2016

THE HIROSHIMA BANK, LTD. AND CONSOLIDATED SUBSIDIARIESAs of March 31, 2016 and 2017
Millions of
U.S. dollars (Note 1)

Millions of yen

ASSETSCash and due from banks (Notes 3, 4, 12 and 19)
Call loans and bills purchased (Note 19)
Financial receivables purchased (Notes 4 and 19)
Trading assets (Notes 3, 4 and 19)
Money held in trust (Notes 5 and 19)
Securities (Notes 3, 4, 7, 10 and 19)
Loans and bills discounted (Notes 6, 8 and 19)
Foreign exchanges
Other assets (Note 7)
Tangible fixed assets (Note 3)
Intangible fixed assets (Note 3)
Net defined benefit assets
Deferred tax assets (Notes 3 and 16)
Customers’ liabilities for acceptances and guarantees (Note 10)
Reserve for possible loan losses (Note 3)
Total assets
LIABILITIES AND NET ASSETS
Liabilities:
Deposits (Notes 7 and 19)
Call money and bills sold (Note 19)
Payables under repurchase agreements
Deposits received for bonds lending/borrowing transactions (Notes 7 and 19)
Trading liabilities (Note 3)
Borrowed money (Notes 7, 9 and 19)
Foreign exchanges
Bonds (Note 19)
Due to trust account
Other liabilities
Net defined benefit liabilities
Reserve for retirement benefits of directors and corporate auditors (Note 3)
Reserve for reimbursement of deposits (Note 3)
Reserve for point loyalty programs (Note 3)
Reserve for loss related to Head Office rebuilding (Note 3)
Deferred tax liabilities (Note 16)
Deferred tax liabilities for land revaluation reserve (Note 3)
Acceptances and guarantees
Total liabilities
Net Assets (Notes 3 and 11):
Common stock:
Authorized – 2,000,000,000 shares
Issued – 625,266,342 shares
Capital surplus
Retained earnings
Common stock in treasury
Total stockholders’ equity
Net unrealized holding gains on securities available for saleNet deferred gains (losses) on hedging instruments, net of tax
Land revaluation and translation adjustments, net of tax (Note 3)
Remeasurements of defined benefit plans
Total accumulated other comprehensive income
Stock acquisition rights (Note 20)
Total net assets
Total liabilities and net assets

2016

2017

2017

¥  712,514
10,766
6,824
12,284
189
1,995,792
5,267,812
7,315
35,951
88,6899,689
41,663683
46,746(35,997)¥8,200,925¥1,253,275
17,396
7,091
9,145
156
1,761,462
5,605,677
7,890
57,76692,305
10,24946,078699
42,001(37,933)¥8,873,264$11,171155
63
82
1
15,701
49,966
70
515
823
91
411
6
374
(338)
$79,091¥7,013,719
25,288129,184
268,079
10,232
161,128185
20,0004244,758
41
42
1,495
111
—
18,328
13,622
46,746
7,753,006¥7,296,113
3,365
137,187
401,641
7,183
453,379
163
20,00022
42,914
38
27
1,461
125
1,095
5,790
13,61342,001
8,426,125$65,034
30
1,223
3,580
64
4,041
1
178
0
383
0
0
13
1
10
52
121
374
75,105   54,573   54,573   48630,817
265,811(982)
350,220
65,797(764)
27,784
4,548
97,365334
447,919¥8,200,925

30,743
290,180(437)
375,060
39,492(512)
27,763
5,011
71,755322
447,138¥8,873,264

274
2,587
(4)
3,343
352
(5)
248
45
640
3
3,986
$79,091

See notes to consolidated financial statements.

HIROSHIMA BANK   ANNUAL REPORT 201727

Consolidated Statements of Income
THE HIROSHIMA BANK, LTD. AND CONSOLIDATED SUBSIDIARIES
Years ended March 31, 2016 and 2017
Millions of
U.S. dollars (Note 1)

Millions of yen

Income:Interest income:Interest on loans and discounts
Interest and dividends on securities
Other interest income
Fees and commissions
Other operating income
Other income
Total income
Expenses:
Interest expenses:
Interest on deposits
Interest on borrowings and rediscounts
Other interest expenses
Fees and commissions
Other operating expenses
General and administrative expenses (Note 20)
Other expenses
Total expenses
Income before income taxes and others
Income taxes (Notes 3 and 16):
Provision for income taxes and others
Deferred income taxes
Net income
Profit attributable to owners of the parent

2016

2017

2017

¥ 64,207
15,1102,738
28,836
15,862
7,614
134,368¥ 61,190
18,253
1,135
28,907
10,817
17,967138,270$  545
163
10
258
96
160
1,232

3,763
2,310
1,377
8,270
10,00454,6306,997
87,35547,013

3,056
3,805
2,555
9,323
11,80957,3796,489
94,41943,850

27
34
23
83
105
511
58
841
391

13,4762,181
31,355¥ 31,355

13,704(1,061)
31,207¥ 31,207

122
(9)
278
$  278

Yen

Amounts per share of common stock (Note 12):
Net assets
Net income
Diluted net income
Cash dividends applicable to the year

¥718.59
50.37
50.30
11.00

U.S. dollars (Note 1)¥715.83
50.02
49.96
11.00

$6.38
0.45
0.45
0.10

See notes to consolidated financial statements.

Consolidated Statements of Comprehensive Income
THE HIROSHIMA BANK, LTD. AND CONSOLIDATED SUBSIDIARIES
Years ended March 31, 2016 and 2017

Millions of yen

Net income
Other comprehensive income (loss) (Note 21):
Net unrealized holding gains on securities available for saleNet deferred gains (losses) on hedging instruments, net of tax
Land revaluation and translation adjustments, net of tax
Remeasurements of defined benefit plans
Share of other comprehensive income of affiliated companies
accounted for by equity method
Comprehensive income (Note 21)
Attributable to (Note 21):Comprehensive income attributable to owners of the parent
See notes to consolidated financial statements.

28

HIROSHIMA BANK   ANNUAL REPORT 2017

Millions of
U.S. dollars (Note 1)

2016¥ 31,355

2017¥ 31,207

2017
$ 278

137
360
439
(14,532)(26,309)
252
—
463

(234)
2
—
4

(1)
¥ 17,7594¥ 5,6180$ 50¥ 17,759¥ 5,618$ 50

Consolidated Statements of Changes in Net Assets
THE HIROSHIMA BANK, LTD. AND CONSOLIDATED SUBSIDIARIES
Years ended March 31, 2016 and 2017
Millions of yen

2016
Stockholders’ equity
Item

Balance at the beginning ofcurrent period

Common stock

Capital surplus

Retained earnings

Common stock
in treasury

Total
stockholders’ equity¥54,573¥30,704¥240,990¥(1,416)¥324,851

Changes of items
during the period
Dividends from surplus
Profit attributable to ownersof the parent(6,533)(6,533)31,35531,355Purchase ofcommon stock in treasury
Disposal ofcommon stock in treasury

113

(15)

(15)

449

562

Net changes of items otherthan stockholders’ equity
Total changes of
items during the period
Balance at the end ofcurrent period—

113

24,821433

25,368¥54,573¥30,817¥265,811¥  (982)¥350,220

Millions of yen

2016
Accumulated other comprehensive income

Item

Balance at the beginning ofcurrent period

Net unrealized Net deferred gains Land revaluation
holding gains on (losses) on hedging and translation
securities available
instruments,
adjustments,
for sale
net of tax
net of tax¥65,661¥(1,125)¥27,344

Remeasurementsof defined
benefit plans

Total accumulated
othercomprehensive
incomeStock acquisitionrightsTotal
net assets¥ 19,080¥110,960¥383¥436,195

Changes of items
during the period
Dividends from surplus(6,533)

Profit attributable to ownersof the parent

31,355Purchase ofcommon stock in treasury(15)

Disposal ofcommon stock in treasury562

Net changes of items otherthan stockholders’ equity
Total changes of
items during the period
Balance at the end ofcurrent period

136

360

439

(14,532)(13,595)(49)(13,644)

136

360

439

(14,532)(13,595)(49)

11,724¥65,797¥  (764)¥27,784¥ 4,548¥ 97,365¥334¥447,919

HIROSHIMA BANK   ANNUAL REPORT 201729

Millions of yen

2017
Stockholders’ equity
Item

Balance at the beginning ofcurrent period

Common stock

Capital surplus

Retained earnings

Common stock
in treasury

Total
stockholders’ equity¥54,573¥30,817¥265,811¥(982)¥350,220

Changes of items
during the period
Dividends from surplus
Profit attributable to ownersof the parent(6,859)(6,859)31,207

31,207Purchase ofcommon stock in treasury
Disposal ofcommon stock in treasury(73)

Reversal ofland revaluation reserve

(7)

(7)

552

478

20

20

Net changes of items otherthan stockholders’ equity
Total changes of
items during the period
Balance at the end ofcurrent period

—

(73)

24,369545

24,840¥54,573¥30,743¥290,180¥(437)¥375,060

Millions of yen

2017
Accumulated other comprehensive income

Item

Balance at the beginning ofcurrent period

Net unrealized Net deferred gains Land revaluation
holding gains on (losses) on hedging and translation
securities available
instruments,
adjustments,
for sale
net of tax
net of tax¥ 65,797¥(764)¥27,784

Remeasurementsof defined
benefit plans

Total accumulated
othercomprehensive
incomeStock acquisitionrightsTotal
net assets¥4,548¥ 97,365¥334¥447,919

Changes of items
during the period
Dividends from surplus(6,859)Profit attributable to ownersof the parent

31,207Purchase ofcommon stock in treasury(7)

Disposal ofcommon stock in treasury

478

Reversal ofland revaluation reserve20

Net changes of items otherthan stockholders’ equity(26,304)

252

(20)

463

(25,609)(11)(25,621)

Total changes of
items during the period(26,304)

252

(20)

463

(25,609)

(11)

(780)

Balance at the end ofcurrent period¥ 39,492¥(512)¥27,763¥5,011¥ 71,755¥322¥447,13830

HIROSHIMA BANK   ANNUAL REPORT 2017

Millions of U.S. dollars

2017
Stockholders’ equity
Item

Balance at the beginning ofcurrent period

Common stock

Capital surplus

Retained earnings

Common stock
in treasury

Total
stockholders’ equity

$486

$275

$2,370$(9)$3,122

Changes of items
during the period
Dividends from surplus
Profit attributable to ownersof the parent

(61)

(61)

278

278

Purchase ofcommon stock in treasury
Disposal ofcommon stock in treasury

(0)

(0)

5

4

(1)

Reversal ofland revaluation reserve00

Net changes of items otherthan stockholders’ equity
Total changes of
items during the period
Balance at the end ofcurrent period

—

(1)

217

5

221

$486

$274

$2,587$(4)$3,343

Millions of U.S. dollars

2017
Accumulated other comprehensive income

Item

Balance at the beginning ofcurrent period

Net unrealized Net deferred gains Land revaluation
holding gains on (losses) on hedging and translation
securities available
instruments,
adjustments,
for sale
net of tax
net of tax

$ 586

$(7)

$248

Remeasurementsof defined
benefit plans

Total accumulated
othercomprehensive
incomeStock acquisitionrightsTotal
net assets

$41

$ 868

$3

$3,993

Changes of items
during the period
Dividends from surplus(61)

Profit attributable to ownersof the parent

278

Purchase ofcommon stock in treasury(0)

Disposal ofcommon stock in treasury

4

Reversal ofland revaluation reserve0

Net changes of items otherthan stockholders’ equity

(234)

2

(0)

4

(228)

(0)

(228)

Total changes of
items during the period

(234)

2

(0)

4

(228)

(0)

(7)

Balance at the end ofcurrent period

$ 352

$(5)

$248

$45

$ 640

$3

$3,986

HIROSHIMA BANK   ANNUAL REPORT 201731

Consolidated Statements of Cash FlowsTHE HIROSHIMA BANK, LTD. AND CONSOLIDATED SUBSIDIARIES
Years ended March 31, 2016 and 2017
Millions of
U.S. dollars (Note 1)

