Annual Report
2010Year ended March 31, 2010

Hokuhoku Financial Group, Inc.

Company outline (as of March 31, 2010)
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 5) .................... 107,432,000
Exchange listings: Tokyo Stock Exchange (First Section)
Sapporo Securities ExchangeThis document contains forward-looking statements. Statements of this kind do not constitute guarantees of future performance, as factors such as changes in
the operating environment may cause actual performance to differ.
The figures stated in this document are, in principle, rounded down to the nearest whole unit.

CONTENTS

Profile .................................................................................................. 1
Message from the Management .......................................................... 2
Mid-Term Management Plan ............................................................... 4
Performance Highlights ....................................................................... 6
Corporate Governance ........................................................................ 10
Approach to Compliance ..................................................................... 13
Risk Management System ................................................................... 15
Corporate Social Responsibility ........................................................... 20
Topics ................................................................................................. 23
Consolidated Financial Statements
Consolidated Balance Sheets .......................................................... 26
Consolidated Statements of Income ................................................ 27
Consolidated Statements of Changes in Net Assets ........................ 28
Consolidated Statements of Cash Flows ......................................... 30
Notes to Consolidated Financial Statements .................................... 31
Independent Auditors’ Report .............................................................. 53
Nonconsolidated Financial Statements
The Hokuriku Bank, Ltd.
Nonconsolidated Balance Sheets (Unaudited) ............................. 54
Nonconsolidated Statements of Income (Unaudited).................... 55
The Hokkaido Bank, Ltd.
Nonconsolidated Balance Sheets (Unaudited) ............................. 56
Nonconsolidated Statements of Income (Unaudited).................... 57
Corporate Information.......................................................................... 58
Outline of Subsidiaries — Hokuriku Bank ............................................. 59
Outline of Subsidiaries — Hokkaido Bank ............................................ 60
Board of Directors and Corporate Auditors .......................................... 61........................................................................ 62

Profile
Since its establishment in 1877, Hokuriku Bank hasdeveloped 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 tomeet customers’ needs. The Hokkaido Bank, which wasestablished in 1951, has developed a network of branches
throughout Hokkaido, and built a firm business structure
centered on individuals and small and medium-sizedenterprises.
The Hokuriku Bank, Ltd. and The Hokkaido Bank, Ltd.
underwent management integration in September 2004 toform the Hokuhoku Financial Group Inc., which today 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

May 2003

Comprehensive business alliance
between
Hokuriku Bank and Hokkaido Bank

The operations of the Hokuhoku Financial
Group extend beyond the limits of a single
district.
Our extensive network is outlined below.
Hokuriku district ........................................ 148 branches
Toyama prefecture ...................................... 90 branches
Ishikawa prefecture ..................................... 36 branches
Fukui prefecture........................................... 22 branches
Hokkaido .................................................... 156 branches
Three major metropolitan areas ...............
Tokyo and Kanagawa ..................................
Kinki (Osaka) and Nagoya ............................

17 branches
10 branches
7 branches

Others ........................................................

4 branches

Overseas ....................................................
6 offices
Shanghai Representative Office (Hokuriku Bank)
Shenyang Representative Office (Hokkaido Bank)
Singapore Representative Office (Hokuriku Bank)New York Representative Office (Hokuriku Bank)
London Representative Office (Hokuriku Bank)
Yuzhno-Sakhalinsk Representative Office (Hokkaido Bank)(As of June 30, 2010)

Agreement on full integration ofmanagement of Hokuriku Bank andHokkaido Bank

LondonShenyang

September
2003

Hokugin Financial Group, Inc.
established

New York

ShanghaiSingapore

Hokuriku Bank Group comes undermanagement of Hokugin Financial
Group

Management integration effected
through equity swap
September
2004

YuzhnoSakhalinsk

Hokkaido

Hokuhoku Financial Group, Inc. isborn.

Hokuriku district
Ishikawa

Toyama

Fukui

Tokyo
Osaka

NagoyaThree major metropolitan areas
Hokuhoku Financial Group, Inc. Annual Report 2010

1

MESSAGE FROM THE MANAGEMENT(from left)

2

Shigeo Takagi

Yoshihiro Sekihachi

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

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

Hokuhoku Financial Group, Inc. Annual Report 2010

First, we would like to thank all our stakeholders for their support to the Hokuhoku Financial Group over theyears.
In fiscal 2009, amid the Japanese government’s implementation of economic policies to counter the
global economic recession stemming from Lehman Brothers’ collapse, Japan’s economy as well as its
regional economies showed signs of gradual recovery. Nevertheless, with the spotlight now on a new
problem, namely, the financial crisis originating from the budget crisis in Europe, future economic trends
are uncertain. Meanwhile, people are calling for greater preparedness against problems that are unique toJapan, such as the dwindling birthrate coupled with an aging population as well as fiscal problems. We arefacing challenging situations and must look at business issues from a variety of angles.
Under these circumstances, we initiated “Road to 10,” our three-year medium-term management plan,
which begins in fiscal 2010. As a financial group that is dependable and close to its customers, we seek
to sustain our growth into the future and rebuild our business foundation over the next three years of theplan. It is also time for us to gain a foothold on the road to becoming a financial group with deposits of ¥10
trillion.
We will further develop and pursue our three key management policies of Strengthening Marketing
Capabilities, Increasing Management Efficiency, and Cementing Customer Loyalty, and make steady stepby-step efforts to achieve the objectives outlined in our plan.
In addition, as a regional financial institution, Hokuhoku will facilitate the supply of funds to regions thatit has been actively serving so that it can help regional economies achieve continuous growth. This will bedone by setting up consultation counters, upgrading systems and developing human resources at its headand branch offices, as well as providing management rehabilitation support to SME clients in those regions
through its specialized departments.
We therefore ask for your continued support and loyal patronage.

July 2010

Shigeo Takagi
President

Yoshihiro Sekihachi
Deputy President

Hokuhoku Financial Group, Inc. Annual Report 20103

MID-TERM MANAGEMENT PLAN
Since March 1998, after receiving public funds support, the Hokuhoku Financial Group has strengthened its earning capacity
based on the Revitalization Plan. At the same time, it has improved management efficiency and its financial position. By
executing its plans and rehabilitating management, in August 2009, it was able to fully repay those public funds.
The Company views the next three years as the time to “Renew endeavor to achieve sustainable growth” and it isaddressing management issues based on “Road to 10,” its mid-term management plan.
We continue to further develop our three key management policies of Strengthening Marketing Capabilities, Increasing
Management Efficiency and Cementing Customer Loyalty. We are implementing revised measures according to the new
business stage we are at after full repayment of public funds, and gaining a foothold on the road to becoming a financialgroup with deposits of ¥10 trillion.
Overview of management plan
Title
PeriodPositionTarget corporate profile

Main theme

Mid-Term Management Plan, “Road to 10”
3 years (April 2010 to March 2013)
Renew endeavor to achieve sustainable growth ~Achieve JPY 10 trillion in deposit~
Close and reliable financial group for local customers
1. Establishing a stable earnings base to deal with uncertainty over economy
2. Smooth migration and strategic utilization of joint banking system (MEJAR*), and upgrading human resources
and service delivery channels
3. Accumulating capital surplus to meet new rules of regulatory capital, increase in dividends and redemption ofpreferred stock*MEJAR = Most Efficient Joint Advanced Regional banking-system

Target Figures for Fiscal Year ending March 31, 2013 (Hokuriku Bank and Hokkaido Bank)
Deposits (avg. balance)
Loans (avg. balance)Core net business profit
Net income*Capital adequacy ratio* ( Tier I capital ratio*)
OHR
ROA (Core net business profit basis)ROE* (Core net income basis)
NPL ratio

JPY 9,550.0 bn
JPY 7,200.0 bn
JPY 70.0 bn
JPY 25.5 bn
Above 11.5% (Above 7.5%)
58%
0.68%
Above 6%
Around 3%*FG consolidated

Basic Policies in Management Plan
We will keep on three key policies and implement proper measures after full repayment of public funds to achieve JPY 10
trillion in deposit.
I. Strengthening Marketing Capabilities II. Increasing Managament Efficiency III. Cementing Customer Loyalty
Revitalization Plan

Focus on profit opportunities
Conservative management ofSecurities Portfolio

Realignment of delivery channel
Integration of back office functions
Increase of part-timers

Decrease of NPL ratio
Full repayment of public funds
Improvement in capital adequacy
ratio■ Expansion of earnings base
■ Client-focused consulting
services■ Expansion of investment insecurities■ Smooth migration and strategic
utilization of joint banking system■ Pursuit of further synergy■ Increasing sales force■ Improvement in quality of capital■ Stable increase of common
stock dividends

Full repayment of public
funds

Mid-Term
Management Plan
“Road to 10”
Renew endeavor to achievesustainable growth4

Hokuhoku Financial Group, Inc. Annual Report 2010

I. Strengthening Marketing Capabilities
Our aim is to become a “Close and reliable financial group for local customers” through “Triple R” strategies
Retail ~Close to Customers~
Increasing contact with customers and diversify
transactions of each account
Enhancing segment marketing
Expanding business to SMEs (Maruho loan* etc.)*Loans guaranteed by credit guarantee
corporations
Promotion of housing loan
Increase in salary deposit and pension transfer
accounts

Region ~Contribution to local community~
Establishing branch network focused on customer
convenience
Initiating strategic realignment of branch network
Establishing business center and consultation lounge
Beefing up collaboration with academic institutions and local
governments
Attracting new business to our region
Enhancing CSR initiatives
Supporting local growing industries (agriculture, medicine,environment)

Relation ~Dependable Service~
Offering the best solutions to customers
Advisory fit to customers’ life cycle
Corporate customers:
Start-up Growth Expansion Succession
Personal customers:
Solutions in line with client’s life stage
Offering private banking services
Capitalizing on overseas representative offices

Strategic allocation of Human Resources

Strengthen alliance

Improvement of negotiation skills
Know-how shared through communication within the Group

Working closely with Hokuhoku Services Co., Ltd.
Shoring up collaboration with other banks / Shinkin banks and convenience stores

II. Increasing Management Efficiency
Smooth migration and strategic utilization of joint banking system
Migration to start in May 2011

Acceleration of synergy

Bank of Yokohama
Started advanced operations
from Jan. 2010

Cutback on future expenses

Joint Use of Banking System(MEJAR)
Hokuriku Bank

Two brand operation

Hokkaido Bank
Reallocation of human resources andincrease in sales force

Decrease in R&D cost

Integration of business process

Joint procurement of business forms & equipments

Shared administrative manuals &numerical tables

Extensive consolidated useof back office

Joint employee training &audit programs

Joint preparation for regulation changes:
Mark-to-market accounting · IFRS
New regulations for capital adequacy
ratio

Hokuhoku Services
Hokkaido Dept. (Mar. 2010)

Enhancement of management andgovernanceToyama Dept. (scheduled on
Autumn 2010)

III. Cementing Customer Loyalty
Ensuring stable earnings to improve quality of capital
Capital adequacy ratio/Tier I capital ratio <FG consolidated>
Capital adequacy
ratio

Tier I capital ratio

Above 11.5%
10.83%

Aiming at capital adequacy ratio of
12% and Tier I capital ratio of 8%

Above 7.5%

7.05%

Improving quality of capital
Raising Tier I
by incomeDeferred tax assets toTier I capital

21.03%
Below 10.0%’10/3 result

Stable increase ofcommon stock dividends’13/3 plan

Hokuhoku Financial Group, Inc. Annual Report 2010

5

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

FY2009FY2008

Ordinary income
Ordinary profits
Net income

226.7
35.4
19.2

Change(12.8)
14.0(17.8)

239.6
21.3
37.0

Capital adequacy ratio

10.83%+0.02%

10.81%In the fiscal year ended March 31, 2010, Hokuhoku
Financial Group recorded ordinary income of ¥226.7 billion,a decrease of ¥12.8 billion year-on-year on a consolidated
basis. Ordinary profits increased ¥14.0 billion year-on-yearto ¥35.4 billion, and net income fell ¥17.8 billion to ¥19.2
billion.
Our capital adequacy ratio stood at 10.83% at theterm-end on a consolidated basis, an increase of 0.02
percentage point from the previous term-end.

