Annual Report
2008
Year ended March 31, 2008

Hokuhoku Financial Group, Inc.

Company Outline (as of March 31, 2008)
Company name: Hokuhoku Financial Group, Inc.
Date of establishment: September 26, 2003
Location of head office: 1-2-26 Tsutsumicho-dori, Toyama City
President: Shigeo Takagi (President, Hokuriku Bank)
Deputy President: Yoshihiro Sekihachi (President, Hokkaido Bank)
Purpose of business: Management and control of subsidiaries and affiliates and ancillary and related business
Capital: ¥70,895 million
Shares issued and outstanding:Common stock ................................................. 1,391,630,146
Preferred stock (Type 1)................................

80,000,000*

Preferred stock (Type 4)................................

79,000,000*

Preferred stock (Type 5)................................ 107,432,000* Preferred Stock Type 1 and Type 4 were acquired and retired by 30,000,000 shares and 17,600,000 shares respectively on June 26, 2008. The balances after theretirement are 50,000,000 shares (Type 1) and 61,400,000 shares (Type 4).

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

CONTENTS

Profile ................................................................................................. 1
Message from the Management........................................................ 2
Performance Highlights ...................................................................... 4
Corporate Social Responsibility .......................................................... 8
Topics ................................................................................................. 11
Plan For Sound Management ............................................................. 14
Corporate Governance........................................................................ 16
Compliance System............................................................................ 17
Risk Management System ................................................................. 18
Consolidated Financial Statements
Consolidated Balance Sheets ......................................................... 20
Consolidated Statements of Income .............................................. 21
Consolidated Statements of Changes in Net Assets ..................... 22
Consolidated Statements of Cash Flows ....................................... 24
Notes to Consolidated Financial Statements.................................. 25
Report of Independent Auditors ......................................................... 39
Nonconsolidated Financial Statements
The Hokuriku Bank, Ltd.
Nonconsolidated Balance Sheets (Unaudited)............................ 40
Nonconsolidated Statements of Income (Unaudited)................. 41
The Hokkaido Bank, Ltd.
Nonconsolidated Balance Sheets (Unaudited)............................ 42
Nonconsolidated Statements of Income (Unaudited)................. 43
Corporate Information ........................................................................ 44
Outline of Subsidiaries — Hokuriku Bank ........................................... 45
Outline of Subsidiaries — Hokkaido Bank .......................................... 46
Board of Directors and Corporate Auditors ........................................ 47........................................................................ 48

Profile
Since its establishment in 1877, Hokuriku Bank has developed an extensive network of branches throughout the Hokuriku district.
On account of trade through the Kitamae-bune or “Northbound Ships,” branches extended to the major cities of Hokkaido, enabling
the bank to meet customers’ needs. The Hokkaido Bank, which was established in 1951, has developed a network of branches
throughout Hokkaido, and built a firm business structure centered on individuals and small and medium-sized enterprises.
The Hokuriku Bank, Ltd. and The Hokkaido Bank, Ltd. underwent management integration in September 2004 to form the
Hokuhoku Financial Group Inc., which today operates a super-regional financial network that encompasses the Hokuriku region,
Hokkaido, and Japan’s three major metropolitan areas (Tokyo, Osaka, and Nagoya areas).

May 2002

Comprehensive business alliance between
Hokuriku Bank and Hokkaido BankMay 2003

Agreement on full integration of management of
Hokuriku Bank and Hokkaido Bank

September 2003

Hokugin Financial Group, Inc. established
Hokuriku Bank Group comes under management of
Hokugin Financial GroupManagement integration effected through equity swap

September 2004

Hokuhoku Financial Group, Inc. is born.

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

Our extensive network is outlined below.
Hokuriku district ............................................ 147 branches
Toyama prefecture ...........................................

90 branches

Ishikawa prefecture ..........................................

35 branches

Fukui prefecture ...............................................

22 branches

Hokkaido ......................................................... 152 branches
Three major metropolitan areas of Japan ...

17 branches

Tokyo and Kanagawa ........................................

10 branches

Kinki (Osaka) and Nagoya .................................

7 branches

Other ................................................................

4 branches

Overseas
Shanghai Representative Office (Hokuriku bank)Hokuriku district

Singapore Representative Office (Hokuriku bank)
New York Representative Office (Hokuriku bank)
Shenyang Representative Office (Hokkaido bank)

Ishikawa

ToyamaFukui(As of June 30, 2008)
Tokyo
Osaka

NagoyaThree major metropolitan areas

Hokuhoku Financial Group, Inc. Annual Report 2008

1

MESSAGE FROM THE MANAGEMENT(from left)

Shigeo Takagi
President(concurrently serving as presidentof the Hokuriku Bank, Ltd.)

Yoshihiro Sekihachi
Deputy President(concurrently serving as presidentof the Hokkaido Bank, Ltd.)First, we would like to thank all our stakeholders for their support for the Hokuhoku Financial
Group, Inc. over the years.
Despite moderate expansionary momentum in the Japanese economy in fiscal 2007, economic prospects were clouded by a reduction in housing investment amid weak housing starts
after the amendment of Building Standard Law, and a spreading sense of economic pessimism
due to rising oil and grain market prices, which have caused raw materials costs to soar.
Since the management integration of The Hokuriku Bank and The Hokkaido Bank in
September 2004, we have taken various measures to realize the objectives of the merger,
strengthening our marketing capabilities, improving management efficiency, and stabilizing ourbusiness base.
Net income in fiscal 2007 totaled ¥38.6 billion on a consolidated basis, ahead of our forecasts. As a result of partial repayment of public funds during the reporting period, our capitalratio moved slightly down to 10.39% on a consolidated basis. At the same time, the ratio of
non-performing loans decreased to 3.64%, meaning that we have brought it below the 4% level
one year earlier than the target date of March 31, 2009. We declared a total annual dividend of¥2.50, a ¥0.5 increase year on year.

Strategy 1: Leveraging our strengths as a wide area regional financial group
With Hokkaido and the three prefectures of the Hokuriku region as our major business base,and with a presence in Japan’s three major metropolitan areas, the Group has a broad domesticbanking network. We have also created one of the largest business support systems of any
regional bank through our alliance with The Bank of Yokohama (the “Three Banks Overseas
Information Network”) which supports businesses with overseas operations. Under this initiative, we have established representative offices in Shanghai and Shenyang in China, and seconded employees to Sapporo city’s Beijing business office and Toyama Prefecture’s businessoffice in Dalian. We have also established representative offices in Singapore and New York,and entered business alliances with financial institutions in Thailand and India, to offer a stillbroader range of support services to our customers with overseas operations.
We make full use of our wide operating network, unmatched by other regional banks, toprovide tailored information to our customers to create business-matching opportunities. We
hope to expand our business scale by working hand-in-hand with customers.

Strategy 2: Improving management efficiency through a joint IT system
Ability to provide superior services promptly and efficiently using IT strategies is vital for financial institutions.

2

Hokuhoku Financial Group, Inc. Annual Report 2008

The Hokuhoku Financial Group is gearing up for launch in May 2011 of the “three-bank joint
IT system” developed with The Bank of Yokohama. In addition to shared backbone IT systems,
systems for services provided by branches or directly accessed by the customer such as ATMs
and Internet banking will be operated on a joint basis. We have begun harmonization of system
operation procedures.
We have already set up a Regional Finance Marketing Study Group, Regional Bank Leasing
Business Study Group, and Regional Bank Mortgage Loan Joint Study Group in partnershipwith other regional banks. Joint polling and research in alliance with other regional banks will
help us expand our range of products and services to meet customer needs more closely, andimprove our overall standards of service and solution proposal.

Strategy 3: Measures to increase enterprise value
By steadily strengthening our product-marketing capability and streamlining our management,
we were able to make two repayments of public funds, in August 2007 and June 2008, leaving
an outstanding balance of approximately ¥60 billion. Under vigorous Group leadership, we aim
to complete these repayments ahead of schedule.
We have also been given a Single-A Flat rating (for Hokuhoku Financial Group, The Hokuriku
Bank and The Hokkaido Bank) by Japan’s Ratings and Investment Information Center (R&I), in
recognition of our efforts to improve our financial position. We shall continue these endeavors.

Great Potential: The Hokuriku Bank and The Hokkaido Bank Network
In July 2008, several major events took place in the Hokkaido and Hokuriku areas, our main
business bases.
At the G8 summit in Toyako, Hokkaido, leaders of eight major countries discussed various issues affecting international society such as global warming. The Group enthusiasticallyparticipated in the hospitality measures undertaken by the local businesses and residents forthe summit. Another major event was the full opening to traffic of Tokai-Hokuriku Expressway
linking Japan’s Pacific coast with the Hokuriku region. This highway greatly shortens driving
times between the Nagoya and Hokuriku areas, and is expected to hasten goods transportationand spur economic exchange. To help further develop trade between these two areas, theGroup plans various initiatives, with a focus on supporting business-matching services for ourcustomers through events such as business exchange meetings.

In conclusion
The Group is making steady progress under its management philosophy of promoting regional
coprosperity, fairness and reliability, and leading-edge financial innovation. The businessenvironment facing financial institutions has become more competitive with deregulation, but
a concerted commitment from our executives and employees alike will enable us to further
improve enterprise value, by strengthening relations with our customers, making us the financial institution they trust and prefer. I would like to thank our stakeholders for their continued
support for our endeavors.
September 2008

Shigeo Takagi

Yoshihiro Sekihachi

President

Deputy President

Hokuhoku Financial Group, Inc. Annual Report 2008

3

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

FY2007

FY2006

Ordinary income
Ordinary profits
Net income

261.2
66.3
38.6

Change
18.9
(3.7)
(2.0)

Capital ratio

10.39%-0.05%In the fiscal year ending March 31, 2008 the Hokuhoku
Financial Group, Inc. recorded ordinary income of ¥261.2 billion, an increase of ¥18.9 billion over the previous term; ordi-

242.2
70.0
40.6
10.44%

nary profits of ¥66.3 billion (declined by ¥3.7 billion) and net
income of ¥38.6 billion (declined by ¥2.0 billion). Our capitalratio stood at 10.39% as of the term-end, a decrease of 0.05
percentage points from the previous term.

Summary of Operations (Hokuriku Bank and Hokkaido Bank)(¥ billion)

Owing to declines in income from fees and commissions andHokuriku Bank (including Hokugin Corporate)and Hokkaido Bank
FY2007
FY2006
ChangeOrdinary income
237.6
18.6
219.0
Core gross business profit
178.9
(2.9)
181.8
Expenses
89.9
1.9
88.0
Core net business profit
88.9
(4.8)
93.8
Credit costs
24.7
(0.8)
25.6
Ordinary profits
66.2
(4.2)
70.4
Net income
40.2
0.4
39.7

gains on derivatives transactions, as well as an increase in

NPL ratio

3.64%-0.79%

4.43%

expenses due to investment in new computer systems, thebanking subsidiaries (hereinafter, “our banks”) recorded a
year-on-year decline of ¥4.8 billion in core net business profit
to ¥88.9 billion for the reporting term.
Despite a shrinkage in credit costs, ordinary profits recorded
a fall of ¥4.2 billion to ¥66.2 billion, owing to a deterioration in
equity-related gains. Net income posted a year-on-year gainof ¥0.4 billion to a record-high ¥40.2 billion, as a result of adecrease in deferred income taxes.

(¥ billion)(¥ billion)

Ordinary income
Core gross business profit
Expenses
Core net business profit
Credit costs
Ordinary profits
Net income
NPL ratio

4

Hokuriku Bank
(including Hokugin Corporate)
FY2007
FY2006
Change
141.5
10.9
130.5
105.6
(1.4)
107.1
51.1
0.5
50.5
54.5
(2.0)
56.5
19.6
(2.3)
22.0
36.7
(1.7)
38.5
22.3
3.3
18.9
3.72%

Hokuhoku Financial Group, Inc. Annual Report 2008

-0.93%

4.65%

Hokkaido Bank
FY2007

FY2006

96.0
73.2
38.8
34.4
5.1
29.4
17.8

Change
7.6
(1.4)
1.4
(2.8)
1.5
(2.4)
(2.9)

88.4
74.7
37.4
37.2
3.6
31.9
20.7

3.52%

-0.56%

4.08%

Core gross business profit (Hokuriku Bank (including Hokugin Corporate) and Hokkaido Bank)
Net interest income
OthersNet fees and commissions
Non-interest income ratioCore gross business profit recorded a year-on-year decrease of¥2.9 billion to ¥178.9 billion, owing to declines in income from

176.5
5.0

175.0
7.6

180.8
13.2

181.8
12.6

178.9
11.6

23.3

26.3

29.2

31.8

30.5

23.46%

24.50%(%)■ Core gross business profit = net interest income + net fees and commissions + other net operating income
Equivalent to gross profit margin as employed by non-financial
companies.

23.54%■ Net interest income = income from interest on loans and dividends
on equity shares, after deduction of interest on deposits

19.40%
16.06%

148.1

141.0

fees and commissions and gains on derivatives transactions.

138.4

137.3

■ Net fees and commissions = fees and commissions received relating
to the investment trust and insurance sales agency businesses after
deduction of corresponding expenses

136.8■ Other net operating income = income from foreign exchange transactions and financial derivatives transactions, net of expenses(¥ billion)
Years ended
March 31

2004

2005

2006

2007

■ Non-interest income ratio = Non-interest income as a percentage ofcore gross business profit

2008

Expenses (Hokuriku Bank (including Hokugin Corporate) and Hokkaido Bank)
Hokuriku Bank

Hokkaido Bank

OHR

Expenses increased by ¥1.9 billion to ¥89.9 billion, as a resultof investments, mainly in computer systems.

50.25%

50.95%

48.99%

50.29%

48.39%(%)

The overhead ratio (OHR) was one of the best among
Japan’s regional banks.

88.7

89.2

88.6

88.0

89.9

52.0

51.6

50.9

50.5

51.1

36.6

37.5

37.7

37.4

38.8

2004

2005

2006

2007

2008

■ Expenses = Personnel expenses + non-personnel expenses + taxes
Equivalent to selling, general and administrative expenses in the caseof non-financial companies■ OHR = Expenses divided by core gross business profit
This index shows a bank’s efficiency at realizing profits with a small
outlay (expenses); the lower the figure the better.

(¥ billion)
Years ended
March 31Core net business profit (Hokuriku Bank (including Hokugin Corporate) and Hokkaido Bank)
Hokuriku Bank

Hokkaido Bank

ROACore net business profit registered a decline of ¥4.8 billion to¥88.9 billion, owing to a decreased amount of gross business

1.00%

87.8

55.0

0.98%

1.02%

1.03%
0.96%

92.2

93.8

85.8

51.9

(%)

55.2

56.5

profit and higher expenses.
The ROA of our banks was one of the best among Japan’s
regional banks.

88.9■ Core net business profit = core gross business profit minus expenses
Equivalent to operating income in the case of non-financial companies, this indicates a bank’s achievements in its core banking field.

54.5■ ROA = Core net business profit divided by total assets (average forthe term)
This figure indicates the effectiveness of employment of assets in
the generation of profits; the higher the figure the better.
32.8

33.8

37.0

37.2

34.4

2004

2005

2006

2007

2008

(¥ billion)
Years ended
March 31

Hokuhoku Financial Group, Inc. Annual Report 20085

Credit costs (Hokuriku Bank (including Hokugin Corporate) and Hokkaido Bank)
Hokuriku Bank

Hokkaido Bank

Credit cost ratio

Due to a smaller number of large-scale bankruptcies during
the term, as well as a smaller amount of newly emergent

1.40%
(%)

bad debts during the term and a general improvement in thebusiness conditions of the customers of our banks, total credit
costs registered a year-on-year decrease of ¥0.8 billion to

91.4
0.90%

¥24.7 billion.
0.73%

67.5

■ Credit costs = amount of bad debt disposal + provisions to allowancefor possible loan losses

59.4
47.7
0.38%

42.6
34.7

23.9
Years ended
March 31

2004

25.6
22.0

16.8

12.9

2005

2006

■ Credit cost ratio = total credit cost divided by average loan balanceThis index compares credit costs with the balance of outstandingloans. The lower the figure, the healthier the bank’s loan portfolio.

0.36%
24.7
19.6

3.6

5.1

2007

2008

(¥ billion)

Net income (Hokuriku Bank (including Hokugin Corporate) and Hokkaido Bank)
Hokuriku Bank

Hokkaido Bank

Net income edged up by ¥0.4 billion over the previous term toreach an all-time high of ¥40.2 billion.

39.7

29.0

18.9

40.2

22.3

15.6
15.7
4.9

15.2
4.1

10.8

11.1

13.4

2004

2005

2006

20.7

17.8

2007

2008

(¥ billion)
Years ended
March 31

Capital ratio (Hokuhoku Financial Group, Inc.; on a consolidated basis)
Capital ratio

Tier I capital ratio

In spite of the improvement in profits, the capital ratio moved(%)
10.44%

10.39%

6.01%

8.33%
7.74%

7.48%

6.47%
5.95%

Consolidation of Management

End ofSep. 2004

End ofMar. 2005

End ofMar. 2006

End ofMar. 2007

End ofMar. 2008

Effective from the year ended March 31, 2007, the Company has adopted the new standards (Basel II
framework) for the calculation of its regulatory capital. For the previous periods ended March 31, 2006
or before, the old standards were used in the calculations.

6

points to 10.39%, as a result of the repayment of a portion of
the public funds.

9.00%
8.00%

slightly downward from the previous term, by 0.05 percentage

Hokuhoku Financial Group, Inc. Annual Report 2008

■ Capital ratio
This ratio indicates the proportion of the bank’s regulatory capital(capital stock, capital surplus, retained earnings and supplementaryelements) to its risk-weighted assets. The higher the ratio, thehealthier its financial position.
■ Tier I capital ratio
This ratio indicates the proportion of a bank’s Tier I capital (the basic
element of regulatory capital; basically capital stock, capital surplus,
and retained earnings) to its risk-weighted assets (principally loans).
The higher the ratio, the healthier its core banking operations.

Deposits(Hokuriku Bank and Hokkaido Bank)
Hokuriku Bank

8,291.9

Loans and bills discounted(Hokuriku Bank (including Hokugin Corporate) and Hokkaido Bank)
Hokuriku Bank

Hokkaido Bank

8,326.0

8,434.6

8,216.4

Hokkaido Bank

8,407.4
6,538.9

6,706.2

6,839.7

6,897.6

4,234.4

3,999.4

4,110.4

4,146.7

4,210.7

2,562.1

2,539.4

2,595.7

2,692.92,686.8

2004

2005

2006

2007

2008

6,796.5

5,100.3

4,836.6

4,942.7

4,917.4

4,909.1

3,191.6

3,383.3

3,379.7

3,517.2

3,498.3

2004

2005

2006

2007

2008

(¥ billion)(¥ billion)
End of March

End of March

Formerly, Hokuriku Bank included RMBS (residential mortgage-backed securities) in the general categoryof loans and bills discounted, but with effect from fiscal 2005 these have been included in “call loans andbills bought.” To enable comparisons, figures for prior years are shown after deduction of RMBS.

Bad debt subject to mandatory disclosure under
the Financial Reconstruction Law(Hokuriku Bank (including Hokugin Corporate) and Hokkaido Bank)
Bankrupt and quasi-bankrupt assets
Substandard loans

Doubtful assets
NPL ratio(%)

3.64%, down by 0.79 points.

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

87.9

85.7

lion, for a decline of ¥54.2 billion from the previous term-end.

■ Assets (claims) subject to mandatory disclosure under the Financial
Reconstruction Law: The bank classifies both loans and other assets
in line with the stipulations of the Financial Reconstruction Law.

6.83%

474.9

under the Financial Reconstruction Law came to ¥260.7 bilThe NPL ratio under the Financial Reconstruction Law was at

8.01%

569.4

Bad debt (officially “claims”) subject to mandatory disclosure

5.76%

Bankrupt andquasi-bankrupt
assetsThis category is defined as the sum ofclaims on bankrupt borrowers and effectively
bankrupt borrowers

Doubtful assets

This category is defined as claims on potentially bankrupt borrowers under asset selfassessment. The execution of contracts on
repayment of the principal and payments ofinterest is highly doubtful.

Substandard
loans

149.3

This category is defined as claims on borrowers
requiring caution under asset self-assessment.
This category comprises past due loans (threemonths or more) and restructured loans underthe Banking Law.