Millions of yen

2016

2017

2017

Cash flows from operating activities:
Income before income taxes and others
Depreciation of premises, equipment and others
Impairment losses of fixed assets
Equity in earnings of affiliates
Net change in reserve for possible loan losses
Decrease (increase) in net defined benefit asset
Increase (decrease) in net defined benefit liability
Net change in reserve for retirement benefits of directors and corporate auditors
Net change in reserve for reimbursement of deposits
Net change in reserve for point loyalty programs
Net change in reserve for loss related to Head Office rebuilding
Interest income
Interest expense
Net losses on securities transactions
Net losses on dispositions of fixed assets
Net change in trading assets
Net change in trading liabilities
Net change in loans
Net change in deposits
Net change in negotiable certificates of deposit
Net change in borrowed money excluding subordinated loans
Net change in due from banks other than from the Bank of Japan
Net change in call loans and bills bought
Net change in call money and bills soldNet change in deposits received for bonds lending/borrowing transactions
Net change in foreign exchanges (assets)
Net change in foreign exchanges (liabilities)
Interest received
Interest paid
Other – net
Subtotal
Income taxes paid
Total adjustments
Net cash provided by (used in) operating activities¥    47,013
3,879
13
(333)
189
15,7902
681
10—(82,056)
7,452(5,024)183
6,273(6,052)(164,956)
271,538(51,481)
11,168(987)
9,696
37,204
17,115(1,029)49
91,542(7,554)(15,210)
137,510(6,713)130,797
177,810¥   43,850
4,501
40
(225)
1,936
(4,414)
(2)
(14)
(34)
14
1,095
(80,579)
9,417(11,583)
99
3,138(3,049)(337,865)
193,345
89,048302,251(3,895)(6,897)(13,918)
133,561(575)(21)
88,307(9,590)(16,089)
337,998(16,108)
321,890
365,741$   391
40
0
(2)
17
(39)
(0)
(0)
(0)
0
10
(718)
84
(103)
1
28
(27)
(3,012)
1,723
794
2,694
(35)
(61)
(124)
1,190
(5)
(0)
787
(86)
(143)
3,013
(144)
2,869
3,260

Cash flows from investing activities:
Purchases of securities
Proceeds from sales of securities
Proceeds from maturity of securities
Increase in money held in trust
Decrease in money held in trust
Purchases of tangible fixed assets
Purchases of intangible fixed assets
Proceeds from sales of tangible fixed assets
Net cash provided by (used in) investing activities(1,106,527)
1,021,065
208,075(34)
1(5,878)(3,472)
13
113,242(786,813)
800,076
183,499(0)
33(5,964)(3,247)
52
187,634(7,013)
7,131
1,636
(0)
0
(53)
(29)
1
1,673

Cash flows from financing activities:
Repayments of subordinated loans
Dividends paid
Purchases of treasury stock
Proceeds from sales of treasury stock
Payments of lease liabilities
Net cash provided by (used in) financing activities(1,000)(6,531)
(15)
394
(72)
(7,225)(10,000)(6,857)
(7)
377
(69)
(16,557)

(89)
(61)
(0)
3
(1)
(148)

(70)
283,756
424,537¥   708,294

46
536,865
708,294¥1,245,160

0
4,785
6,314
$11,099

Effect of foreign exchange rate changes on cash and cash equivalents
Net change in cash and cash equivalents
Cash and cash equivalents at the beginning of year
Cash and cash equivalents at the end of year (Note 12)
See notes to consolidated financial statements.

32

HIROSHIMA BANK   ANNUAL REPORT 2017

Notes to Consolidated Financial Statements
THE HIROSHIMA BANK, LTD. AND CONSOLIDATED SUBSIDIARIESMarch 31, 2016 and 20171 Basis of presenting consolidated financial
statements
The accompanying consolidated financial statements of
The Hiroshima Bank, Ltd. (the “Bank”) and its consolidated
subsidiaries have been prepared in accordance with theprovisions set forth in the Japanese Financial Instruments andExchange Law and its related accounting regulations, andin conformity with accounting principles generally acceptedin Japan (“Japanese GAAP”), which are different in certain
respects as to application and disclosure requirements ofInternational Financial Reporting Standards.
The accompanying consolidated financial statements havebeen restructured and translated into English (with some
expanded descriptions) from the consolidated financial
statements of the Bank prepared in accordance withJapanese GAAP and filed with the appropriate Local Finance
Bureau of the Ministry of Finance as required by the Financial
Instruments and Exchange Law. Some supplementary
information included in the statutory Japanese language
consolidated financial statements, but not required forfair presentation, is not presented in the accompanying
consolidated financial statements.
The Bank maintains its accounting records in Japaneseyen, the currency in which the Bank is incorporated andoperates. In preparing the accompanying consolidated
financial statements and notes thereto, Japanese yen
figures less than one million yen have been rounded down
to the nearest million yen, except for per share data, in
accordance with the Financial Instruments and Exchange
Law and Enforcement Regulation concerning Banking Law
of Japan. Therefore, total or subtotal amounts shown in theaccompanying consolidated financial statements and notes
thereto do not necessarily agree with the sums of individual
amounts. The translations of the Japanese yen amounts
into U.S. dollars are included solely for the convenience ofreaders, using the prevailing exchange rate at March 31,
2017, which was ¥112.19 to U.S. $1.00. The conveniencetranslations should not be construed as representations that
the Japanese yen amounts have been, could have been, or
could in the future be, converted into U.S. dollars at this or
any other rate of exchange.

2 Principles of consolidation
The consolidated financial statements include the accounts of
the Bank and 6 subsidiaries. The Bank includes the accountsof several companies which are less than 50% owned in theaccompanying consolidated financial statements in the casethat the Bank has control over these companies throughcross-shareholdings, transfer of management, and provisionof debt guarantees and loans. All significant intercompany
balances and transactions have been eliminated.
Investments in 20% to 50% owned companies are carriedat cost adjusted for equity in undistributed earnings or losses
since acquisition (the equity method). The Bank also applies
the equity method for investments in certain companies which
are less than 20% owned in the case that the Bank is able toexercise significant influence over these companies.
The consolidated financial statements do not include theaccounts of a subsidiary because the total assets, total
income, net income, retained earnings and total accumulated
other comprehensive income of the subsidiary would not have
had a material effect on the consolidated financial statements.
Investment in the unconsolidated subsidiary was stated atcost. If the equity method of accounting had been applied
to the investments in the subsidiary, the effect on theaccompanying consolidated financial statements would not bematerial.
Consequently, the consolidated financial statements include
the account of the Bank and its subsidiaries and affiliatedcompanies (six subsidiaries and three affiliated companies).
As of March 31, 2017, the fiscal year ending dates are March
31 for 6 subsidiaries.

3 Significant accounting policies
Trading assets and trading liabilities
The Bank adopted mark-to-market accounting for trading
assets and trading liabilities including securities, financial
receivables and financial derivatives for trading purpose.
Trading assets and trading liabilities are recorded on a
trade date basis, and revenues and expenses related to
trading securities transactions are also recorded on a tradedate basis. Securities and financial receivables for trading
purposes are stated at market or fair value at the balance
sheet date. Financial derivatives such as futures and option
transactions are stated at a deemed settlement amount at
the balance sheet date. Unrealized gains or losses incurredby the mark-to-market method are charged to income.

HIROSHIMA BANK   ANNUAL REPORT 201733

Securities
All companies are required to examine the intent of holding
each security and classify those securities as (a) securities
held for trading purposes (hereafter, “trading securities”),(b) debt securities intended to be held to maturity (hereafter,“held-to-maturity debt securities”), (c) equity securities
issued by subsidiaries and affiliated companies, and (d) for
all other securities that are not classified in any of the above
categories (hereafter, “available-for-sale securities”).
Trading securities are stated at fair market value. Gains andlosses realized on disposal and unrealized gains and losses
from market value fluctuations are recognized as gains orlosses in the period of the change. Held-to-maturity debt
securities are stated at amortized cost. Equity securities
issued by subsidiaries and affiliated companies which are notconsolidated or accounted for using the equity method arestated at moving-average cost. Available-for-sale securities
with available fair market values are stated at fair market
value. Unrealized gains and unrealized losses on thesesecurities are reported, net of applicable income taxes, asa separate component of net assets. Realized gains andlosses on sale of such securities are computed using movingaverage cost.
Securities available-for-sale for which fair value cannot be
reliably determined are carried at cost determined by themoving average method.
Debt securities with no available fair market value arestated at amortized cost, net of the amount considered notcollectible. Other securities with no available fair market value
are stated at moving-average cost.
If the market value of held-to-maturity debt securities, equity
securities issued by subsidiaries and affiliated companies
not consolidated or accounted for by the equity method,
and available-for-sale securities declines significantly, suchsecurities are stated at fair market value and the difference
between fair market value and the carrying amount isrecognized as loss in the period of the decline. If the fairmarket value of equity securities issued by unconsolidated
subsidiaries and affiliated companies not on the equity
method is not readily available, such securities should be
written down to net asset value with a corresponding charge
in the income statement in the event net asset value declines
significantly. In these cases, such fair market value or the net
asset value will be the carrying amount of the securities atthe beginning of the next year.
When market values of available-for-sale securities with fairmarket values decline by 50% or more of the acquisition

34

HIROSHIMA BANK   ANNUAL REPORT 2017

cost at the balance sheet date, the Bank writes down suchsecurities to the fair market values and records the related
write-downs as loss in its consolidated statements of income.
When market values of available-for-sale securities with fairmarket value decline by 30% or more but less than 50% of
the acquisition cost, write-downs to the fair market values
may be recognized for certain issuers based on evaluationof issuers’ debtor classification. The Bank devaluated the
securities other than securities held for trading purposes andrecognized a loss of ¥143 million (¥143 million for equity
securities) as for the year ended March 31, 2016.
Derivatives and hedge accounting
Companies are required to state derivative financial
instruments at fair value and to recognize changes in the fairvalue as gains or losses unless derivative financial instruments
are used for hedging purposes.
(1) Hedging against interest rate fluctuations
The Bank applies deferred hedge accounting pursuant to
the treatment regulated by “Treatment for Accounting and
Auditing of Application of Accounting Standard for Financial
Instruments in Banking Industry” (JICPA Industry Audit
Committee Report No. 24) to hedge transactions such as
interest rate swaps entered into to mitigate interest rate risk
arising from financial assets and liabilities. The Bank assessed
the hedge effectiveness by considering the adequacy ofoffsetting movement of the fair value by the changes ininterest rates through classifying the hedged items such asloans and borrowed money and the hedging transactions
such as interest rate swaps by their maturity.
With respect to hedging transactions to fix the cash flows,
hedging instruments (e.g. interest rate swaps) are designatedto hedged items collectively by interest rate indices andtenors in accordance with JICPA Industry Audit Committee
Report No. 24. Since material terms related to hedged items
and hedging instruments are substantially identical, andsuch hedging transactions are deemed highly effective, theassessment of effectiveness is based on the similarity of theterms.
(2) Hedging against foreign currency fluctuations
The Bank applies deferred hedge accounting to hedgetransactions such as currency swaps and foreign exchange
swaps entered into to mitigate foreign exchange risk arisingfrom foreign-currency-denominated financial assets andliabilities.
The Bank applies the hedge accounting pursuant to“Treatment of Accounting and Auditing Concerning
Accounting for Foreign Currency Transactions in Banking

Industry” (JICPA Industry Audit Committee Report No.
25) to currency swap transactions and foreign exchange
swap transactions for the purpose of funds lending andborrowing in different currencies. The Bank assesses thehedge effectiveness by confirming that the positions ofhedge instruments (currency swap and foreign exchange
swap transactions) do not exceed the corresponding foreigncurrency-denominated financial receivables and debts ashedged items.
(3) Exceptional treatment
For some assets and liabilities, the Bank defers recognitionof gains or losses resulting from changes in fair value ofderivative financial instruments until the related losses orgains on the hedged items are recognized. Also, if interest
rate swap contracts are used as a hedge and meet certain
hedging criteria, the net amount to be paid or received
under the interest rate swap contract is added to or
deducted from the interest on the assets or liabilities forwhich the swap contract was executed.
Tangible fixed assets (except for lease assets)
Tangible fixed assets except for land utilized for business
operations are stated at cost less accumulated depreciation.
Accumulated impairment losses are deducted fromacquisition costs.
The Bank and its consolidated subsidiaries depreciate their
tangible fixed assets under the straight-line method overtheir estimated useful lives. Estimated useful lives of major
items are as follows:
Buildings:
22–50 years
Others:3–20 years
The Bank had depreciated buildings and structuresassociated with the current Head Office over 3–50 years.
Because the Bank decided to construct a new Head Officeand demolish the current Head Office in March 2017, theuseful lives of tangible fixed assets associated with thecurrent Head Office have been reduced and will be applied
prospectively.
As a result of this change, compared with the previous
method, income before income taxes and others decreased¥207 million ($2 million).
Accumulated depreciation for tangible assets, recognized forthe fiscal years ended March 31, 2016 and 2017, amounted
to ¥47,105 million and ¥48,238 million ($430 million),
respectively.

Intangible fixed assets (except for lease assets)
Intangible fixed assets are amortized using the straight-line
method. Software utilized by the Bank is amortized over theperiod in which it is expected to be utilized (mainly 5–10
years).
Lease assets
Lease assets in “Tangible fixed assets” of the finance leases
other than those that transfer the ownership of leased
property to the lessees are computed under the straight-line
method over the lease term with zero residual value unlessresidual value is guaranteed by the corresponding lease
contracts.
Reserve for possible loan losses
For loans to insolvent customers who are undergoingbankruptcy or other collection proceedings or in a similar
financial condition, the reserve for possible loan losses isprovided in the full amount of such loans, excluding the
portion that is estimated to be recoverable due to available
security interests or guarantees.
For the unsecured and unguaranteed portions of loans tocustomers not presently in the above circumstances, but
for which there is a high probability of so becoming, thereserve for possible loan losses is provided for estimatedunrecoverable amounts determined after evaluating thecustomer’s overall financial conditions.
For other loans, the reserve for possible loan losses is provided
based on the Bank’s actual rate of loan losses in the past.
Consolidated subsidiaries provide the reserve for possible loan
losses mainly based on the actual rate of loan losses in thepast.
All branches and the credit supervision department evaluate
all loans in accordance with the self-assessment rule, andtheir evaluations are audited by the asset audit section, whichis independent from branches and the credit supervision
department, and the evaluations are revised as required basedon the audits.
Secured and guaranteed loans which are for insolvent
borrowers or in a similar financial condition are disclosed
based on the amount of loans net of amounts estimated not
to be collected through disposition of collateral or throughexecution of guarantees. Such amounts directly set off against
those loans at March 31, 2016 and 2017 were ¥14,960
million and ¥15,289 million ($136 million), respectively.