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

Ordinary income
Core gross business profit
Expenses
Core net business profit
Credit costs
Income (loss) on marketable securities
Ordinary profits
Net income

Hokuriku Bank andHokkaido Bank
FY2009FY2008Change207.4(11.1)
218.5
160.9
(7.4)
168.3
94.4
2.8
91.5
66.4
(10.3)
76.8
25.5(10.0)
35.5
0.2
17.9
(17.6)
36.8
15.5
21.3
26.0
(11.8)
37.9

Owing to a decline in interest income and fees and commissions, as well as an increase in expenses for a new corecomputer system scheduled to go online from 2011, thebanking subsidiaries recorded a year-on-year decline of¥10.3 billion in core net business profit to ¥66.4 billion.
Ordinary profits increased ¥15.5 billion to ¥36.8 billion
due to a ¥10.0 billion decrease in credit costs and anda ¥17.9 billion improvement in income on marketablesecurities. Net income came in at ¥26.0 billion, due to theabsence of the special factor which decreased the previous
year’s deferred income taxes.

(¥ billion)(¥ billion)

Hokkaido Bank

Hokuriku Bank
FY20096

FY2008

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

113.7
90.1
51.8
38.3
13.4
19.9
15.6

Change(10.5)
(4.6)
0.4
(5.0)
(8.0)
11.1
(10.7)

Capital adequacy ratio

10.80%+0.57%

Hokuhoku Financial Group, Inc. Annual Report 2010

124.2
94.7
51.3
43.4
21.4
8.8
26.4
10.23%

FY2009FY2008

93.7
70.8
42.6
28.1
12.0
16.9
10.3

Change
(0.5)
(2.7)
2.4
(5.2)
(2.0)
4.4
(1.0)

94.3
73.5
40.2
33.3
14.0
12.5
11.4

10.19%(0.26%)

10.45%

Core gross business profit (Both banks)
Net interest income
Net fees and commissions
Non-interest income ratio

180.2
13.2

181.3
12.6

178.5
11.6

29.2

31.8

30.5

168.3
11.0
23.8

23.54%

24.56%

OthersCore gross business profit declined ¥7.4 billion year-on-yearto ¥160.9 billion, owing to declines in interest income andfees and commissions.

160.9
8.3

● Core gross business profit = net interest income + net fees andcommissions + other net operating income; Equivalent to gross profit
margin in the case of companies other than banks.

22.1

23.59%● Net interest income = income from interest on loans, receivable bonds
and dividends on equity shares, after deduction of interest on deposits

20.72%
18.97%

137.8

136.8

136.4

133.4

● Net fees and commissions = fees and commissions received relating
to remittance, investment trust and insurance sales agency businesses
after deduction of corresponding expenses

130.3● Other net operating income = income from foreign exchange transactions and derivatives transactions(¥ billion)
Years ended
March 31

2006

2007

2008

2009

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

2010

Expenses (Both banks)
Hokuriku Bank

Hokkaido Bank

OHR

Expenses increased by ¥2.8 billion to ¥94.4 billion for thereporting term, as a result of an increase in sales staff,
direct hirings, and increased investments in computer
systems.
The overhead ratio (OHR), an efficiency indicator,
remained below average among Japan’s regional banks.

58.68%
54.37%
50.36%

49.12%

48.49%

88.5

87.9

89.9

91.5

50.8

50.5

51.1

51.3

94.4

51.8

● Expenses = Personnel expenses + non-personnel expenses + taxes
Equivalent to selling, general and administrative expenses in the caseof companies other than banks
37.7

37.4

38.8

40.2

42.6

2006

2007

2008

2009

2010

(¥ billion)
Years ended
March 31

● 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.

Core net business profit (Both banks)
Hokuriku Bank
1.01%

Hokkaido Bank

ROACore net business profit declined ¥10.3 billion year-on-yearto ¥66.4 billion, due to a lower level of core gross businessprofit and higher expenses.

1.03%
0.95%

91.7

93.4

88.6

0.80%
76.8

● Core net business profit = core gross business profit minus expenses
Equivalent to operating income in the case of companies other thanbanks, this indicates a bank’s achievements in its core banking field.

0.68%
66.4

54.6

56.1

● ROA = Core net business profit divided by total assets (average for the term)This figure indicates the effectiveness of employment of assets in thegeneration of profits; the higher the figure the better.

54.1
43.4
38.3

37.0

37.2

34.4

33.3

28.1
(¥ billion)

Years ended
March 31

2006

2007

2008

2009

2010

Hokuhoku Financial Group, Inc. Annual Report 2010

7

PERFORMANCE HIGHLIGHTS

Credit costs (Both banks)
Hokuriku Bank

Hokkaido Bank

Credit cost ratio

Total credit costs decreased ¥10.0 billion year-on-year to¥25.5 billion.
● Credit costs = amount of bad loan disposal + provision of allowance
for loan losses

0.72%● Credit cost ratio = total credit costs divided by average loan balance
0.51%
46.6
0.39%

0.37%
35.5

33.6

26.2

25.5

22.5

20.4

0.36%
25.5

21.4

13.4
12.9
Years ended
March 31

2006

3.6

5.1

2007

2008

14.0

12.0

2009

2010

(¥ billion)

Net income (Both banks)
Hokuriku Bank

Hokkaido Bank

39.3

29.1

18.6

39.0

Net income declined ¥11.8 billion year-on-year to ¥26.0
billion, due partly to an increase in deferred income taxes.

37.9

21.2

26.0
26.4

15.6
15.6
20.7

17.8

13.4

11.4

10.3

2009

2010

(¥ billion)
Years ended
March 31

2006

2007

2008

Capital Adequacy Ratio (Hokuhoku Financial Group, Inc.; on a consolidated basis)
Balance of public funding to be repaid

Capital adequacy ratio
10.44%

10.39%

Balance of retained earnings(Hokuhoku Financial Group Inc. +Both banks)
Tier I capital ratio
10.81%

10.83%

9.00%
7.74%

7.48%

7.58%
7.05%

6.47%

● Capital adequacy 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, the healthierits financial position.

1,382

133.9
120.0

120.0
102.4

95.8
85.0

68.1

● 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.

599
Repaid0

End of March

2006

2007

2008

Our capital adequacy ratio rose 0.02 percentage point
year-on-year to 10.83%, due to the steady accumulation of
earnings.
The repayment of public funds was completed inAugust, 2009.

2009(¥ billion)

2010* Calculated in accordance with the current BIS standards (Basel II). Up to and including the term ended March 2006, however, the previous BIS standards
were employed to calculate the Group’s capital ratios.

8

Hokuhoku Financial Group, Inc. Annual Report 2010

Loans and bills discounted(Both banks + Hokugin Corp.)

Deposits (Both banks)
Hokuriku Bank

8,216.4

4,836.6

Hokuriku Bank (+ Hokugin Corp.)

Hokkaido Bank

8,434.6

4,917.4

8,407.4

4,909.1

8,671.5

5,040.0

Hokkaido Bank

9,048.4
7,156.7

6,993.6

4,210.7

4,293.3

4,142.6

2,692.92,686.8

2,863.4

2,851.0

2007

2008

2009

2010

6,706.2

6,839.7

6,897.6

4,110.4

4,146.7

2,595.7

2006

5,244.5

3,379.7

3,517.2

3,498.3

3,631.4

3,803.9

2006

2007

2008

2009

2010

(¥ billion)(¥ billion)
End of March

End of March

Outstanding Loans to SMEs
(Both banks + Hokugin Corp.)
Hokuriku Bank (+ Hokugin Corp.)

5,040.3

5,054.9

5,013.7

Outstanding Housing Loans (Both banks)
Hokkaido Bank

5,050.5

Hokuriku Bank

Hokkaido Bank

4,890.6

1,712.2

1,792.6

1,857.9

1,619.0
1,517.5

3,049.2

3,055.5

3,011.0

3,013.7

849.4

2,882.2

1,991.1

1,999.4

2,002.7

2,036.8

2,008.3

2006

2007

2008

2009

2010

913.2

960.8

702.9

778.9

814.5

840.0

862.8

879.3

897.1

2006

2007

2008

2009

2010

(¥ billion)(¥ billion)
End of March

End of March

Disclosed Claims under the Financial Reconstruction Law (Both banks + Hokugin Corp.)
Disclosed Claims under the Financial Reconstruction Law
came to ¥215.2 billion, a decrease of ¥12.2 billion fromthe previous term-end. The NPL ratio under the Law stoodat 2.98 %, down 0.09 percentage point from the previous
term-end.
Bankrupt and substantially bankrupt claims
Substandard claims

Doubtful claims
NPL ratio

5.76%● Disclosed Claims under the Financial Reconstruction Law: The bankclassifies both loans and other assets in line with the stipulations of the
Financial Reconstruction Law.
● Claims 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)
Bankrupt andsubstaintiallybankrupt claims

This category is defined as the sum of claims
on bankrupt borrowers and effectively bankrupt
borrowers

Doubtful claims

This category is defined as claims on potentiallybankrupt borrowers under asset self-assessment.
The execution of contracts on repayment of
the principal and payments of interest is highly
doubtful.

Substandard
claimsThis 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.

4.43%
399.9

3.64%

61.6
315.0
58.5

2.98%

227.5

215.2

70.0

55.8

140.3

142.6

260.7
63.6

253.4

3.07%

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

194.4
149.3

End of March

84.9

62.0

47.8

17.1

16.8

2006

2007

2008

2009

2010

(¥ billion)

Hokuhoku Financial Group, Inc. Annual Report 2010

9

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 one of its top
management priorities. We have drawn up a basic policy — our management philosophy — covering all our activities including
management strategy-setting and decision-making. We share basic values and philosophies through the Hokuhoku Financial
Group Code of Conduct, for the increase of corporate value and the further economic development of the Hokuriku and Hokkaido
regions.

Corporate governance
We have established a quick decision-making system with
the Shareholders’ Meeting and Board of Directors at thetop, and day-to-day operational authority delegated byinternal rules. Bodies such as the Management Committee
are able to respond quickly to specific and detailed mattersbased on basic policies set by the Board of Directors.
Furthermore, separately from the Management Committee,
a Business Promotion Committee, handling disseminationof business policy among Group companies, has been
established.
We employ a corporate auditor system and also appoint

one external director. Additionally, in order to strengthen ourgroup governance structure and, as a holding company,
to ensure that management is appropriately carried out,
directors from each of our principal subsidiaries, Hokuriku
Bank and Hokkaido Bank, are appointed to each others’
boards to promote mutual understanding and checks andbalances.
In this way, we have built a cyclic mechanism foreffective decision-making, implementation, evaluation, andimprovements. Additionally, the Board of Directors decides
basic policies on internal controls, and is taking the steps
needed to create an effective internal control system.

Hokuhoku Financial Group, Inc.
Shareholders’ Meeting

Business Promotion Committee

3 external auditors

Members: Group directors + subsidiary presidents
Aim: Implementation of management policy, understand businessenvironment and give indication

Internal Audit
ExecutionofBoard of Directors

Board of Auditors

1 external director

PDCA

Management Committee
Planning Group

Administration Group

Risk Management Group

Hokuriku Bank

Audit Group

Hokkaido Bank
Other
Subsidiaries

Shareholders’ Meeting
Board of Auditors

Shareholders’ Meeting
Board of Auditors

Board of Directors

Board of Directors

Management Committee

Management Committee
Each bank sends an
executive tothe other’s Board.