■ NPL ratio: Indicates NPLs (under the Financial Reconstruction Law)
as a percentage of total credit. The lower the ratio, the sounder thecredit portfolio.

399.9
4.43%
61.6

324.9

315.0
58.5
256.5

3.64%
260.7
63.6

253.4
194.4

156.7

End of March

2004

132.7

2005

84.9

62.0

47.8

2006

2007

2008

(¥ billion)

Bad debt coverage
Unclassified
Claims: ¥6,888.3 bn
Total credit atMarch 31, 2008:¥7,149.0 bn

Assets subject
to disclosure:¥260.7 bn

Assets subject to disclosure

Method of coverage

Coverage ratio

Bankrupt andquasi-bankrupt assets¥63.6 bn

Allowance: ¥13.0 bn
Collateral & guarantees:¥50.5 bn100%

Doubtful assets¥149.3 bn

Allowance: ¥45.0 bn

85.70%
Collateral & guarantees:¥82.8 bn

Of the total of ¥260.7 billion in assets subject to mandatory disclosure
under the Financial Reconstruction Law, ¥147.0 billion were covered bycollateral or guarantees, and ¥69.6 billion were covered by allowance forpossible loan losses.The overall coverage ratio as of March 31, 2008
was thus 83.11%, indicating a sufficiently sound financial position.

Substandard loans¥47.8 bn

Allowance: ¥11.4 bn
Collateral & guarantees:¥13.6 bn

Overallcoverage ratio:
83.11%

52.54%

Hokuhoku Financial Group, Inc. Annual Report 2008

7

CORPORATE SOCIAL RESPONSIBILITY

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

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

Putting links with local customers firstWe aim to enhance communication with customers on an individual basis, accurately identify theirneeds, and design services and products that meet those needs.

Increasing Customer Satisfaction

New products and services

Hokuriku Bank: Hokuhoku Smile Declaration
Hokkaido Bank: Biggest Smile Campaign

Hokuriku Bank: Launch of sales of medical/cancer insurance
rider products, expansion of Point Club incentive
program, expansion of child-rearing support
incentive system
Hokkaido Bank: Launch of New Step Forward, launch of Do Point
Club, launch of medical/cancer insurance rider
products

Branch design
Hokuriku Bank: Opening of Kanazawa Financial History Museum,refurbishment in traditional style of Katsuyama
BranchHokkaido Bank: Policy of access for wheelchair-bound customers
decided, installation of automatic doors andwheelchair/pram slopes

Asset management seminar for individuals
Financial seminar at The Hokkaido Bank Academy Cafe

8

Hokuhoku Financial Group, Inc. Annual Report 2008

Enhanced convenience
Antifraud stickers, ATM alliance with Aeon Bank
Hokuriku Bank: No-commission ATM alliance with Fukuho Bank,
service attendant for elderly and handicappedcustomers, installation of public notice board at all
branches
Hokkaido Bank: Alliance with Seven Bank, launch of operation ofmultimedia terminals at branches, expansion ofcontracts with local governments for payment
services at convenience storesToward high-quality consulting services
Making full use of our wide branch network, we arrange business negotiations for customers andhost business matching events to support local development.
Business matching services

Banking confabs in Shanghai

May 2007: Business Summit 2007 in Nagoya
September 2007: Hokkaido Food Special Business Conference in
SapporoSeptember 2007: “Food summit” in Kanazawa
November 2007: Hokkaido Business Forum 2007
March 2008: Local produce display in Toyama
June 2008: Business Summit 2008 in Nagoya

December 2005: China business-matching confab in Shanghai,attended by five Japanese regional banks
July 2006: Joint banking confab in Shanghai, attended by eight
Japanese regional banks (“Local produce 2006”
regional bank Sino-Japanese bridge-building confab)
June 2007: Combined regional bank confab in Shanghai, attended
by 11 Japanese regional banks (“Local produce 2007”
regional bank Sino-Japanese bridge-building confab)
July 2008: Combined regional bank confab in Shanghai, attended
by 12 Japanese regional banks (“Local produce 2008”
regional bank Sino-Japanese bridge-building confab)

Support closely tailored to the needs of local companies expanding abroad
We are bolstering the Hokuhoku Group’s international network to help our corporate clients expand
overseas.
Agreements with overseas municipal and othergovernment organizations
October 2004
November 2005
April 2006

DalianShenyang
Shanghai

Hokuriku Bank
Hokkaido Bank
Hokuhoku Financial
Group

September 2006 Liaoning

Hokuhoku Financial
Group

November 2006
March 2007
June 2007
February 2008

Vietnam govt.
ChangchunSuzhouGuangdong

Hokuriku Bank
Hokkaido Bank
Hokuriku Bank
Hokuhoku Financial
Group

June 2008

HarbinHokkaido Bank

Alliances with overseas banks
December 2005

KASIKORNBANK(Thailand)

Hokuriku Bank

July 2006

Standard CharteredBank

Hokuriku Bank

September 2007 State Bank of India

Hokuriku Bank

Bank customer organizations
No. of companies
530
258
150
150

Hokuriku Chojokai
Hokkaido Chojokai
Shanghai Chojokai
Hokuhoku ASEAN kai

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

IR for individual investors

November 2007: Investors’ meeting for the fiscal 2007
interim accounts; 118 participants (Tokyo)
May 2008: Investors’ meeting for the fiscal 2007 accounts;
136 participants (Tokyo)

March 2008: IR meeting in seven cities (Toyama, Takaoka,
Tonami, Uozu, Kanazawa, Komatsu, Fukui)
865 participants (Total)

General meeting of shareholders
IR overseas
July 2007: Europe (Frankfurt, Milan, Paris), U.S. (New York,
Boston, San Francisco)February 2008: Middle East
July 2008: North America (New York, Boston, Toronto, Chicago)

June 2008: General meeting of shareholders for fiscal 2007
(Toyama; Sapporo via broadcast)

Hokuhoku Financial Group, Inc. Annual Report 20089

Creating an attractive workplace for every employee
Education and training

Leisure time-off• Training classes (by grade and job category), on-the-job training• Promoting self-developments, various training courses(dispatch of trainees), external and overseas training• All kinds of time-off arrangements (full one-week holiday,“refreshment” holidays, anniversary/birthday leave, etc) halfday paid leave

Career development service

Broadening recruitment• Career-track change, regular employment for contracted Bank
employees, in-house recruitment• Revision of pay scale for new graduates• Recruitment seminar for women (The Hokuriku Bank)Child-rearing/care support policies• Maternity, care and nursing leave, shortened working hours

Advancing with regional communities
We take part in social contribution activities.
Classes in personal financeSupport for cultural events• Participation (Mini Hokkaido Bank) in the “Kodomo no Machi
Mini Sapporo 2007” for children, hosted by Sapporo city
• Banks tours for local elementary and middle school children• Dispatch of lecturers to high schools, internships• Dispatch of financial experts to give lectures at local universities• Charity concert sponsorship, “Lilac” concert sponsorship• Support for advertising for World Cultural Heritage registration

Recognition as leading emergency co-operation
partner business in Toyama city

Further environmental protection measures
Support for the G8 Summit

Launch of environment-friendly loans• A portion of commission revenues on Environmental Fundcontributed to the government• Provision of stationery kits made of environment-friendly
materials for Summit reporters

Support financing for environment-friendly homebuilding

Eco-campaigning• Providing eco-bags to support reduction of plastic bags insupermarkets

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Hokuhoku Financial Group, Inc. Annual Report 2008

Back companies that work for the environment• Conclusion of administrative cooperation agreement with otherbanks on environmental financing• Sponsoring the television program “Kita monogatari eko
shinsho” showcasing companies manufacturing eco-friendly
products

TOPICS

Hokuriku Bank
1. 130th Anniversary Commemoration Events

4. Relaunch of the Toyama Financial History Exhibit

To show our appreciation to all of our local clients who havecontinued to support Hokuriku Bank, we held a series of130th Anniversary Commemoration Events. Starting in Aprilin the Ishikawa area and finishing up in the Toyama area inAugust, we held events in seven areas in total. The eventswere attended by around 4,000 of our clients.

In August 2006, we extended the Financial History Exhibit
facility in the lobby of our Head Office and installed additional
exhibits. The museum features a wide range of around 100
items ranging from nostalgic items harking back to days goneby, including documents from the Kanazawa 12th Bank andthe Toyama 123rd Bank, to genuine works of art such as
calendars featuring wood-block prints by Shiko Munakata. As
admission is free, anyone can pop in and take a look back at
the region’s financial history whenever they like. We hope that
it will become something of a tourist attraction.

2. Refurbishment of our Katsuyama Branch
Our Katsuyama Branch started business in February 1920
as the Katsuyama branch of the 91st Bank. After a second
incarnation as a branch of the 12th Bank, it became the
Hokuriku Bank Katsuyama Branch in 1943. As part of Hokuriku
Bank’s efforts to help vitalize local areas, we refurbished our
Katsuyama Branch as part of a project to recreate historicalstreets in Katsuyama, recreating its 1920s appearance.

3. Support and promotion for the World Heritage
Registration Campaign
We put up promotional posters on the walls of our Takaoka
Branch to show our support for Takaoka’s bid to get the“Modern-Age Cultural Heritage Sites of Takaoka” registeredas a world heritage site to mark the 400th anniversary of themodern town’s birth. Based on the slogan “world heritage
status for Takaoka’s treasures,” we provided backing fora local campaign to get the whole area designated a world
heritage site in our capacity as a financial institution operatingin Takaoka.

5. Reopening of Kida Branch in new building
Our Kida Branch reopened in its new location on the first floorof the new head office building of Seiren Co. Ltd.
In an effort to offer new services
to individual customers, we haveintroduced a range of new initiatives,
including equipping the branch with
low-level counters throughout, providing PCs connected to the internet
for business use and adding more
safety deposit boxes. The branch isalso designed to enhance our brandimage through the use of calming
wooden surfaces and warm tones,
accented with our corporate color
red.

Hokuhoku Financial Group, Inc. Annual Report 200811

6. Opening of Teru-Teru Tei
As part of a venture aimed at revitalizing the central shopping
area in Toyama and livening up the city as a whole, we haveopened a theater called “the Hokuhoku Space Teru-TeruTei” on the third floor of the Sepura Building on Chuo-dori inToyama with several local companies. Shows at Teru-Teru
Tei will be produced and hosted by Shinosuke Tatekawa from
Imizu City in Toyama prefecture, who won the Award for
the Arts in spring this year from the Minister of Education,
Culture, Sports, Science and Technology. As the first suchspecialist theater in Toyama prefecture, Teru-Teru Tei will
host regular rakugo comic storytelling performances and will
provide a Toyama with a venue where people can go to laughand unwind.

Hokkaido Bank
1. The Hokkaido Special Food Business Conference
On September 10, 2007, we co-hosted the Hokkaido
Food Special Business Conference in along with Hokkaido
Government. This was the fourth time that we have staged
this event, which has been up and running with the aim ofhelping Hokkaido-based food and beverage manufacturers to
expand their sales channels since fiscal 2005. A total of 45
food and drinks manufacturers exhibited at the event, including a number of Hokuriku Bank clients, giving them the chance
to wholeheartedly promote their products to around 220
managers and buyers from participating retailers nationwide,
supermarkets, department stores and other chains. The event
also provided the venue for a total of 376 business meetings
through parallel individual sessions. Among customers was
Hokkaido Governor Harumi Takahashi, who came along to theevent for a look at the various high-added value Hokkaido foodproducts on display.

12

Hokuhoku Financial Group, Inc. Annual Report 2008

2. Victory parade for the Hokkaido Nippon-Ham
Fighters
2007 saw the Hokkaido Nippon-Ham Fighters claim victory in
pro baseball’s Pacific League for the second year in a row.
To mark the occasion, a victory parade was held in central
Sapporo on November 24. In our capacity as a local financial
institution, we celebrated the team’s achievement by showering the parade with confetti from Head Office. This time, we
appealed to people throughout Hokkaido to send in confetti
for the first time, enabling us to add the finishing touches tothe parade with the approximately 250kg of confetti that we
received. As well as confetti, we also received a great many
messages for the team and its players, all of which werehanded over to the team owner after the parade.

3. Decision to set up a representative office in Sakhalin

6. Support for the Toyako G8 Summit in Hokkaido

We have decided to open a representative office in the city of
Yuzhno-Sakhalinsk in the Russian province of Sakhalin. Amidst
ongoing large-scale international oil and natural gas projects,
Sakhalin is experiencing remarkable economical growth,
resulting in wide-ranging and increasingly active economic
exchange with Hokkaido, which is in close geographical proximity to the province. Locating a base in Sakhalin will enable
us to provide support to clients in Hokkaido for business
operations in Russia, mainly through provision of up-to-date
information not only on the province but also the rest of
Russia’s Far East. Assuming that we are granted approvalby the Russian federal authorities, we plan to open the new
office by the end of fiscal 2008.

From July 7 to 9, the town of Toyako in Hokkaido hosted thisyear’s G8 Summit meeting, the main theme of which was
global environment issues. We at Hokkaido Bank got involvedin a range of support initiatives relating to the summit. In
addition to assigning personnel to assist the Hokkaido Toyako
Summit Preparation Council, the organization responsible
for preparing the summit, we also donated a portion of thesales commissions from our Environmental Fund investment
trust products to the council, sponsored environment-themedradio and television shows, provided stationery and other supplies to Japanese and overseas media and took part in the2008 Exhibition on the Environment held in the run-up to thesummit.

4. Russia seminar
On May 26, we held a seminar entitled “Recent Developments
in Russia and Future Economic Exchange between Russia
and Hokkaido.” A total of 74 guests from 52 of our clients
attended the seminar, which featured talks from Akira Muto,
Director of the Ministry of Foreign Affairs’ Russia Division(European Affairs Bureau) and Tsutomu Yorozuya, Deputy
Chairman of the League of Residents of Chishima HabomaiIslands (Kuril islands).

5. Conclusion of an economic cooperation agreementwith Harbin
On June 16, we concluded an economic cooperation agreement with the Economy Cooperation and Promotion Bureauof Harbin Government, located in the Chinese province ofHeilongjiang. This is the first time that the Harbin Economy
Cooperation and Promotion Bureau, the government body
responsible for attracting overseas investors to the city,
has concluded an economic cooperation agreement with aJapanese financial institution. In addition to exchanging information on the two countries’ legal and economic systems,
investment conditions and current projects, this agreement
provide support to companies on both sides for economictransactions and entry into new markets through aggressive
business-matching. This means that the Hokuhoku Financial
Group has now concluded economic cooperation agreementswith four major cities in China’s three northeastern provinces(Dalian, Shenyang, Changchun and Harbin), resulting in an evenstronger China business support structure for our clients.

Hokuhoku Financial Group, Inc. Annual Report 2008

13

PLAN FOR SOUND MANAGEMENT

Working to achieve stable earnings, with the goal of repaying public funds
Based on the Law on Emergency Measures to Revitalize the Functions of the Financial System, the Company issued
a total of ¥120.03 billion in preferred stock, which was placed to specified banks. To facilitate the repayment of thesepublic funds, we revised our Plan for Sound Management in November 2008, four years after the initial announcement.
Because of this, we revised our earnings targets, setting new targets for achievement by March 2012.
According to the plan, the Group will strive to ensure stable profitability by utilizing its unique and extensive regional
network to realize the goals of integration, which include strengthening marketing capabilities, increasing management
efficiency, and cementing customer loyalty.
The Bank bought back a portion of these preferred shares in the amount of ¥35 billion in August 2007 and in theamount of ¥25 billion in June 2008, leaving a balance of public funds for repayment in the approximate amount of ¥60
billion. We will continue to pursue the Plan for Sound Management so as to repay the entire public fund amount as soon
as possible.
Summary of the Preferred Stock issued by the Company (as of the end of September, 2008)
Type
Number of sharesissuedTotal value
Dividends
Acquisition pricePreferred stock (Type 1)

Preferred stock (Type 4)

50 million shares

61.4 million shares¥25 billion¥7.70 per share¥314.40 (on and after July 31, 2008; subject tochange according to the market price* of ordinary
shares of common stock of the Company)
From September 26, 2003 to July 29, 2010¥34.998 billion¥6.62 per share¥313.90 (on and after August 1, 2008; subject tochange according to the market price* of ordinary
shares of common stock of the Company)
From September 1, 2004 to July 31, 2010

Acquisition period
Dates for mandatory
July 30, 2010acquisition

August 1, 2010

Note: The term “market price” here refers to the average closing price of the Company’s common stock on the Tokyo Stock Exchange over a 30trading-day period beginning with the trading day 45 trading days prior to July 31 (in the case of Preferred stock (Type 1)) or August 1 (in the case ofPreferred stock (Type 4)) every year.

Goals and strategy of the management integration
1. Strengthening Marketing Capabilities
While Hokkaido and the Hokuriku region will remain the Company’s main operational bases, we plan to extend our
network of sales offices over a wider region of Japan, including the three major metropolitan areas. In this way, we aim
to differentiate ourselves from the other regional financial institutions and achieve stronger marketing power.
• Strengthening businesses matching functions using its extensive regional network• Engaging in transactions with corporations’ trading partners and employees, using the customer bases of the two banks• Strengthening solution and proposal ability by sharing the know-how of the two banks

2. Increasing Management Efficiency
The Group will strive to create a highly profitable and efficient operation system that more efficiently utilizes management resources by integrating and reorganizing redundant infrastructure in Hokkaido, while stressing the maintenanceand strengthening of excellent relationships with customers of both banks.
• Rebuilding an efficient and effective network of branches• Combining back-office operations and mail delivery services of the two banks within Hokkaido

3. Raising Customer Loyalty
The Group is working to create a stable asset portfolio by utilizing an operating base that extends over two geographicalareas with different economic environments to become a regional financial group supported by customers and enjoying
the firm trust of the financial markets.
• Building an asset portfolio diversified across a wide area and a wide range of industries by utilizing extensive regional operations• Implementing stable capital and dividend policies through the absorption by the holding company of fluctuations in the profits of its subsidiary banks
and companies

We set the following four items as targets in the plan for restoring management soundness to improve profitability, efficiency,
and soundness. The plan will be implemented through March 2012.

14

Hokuhoku Financial Group, Inc. Annual Report 2008

We will continue to work to ensure stable earnings by improving our management efficiency. We intend to put aside sufficient retained earnings to allow the early repayment of our public funds debt, and looking toward the future following thisrepayment, we will be taking active steps to improve our customer services and strengthen our marketing capabilities with theaim of earning the unshakeable trust of both our customers and the financial markets.

Profitability, Efficiency and Soundness under Plan for Sound Management
Further improving our top-class earning capability among the regional banks
Target for March 2012
Net business profit: ¥87.7 billion
Net income: ¥37.3 billion

Investments and measures to raise efficiency, aimed at strengthening marketing capabilities, and improving
service convenience and financial soundness
Target for March 2012
OHR 52.03%

Early repayment of public funds, building up sufficient retained earnings
Target for March 2012
Balance of retained earnings of ¥230.9 billion

Stabilization of financial base
Capital ratio after repayment of public funds will be maintained in approximately 9% and Tier I capital ratio in
approximately 6%.

Income (Hokuriku Bank + Hokkaido Bank)

Gross business profit
Expenses(OHR)
Net business profit
Core business profit
Total credit costs
Ordinary income
Net income(¥ billion)

March 2008

March 2009
(Projected)

March 2010
(Projected)

March 2011
(Projected)

March 2012
(Projected)

181.8
89.9
(49.45%)
93.7
88.6
25.5
65.0
39.0

173.0
93.0
(53.76%)
79.9
81.5
28.0
44.0
49.0

177.8
95.0
(53.45%)
82.7
82.7
22.0
58.7
34.7

180.3
95.6
(53.02%)
84.7
84.7
22.0
60.1
35.3

182.9
95.2
(52.03%)
87.7
87.7
22.0
63.4
37.3

Balance of retained earnings (Hokuhoku Financial Group + Hokuriku Bank + Hokkaido Bank)

Balance of retained earnings

March 2008

March 2009
(Projected)

March 2010
(Projected)

March 2011
(Projected)

March 2012
(Projected)

133.9

149.3

175.6

202.7

230.9

March 2008

March 2009
(Projected)

March 2010
(Projected)

March 2011
(Projected)

March 2012
(Projected)

10.39%
7.48%

10.47%
7.45%

10.74%
7.85%

10.92%
8.27%

11.05%
8.70%

Consolidated capital ratio (Hokuhoku Financial Group)

Consolidated capital ratio
Tier I capital ratio

OHR = Expenses/Gross business profit
Core business profit = Net business profit + Provision for general allowance for loan losses – Gains (losses) related to bonds
Credit costs includes transfer to allowance for loan losses
Balance of retained earnings = Retained earnings – Legal reserve

Hokuhoku Financial Group, Inc. Annual Report 200815

CORPORATE GOVERNANCE

We will strengthen our system of corporate governance and increase
management transparency.
Basic Approach
The holding company and all its member companies regard strengthening and upgrading corporate governance as a management priority. We have drawn up a basic policy — our management philosophy — covering all our activities from management
strategy-setting and decision-making down. We share basic values and philosophies through the Hokuhoku Financial Group
Code of Conduct, for the increased corporate value and the further economic development of Hokuriku and Hokkaido.