HIROSHIMA BANK   ANNUAL REPORT 201735

Employees’ severance and retirement benefits
The liabilities and expenses for severance and retirement
benefits were determined based on the amounts actuariallycalculated using certain assumptions.
The Bank and its consolidated subsidiaries provided
allowance for employees’ severance and retirement benefits
at March 31, 2016 and 2017 based on the estimatedamounts of projected benefit obligation and the fair valueof the plan assets at those dates. Actuarial gains and losses
were recognized in expenses using the straight-line method
over 14 years, which was not longer than the average ofthe estimated remaining service lives, commencing with thefollowing period.
In calculating the projected benefit obligation, the straightline method is used to attribute the expected benefit
attributable to the respective fiscal year. Prior service costs
were recognized in the consolidated statements of income
as incurred.
Certain consolidated subsidiaries adopt the simplified
method for the calculation of net defined benefit liability andexpenses for severance and retirement benefits.
Reserve for retirement benefits of directors andAudit & Supervisory Board members
Reserve for retirement benefits of directors and Audit &Supervisory Board members is provided for in payment of
retirement benefits to directors, corporate auditors and otherexecutive officers, in the amount deemed accrued at the
fiscal year-end based on our internal regulations.
Reserve for retirement of deposits
Reserve for retirement of deposits which were derecognized
as liabilities under certain conditions is provided for the
possible losses on the future claims of withdrawal.
Reserve for point loyalty programs
Reserve for point loyalty program is provided for theestimated expenses based on an estimate of the future
usage of points. Points are granted to credit card holders
through card usage under the point loyalty program which isdesigned to promote card usage.
Reserve for loss related to Head Office rebuilding
Reserve for loss related to Head Office rebuilding is provided
to cover estimated losses arising from the rebuilding of the
Head Office of the Bank.

36

HIROSHIMA BANK   ANNUAL REPORT 2017

Foreign currency translation
The consolidated financial statements of the Bank are maintainedin Japanese yen. Assets and liabilities denominated in foreign
currencies are translated into Japanese yen at the exchange rates
prevailing at the balance sheet dates, etc.
Income taxes
Income taxes consist of corporation, enterprise andinhabitants taxes. The provision for income taxes iscomputed based on the pretax income of the Bank andeach of its consolidated subsidiaries with certain adjustments
required for consolidation and tax purposes. The asset andliability approach is used to recognize deferred tax assets andliabilities for loss carryforwards and the expected future tax
consequences of temporary differences between the carrying
amounts and the tax bases of assets and liabilities.
Valuation allowances are recorded to reduce deferred tax
assets based on the assessment of the realizability of the tax
benefits.
Consumption tax
National and local consumption taxes of the Bank and its
consolidated domestic subsidiaries are accounted for using
the tax-excluded method.
Consolidated statements of cash flows andcash equivalents
In preparing the consolidated statements of cash flows, cash
and due from the BANK OF JAPAN are considered to be cash
and cash equivalents.
Amounts per share
Net assets per share is calculated by dividing net assets by
the number of common stocks outstanding at the year-end(excluding “treasury stock”).
Net income per share is calculated by dividing profit
attributable to owners of the parent by the average numberof shares of common stock outstanding during the year
(excluding “treasury stock”).
Cash dividends per share represent the actual amounts
declared as applicable to the respective years.
Reclassifications
Certain amounts in the 2016 consolidated financial
statements have been reclassified to conform with the 2017presentation.

Accounting change
Pursuant to an amendment to the Corporate Tax Act, theBank has applied Accounting Standards Board of Japan(ASBJ) Practical Issues Task Force No. 32 “Practical Solution
on a Change in Depreciation Method Due to Tax Reform
2016” and changed the depreciation method for building
improvements and structures acquired on or After April 1,
2016.
Additional information
Implementation Guidance on Recoverability of Deferred Tax
AssetsThe Bank has applied “Implementation Guidance on
Recoverability of Deferred Tax Assets” (ASBJ Guidance No.
26, March 28, 2016).
Practical Solution on Transactions of Delivering theCompany’s Own Stock to Employees, etc., through Trusts(1) Outline
The Bank introduced “ESOP Trust,” on June 1, 2011,
utilizing an employee stock ownership association as anincentive plan for employees.
The Bank has established a trust account with employees
enrolled in the Bank Employees’ Shareholdings Association(hereinafter, “the Association”) who also satisfy certain
conditions as the beneficiaries. The trust account will acquire
the amount of stock the Association is expected to obtainover the next five years, and then apportion the stocks forsale to the Association on a certain date each month. In
the event the trust account has accrued a gain as a resultof the stock price rising when it is dissolved, the employees
who are the beneficiaries will receive a monetary dividend
prorated according to the ratio they contributed to the
Association. In the event the trust account has incurred aloss on transfer of shares as a result of the stock price fallingand is dissolved with a net overdraft, the Bank will reimburse
the overdraft owed to the trust bank in accordance with aguarantee clause in the monetary overdraft loan agreement,
at no extra cost to the employees.

(2) T he Bank has applied “Practical Solution on
Transactions of Delivering the Company’s Own Stockto Employees, etc., through Trusts” (Practical Issues
Task Force No. 30, March 26, 2015) but continues toapply the accounting procedures that were applied
previously.
(3) Information on the Company’s own stock held by
the trust
1. B ook value held by the trust was ¥388 million as of March
31, 2016. As of March 31, 2017, the trust held none of
the Company’s own stock as all shares of such stock had
been sold.
2. T he Company’s own stock held by the trust is recorded ascommon stock in treasury in net assets.
3. T he number of the Company’s own stock held by thetrust was 1,094 thousand as of March 31, 2016 andthe average number of shares of the Company’s own
stock held by the trust was 1,409 thousand and 254
thousand for the years ended March 31, 2016 and 2017,
respectively.
4. T he number of shares of the Company's own stock at theend of the fiscal year and the average number of shares
during the fiscal year are included in treasury shares whencalculating per-share data.

4 Securities(1) T rading account securities included in “Trading assets,”
certificates of deposit with banks included in “Cash anddue from banks,” and trust beneficiary rights included in“Financial receivables purchased,” which are separately
reported from “Securities” in the consolidated balance
sheets, are included in this section.
(2) T he following tables summarize acquisition costs, bookvalues and fair values of securities with available fairvalues as of March 31, 2016 and 2017:a) Trading securities:
Millions of yen

On June 2016, the Bank terminated the trust.
Amount of net unrealized
gains includedin the consolidated
statements of income

Millions of
U.S. dollars

2016

2017

2017

¥2

¥(4)

$(0)

HIROSHIMA BANK   ANNUAL REPORT 201737b) Available-for-sale securities:
At March 31, 2016
Millions of yen

Acquisition
cost

Gross
unrealized
gain

Equity securities¥   78,820 ¥   36,043
Bonds:
1,336,699 1,316,669
National government bonds 1,040,116 1,027,209
Local government bonds
126,717
123,915
Bonds
169,866
165,544
Others412,741
373,385
Subtotal
1,828,261 1,726,099¥ 42,776
20,03012,9072,801
4,321
39,355102,161Fair value exceeding cost:

Book value

Fair value not exceeding cost:

Equity securities   26,822    30,989
Bonds:
21,30821,335National government bonds
12,707
12,722
Local government bonds
2,420
2,424
Bonds
6,180
6,189
Others108,616
112,242
Subtotal
156,747
164,567
Total¥1,985,008 ¥1,890,666    (4,167)
(27)
(14)
(3)
(9)
(3,626)(7,820)¥ 94,341

At March 31, 2017
Millions of yen

Acquisition
cost

Gross
unrealized
gain

Equity securities¥   94,579 ¥   42,217
Bonds:
1,007,469
997,200
National government bonds
736,618
731,170
Local government bonds
115,510
113,567
Bonds
155,339
152,462
Others95,44986,003
Subtotal
1,197,498 1,125,422¥ 52,362
10,268
5,448
1,943
2,876
9,445
72,076

Fair value exceeding cost:

Book value

Fair value not exceeding cost:

Equity securities   18,919    22,568
Bonds:
132,850
134,160
National government bonds
49,85950,491
Local government bonds
23,94524,075
Bonds
59,04559,593
Others399,774
410,683
Subtotal
551,544567,412
Total¥1,749,043 ¥1,692,834(3,648)(1,310)
(631)
(130)
(547)
(10,909)(15,867)¥ 56,208

Millions of U.S. dollars

Fair value exceeding cost:

Equity securities
Bonds:
National government bonds
Local government bonds
Bonds
OthersSubtotal

Book value

Acquisition
cost

Gross
unrealizedgain$   843
8,980
6,566
1,029
1,385
851
10,674$   376
8,888
6,517
1,012
1,359
767
10,031

$ 467
92
49
17
26
84
643

   169
1,184
444
214
526
3,563
4,916
$15,590   201
1,196
450
215
531
3,661
5,058
$15,089

(32)
(12)
(6)
(1)
(5)
(98)
(142)
$ 501

Fair value not exceeding cost:

Equity securities
Bonds:
National government bonds
Local government bonds
Bonds
OthersSubtotal
Total

38

HIROSHIMA BANK   ANNUAL REPORT 2017(3) T otal sales of available-for-sale securities sold at March
31, 2016 and 2017 were as follows:
At March 31, 2016
Millions of yen

TypeProceeds
from sales

Equity securities¥    5,285
Bonds:
428,280
National government bonds
417,853
Local government bonds
6,960
Bonds
3,467
Others581,828
Total¥1,015,394

Total amount Total amountof gains onof losses on
sales
sales

¥   634
4,279
4,264
13
1
12,584¥17,498¥   307
1,911
1,910
—
1
10,095¥12,314At March 31, 2017
Millions of yen

TypeProceeds
from sales

Equity securities¥  5,773
Bonds:
380,924
National government bonds 378,061
Local government bonds
—
Bonds
2,863
Others398,878Total¥785,576

Total amount Total amountof gains onof losses on
sales
sales

¥ 4,400
3,760
3,758
—
2
15,965¥24,126¥   236
3,460
3,459
—
1
8,836
¥12,532

Millions of U.S. dollars

Type

Equity securities
Bonds:
National government bonds
Local government bonds
Bonds
Others
Total

Proceeds
from sales$   52
3,395
3,370
—
25
3,555
$7,002

Total amount Total amountof gains onof losses on
sales
sales

$ 39
34
34
—
0
142
$215

$  2
31
31
—
0
79
$112

5 Money held in trust(1) Money held in trust classified as trading purpose
There was no money held in trust classified as trading purpose for the years ended March 31, 2016 and 2017.
(2) Money held in trust classified as held-to-maturity
Millions of yen

Year ended March 31, 2016
Carrying amount

Fair
value

Net unrealized
gain (loss)

Unrealized
gain

Unrealized
loss

¥33

¥33

¥—

¥—

¥—

Net unrealized
gain (loss)

Unrealized
gain

Unrealized
loss

¥—

¥—

¥—

Net unrealized
gain (loss)

Unrealized
gain

Unrealized
loss

¥—

¥—

¥—

Money held in trust classified as held-to-maturity

Notes: 1. C onsolidated balance sheet amount is calculated using market prices at the fiscal year-end.
2. “Unrealized gain” and “Unrealized loss” are breakdowns of “Net unrealized gain (loss).”

There was no money held in trust classified as held-to-maturity for the year ended March 31, 2017.
(3) Other money held in trust
Millions of yen

Year ended March 31, 2016
Carrying amount

Fair
value

¥156

¥156

Other money held in trust

Millions of yen

Year ended March 31, 2017
Carrying amount

Fair
value

¥156

¥156

Other money held in trust

Millions of U.S. dollars

Year ended March 31, 2017
Carrying amount

Fair
value

Net unrealized
gain (loss)

Unrealized
gain

Unrealized
loss

$1

$1

$—

$—

$—

Other money held in trust

Notes: 1. C onsolidated balance sheet amount is calculated using market prices at the fiscal year-end.
2. “Unrealized gain” and “Unrealized loss” are breakdowns of “Net unrealized gain (loss).”