1. Board of Directors
Responsible for decisions related to important management
policies involving the Group as a whole; and for overseeing
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 toparticular statutory auditors, and monitors the performance of
duties by the directors.
Three of the four members of the board are external
auditors, ensuring a high degree of independence in auditing
activities.
10

Hokuhoku Financial Group, Inc. Annual Report 2010

3. Management Committee
Composed of full time directors of the Company, this bodymakes 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 the implementation ofhighly important tasks by specific divisions.
4. Business Promotion Committee
Composed of the full-time directors and presidents ofsubsidiaries; is responsible for disseminating major issues andmanagement policies affecting the whole Group, as well as
keeping track of business results at each company, to ensure
appropriate conduct of business.

Basic policy on internal controls
1. Ensuring that Directors perform their duties in conformity
with the law and with our articles of incorporation
In addition to settling matters involving the law or the articles
of incorporation, the Board of Directors decides on basic
management policy and major issues affecting conduct ofoperations, sets up organizations and systems, and supervises
performance of duties by directors. It also recommends
external directors for appointment at Shareholders’ Meetings,
and ensures more rigorous checks and balances.
Corporate Auditors attend important meetings including
those of the Board of Directors, investigate the Company’s
operations and financial position, and audit the performance of
duties by directors from an independent standpoint.
2. Storage and management of information relating toperformance of duties by directors
Based on its own regulations and document management
rules, the Board of Directors creates systems for storage andmanagement of information regarding performance of duty bydirectors.
3. Setting up rules and other systems that ensure
management of risk of losses
The Board of Directors decides on basic risk management
policy and regulations, and establishes management systems,
based on an assessment of the degree of risk to which theCompany and Group companies are exposed, and of thesignificance of risk-control measures. We have compiled acontingency plan and established a crisis management system
for unexpected events and risks such as natural disasters.
Each company in the Group conducts due risk management in close partnership with risk management departmentsof other Group members, following the Group’s basic policy.

for the management of customer protection, and develops
management policies and structures for protection of customer
interests.
The Company and Group members set up a whistleblower
and consultation hot line for executives and employees who
uncover unlawful and wrongful behavior.
The Company has no connections with anti-social elementsthat threaten public order or security, and avoids all businessdealings with such groups.
6. Ensuring the appropriateness of operations within theGroup
The Board of Directors is responsible for overall Groupmanagement, compiling the Group management regulations,preparing frameworks for agenda-setting and reporting foreach Group company with regard to important matters, andreceiving reports from internal auditing departments on thefindings of audits into the status of legal observance and risk
management and the propriety and effectiveness of business
operations.
We also have in place mechanisms to ensure the propriety
of financial reporting, enabling accurate and clear statements ofour financial position and business results.
7. Deployment of employees as assistants to Corporate
Auditors
When receiving a request from a Corporate Auditor for help
in the conduct of auditing duties, the Board of Directors
shall respect the auditor’s views and provide the necessary
personnel based on expertise required. In addition, to ensure
the independence of these employees vis a vis the Board of
Directors, prior agreement of the Board of Auditors is requiredfor personnel transfers and disciplinary measures.

4. Ensuring efficient performance of duties by directors
The Board of Directors sets overall organizational standards forbasic tasks and assignment of duties to operational entities,
and the Company and all Group members have systems
enabling well-organized and efficient conduct of business
operations.
The Management Committee coordinates business operations in a prompt and effective way, based on delegation of
authority and assignment of duties by the Board of Directors.
To this end, it makes active use of teleconferencing andother telecommunications-based systems.

8. Reporting by the Board of Directors and employee
assistants to the Corporate Auditors, and other reportingto the Corporate Auditors
Directors shall submit reports to the Corporate Auditors as
follows.
(1) Directors shall report to the Board of Auditors whenevermatters that could cause significant losses to the Company
are discovered.
(2) An effective and flexible reporting system shall be established for reporting to the Board of Auditors by directors andemployees, on the matters designated in advance by the
Corporate Auditors and directors.
(3) The Corporate Auditors may request reports from the directors or employees as needed.

5. Ensuring that employees conform to the law and thearticles of incorporation in the performance of duties
The Board of Directors regards compliance as one ofmanagement’s most important tasks and recognizes that anincomplete compliance system could weaken our businessfoundation. In view of this, we have established a set of rules toserve as a basic policy and compliance charter.
Based on the above charter, the Company and Group
members carry out their business in partnership, in a fair andhonest way.
Additionally, the Board of Directors determines policies

9. Ensuring effective auditing by Corporate Auditors
The Board of Directors shall give due acknowledgement to
the importance and usefulness of auditing by the Corporate
Auditors, and if the Corporate Auditors request creation of asystem for smoother and more effective performance of auditing duties, they shall give this due consideration. The Board
of Auditors shall conduct regular meetings with representative
directors and accounting auditors.

Hokuhoku Financial Group, Inc. Annual Report 201011

CORPORATE GOVERNANCE

We are strengthen internal auditing to ensure sound management of theGroup
Basic philosophy
The Group believes that establishment of internal auditing mechanisms that effectively meet requirements according to thescale and nature of operations, regulations applied to the Group’s businesses and categories of risk, are indispensable fordue legal observance by the Group, protection of customers’ interest and risk management. Based on this conviction, theGroup and its subsidiary banks (The Hokuriku Bank, Ltd. and The Hokkaido Bank, Ltd.) have established an internal auditing
department.
The internal auditing department of each Group member is guaranteed to work independently from other departments,
with its mechanism of checks and balances.

Groupwide Measures
The Company has established an Audit Group to verify theappropriateness and effectiveness of the internal auditing ofeach Group member and to control its internal audit activities. In line with basic policy and rules on internal audits
compiled by the Board of Directors, the Audit Group carries
out internal audits on the Company and its (non-banking)subsidiaries and affiliates, and receives reports from
Hokuriku Bank and Hokkaido Bank on results of internal
audits and matters requiring improvement measures.
Furthermore, when necessary, it carries out integrated
assessment and management of the status of internal auditing for the whole Group through on-site bank investigations,guidance and reports.
Results of internal audits at Group companies are

12

Hokuhoku Financial Group, Inc. Annual Report 2010

periodically reported to the Board of Directors promptly whenneeded. In particular, mechanisms are in place for prompt
reporting to the Board of Directors of events that could havesignificant impact on the management of the Group.
Based on the basic policy and rules for internal auditingat each bank, audits are also carried out at Hokuriku Bankand Hokkaido Bank into the operations and assets of theirhead offices, branches and subsidiaries. In conducting
audits, internal audit plans are made (in terms of frequency
and depth) after assessments of legal observance, protection of customer interest and risk management at eachdepartment audited.
When necessary, the audit departments of both banks
and the Audit Group of the Company conduct joint audits,in order to strengthen and streamline overall Group auditing.

APPROACH TO COMPLIANCE
We ensure more rigorous observance of laws and social norms
Basic policy
The Company regards compliance as one of our most important management priorities and recognizes that an incomplete
compliance system could weaken our business foundation. Therefore, the Board of Directors established a basic compliance policy to ensure our business activities are fair and honest.

SystemTo establish a compliance system, the Group has established a compliance charter, put in place organizational
structures and arranged joint measures by the Group andeach member company.
The Risk Management Group has been designated as
the Compliance General Section responsible for overseeing
compliance within the Group, and the head of the Risk
Management Group leads the Compliance General Section.
Compliance officers are deployed to each branch ofsubsidiary banks and each Group member company, toimplement training and awareness-raising policies regarding
compliance in the workplace. Subsidiary banks haveestablished Compliance General Section and compliancecommittees, whose role is to assess progress in compliance measures and make improvements.

Basic policy on compliance
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 togain 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 andsocial development of the operating regions and to abetter 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
way that conforms to its own standards of corporate
ethics and to social norms.
4. Elimination of ties with anti-social elements
The Group contributes to a healthy society by resolutely
refusing to associate or work with anti-social elementsthat threaten social peace and security.
5. Ensuring management transparency
The Group aims for a highly transparent management
and organizational culture through accurate disclosureand swift decision-making.

Hokuhoku Financial Group, Inc.
Board of Directors
Corporate Auditors, Board of Auditors
Management Committee
Compliance General Section

Hokuriku Bank

Risk Management Group

Other subsidiaries

Board of Directors

Management Committee

Hokkaido Bank

Board of Directors

Corporate Auditors
Board of Auditors

Audit Group

Corporate
Auditor(s)President

Compliance Committee

Board of Directors
Corporate Auditors
Board of Auditors
Management Committee
Compliance Committee

Compliance OfficeCompliance General Department

Compliance Department

Compliance officers, etc.

Compliance officers, etc.

Compliance manager

Hokuhoku Financial Group, Inc. Annual Report 201013

APPROACH TO COMPLIANCE

Compliance manual and compliance program
To ensure rigorous compliance, we have formulated acompliance manual (code of conduct) compiling all thefundamental issues which executives and employees
should observe. This manual is distributed to executives
and all staff members and in-house seminars and training
sessions are conducted to ensure thorough familiarity withthe content.
In addition, every year the Board of Directors decides
upon a Compliance Program which is a detailed action
plan implemented to maintain the compliance structure.
The Board receives regular reports on the state of theProgram’s execution, ensuring that compliance proceduresare put into practice.

Measures to accelerate customer protection
and customer convenience
To protect customers’ assets, information and otherinterests, the Group has established policies and basic rules
for the management of customer protection.
Furthermore, in order to provide pertinent explanations
to our customers in accordance with the Japanese Financial
Instruments and Exchange Act and other laws, and toproperly handle customer claims and consultations throughBasic rules of management ofcustomer protection

Measures for protection of personal information
In the financial industry, ensuring the safety of information
assets is of absolute importance for gaining customer
trust. We are committed to rigorously protecting any andall customer information in our custody and preventing its
leakage.
Especially in the area of personal information, the Grouphas formulated a personal information protection declaration, which is disclosed on our website, in order to comply
with the Personal Information Protection Act and other laws.
We endeavor to gain the maximized level of trust from ourcustomers as a financial institution that can contribute toregional society.

Policies for management of customer protection

Explaining to the customer

In line with the law and regulations, we will provide adequate explanation of financial products
and sufficient information to enable our customers to fully understand the nature of our products.

Customer service support

We will listen carefully to customer complaints and give advice in an appropriate way.

Protection of customer data

Information concerning customers shall be acquired in a lawful way and securely managed.

Outsourcing
Conflict of interest

In outsourcing operations relating to transactions with customers, we will duly supervise
suppliers to protect customer information and interests.
We will take measures to avoid prejudicing customer interests in transactions with us, and takedue measures where the risk of interest conflict arises.

Measures to deal with anti-social elements
To continue to justify the trust of the public, and offer
appropriate and sound financial services, the Group has
established a basic policy on dealing with anti-social
elements.
In addition, each Group Company has deployed officers
to address the issue of organized crime syndicates. Whilecoordinating with law enforcement, we have implemented
firm measures for dealing with anti-social elements, and aredetermined to avoid all contact with groups that threaten
the peace and security of social order.

Whistleblower protection system
The Group has set up a whistleblower and consultation
hot line and developed a framework for strengthening the14

customer consultation office, which serves as points ofcontact, we have formulated protocols and an appropriate
response structure, based on five separate considerations.
The Compliance General Section of every Group
member is the office responsible for overall managementof customer protection. Compliance officials at each Group
member work in partnership for ongoing review of management systems, problem resolution and data analysis,through which various improvement policies may be drawn
up and implemented.