Corporate Governance
We have established a decision-making system with the Shareholders’ Meeting and Board of Directors at the top, enabling quick
decision-making, as day-to-day operational authority has been delegated. Bodies such as the Management Committee are able
to respond quickly to specific and detailed matters based on basic policies set by the Board of Directors. Furthermore, in addition to the Management Committee, a Market Strategy Committee, which works to disseminate information on the operation
policy throughout the Company, and a Management Advisory Committee, which is composed of independent specialists andis responsible for checks and follow-up of the Plan for Sound Management, have been established. In this way we have built asystem for effective decision-making, implementation, evaluation, and improvements. In addition, the Board of Directors decides
basic policies on internal controls, and is taking the steps needed to create an effective internal control system.
The following are the main bodies in this system:(1) Board of Directors: Responsible for decisions related to important management policies involving the Group as a whole; and foroverseeing the general management, and risk management and auditing conducted by the holding company and its subsidiaries.
(2) Board of Auditors: Determines auditing policies and assigns specific duties to particular statutory auditors, and monitors theperformance of their duties by the directors.
(3) Management Committee: Composed of standing directors of the Company, this body makes decisions — based on the basic
policies laid down by the Board of Directors — on matters relating to operational policies involving the entire Group and on theimplementation of important tasks by specific divisions.
(4) Management Advisory Committee: Responsible for improving the transparency of Group management and increasing the precision
implementation of the Plan for Sound Management by reflecting proposals made from a specialist’s point of view in management.
(5) Market Promotion Committee: Composed of the executive directors and presidents of subsidiaries; is responsible for disseminating important management policies and similar items throughout the Group and for ensuring that business policy implementationreflects executive decisions by verifying each member’s management situation.

Hokuhoku Financial GroupManagement Advisory Committee

Shareholders’ Meeting

Members: 4 external experts, 2 group auditors
Aim: Check and follow the execution of plan for soundmanagement, advise to management

Market Promotion Committee(Coordication: some members takemore than one position at a time)Members: Group directors + subsidiary presidents
Aim: Implementation of management policy, understandbusiness environment and give indication

Planning Group

ExecutionofBoard of Directors

PDCA

Management Committee
Administration Group

Risk Management Group

Shareholders’ Meeting

Other
subsidiaries

Internal audit

Audit Group

Shareholders’ Meeting
Internal audit

Board of Directors

Board of Directors

Management Committee

Management Committee
Each bank sends
executives to serveon the other’s Board.

16

1 external director

Hokkaido Bank

8 external members
Advises to theManagement

Board of Auditors

Internal audit

Hokuriku BankManagement Advisory
Committee

3 external auditors

Hokuhoku Financial Group, Inc. Annual Report 2008

Management Advisory
Committee
6 external members
Advises to theManagement

COMPLIANCE SYSTEMThe Group rigorously observes all laws and corporate regulations.
Philosophy on Compliance (observance of laws and regulations)
We position compliance as our most important management task and recognize that an incomplete compliance system canweaken our business foundation. Therefore, we are implementing a basic compliance policy as described below, and are striving
to conduct fair and honest corporate activity.
To establish a compliance system for the entire Group, we have worked in cooperation with each member company toestablish various compliance regulations and organizational systems to ensure that each member company has a compliancepolicy in place.
We have created the positions of General Compliance Manager, as the executive in charge of implementing all compliancemeasures within the Group, and a General Manager for Eliminating the Influence of Organized Crime, as the person responsible
for the Group’s resolute response to all organized crime issues and for ensuring that the Group has no connections with criminal
elements.
In addition, we have established a Compliance Program, a concrete plan to realize our compliance goals, and are systematically working to create a compliance system and to raise management and employees’ awareness of compliance issues.
We have also created a compliance office at each Hokuriku Bank and Hokkaido Bank branch, and at each Group company, toaggressively work to implement measures to educate employees about and develop awareness of the need for compliance.

Hokuhoku Financial Group
Board of Directors
Auditors and Board of Auditors, independent audits of importantmatters related to compliance throughout the GroupManagement Committee
Risk Management Group (Compliance General Department)
Integration and Planning related to compliance issues throughout the Group

Hokuriku Bank

Hokkaido Bank

Subsidiaries, etc.

Basic Compliance Policy
1. Recognition of the Group’s basic mission and social responsibilities
As a regional financial institution, the Group recognizes its public duties and social responsibilities and strives to gain
greater trust through the conduct of sound business operations.
2. Providing quality financial services
By providing high-quality, integrated financial services, the Group will contribute to the stable economic and social
development of the region and to a better life for its customers.
3. Strict observance of laws and regulations
The Group strictly observes all relevant laws and regulations, and conducts business in a trustworthy and honest
fashion that conforms to its own standards of corporate ethics and to social norms.
4. Elimination of ties with criminal elements
The Group contributes to a healthy society by resolutely refusing to associate or work with persons known to beconnected with organized crime.
5. Ensuring management transparency
The Group aims for a highly transparent management and organizational culture, and strives for accurate disclosure andswift decision-making.

Hokuhoku Financial Group, Inc. Annual Report 2008

17

RISK MANAGEMENT SYSTEMThe Group is striving to build a risk management system appropriate forrisks to which it is exposed.
The Hokuhoku Financial Group Risk Management System
Amid financial liberalization and globalization, finance services are becoming more diversified and complex, and financial institutions are exposed to various risks, including credit risk, market risk, liquidity risk, and operational risk.
We recognize that risk management is one of our most important management tasks, and are working to improve profitability, ensure sound management, and to strengthen our risk management system in order to win the trust of shareholders andcreditors and to protect customers’ deposits.
In particular, while each Group company has created a risk management department, the Group as a whole is working toward
integrated risk management through close cooperation between these departments. Serving as an overall risk management
unit, the Risk Management Group has drawn up the Risk Management Rules and a Basic Risk Management Policy. In addition,
based on this basic policy, each member company has established a risk management system corresponding to the scope andtype of risk that it is exposed to, and works to manage risk in an appropriate manner.
We have strengthened corporate governance, and ensure sound management by having each group company submit reports
on risk management, by giving appropriate instructions on risk management issues, and by reporting on risk management matters and problems for discussion to the Board of Directors and other management units.

Credit Risk Management
Hokuhoku Financial Group• Report on risks,
problems, andresponses toproblems• Set basic policies• Offers guidanceon matters related
to establishing thesystemBoard of Directors
Management Committee

Risk Management Group

Creditrisk

Marketrisk

Liquidity
risk• Report on the state ofrisk management

Operationalrisk• Determine basic policy andinstructing on items such assystem creation

Group members
Hokuriku Bank

Hokkaido Bank

Subsidiary Bank
Board of Directors
Management Committee
Risk management department

18

Hokuhoku Financial Group, Inc. Annual Report 2008

Subsidiaries, etc.

Credit risk is the risk that, as a result of such factors as thedeterioration of a customer’s business situation, it will become
impossible to recover principal or interest. For banks, with their
mission to act as financial intermediaries, this is an unavoidable risk, but in Hokuhoku Financial Group we endeavor tomaintain and enhance the soundness of our assets throughthe development and strengthening of a structure for the
management of credit risk.
With regard to organization and structure, we ensure strict
separation of the officers and units responsible for businesspromotion and for screening, conducting rigorous screening
and management in a way that does not influence businesspromotion.
When making individual credit judgments, rigorous screening is carried out in accordance with our credit policy, which
lays down matters such as standards and principles. For thispurpose we endeavor to improve system support and also
actively develop the credit inspection structure by such means
as training to enhance screening capabilities.
In addition, we endeavor to prevent bad debts from arising by carrying out follow-up monitoring after financings havebeen executed, and at the same time take steps to enhance
the soundness of assets by building a structure for the administration of bad debts in separate categories, and strengthening our capabilities to assist corporate rehabilitation.
The subsidiary banks conduct assessments of credit risk
through the use of internal rating systems*, and they computeforecast loss rates for each individual obligor category, thereby
endeavoring to ensure the appropriate interest rates to matchrisk. Based on our management rules for credit limits, we seek
to enhance credit risk management by such means as curbing
the risk of credit concentration: the aggregate of marketability
credit and off-balance-sheet credit.

We will continue to raise the quality of our credit risk management and to position ourselves to address the new BIS
regulations.
* Internal rating system: A system in which borrowers are categorizedaccording to creditworthiness and then given ratings after examining
them comprehensively, including by ranking them in accordance withfactors such as financial condition and company characteristics.

Market risk management
Market risk is the risk of loss resulting from fluctuations inmarket rates such as interest rates and exchange rates. Thisis an unavoidable risk when conducting lending and deposittaking business or other businesses involving marketability,
and in recent years it has become increasingly complex.
In light of the importance of market risk management,
Hokuhoku Financial Group has established asset-liability
management committees in the subsidiary banks, and manages market risk in its lending and deposit-taking business andother activities, while endeavoring to conduct its management
in a manner that ensures stable earnings.
(1) Interest-rate risk management
Given the different time structures of assets such as loans
and of liabilities such as deposits, the subsidiary banks areconstantly exposed to interest-rate risk. However, they havea good understanding of their asset-liability structure andconduct unitary management of interest-rate risk, also making effective use of interest-rate swaps and other derivatives
transactions to mitigate and manage interest-rate risk.
(2) Risk management in market-related business
The units in charge of transacting market-related businessengage in that business in accordance with an array of strict
operating rules that include basic policies on risk management
and limits on transaction amounts.
Additionally, risk management units are establishedseparately from the operating units and use various risk management systems to monitor the risk situation, and report tosenior management.

Liquidity risk management
In order to ensure stable cash management, based on ourmanagement rules for liquidity risk we gain an accurate graspof the funding and investment situations of our subsidiarybanks, and take scrupulous care to ensure that fund management is conducted smoothly.
In addition, the subsidiary banks maintain adequate payment reserve assets that are readily convertible into cash,
such as government bonds, creating a structure that is resilient to abrupt changes in the market environment.
.

the level of customer confidence by taking scrupulous care toprevent the occurrence of any impropriety, accidents, or otherproblems.
(1) Administrative risk management
The Group prevents the occurrence of administrative problems
caused by accidents, and ensures rapid yet accurate administrative processing by enhancing the standard of administration
in a variety of ways, including by laying down various rules,
improving its administrative processing systems, dispensing
guidance from its head office, centralizing branch administration, and introducing equipment to automate procedures.
In addition, in order to avoid administrative and other risksof all kinds and to prevent problems, we conduct internal
audits and are establishing mutual checking system and strict
administrative processing systems.
(2) System risk management
With the greater sophistication of financial business andgrowth in transaction volume it is becoming increasingly
important to ensure that computer systems do not fail, andthat systems operate in a stable manner.
The Group has formulated its basic rules for system risk
management (System Risk Standards) and other regulations,establishing a rigorous management and operating structure, and implementing a variety of security management
measures.
(3) Contingency plans
The Group regards risk management as one of its mostimportant management priorities, and therefore endeavors toenhance it. In addition, however, it takes steps to ensure thatin the unlikely event that a disaster or other unforeseen event
occurs, its effects are minimized and business continuity canbe achieved. To that end it formulates contingency plans andmanuals to give guidance on dealing with specific emergency
situations, so as to position itself to cope with crises.

Integrated risk management
As set out above, the Group faces a diversity of risks, and soto ensure that risk is not excessive relative to equity capital
it is incumbent on it to assess each risk by using a common
yardstick and then to grasp and manage the risk that it bears.
To achieve this we have formulated our management rules
for integrated risk, under which we quantify credit risk, market
risk, operational risk, and other risks belonging to various
categories and we estimate maximum loss and identify it in an
integrated form. Based on that, to make effective use of ourlimited capital we make allocations of risk capital funded fromTier I capital, thereby managing risk by limiting it to within
permissible management limits.

Operational risk management
The new BIS regulations, which came into effect on March
31, 2007, also include operational risk within the framework of
the capital ratio regulations. In the Hokuhoku Financial Groupwe will both address the requirements of the new BIS regulations and at the same time will seek to maintain and enhance

Hokuhoku Financial Group, Inc. Annual Report 2008

19

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

2008

2007

Thousands of
U.S. dollars (Note 1)
2008

AssetsCash and due from banks (Note 22) ..................................................................
Call loans and bills bought .................................................................................
Receivables under securities borrowing transactions .........................................
Monetary claims bought ....................................................................................
Trading assets (Note 4) ......................................................................................
Money held in trust (Note 27) .............................................................................
Securities (Notes 5, 10 and 27) ..........................................................................
Loans and bills discounted (Notes 6 and 10) .....................................................
Foreign exchanges (Note 7) ...............................................................................
Other assets (Note 10) .......................................................................................
Tangible fixed assets (Notes 8 and 14) ..............................................................
Intangible fixed assets .......................................................................................
Deferred tax assets (Note 21) ...........................................................................
Customers’ liabilities for acceptances and guarantees (Note 9) ..........................
Allowance for loan losses ..................................................................................
Total assets .....................................................................................................

¥ 282,827
81,521—
185,898
7,952
7,277
1,661,169
6,871,383
14,029159,454
133,480
42,02564,657
159,456(103,169)¥9,567,964¥ 251,379
230,000
21,785
199,938
9,290
14,941
1,649,859
6,813,479
15,657
121,217
133,324
44,53672,086
180,190(119,544)¥9,638,142$ 2,822,913
813,673—
1,855,457
79,36972,633
16,580,195
68,583,527
140,025
1,591,518
1,332,277
419,455
645,347
1,591,546(1,029,738)$95,498,197

Liabilities, and net assets
Liabilities
Deposits (Notes 10 and 11) ...............................................................................
Call money and bills sold (Note 10) ....................................................................
Payables under securities lending transactions (Note 10) ...................................
Trading liabilities (Note 4) ...................................................................................
Borrowed money (Notes 10 and 12) ..................................................................
Foreign exchanges (Note 7) ...............................................................................
Bonds payable (Note 13) ...................................................................................
Other liabilities ...................................................................................................
Reserve for employee bonuses ..........................................................................
Reserve for employee retirement benefits (Note 26) ...........................................
Reserve for contingent loss................................................................................
Reserve for reimbursement of deposits..............................................................
Deferred tax liabilities for revaluation ..................................................................
Acceptances and guarantees (Note 9) ...............................................................
Total liabilities ..................................................................................................

¥8,435,625
40,0006,492
1,563
225,762270
66,500154,373—
11,052
599
2,777
9,061
159,456
9,113,535¥8,458,269
31,57342,777718
223,445411
71,210116,75830
11,323——
9,087
180,190
9,145,793$84,196,278
399,241
64,802
15,6092,253,348
2,701
663,739
1,540,809—
110,311
5,982
27,72390,442
1,591,546
90,962,531

Net assets
Capital stock (Note 15) ......................................................................................
Capital surplus...................................................................................................
Retained earnings (Note 16) ..............................................................................
Treasury stock ...................................................................................................
Total shareholders’ equity ..............................................................................
Valuation difference on available-for-sale securities (Note 27).............................
Deferred gains or losses on hedges ...................................................................
Revaluation reserve for land (Note 14)................................................................
Total valuation and translation adjustments ..................................................
Minority interests ...............................................................................................
Total net assets ...............................................................................................
Total liabilities and net assets ........................................................................

70,895
253,234
125,950(421)
449,658(4,722)
(16)
8,918
4,179
590
454,428¥9,567,964

70,895
293,268
93,072(447)
456,788
26,078(20)
8,957
35,016543
492,348¥9,638,142

707,606
2,527,545
1,257,113(4,207)
4,488,057(47,139)(166)
89,02041,715
5,894
4,535,666$95,498,197

Millions of yen
March 31

See notes to consolidated financial statements.

20

Hokuhoku Financial Group, Inc. Annual Report 2008

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

2008

2007

Thousands of
U.S. dollars (Note 1)
2008

IncomeInterest income:Interest on loans and discounts ....................................................................
Interest and dividends on securities ..............................................................
Interest on receivables under resale agreements ..........................................
Interest on receivables under securities borrowing transaction......................
Interest on deposits with other banks ...........................................................
Other interest income ...................................................................................
Fees and commissions (Note 18) .......................................................................
Trading income (Note 19) ..................................................................................
Other operating income .....................................................................................
Other income.....................................................................................................
Total income......................................................................................................

¥141,966
19,164
210
6
917
3,626
47,275
1,289
34,491
12,617
261,565¥130,641
19,422
132
6
652
4,407
47,6701,411
31,141
10,302245,788$1,416,972
191,282
2,099
62
9,157
36,196
471,862
12,872
344,261
125,935
2,610,698

Expenses
Interest expenses:
Interest on deposits ......................................................................................
Interest on payables under securities lending transactions ............................
Interest on borrowings and rediscounts ........................................................
Interest on bonds payable ............................................................................
Other interest expenses ................................................................................
Fees and commissions (Note 18) .......................................................................
Other operating expenses..................................................................................
General and administrative expenses.................................................................
Provision of allowance for loan losses ................................................................
Other expenses (Note 20) ..................................................................................
Total expenses ..................................................................................................

23,852
523
1,954
1,972
1,175
11,20917,352
96,74324,44819,331
198,563

11,361
876
1,238
1,823
2,321
10,65818,08893,52825,620
7,671
173,190

238,075
5,224
19,505
19,688
11,728111,884
173,196965,598
244,019
192,949
1,981,866

63,002

72,598628,832

1,338
22,96162¥ 38,640

2,094
29,748113¥ 40,642

13,357229,180627$ 385,668

Millions of yen
Years ended March 31

Income before income taxes and minority interests............................................
Income taxes (Note 21):
Current .........................................................................................................
Deferred .......................................................................................................
Minority interests in net income..........................................................................
Net income.......................................................................................................
See notes to consolidated financial statements.