6 Loans and bills discounted(1) Doubtful loans of loans and bills discounted at March 31,
2016 and 2017 were as follows:
Millions of yen

Non-accrual loans:
Loans to borrowers
under bankruptcy
proceedings
Other delinquent loans
Accrual loans past due
three months or more
Restructured loans,including loans to
supported companies

Millions of
U.S. dollars

2016

2017

2017

¥ 1,461
45,095¥ 1,31353,917

$ 12
481

2,784

2,027

18

22,276

12,626113(2) B ills discounted are accounted for as financialtransactions in accordance with “Treatment for
Accounting and Auditing of Application of AccountingStandard for Financial Instruments in Banking Industry”(JICPA Industry Audit Committee Report No. 24). The
Bank and its consolidated banking subsidiaries have rights
to sell or pledge commercial bills discounted and foreign
bills of exchange purchased without restrictions, and their
total face amounts were ¥26,186 million and ¥25,671
million ($229 million) at March 31, 2016 and 2017,
respectively.

The Bank does not accrue interest on loans to borrowers
under bankruptcy proceedings and other delinquent loans,which are classified based on the results of self-assessment.

HIROSHIMA BANK   ANNUAL REPORT 201739

7 Assets pledged

8 Commitment line

At March 31, 2016 and 2017, the following assets were
pledged as collateral for certain liabilities of the Bank andsubsidiaries.

Commitment line contracts on overdrafts and loans are thecontracts, under which the Bank lends to customers up to
the prescribed limits in response to customers’ applicationof loan as long as there is no violation of any condition in
the contracts. The unused amount within the limits totaled¥1,631,519 million and ¥1,679,803 million ($14,973
million) relating to these contracts at March 31, 2016 and2017, respectively. Among them, the amounts of unused
commitment of which term of contracts is less than one
year or revocable at any time totaled ¥1,564,987 million and¥1,608,558 million ($14,338 million) as of March 31, 2016
and 2017, respectively.

Millions of yen

Securities
Other assets

Millions of
U.S. dollars

2016

2017

2017

¥669,020
19¥999,484
18$8,9090

The collateral was pledged to secure:Millions of yen

Deposits
Payables under
repurchase agreements
Deposits received
for bonds lending/borrowing transactions
Borrowed money

Millions of
U.S. dollars

2016

2017

2017

¥  1,506¥  1,505$   13

129,184

137,187

1,222

268,079
120,117401,641
422,684

3,580
3,768

In addition, securities not included in the above schedules
were pledged as collateral for operating transactions, suchas exchange settlements. These securities amounted to¥61,136 million and ¥42,301 million ($377 million) at March
31, 2016 and 2017, respectively, and others amounted to¥11,994 million ($107 million) at March 31, 2017.
Security deposits, included in other assets, amounted to¥2,365 million and ¥2,323 million ($21 million) at March
31, 2016 and 2017, respectively, deposits for financial
instruments amounted to ¥3,509 million and ¥5,427 million($48 million) at March 31, 2016 and 2017, respectively, anddeposits for futures trading amounted to ¥1,113 million($10 million) at March 31, 2017.
Of the securities received as collateral under transactions
with repurchase agreement, those which the Bank holds
rights to dispose of by sale or provision of collateral at its
discretion amounted to ¥2,807 million and ¥938 million ($8million) at March 31, 2016 and 2017, respectively.
Bills rediscounted are accounted for as financial transactionsin accordance with “Treatment for Accounting and Auditingof Application of Accounting Standard for Financial
Instruments in Banking Industry” (JICPA Industry Audit
Committee Report No. 24), and the total face amountof commercial bills discounted and foreign exchanges
purchased that have been pledged were ¥4 million and¥4 million ($0 million) at March 31, 2016 and 2017,
respectively.

40

HIROSHIMA BANK   ANNUAL REPORT 2017

Since many of these commitments expire without being
drawn down, the unused amount does not necessarily
represent a future cash requirement. Most of thesecontracts have conditions that the Bank and its consolidated
subsidiaries can refuse customers’ applications for loans
or decrease the contract limits with proper reasons (e.g.,changes in financial situation, deterioration in customers’
creditworthiness). At the inception of contracts, theBank and its consolidated subsidiaries obtain real estate,securities, etc., as collateral if considered to be necessary.
Subsequently, the Bank and its consolidated subsidiaries
perform periodic review of the customers’ business results
based on internal rules, and take necessary measures toreconsider conditions in contracts and require additional
collateral and guarantees.

9 Borrowed money
Borrowed money including subordinated loans totaled¥25,000 million and ¥15,000 million ($134 million) at March
31, 2016 and 2017, respectively.

•• Privately placed bonds
The amount guaranteed by banking subsidiaries to privately
placed bonds (stipulated by Article 2-3 of the Financial
Instruments and Exchange Law) in “Securities” was ¥37,358
million and ¥42,675 million ($380 million) at March 31,
2016 and 2017, respectively.

•• Net assets
Under the Company Law of Japan, the entire amount of
the issue price of shares is required to be accounted for as
capital, although a company may, by resolution of its Boardof Directors, account for an amount not exceeding one-halfof the issue price of the new shares as additional paid-in
capital, which is included in capital surplus.

The Banking Law of Japan provides that an amount equal toat least 20% of cash dividends and other cash appropriations
shall be appropriated and set aside as a legal earnings
reserve until the total amount of legal earnings reserve andadditional paid-in capital equals 100% of common stock.
The legal earnings reserve and additional paid-in capital may
be used to eliminate or reduce a deficit by resolution of thestockholders’ meeting or may be capitalized by resolution of
the Board of Directors. On condition that the total amountof legal earnings reserve and additional paid-in capitalremains being equal to or exceeding 100% of common
stock, they are available for distributions or certain otherpurposes by the resolution of the stockholders’ meeting.
Legal earnings reserve is included in retained earnings in theaccompanying financial statements.
The maximum amount that the Bank can distribute as
dividends is calculated based on the unconsolidated financial
statements of the Bank in accordance with the Company
Law of Japan.
In accordance with the customary practice in Japan, theappropriations are not accrued in the financial statements
for the period to which they relate, but are recorded in thesubsequent accounting period in which the stockholders’approval has been obtained. Retained earnings at March 31,2017 include the amount representing the year-end cash
dividend of ¥3,433 million ($31 million), ¥5.50 ($0.05) per
share, which was approved at the stockholders’ meeting
held on June 28, 2017.

•• 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,
2016 and 2017, was as follows:
Millions of
U.S. dollars

Millions of yen

Cash and due from banks
Foreign currency deposits
with banks
Cash and cash equivalents

2016

2017

2017

¥712,514¥1,253,275$11,171(4,219)(8,115)¥708,294 ¥1,245,160(72)$11,099•• Lease transactions
Finance Leases
Tangible fixed assets in lease assets mainly consisted ofbranches. The depreciation method of lease assets is shownin “3. Significant accounting policies.”
Finance leases other than those that transfer the ownershipof the leased property to the lessees which commenced infiscal years beginning prior to April 1, 2008 are accounted
for in a similar way to operating leases.

•• Derivative transactions
Derivative transactions to which hedge accounting is not applied
Contracted amount (including notional principal amount), fair value and unrealized gains or losses of financial derivatives at
March 31, 2016 and 2017 were as follows:
Interest related:Year ended March 31, 2016
Millions of yen

Contracted amountOver one year

Fair
value

Unrealized gains(losses)¥187,243
186,845
1,800¥131,917
131,901—¥ 4,598(3,689)1¥ 4,598(3,689)
1

3,066
3,066

3,066
3,066

(22)
22

(1)
4

72,32972,334¥     ———
¥     ———
¥   911137(3)¥ 1,048

Type

Items not traded on exchanges

Interest rate swaps*:
Receive fixed, pay variable
Receive variable, pay fixed
Receive variable, pay variable
Interest rate options*:
Sell
Buy
Other contracts*:
Sell
Buy
Total

HIROSHIMA BANK   ANNUAL REPORT 201741

Year ended March 31, 2017
Millions of yen

Contracted amountOver one year

Fair
value

Unrealized gains(losses)¥132,456
132,420—¥100,095
100,085—¥ 3,549(2,670)—¥ 3,549(2,670)
—

2,800

2,800

(8)

8

2,800

2,800

8

(5)

—
—
¥       ——
—¥       ——
—¥   878——¥   880

Type

Items not traded on exchanges

Interest rate swaps*:
Receive fixed, pay variable
Receive variable, pay fixed
Receive variable, pay variable
Interest rate options*:
Sell
Buy
Other contracts*:
Sell
Buy
Total

Millions of U.S. dollars

Contracted amountOver one year

Fair
value

Unrealized gains(losses)$1,181
1,180
—

$892
892
—

$ 32
(24)
—

$ 32
(24)
—

25
25

25
25

(0)
0

0
(0)

—
—
$     —

—
—
$ —

—
—
$ 8

—
—
$ 8

Type

Items not traded on exchanges

Interest rate swaps*:
Receive fixed, pay variable
Receive variable, pay fixed
Receive variable, pay variable
Interest rate options*:
Sell
Buy
Other contracts*:
Sell
Buy
Total

* The unrealized gains or losses on interest rate swaps, interest rate options and other contracts are recognized in the consolidated statements of income.

Currency related:Year ended March 31, 2016
Millions of yen

Contracted amountOver one year

Fair
value

Unrealized gains(losses)¥817,322¥616,591¥   221¥ 2,175

88,151
82,841

17,756
17,576

4,794(4,219)4,794(4,219)133,014133,014¥      —

65,135
65,135¥      —

(3,591)
3,591¥   796

2,276(1,374)¥ 3,652Type

Items not traded on exchanges

Currency swaps*
Forward foreign exchange contracts*:
Sell
Buy
Currency options*:
Sell
Buy
Total

Year ended March 31, 2017
Millions of yen

Contracted amountOver one year

Fair
value

Unrealized gains(losses)¥672,338¥357,692¥   164¥1,072

62,05459,674

8,902
8,868

596
(384)

596
(384)

169,862
169,862¥      —

56,42256,422¥      —

(4,439)4,439¥   377

904(383)¥1,805Type

Items not traded on exchanges

42

Currency swaps*
Forward foreign exchange contracts*:
Sell
Buy
Currency options*:
Sell
Buy
Total

HIROSHIMA BANK   ANNUAL REPORT 2017

Millions of U.S. dollars

Contracted amountOver one year

Fair
value

Unrealized gains(losses)$5,993$3,188

$ 1

$ 9

553
532

79
79

5
(3)

5
(3)

1,514
1,514
$     —

503
503$     —

(40)
40
$ 3

8
(3)
$16

Type

Items not traded on exchanges

Currency swaps*
Forward foreign exchange contracts*:
Sell
Buy
Currency options*:
Sell
Buy
Total

* The unrealized gains or losses on currency swaps, forward foreign exchange contracts and currency options are recognized in the consolidated statements of income.

Bond related:Year ended March 31, 2016
Millions of yen

Contracted amountType

Items traded on exchanges

Bond futures*:
Sell
Buy
Total

¥7,565—¥     —

Over one year

Fair
value

Unrealized gains(losses)

¥—
—
¥—

¥—
—
¥—

¥—
—
¥—

Over one year

Fair
value

Unrealized gains(losses)

¥—
—
¥—

¥(10)
10
¥ —

¥—
—
¥—

* The unrealized gains or losses on bond futures are recognized in the consolidated statements of income.

There were no bond related transactions for the year ended March 31, 2017.
Others:There were no other transactions for the year ended March 31, 2016.
Year ended March 31, 2017
Millions of yen

Contracted amountType

Items not traded on exchanges

Earthquake derivative*:
Sell
Buy
Total

¥900
900
¥ —

Millions of U.S. dollars

Contracted amountType

Items not traded on exchanges

Earthquake derivative*:
Sell
Buy
Total

$ 8
8
$—

Over one year

Fair
value

Unrealized gains(losses)

$—
—
$—

$ (0)
0
$—

$—
—
$—

* Transactions above that fair value are not readily determinable are stated at cost.