Hokuhoku Financial Group, Inc. Annual Report 2010

compliance system including checks and balances in orderto promptly detect and counteract any unlawful and wrongful behavior.

Measures to deal with financial crime
In recent years, bank card theft and “furikomi” (phishing)fraud cases have increased. Subsidiary banks havestrengthened security measures to nip this problem in thebud. The banks properly reimburse victims of such scams
based on legislation mandating their relief.
Additionally, we are working to prevent money laundering by properly confirming the identification of individuals as
mandated by the Act on Prevention of Transfer of Criminal
Proceeds.

RISK MANAGEMENT SYSTEM
We strive to building a risk management system appropriate to the typeand scale of risk to which we are exposed.
Hokuhoku Financial Group’s general risk management system
Financial services are becoming more diversified and complex, and financial institutions are exposed to a wide range ofrisk. In order to protect customer deposits and justify the trust of our shareholders and creditors, we at Hokuhoku Financial
Group recognize that risk management — ensuring proper resource allocation and risk taking in balance with earnings
targets while keeping risk amounts within the range of the Group’s managerial capacity — is one of our most importantmanagement tasks, and as such have in put place a risk management system.
The parent company and each Group company have created its own basic risk management policy for various risks,established a risk management department, and prepared regulations, and are working as a whole toward integrated risk
management through close cooperation between these departments.
At our subsidiary banks, which have the highest risk exposure within the Group, we have categorized risk for management purposes as: credit risk, market risk, liquidity risk and operational risk, which we manage through our Asset Liability
Management Committees and Comprehensive Risk Management Committees. Operational risk is further divided into administrative and system risk, and micro-managed primarily by dedicated operating risk panels. Additionally, the audit department
conducts inspections to verify the appropriateness and effectiveness of the risk management system.
As the risk management general department for the entire Group, the Risk Management Group at the parent company,
bases its activities on the type and scale of risk faced by each Group member. After receiving risk management status
reports, the department duly issues instructions including for the improvement of regulations and system, to each Group
member, and delivers reports outlining response policies regarding risk status and issues faced by the Group to the Board of
Directors and other senior management. In this way, soundness of operations is assured.
Hokuhoku Financial Group, Inc.

Board of Directors
Corporate Auditors, Board of Auditors
Management Committee
Risk Management Group

Audit Group
Other Subsidiaries

Hokuriku Bank
Hokkaido Bank

Board of Directors
Corporate Auditors, Board of Auditors
Management Committee

ALM Committee

Comprehensive Risk Management Committee
Operational Risk Subcommittee

Market risk

Liquidity risk

Credit risk

Allocation of risk capital
Tier IITo ensure that risk exposure does not become excessive
compared with our capital position, the Group applies a unified set of benchmarks to each category of risk to appraise
and manage exposure.
After subsidiary banks numerically quantify credit risk,
market risk and operational risk and estimate maximum
potential loss for each of the risks, risk capital allocations
are undertaken using Tier I portions of the banks’ regulatory
capital as the source of funding. Risk is thus controlled andmanaged within a range permissible in banking operations.

Exclusion
items

Operational risk

Exclusion items: Partial deferred tax assets
expected losses – reserves
Excess: Provisions for other risk at subsidiaries
other than banks

ExcessMarket risk

Tier I
Risk capital
allocation
at subsidiarybanks

Regulatory
capital

Source offunding

Market risk
Credit risk
Credit risk
Operational risk

Operational risk

Risk capital
allocation at
subsidiary banks

Risk level at
subsidiary banks

Hokuhoku Financial Group, Inc. Annual Report 2010

15

RISK MANAGEMENT SYSTEM

In addition to checking the risk capital allocation plans
for the subsidiary banks, the Group confirms that amounts
in excess of risk capital allocations are sufficient to coverrisk affecting subsidiaries other than the subsidiary banks,
and risks not included in our assumptions. Through thismeasure and by monitoring actual risk amounts, the Group
ensures that no inappropriately large risks are taken relative
to capital on a groupwide basis.

We carry out stress tests to calculate the extent of
expected losses under certain scenarios, such as unusually
deteriorating business conditions or excessive market
fluctuations. In this way, we periodically examine thesubstantiality of our capital position against risk that cannot
be easily perceived.

Credit risk management
Basic policy
Credit risk is the risk that, as a result of such factors as the deterioration of a customer’s business situation, it will become
impossible to recover principal or receive interest as initially contracted. For banks, whose role is to act as financial intermediaries, this is an unavoidable risk, but in Hokuhoku Financial Group, we endeavor to maintain and enhance asset soundness
through the development and strengthening of a management structure for credit risk.

16Management system

Internal ratings system

To maintain and enhance soundness of each asset
portfolio, we apply unified system of internal ratings andasset self-assessment at both subsidiaries. We promptly
and accurately appraise credit risk through the systems,
and, when necessary, carry out write-offs and provisions toreserves for possible loan losses.
Subsidiary banks each have their own credit risk
management systems, while the parent company manages
such risk on a Groupwide basis.
Subsidiary banks strictly separate business promotion
and credit screening both in organizational structure and thestaffing of executives responsible for them. This is done toensure that rigorous credit screening, provision and credit
management are independently operated from businesspromotion.
When making individual judgements on credit provision,
rigorous screening is carried out in accordance with standards and principles in our credit policy. For this purpose,screening systems are enhanced by improved computerized support and training and other policies are adopted for
improving credit-screening capabilities.
To explain more concretely, detailed analysis andscreening of individual loan applications is appropriately
undertaken at each bank branch, and if a manager
lacks the authority to give approval, further analysis andscreening is conducted by the head office credit screening
department. Officers specializing in particular industries andregions are deployed in the credit screening department,
ensuring a system of consultation and guidance tailoredto the needs of individual branches, based on borrower
characteristics.

To enable objective appraisal of credit risk in lending
operations, the subsidiary banks have introduced aninternal ratings system. Using 14 credit ratings based on
financial data and qualitative information regarding borrower
creditworthiness, the system enables ongoing monitoring ofchanges in rating.
Based on the ratings generated by the internal ratingssystem at the subsidiary banks, we compute credit risk andforecast loss rates for each individual borrower category,
and then ensure that interest rates duly match risk. In
conformity to Groupwide management rules for credit
limits, we seek to enhance credit risk management by suchmeans as curbing the risk of credit concentration in termsof the aggregate of on-balance-sheet and off-balance-sheet
credits.

Hokuhoku Financial Group, Inc. Annual Report 2010

Internal
rating
S
A
B
C
D
E
F
N
G
H
I
X
Y
Z

Borrower categorization by asset self-assessment

Normal borrowers

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

Asset self-assessment, write-offs andprovisions to reserves for possible loan losses
Based on preset standards, subsidiary banks conduct selfassessments of asset portfolios (primarily loans).
Self-assessment aims at more precise evaluation ofassets and enhancing asset soundness. Self-assessment
is a prerequisite for appropriate write-offs and provisions toreserves for possible loan losses, as required by businessaccounting principles in Japan.
The Group has unified standards for write-offs and provisions to reserves for possible loan losses. For loans otherthan those specified below (including loans to borrowers
requiring caution), provision is made to the reserves for possible loan losses based on the historical loan-loss ratio overa particular past period. For loans to borrowers threatenedwith bankruptcy, a provision is made to specific reserves, inthe amount deemed necessary, after exclusion of amounts
that may be recoverable through collateral and guarantees.
For loans to bankrupt and substantially bankrupt borrowers,
provision is made in the full amount at issue to the specificreserve, excluding amounts that may be recoverable
through collateral and guarantees.

Corporate rehabilitation
After making a loan to a corporate customer, we endeavor
to prevent defaults leading to bad debt through follow-up
reviews of the borrower’s business performance and plans,
and to ensure asset soundness through dedicated management for bad debt and strengthened support for corporate
rehabilitation.

Market risk management
Basic policy
Market risk is the significant and unavoidable risk of incurred losses in securities resulting from fluctuations in market rates
such as interest rates, stock and bond prices, and foreign-exchange rates, as well as losses incurred due to the different
time structures between loans and bills discounted (our main assets) and deposits (our main liabilities).
At the subsidiary banks, where market risk is critical to transactions, we have created regulations for market risk management and assets and liabilities are subject to asset-liability management (ALM), so that Hokuhoku Financial Group controls
such risk in order to ensure stable earnings.

Types of risk and management system(1) Interest-Rate Risk
To disperse risk on bonds and other marketable securities
which are exposed to interest-rate risk, as well as risk
on deposits and loans, the subsidiary banks have set
regulations on interest rate management and their ALM
Committees control interest-rate risk appropriately.
The sections in charge of risk management assess risk
level daily using such indicators as value-at-risk (VaR) andbasis-point-value (BPV). They also periodically run gap
analysis and duration analysis (a measure for evaluating thesensitivity of the asset’s price to interest rate movements)
to monitor interest-rate risk. The results are reported andreviewed at ALM Committees for implementation of necessary measures.
To ensure that the subsidiary banks are not exposed toexcessive interest risk, we set various investment ceilings
for bonds and other securities based on risk capital allocation under VaR, and manage both the balance and risk levelof marketable securities. We have also set rules for whenlosses (unrealized and realized) are mounting.

We have established a system of checks on the business
units in charge of transacting market-related business (front
office), the processing departments (back office) and therisk management group (middle office). The front officeconducts operations in strict observance of management
policies and ceiling amounts stipulated by the Management
Committee. The middle office continuously monitors risk
levels and observance of various rules and sets “trigger
points” to enable early defusing of risk issues. They discuss
measures to respond to these issues at ALM Committees
and regularly report to the Management Committee.
When market prices fluctuate significantly, making it
impossible to accurately assess risk levels or raising theprospect of unforeseen risk, risk levels are assessed using
comparisons between VaR and actual losses throughbacktesting. We also run a wide range of earnings simulations under differing interest-rate fluctuation scenarios tounderstand asset-liability structures, and work together
to ensure a suitable balance between risk and earnings
performance.
*1 VaR: The largest predicted loss that is possible given a fixed confidence
interval.
*2 BPV: The amount of impact in assessed value as a result of a one basis
point (0.01%) rise in interest rates.
Hokuhoku Financial Group, Inc. Annual Report 2010

17

RISK MANAGEMENT SYSTEM(2) Stock Price Fluctuation Risk
Among marketable securities, stock prices are exposed tofluctuation risk. As with management of interest-rate risk,
we have set various ceilings and monitor at-risk amounts.
We conduct strict management by regularly reporting torelevant committees including the Management Committee.
We also review stock holdings, not only in pre-screening
them, but periodically monitoring the market conditions andfinancial positions of individual corporations after we haveacquired the holdings.
(3) Foreign Exchange Rate Risk
Foreign currency assets and liabilities are exposed to
exchange rate risk. To reduce such risk, we regularly
monitor the international situation and major forex indicatorsin Europe and the US, and conduct risk management withdue consideration of the maturity of individual assets andliabilities. We also use currency swaps.
(4) Derivative Transactions Risk
To meet the various needs of customers, and for ALM/
hedging purposes, the subsidiaries separately engage in
foreign currency derivative transactions such as swaps
and options, as well as interest rate swaps, caps, forward
interest-rate-related derivatives and other interest-rated
based derivatives.
Derivatives are exposed to various kinds of market risk.
Through daily management of the market value of our positions and risk evaluation, we ensure losses do not exceed
certain thresholds.