Hokuhoku Financial Group, Inc. Annual Report 2008

21

CONSOLIDATED STATEMENTS OF CHANGES IN NET ASSETS
Hokuhoku Financial Group, Inc. and Consolidated Subsidiaries
Thousands
IssuedIssuednumber of
number ofshares ofshares ofcommon stock preferred stock
Balance as of March 31, 2007 ................................ 1,391,630
336,432
Changes during the year
Cash dividends ....................................................
——Net income ..........................................................
——
Purchase of treasury stock ..................................
——
Disposition of treasury stock ................................
——
Retirement of treasury stock ................................
—(70,000)
Reversal of revaluation reserve for land ................
——
Increase due to the change ofthe interest of associated company ...................
——Net changes of items
other than shareholders’ equity ..........................
——
Total changes during the year ..............................
—(70,000)
Balance as of March 31, 2008 ................................ 1,391,630
266,432

Millions of yen

Capitalstock¥70,895

Capitalsurplus¥293,268

Retainedearnings¥ 93,072

Treasurystock¥ (447)

Total
shareholders’equity¥456,788

—
—
—
—
—
—

—
—
—
(18)
(40,015)—(5,801)38,640
—
—
—
38

—
—
(40,168)180
40,015—(5,801)38,640(40,168)
162
—
38

—

—

—

(1)

(1)

—
—
¥70,895—(40,033)¥253,234—
32,878¥125,950

—
26
(421)

—
(7,129)¥449,658

Minority
interests
¥543

Total
net assets¥492,348

—
—
—
—
—
—

(5,801)38,640(40,168)
162
—
38

—
46
46
¥590

(1)
(30,790)(37,919)¥454,428

Millions of yen
Valuation
Total valuationdifference on
Deferredavailable-for-sale gains or losses Revaluation and translation
securities
on hedges reserve for land adjustments
Balance as of March 31, 2007 .........................................................
¥26,078¥(20)¥8,957¥35,016
Changes during the year
Cash dividends .............................................................................
————Net income ...................................................................................
————
Purchase of treasury stock ...........................................................
————
Disposition of treasury stock .........................................................
————
Retirement of treasury stock .........................................................
————
Reversal of revaluation reserve for land .........................................
————
Increase due to the change ofthe interest of associated company ............................................
————Net changes of items other than shareholders’ equity ...................
(30,801)3(38)(30,836)
Total changes during the year .......................................................
(30,801)3(38)(30,836)
Balance as of March 31, 2008 .........................................................
¥ (4,722)¥(16)¥8,918¥ 4,179
Thousands
IssuedIssuednumber of
number ofshares ofshares ofcommon stock preferred stock
Balance as of March 31, 2006 ................................ 1,286,630
336,432
Changes during the year
Issuance of new shares .......................................
105,000—
Cash dividends ....................................................
——Net income ..........................................................
——
Purchase of treasury stock ..................................
——
Disposition of treasury stock ................................
——
Reversal of revaluation reserve for land ................
——
Increase due to the change ofthe interest of associated company ...................
——Net changes of items
other than shareholders’ equity ..........................
——
Total changes during the year ..............................
105,000—
Balance as of March 31, 2007 ................................ 1,391,630
336,432

22

Hokuhoku Financial Group, Inc. Annual Report 2008¥

Millions of yen

Capitalstock¥50,000

Capitalsurplus¥272,576

Retainedearnings¥57,542

Treasurystock¥(303)

Total
shareholders’equity¥379,814

20,895—————

20,689———2——(5,218)40,642
—
—
105

—
—
—
(157)
10
—

41,584(5,218)40,642
(157)
12
105

—

—

—

3

3

—
20,895¥70,895—
20,691¥293,268—
35,529¥93,072—(143)¥(447)—
76,973¥456,788

Millions of yen
Valuation
Total valuationdifference on
Deferredavailable-for-sale gains or losses Revaluation and translation
securities
on hedges reserve for land adjustments
Balance as of March 31, 2006 .........................................................
¥17,136—¥9,063¥26,199
Changes during the year
Issuance of new shares ................................................................
————Cash dividends .............................................................................
————Net income ...................................................................................
————
Purchase of treasury stock ...........................................................
————
Disposition of treasury stock .........................................................
————
Reversal of revaluation reserve for land .........................................
————
Increase due to the change ofthe interest of associated company ............................................
————Net changes of items other than shareholders’ equity ...................
8,942
(20)
(105)
8,817
Total changes during the year .......................................................
8,942
(20)
(105)
8,817
Balance as of March 31, 2007 .........................................................
¥26,078¥(20)¥8,957¥35,016

Minority
interests
¥451

Total
net assets¥406,465

—
—
—
—
—
—

41,584(5,218)40,642
(157)
12
105

—
92
92
¥543

3
8,909
85,882¥492,348

Thousands of U.S. dollars (Note 1)

Balance as of March 31, 2007 .........................................................
Changes during the year
Cash dividends .............................................................................
Net income ...................................................................................
Purchase of treasury stock ...........................................................
Disposition of treasury stock .........................................................
Retirement of treasury stock .........................................................
Reversal of revaluation reserve for land .........................................
Increase due to the change ofthe interest of associated company ............................................
Net changes of items other than shareholders’ equity ...................
Total changes during the year .......................................................
Balance as of March 31, 2008 .........................................................

Capitalstock$707,606

Capitalsurplus$2,927,122

Retainedearnings$ 928,956

Treasurystock$ (4,466)

Total
shareholders’equity$4,559,218

—
—
—
—
—
—

—
—
—
(181)
(399,396)—(57,900)
385,668
—
—
—
389

—
—
(400,926)
1,804
399,396—(57,900)
385,668(400,926)
1,623
—
389

—
—
—
$707,606——(399,577)$2,527,545——
328,157$1,257,113

(15)
—
259
$ (4,207)(15)—(71,161)$4,488,057

Thousands of U.S. dollars (Note 1)
Valuation
Total valuationdifference on
Deferred
Minority
available-for-sale gains or losses Revaluation and translationinterests
securities
on hedges reserve for land adjustments
Balance as of March 31, 2007 ......................................................... $260,291$(200)$89,409$349,500$5,428Changes during the year
Cash dividends .............................................................................
—
—
—
—
—
Net income ...................................................................................
—
—
—
—
—
Purchase of treasury stock ...........................................................
—
—
—
—
—
Disposition of treasury stock .........................................................
—
—
—
—
—
Retirement of treasury stock .........................................................
—
—
—
—
—
Reversal of revaluation reserve for land .........................................
—
—
—
—
—
Increase due to the change ofthe interest of associated company ............................................
—
—
—
—
—
Net changes of items other than shareholders’ equity ...................
(307,430)34(389)(307,785)
466
Total changes during the year .......................................................
(307,430)34(389)(307,785)
466
Balance as of March 31, 2008 ......................................................... $ (47,139)$(166)$89,020$ 41,715$5,894Total
net assets$4,914,146(57,900)
385,668(400,926)
1,623
—
389
(15)
(307,319)(378,480)$4,535,666

See notes to consolidated financial statements.

Hokuhoku Financial Group, Inc. Annual Report 2008

23

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

2008

2007

Thousands of
U.S. dollars (Note 1)
2008¥ 63,002
15,988244
2,265
0(16,375)
599
(30)
(271)
2,777
(165,891)
29,477
(787)
172
1,355
496
1,338
845
(57,903)(34,492)
11,848(5,182)(97,270)¥ 72,598
16,111
48
2,265
(13)
(40,470)
—
6
(508)
—
(155,263)
17,622
1,949
(78)
(51)
799
177
(37)
(135,210)
211,915
42,468
173,690(12,325)$ 628,832
159,587
2,445
22,6104(163,443)
5,982
(299)
(2,709)27,723(1,655,769)
294,220(7,857)
1,725
13,528
4,951
13,3558,437(577,941)(344,269)
118,258(51,723)(970,865)

162,518
21,7858,427(36,284)
1,628
(140)
(810)
148,454(20,550)(8)37,227(2,620)34,607(214,577)(21,785)(285,927)(65,100)
(841)
65
(10)
132,274(12,478)
1,007(271,677)(872)(272,550)

1,622,100
217,439
84,110(362,156)
16,257(1,402)(8,085)
1,481,726(205,119)(86)
371,566(26,152)
345,414(683,863)
490,793
128,516
7,432
19,209(16,279)819(1,861)(55,233)(271,486)
198,875
173,594
10,50019,504(13,091)686(2,667)
115,914(6,825,667)
4,898,629
1,282,733
74,181
191,727(162,487)
8,180(18,583)(551,287)

12,500(5,000)(3,900)(2,893)—(5,801)(0)(40,168)
162(45,101)(95)(65,822)
231,158¥165,335

20,000(5,000)—(2,356)
41,584(5,218)—(157)
1248,86419(107,751)
338,909¥231,158

124,763(49,905)(38,926)(28,880)—(57,900)(4)(400,926)
1,623(450,155)(953)(656,981)
2,307,196$1,650,215

Millions of yen
Years ended March 31
1. Cash flows from operating activities:
Income before income taxes and minority interests ...................................................
Depreciation .............................................................................................................
Impairment losses on fixed assets.............................................................................
Amortization of goodwill ............................................................................................
Equity in earnings of affiliates ....................................................................................
Increase (decrease) in allowance for loan losses .......................................................
Increase (decrease) in reserve for contingent loss .....................................................
Increase (decrease) in reserve for employee bonuses................................................
Increase (decrease) in reserve for employee retirement benefits ................................
Increase (decrease) in reserve for reimbursement of deposits ...................................
Interest income .........................................................................................................
Interest expenses......................................................................................................
Losses (gains) on securities ......................................................................................
Losses (gains) on money held in trust .......................................................................
Losses (gains) on foreign exchange ..........................................................................
Losses (gains) on sales of fixed assets ......................................................................
Net decrease (increase) in trading assets ..................................................................
Net increase (decrease) in trading liabilities ...............................................................
Net decrease (increase) in loans and bills discounted ................................................
Net increase (decrease) in deposits...........................................................................
Net increase (decrease) in negotiable certificates of deposit ......................................
Net increase (decrease) in borrowed money (excluding subordinated borrowed money) ...
Net decrease (increase) in due from banks (excluding deposits with the Bank of Japan) ...
Net decrease (increase) in call loans, bills bought, commercial paperand other debt purchased ......................................................................................
Net decrease (increase) in receivables under securities borrowing transactions.........
Net increase (decrease) in call money and bills sold ..................................................
Net increase (decrease) in payables under securities lending transactions.................
Net decrease (increase) in foreign exchanges (assets) ...............................................
Net increase (decrease) in foreign exchanges (liabilities) ............................................
Issuance and redemption of bonds payable (excluding subordinated bonds payable) ...
Interest income-cash basis .......................................................................................
Interest expense-cash basis .....................................................................................
Other, net .................................................................................................................
Subtotal.........................................................................................................................
Income taxes paid ....................................................................................................
Net cash provided by (used in) operating activities ...................................................
2. Cash flows from investing activities:
Purchases of securities .............................................................................................
Proceeds from sales of securities..............................................................................
Proceeds from redemption of securities ....................................................................
Proceeds from sales of money held in trust...............................................................
Proceeds from fund management .............................................................................
Purchases of tangible fixed assets ............................................................................
Proceeds from sales of tangible fixed assets .............................................................
Purchases of intangible fixed assets..........................................................................
Net cash provided by (used in) investing activities ....................................................
3. Cash flows from financing activities:
Proceeds from issuance of subordinated borrowed money.......................................
Repayment of subordinated borrowed money ..........................................................
Repayment of subordinated bonds ...........................................................................
Expenditures for fund procurement ...........................................................................
Proceeds from issuance of new shares .....................................................................
Dividends paid ..........................................................................................................
Dividends paid to minority stockholders ....................................................................
Purchases of treasury stock ......................................................................................
Proceeds from sales of treasury stock ......................................................................
Net cash provided by (used in) financing activities ....................................................
4. Effect of exchange rate changes on cash and cash equivalents ..............................
5. Net increase (decrease) in cash and cash equivalents ..............................................
6. Cash and cash equivalents at beginning of the year..................................................
7. Cash and cash equivalents at end of the year (Note 22).............................................
See notes to consolidated financial statements.

24

Hokuhoku Financial Group, Inc. Annual Report 2008

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

1. Basis of Presentation
The accompanying consolidated financial statements have been
prepared in accordance with the provisions set forth in the Japanese
Financial Instruments and Exchange Law and its related accounting
regulations, and in conformity with accounting principles generally
accepted in Japan, which are different in certain respects as toapplication and disclosure requirements of International Financial
Reporting Standards.
The accompanying consolidated financial statements havebeen restructured and translated into English (with some expanded
descriptions) from the consolidated financial statements of
Hokuhoku Financial Group, Inc. (the “Company”) prepared under
the Japanese Financial Instruments and Exchange Law and its
related accounting regulations.
Some supplementary information included in the statutory
Japanese language consolidated financial statements, but notrequired for fair presentation, is not presented in the accompanying
consolidated financial statements.
Amounts less than one million yen have been omitted. As
a result, the totals in Japanese yen shown in the consolidated
financial statements do not necessarily agree with the sum of theindividual amounts. The translation of the Japanese yen amounts
into U.S. dollars is included solely for the convenience of readers
outside Japan, using the prevailing exchange rate at March 31,
2008, which was ¥100.19 to US$1. The U.S. dollar amounts arethen rounded to thousands. The convenience translations should
not be construed as representations that the Japanese yenamounts have been, could have been, or could in the future be,converted into U.S. dollars at that rate.
Certain changes in account name have been made to the priorperiod’s financial statements to conform to the presentation used
for the year ended March 31, 2008.

2. Scope of Consolidation
On September 26, 2003, the Company was formed as a holding
company for The Hokuriku Bank Ltd. by way of stock transfers(“kabushiki-iten”), and on September 29, 2003, Hokugin Lease
Co., Ltd., Hokuriku Card Co., Ltd., Hokuriku Hosho Services Co.,
Ltd. and Hokugin Software Co., Ltd. came under the control of theCompany. Nihonkai Services Co., Ltd. was formed as a whollyowned subsidiary of the Company on December 25, 2003.
On September 1, 2004, The Hokkaido Bank, Ltd. and Dogin
Business Service, Ltd., its consolidated subsidiary, became theCompany’s consolidated subsidiaries by a way of stock-to-stock
exchange (“kabushiki-kokan”).
On March 1, 2006, Dogin Card Co., Ltd., formerly an equitymethod affiliate of the Company, was included in the scope of
consolidation after the Company’s subsidiary, Hokkaido Bank,acquired additional shares of Dogin Card.
The consolidated financial statements as of March 31, 2008
include the accounts of the Company and its 15 subsidiaries (together,
the “Group”). The consolidated subsidiaries are listed below.
Under the control or influence concept, those companies inwhich the Company, directly or indirectly, is able to exercise control
over operations are fully consolidated, and those companies overwhich the Group has the ability to exercise significant influence areaccounted for by the equity method.

Investment in one associated company is accounted for by theequity method. The associated company is also listed below.
All significant intercompany balances and transactions have been
eliminated in consolidation. All material unrealized profit included in
assets resulting from transactions within the Group is eliminated.
Consolidated subsidiaries
Hokuriku Bank, Ltd.
Hokkaido Bank, Ltd.
Hokugin Lease Co., Ltd.
Hokuriku Card Co., Ltd.
Hokuriku Hosho Services Co., Ltd.
Hokugin Software Co., Ltd.
Nihonkai Services Co., Ltd.
Hokugin Business Services Co., Ltd.
Hokugin Office Services Co., Ltd.
Hokugin Real Estate Services Co., Ltd.
Hokugin Shisankanri Co., Ltd.
Hokuriku International Cayman Ltd.
Hokugin Corporate Co., Ltd.
Dogin Business Service, Ltd.
Dogin Card Co., Ltd.

Capital (¥mil)
140,40993,524
100
36
50
30
500
30
20
100
100
US$1,000
100
50
1,226

Ownership (%)
100.00100.0070.25
87.39
100.00100.00100.00(100.00)(100.00)(100.00)(100.00)(100.00)(100.00)(100.00)(100.00)

Notes: 1. Ownership figures in parentheses are inclusive of cross-shareholdings.
2. The two subsidiaries whose balance sheet date differs from the date of theCompany are consolidated using their financial statements based on their tentative
settlement of accounts at the consolidated balance sheet date.

Associated company
Hokuriku Capital Co., Ltd.

Capital (¥mil)
250

Ownership (%)(38.75)

Note: Ownership figure in parentheses is inclusive of cross-shareholdings.

Assets and liabilities of consolidated subsidiaries are valued atfair value at the respective dates of acquisition, and goodwill andnegative goodwill is amortized using the straight-line method over
20 years and 5 years, respectively.

3. Significant Accounting Policies(1) Trading assets/liabilities and trading income/losses
Transactions for trading purposes (seeking gains arising fromshort-term changes in interest rates, currency exchange rates,or market prices of securities and other market related indices orfrom variation among markets) are included in “Trading assets” or“Trading liabilities” on the consolidated balance sheets on a tradedate basis. Income and losses on trading purpose transactions
are recognized on a trade date basis, and recorded as “Trading
income” and “Trading losses.”
Securities and monetary claims purchased for trading purposes
are stated at the fiscal year-end market value, and financial derivatives such as swaps, futures and options are stated at amounts
that would be settled if the transactions were terminated at theconsolidated balance sheet date.
“Trading income” and “Trading losses” include interest received
or paid during the fiscal year, the year-on-year valuation differencesof securities and monetary claims and the year-on-year valuationdifference of the derivatives assuming that the settlement will bemade in cash.
The Group presents foreign currency translation differences arising from currency swaps for trading purposes as “Trading assets”
or “Trading liabilities” on a gross basis, pursuant to the “Treatmentof Accounting and Auditing Concerning Accounting for Foreign
Currency Transactions in Banking Industry” (JICPA Industry Audit
Committee Report No. 25).

Hokuhoku Financial Group, Inc. Annual Report 200825

(2) Securities
As for securities other than trading purposes, debt securities that
consolidated subsidiaries have the positive intent and ability tohold to maturity are classified as held-to-maturity securities and are
carried at amortized cost (straight-line method) using the movingaverage method.
Securities other than trading purpose securities and held-tomaturity securities are classified as available-for-sale securities.
Shares in available-for-sale securities that have market prices
are carried at their average market prices during the final monthof the fiscal year, and bonds and others that have market prices
are carried at their fiscal year-end market prices (cost of securities
sold is calculated using primarily the moving-average method).
Available-for-sale securities with no available market prices are carried at cost or amortized cost using the moving-average method.
Valuation difference on available-for-sale securities, net of income
taxes, are included in “Net assets.”
Securities included in money held in trust are carried in the same
method as for securities mentioned above.
(3) Derivative transactions
Derivative transactions, excluding those classified as trading derivatives, are carried at fair value.
(4) Depreciation method
a. Tangible fixed assets
The Company and the consolidated banking subsidiaries depreciate their equipment on the declining-balance method and theirpremises principally on the straight-line method.
The estimated useful lives of major items are as follows:
Buildings: 6 to 50 years
Equipment: 3 to 20 years
Consolidated non-banking subsidiaries depreciate their equipment and premises principally on the declining-balance method
over their expected useful life.
Lease assets are depreciated on the straight-line method overthe number of years until their lease expires, and their estimateddisposal value at that time serves as their residual value. An additional depreciation is recorded in order to provide for any possible
contingency involving customers, and such expense in the year
ended March 31, 2008 is ¥132 million and comes to ¥237 million
on an accumulated basis.
b. Intangible fixed assets
Intangible fixed assets are depreciated on the straight-line method,and capitalized software for internal use owned by consolidated
subsidiaries is depreciated using the straight-line method over its
estimated useful life (mainly six years).
(5) Long-lived assets
The Group reviews its long-lived assets for impairment whenever
events or changes in circumstance indicate the carrying amountof an asset or asset group may not be recoverable. An impairment
loss would be recognized if the carrying amount of an asset or
asset group exceeds the sum of the undiscounted future cash
flows expected to result from the continued use and eventual
disposition of the asset or asset group. The impairment loss would
be measured as the amount by which the carrying amount of the26

Hokuhoku Financial Group, Inc. Annual Report 2008

asset exceeds its recoverable amount, which is the higher of the
discounted cash flows from the continued use and eventual disposition of the asset or the net selling price at disposition.
(6) Allowance for loan losses
Allowance for loan losses of consolidated banking subsidiaries isprovided as detailed below in accordance with the internal standards for write-offs and provisions.
For claims on borrowers that have entered into bankruptcy, special liquidation proceedings or similar legal proceedings (“bankrupt
borrowers”) or borrowers that are not legally or formally insolvent
but are regarded as substantially in the same situation (“effectively
bankrupt borrowers”), a reserve is provided based on the amountof claims, after the write-off stated below, net of the expectedamount of recoveries from collateral and guarantees.
For claims on borrowers that are not currently bankrupt but areperceived to have a high risk of falling into bankruptcy, a reserve
is provided in the amount deemed necessary based on an overall
solvency assessment of the claims, net of the expected amount ofrecoveries from collateral and guarantees.
For other claims, after classification, the allowance is provided
based on the historical loan-loss ratio.
Branches and credit supervisory departments assess all claimsin accordance with the internal rules for self-assessment of assets,
and the credit review department, independent from these operating sections, audits their assessment. The allowance is provided
based on the results of these assessments.
The Company and its non-banking consolidated subsidiaries
also carry out asset self-assessment utilizing the similar methods
to those employed by the consolidated subsidiaries engaging inbanking operations to make provisions for doubtful accounts in theamount deemed necessary.
For collateralized or guaranteed claims on bankrupt borrowers and effectively bankrupt borrowers, the amount exceeding
the estimated value of collateral and guarantees is deemed to beuncollectible and written off against the total outstanding amountof the claims. The amount of write-off was ¥135,533 million($1,352,768 thousand) and ¥163,826 million at March 31, 2008
and 2007, respectively.
(7) Reserve for employee bonuses
Reserve for employee bonuses is provided for payment of bonuses
to employees, in the amount of estimated bonuses, which are
attributable to the respective fiscal year.
(8) Reserve for employee retirement benefits
Reserve for employee retirement benefits is provided for payment of
retirement benefits to employees, in the amount deemed accruedat the fiscal-year end, based on the projected retirement benefit
obligation and the fair value of plan assets at the fiscal year-end.
Unrecognized prior service costs are amortized using thestraight-line method, over eight or nine years within the employees’
average remaining service period at incurrence.
Unrecognized net actuarial gain (loss) is amortized using thestraight-line method, over eight or nine years within the employees’
average remaining service period, commencing from the next fiscal
year of incurrence.