Derivative transactions to which hedge accounting is applied
The notional principal amount and fair value of financial derivatives at March 31, 2016 and 2017 were as follows:
Interest related:Year ended March 31, 2016
Millions of yen

Contracted amount
Method of hedge accounting

Type

Main hedge items

Deferral method

Interest rate swaps:
Receive fixed, pay variable
Receive variable, pay fixedInterest rate swaps:
Receive variable, pay fixed
Other contracts:
Buy
Total

Loans and bills discounted

Exceptional treatment
of interest rate swaps

Over one year

Fair value¥ 20,000
51,692¥ 20,000
39,614¥ 64(892)

103,080

87,030Note 31,000¥      —

1,000¥      —

Note 3¥(827)

Loans and bills discounted
Loans and bills discounted

HIROSHIMA BANK   ANNUAL REPORT 201743

Year ended March 31, 2017
Millions of yen

Contracted amount
Method of hedge accounting

Type

Main hedge items

Deferral method

Interest rate swaps:
Receive fixed, pay variable
Receive variable, pay fixedInterest rate swaps:
Receive variable, pay fixed
Other contracts:
Buy
Total

Loans and bills discounted

Exceptional treatment
of interest rate swaps

Over one year

Fair value¥120,000
58,444¥120,000
43,916¥(113)(268)

99,647

93,187Note 31,000¥      —

1,000¥      —

Note 3¥(381)

Loans and bills discounted
Loans and bills discounted

Millions of U.S. dollars

Contracted amount
Method of hedge accounting

Type

Main hedge items

Deferral method

Interest rate swaps:
Receive fixed, pay variable
Receive variable, pay fixedInterest rate swaps:
Receive variable, pay fixed
Other contracts:
Buy
Total

Loans and bills discounted

Exceptional treatment
of interest rate swaps

Over one year

Fair value$1,070521$1,070
391

$(1)
(2)

888

831

Note 39$     —

9$     —

Note 3$(3)

Loans and bills discounted
Loans and bills discounted

Notes: 1. As for interest rate swaps shown above, deferred hedge accounting is applied in accordance with JICPA Industry Audit Committee Report No. 24.
2. Calculation or quotation of fair value of the above derivatives are based on observable market prices, present value method, option pricing models, etc.
3. Interest rate swaps which meet specific matching criteria are accounted for as a component of hedged loans and bills discounted. Therefore, the fair value of thoseinterest rate swaps is included in the fair value of loans and bills discounted in fair value information shown in “19. Financial instruments and related disclosures.”

Currency related:Year ended March 31, 2016
Millions of yen

Method of hedge
accounting

Deferral method

Contracted amountType

Currency swaps
Forward foreignexchange contracts
Total

Main hedge items

Loans and bills discounted
in foreign currencies, securities

Over one year

Fair value¥58,921¥58,921¥1,82994,269¥     ——
¥     —

(12)
¥1,816

Year ended March 31, 2017
Millions of yen

Method of hedge
accounting

Deferral method

Contracted amountType

Currency swaps
Forward foreignexchange contracts
Total

Main hedge items

Loans and bills discounted
in foreign currencies, securities

Over one year

Fair value¥ 69,812¥69,747¥  544

123,350¥      ——
¥     —

1,124
¥1,669Millions of U.S. dollars

Method of hedge
accounting

Deferral method

Contracted amountType

Currency swaps
Forward foreignexchange contracts
Total

Main hedge items

Loans and bills discounted
in foreign currencies, securities

Over one year

Fair value$  622

$622

$ 5

1,099
$    —

—
$  —

10
$15

Notes: 1. As for currency swaps shown above, deferred hedge accounting is applied in accordance with JICPA Industry Audit Committee Report No. 25.
2. The fair values are calculated primarily by using the discounted cash flow method.

44

HIROSHIMA BANK   ANNUAL REPORT 2017•• Employees’ severance and retirement benefits

Severance and retirement benefit expenses

For the years ended March 31, 2016 and 2017
Change in projected benefit obligation
Millions of
U.S. dollars

Millions of yen

Projected benefit obligation,
beginning of the year
Service costs—benefits
earned during the year
Interest cost on projected
benefit obligation
Actuarial differences
incurred
Benefits paid
Other
Projected benefit
obligation at the endof the year

2016

2017

2017

¥43,867¥46,434

$414

1,024

1,187

11

294

22

0

4,542
(3,406)110

1,129(2,968)
110

10
(27)
1

¥46,434¥45,916$409

Service costs—benefits
earned during the year
Interest cost on projected
benefit obligation
Expected return on plan
assetsAmortization of actuarial
differences
Severance and retirement
benefit expenses calculated
by simplified method
Severance and retirement
benefit expenses

2016

2017

2017

¥ 1,024¥ 1,187

$ 10

294

22

0

(4,051)(3,522)(31)(1,270)

(3)

(0)

3

3

0

¥(3,999)¥(2,312)$(21)

Remeasurements of accumulated defined benefit plans
Millions of yen

Change in plan assets
Millions of
U.S. dollars

Millions of yen

Plan assets, beginning of
the year
Expected return on plan
assetsActuarial differences
incurredContribution by thebusiness owner
Benefits paid
Other
Plan assets at the end of
the year

2016

2017

2017

¥101,283¥88,056

$785

4,051

3,522

31

(15,654)

1,805

16

736
(2,467)107

737(2,272)
107

7
(20)
1

¥ 88,056¥91,956$820

The adjustment of the ending balances of projected
benefit obligation and plan assets to net defined
benefit liability and net defined benefit assets
Millions of
U.S. dollars

Millions of yen

2016

Funded projected benefit
obligation
Plan assets
Unfunded projected benefit
obligation
Net on consolidatedbalance sheets

2017

Actuarial differences¥ 46,393(88,056)(41,663)¥ 45,877(91,956)(46,078)

$ 409
(820)
(411)

41

38

1

¥(41,622)¥(46,039)$(410)
Millions of
U.S. dollars

2016

2017

2017

¥    41(41,663)¥    38(46,078)

$   0
(411)

¥(41,622)¥(46,039)$(410)

Millions of
U.S. dollars

2016

2017

2017

¥(21,467)

¥671

$6

Remeasurements of defined benefit plans
Millions of yen

Unrecognized actuarial
differences

Millions of
U.S. dollars

2016

2017

2017

¥(6,591)¥(7,263)$(65)

Classification of plan assets
Bonds
Securities
Cash and due from banks
Other
Plan assets at the end of the year

2016

2017

32.2%
63.7
0.1
4.0
100%

17.1%
67.9
0.1
14.9
100%

2016

2017

0.2%
4.0%

0.2%
4.0%
2.9%

Assumptions

2017

Millions of yen

Net defined benefit liability
Net defined benefit asset
Net on consolidatedbalance sheets

Millions of
U.S. dollars

Millions of yen

Discount rate
Rates of expected return on plan assets
Expected increase rate in salary

2.9%

Defined contribution pension plan
The amount required to be contributed by the Bank is ¥294
million and ¥295 million ($3 million) for the years ended
March 31, 2016 and 2017, respectively.

HIROSHIMA BANK   ANNUAL REPORT 201745

•• Income taxes•• Segment information

Income taxes in the consolidated statements of income
consist of corporation tax, inhabitant taxes and enterprisetax. The statutory tax rate was approximately 32% and 31%
as of March 31, 2016 and 2017, respectively.

Operations of the Bank and its consolidated subsidiaries
include appraisal of collateral premises and land, servicing
businesses and other businesses, in addition to banking
business. As such operations are immaterial, separate
segment information is not required to be disclosed for theyears ended March 31, 2016 and 2017.

Significant components of deferred tax assets as of March
31, 2016 and 2017 were as follows:
Millions of yen

2016

Deferred tax assets:
Reserve forpossible loan losses
Write-down of securities
Depreciation
Other
Subtotal deferred tax assets
Valuation allowance
Total deferred tax assets¥ 14,214
741
969
3,777
19,703(1,662)
18,040

Deferred tax liabilities:
Net defined benefit assets(6,449)Gain on securities
contributed to employee
retirement benefit trust(691)
Net unrealized holding
gains on securities
available for sale
(28,545)
Total deferred tax liabilities(35,685)
Net deferred tax assets¥(17,645)

2017

Millions of
U.S. dollars

2017

Millions of yen

Lending
Investment in securities
Fees and commissions
Other
Total

Millions of
U.S. dollars

2016

2017

2017

¥ 63,953
32,681
28,836
8,895¥134,366¥ 60,995
42,46428,907
5,897¥138,263$  544378
258
52$1,232¥ 15,237
733
1,322
3,677
20,971(970)
20,001

$ 136
6
12
33
187
(9)
178

(7,678)(68)

Not disclosed as immaterial

(691)

(6)

•• Financial instruments and related disclosures(16,721)(25,092)¥ (5,090)

(149)
(223)
$ (45)A reconciliation of the actual effective tax rate with thenormal effective statutory tax rate for the fiscal year ended
March 31, 2017 was as follows:
2017

Normal effective statutory tax rate
Reconciliation:
Change in valuation allowance
Permanently tax-exempt income
Other
Actual effective tax rate

31.0%
(1.5)
(0.7)
0.1
28.8%

A reconciliation of the actual effective tax rate with thenormal effective statutory tax rate for the fiscal years ended
March 31, 2016 was not presented as the difference
between the actual effective tax rate and the normal
effective statutory tax rate was less than 5% of the statutory
tax rate.

46

Income by service

HIROSHIMA BANK   ANNUAL REPORT 2017•• Related party transactions(1) Policy for financial instruments
The Bank and its consolidated subsidiaries conduct financial
services such as financial instruments transactions, credit
guarantees, leasing and credit card services, with banking
as their core activity. Among these businesses, core banking
operations include fund procurement through deposit-taking
and fund management through loans and investment
security portfolios. The financial assets and liabilities of the
Bank are subject to Asset Liability Management (“ALM,”
comprehensive management of assets and liabilities) insuch a way as to prevent adverse impact from interest-rate,
foreign-exchange and market-value fluctuation.
(2) N ature and extent of risk arising from financial
instruments
Loans and bills discounted are primarily provided to domestic
institutional and individual customers, in which the Bank is
exposed to customers’ credit risk. Securities primarily consistof stocks, bonds and investment trusts held by the Bank forthe purposes of building and maintaining good relationships
with customers, sole investment objective and held-tomaturity investment objective.

They are exposed to risk of fluctuation in interest rates andprices in the bond/stock markets and in addition, credit
risk arising from downgrading of the issuer’s credit rating.
Borrowed money, bonds and commercial papers are exposed
to liquidity risk, the risk that the Bank is unable to meet its
obligations as they fall due.
The Bank enters into the following derivative transactions,such as currency swaps and forward foreign exchange
contracts to meet the financial needs of customers andinterest rate swaps for the purpose of optimizing ALM. As
part of optimizing ALM, the Bank uses hedge accounting,specifying derivatives such as interest rate swaps as hedging
instruments, and loans as hedged items.
(3) Risk management for financial instruments
Credit risk management
Credit risk is the risk of sustaining losses due to reduction
or loss of value of assets due to deteriorating credit
circumstances at a borrower.
(Credit screening system)
For all major loans made by branches, the Bank has inplace a system of rigorous credit-screening carried out by acredit-screening department, which is independent of thesales departments. In addition to establishing teams for eachsector, the credit-screening department has established a
dedicated team to ensure sounder borrower finances andeffective corporate rehabilitation, and also offers support tomanagement trying to improve operational management.
In evaluating a customer application for a loan, the Bank will
give a considered response, in line with “The Basic Principles
Prescribing Credit” set up by the Board of Directors, turning
down any application that runs counter to the law or public
morality and taking careful account of profitability andpublic benefit, in addition to fund use, repayment source,
and guarantee and collateral arrangements.
In cases where customers apply for a review of borrowing
terms, the Bank will give a considered response taking
account of actual circumstances faced by the customer, inline with “The Basic Principles for Facilitation of Finance” set
up by the Board of Directors. Appropriate and prompt credit
screening is carried out after joint appraisal of a customer’s
needs and concerns—and not just based on a mechanical,
uniform judgment informed only by financial statements andother superficial statistics and industry-specific guidelines.

To strengthen and expand the credit-screening system, theBank seeks to duly appraise the creditworthiness of a given
company through case-by-case credit management andtakes continuous measures to improve the credit-screening
skills of employees by various kinds of training program.
(Risk management using the credit rating system)
The Bank has introduced the credit rating system to give an
objective overview of credit risk on loans. Based on financial
and other data indicating the level of creditworthiness of theborrower, the Bank has divided borrowers into 12 grades,
and continuously monitors changes in credit risk. The Bank
then carries out credit risk quantification based on thesegrades, to assess credit risk on loan assets and set baseline
interest rates on loans.
The Bank also accumulates and organizes the datanecessary for quantification of credit risks, such as thedefault rate within each grade and extent of asset recovery
from customers in default, and uses a highly sophisticatedquantification technique to obtain a still more detailed
picture of risk-monitored assets.
(Self-assessment of assets)
In parallel with the credit rating system, the Bank conducts
strict checks into the soundness of loans and other assets
through annual assessment. Screening is carried out by
particular Bank branches in light of the financial situation
faced by the borrower, and the results are checked by
the credit-screening department of the Head Office. In
addition, the Risk Management Division extracts important
information and conducts a rigorous review of screening
due process and accuracy, and the Audit Division carries out
the process audit. Based on this self-assessment of assets, incases where there is no realistic prospect of asset recovery,
provisions are made to reserve for possible loan losses tocover the entire value of the sum at risk. This provision isthen recorded as a loss for the fiscal year under review. In
this way the Bank ensures asset soundness on a continuous
basis.