Liquidity risk management
Liquidity risk refers to the risk of incurring losses (fund procurement risk) when it becomes difficult to secure the requisite
funds or when it becomes necessary to procure funds at interest rate much higher than usual, or to risks incurred whentransactions cannot be conducted or must be conducted at prices that are much more disadvantageous than normal due tomarket disruptions or other factors (market liquidity risk).
The subsidiary banks, where liquidity risk originates, stipulate regulations on liquidity risk management, and maintainadequate levels of high-liquidity assets that are readily convertible into cash, such as government bonds, and monitor daily
with regard to liquidity risk based on benchmarks for various different categories. To prepare for sudden liquidity risk, wehave in place mechanisms for periodically reporting and discussing liquidity risk through the ALM Committees, at each stageof the event.
By precisely assessing management and procurement levels at subsidiary banks, We ensure smooth fund procurement.

18

Hokuhoku Financial Group, Inc. Annual Report 2010

Operational risk management
Basic policy
Operational risk refers to the risk of losses arising due to accidents, wrongful conduct and legal violations during day-to-day
banking operations, computer system stoppage or misuse, or external and internal events such as natural disasters.
The Group categorizes operational risk as follows. We take ongoing measures to correctly recognize, appraise and manage each type of risk, and avoid or reduce losses significantly affecting business activities.
Administrative risk

Risk of losses due to administrative errors and accidents, or wrongful transactions in which
employees have exceeded their authority

System risk

Risk of losses due to stoppage of computer systems, system failures due to operating errors, andmisuse of computers

Legal risk

Risk of losses due to failure to confirm legality of transactions

Tangible asset risk

Risk of losses due to natural disasters damaging tangible assets

Personnel risk

Risk of losses due to health and safety problems at the workplace

Reputational risk

Risk of losses due to unjustified rumors and defamation within markets and among customers

Management structure
We have compiled rules for management of operational risk.
In addition to categorization of risks, we have laid down
basic processes for the management of such risks.
At our subsidiary banks, operating risk panels meeteach month, to analyze the causes of and discuss solutions
for various operational risks based on data from actuallyoccurred or prevented incidents, such as administrative
errors and failings leading to customer complaints, dataleakage, computer system failures and phishing fraud.
Potential risks are then evaluated and risk reduction policies
taking account of all eventualities are discussed.
Status reports and results of discussions concerning
operational risk are reported to management of the subsidiary banks and to the parent company. By comparing actual
losses arising from operational risk and allocated risk capital,
we ensure our risk management system functions properly.
Through internal auditing, we likewise aim to ensure
effective checks and balances, and establish measures toprevent administrative errors from happening again, withevaluation of their effectiveness. With reporting of results tomanagement and related departments, we are establishinga Plan, Do, Check and Act (PDCA) cycle for business
improvement.

Risk management systems by major category• Administrative risk management
The Group has closely analyzed the cause of administrative
incidents and problems and discussed measures to prevent
recurrence, so as to prevent accidents and problems in
administrative operations and maintain quality of operationin terms of promptness and accuracy. At the same time,
we endeavor to raise administrative operation standards bysetting rules for proper processing, improving administrative
processing systems, dispatching advisory staff from thehead office, centralizing clerical work at branches andintroducing equipment to automate procedures.
• System risk management
With the increasing sophistication of financial business andthe growth in transaction volumes, it is becoming more
important to ensure that computer systems cannot fail andthat they always operate stably.
The Group has formulated basic rules for systemrisk management (System Risk Standards) and otherregulations, and has established a rigorous management
and operating structure with a variety of backup and othersecurity management measures in place.
Additionally, at the subsidiary banks, the current systemis scheduled to be replaced with our new MEJAR system inMay, 2011. In preparing for the migration we are taking every
possible measure to minimize inconvenience for customers.

Contingency plan
The Group has compiled crisis management manual(Contingency Plan) etc. to ensure that, in the unlikely eventof a large-scale disaster or other emergency, its impact
is minimized and business operations can be continued.
We now have a full response procedure in place, including
information-gathering and centralized crisis instruction andcommand mechanisms.
At subsidiary banks, we have drawn up a BusinessContinuation Plan (BCP), which enables us to continue toperform our required settlement function in the event of anearthquake, outbreak of a new strain of influenza or otherdisaster.

Hokuhoku Financial Group, Inc. Annual Report 201019

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

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

To meet diversifying customer needs
Enhancing branch appeal

Enhanced customer convenience• Hokuriku Bank Establishes Morinosato Branch (November 2009)
The new branch is equipped with safety deposit boxes, a night
depository safe, a Kids’ Corner and gallery lounge, as well as
solar power generation equipment, making it a comfortable
and convenient branch. The vicinity around Morinosato is fullof commercial facilities and housing developments due to the
opening of the Mountainside
Outer Ring Road in the
Kanazawa area, andadditional development is
expected.

• Expansion of convenience store ATM partnerships — Hokuriku
Bank and Seven Bank form partnership (September 2009)
Hokuriku Bank formed the first ATM usage partnership with
Seven Bank in Toyama Prefecture. Based on this partnership,
Hokuriku Bank can now use the withdrawal and deposit
services at the 14,188 nationwide Seven Bank ATMs installedin Seven-Eleven convenience stores and Ito-Yokado stores.
Moreover, with the BankTime ATM service started in May, alongwith free reciprocal ATMs, the number of points where cash canbe accessed nationwide has increased dramatically to 35,115(as of September 2009).

• Hokkaido Bank Establishes Nakashibetsu Branch (August 2009)
Hokkaido Bank opened the Nakashibetsu Branch — the firstbranch in 17 years to open outside the city of Sapporo — inNakashibetsu Town, a strategic traffic and information point for
the Konsen district (the generic name for the Nemuro and Kushiro
regions), which is one of Hokkaido’s foremost agricultural zones,
especially for dairy production. The new branch provides consultation booths, fully automated safety deposit boxes and a seminarroom with the aim of making it more appealing by enhancing
customer convenience.
• Hokkaido Bank relocates Shiraoi Branch (December 2009)• Hokkaido Bank opens Miyanomori Personal Branch (December
2009)

20

Hokuhoku Financial Group, Inc. Annual Report 2010

• Foreign Exchange Plaza Opened in New Location — Hokkaido
Bank’s Head office Business Division (September 2009)
The Foreign Exchange Plaza provides foreign exchange in 14
currencies and travelers checks in six currencies. The new service
counter faces the Odori Station ticket gate on the Namboku Line,the busiest subway station in Sapporo and can accommodate
more customers.

Support regional economic development through wide area networks
across Japan and some overseas locations
The Hokuhoku Financial Group aims to help spur regional economic growth by further strengthening widearea networks spanning the Hokuriku, Hokkaido and three major metropolitan areas of Japan, as well as
overseas networks.
Business-matching events (fiscal 2009-2010)
2009
May
June
July
July

Business conference in Changzhou, China
Hokkaido Food Special Business Conference in Hakodate
Manufacturing business conference in Shanghai
Hokkaido Food Special Business Conference inNakashibetsu for agricultural producers
September Hokkaido Food Special Business Conference
October
Takaoka’s 400-Year History “Tokai Hokuriku Area
Business Matching Event” — Business Summit 2009
in Takaoka
October
Shanghai Buyers Summit in Kanazawa
November Regional Bank’s “Food Selection 2009”
November Joint business conference of Japanese regional banks
and the municipal government of Dalian, China
December Joint business-matching event with KASIKORNBANKin Bangkok
2010
March Nationwide New Food Business Conference — business
partnership “Treasure Hunting” — Tokai Hokuriku area
April
Russian Far East Business Forum 2010
June Hokkaido Food Special Business Conference in Hakodate• Manufacturing business conference in Shanghai (2009 SUMMER)
July 2009
The conference was jointly sponsored by the Hokuriku Bank andthe Hokkaido Bank, along with 11 regional banks including the
Ogaki Kyoritsu Bank, and held at the Shanghai Mart in Shanghai,
China. The conference was concentrated on manufacturingindustries and held for the purpose of finding parts suppliers andcontract manufacturers in China. It was a lively conference, with
2,500 visitors and 3,000 business meetings held.

Agreements with overseas municipal and othergovernment organizations
Oct. 2004
Nov. 2005
Apr. 2006
Sep. 2006
Nov. 2006
Mar. 2007
Jun. 2007
Feb. 2008
Jun. 2008
Feb. 2009
Nov. 2009
Dec. 2009
Feb. 2010

DalianShenyang
Shanghai
Liaoning
Vietnam govt.
ChangchunSuzhouGuangdong
HarbinNingboKhabarovsk
Wuxi
Sakhalin

Hokuriku Bank
Hokkaido Bank
Hokuhoku FG
Hokuhoku FG
Hokuriku Bank
Hokkaido Bank
Hokuriku Bank
Hokuhoku FG
Hokkaido Bank
Hokuhoku FG
Hokkaido Bank
Hokuriku Bank
Hokkaido Bank

Alliances with overseas banks and other partners
Dec. 2005
Jul. 2006
Sep. 2007
Sep. 2008
Dec. 2008
Apr. 2009
Sep. 2009
Dec. 2009KASIKORNBANK ( Thailand)Standard Chartered Bank
State Bank of India
Mizuho Corporate Bank
Bank of Communications, PRC
Financial Information Service
Co., Taiwan
Deutche Bank
Vietcombank

Hokuriku Bank
Hokuriku Bank
Hokuriku Bank
Hokuriku Bank
Hokuriku Bank
Hokkaido Bank
Hokuriku Bank
Hokuriku Bank

• Joint business conference of Japanese regional banks and themunicipal government of Dalian, China (November 2009)
The conference was jointly sponsored by the Hokuriku Bank andthe Hokkaido Bank, along with 11 regional banks including the
Ogaki Kyoritsu Bank, as well as the Dalian government, and heldin Dalian, China. A total of 85 client companies of the participatingbanks operated booths in search of parts suppliers, expanded
sales channels, contract manufacturers and investment andjoint-venture partners.

Hokuhoku Financial Group, Inc. Annual Report 201021

CORPORATE SOCIAL RESPONSIBILITY

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

IR meetings for individual investors

November 2009: Fiscal 2009 interim results (Tokyo)
May 2010: Fiscal 2009 results ( Tokyo)

June 2010: Three cities in Hokuriku ( Toyama, Kanazawa and Fukui)
and one city in Hokkaido (Sapporo)

IR overseas roadshow

General meeting of shareholders

July 2010: North America (Boston, New York)
Europe (Paris, London, Edinburgh)

June 2010: Seventh ordinary general meeting of shareholders( Toyama, with live broadcast to Sapporo)

Advancing with regional communities
We take part in social contribution activities.
Financial education• All-Japan high-school quiz in finance and economy “Economics
Koshien,” in Hokkaido, Toyama and Fukui prefectures• Participation as Mini Hokkaido Bank in the “Kodomo no Machi(Kid’s Town) Mini Sapporo 2008” for children, hosted by Sapporo
city• Financial class at high schools and universities• Internships

Support for cultural events• Sponsorship for concerts• A reproduction of a bustling Edo Period street is Opened
The Teru-Teru Tei Hoku-Hoku Street built on Chuo Street
by Hokuriku Bank in cooperation with Toyama Prefecture

and Toyama City has opened. The Teru-Teru Tei Theater, aperformance hall created by popular Rakugo (comic storytelling)
performer Shinosuke Tatekawa and opened in June 2008, hasalready attracted 17,000 visitors. Seeking to create additional
bustling city scenes from the Edo Period, the Hoku-Hoku Street
complex has opened and provides a mini theater where people
can enjoy the Rakugo of Mr. Tatekawa on the first floor of theTheater, as well as
dioramas of Toyama
City’s near future,such as the passingof the Hokuriku bullet
train and the Centrum
streetcars.