Unrecognized net transitional obligation from the initial application of the new accounting standard for employee retirement
benefits (¥28,464 million) is amortized primarily using straight-line
method over 15 years.
(9) Reserve for contingent loss
Reserve for contingent loss is provided for possible losses in accordance with the Joint Responsibility System of Credit Guarantee
Corporations which was introduced on October 1, 2007.
(10) Reserve for reimbursement of deposits
Reserve for reimbursement of deposits which were not previously
recognized as liabilities under certain conditions is provided forpossible losses on the future claims of withdrawal based on thehistorical reimbursement experience.
Formerly, deposits which were derecognized from liabilities were
expended when they were actually reimbursed. However, from thefiscal year ended March 31, 2008, such reserve is provided in theestimated amounts as described above in accordance with the“Treatment for Auditing of Reserve under Special Taxation Measures
Law, Reserve under Special Law and Reserve for Retirement ofBenefits to Director and Corporate Auditors” (JICPA Audit andAssurance Practice Committee Report No.42) for the year ended
March 31, 2008. As a result, Income before income taxes andminority interests decreased by ¥2,777 million ($27,723 thousand).
(11) Translation of foreign currency assets and liabilities
Assets and liabilities denominated in foreign currencies are translated into Japanese yen mainly at the exchange rate prevailing at
the consolidated balance sheet date.
(12) Lease transactions
Financing leases excluding those in which the ownership of theproperty is transferred to the lessee, are accounted for in the same
method as operating leases.
(13) Accounting for significant hedges
a. Interest risk hedges
The consolidated banking subsidiaries hedge interest rate risks
arising from their financial assets and liabilities by employing thetechnique known as “individual hedging” that establishes a specificposition to directly hedge a particular item. Such hedges, limited
to certain assets and liabilities, are accounted for by the deferred
method or, where appropriate interest rate swaps are involved, by
the special rule method.
b. Foreign currency risk hedges
The consolidated banking subsidiaries hedge currency exchange
fluctuation risks arising from their foreign currency denominatedfinancial assets and liabilities. Such hedges are accounted for by
the deferred method specified in the “Accounting and Auditing
Treatments in Banking Business in Accounting for Foreign Currency
Denominated Transactions and Others” (JICPA Industry Audit
Committee Report No. 25).
The effectiveness of hedges is assessed as follows: where
currency swap transactions and exchange swap transactions areused as hedging instruments to offset exchange fluctuation risks
arising from foreign currency denominated financial assets andliabilities, it is assessed by verifying the agreement of the amountsof the designated hedging instruments with corresponding hedged
foreign currency financial assets and liabilities.
Consolidated non-banking subsidiaries are not engaged in
hedging operations using derivative transactions.
(14) Per share information
Basic earnings per share is computed by dividing net income available to common stockholders by the weighted-average number ofcommon shares outstanding for the period.
Diluted earnings per share reflects the potential dilution that could
occur if preferred stocks were converted into common stocks.
(15) Accounting for consumption tax
National and local consumption taxes are accounted for by the tax
exclusion method.
However, a range of consumption taxes on equipment andpremises that cease qualifying for exclusion is expensed as
incurred.
(16) Accounting for income taxes
The provision for income taxes is computed based on the pretax
income included in the consolidated statements of income. The
asset and liability approach is used to recognize deferred tax assets
and liabilities for the expected future tax consequences of temporary differences between the carrying amounts and the tax basesof assets and liabilities. Deferred taxes are measured by applying
currently enacted tax laws to the temporary differences.
(17) Cash and cash equivalents in consolidated statements of cash flows
Cash and cash equivalents consist of cash on hand and demand
deposits with the Bank of Japan.

4. Trading Accounts
Trading accounts as of March 31, 2008 and 2007 are as follows:
Thousands of
U.S. dollars
2008

AssetsMillions of yen
2008
2007

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

¥4,125
3,826¥7,952¥6,3492,940¥9,290$41,175
38,194$79,369

Liabilities

Millions of yen
2008
2007

Thousands of
U.S. dollars
2008

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

¥1,563¥1,563$15,609$15,609¥718¥718

5. Securities
Securities as of March 31, 2008 and 2007 are as follows:
Millions of yen
2008
2007

Japanese government bonds ......... ¥ 701,755 ¥ 706,877
Japanese local government bonds ...
216,978
161,707
Japanese corporate bonds.............
445,971
421,966
Japanese stocks ...........................
167,742
225,348
Other securities ............................
128,722
133,960
Total ............................................ ¥1,661,169 ¥1,649,859

Thousands of
U.S. dollars
2008$ 7,004,245
2,165,670
4,451,253
1,674,241
1,284,786$16,580,195

Hokuhoku Financial Group, Inc. Annual Report 200827

6. Loans and Bills Discounted
Loans and bills discounted as of March 31, 2008 and 2007 are as
follows:
Millions of yen
2008
2007

Bills discounted............................. ¥ 124,166 ¥ 141,093
Loans on bills ...............................
586,733
687,112Loans on deeds ............................ 5,111,434 4,961,956
Overdrafts .................................... 1,049,048 1,023,316
Total ............................................ ¥6,871,383 ¥6,813,479

Thousands of
U.S. dollars
2008$ 1,239,310
5,856,211
51,017,416
10,470,590$68,583,527

Loans and bills discounted include loans to borrowers underbankruptcy proceedings, overdue loans, loans overdue for at least
three months and restructured loans.
The amounts of these loans are as follows:
Millions of yen
2008
2007

Loans to borrowers underbankruptcy proceedings .............. ¥ 22,756
Overdue loans .............................. 193,383
Loans overdue for atleast three months ......................
172
Restructured loans ........................
47,643
Total ............................................ ¥263,955

Thousands of
U.S. dollars
2008¥ 23,526
233,667$ 227,131
1,930,164

232
61,809¥319,235

1,720
475,534$2,634,549

These amounts represent the amount before deduction of theallowance for loan losses.

Guarantees obligations on securities issued by private placement (pursuant to Article 2, Clause 3 of the Japanese Financial
Instruments and Exchange Law) amounted to ¥112,895 million($1,126,812 thousand) and ¥112,115 million as of March 31, 2008
and 2007, respectively.

10. Pledged Assets
Assets that are pledged as collateral as of March 31, 2008 and2007 are as follows:
Millions of yen
2008
2007

Assets that are pledged as collateral:
Securities ................................. ¥175,406
Loans and bills discounted ........ 370,693
Obligations corresponding tocollateral assets:
Deposits .................................. ¥ 61,268
Payables under securities
lending transactions................
6,492
Call money and bills sold...........
30,000Borrowed money ...................... 172,300

Millions of yen
2008
2007

¥ 7,751
2,039
4,238¥14,029
¥

¥

82
184
4
270

¥ 7,150
2,478
6,029¥15,657
¥

¥

216
158
35
411

Thousands of
U.S. dollars
2008$ 77,365
20,35842,302$140,025
819
1,841
41
$ 2,701

The accumulated depreciation amounted to ¥162,428 million($1,621,209 thousand) and ¥164,884 million as of March 31, 2008
and 2007, respectively.
The book value of tangible fixed assets adjusted for gains onsales of replaced assets amounted to ¥3,898 million ($38,915
thousand) and ¥3,835 million as of March 31, 2008 and 2007,
respectively.

9. Customers’ Liabilities for Acceptances and Guarantees
All contingent liabilities arising from acceptances and guarantees
are reflected in acceptances and guarantees. As a contra account,customers’ liabilities for acceptances and guarantees is also shownon the assets side, which represents the Bank’s right of indemnityfrom the applicants.

Hokuhoku Financial Group, Inc. Annual Report 2008

Securities ..................................... ¥204,844
Other assets .................................
58¥ 48,089$ 611,525

42,77730,000177,200

64,802
299,431
1,719,733¥186,590
58

Thousands of
U.S. dollars
2008$2,044,556
580

Other assets included guarantee deposits of ¥4,449 million($44,415 thousand) and ¥4,730 million as of March 31, 2008 and2007, respectively.

11. Deposits
Deposits as of March 31, 2008 and 2007 are as follows:
Millions of yen
2008
2007

$

8. Tangible fixed assets

28$1,750,741
3,699,900

In addition to the assets presented above, the following assets
were pledged as collateral relating to transactions on exchange
settlements or as substitutes for futures transaction margins as ofMarch 31, 2008 and 2007:

7. Foreign Exchanges

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

¥186,049
253,347

Millions of yen
2008
2007

Foreign exchanges as of March 31, 2008 and 2007 are as follows:

Thousands of
U.S. dollars
2008

Current deposits, ordinary deposits,
saving deposits and deposits at notice ... ¥4,009,612 ¥4,260,437
Time deposits andinstallment savings ......................... 4,157,401 3,980,785
173,817
134,100
Other deposits ...................................
Subtotal .............................................. ¥8,340,831 ¥8,375,324
94,79382,945
NCDs ...................................................
Total .................................................... ¥8,435,625 ¥8,458,269

Thousands of
U.S. dollars
2008$40,020,087
41,495,174
1,734,881$83,250,142
946,136$84,196,278

12. Borrowed Money
Borrowed money includes ¥50,500 million ($504,042 thousand)and ¥43,000 million of subordinated borrowed money as of March
31, 2008 and 2007, respectively.

13. Bonds Payable
Bonds payable include ¥66,500 million ($663,739 thousand) and¥70,400 million of subordinated bonds as of March 31, 2008 and2007, respectively.

14. Revaluation Reserve for Land
Under the “Law Concerning Land Revaluation,” Hokuriku Bank,
Ltd. revaluated its own land for business operation as of March 31,
1998. The revaluation gain is included in net assets as “Revaluation
reserve for land.” The carrying amount of the land after the above
one-time revaluation exceeded the market value by ¥22,068 million($220,264 thousand) and ¥22,124 million as of March 31, 2008
and 2007, respectively.

15. Capital Stock
Information with respect to capital stock of the Company as ofMarch 31, 2008 and 2007 is as follows:
2008

Number of shares:
Authorized:
Common ..................................... 2,800,000,000
Preferred (Type 1) ........................
400,000,000
Preferred (Type 2) ........................
200,000,000
Preferred (Type 3) ........................
200,000,000
Preferred (Type 4) ........................
90,000,000
Preferred (Type 5) ........................
110,000,000
Issued and outstanding:Common ..................................... 1,391,630,146
Preferred (Type 1) ........................
80,000,000
Preferred (Type 4) ........................
79,000,000
Preferred (Type 5) ........................
107,432,000

2007

2,800,000,000
400,000,000
200,000,000
200,000,000
90,000,000
110,000,000
1,391,630,146
150,000,000
79,000,000
107,432,000(1) Preferred Stock (Type 1 and Type 4)
Preferred stocks (Type 1 and Type 4) are noncumulative and nonparticipating for
dividend payments, and stockholders of the preferred stock are not entitled tovote at a general meeting of stockholders except when the proposal to pay theprescribed dividends to stockholders is not submitted to the general meeting ofstockholders or is rejected at the general meeting of stockholders.
Annual dividends per share of preferred stock (Type 1 and Type 4) are paid tostockholders by ¥7.70 and ¥6.62, respectively.
In cases of liquidation distribution, stockholders of preferred stock (Type 1 andType 4) will receive ¥500 and ¥570 per share, respectively, and will not have theright to participate in any further liquidation distribution.
The Company may, at any time, purchase and retire preferred stocks out of
earnings available for distribution to the stockholders.
Stockholders of preferred stock (Type 1 and Type 4) may request the Company
to convert their preferred stocks into common stocks. The period during which
the conversion may be requested (the “conversion period”) and the terms andconditions of conversion with respect to preferred stock (Type 1 and Type 4)
were determined by the resolution made in accordance with the provisions of
the Corporate Law of Japan (“the Corporate Law”), of a stockholders meeting of
the Company. The conditions of conversion of preferred stock (Type 1 and Type4) were determined by the resolution of the Board of Directors relating to theissuance of the relevant preferred stocks. The conversion period and conversion
price* of each type of preferred stock are as follows:
Preferred stock (Type 1): September 1, 2004 to July 29, 2010 ¥402.10
Preferred stock (Type 4): September 1, 2004 to July 31, 2010 ¥402.10* Conversion prices are reset and adjusted pursuant to the appointed rules governing
conversion of the preferred stocks.

Any preferred stock (Type 1 and Type 4) with respect to which conversion
has not been requested during the conversion period shall be mandatorily converted, as of the date immediately following the last day of the conversion period(the “mandatory conversion date”), into such number of common stocks as is
obtained by dividing the corresponding amount set forth below by the averageof the daily closing prices per share of common stock in regular transactions at
the Tokyo Stock Exchange on each of the 30 consecutive trading days (excluding
any day on which the closing price is not available) commencing on the 45th
trading day preceding the mandatory conversion date. If such average price isless than ¥150 and ¥137.50, in the case of preferred stock (Type 1 and Type4), respectively, then the preferred stock shall be converted into such numberof common stocks as is obtained by dividing the corresponding amount set forth
below by the relevant amount described above:
Preferred stock (Type 1): ¥500 per share
Preferred stock (Type 4): ¥570 per share(2) Preferred stock (Type 5)
Preferred stock (Type 5) is noncumulative and nonparticipating for dividend
payments, and stockholders of the preferred stock (Type 5) are not entitled tovote at a general meeting of stockholders except when the proposal to pay theprescribed dividends to stockholders is not submitted to the general meeting ofstockholders or is rejected at the general meeting of stockholders.
Annual dividends per share of preferred stock (Type 5) are paid to stockholders by ¥15.00.

16. Shareholders’ Equity
Since May 1, 2006, Japanese banks have been subject to the
Banking Law and the Corporate Law, which reformed and replaced
the Commercial Code of Japan. The significant provisions in the
Corporate Law that affect financial and accounting matters are
summarized below:
a. Dividends
Under the Corporate Law, companies can pay dividends at any
time during the fiscal year in addition to the year-end dividend upon
resolution at the stockholders meeting. For companies that meetcertain criteria such as; (1) having the Board of Directors, (2) having
independent auditors, (3) having the Board of Corporate Auditors,and (4) the term of service of the directors is prescribed as one year
rather than two years of normal term by its articles of incorporation,
the Board of Directors may declare dividends (except for dividends
in kind) at any time during the fiscal year if the company has prescribed so in its articles of incorporation. However, the Company
cannot do so because it does not meet all the above criteria.
Semiannual interim dividends may also be paid once a year upon
resolution by the Board of Directors if the articles of incorporationof the company so stipulate. The Corporate Law provides certain
limitations on the amounts available for dividends or the purchaseof treasury stock. The limitation is defined as the amount available
for distribution to the shareholders, but the amount of net assets
after dividends must be maintained at no less than ¥3 million.
b. Increases/decreases and transfer of common stock, reserveand surplus
The Banking Law requires that an amount equal to 20% of
dividends must be appropriated as a legal reserve (a componentof retained earnings) or as additional paid-in capital (a componentof capital surplus) depending on the equity account charged upon
the payment of such dividends until the total of aggregate amountof legal reserve and additional paid-in capital equals 100% of thecommon stock. Under the Corporate Law, the total amount ofadditional paid-in capital and legal reserve may be reversed without
limitation. The Corporate Law also provides that common stock,legal reserve, additional paid-in capital, other capital surplus andretained earnings can be transferred among the accounts undercertain conditions upon resolution of the shareholders.
c. Treasury stock and treasury stock acquisition rights
The Corporate Law also provides for companies to purchase treasury stock and dispose of such treasury stock by resolution of theBoard of Directors. The amount of treasury stock purchased cannot exceed the amount available for distribution to the stockholders
which is determined by a formula stipulated by the Corporate Law.

Hokuhoku Financial Group, Inc. Annual Report 200829

Under the Corporate Law, stock acquisition rights, which werepreviously presented as a liability, are now presented as a separate
component of net assets.
The Corporate Law also provides that companies can purchaseboth treasury stock acquisition rights and treasury stock. Suchtreasury stock acquisition rights are presented as a separate component of equity or deducted directly from stock acquisition rights.

17. Per Share Information
Yen

Net assets per share .............................
Basic earnings per share .......................
Diluted earnings per share .....................

2008

2007

¥225.62¥ 25.81¥ 23.48¥227.57¥ 27.93¥ 23.05

Reconciliation of the differences between basic and diluted
earnings per share for the years ended March 31, 2008 and 2007
are as follows:
Millions ofyen
Net income

For the year ended March 31, 2008:
Basic earnings per share
Net income available tocommon stockholders ..............
Effect of dilutive securities
Preferred stock..........................
Diluted earnings per share
Net income for computation .......
For the year ended March 31, 2007:
Basic earnings per share
Net income available tocommon stockholders ..............
Effect of dilutive securities
Preferred stock..........................
Diluted earnings per share
Net income for computation .......

Thousands ofshares
Weighted
average shares

Yen
Earnings
per share¥35,889

1,390,354

1,138

186,203¥37,028

1,576,557¥37,353

1,337,204

1,677

355,749¥39,031

1,692,954¥25.81¥23.48¥27.93¥23.05

Fees and commissions for the years ended March 31, 2008 and2007 are as follows:
Millions of yen
2008
2007

¥11,121
13,2059,470
13,478¥47,275¥11,097
13,661
9,553
13,358¥47,670

Millions of yen
2008
2007

Fees and commissions (expenses)
Remittances and transfers ........
Others .....................................
Total ............................................

30(a) Trading income

Millions of yen
2008
2007

Thousands of
U.S. dollars
2008

Income from trading securities .......
Income from trading derivatives .....
Total ............................................

¥ 250
1,038
¥1,289¥ 350
1,060¥1,411$ 2,502
10,370$12,872(b) Trading losses

Millions of yen
2008
2007

Thousands of
U.S. dollars
2008

Losses on trading securities ..........
Total ............................................

—
—

—
—

—
—

20. Other Expenses
Included in other expenses for the fiscal year ended March 31,
2008 and 2007 were write-offs of loans and bills discounted of¥1,282 million ($12,796 thousand) and ¥1,035 million, impairment
losses on stocks and other securities of ¥8,482 million ($84,661
thousand) and ¥595 million, losses on sales of loans of ¥1,719 million ($17,165 thousand) and ¥1,795 million, respectively.

21. Income Taxes

18. Fees and Commissions

Fees and commissions (income)
Deposits and loans ...................
Remittances and transfers ........
Securities-related business .......
Others .....................................
Total ............................................