HIROSHIMA BANK   ANNUAL REPORT 201747

Market risk management( i ) Market risk management system
Market risk which is associated with change in the valueof financial instruments from fluctuations in interest rates,
securities prices, foreign exchange rates, and other marketrelated indices, has an effect on our financial performance.
The Bank controls market risk to stabilize earnings byendeavoring to improve and strengthen ALM.
Management of trading account risk
With regard to the trading accounts (for securities and offbalance-sheet transactions that target short-term gains on sales
or purchases, and trading at the behest of customers), theBank has special management mechanisms in place to guard
against risk, since these transactions differ qualitatively frombanking account transactions (involving deposits and loans,investment securities, and related transactions). The Bank has
set up designated trading accounts, and is strengthening their
management using transparent accounting procedures basedon fair value.
For proprietary position dealing, the Bank limits the position
by complying with strict rules in terms of position limits andloss-cutting measures. For positions and transactions on behalfof customers, the Bank follows a policy of square positions by
fully covering them through the interbank market.
(ii) Quantitative information relating to market risk(a) Financial products for trading purposes
The Bank holds securities and derivative transactions
including interest-rate and currency swaps as trading
purpose.
To measure the amount of market risk, the Bank adopts
VaR (Value at Risk) using the variance-covariance method(observation period: one year; confidence interval: 99.9%;
holding period: one day).

The total VaR as of March 31, 2017 was ¥87,732 million($782 million). Within liquid deposits, the Bank recognizes
interest risks related to deposits left in the Bank for long
periods without withdrawal, which are allocated each fiscal
period as core deposits.
(c) VaR adequacy
The relationship between the VaR calculated with the modeland actual gains and losses data is back-tested. The Bank
has confirmed that the calculating model used for thesemeasurements captures market risk with the necessary
degree of accuracy.
However, because VaR is a method of measuring theamount of market risk in terms of the probability of acertain event happening based on past statistical variation,
it cannot be used for assessing risk in a market environment
characterized by abnormal change.
Management of liquidity risks related to fundprocurement
Liquidity risk is the risk of incurring losses due to a decline in
cash flow or being obliged to procure funds at interest rates
that are markedly higher than usual due to an unexpected
outflow of cash.
The Bank has secured highly liquid assets such as
government bonds to prepare for cash outflows in timesof short-term stress. Moreover, to mitigate long-term fundprocurement risks, the Bank manages the gap between
low-liquidity loans and stable procurement.
The Bank has a structure to conduct liquidity measurements
and to secure available reserves over the net cumulative
outflow forecasted in an emergency situation.

As of March 31, 2017, the entire VaR of the Bank was ¥3
million ($0 million).

(4) Fair values of financial instruments
Fair values of financial instruments are based on quoted
price in active markets. If quoted price is not available, otherrational valuation techniques are used.

(b) Financial products held for other than trading purpose
The Bank holds various products such as loans, securities,
deposits, corporate bonds, and derivatives for other than
trading purpose.

Since the calculations of the reasonably calculated prices are
implemented under certain conditions and assumptions, theresult of calculations would differ if such calculations are
made under different conditions and assumptions.

To measure the amount of market risk associated with theseproducts, the Bank uses the VaR method using the variancecovariance method (observation period: one year; confidence
interval: 99.9%; holding period: six months for strategic
equity investments, three months for securities other thanstrategic equity investments, and one year for others).

48

HIROSHIMA BANK   ANNUAL REPORT 2017

Millions of yen

Fair values of financial instruments as of March 31, 2016 and2017 were as follows:
Millions of yen

Year ended March 31, 2016
Carrying
amountFair value

Difference(1) Cash and due from banks(2) C all loans andbills purchased(3) F inancial receivables
purchased(4) Trading assets*2
Securities held for
trading purpose(5) Money held in trust(6) Securities:
Securities held-to-maturity
Securities available-for-sale(7) Loans and bills discounted
Reserve for possible loan
losses*1
Net
Total assets¥  712,514 ¥  712,514¥        —(1) Deposits(2) N egotiable certificates ofdeposit(3) Call money and bills sold(4) P ayables under
repurchase agreements(5) D eposits received
for bonds lending/borrowing transactions(6) Borrowed money(7) Bonds
Total liabilities

10,766

10,766

—

6,824

6,824

—

918
189

918
189

—
—

—
1,980,828
5,267,812—
1,980,828——(33,250)
5,234,562 5,404,934¥7,946,603 ¥8,116,975

170,372¥170,372¥6,792,193 ¥6,792,916¥    722

221,525
25,288

221,539
25,28813—

129,184

129,184—

268,079
268,079
161,128
162,230
20,00020,522¥7,617,399 ¥7,619,760

—
1,102
522
¥  2,360

Derivative instruments*1, 3:
Hedge accounting
is not applied¥    1,702
Hedge accounting is applied
988
Derivative instruments total¥    2,690¥    1,702
988¥    2,690

Year ended March 31, 2017
Carrying
amount(1) Cash and due from banks(2) C all loans andbills purchased(3) F inancial receivables
purchased(4) Trading assets*2
Securities held for
trading purpose(5) Money held in trust(6) Securities:
Securities held-to-maturity
Securities available-for-sale(7) Loans and bills discounted
Reserve for possible loan
losses*1
Net
Total assets(1) Deposits(2) N egotiable certificates ofdeposit(3) Call money and bills sold(4) P ayables under
repurchase agreements(5) D eposits received
for bonds lending/borrowing transactions(6) Borrowed money(7) Bonds
Total liabilities

Fair value

Difference¥1,253,275 ¥1,253,275¥        —17,396

17,396

—

7,091

7,091

—

919
156

919
156

—
—

—
1,745,883
5,605,677—
1,745,883——(34,915)
5,570,762 5,708,736¥8,595,484 ¥8,733,458

137,973¥137,973¥6,985,538 ¥6,986,113¥    574

310,574
3,365

310,572
3,365

(1)
—

137,187

137,187—

401,641
401,641
453,379454,281
20,00020,174¥8,311,687 ¥8,313,336

—
902
174
¥  1,649

Derivative instruments*1, 3:
Hedge accounting
is not applied¥    1,187
Hedge accounting is applied
1,287
Derivative instruments total¥    2,475¥    1,187
1,287¥    2,475¥        —
—¥        —¥        —
—¥        —HIROSHIMA BANK   ANNUAL REPORT 201749

Millions of U.S. dollars

Year ended March 31, 2017

(1) Cash and due from banks(2) C all loans andbills purchased(3) F inancial receivables
purchased(4) Trading assets*2
Securities held for
trading purpose(5) Money held in trust(6) Securities:
Securities held-to-maturity
Securities available-for-sale(7) Loans and bills discounted
Reserve for possible loan
losses*1
Net
Total assets

Carrying
amountFair value

Difference$11,171$11,171$    —

155

155

—

63

63

—

8
1

8
1

—
—

—
15,562
49,966—
15,562——(311)
49,655$76,61550,885$77,845

1,230$1,230$62,265$62,270$    5

2,769
30

2,769
30

(0)
—

Financial receivables purchased which have been divided
by priority such as subordinated and preferred interest andwhich have multiple owners are measured at the quoted
price from a third party. The carrying amounts of otherfinancial receivables purchased approximate fair values
because most of these instruments have short maturities.
(4) Trading assets
The fair values of securities held for trading purposes aremeasured at observable market prices or quoted price froma third party.
(5) Money held in trust
The fair values of money held in trust, which have an
external rating, are determined using the discounted cash
flow method. The fair values of other money held in trust
approximate fair values because most consists of deposits
with no maturities.

(1) Deposits(2) N egotiable certificates ofdeposit(3) Call money and bills sold(4) P ayables under
repurchase agreements(5) D eposits received
for bonds lending/borrowing transactions(6) Borrowed money(7) Bonds
Total liabilities

1,223

1,223

—

3,580
4,041
178
$74,086

3,580
4,049
180
$74,101—82$   15

The fair values of investment trusts are measured at the
published benchmark price or quoted price from a third
party.

Derivative instruments*1, 3:
Hedge accounting
is not applied
Hedge accounting is applied
Derivative instruments total$    1111$    22$    1111$    22

$    
—
—
$    
—

The value reasonably estimated for such bonds wascalculated by discounting the estimated future cash flows at
the rate derived from yields of Japanese government bonds.
The yields of Japanese government bonds and volatility are
major variables in pricing.

*1. The amounts only include the general reserve for possible loan losses and thespecific reserve for possible loan losses provided to “Loans and bills discounted.”Reserve for possible loan losses provided in “Derivative instruments” is directlydeducted from the carrying amounts due to immateriality.
*2. Derivative instruments are not included in trading assets.
*3. Derivative instruments recorded in “Trading assets,” “Liabilities,” “Other assets”
and “Other liabilities” are aggregated and shown herein. Assets and liabilities
attributable to the derivative contracts are totally offset and the net liability
position as a consequence of offsetting would be represented with brackets.

(6) Securities
The fair values of marketable equity securities are measured
at market prices. The fair values of bonds are measured atmarket prices or quoted price from a third party.

(Note 1) Valuation methodology for financial instruments(7) Loans and bills discounted
The fair values of loans and bills discounted are determinedby discounting expected cash flows at the rates that would
be applied for the new same contract for each type of loan
product, interest, period of time and internal ratings-basedclassification.

Assets(1) Cash and due from banks
The carrying amounts of due from banks with no maturities
approximate fair values because they have no maturity.
For due from banks with maturities, the carrying amounts
approximate fair value because most of them have shortmaturities.

For loans to obligors “legally bankrupt,” “virtually bankrupt”
and “possibly bankrupt,” since the reserve is provided basedon amounts expected to be collected through the disposalof collateral or execution of guarantees, the net carrying
amount as of the consolidated balance sheet date is thereasonable estimate of the fair value of those loans.

(2) Call loans and bills purchased
The carrying amounts of call loans and bills purchased
approximate fair values because most of these instruments
have short maturities.
(3) Financial receivables purchased
50

HIROSHIMA BANK   ANNUAL REPORT 2017

Loans with no maturities approximate fair values because
most are without concern of collectability.

Liabilities(1) Deposits, (2) Negotiable certificates of deposit
The fair values of demand deposits are recognized as thepayment at the date of the consolidated balance sheets. The
fair values of time deposits are determined by discounting
the contractual cash flows at the rates that would be applied
for the same, new contracts.
(3) Call money and bills sold, (4) Payables under
repurchase agreements, (5) Deposits received for bonds
lending/borrowing transactions
The carrying amounts of call money and bills sold, deposits
received for bonds lending/borrowing transactions
approximate fair values, because these instruments haveshort maturities.

(6) Borrowed money
The fair values of borrowed money are determined bydiscounting the contractual cash flows at the rate thatwould be applied for the same, new contracts. The
carrying amounts of borrowed money with short maturities
approximate fair values.
(7) Bonds
The fair values of bonds are measured at quoted price froma third party.
Derivative instruments
The fair values of derivative instruments are measured at themarket prices or determined using the discounted cash flow
method or option pricing models.

(Note 2) Financial instruments whose fair value cannot be reliably determined
Carrying amountMillions of yen

Equity securities without readily available market price*1, 2
Other
Total

Millions of
U.S. dollars

2016

2017

2017

¥13,967997¥14,964¥13,881
1,697¥15,579

$124
15
$139

*1. Equity securities without readily available market prices are out of the scope of fair value disclosure because their fair value cannot be reliably determined.
*2. Impairment loss on equity securities without readily available market prices was ¥5 million and ¥9 million ($0 million) for the years ended March 31, 2016 and 2017,
respectively.

(Note 3) Maturity analysis for financial assets with contractual maturities
As of March 31, 2016
Millions of yen

Less than
1 yearDue from banks
Call loans and bills purchased
Financial receivables purchased
Money held in trust
Securities
Held-to-maturity
Available-for-sale:
National government bonds
Local government bonds
Bonds
OthersLoans and bills discounted*
Total¥  635,007
10,7666,824
189
257,820—
257,820
93,40013,411
13,609137,399482,718¥1,393,326

More thanMore thanMore thanMore than
1 year less than 3 years less than 5 years less than 7 years less than
3 years
5 years
7 years
10 yearsMore than
10 years¥        ——
——738,713—738,713592,500
45,89950,57349,740584,106¥1,322,819¥       ———
—285,346—
285,346
150,500—
80,07954,766
1,738,378¥2,023,724¥       ———
—216,100—
216,100
107,100
36,812
21,57450,613
711,559¥927,659¥      ———
—95,781—
95,78145,000—1,660
49,121
437,184¥532,966¥      ———
—130,694—
130,694
10,00029,1202,611
88,963
653,423¥784,118

HIROSHIMA BANK   ANNUAL REPORT 201751

As of March 31, 2017
Millions of yen

Less than
1 yearDue from banks
Call loans and bills purchased
Financial receivables purchased
Money held in trust
Securities
Held-to-maturity
Available-for-sale:
National government bonds
Local government bonds
Bonds
OthersLoans and bills discounted*
Total¥1,172,672
17,3967,091
156
417,455—
417,455
347,500
27,42011,77630,758622,789¥2,237,561

More thanMore thanMore thanMore than
1 year less than 3 years less than 5 years less than 7 years less than
3 years
5 years
7 years
10 yearsMore than
10 years¥        ——
——455,551—455,551
307,100
51,39149,88547,173580,022¥1,035,573¥       ———
—319,935—
319,935
42,500—111,737
165,697
1,823,741¥2,143,676¥       ———
—126,254—
126,254
45,0009,490
18,89352,870730,208¥856,463¥      ———
—147,177—
147,177
25,000—13,028109,149
483,383¥630,561¥      ———
—94,272—
94,272—
48,6603,647
41,964676,365¥770,637

Millions of U.S. dollars

Less than
1 yearDue from banks
Call loans and bills purchased
Financial receivables purchased
Money held in trust
Securities
Held-to-maturity
Available-for-sale:
National government bonds
Local government bonds
Bonds
OthersLoans and bills discounted*
Total$10,453
155
63
1
3,721
—
3,721
3,098
244
105
274
5,551
$19,944

More thanMore thanMore thanMore than
1 year less than 3 years less than 5 years less than 7 years less than
3 years
5 years
7 years
10 years$    —
—
—
—
4,061
—
4,061
2,737
458
445
421
5,170
$9,231$    —
—
—
—
1,125
—
1,125
401
85
168
471
6,509
$7,634$    —
—
—
—
1,312
—
1,312
223
—
116
973
4,308
$5,620$    —
—
—
—
840
—
840
—
434
32
374
6,029
$6,869More than
10 years$     —
—
—
—
2,852
—
2,852
379
—
996
1,477
16,256$19,108* Of loans and bills discounted, the portion whose timing of collection is unforeseeable, such as loans to “legally bankrupt” borrowers, loans to “virtually bankrupt” borrowers
and loans to “possibly bankrupt” borrowers amounting to ¥46,556 million and ¥55,231 million ($492 million), is not included in the above table as of March 31, 2016 and2017, respectively. Loans that do not have contractual maturity, amounting to ¥613,885 million and ¥633,936 million ($5,651 million), are not included either.