Helping conserve the regional environment
Measures undertaken as a financial institution
Support financing for environment-friendly homebuilding, intermediary role in carbon-rights trading, lending based on “environmental
ratings” and intermediary services for applications to loans under
the Sapporo City environment protection fund (Hokkaido Bank).

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

Further environmental protection activities• Hokkaido Bank forest campaign
As a financial institution that has Hokkaido — an area abundantly
blessed by nature — as its business base, on June 11, 2009, the
Hokkaido Bank initiated the Dogin Forest Campaign for passing
on this natural bounty so that future generations can enjoy it.
On July 31, 2009, the bank signed a memorandum with the
Hokkaido government concerning “the creation of forests at water

22

Hokuhoku Financial Group, Inc. Annual Report 2010

sources.” Under the business scheme begun in 2008, 10,000
trees are to be planted over a five-year period, with 2,000 trees
planted each year on one hectare of land in the Kamuishiri area of“Domin-no-Mori” (Hokkaido Citizen’s Forest).
Tree-planting activities will be carried out in forests, parks,
and along rivers and roadsides in partnerships with regional
public organizations. The Bank will introduce these forest creation
activities to regional banks nationwide and will continue to provide
information as reference for the future forest conservation activities of those banks.

TOPICS

Hokuriku Bank
1. London Representative Office Opened

3. Business Cooperation Agreement with Vietcombank

On September 23, 2009, we opened a representative officein the City of London, the financial center of Europe. The
opening of the London Office marks the passing of 11 years
since the closing of our London Branch in March 1998. The
London representative office is our fourth overseas officefollowing New York, Shanghai and Singapore. With offices
straddling Asia, North America and Europe, we are now inpossession of a 24-hour global network.

In December 2009, Hokuriku
Bank signed a memorandumwith the Vietcombank,Vietnam’s largest bank,concerning businesscooperation, to provide anenhanced system of support
to client companies entering
the Vietnam market. We
also signed a memorandum
regarding economic
exchanges with Wuxi City (theforeign trade and economic
agency), China, and aretaking steps to create a bettersystem for supporting foreigncompanies wishing to enter
Head office of Vietcombank
China and the ASEAN region.

2. Offering of Environment Assessment Loans Begun

4. Organized Joint Business Matching Event withKASIKORNBANK in Thailand

In order to support environment-friendly corporate management, the Hokuriku Bank began offering Environment
Assessment Loans, whereby the environmental efforts of
SMEs are assessed and preferential loan terms are offered.
In March 2010, we provided the first such loan to Hokuriku
Coca-Cola Bottling Co., Ltd., whose environmental efforts
were assessed at the highest S-rank. On April 1, the Bank
began offering for the first time in the Hokuriku region asystem of interest-free loans established by the Ministry of
the Environment, which were designed to help speed up
efforts to prevent global warming.

We organized a cooperative business matching event withKASIKORNBANK, a major commercial bank in Thailand andour business partner, which was held at their head bankin December 2009. The purpose was to introduce local
suppliers to the clients of the Hokuriku Bank and Hachijuni
Bank, and marked the first time that such a matching event
was held in Bangkok by a Japanese regional bank.

Production line of Hokuriku Coca-Cola Bottling Co., Ltd.

Hokuhoku Financial Group, Inc. Annual Report 201023

5. Small- and Medium-Sized Enterprise (SME) Support
Network Opened

6. University of Toyama’s Hokugin Young Researchers
Grant System Established

We opened the Toyama Small- and Medium-Sized
Enterprise Support Network in cooperation with theFirst Bank of Toyama. With a staff of five coordinators,
the network was established with the goal of handling
corporate business issues for SMEs including new businessdevelopment, business revitalization, business succession,and manufacturing support by dispatching specialists to
SMEs whenneeded.

The Hokugin Young Researchers Grant System wasestablished to help young researchers at the Universityof Toyama, which signed a cooperative and collaborative
agreement with the Hokuriku Bank. The establishment of
this system, which follows an agreement reached last yearwith Kanazawa University, has as its purpose contributing to
the development of Japan’s academic research through thesupport of young researchers. The system is fully financedby the Hokuriku
Bank.

Hokkaido Bank
1. Supporting business with the Russian Far East

2. Business Matching in Shenyang

In the wake of heightened interest in the Russian Far Eastby client companies, we established the Yuzhno-Sakhalinsk
representative office, the only office of a Japanese bankin the Russian Far East. In October, the Bank led theRussian Far East Business Networking Event in Sakhalin,a mission group composed of 80 individuals from 64
client companies. In addition, we concluded an economic
cooperation agreement with Khabarovsk City in November
and the Sakhalin government in February 2010. The Bank
will provide up-to-date information on the Russian Far Eastand will support business with Russia.

In cooperation with the Sapporo Chamber of Commerceand Industry and Sapporo City, the Bank jointly sponsoreda business conference for companies in Hokkaido thatwant to enter the Chinese market, and Chinese companies,
particularly those in Shenyang. Participating in the conference were 18 companies from Hokkaido, mostly in the foodbusiness, and about 40 companies from China.
Safe and dependable foods from Hokkaido are highly
popular in China. It was an exciting conference, with someof the booths running beyond their scheduled finishing time.

Signing ceremony of economic treaty
with Sakhalin

24

Signing ceremony of economic treaty
with Khabarovsk

Hokuhoku Financial Group, Inc. Annual Report 2010

3. Espolada Hokkaido

5. Taiwan ATM/SmartPay Service Started

Seeking to support a Hokkaido-based sports team,
Hokkaido Bank has thrown its support behind Espolada
Hokkaido, a Dosanko (Hokkaido-born) team that is playing
its second year in Japan’s national futsal league, theF League. On November 23, 2009, we sponsored the“Hokkaido Bank MATCH DAY,” inviting surprise guest
singer Maki Oguro. With 3,116 passionately cheering fanson hand, a stunning victory was achieved against a powerful opponent.

On January 27, 2010, the Hokkaido Bank and its subsidiary
Dogin Card Co., Ltd. partnered with nine major banks in
Taiwan to initiate Japan’s first card service that enables
users to withdraw cash from dedicated ATMs using cash
cards issued in Taiwan and access the debit card service
using special terminals that accept these cards.
A magnificent party was held to mark the service’s
launch with Harumi Takahashi, the Governor of Hokkaido,
and Fumio Ueda, the Mayor of Sapporo in attendance.
Providing this financial service, the first in Japan, toTaiwanese tourists who account for at least 30% of
Hokkaido’s foreign tourists, should help revitalize Hokkaido.

4. “Personal Branch” Opened in Miyanomori
To respond to the diversifying needs of our individual
customers, in December 2009, we opened our third“Personal Branch” dedicated to transactions for individuals,
the Miyanomori Personal Branch. The “Personal Branch,”exclusively for individual customers, is designed as a place
they feel free to ask for financial advice. The branch interior
is quiet and private consultation booths have been installed
to allow for a degree of privacy. Here, customers canreceive advice regarding such topics as asset management
and mortgage loans. Fully automated safety deposit boxes
have also been installed. These branches are open on
weekends and holidays, allowing customers to arrange for
consultations. We aim to make our branches more appealing through these enhancements.

6. Sponsored Agricultural Seminar to Forge Regional
Business Partnerships
Over a three day period (July 22-24, 2009), a local business
conference was held in the Nakashibetsu/Betsukai area, adairy producing region. Buyers for Tokyo area department
stores and supermarkets, as well as buyers for Hokkaido’s
processed food and restaurant industry were invited sothat they could verify at first hand the special practices andproduction methods of agricultural producers. Hokkaido
Bank wishes to continue assisting agricultural and dairy
producers in their future strategies and sales channel
expansion.

Waiting room

Hokuhoku Financial Group, Inc. Annual Report 201025

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

Millions of yen
March 31

2010

2009

AssetsCash and due from banks (Notes 22 and 27).....................................................
Call loans and bills bought .................................................................................
Monetary claims bought (Note 27) .....................................................................
Trading assets (Note 4) ......................................................................................
Money held in trust (Note 28) .............................................................................
Securities (Notes 5, 10, 27 and 28) ....................................................................
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 .....................................................................................................

¥

390,229
78,423
131,760
9,657
4,400
2,013,505
6,981,201
11,178235,069
112,453
38,24674,906114,235(88,060)¥10,107,208¥ 412,377
60,726
154,830
8,719
4,751
1,673,591
7,133,148
13,381
182,963
111,642
39,90293,391135,055(95,397)¥9,929,086

4,194,214
842,897
1,416,175
103,80347,292
21,641,291
75,034,408
120,147
2,526,537
1,208,657
411,080805,097
1,227,810(946,476)$108,632,932

Liabilities and net assets
Liabilities
Deposits (Notes 10, 11 and 27) .........................................................................
Call money and bills sold (Note 10) ....................................................................
Trading liabilities (Note 4) ...................................................................................
Borrowed money (Notes 10, 12 and 27) ............................................................
Foreign exchanges (Note 7) ...............................................................................
Bonds payable (Note 13) ...................................................................................
Other liabilities ...................................................................................................
Reserve for employee retirement benefits (Note 26) ...........................................
Reserve for directors’ and corporate auditors’ retirement benefits......................
Reserve for contingent loss................................................................................
Reserve for reimbursement of deposits..............................................................
Deferred tax liabilities for revaluation ..................................................................
Acceptances and guarantees (Note 9) ...............................................................
Total liabilities ..................................................................................................

¥ 9,083,392—
2,719
248,175
142
59,500
164,046
8,153
1,273
2,152
2,121
8,969
114,235
9,694,883¥8,661,538
10,0002,263
395,55955
64,500196,613
8,960
64
1,558
2,196
9,054
135,055
9,487,421$ 97,628,901—
29,233
2,667,410
1,535
639,510
1,763,181
87,634
13,69023,131
22,79996,4081,227,810
104,201,242

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 28).............................
Deferred gains (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
153,189
170,100(589)
393,595
9,180
(17)
8,784
17,947781
412,324¥10,107,208

70,895223,098
156,942(470)
450,466(18,341)(45)
8,908(9,478)676
441,664¥9,929,086

761,984
1,646,491
1,828,253(6,334)4,230,394
98,677(191)
94,412
192,898
8,398
4,431,690$108,632,932

See notes to consolidated financial statements.