19. Trading Income and Losses¥ 2,156
9,052¥11,209

Hokuhoku Financial Group, Inc. Annual Report 2008

¥ 2,2128,446¥10,658

Thousands of
U.S. dollars
2008$111,001
131,804
94,528
134,529$471,862
Thousands of
U.S. dollars
2008$ 21,528
90,356$111,884

The Company and its domestic subsidiaries are subject to Japanesenational and local income taxes which, in the aggregate, resulted ina normal effective statutory tax rate of approximately 40.43% for
the years ended March 31, 2008 and 2007, respectively.
The tax effects of significant temporary differences and tax loss
carryforwards which generated deferred tax assets and liabilities at
March 31, 2008 and 2007 are as follows:
Millions of yen
2008
2007

Deferred tax assets:
Allowance for loan losses ............... ¥ 75,921
Depreciation ..................................
2,083
Reserve for employee
retirement benefits ....................... 15,608
Loss on valuation of securities ........ 12,827
Valuation difference on availablefor-sale securities
4,208
Other.............................................
4,896
Operating loss carryforwards .......... 29,777
Subtotal.................................... 145,323
Less: Valuation allowance ............... 73,681
Total deferred tax assets ..................... 71,641
Deferred tax liabilities:
Valuation difference on—
available-for-sale securities .......... ¥Book-value correction
for securities................................
6,073
Other.............................................
910
Total deferred tax liabilities ..................
6,984
Net deferred tax assets ....................... ¥ 64,657

Thousands of
U.S. dollars
2008¥ 92,043
2,127$ 757,771
20,792

14,231
11,072

155,788
128,030—
3,404
43,252
166,132
75,984
90,14842,007
48,875297,2131,450,476
735,421715,055¥ 17,218

$

—

—
842
18,061¥ 72,086

60,6189,090
69,708$ 645,347

22. Cash and Cash Equivalents
The reconciliations of “Cash and cash equivalents” in the consolidated statements of cash flows and “Cash and due from banks” inconsolidated balance sheets as of March 31, 2008 and 2007, areas follows:
Millions of yen
2008
2007

Cash and due from banks inbalance sheet ............................. ¥282,827
Due from banks except for
deposits with the Bank of Japan... (117,492)
Cash and cash equivalents inthe statements of cash flows ....... ¥165,335

Thousands of
U.S. dollars
2008¥251,379$2,822,913(20,221)(1,172,698)¥231,158$1,650,215

23. Commitment Lines
Loan agreements and commitment line agreements relating toloans are agreements, which oblige the Group to lend funds up toa certain limit agreed in advance. The Group makes the loans upon
the request of an obligor to draw down funds under such loan
agreements, as long as there is no breach of the various terms andconditions stipulated in the relevant loan agreement. The unused

commitment balance relating to these loan agreements amounted
to ¥2,247,264 million ($22,430,026 thousand) and ¥2,275,536
million as of March 31, 2008 and 2007, respectively, out of which,¥2,206,850 million ($22,026,657 thousand) and ¥2,225,144 million
related to loans where the term of the agreement is one year or
less, or unconditional cancellation of the agreement is allowed at
any time, as of March 31, 2008 and 2007, respectively.
In many cases the term of the agreement runs its course without
the loan ever being drawn down. Therefore, the unused loan commitment will not necessarily affect future cash flows. Conditions areincluded in certain loan agreements which allow the Group either todecline the request for a loan draw down or to reduce the agreed
limit amount where there is due cause to do so, such as when
there is a change in financial condition, or when it is necessary
to do so in order to protect the Group’s credit. The Group takes
various measures to protect its credit. Such measures include having the obligor pledge collateral to the Bank and its consolidated
subsidiaries in the form of real estate, securities etc. on signing theloan agreement, or in accordance with the Group’s establishedinternal procedures confirming the obligor’s financial condition etc.
at regular intervals.

24. Segment Information(a) Segment information by business
For the fiscal years ended March 31, 2008 and 2007 consolidated results by business segment are as follows:
Millions of yen
2008
Elimination or
corporate

Banking

Lease

Other business

Total

I. Ordinary income(1) Ordinary income from outside customers ......................
(2) Ordinary income from intersegment transactions ...........
Total ................................................................................
Ordinary expenses............................................................
Ordinary profits (loss)........................................................

Consolidated¥ 235,686
1,915
237,602173,650¥ 63,952¥16,417
1,385
17,803
17,448¥ 354¥ 9,153
6,804
15,95813,417¥ 2,540¥ 261,257
10,106271,363
204,516¥ 66,846¥—(10,106)(10,106)(9,576)¥(529)¥ 261,257—
261,257
194,940¥ 66,317

II. Identifiable assets.............................................................
Depreciation expense .......................................................
Losses on impairment of fixed assets ................................
Capital expenditures .........................................................

¥9,546,268
5,958
244
7,585

¥45,428
9,639—
10,190¥157,976
390—
365¥9,749,674
15,988244
18,141¥(181,709)———¥9,567,964
15,988244
18,141Elimination or
corporate

Consolidated

Millions of yen
2007
Banking

Lease

Other business

Total

I. Ordinary income(1) Ordinary income from outside customers ......................
(2) Ordinary income from intersegment transactions ...........
Total ................................................................................
Ordinary expenses............................................................
Ordinary profits (loss)........................................................

¥ 217,318
1,509
218,828
150,821¥ 68,006¥16,750
1,385
18,136
17,700¥ 435¥ 8,199
6,553
14,752
12,384¥ 2,368¥ 242,268
9,448
251,716
180,906¥ 70,810¥—(9,448)(9,448)(8,655)¥(792)¥ 242,268—
242,268
172,251¥ 70,017

II. Identifiable assets
Depreciation expense .......................................................
Losses on impairment of fixed assets ................................
Capital expenditures .........................................................

¥9,602,495
5,594
48
4,985

¥46,366
10,123—
10,558¥176,393
393
0
215¥9,825,255
16,11148
15,759¥(187,113)———¥9,638,142
16,11148
15,759Hokuhoku Financial Group, Inc. Annual Report 200831

Thousands of U.S. dollars
2008
Banking

Lease

Other businessElimination or
corporate

Total

Consolidated

I. Ordinary income(1) Ordinary income from outside customers ...................... $ 2,352,397(2) Ordinary income from intersegment transactions ...........
19,120Total ................................................................................
2,371,517
Ordinary expenses............................................................
1,733,207
Ordinary profits (loss)........................................................ $ 638,310$163,864
13,832
177,696
174,159$ 3,537$

91,361
67,919159,280
133,925$ 25,355$ 2,607,622
100,8712,708,493
2,041,291$ 667,202$—(100,871)(100,871)(95,582)$(5,289)$ 2,607,622—
2,607,622
1,945,709$ 661,913

II. Identifiable assets............................................................. $95,281,652
Depreciation expense .......................................................
59,472Losses on impairment of fixed assets ................................
2,445
Capital expenditures .........................................................
75,706$453,428
96,214—
101,712$1,576,768
3,901
—
3,652

$97,311,848
159,587
2,445
181,070$(1,813,651)———$95,498,197
159,587
2,445
181,070(b) Segment information by location
As operations in Japan, in terms of all segments and total assets for all segments, accounted for more than 90% of total ordinary profits,
information by location has been omitted.
(c) Segment information about the ordinary profits from international operations
As ordinary profits from international operations accounted for less than 10% of total ordinary profits, information about the ordinary profits
from international operations has been omitted.

25. Lease Transactions
Finance lease transactions that do not transfer ownership of theleased property to the lessee for the years ended March 31, 2008
and 2007 are as follows:(Lessee)
Pro forma information with respect to the leased property, such as
acquisition cost, accumulated depreciation and net book value atMarch 31, 2008 and 2007 are as follows:
Millions of yen
2008
2007

Acquisition cost ............................
Accumulated depreciation .............
Net book value ..............................

¥4,2071,763¥2,444¥3,736
1,191¥2,544

Thousands of
U.S. dollars
2008

Millions of yen
2008
2007

Thousands of
U.S. dollars
2008

¥ 690
1,753
¥2,444$ 6,894
17,504$24,398

¥ 595
1,948
¥2,544

Pro forma information concerning lease payments and depreciation expense for the years ended March 31, 2008 and 2007 are
as follows:
Millions of yen
2008
2007

Lease payments............................
Depreciation expense ....................

¥659
659

¥435
435

Thousands of
U.S. dollars
2008$6,582
6,582

The method of calculating the pro forma amounts of depreciation expense for the years ended March 31, 2008 and 2007 are as
follows:
Depreciation is computed based on the straight-line method
over the period of lease, with no residual value.

32

Hokuhoku Financial Group, Inc. Annual Report 2008

Millions of yen
2008
2007

Acquisition cost ............................
Accumulated depreciation .............
Balance at year-end ......................

¥46,459
21,735¥24,723¥48,60922,927¥25,681

Thousands of
U.S. dollars
2008$463,714
216,947$246,767

The pro forma amounts of lease receivable under finance leaseat March 31, 2008 and 2007 are as follows:$41,999
17,602$24,397

Pro forma amounts of obligations under finance lease at March
31, 2008 and 2007 are as follows:

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

(Lessor)
Acquisition cost, accumulated depreciation and balance at March
31, 2008 and 2007 are as follows:

Millions of yen
2008
2007

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

¥ 8,953
17,615¥26,569¥ 9,491
17,683¥27,175

Thousands of
U.S. dollars
2008$ 89,365
175,824$265,189

Lease payments received and depreciation expense for theyears ended March 31, 2008 and 2007 are as follows:
Millions of yen
2008
2007

Lease payments received ..............
Depreciation expense ....................

¥10,717
9,636¥11,508
10,104

Thousands of
U.S. dollars
2008$106,975
96,186

26. Retirement Benefits(a) Overview of the Group’s retirement benefit plans
The Hokuriku Bank, Ltd., provides defined benefit programs that include a corporate pension plan, a qualified retirement pension plan and aretirement lump sum grant. At the time of retirement, employees may be issued a premium retirement grant that is not subject to inclusion in
the actuarial computation of projected benefit obligations in conformity to the standards for accounting for retirement benefits. The Hokuriku
Bank, Ltd., was approved by the Minister of Health, Labor and Welfare on February 17, 2003, to be relieved of the obligation to administer the
future payment service of the government mandated portion of its employees pension fund. The Hokuriku Bank, Ltd. was further approved on
March 1, 2005, to switch from the employees pension fund to a corporate pension fund.
The Hokkaido Bank, Ltd., provides defined benefit arrangements that combine a retirement lump sum grant and an employees pension
fund plan. The Hokkaido Bank, Ltd., was approved by the Minister of Health, Labor and Welfare on March 26, 2004, to be relieved of theobligation to administer the future payment service of the government mandated portion of the employees pension fund.
The consolidated domestic subsidiaries other than the two noted above provide retirement lump sum grants.
The Company’s employees are all on loan from its subsidiaries, and are covered by the retirement benefit program of the subsidiaries fromwhich they each come.
The Hokuriku Bank, Ltd., has established benefit trust arrangements as a part of its plan assets.
(b) Retirement benefit
Millions of yen
2008
2007

Projected benefit obligations (A) ................................................................................................................................
Plan assets at fair value (B).......................................................................................................................................
Projected benefit obligations in excess of plan assets (C) = (A) + (B) ...........................................................................
Unrecognized transitional obligation (D) .....................................................................................................................
Unrecognized actuarial differences (E) .......................................................................................................................
Unrecognized prior service costs (F) ..........................................................................................................................
Net projected benefit obligations recognized on the consolidated balance sheets (G) = (C) + (D) + (E) + (F) ...................
Prepaid pension costs (H) .........................................................................................................................................
Reserve for employee retirement benefits (G) – (H) .....................................................................................................

¥(93,264)
61,510(31,753)
13,27014,081(4,502)(8,904)
2,147¥(11,052)¥(92,942)
82,140(10,801)
15,165(7,765)(6,500)(9,902)
1,421¥(11,323)

Thousands of
U.S. dollars
2008$(930,878)
613,941(316,937)
132,450
140,546(44,939)(88,880)
21,431$(110,311)(c) Retirement benefit expenses

Service costs ...........................................................................................................................................................
Interest costs on projected benefit obligations ............................................................................................................
Expected return on plan assets .................................................................................................................................
Amortization of unrecognized prior service costs ........................................................................................................
Amortization of unrecognized actuarial differences .....................................................................................................
Amortization of transitional obligation ........................................................................................................................
Other (additional payments, including premium retirement benefits) ............................................................................
Net periodic retirement benefit expenses ...................................................................................................................

Millions of yen
2008
2007

Thousands of
U.S. dollars
2008¥2,042
2,098(2,252)(1,997)
(91)
1,895
287
¥1,981$20,385
20,944(22,486)(19,942)(918)
18,921
2,872$19,776¥1,9602,092(1,946)(1,997)
(959)
1,895
341
¥1,386(d) Assumptions for calculation of projected benefit obligations(1) Discount rate .........................................................................................................................................
(2) Expected rate of return on pension assets................................................................................................
(3) Method of benefit attribution ...................................................................................................................
(4) Period of amortization of unrecognized prior service costs ........................................................................
(5) Period of amortization of unrecognized actuarial differences .....................................................................
(6) Period of amortization of transitional obligation.........................................................................................

2008

2007

2.0% – 2.5%
3.5% – 4.0%
Straight-line method
8 or 9 years
8 or 9 years
15 years

2.0% – 2.5%
3.0% – 4.0%
Straight-line method
8 or 9 years
8 or 9 years
15 years

Hokuhoku Financial Group, Inc. Annual Report 200833

27. Market Value of Securities and Money Held in Trust(1) Securities
The market value of securities at March 31, 2008 and 2007 was as follows:
1. The amounts shown in the following tables include trading securities classified as “Trading assets,” negotiable certificates of deposit
bought classified as “Cash and due from banks,” and commercial papers and beneficiary claims on loan trusts classified as “Commercial
paper and other debt purchased,” in addition to “Securities” stated in the consolidated balance sheets.
2. Investments in subsidiaries and affiliates have no market quotations.
(a) Securities classified as trading purposes

March 31
Consolidated balance sheet amount ..........................................................................................................................
Valuation gains included in the earnings for the fiscal year .........................................................................................

Millions of yen
2008
2007

Thousands of
U.S. dollars
2008¥4,125
39$41,176399¥6,3494(b) Bonds classified as held-to-maturity with market value
Millions of yen

March 31, 2008

Japanese government bonds ............................................................
Japanese local government bonds ....................................................
Japanese corporate bonds................................................................
Other ..............................................................................................
Total ...............................................................................................

Consolidatedbalance sheet
amountMarketvalue

Net unrealized
gains (losses)

Unrealized
gains

Unrealized
losses¥13,854
10,87853,45917,135¥95,327¥14,278
10,90153,26916,938¥95,387

¥423
22
(189)
(196)
¥ 59

¥423
22
41
19
¥507

¥ —
0
230
216
¥447

Millions of yen

March 31, 2007

Japanese government bonds ............................................................
Japanese local government bonds ....................................................
Japanese corporate bonds................................................................
Other ..............................................................................................
Total ...............................................................................................

Consolidatedbalance sheet
amountMarketvalue

Net unrealized
gains (losses)

Unrealized
gains

Unrealized
losses¥11,837
10,96357,746
18,973¥99,521¥11,966
10,96657,72818,625¥99,288

¥ 129
3
(17)
(347)
¥(233)

¥142
6
70
17
¥237

¥ 13
3
88
365
¥470

Thousands of U.S. dollars

March 31, 2008

Consolidatedbalance sheet
amountMarketvalue

Net unrealized
gains (losses)

Unrealized
gains

Unrealized
lossesJapanese government bonds ............................................................
Japanese local government bonds ....................................................
Japanese corporate bonds................................................................
Other ..............................................................................................
Total ...............................................................................................

$138,285
108,579
533,579
171,026$951,469$142,514
108,806
531,688
169,059$952,067$4,229227(1,891)(1,967)$ 598$4,229228412
194$5,063

$

—
1
2,303
2,161
$4,465

Note: Market value is calculated by using market prices at the fiscal year-end.

(c) Available-for-sale securities with market value
Millions of yen

34

March 31, 2008

Acquisition
cost

Consolidatedbalance sheet
amountStocks .............................................................................................
Bonds .............................................................................................
Japanese government bonds........................................................
Japanese local government bonds ................................................
Japanese corporate bonds ...........................................................
Other ..............................................................................................
Total ...............................................................................................

¥ 123,196
1,185,426
705,534
204,864
275,027
121,064¥1,429,687¥ 136,411
1,169,342
687,900
206,099
275,342
114,862¥1,420,616

Hokuhoku Financial Group, Inc. Annual Report 2008

Net unrealized
gains (losses)

Unrealized
gains

Unrealized
losses¥13,215(16,083)(17,634)
1,235
315(6,202)¥ (9,070)¥22,579
4,949
2,072
1,772
1,104
792
¥28,321¥ 9,364
21,032
19,707
536
789
6,994
¥37,391

Millions of yen

March 31, 2007

Acquisition
cost

Consolidatedbalance sheet
amountStocks .............................................................................................
Bonds .............................................................................................
Japanese government bonds........................................................
Japanese local government bonds ................................................
Japanese corporate bonds ...........................................................
Other ..............................................................................................
Total ...............................................................................................

¥ 128,673
1,117,355
715,076
152,558
249,720
115,857¥1,361,886¥ 189,891
1,092,252
695,039
150,743
246,468
116,850¥1,398,994

Acquisition
cost

Consolidatedbalance sheet
amountNet unrealized
gains (losses)

Unrealized
gains

Unrealized
losses$ 1,229,628
11,831,780
7,041,966
2,044,756
2,745,058
1,208,350$14,269,758$ 1,361,530
11,671,252
6,865,959
2,057,091
2,748,202
1,146,447$14,179,229$131,902(160,528)(176,007)
12,335
3,144(61,903)$ (90,529)$225,367
49,401
20,69017,691
11,0207,905$282,673$ 93,465
209,929
196,697
5,356
7,876
69,808$373,202

Millions of yen
2008
2007

Thousands of
U.S. dollars
2008

Net unrealized
gains (losses)

Unrealized
gains

Unrealized
losses¥61,218(25,103)(20,037)(1,814)(3,251)
992¥37,107¥64,006
602
97
308
195
2,946
¥67,555¥ 2,788
25,705
20,134
2,123
3,447
1,953
¥30,447

Thousands of U.S. dollars

March 31, 2008

Stocks .............................................................................................
Bonds .............................................................................................
Japanese government bonds........................................................
Japanese local government bonds ................................................
Japanese corporate bonds ...........................................................
Other ..............................................................................................
Total ...............................................................................................

Note: Consolidated balance sheet amount is determined as follows:
StocksAverage market price during one month before the fiscal year-end
Bonds and other Market price at the fiscal year-end(d) Available-for-sale securities sold during the years ended March 31, 2008 and 2007

Year ended March 31
Proceeds from sales................................................................................................................................................. ¥474,673
Gains on sales .........................................................................................................................................................
10,160Losses on sales .......................................................................................................................................................
891¥190,377
1,504
2,884

$4,737,730
101,4168,898(e) Securities with no available market value
Thousands of U.S.
Millions of yen
dollars
Consolidated balance sheet amount
2008
2007
2008

March 31

Bonds classified as held-to-maturity.......................................................................................................................... ¥ 36,627
Privately placed bonds .........................................................................................................................................
36,627Available-for-sale securities ...................................................................................................................................... 264,689
Unlisted stocks ....................................................................................................................................................
31,087
Unlisted foreign securities ....................................................................................................................................
1
Other .................................................................................................................................................................. 233,601¥ 33,977
33,977
286,00935,0291
250,979$ 365,580
365,580
2,641,879
310,285122,331,582

Millions of yen
After 1 year
After 5 years
through 5 years
through 10 years

After 10 years(f) Change in classification of securities
Not applicable.
(g) Redemption schedule of available-for-sale securities with maturities and held-to-maturity bonds

March 31, 2008

Within 1 year

Bonds ..........................................................................................................................
Japanese government bonds.....................................................................................
Japanese local government bonds .............................................................................
Japanese corporate bonds ........................................................................................
Other ...........................................................................................................................
Total ............................................................................................................................

¥222,776
120,085
21,002
81,68813,267¥236,043¥625,987
212,022
115,956
298,008
43,666¥669,654¥368,651
223,249
80,01965,38235,118¥403,770¥147,289
146,397—892
14,329¥161,619

Hokuhoku Financial Group, Inc. Annual Report 200835

March 31, 2007

Within 1 year

Bonds ..........................................................................................................................
Japanese government bonds.....................................................................................
Japanese local government bonds .............................................................................
Japanese corporate bonds ........................................................................................
Other ...........................................................................................................................
Total ............................................................................................................................

¥120,063
52,5689,438
58,056
6,625¥126,689

Millions of yen
After 1 year
After 5 years
through 5 years
through 10 years¥550,937
204,479
82,198264,259
49,416¥600,354¥418,312
250,93170,07097,31039,909¥458,222

March 31, 2008

Within 1 year

Thousands of U.S. dollars
After 1 year
After 5 years
through 5 years
through 10 years

Bonds ..........................................................................................................................
Japanese government bonds.....................................................................................
Japanese local government bonds .............................................................................
Japanese corporate bonds ........................................................................................
Other ...........................................................................................................................
Total ............................................................................................................................

$2,223,539
1,198,579
209,625
815,335
132,420$2,355,959$6,248,000
2,116,204
1,157,364
2,974,432
435,841$6,683,841

After 10 years¥201,236
198,897—
2,339
15,083¥216,320

After 10 years$3,679,523
2,228,262
798,681652,580
350,521$4,030,044$1,470,105
1,461,200—
8,905
143,025$1,613,130

Millions of yen
2008
2007

Thousands of
U.S. dollars
2008¥4,780(36)¥7,423
56$47,714(360)

Millions of yen
2008
2007

Thousands of
U.S. dollars
2008(2) Money Held in Trust(a) Money held in trust classified as trading purposes

March 31
Consolidated balance sheet amount ..........................................................................................................................
Valuation gains (losses) included in profit/loss during the year ....................................................................................
(b) Money held in trust classified as held-to-maturity
Not applicable(c) Other money held in trust

March 31
Acquisition cost .......................................................................................................................................................
Consolidated balance sheet amount ..........................................................................................................................
Net unrealized gains.................................................................................................................................................
Unrealized gains ..................................................................................................................................................
Unrealized losses.................................................................................................................................................