(Note 4) Maturity analysis for interest-bearing liabilities as of March 31, 2016 and 2017
As of March 31, 2016
Millions of yen

Less than
1 yearDeposits*
Negotiable certificates of deposit
Call money and bills soldPayables under repurchase agreements
Deposits received for bonds lending/borrowing transactions
Borrowed money
Bonds
Total

52

More thanMore thanMore thanMore than
1 year less than 3 years less than 5 years less than 7 years less than
3 years
5 years
7 years
10 yearsMore than
10 years¥6,464,753
221,385
25,288129,184¥220,936
140——¥101,736———¥ 3,179———¥1,587———¥     ————

268,079
8,011—¥7,116,701—
104,851
20,000¥345,927—
17,596—¥119,332—
12,153—¥15,333—
1,410—¥2,997—
17,105—¥17,105

HIROSHIMA BANK   ANNUAL REPORT 2017

As of March 31, 2017
Millions of yen

More thanMore thanMore thanMore than
1 year less than 3 years less than 5 years less than 7 years less than
3 years
5 years
7 years
10 years

Less than
1 yearDeposits*
Negotiable certificates of deposit
Call money and bills soldPayables under repurchase agreements
Deposits received for bonds lending/borrowing transactions
Borrowed money
Bonds
Total

More than
10 years¥6,743,967
307,9393,365
137,187¥220,313
2,635——¥ 18,603———¥1,035———¥ 1,618———¥    ————

401,641
17,25720,000¥7,631,358—
112,810—¥335,759—
303,588—¥322,191—
1,977—¥3,013—
16,168—¥17,786—
1,577—¥1,577

Millions of U.S. dollars

Less than
1 yearDeposits*
Negotiable certificates of deposit
Call money and bills soldPayables under repurchase agreements
Deposits received for bonds lending/borrowing transactions
Borrowed money
Bonds
Total

More thanMore thanMore thanMore than
1 year less than 3 years less than 5 years less than 7 years less than
3 years
5 years
7 years
10 yearsMore than
10 years$60,112
2,745
30
1,223

$1,96424——$  166
—
—
—

$ 9
—
—
—

$ 14
—
—
—

$—
—
—
—

3,580
154
178
$68,022—
1,005—$2,993—2,706—$2,872

—
18
—
$27

—
144
—
$158

—
14
—
$14

* Deposits on demand are included in “Less than 1 year.”•• Stock optionsA) The Bank recorded stock option expenses in “General and administrative expenses” of ¥118 million and ¥89 million ($1million) for the years ended March 31, 2016 and 2017, respectivelyB) Outline of stock options, size and changes in the year ended March 31, 2017
(1) Outline of stock options
Persons to whom stock options are granted
Type and number of shares*
Date of rights granted
Condition for vesting
Eligible service period
Period for exercise of stock options

Stock options 2010
Directors of the Bank: 12
Common stock: 383,200
July 28, 2010
Not applicableNot applicable
From July 29, 2010
to July 28, 2040

Stock options 2011
Directors of the Bank: 11
Common stock: 358,300
July 27, 2011
Not applicableNot applicable
From July 28, 2011
to July 27, 2041

Stock options 2012
Directors of the Bank: 10
Common stock: 450,100
July 27, 2012
Not applicableNot applicable
From July 28, 2012
to July 27, 2042

Persons to whom stock options are granted
Type and number of shares*
Date of rights granted
Condition for vesting
Eligible service period
Period for exercise of stock options

Stock options 2013
Directors of the Bank: 10
Common stock: 267,400
July 25, 2013
Not applicableNot applicable
From July 26, 2013
to July 25, 2043

Stock options 2014
Directors of the Bank: 10
Common stock: 309,400
July 30, 2014
Not applicableNot applicable
From July 31, 2014
to July 30, 2044

Stock options 2015
Directors of the Bank: 8
Common stock: 165,000
July 31, 2015
Not applicableNot applicable
From August 1, 2015
to July 31, 2045

Persons to whom stock options are granted
Type and number of shares*
Date of rights granted
Condition for vesting
Eligible service period
Period for exercise of stock options

Stock options 2016
Directors of the Bank: 7
Common stock: 250,700
July 29, 2016
Not applicableNot applicable
From July 30, 2016
to July 29, 2046

* The table above presents the number of common stock converted from the stock options.

HIROSHIMA BANK   ANNUAL REPORT 201753

(2) Size and changes of stock options
a. Number of stock options for the year ended March 31, 2017
Stock options
2010

Non-vested:
Previous fiscal year-end outstanding
GrantedForfeited
VestedOutstanding on March 31, 2017
Vested:Previous fiscal year-end outstanding
VestedExercised
Forfeited
Exercisable

Stock options
2011

—
—
—
—
—

—
—
—
—
—

165,000——
165,000——
250,700——
250,700

89,900—29,300—60,60095,200—31,000—64,200155,900—
41,600—114,300

140,300—
47,600—92,700216,100—
59,100—157,000—
165,000
37,900—127,100—————

U.S. dollars

¥  1
345
326

$ 0
3
3

Yen

U.S. dollars

Stock options 2011

¥  1
345
322

$ 0
3
3

Yen

U.S. dollars

Stock options 2012

¥  1
345
223

$ 0
3
2

Yen

U.S. dollars

Stock options 2013

Exercise price
Average exercise price
Fair value at the granted date

¥  1
345
410

$ 0
3
4

Yen

U.S. dollars

Stock options 2014

Exercise price
Average exercise price
Fair value at the granted date

¥  1
345
457

$ 0
3
4

Yen

U.S. dollars

Stock options 2015

Exercise price
Average exercise price
Fair value at the granted date

¥  1
345
673

$ 0
3
6

Yen

U.S. dollars

Stock options 2016

Exercise price
Average exercise price
Fair value at the granted date54

Stock options Stock options
2015
2016

—
—
—
—
—

Stock options 2010

Exercise price
Average exercise price
Fair value at the granted date

Stock options
2014

—
—
—
—
—

Yen

Exercise price
Average exercise price
Fair value at the granted date

Stock options
2013

—
—
—
—
—

b. Price information for the year ended March 31, 2017

Exercise price
Average exercise price
Fair value at the granted date

Stock options
2012

¥  1
—
327

HIROSHIMA BANK   ANNUAL REPORT 2017

$ 0
—
3

(3) Valuation technique for fair value of stock options
Stock options granted in the fiscal year ended March 31,2017 were valued using the Black-Scholes option pricing
model and the following principal parameters:
Stock options 2016

Expected volatility*1
Average expected life*2
Expected dividends*3
Risk-free interest rate*433.708%4.77 years¥11 ($0.10) per share(0.356%)*1. Expected volatility is calculated based on the actual stock prices in the period(from October 2011 to July 2016) corresponding to the average expected life
(4.77 years).
*2. The average tenure of the directors who retired in the past is used as theaverage expected life in the above table.
*3. Actual dividends on common stock for the year ended March 31, 2016.
*4. Japanese government bond yield corresponding to the average expected life.

(4) M ethod of estimating number of stock options
vestedOnly the actual number of forfeited stock options is reflected
because it is difficult to reasonably estimate the number ofstock options that will be forfeited in the future.

•• Comprehensive income
Reclassification adjustments and the related tax effects concerning other comprehensive income for the years ended March 31,
2016 and 2017 were as follows:
Millions of U.S.
dollars

Millions of yen

Net unrealized holding gains on securities available for sale:
The amount arising during the period
Reclassification adjustments
Before adjustments for tax effect
The amount of tax effectNet unrealized holding gains on securities available for saleNet deferred gains (losses) on hedging instruments, net of tax:
The amount arising during the period
Reclassification adjustments
Before adjustments for tax effect
The amount of tax effect
Net deferred gains (losses) on hedging instruments, net of tax
Land revaluation and translation adjustments, net of tax:
The amount arising during the period
Reclassification adjustments
Before adjustments for tax effect
The amount of tax effectLand revaluation and translation adjustments, net of tax
Remeasurements of defined benefit plans:
The amount arising during the period
Reclassification adjustments
Before adjustments for tax effect
The amount of tax effectRemeasurements of defined benefit plans
Share of other comprehensive income of associates accounted
for using equity method:
The amount arising during the period
Reclassification adjustments
Share of other comprehensive income of associates accounted
for using equity method
Total other comprehensive income

2016

2017

2017

¥ 3,645(4,785)(1,140)1,278
137¥(29,804)(8,328)(38,132)
11,823(26,309)$(266)
(74)
(340)
106
(234)

(421)
969
548
(187)
360

(925)
1,290
365
(113)
252

(8)
11
3
(1)
2

—
—
—
439
439

—
—
—
—
—

—
—
—
—
—

(20,196)(1,270)(21,467)
6,935(14,532)

675
(3)
671
(208)
463

6
(0)
6
(2)
4

(1)
—

4
—

0
—

(1)
¥(13,595)

4¥(25,589)0$(228)HIROSHIMA BANK   ANNUAL REPORT 201755

•• Significant subsequent events
Change of an affiliated company accounted for by theequity method into a wholly owned subsidiary
Hirogin Utsumiya Securities Co., Ltd., an affiliated company
accounted for by the equity method, acquired common stock
in treasury on June 1, 2017 and became a wholly owned
subsidiary.
A) Outline of business combination(1) Name of the acquired company and its business
Hirogin Utsumiya Securities Co., Ltd., (Financial instruments
business)(2) Main reason for business combination
The Bank aims to strengthen cooperation with Hirogin
Utsumiya Securities Co., Ltd. and contribute valuable
financial instruments and services with consideration forprotection of customers’ interests and improve customers’
convenience, content and peace the of mind.
(3) Date of business combination
June 1, 2017 (April 1, 2017 deemed the acquisition date)(4) Legal form of business combination
Acquisition of common stock in treasury by the affiliatedcompany accounted for by the equity method(5) Name of the company after business combination
Hirogin Securities Co., Ltd.
(6) Percentage of voting rights acquired
Before acquisition: 50%
Acquisition percentage: 50%
After acquisition: 100%
(7) Main reason for decision to acquire the company
Bank aims to acquire majority of voting rights of theacquired company.
B) Acquisition cost of the acquired company(1) Acquisition cost of the acquired company
Fair value of Hirogin Utsumiya Securities Co., Ltd., as of theacquisition date: ¥5,000 million ($45 million)(2) Difference between the acquisition cost and thetotal amount of the acquisition cost
Loss on step acquisition ¥2,123 million ($19 million)C) Allocation of the acquisition cost(1) T he amount of assets and liabilities assumed on theacceptance date of business combination
Millions of yen

Millions of
U.S. dollars

Current assets
Non-current assets
Total assets¥24,236611¥24,847

$216
5
$221

Current liabilities
Non-current liabilities
Total liabilities¥15,60743¥15,650

$139
0
$139

(2) The amount and cause of negative goodwilla. Negative goodwill¥4,196 million ($37 million)b. T he reason of negative goodwill
Negative goodwill was incurred as net asset value in current
value exceeded the acquisition cost.
Change in the Bank’s share-trading unit, consolidation ofshares and amendment in the Articles of Incorporation
At the Board of Directors meeting held on May 10, 2017,
the Bank resolved to change its share-trading unit andamend the Articles of Incorporation and resolved to submit a
proposal on a consolidation of shares to the 106th Ordinary
General Meeting of Shareholders held on June 28, 2017.
The proposal was approved by resolution of the General
Meeting of Shareholders.
The change in the Bank’s share-trading unit, consolidation ofshares and amendment in the Articles of Incorporation aresummarized below.
A) Change in the Bank’s share-trading unit
(1) Reason for change
The Japanese stock exchanges are making efforts to unify
share trading units of common shares of domestic listedcompanies into units of 100 shares to improve investors’
convenience. The deadline for transferring to a 100-shareunit has been set for October 1, 2018.
Taking such efforts into consideration, the Bank has resolved
to change its share-trading unit.
(2) Details of change
The Bank’s share-trading unit will be changed from a 1,000share unit to a 100-share unit.
(3) Schedule
Effective October 1, 2017, the Bank’s share-trading unit will
be changed from a 1,000-share unit to a 100-share unit.