26

Thousands of
U.S. dollars (Note 1)
2010

Hokuhoku Financial Group, Inc. Annual Report 2010$

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

2010

2009

Thousands of
U.S. dollars (Note 1)
2010

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

¥131,287
18,991
16
3
1,265
2,027
39,863
1,518
27,655
4,372
227,002¥141,213
19,280
76
49
1,295
2,380
41,017
1,633
29,345
5,874
242,165$1,411,084
204,125
179
35
13,601
21,797428,455
16,325297,240
47,001
2,439,842

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

18,765
—
2,105
1,785
583
11,98715,019106,126
23,18014,576
194,131

25,746
60
2,345
1,885
498
11,547
18,837
100,62233,90924,389219,842

201,698—
22,63419,192
6,276
128,845
161,429
1,140,655
249,148
156,664
2,086,541

32,871

22,323353,301

9,024
779
(104)
3,866
92
¥ 19,212

8,516——(23,315)87¥ 37,034

96,9948,380(1,122)
41,563992$ 206,494

Millions of yen
Years ended March 31

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

Hokuhoku Financial Group, Inc. Annual Report 201027

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, 2009 ................................ 1,391,630
218,832
Changes during the period
Cash dividends ....................................................
——Net income ..........................................................
——
Purchase of treasury stock ..................................
——
Disposal of treasury stock ....................................
——
Retirement of treasury stock ................................
—(111,400)
Reversal of revaluation reserve for land ................
——Net changes of items
other than shareholders’ equity ..........................
——
Total changes during the period...........................
—(111,400)
Balance as of March 31, 2010 ................................ 1,391,630
107,432

Millions of yen

Capitalstock¥70,895

Capitalsurplus¥223,098

Retainedearnings¥156,942

Treasurystock¥ (470)Total
shareholders’equity¥450,466

—
—
—
—
—
—

—
—
—
(6)
(69,903)—(6,178)19,212
—
—
—
124

—
—
(70,039)17
69,903—(6,178)19,212(70,039)
11
—
124

—
—
¥70,895—(69,909)¥153,189—
13,158¥170,100

—
(119)
(589)

—
(56,870)¥393,595

Minority
interests
¥676

Total
net assets¥441,664

—
—
—
—
—
—
104
104
¥781

(6,178)19,212(70,039)
11—
124
27,530(29,340)¥412,324

Millions of yen
Valuation
Total valuationdifference on
Deferredavailable-for-sale gains (losses)
Revaluation and translation
securities
on hedges reserve for land adjustments
Balance as of March 31, 2009 .........................................................
¥(18,341)¥(45)¥8,908¥ (9,478)
Changes during the period
Cash dividends .............................................................................
————Net income ...................................................................................
————
Purchase of treasury stock ...........................................................
————
Disposal of treasury stock .............................................................
————
Retirement of treasury stock .........................................................
————
Reversal of revaluation reserve for land .........................................
————Net changes of items other than shareholders’ equity ...................
27,52127(124)
27,425
Total changes during the period....................................................
27,52127(124)
27,425
Balance as of March 31, 2010 .........................................................
¥ 9,180¥(17)¥8,784¥17,947

Thousands
IssuedIssuednumber of
number ofshares ofshares ofcommon stock preferred stock
Balance as of March 31, 2008 ................................ 1,391,630
266,432
Changes during the period
Cash dividends ....................................................
——Net income ..........................................................
——
Purchase of treasury stock ..................................
——
Disposal of treasury stock ....................................
——
Retirement of treasury stock ................................
—(47,600)
Reversal of revaluation reserve for land ................
——Net changes of items
other than shareholders’ equity ..........................
——
Total changes during the period...........................
—(47,600)
Balance as of March 31, 2009 ................................ 1,391,630
218,832

28

Hokuhoku Financial Group, Inc. Annual Report 2010¥

Millions of yen

Capitalstock¥70,895

Capitalsurplus¥253,234

Retainedearnings¥125,950

Treasurystock¥ (421)

Total
shareholders’equity¥449,658

—
—
—
—
—
—

—
—
—
(25)
(30,110)—(6,053)37,034
—
—
—
10

—
—
(30,232)72
30,110—(6,053)37,034(30,232)
47
—
10

—
—
¥70,895—(30,135)¥223,098—
30,992¥156,942

—
(48)
(470)

—
807
¥450,466¥

Millions of yen
Valuationdifference on
Deferred
Total valuation
available-for-sale gains (losses)
Revaluation and translation
securities
on hedges reserve for land adjustments
Balance as of March 31, 2008 .........................................................
¥ (4,722)¥(16)¥8,918¥ 4,179
Changes during the period
Cash dividends .............................................................................
————Net income ...................................................................................
————
Purchase of treasury stock ...........................................................
————
Disposal of treasury stock .............................................................
————
Retirement of treasury stock .........................................................
————
Reversal of revaluation reserve for land .........................................
————Net changes of items other than shareholders’ equity ...................
(13,618)(28)(10)(13,657)
Total changes during the period....................................................
(13,618)(28)(10)(13,657)
Balance as of March 31, 2009 .........................................................
¥(18,341)¥(45)¥8,908¥ (9,478)

Minority
interests
¥590

Total
net assets¥454,428

—
—
—
—
—
—
86
86
¥676

(6,053)37,034(30,232)47—
10(13,571)(12,763)¥441,664

Thousands of U.S. dollars (Note 1)

Balance as of March 31, 2009 .........................................................
Changes during the period
Cash dividends .............................................................................
Net income ...................................................................................
Purchase of treasury stock ...........................................................
Disposal of treasury stock .............................................................
Retirement of treasury stock .........................................................
Reversal of revaluation reserve for land .........................................
Net changes of items other than shareholders’ equity ...................
Total changes during the period....................................................
Balance as of March 31, 2010 .........................................................

Capitalstock$761,984

Capitalsurplus$2,397,882

Retainedearnings$1,686,827

Treasurystock$ (5,053)

Total
shareholders’equity$4,841,640

—
—
—
—
—
—
—
—
$761,984

—
—
—
(65)
(751,326)——(751,391)$1,646,491(66,402)
206,494
—
—
—
1,334
—
141,426$1,828,253——(752,791)
184
751,326——(1,281)$ (6,334)(66,402)
206,494(752,791)
119
—
1,334
—
(611,246)$4,230,394

Thousands of U.S. dollars (Note 1)
Valuation
Total valuationdifference on
Deferred
Minority
available-for-sale gains (losses)
Revaluation and translationinterests
securities
on hedges reserve for land adjustments
Balance as of March 31, 2009 ......................................................... $(197,130)$(485)$95,746$(101,869)$7,271
Changes during the period
Cash dividends .............................................................................
—
—
—
—
—
Net income ...................................................................................
—
—
—
—
—
Purchase of treasury stock ...........................................................
—
—
—
—
—
Disposal of treasury stock .............................................................
—
—
—
—
—
Retirement of treasury stock .........................................................
—
—
—
—
—
Reversal of revaluation reserve for land .........................................
—
—
—
—
—
Net changes of items other than shareholders’ equity ...................
295,807294(1,334)
294,767
1,127
Total changes during the period....................................................
295,807294(1,334)
294,767
1,127
Balance as of March 31, 2010 ......................................................... $ 98,677$(191)$94,412$ 192,898$8,398Total
net assets$4,747,042(66,402)
206,494(752,791)
119
—
1,334
295,894(315,352)$4,431,690

See notes to consolidated financial statements.

Hokuhoku Financial Group, Inc. Annual Report 201029

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

Millions of yen
Years ended March 31
1. Cash flows from operating activities:
Income before income taxes and minority interests ...................................................
Depreciation .............................................................................................................
Impairment losses .....................................................................................................
Amortization of goodwill ............................................................................................
Equity in losses (gains) of affiliates .............................................................................
Increase (decrease) in allowance for loan losses .......................................................
Increase (decrease) in reserve for contingent loss .....................................................
Increase (decrease) in reserve for employee retirement benefits ................................
Increase (decrease) in reserve for directors’ andcorporate auditors’ 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 increase (decrease) in call money and bills sold ..................................................
Net increase (decrease) in payables under securities lending transactions.................
Net decrease (increase) in foreign exchanges (assets) ...............................................
Net increase (decrease) in foreign exchanges (liabilities) ............................................
Interest income-cash basis .......................................................................................
Interest expense-cash basis .....................................................................................
Other, net .................................................................................................................
Subtotal.........................................................................................................................
Income taxes paid ....................................................................................................
Net cash provided by (used in) operating activities ...................................................
2. Cash flows from investing activities:
Purchases of securities .............................................................................................
Proceeds from sales of securities..............................................................................
Proceeds from redemption of securities ....................................................................
Proceeds from sales of money held in trust...............................................................
Proceeds from fund management .............................................................................
Purchases of tangible fixed assets ............................................................................
Proceeds from sales of tangible fixed assets .............................................................
Purchases of intangible fixed assets..........................................................................
Net cash provided by (used in) investing activities ....................................................
3. Cash flows from financing activities:
Proceeds from issuance of subordinated borrowed money.......................................
Repayment of subordinated borrowed money ..........................................................
Proceeds from issuance of subordinated bonds .......................................................
Repayment of subordinated bonds ...........................................................................
Expenditures for fund procurement ...........................................................................
Dividends paid ..........................................................................................................
Dividends paid to minority shareholders ....................................................................
Purchases of treasury stock ......................................................................................
Proceeds from 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 period ..............................................
7. Cash and cash equivalents at end of the period (Note 22) .........................................
See notes to consolidated financial statements.

30

Hokuhoku Financial Group, Inc. Annual Report 20102010¥

32,871
8,231
331
2,405
(1)
(7,336)
593
(806)

2009
¥

22,323
7,135
14
2,420
(3)
(7,772)959(2,091)Thousands of
U.S. dollars (Note 1)
2010$

353,301
88,474
3,564
25,856(11)(78,858)
6,377(8,670)1,208(75)(153,592)
23,241
(639)
(49)
92
548
(938)
456
151,947
420,913940(171,883)
35,590—(580)(164,295)
30,536
18,210
124
41
1,570
(767)
699
(261,765)
249,742(23,828)
149,796(46,560)

12,994(813)(1,650,821)
249,799(6,875)
(532)
999
5,891
(10,082)
4,905
1,633,143
4,524,009
10,106(1,847,415)
382,528

5,373(10,000)—
2,202
87
134,202(17,913)(92,383)
365,618(11,581)354,037

51,862(30,000)(6,492)647(214)
144,010(22,680)
37,048150,091(794)
149,296

57,752(107,481)—
23,678936
1,442,420(192,533)(992,946)
3,929,695(124,474)
3,805,221(1,849,490)
1,302,641
257,227500
19,041(7,233)54(2,952)(280,212)(1,013,105)
669,250
288,450
2,600
19,302(12,128)
2,951(2,267)(44,945)(19,878,447)
14,000,876
2,764,696
5,374
204,657(77,751)583(31,735)(3,011,747)

30,000(5,500)15,000(20,000)(3,656)(6,178)(0)(70,039)11(60,363)(19)
13,442
248,324¥ 261,766

20,000——(2,000)(3,081)(6,053)(0)(30,232)47(21,319)(41)
82,989165,335¥ 248,324

322,442(59,114)161,221(214,961)(39,298)(66,403)(5)(752,791)
119(648,790)(204)
144,480
2,669,009$ 2,813,489

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 Act 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
the 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 Act 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,
2010, which was ¥93.04 to US$1. The U.S. dollar amounts are thenrounded to thousands. The convenience translations should not be
construed as representations that the Japanese yen amounts havebeen, could have been, or could in the future be, converted into
U.S. dollars at that rate.

2. Scope of Consolidation
The consolidated financial statements as of March 31, 2010 include
the accounts of the Company and its 14 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
Capital (¥mil)
Hokuriku Bank, Ltd.
140,409
Hokkaido Bank, Ltd.
93,524
Hokugin Lease Co., Ltd.
100
Hokuriku Card Co., Ltd.
36
Hokuriku Hosho Services Co., Ltd.
50
Hokugin Software Co., Ltd.
30
Hokuhoku Services Co., Ltd.
500
Hokugin Business Services Co., Ltd. (Note 1)
30
Hokugin Office Services Co., Ltd. (Note 1)
20
Hokugin Real Estate Services Co., Ltd. (Note 1)
100
Hokuriku International Cayman Ltd. (Note 1)
US$1,000
Hokugin Corporate Co., Ltd. (Note 1)
100
Dogin Business Service, Ltd. (Note 1)
50
Dogin Card Co., Ltd. (Note 1)
120

Ownership (%)
100.00100.0070.25
87.39
100.00100.00100.00100.00100.00100.00100.00100.00100.00100.00Notes: 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.
3. Hokugin Shisankanri Co., Ltd. was removed from the list of consolidated subsidiaries owing to liquidation. Liquidation was completed of Hokugin Office Services
Co., Ltd. on June 24, 2009 and of Hokugin Corporate Co., Ltd. on September 30,
2010. Hokugin Real Estate Services Co., Ltd. was absorbed by Hokuriku Bank, Ltd.
with effect from March 25, 2010.
4. Nihonkai Services Co., Ltd. was renamed Hokuhoku Services Co., Ltd.