¥2,500
2,496
(3)
0
3

¥7,500
7,517
17
29
11

$24,952
24,918(34)
135

Millions of yen
2008
2007

Thousands of
U.S. dollars
2008

Note: Consolidated balance sheet amount is calculated by using market prices at the fiscal year-end.

(3) Net Unrealized Gains on Available-for-Sale Securities and Other Money Held in Trust

March 31
Net unrealized gains.................................................................................................................................................
Available-for-sale securities .................................................................................................................................
Other money held in trust .....................................................................................................................................
Net deferred taxes (liabilities) ....................................................................................................................................
Net unrealized gains (losses) (before following adjustments) .......................................................................................
(–) Minority interests ................................................................................................................................................
(+) The Group’s interest in net unrealized gains on available-for-sale securities
held by affiliates accounted for by the equity method ..........................................................................................
Net unrealized gains.................................................................................................................................................

36

Hokuhoku Financial Group, Inc. Annual Report 2008¥(9,073)(9,070)(3)
4,208(4,864)0¥37,125
37,10717(11,352)
25,772
16$(90,564)(90,530)(34)
42,008(48,556)10

142¥(4,722)322¥26,078

1,427$(47,139)28. Derivatives
The Hokuriku Bank, Ltd. and The Hokkaido Bank, Ltd. (together, the “Banks”) use swaps, futures, forward and option contracts, and othersimilar types of contracts based on either interest rates, foreign exchange rates or securities prices.
The purpose for using financial derivative products are 1) to meet the hedging needs of customers, 2) to reduce market risks related to theassets and liabilities and 3) for trading purposes under the strict risk management structure.
Derivative transactions are accompanied by losses arising from credit risk and losses resulting from market risk.
Derivatives transactions entered into by the Banks have been made in accordance with its risk management policies and procedures,and positions, gain- and-loss amounts, risk amounts and other information regarding the status of trading transactions are reported to the
management board.
· Interest Rate-Related Transactions

March 31, 2008

Contract
Value

Millions of yen
MarketValue

RecognizedGain (Loss)

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

¥644,990
678,218
387,051
379,396
53,97432,438/¥5,031(2,130)(2,813)
2,815
(221)
184
¥2,867¥ 5,031(2,130)
5,525
2,815
2,183
(452)
¥12,973

March 31, 2007

Contract
Value

Millions of yen
MarketValue

RecognizedGain (Loss)

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

¥573,425
602,067
362,062352,339
87,36256,456/¥(3,840)
7,232
(867)
866
(359)
397
¥ 3,428¥ (3,840)
7,232
7,244
866
2,782
(397)
¥13,887

March 31, 2008

Contract
Value

Thousands of U.S. dollars
MarketValue

RecognizedGain (Loss)$6,437,669
6,769,323
3,863,173
3,786,773
538,726
323,768/$50,221(21,261)(28,084)
28,104(2,207)
1,845$28,618$ 50,221(21,261)
55,151
28,104
21,797(4,520)$129,492

March 31, 2008

Contract
Value

Millions of yen
MarketValue

RecognizedGain (Loss)

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

¥ 68,042
15,81915,158
848,434
848,434/¥¥

Over-the-counter transactions
Swaps
Receive/fixed and pay/floating.............................................................................................................
Receive/floating and pay/fixed.............................................................................................................
Options/sell ............................................................................................................................................
Options/buy............................................................................................................................................
Others/sell .............................................................................................................................................
Others/buy .............................................................................................................................................
Total ..........................................................................................................................................................
· Foreign Exchange-Related Transactions

298
344
(712)
(71,417)
71,417¥ (69)

298
344
(712)
(2,253)
18,372¥16,049

Hokuhoku Financial Group, Inc. Annual Report 200837

Millions of yen
MarketValue

RecognizedGain (Loss)¥¥

March 31, 2007

Contract
Value

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

¥ 66,074
20,50125,012
662,654662,654/

March 31, 2008

Contract
Value

Thousands of U.S. dollars
MarketValue

RecognizedGain (Loss)$ 679,132
157,897
151,301
8,468,259
8,468,259/$ 2,984
3,434(7,108)(712,816)
712,817$ (689)$ 2,984
3,434(7,108)(22,493)
183,379$160,196

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

300
(576)
292
(27,230)
27,229
¥
15

300
(576)
292
18,315(8,063)¥10,267

At March 31, 2008 and 2007, the Group had no outstanding derivatives contracts in stock related transactions, bond related transactions,commodity related transactions and credit derivative transactions.

29. Subsequent Events(1) Appropriations of Retained Earnings
The following appropriations of retained earnings at March 31, 2008 were approved at the Company’s general stockholders meeting held on
June 25, 2008:

Cash dividends, ¥2.50 per share on common stock ...................................................................................................................
Cash dividends, ¥3.85 per share on preferred stock (Type 1)......................................................................................................
Cash dividends, ¥3.31 per share on preferred stock (Type 4)......................................................................................................
Cash dividends, ¥7.50 per share on preferred stock (Type 5)......................................................................................................

Millions of yen

Thousands of
U.S. dollars¥3,476308
261
805$34,699
3,074
2,610
8,042

(2) Acquisition and Retirement of a Portion of Preferred Stock
The Company resolved the acquisition and retirement of the following preferred stock at the meeting of the Board of Directors held on June23, 2008:
Type of preferred stock acquired
Preferred Stock (Type 1)
Preferred Stock (Type 4)
Total number of stock acquired
30,000,000 shares
17,600,000 shares
Acquisition price per share (yen)¥600.60¥687.08
Total acquisition cost (yen)¥18,018,000,000¥12,092,608,000
Name of the seller
The Resolution and Collection Corporation
The Resolution and Collection Corporation
Date of acquisition and retirement
June 26, 2008
June 26, 2008
Capital surplus was decreased by ¥30,110 million ($300,535 thousand) as a result of the retirement of the preferred stock in the above.

38

Hokuhoku Financial Group, Inc. Annual Report 2008

REPORT OF INDEPENDENT AUDITORS

To the Board of Directors
Hokuhoku Financial Group, Inc.
We have audited the accompanying consolidated balance sheets of Hokuhoku Financial Group, Inc. (the “Company”) andconsolidated subsidiaries as of March 31, 2008 and 2007, and the related consolidated statements of income, changes in net
assets, and cash flows for the years then ended, all expressed in Japanese yen. These consolidated financial statements are
the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial
statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted in Japan. Those standards require thatwe plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and significant estimates made by management,
as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated
financial position of Hokuhoku Financial Group, Inc. and consolidated subsidiaries as of March 31, 2008 and 2007, and theconsolidated results of their operations and their cash flows for the years then ended in conformity with accounting principles
generally accepted in Japan.
Supplemental Information
As discussed in Note 29 to the consolidated financial statements, the Company resolved the acquisition and retirement of thepreferred stock at the meeting of the Board of Directors held on June 23, 2008.
The U.S. dollar amounts in the accompanying consolidated financial statements with respect to the year ended March 31,
2008 are presented solely for convenience. Our audit also included the translation of Japanese yen amounts into U.S. dollar
amounts and, in our opinion, such translation has been made on the basis described in Note 1.

June 25, 2008

June 25, 2008

Member of Ernst & Young Global

Member of Deloitte Touche Tohmatsu

Hokuhoku Financial Group, Inc. Annual Report 2008

39

NONCONSOLIDATED FINANCIAL STATEMENTSNONCONSOLIDATED BALANCE SHEETS (UNAUDITED)The Hokuriku Bank, Ltd.

2008

2007

Thousands of
U.S. dollars
2008

AssetsCash and due from banks .................................................................................
Call loans and bills bought .................................................................................
Monetary claims bought ....................................................................................
Trading assets ...................................................................................................
Money held in trust ............................................................................................
Securities ..........................................................................................................
Loans and bills discounted ................................................................................
Foreign exchanges ............................................................................................
Other assets ......................................................................................................
Tangible fixed assets .........................................................................................
Intangible fixed assets .......................................................................................
Deferred tax assets............................................................................................
Customers’ liabilities for acceptances and guarantees .......................................
Allowance for loan losses ..................................................................................
Allowances for investment losses ......................................................................
Total assets .....................................................................................................

¥ 189,431
30,519185,805
5,463—
820,950
4,197,098
8,385
81,84865,732
3,452
42,78089,640(51,084)(58)¥5,669,966¥ 140,378
120,000
199,8856,078
2,426
853,235
4,124,931
9,970
55,03264,931
3,880
46,053
101,676(57,759)(58)¥5,670,665$ 1,890,722
304,6211,854,534
54,534—
8,193,933
41,891,388
83,692816,933
656,075
34,460426,997894,709(509,876)(579)$56,592,143

Liabilities and net assets
Liabilities
Deposits ............................................................................................................
Call money and bills sold ...................................................................................
Payables under securities lending transactions ..................................................
Trading liabilities ................................................................................................
Borrowed money ...............................................................................................
Foreign exchanges ............................................................................................
Other liabilities ...................................................................................................
Reserve for employee retirement benefits ..........................................................
Reserve for contingent loss................................................................................
Reserve for reimbursement of deposits..............................................................
Deferred tax liabilities for revaluation ..................................................................
Acceptances and guarantees ............................................................................
Total liabilities ..................................................................................................

¥4,955,752
40,0006,492
1,566
249,335
191
76,982
285
270
2,232
9,061
89,6405,431,811¥4,976,321
31,573
13,880718
246,256373
51,171
209
—
—
9,087
101,676
5,431,268$49,463,548
399,241
64,803
15,631
2,488,631
1,911
768,3642,850
2,699
22,27990,442894,70954,215,108

Net assets
Capital stock .....................................................................................................
Capital surplus...................................................................................................
Retained earnings .............................................................................................
Total shareholders’ equity ..............................................................................
Valuation difference on available-for-sale securities ............................................
Deferred gains or losses on hedges ...................................................................
Revaluation reserve for land ...............................................................................
Total valuation and translation adjustments ..................................................
Total net assets ...............................................................................................
Total liabilities and net assets ........................................................................

140,409
14,99871,645
227,054
2,198
(16)
8,918
11,100238,155¥5,669,966

140,409
14,99854,411
209,820
20,642(23)
8,957
29,577239,397¥5,670,665

1,401,432
149,704
715,101
2,266,237
21,944(166)
89,020110,798
2,377,035$56,592,143

Millions of yen
March 3140

Hokuhoku Financial Group, Inc. Annual Report 2008

NONCONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)The Hokuriku Bank, Ltd.

2008

2007

Thousands of
U.S. dollars
2008

IncomeInterest income:Interest on loans and discounts ....................................................................
Interest and dividends on securities ..............................................................
Interest on deposits with other banks ...........................................................
Other interest income ...................................................................................
Fees and commissions ......................................................................................
Trading income..................................................................................................
Other operating income .....................................................................................
Other income.....................................................................................................
Total income......................................................................................................

¥ 82,696
10,431
911
3,286
25,082
1,150
8,342
9,404
141,306¥ 76,148
9,953
640
3,279
25,597
1,265
8,879
4,748
130,512$ 825,396
104,115
9,099
32,805
250,352
11,483
83,26893,864
1,410,382

Expenses
Interest expenses:
Interest on deposits ......................................................................................
Interest on payables under securities lending transactions ............................
Interest on borrowings and rediscounts ........................................................
Other interest expenses ................................................................................
Fees and commissions ......................................................................................
Other operating expenses..................................................................................
General and administrative expenses.................................................................
Provision of allowance for loan losses ................................................................
Other expenses .................................................................................................
Total expenses ..................................................................................................

14,743
505
2,961
1,173
6,584
0
50,784
19,404
11,867108,024

6,972
851
2,394
2,315
6,368
1
49,332
21,666
2,625
92,528147,155
5,046
29,562
11,71265,7191
506,881
193,675
118,449
1,078,200

33,281

37,983

332,182

201
11,852¥ 21,22788
19,256¥ 18,638

2,006
118,303$ 211,873

Millions of yen
Years ended March 31

Income before income taxes..............................................................................
Income taxes:
Current .........................................................................................................
Deferred .......................................................................................................
Net income.......................................................................................................

Hokuhoku Financial Group, Inc. Annual Report 2008

41

NONCONSOLIDATED BALANCE SHEETS (UNAUDITED)The Hokkaido Bank, Ltd.

Millions of yen
March 31

42

Thousands of
U.S. dollars
2008

2008

2007

AssetsCash and due from banks .................................................................................
Call loans and bills bought .................................................................................
Receivables under securities borrowing transactions .........................................
Monetary claims bought ....................................................................................
Trading account securities .................................................................................
Money held in trust ............................................................................................
Securities ..........................................................................................................
Loans and bills discounted ................................................................................
Foreign exchanges ............................................................................................
Other assets ......................................................................................................
Tangible fixed assets .........................................................................................
Intangible fixed assets .......................................................................................
Deferred tax assets............................................................................................
Customers’ liabilities for acceptances and guarantees .......................................
Allowance for loan losses ..................................................................................
Total assets .....................................................................................................

¥

92,22451,001
—
1
2,488
7,277
893,897
2,686,873
5,643
56,507
26,781
3,004
22,82828,171(35,834)¥3,840,867¥ 110,593
110,000
21,78503,203
12,514
850,659
2,692,922
5,687
46,88325,747
2,791
27,14430,269(44,074)¥3,896,127

920,498
509,052—
14
24,83572,6338,922,021
26,817,777
56,333563,999
267,310
29,993
227,852
281,185(357,670)$38,335,832

Liabilities and net assets
Liabilities
Deposits ............................................................................................................
Payables under securities lending transactions ..................................................
Borrowed money ...............................................................................................
Foreign exchanges ............................................................................................
Other liabilities ...................................................................................................
Reserve for employee retirement benefits ..........................................................
Reserve for contingent loss................................................................................
Reserve for reimbursement of deposits..............................................................
Acceptances and guarantees ............................................................................
Total liabilities ..................................................................................................

¥3,546,510—
40,00079
47,566
10,415328
545
28,171
3,673,617¥3,541,316
28,89685,90037
34,923
10,785——30,2693,732,130$35,397,851

Net assets
Capital stock .....................................................................................................
Capital surplus...................................................................................................
Retained earnings ..............................................................................................
Total shareholders’ equity
Valuation difference on available-for-sale securities ............................................
Deferred gains or losses on hedges ...................................................................
Total valuation and translation adjustments ..................................................
Total net assets ...............................................................................................
Total liabilities and net assets ........................................................................

93,524
16,79557,445
167,764
(515)
—
(515)
167,249¥3,840,867

93,524
16,79542,942
153,261
10,732
3
10,735
163,997¥3,896,127

933,467
167,632
573,365
1,674,464(5,145)—(5,145)
1,669,319$38,335,832

Hokuhoku Financial Group, Inc. Annual Report 2008$

399,241790
474,759
103,9603,283
5,444
281,185
36,666,513

NONCONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)The Hokkaido Bank, Ltd.

2008

2007

Thousands of
U.S. dollars
2008

IncomeInterest income:Interest on loans and discounts ....................................................................
Interest and dividends on securities ..............................................................
Interest on receivables under resale agreements ..........................................
Interest on deposits with other banks ...........................................................
Other interest income ...................................................................................
Fees and commissions ......................................................................................
Other operating income .....................................................................................
Other income.....................................................................................................
Total income......................................................................................................

¥58,728
9,408
210
0
346
18,306
7,178
1,970
96,148¥53,783
9,404
132
0
1,135
18,4783,082
2,443
88,461$586,169
93,910
2,099
0
3,454
182,717
71,646
19,665
959,660

Expenses
Interest expenses:
Interest on deposits ......................................................................................
Interest on payables under securities lending transactions ............................
Interest on borrowings and rediscounts ........................................................
Other interest expenses ................................................................................
Fees and commissions ......................................................................................
Other operating expenses..................................................................................
General and administrative expenses.................................................................
Provision of allowance for loan losses ................................................................
Other expenses .................................................................................................
Total expenses ..................................................................................................

9,257
17
964
1
6,297
1,787
39,3704,133
5,859
67,687

4,486
25
612
6
5,810
2,254
37,914
3,622
2,051
56,782

92,395179
9,624
1762,853
17,836392,954
41,25258,483
675,593

28,46031,678284,067

61
10,582¥17,81564
10,896¥20,717617
105,629$177,821

Millions of yen
Years ended March 31

Income before income taxes..............................................................................
Income taxes:
Current .........................................................................................................
Deferred .......................................................................................................
Net income.......................................................................................................

Hokuhoku Financial Group, Inc. Annual Report 2008

43

CORPORATE INFORMATIONThe Hokuhoku Financial Group is composed of the holding company and 15 consolidated subsidiaries and one affiliate. Our core businessis banking, and we also provide a wider range of services including leases, credit cards, financing, and venture capital. The following is adiagram of our business.

Business Diagram
Hokuhoku Financial Group, Inc
Hokugin Lease Co., Ltd.
(Leasing)

The Hokuriku Bank, Ltd.

The Hokkaido Bank, Ltd.

Hokugin Business Services Co., Ltd.
(document management, cash management,
concentrated business processing)

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

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

Hokugin Office Services Co., Ltd.
(Human resource solutions)

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

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

Hokugin Real Estate Services Co., Ltd.
(Property management)

Hokugin Software Co., Ltd.
(Software development)

Hokugin Shisankanri Co., Ltd.
(Auctioning pledged properties)

Nihonkai Services Co., Ltd.
(Servicer)

Hokuriku International Cayman Limited(Finance)

Hokuhoku Capital Co., Ltd.*(Venture capital, IPO consulting)* Affiliated company

Hokugin Corporate Co., Ltd.
(Corporate rehabilitation)

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

Address

Established

Capital

FG’s share of
voting rights

Dividend

The Hokuriku Bank, Ltd.

1-2-26 Tsutsumicho-dori, Toyama City

Banking

July 31, 1943

140,409100.00

4,032

The Hokkaido Bank, Ltd.

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

Banking

March 5, 1951

93,524100.003,313

Hokugin Lease Co., Ltd.

2-21 Aramachi, Toyama City

Leasing

July 21, 1983

100

70.25

—

Hokuriku Card Co., Ltd.

1-2-1 Shintomi-cho, Toyama City

Credit card operations,loan guarantees

March 2, 1983

36

87.39

3

Hokuriku Hosho Services Co., Ltd.

1-2-26 Tsutsumicho-dori, Toyama City

Credit guarantees

December 12, 1978

50

100.00—

Hokugin Software Co., Ltd.

1-5-25 Higashidenjigata, Toyama City

Software development

May 1, 198630

100.00—Nihonkai Services Co., Ltd.

1-6-8 Chuo-dori, Toyama City

Servicer

December 5, 2003

500

100.00—

Hokugin Business Services Co., Ltd.

1883 Hiyodorijima, Toyama City

March 25, 1953
Document management,
cash management, ATM/CD
maintenance/operation,
concentrated business processing

30(100.00)—

Hokugin Office Services Co., Ltd.

1-2-26 Tsutsumicho-dori, Toyama City

Human resource solutions

March 3, 1986

20

(100.00)—

Hokugin Real Estate Services Co., Ltd.

1-2-26 Tsutsumicho-dori, Toyama City

Property Management

September 26, 1988

100

(100.00)—

Hokugin Shisankanri Co., Ltd.

1-2-26 Tsutsumicho-dori, Toyama City

Auctioning pledged properties

March 7, 2000

100

(100.00)—

Hokuriku International Cayman Limited P.O. Box 309 Grand Cayman,
Cayman Islands, British West Indies

Finance

April 27, 1993

US$1,000(100.00)—

Hokugin Corporate Co., Ltd.

3-2-10 Nihonbashi-Muromachi,
Chuo-ku, Tokyo

Corporate rehabilitation

December 1, 2004

100

(100.00)—

Dogin Business Service, Ltd.

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

June 8, 1979
Document management,
cash management, ATM/CD
maintenance/operation,
concentrated business processing

50(100.00)—

Dogin Card Co., Ltd.