56

HIROSHIMA BANK   ANNUAL REPORT 2017

B) Consolidation of shares(1) Purpose of consolidation of shares
As stated in “A) Change in the Bank’s share-trading unit”
above, the Bank has decided to change its number of sharesconstituting one share unit to 100 common shares and will
implement a consolidation of shares at the level considered
to be desirable by the Japanese stock exchanges, namely,¥50,000 or more but less than ¥500,000.
(2) Details of consolidation of sharesa. Class of share
Common stockb. Consolidation ratio
On October 1, 2017, 2 common shares will be consolidated
into 1 common share based on the number of shares heldby shareholders of record as of September 30, 2017.
c. C
 hanges in number of shares as a result of consolidation
Total number of outstanding shares before
consolidation (As of March 31, 2017)
Number of shares decreased due toconsolidation
Total number of outstanding shares after
consolidationC) Amendment in the Articles of Incorporation(1) Reason for change
The Bank amended the Articles of Incorporation associatedwith “A) Change in the Bank’s share-trading unit” and“B) Consolidation of shares” above.
(2) Detail of change
The Bank will implement a consolidation of shares on
October 1, 2017, decrease the total number of authorizedshares from 2 billion shares to 1 billion shares in proportion
to the consolidation of shares ratio and change the Bank’s
share-trading unit from a 1,000-share unit to a 100-shareunit.
D) Impact on per share information
Assuming that the share consolidation had taken place atthe start of the previous period, per share information forthe years ended March 31, 2016 and 2017 would be as
follows:
Yen

625,266,342 shares
312,633,171 shares
312,633,171 shares

2016

Amounts per share ofcommon stock:
Net assets
Net income
Diluted net income

U.S. dollars

2017¥1,437.19 ¥1,431.67
100.75100.04100.6199.92

2017$12.760.89
0.89(3) Treatment when there is less than one shareIf fractional shares of less than one share arise as a resultof the share consolidation, the Bank shall sell them inaccordance with the Companies Act. The proceeds fromthe sale shall then be distributed to the shareholders inproportion to their respective ownership interests.
(4) T otal number of authorized shares as of theeffective date
In conjunction with the reduction of the total numberof outstanding shares of the Bank as a result of theconsolidation of shares and in order to adjust the total
number of authorized shares to an appropriate level, thetotal number of authorized shares shall be amended from
2 billion shares to 1 billion shares in accordance with theconsolidation of shares ratio.

HIROSHIMA BANK   ANNUAL REPORT 201757

Non-Consolidated Balance Sheets
THE HIROSHIMA BANK, LTD.
As of March 31, 2016 and 2017
Millions of
U.S. dollars

Millions of yen

2016

2017

2017

ASSETSCash and due from banks
Call loans and bills purchased
Financial receivables purchased
Trading assets
Money held in trust
Securities
Loans and bills discounted
Foreign exchanges
Other assets
Tangible fixed assets
Intangible fixed assets
Prepaid pension cost
Customers’ liabilities for acceptances and guarantees
Reserve for possible loan losses
Reserve for investment losses
Total assets¥  711,894
10,766
5,193
12,284156
1,999,381
5,267,228
7,315
32,24088,357
9,673
35,07244,331(33,888)(4,730)¥8,185,278¥1,252,600
17,396
5,536
9,145
156
1,765,068
5,605,192
7,890
54,292
91,974
10,23538,81439,950(35,775)(4,901)¥8,857,577$11,165155
49
82
2
15,73349,962
70
484
820
91
346
356
(319)
(44)
$78,952

LIABILITIES AND NET ASSETS
Liabilities:
Deposits
Call money and bills soldPayables under repurchase agreements
Deposits received for bonds lending/borrowing transactions
Trading liabilities
Borrowed money
Foreign exchanges
Bonds
Due to trust account
Other liabilities
Reserve for reimbursement of deposits
Reserve for point loyalty programs
Reserve for loss related to Head Office rebuilding
Deferred tax liabilities
Deferred tax liabilities for land revaluation reserve
Acceptances and guarantees
Total liabilities¥7,024,566
25,288129,184
268,079
10,232
161,128185
20,00042
36,8101,495
72—
15,66013,62244,3317,750,700¥7,308,542
3,365
137,187
401,641
7,183
453,379
163
20,00022
34,882
1,461
86
1,095
2,891
13,61339,9508,425,466$65,144
30
1,223
3,580
64
4,041
2
178
0
311
13
1
10
26
121
356
75,100Net Assets:
Common stock:
Authorized – 2,000,000,000 shares
Issued – 625,266,342 shares
Capital surplus
Retained earnings
Common stock in treasury
Total stockholders’ equity
Net unrealized holding gains on securities available for saleNet deferred losses on hedging instruments, net of tax
Land revaluation reserve, net of tax
Total valuation and translation adjustments
Stock acquisition rights
Total net assets
Total liabilities and net assets   54,573
30,816
257,006(969)
341,427
65,796(764)
27,784
92,815334
434,577¥8,185,278   54,573
30,742
280,157(423)
365,050
39,486(512)
27,763
66,738322
432,110¥8,857,577   487
274
2,497
(4)
3,254
352
(5)
248
595
3
3,852
$78,952

58

HIROSHIMA BANK   ANNUAL REPORT 2017

Non-Consolidated Statements of Income
THE HIROSHIMA BANK, LTD.
Years ended March 31, 2016 and 2017
Millions of
U.S. dollars

Millions of yen

Income:Interest income:Interest on loans and discounts
Interest and dividends on securities
Other interest income
Fees and commissions
Other operating income
Other income
Total income
Expenses:
Interest expenses:
Interest on deposits
Interest on borrowings and rediscounts
Other interest expenses
Fees and commissions
Other operating expenses
General and administrative expenses
Other expenses
Total expenses
Income before income taxes and others
Income taxes:
Provision for income taxes and others
Deferred income taxes
Net income

2016

2017

2017

¥ 64,120
15,345
2,702
25,401
15,8627,411
130,843¥ 61,120
18,625
1,106
25,337
10,817
17,778
134,785$  545
166
10
226
96
158
1,201

3,767
2,310
1,373
8,794
10,00452,8096,843
85,902
44,940

3,058
3,805
2,551
9,717
11,80955,6296,217
92,78841,996

27
34
23
87
105
496
55
827
374

12,873
2,064¥ 30,002

13,074(1,067)¥ 29,989

117(10)$  267

Yen

Amounts per share of common stock:
Net assets
Net income
Diluted net income
Cash dividends applicable to the year

¥697.11
48.19
48.13
11.00

U.S. dollars¥691.70
48.06
48.00
11.00

$6.17
0.43
0.43
0.10

HIROSHIMA BANK   ANNUAL REPORT 201759

Corporate Information
Organization(As of April 1, 2017)

Secretariat Department
Compliance Management
DivisionManagement Planning
Division
Personnel &General Affairs Division
Risk Management Division
Banking Operation
Management Division
Information Technology Planning& Administration Division
Audit Division
Audit &
Supervisory
Board members(Audit & Supervisory
Board)

Audit &
Supervisory
Board Office

Banking Business Planning
Division
Chief Division
Officers

Eastern Area Headquarters
Corporate Planning Division

GeneralMeeting of
Shareholders

Credit Supervising Division
Board ofDirectors

Management
Board

Investment Banking DivisionInternational Business Division

Public Services Business Division
Asset Management Division
Retail Loan Division
Treasury & Investment DivisionTokyo Liaison Office

Chief Area
Officers

60

HIROSHIMA BANK   ANNUAL REPORT 2017

Branch areas / Branches

Board of Directors, Executive Officers andAudit & Supervisory Board Members

Stock Information(As of March 31, 2017)(As of June 28, 2017)

Directors
ChairmanIsao Sumihiro
President
Koji Ikeda
Director & Senior Managing Executive Officers Tohru Hirota
Kichisou Miyoshi
Yuji Yoshino
Director & Managing Executive Officers
Toshio Heya
Yusou Araki
External Directors
Masahiro Sumikawa
Kaori Maeda
Satoshi Miura

Number of Shares Authorized

2,000,000 thousand

Number of Shares Issued

625,266 thousand

Number of Shareholders

17,116

Executive Officers
Satoru Noguchi
Minoru Ogawa
Hiroyuki Tsumasaki
Hiroshi Honkawa
Yasushi Kojiri
Hiroshi Iwamoto
Ikuo Kojiri
Masataka Hatate
Katsuhiko Nakama
Akira Maeda
Masahiro Koike
Atsuhiro Kunimura
Akira Ogi
Kimio Okano

Senior Managing Executive Officer
Managing Executive Officers

Executive Officers

Audit & Supervisory Board Members
Audit & Supervisory Board Members
External Audit & Supervisory Board Members

Hiroyuki Mizutani
Hitoshi Katayama
Yasutoshi Takei
Yoshinori Takahashi
Masako Yoshida

Major Shareholders(As of March 31, 2017)
Shareholders

Number of shares(thousand)

Percentage of shares issued(%)

Japan Trustee Services Bank, Ltd. (Trust Account)

27,000

4.31

Meiji Yasuda Life Insurance Company

19,0093.04

Sompo Japan Nipponkoa Insurance Inc.

16,687

2.66

CP Chemical Incorporated

14,927

2.38

The Master Trust Bank of Japan, Ltd. (Trust Account)

14,9082.38

The Bank of Tokyo-Mitsubishi UFJ, Ltd.

13,088

2.09

Nippon Life Insurance Company

12,085

1.93

Sumitomo Life Insurance Company

12,076

1.93

The Chugoku Electric Power Co., Inc.

12,008

1.92

Mizuho Bank, Ltd.

11,5001.83

Notes: 1. Numbers of shares less than one thousand have been omitted.
2. Percentage of shares issued is rounded down at the second decimal place.

HIROSHIMA BANK   ANNUAL REPORT 201761

Shareholder Incentive Plan
We have established time deposits for shareholders and provide invitation tickets to the Hiroshima Museum of Art to improveshareholder satisfaction.
• Time deposits held by shareholders
Date of record for deciding on
participating shareholders

March 31 every year

Participating shareholders

Shareholders listed in the stockholders list who hold at least 1,000 sharesat the date of record

Plan period

Early July in the year of the date of record to late June the following year

Number of shares held

1,000 shares or more
Less than 5,000 shares

5,000 shares or more
Less than 10,000 shares

10,000 shares or more

Maximum deposit¥3 million¥4 million¥5 million

Offered rates

Over-the-counter interest
rate on Super Teiki Yokintime deposit or Super Teiki
Yokin time deposit 300,+%

Over-the-counter interest
rate on Super Teiki Yokintime deposit or Super Teiki
Yokin time deposit 300,+%

Over-the-counter interest
rate on Super Teiki Yokintime deposit or Super Teiki
Yokin time deposit 300,
+
%

0.3

Deposit term

0.4

0.5

1 year• Tickets to the Hiroshima Museum of Art

We present tickets to the Hiroshima Museum of Art, a nonprofit organization, to our shareholders who make use of the Hirogin time
deposits we have established as shareholder incentives.

■ Overview
The Hiroshima Museum of Art was established in November
1978 by Hiroshima Bank in commemoration of the 100th
anniversary of its foundation, as we move through history
together with the region. We hope that the museum can offer
spiritual repose to the people of Hiroshima, the city reduced toruins by the atomic bomb on August 6, 1945. To this end, we
have created a sanctuary of fragrant beauty around the themesof love and healing. We pray that it will also bring repose to
the victims of the bomb that has led to today’s Hiroshima, andpeace to Hiroshima City.

■ The collection
The approximately 300 paintings in the possession of themuseum comprise modern European works centered on
the French impressionists from the mid-nineteenth century,
Romantics up to the Paris School, and modern Japanese
works from the Meiji Period onward, including traditionalstyle Japanese paintings. The modern European works arepermanently exhibited in the Main Hall.

Address:	3-2 Motomachi, Naka-ku,
Hiroshima City 730-0011, Japan
Opening Hours: 9:00 a.m.–5:00 p.m. (Last entry 4:30 p.m.)
Closed:	Mondays except during special exhibitions (or the following day if a public holiday
falls on Monday) and December 29–January 2
Note: ‌The museum is sometimes closed temporarily to change exhibitions.

62

HIROSHIMA BANK   ANNUAL REPORT 2017

THE HIROSHIMA BANK, LTD.

Printed in Japan