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

Credit card operations,loan guarantees

June 13, 1977

1,226

(100.00)—

Hokuhoku Capital Co., Ltd.*

1-6-8 Chuo-dori, Toyama City

Venture Capital

January 11, 1985

250

5.00
(38.75)0* Equity method-affiliated company( ) Indicates voting rights involving shares held by subsidiaries

44

Main business activities

Hokuhoku Financial Group, Inc. Annual Report 2008

OUTLINE OF SUBSIDIARIES - HOKURIKU BANKThe Hokuriku Bank, Ltd..
Web site: www.hokugin.co.jp

Establishment

History

The origin of the Hokuriku Bank is the Kanazawa 12th National
Bank, which was established on August 26, 1877 with the Houseof Kaga-Maeda providing 70% of the financing. The Bank was thecreation of the family established by Maeda Toshiie, the founder ofthe Kaga clan.
A unique, extensive regional bank, Hokuriku Bank worked withleading industries, and was a leader in areas such as international
operations, securities, and electronic banking. The Bank provides
high-quality integrated financial services that precisely and quickly
meet the needs of local customers. It will continue to contribute toregional development.

August 1877

Kanazawa 12th National Bank founded

February 1879

Toyama 123rd National Bank founded

January 1884

Kanazawa 12th National Bank and Toyama 123rd National
Bank merged to form Toyama 12th National Bank with
headquarters in Toyama City

July 1897

Toyama 12th National Bank changed name to 12th Bank

July 1943

Four banks, 12th, Takaoka, Chuetsu, and Toyama Bank,
merged to form Hokuriku Bank

January 1950

Launched foreign exchange operations (first regional bank to
do so)

September 1961

Listed on the Tokyo Stock Exchange

November 1961

Present head office built

January 1971

Received blanket approval to engage in correspondentbanking services

November 1973

Completed first integrated online system linking all offices

March 1974

Received blanket approval to engage in foreign exchange
business

July 1978

Received blanket approval to handle yen-denominated andforeign-denominated syndicated loans

October 1979

Launched second online system

November 1981

Launched online foreign exchange system

Company outline (as of March 31, 2008)
Business:
Incorporation:
Location of headquarters:
President:
Total assets:
Deposits (including NCDs):
Loans:
Issued shares:

The Hokuriku Bank, Ltd.
Banking
July 31, 1943 (founded in 1877)
1-2-26 Tsutsumicho-dori, Toyama City Toyama
Shigeo Takagi¥5,669.9 billion¥4,955.7 billion¥4,197.0 billion
Common stock
Preferred stock (Type 1)

987,147,185
150,000,000

Capital ratio(non-consolidated):
10.10%
Employees:
2,545
Branches (as of June 30, 2008)
Domestic:
186 (130 branches, 56 sub-branches)
Overseas:
3 representative offices

January 1984

Launched firm banking service

May 1987

Introduced VI (visual identification)

August 1990

Completed third online system

November 1993

Launched investment trust agent operations

December 1998

Launched over-the-counter sale of securities investment
trustsJune 2000

Launched Internet and mobile banking services

July 2000

Completed new computer center (Alps building)January 2001

Launched new computer system

April 2001

Launched over-the-counter sales of casualty insurance

February 2002

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

February 2002

Launched convenience store ATM service (E-net)

October 2002

Launched over-the-counter sales of life insurance

March 2003

Took over part of the Ishikawa Bank’s operations

September 2003

Established Hokugin Financial Group through share transfer,then became subsidiary of the Hokugin Financial Group

September 2004

Integrated management with Hokkaido Bank, name of parent
company changed to Hokuhoku Financial Group, Inc.

December 2004

Launched securities agency operations
Established corporate rehabilitation company Hokugin
Corporate

March 2006

Entered into a contract on joint system use with Hokkaido
Bank and the Bank of Yokohama

Hokuhoku Financial Group, Inc. Annual Report 200845

OUTLINE OF SUBSIDIARIES - HOKKAIDO BANKThe Hokkaido Bank, Ltd..
Web site: www.hokkaidobank.co.jp

Establishment

History

On March 5, 1951, Hokkaido Bank was established based on
the strong demand from small and medium-sized corporations in
Hokkaido for funds accompanying the sudden increase in population and development of new industries in Hokkaido during thepost-war recovery period.
Based on this background and as a Bank deeply rooted in
Hokkaido, Hokkaido Bank considers its mission to be contributing
to regional economic growth by smoothly providing funds and full
financial services to its customers in Hokkaido. Hokkaido Bank
has not forgotten the spirit in which it was created and is moving
forward with its customers in Hokkaido.

March 1951

Hokkaido Bank established

April 1961

Launched foreign exchange operations

May 1962

Listed on the Sapporo Stock Exchange

August 1964

Present head office built

June 1971

Online system (first) launched

July 1976

Online system (second) launched

December 1980

Received blanket approval to engage in correspondentbanking services

April 1981

Hokkaido Small and Medium Corporation Human Resource
Development Fund established

June 1986

Launched online foreign exchange system

September 1987

Debuted on the first section of the Tokyo Stock Exchange

October 1990

Constructed the Higashi Sapporo Dogin Building

March 1991

Established Dogin Cultural Foundation

October 1991

Launched a new foreign exchange online system

November 1991

Constructed Dogin Building Annex

Company outline (as of March 31, 2008)
Business:
Incorporation:
Location of headquarters:
President:
Total assets:
Deposits (including NCDs):
Loans:
Issued shares:

The Hokkaido Bank. Ltd.
Banking
March 5, 1951
4-1 Odori Nishi, Chuo-ku, Sapporo City
Yoshihiro Sekihachi¥3,840.8 billion¥3,546.5 billion¥2,686.8 billion
Common stock:
Preferred stock (Type 1):
Preferred stock (Type 2):

374,356,952
79,000,000
107,432,000

Capital ratio(non-consolidated):
10.13%
Employees:
1,773
Branches (as of June 30, 2008)
Domestic:
134 (125 branches, 9 sub-branches)
Overseas:
1 representative office46

Hokuhoku Financial Group, Inc. Annual Report 2008

January 1993

Online system (third) launched

April 1994

Launched investment trust agent operations

December 1998

Started sales of investment trust accounts

July 1999

Issued preferred stock (Type 2) (issuance amount was¥53.716 billion)

November 1999

Launched telephone banking service

June 2000

Launched Internet mobile banking

April 2001

Started sales of casualty insurance accounts

October 2002

Started sales of life insurance accounts

December 2003

Opened Business Loan Plaza

April 2004

Launched convenience store ATM service

September 2004

Came under management of Hokugin Financial Group, parent of Hokuriku Bank; Hokuhoku Financial Group launched

April 2005

Launched securities agency operations

March 2006

Entered into a contract on joint system use with Hokuriku
Bank and the Bank of Yokohama

August 2006

Opened representative office in Shenyang, China

BOARD OF DIRECTORS AND CORPORATE AUDITORS
Hokuhoku Financial Group
President:
Shigeo Takagi

Deputy President:
Yoshihiro Sekihachi

Directors:
Satoshi Kawai
Mitsuhiro Tokuno

Masamichi Kondo
Akihiko Soma

Hideaki Haoka
Yuji Oshima

Yoshihiro Minami

Yasuhiro Ishiguro

Corporate Auditors:
Toshitsugu Kawakami
Norikiyo Hayashi

The Hokuriku Bank
President:
Shigeo Takagi

Deputy President:
Satoshi Kawai

Senior Managing Directors:
Hideaki Haoka
Mitsuhiro Tokuno

Managing Directors:
Taminori Iwasaki

Masato Matsumoto

Kenichi Nakamura

Isao Nagahara

Director:
Akihiko Soma
Corporate Auditors:
Eiichi Ueno

Kumakichi Yagi

The Hokkaido Bank
President:
Yoshihiro Sekihachi

Deputy President:
Masamichi Kondo

Directors:
Masahiro Sasahara

Hiroshi Sagayama

Satoshi Kawai

Corporate Auditors:
Hisae Goto

Tatsuhiro Ishikawa

Michio Hatamoto

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

The Hokuriku Bank, Ltd.
International Department
1-2-26, Tsutsumicho-dori Toyama City,
Toyama 930-8637, Japan
Telephone: +81-76-423-7815
Facsimile: +81-76-423-7561
E-mail: kokusaibu@hokugin.co.jp
International Operations Center
2-10, Nihonbashi-muromachi 3-chome,
Chuo-ku, Tokyo 103-0022, Japan
Telephone: +81-3-3231-7329
Facsimile: +81-3-3270-5028
E-mail: b.office@hokugin.co.jp
SWIFT Address: RIKBJPJT

Akira Ibayashi

Treasury and Securities Department
2-10, Nihonbashi-muromachi 3-chome,
Chuo-ku Tokyo 103-0022, Japan
Telephone: +81-3-3231-7360
Facsimile: +81-3-3246-1255
E-mail: shikintky@hokugin.co.jp
Overseas Offices (Hokuriku Bank)New York Representative Office
780 Third Avenue, 28th Floor,
New York, NY 10017, U.S.A
Telephone: +1-212-355-3883
Facsimile: +1-212-355-3204
E-mail: newyork@hokugin.com
Shanghai Representative Office
Shanghai International Trade Center,
602, Yan’an west Toad 2201,
Changning, Shanghai 200336
Telephone: +86-21-6270-8108
Facsimile: +86-21-6270-8338
E-mail: shanghai@hokugin.net
Singapore Representative Office
6 Battery Road # 17-04 Shigapore
049909
Telephone: +65-6534-0010
Facsimile: +65-6534-0070
E-mail: hokuriku@singnet.com.sg

The Hokkaido Bank, Ltd.
International Department
4-1, Odori Nishi, Chuo-ku,
Sapporo 060-8676, Japan
Telephone: +81-11-233-1093
Facsimile: +81-11-231-3133
E-mail: sckikaku@cello.ocn.ne.jp
Market and International Administration Center
2-33, Higashi Sapporo, 3-jyo 1-chome,
Shiroishi-ku, Sapporo 003-0003, Japan
Telephone: +81-11-815-1315
Facsimile: +81-11-815-2237
SWIFT Address: HKDBJPJTTreasury and Securities Department
2-10, Nihonbashi-muromachi 3-chome,
Chuo-ku, Tokyo 103-0022, Japan
Telephone: +81-3-3241-3457
Facsimile: +81-3-3245-1779
Overseas Offices (Hokkaido Bank)
Shenyang Representative Office
Fangyuan Mansion, No. 1106
Yuebin Street No. 1, Shenhe District,
Shenyang City 110013, P.R. CHINA
Telephone: +86-24-2250-5350
Facsimile: +86-24-2250-5351
E-mail: dogin_shenyang@yahoo.co.jp

Hokuhoku Financial Group, Inc. Annual Report 200847

北北金融控股集团简要企业名称∶北北金融控股集团股份有限公司
设立日期∶ 2003 年 9 月 26 日
总行地址∶富山县富山市堤町通 1 丁目 2 番 26 号
集团董事长∶高木繁雄（北陆银行 总行长）副董事长∶堰八义博（北海道银行 总行长）经营目的∶集团伞下的子公司的经营管理，以及连带的相关业务资本金∶ 708 亿 9,500 万日元发行股份∶ 普通股....................................... 1,391,630,146 股
第一次第 1 种优先股.............

80,000,000 股

第一次第 4 种优先股.............

79,000,000 股

第一次第 5 种优先股............. 107,432,000 股
注∶第 1 种优先股和第 4 种优先股于 2008 年 6 月 26 日各回收了 30,000,000 股和 17,600,000 股。现在，第 1 种优先股和第 4 种优先股的发行量分别是
50,000,000 股和 61,400,000 股。

上市交易所∶ 东京证券交易所（第一部）札幌证券交易所简历2002 年 5 月 北陆银行和北海道银行缔结了全面业务协助协议自从 1877 年北陆银行成立以来已经在北陆地区设立了广
域性的经营网点。

2003 年 5 月 北陆银行和北海道银行对经营统合取得一致意见

从“北前船”或者说“北航船（北上的经济圈）”的交易关
系和客户的需要出发还在北海道各个主要城市内设立了自己的2003 年 9 月

经营网点。

设立北银金融控股集团股份有限公司
北陆银行成为北银金融控股集团伞下的银行

北海道银行成立于 1951 年，以支援中小企业和个人业务为中心在北海道道内的各个地区都设有营业网点。

通过股份交换实现经营统合

北陆银行和北海道银行于 2004 年 9 月进行了经营统合，成立了（控股公司）北北金融控股集团股份有限公司。现在，北北金融控股集团已经形成了覆盖日本北陆地区北海道以及日
本三大都市圈（东京，名古屋，大阪）的巨大的地方金融网络。

2004 年 9 月

北北金融控股集团股份有限公司诞生

注：北银金融控股集团股份有限公司改名为北北金融控股集团
股份有限公司。

北北金融集团的经营活动范围不是限于一个地域，而
是在广泛的地域内展开着。
ҽ߽‫ل‬

我们广泛的营业网点分布在下面所写的地区范围里：北陆地区...................................................... 147 分行（或支行）富山县.......................................................... 90 分行（或支行）石川县.......................................................... 35 分行（或支行）福井县.......................................................... 22 分行（或支行）北海道地区................................................... 152 分行（或支行）三大都市圈................................................... 17 分行（或支行）
海外.............................................................
上海代表处

（北陆银行）

ҽଇٜഘ

4 代表处

෩‫׎‬

‫ݙ‬඙

݁ঀ

新加坡代表处 （北陆银行）纽约代表处（北陆银行）

沈阳代表处

（北海道银行）（2008 年 6 月 30 日）

48

Hokuhoku Financial Group, Inc. Annual Report 2008

‫ॻڍ‬
‫ؙ‬᐀

ண߁ྏ

ൻ‫ڞؙ‬ชത

董事致辞（相片左边）集团董事长

高木繁雄（北陆银行 总行长）
（右边）

副董事长

堰八义博（北海道银行 总行长）感谢广大顾客和股东对本集团的支持和惠顾。
2007 年，国内经济呈现缓慢的增长趋势，因新建筑基准法的施行拖延了开工时间，
住宅投资缩小，原油和谷物等国际商品市场行情的上升引起的原料价格上涨，景气减
速感扩大，前景不是很明朗。
本集团于 2004 年 9 月由北陆银行和北海道银行经营统合而成，为了实现经营统合的目的我们把重点放在「强化营业力」，「经营效率化」，「经营基础的稳定化」。
2007 年度业绩，联结本期净利润达到了 386 亿日元超过了原来的预期。该年度
还归还了一部分政府资金后，联结自有资本比率达到了 10.39%。另外，不良债权比率为 3.64%，提前 1 年实现了 2009 年 3 月份设定目标 3% 的范围。股息比前年增加
了 50 钱，为 2.5 日元。

占略 1 发挥广区域金融集团的强项
本集团以北海道，北陆三县为主要营业基盘，在其他地区包括三大都市圈在内还
拥有众多的国内营业网络。另外还设有海外网点，在中国上海和沈阳分别设立了代表处；还对札幌市北京代表处，富山县大连代表处各派遣了一名行员。本集团还与横滨银行缔结「3 行海外情报网络」的协议，以支援客户的海外业务，形成了一流地区银行支
援体制。另外还在海外的新加坡、纽约设置了代表处。为提供更多的服务我们与泰国
和印度的金融机关签署了业务合作协议，扩大了对客户在海外业务的服务。
我们以广区域性金融集团为特长，有效的发挥北陆银行和北海道银行的技术经验
和信息网络，积极的推动商贸洽谈，提供符合地区要求的各种信息，谋求与客户共创繁荣的发展目标。

占略 2 统一系统实现业务效率化和能源节省化有效利用 IT 战略，为客户迅速而有效的提供优质服务是当今金融机关所面临的重要课题。
本集团与横滨银行正在共同推进「3 行系统统一化」，以 2011 年 5 月开始启动为
目标，除了共同利用基本系统以外，对营业网点系统和自动取款机，网上银行以及与客户直接连接的金融业务部门也将实现统一化，各种事务手续和指南也将统一起来。
另外，与其他几家银行共同组织「地域金融市场研究会」、「地银租赁业务研究会」、「地银房贷共同研究会」，加强地区银行间的跨行协作，共同调查研究，扩大开发针对客户需求的商品和服务，努力提高综合服务能力和建议能力。

Hokuhoku Financial Group, Inc. Annual Report 200849

占略 3 提高企业价值扎扎实实的实现「营业力的强化」、「经营效益化」，于去年 8 月份和今年 6 月份分别归还了一部分政府资金，还剩下约 600 亿日元。本集团今后将加倍努力经营争取早日实现归还政府资金的目标。
「北北金融控股集团」、「北陆银行」、「北海道银行」获得了信用评级投资情报中心（R&l）的Ａ信用评级，证明本集团得到了业界人士的认可与肯定。
今后，本集团将继续强化财务基盘。

未来前途光明的北陆和北海道网络
今年 7 月份，于北海道和北陆地区各举办过了重要活动。
一是在北海道洞爷湖町召开了「八国首脑会议」，主要成员国首脑在会议上探讨了
地球温暖化对策和国际社会问题。北海道全体道民齐心协力为「八国首脑会议」圆满
成功助威，本集团也积极的支持了本次活动。
另外一个是，「东海北陆汽车道」全线正式开通。这大大缩短了中京圈和北陆地区的运输距离和时间使物流快速而方便，有望期待活跃周边经济交流。为活跃中京圈和
北陆地区经济交流，此间本集团主办了「经济交流会」，支援客户积极推进客户间的商
务洽谈。本集团今后会积极组织这类活动。

最后
本集团将以「与地区共存」、「公正稳健」、「进取创造」的经营理念，扎扎实实的向前迈进。现在，围绕金融行业的发展环境发生了巨大的变化，由于金融限制的放宽
使金融行业的竞争变得更加激烈。本集团以发展成为值得客户信赖和选择的金融机构，高举「为地区客户贡献，持续共同发展」的目标，集团上下齐心协力进一步提高企业价值。
最后，愿广大客户能更加支持本集团。
董事长

高木繁雄
2008 年 9 月

50

Hokuhoku Financial Group, Inc. Annual Report 2008业绩精粹营业概况（北北金融控股集团联结）（货币单位：亿日元）

2007 年度

2006 年度

亿日元为 2,612 亿日元，联结经常利润比前年减少了 37
亿日元为 663 亿日元，联结净利润比前年减少了 20 亿

前年比
经常收益

2,612

189

2,422

经常利润

663

－ 37

700

本期净利润

386

－ 20

406

10.39%－ 0.05%10.44%

自有资本比率本集团 2007 年度联结经常收益比前年增加了 189

日元为 386 亿日元。
联结自有资本比率比前年下降 0.05% 为 10.39%。

营业概况（北陆银行、北海道银行）（货币单位：亿日元）

随着服务收费利润和金融衍生工具收益的减少再加

2 行合算＋其他子公司（注：其他子公司指北银 Corporate）

上系统投资等经费的增加，银行原来业务的收益力即主2007 年度

2006 年度
前年比要业务的纯利润，比前期减少 48 亿日元为 889 亿日元。
虽然信贷相关成本有所减少，但是由于股市行情的下跌导致股票严重亏损，本期经常利润比前期减少 42

经常收益

2,376

186

2,190

业务毛利润

1,789

－ 29

1,818

经费

899

19

880

业务净利润

889

－ 48

938

信贷相关成本

247

－8

256

经常利润

662

－ 42

704

本期净利润

402

4

397

不良债权比率3.64%－ 0.79%4.43%

亿日元为 662 亿日元。本期净利润由于法人税调整额的减少，比前期增加了 4 亿日元为 402 亿日元创了新高。

（货币单位：亿日元）（货币单位：亿日元）

北陆银行＋其他子公司（注：其他子公司指北银 Corporate）
2007 年度

北海道银行

2006 年度

2007 年度

2006 年度
前年比

前年比
经常收益

1,415

109

1,305

960

76

884

业务毛利润

1,056

－ 14

1,071

732

－ 14

747

经费

511

5

505

388

14

374

业务净利

545

－ 20

565

344

－ 28

372

信贷相关成本

196

－ 23

220

51

15

36

经常利润

367

－ 17

385

294

－ 24

319

本期净利润

223

33

189

178

－ 29

207

不良债权比率3.72%－ 0.93%

4.65%

3.52%

－ 0.56%

4.08%

Hokuhoku Financial Group, Inc. Annual Report 2008

51

Hokuhoku Financial Group, Inc.

Printed in Japan
Printed on recycled paper