Associated company
Hokuhoku Capital Co., Ltd. (Note)

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 sheet 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).
(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.
Stocks in available-for-sale securities that have market prices arecarried at their average market prices during the final month of the
fiscal year and bonds and other securities 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 for which quoted market prices are

Hokuhoku Financial Group, Inc. Annual Report 201031

difficult to obtain are carried at cost using the moving-averagemethod. Valuation difference on available-for-sale securities, net ofincome taxes, is 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 (exclude Lease assets)
The Company and its consolidated banking subsidiaries (thesubsidiaries hereafter referred to as the “Banks”) depreciate theirequipment on the declining-balance method and their premises
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.
b. Intangible fixed assets (exclude Lease 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 5 years).
c. Lease assets
Lease assets under non-transfer ownership finance lease contracts(in which the ownership of leased assets is not transferred to thelessee; included in tangible fixed assets and intangible fixed assets)are depreciated on a straight-line basis, with the conditions of thelease period being employed for the useful life and a residual valueof zero, expecting when contracted amounts for residual value are
specified.
(5) Long-lived assets
The Group reviews its long-lived assets for impairment whenever
events or changes in circumstances 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 theasset 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 the Banks is provided as detailed
below in accordance with the internal standards for write-offs andprovisions.
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

32

Hokuhoku Financial Group, Inc. Annual Report 2010

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, an 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 similar methods tothose employed by the consolidated subsidiaries engaging inbanking operations to make provisions for doubtful accounts in theamounts 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-offs were ¥124,484 million($1,337,971 thousand) and ¥125,706 million at March 31, 2010
and 2009, respectively.
(7) Reserve for employee retirement benefits
Reserve for employee retirement benefits is provided for paymentof 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 (¥28,423 million ($305,496 thousand)) is amortized primarily
using straight-line method over 15 years.
(8) Reserve for directors’ and corporate auditors’ retirement
benefits
Reserve for directors’ and corporate auditors’ retirement benefits isprovided for payment of retirement benefits to directors and corporate auditors in the amount deemed accrued at the fiscal-year end,
based on the estimated amount of benefit.
The Group have postponed payment of directors’ and corporate auditors’ retirement benefits except for external directors andauditors in light of its financial position and the fact that it was therecipient of public funds. However, in view of the improvement in
our financial position and the completion in August 2009 of repayment of public funds, starting from the end of fiscal year underreview (consolidated basis), we have been recording the reserve fordirectors’ and corporate auditors’ retirement benefits with regard to
directors and corporate auditors other than external directors andauditors.
(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.
(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.
(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(Lessee)
Under the previous accounting standard, finance leases that weredeemed to transfer ownership of the leased property to the lessee were to be capitalized. However, other finance leases werepermitted to be accounted for as operating lease transactions if
certain “as if capitalized” information is disclosed in the notes tothe lessee’s financial statements. The revised accounting standard
requires that all finance lease transactions should be capitalized torecognize lease assets and lease obligations in the balance sheet.
In addition, the accounting standard permits leases which existed
at the transition date and do not transfer ownership of the leased
property to the lessee to be accounted for as operating leasetransactions.
The Group applied the revised accounting standard effective
April 1, 2008. In addition, the Group accounted for leases which
existed at the transition date and did not transfer ownership of theleased property to the lessee as operating lease transactions. The
effect of this change was not material.
(13) Accounting for significant hedges
a. Interest risk hedges
The Banks hedge interest rate risks arising from their financial
assets and liabilities by employing the technique known as “individual hedging” that establishes a specific position to directly hedge aparticular item. Such hedges, limited to certain assets and liabilities,
are accounted for by the deferred method or, where appropriates
interest rate swaps are involved, by the special rule method.
The effectiveness of hedges is assessed as follows: the subsidiaries specify hedges items according to their risk management
regulations, with the aim of centralizing of hedge instruments, andverify the extent to which exposure of interest rate risks on hedged
items is mitigated.
b. Foreign currency risk hedges
The Banks hedge currency exchange fluctuation risks arising fromtheir foreign currency denominated financial assets and liabilities.

Such hedges are accounted for by the deferred method specified
in the “Accounting and Auditing Treatments in Banking Businessin Accounting for Foreign Currency Denominated Transactions andOthers” (JICPA Industry Audit Committee Report No. 25).
The effectiveness of hedges is assessed as follows: where currency swap transactions and exchange swap transactions are usedas hedging instruments to offset exchange fluctuation risks arisingfrom foreign currency denominated financial assets and liabilities, it
is assessed by verifying the agreement of the amounts of the designated hedging instruments corresponding to the hedged foreign
currency financial assets and liabilities.
c. The Company and 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 ofshares of common stock outstanding for the period.
Diluted earnings per share reflects the potential dilution that
could occur if preferred stock was converted into common stock.
(15) Accounting for consumption taxes
National and local consumption taxes are accounted for by the tax
exclusion method.
However, a range of consumption taxes on equipment andpremises that have ceased qualifying for exclusion is expensed as
incurred.
(16) Accounting for income taxes
The provision for income taxes is computed based on 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 ofcash flows
Cash and cash equivalents consist of cash on hand and demand
deposits with the Bank of Japan.
(18) New Accounting Pronoucement
Accounting Standard for Financial Instruments“Accounting Standard for Financial Instruments” (ASBJ Statement
No.10, partially revised on March 10, 2008) and “Guidance on
Disclosures about Fair Value of Financial Instruments” (ASBJ
Guidance No.19, issued on March 10, 2008) became effectivefrom the fiscal year ended on and after March 31, 2010. The Group
has applied them from the fiscal year ended March 31, 2010.
As a result, Securities increased by ¥988 million, deferred tax
assets decreased by ¥399 million, valuation difference on availablefor-sale securities increased by ¥589 million, income before taxes
and minority interests increased by ¥490 million, respectively.

Hokuhoku Financial Group, Inc. Annual Report 201033

4. Trading Accounts

7. Foreign Exchanges

Trading accounts as of March 31, 2010 and 2009 are as follows:

AssetsMillions of yen
2010
2009

Thousands of
U.S. dollars
2010

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

¥4,027
5,630¥9,657¥3,783
4,936¥8,719$ 43,289
60,514$103,803

Liabilities

Millions of yen
2010
2009

Thousands of
U.S. dollars
2010

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

¥2,719¥2,719$29,233$29,233¥2,263¥2,263

5. Securities

Foreign exchanges as of March 31, 2010 and 2009 are as follows:
Millions of yen
2010
2009

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 ............................................

Thousands of
U.S. dollars
2010¥ 8,167
1,104
1,905¥11,178¥ 9,007920
3,452¥13,381$ 87,790
11,875
20,482$120,147

¥

¥

$

¥

34
104
3
142

¥

—
51
4
55

372
1,127
36
$ 1,535

Securities as of March 31, 2010 and 2009 are as follows:
Millions of yen
2010
2009

Japanese government bonds ......... ¥ 943,420 ¥ 715,949
Japanese local government bonds ...
415,213260,844
Japanese corporate bonds.............
428,380
452,952
Japanese stocks ...........................
138,915
133,992
Other securities ............................
87,576
109,852
Total ............................................ ¥2,013,505 ¥1,673,591

Thousands of
U.S. dollars
2010$10,139,943
4,462,744
4,604,258
1,493,072
941,274$21,641,291

6. Loans and Bills Discounted

8. Tangible Fixed Assets
Accumulated depreciation amounted to ¥96,929 million($1,041,803 thousand) and ¥96,000 million as of March 31, 2010
and 2009, respectively.
The book value of tangible fixed assets adjusted for gains onsales of replaced assets amounted to ¥3,898 million ($41,905
thousand) and ¥3,898 million as of March 31, 2010 and 2009,
respectively.
Tangible fixed assets as of March 31, 2010 and 2009 are as
follows:

Loans and bills discounted as of March 31, 2010 and 2009 are as
follows:
Millions of yen
2010
2009

Bills discounted............................. ¥ 68,519 ¥ 97,138
Loans on bills ...............................
444,820
509,018
Loans on deeds ............................ 5,539,629 5,472,617
Overdrafts ....................................
928,231 1,054,374
Total ............................................ ¥6,981,201 ¥7,133,148

Thousands of
U.S. dollars
2010$

736,457
4,780,961
59,540,296
9,976,694$75,034,408

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
2010
2009

Loans to borrowers
under bankruptcy proceedings ..... ¥ 17,732
Overdue loans .............................. 184,050
Loans overdue
for at least three months .............
746
Restructured loans ........................
16,083
Total ............................................ ¥218,612

Thousands of
U.S. dollars
2010¥ 31,134
182,427$ 190,590
1,978,186

707
16,412¥230,682

8,018
172,864$2,349,658

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

34

Hokuhoku Financial Group, Inc. Annual Report 2010

Millions of yen
2010
2009

Buildings ......................................
Land.............................................
Lease assets ................................
Construction in progress................
Other tangible fixed assets ............
Total ............................................

¥ 37,754
64,744
835
527
8,591
¥112,453¥ 37,468
64,871
304
312
8,686
¥111,642

Thousands of
U.S. dollars
2010$ 405,789
695,882
8,975
5,666
92,345$1,208,657

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.
Guarantee obligations on securities issued by private placement (pursuant to Article 2, Clause 3 of the Japanese Financial
Instruments and Exchange Act) amounted to ¥101,465 million($1,090,560 thousand) and ¥114,419 million as of March 31, 2010
and 2009, respectively.

10. Pledged Assets

15. Capital Stock

Assets that are pledged as collateral as of March 31, 2010 and2009 are as follows:

Information with respect to capital stock of the Company as ofMarch 31, 2010 and 2009 are as follows:

Millions of yen
2010
2009

Assets that are pledged as collateral:
Securities ................................. ¥313,342
Loans and bills discounted ........ 307,429
Other assets.............................
130
Obligations corresponding
to collateral assets:
Deposits .................................. ¥ 51,212
Call money and bills sold...........
—
Borrowed money ...................... 151,718

Thousands of
U.S. dollars
2010¥279,322
346,216500$3,367,822
3,304,267
1,402¥ 52,962
10,000323,754$ 550,438—
1,630,675

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, 2010 and 2009:
Millions of yen
2010
2009

Securities ..................................... ¥242,041
Other assets .................................
210¥247,370
210

Thousands of
U.S. dollars
2010$2,601,477
2,258

Other assets included guarantee deposits of ¥4,446 million($47,789 thousand) and ¥4,368 million as of March 31, 2010 and2009, respectively.

11. Deposits
Deposits as of March 31, 2010 and 2009 are as follows:
Millions of yen
2010
2009

Current deposits, ordinary deposits,
saving deposits
and deposits at notice ................. ¥4,365,974 ¥4,091,573
Time deposits
and installment savings.................. 4,482,285 4,343,065
163,227
155,934
Other deposits ...................................
Subtotal .............................................. ¥9,011,487 ¥8,590,573
NCDs ...................................................
71,90570,965
Total .................................................... ¥9,083,392 ¥8,661,538

Thousands of
U.S. dollars
2010$46,925,775
48,175,901
1,754,381$96,856,057
772,844$97,628,901

12. Borrowed Money
Borrowed money includes ¥95,000 million ($1,021,066 thousand)and ¥70,500 million of subordinated borrowed money as of March
31, 2010 and 2009, respectively.

13. Bonds Payable
Bonds payable includes ¥59,500 million ($639,510 thousand) and¥64,500 million of subordinated bonds as of March 31, 2010 and2009, respectively.

14. Revaluation Reserve for Land
Under the “Act Concerning Land Revaluation,” Hokuriku Bank,
Ltd. revalued 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 ¥23,432 million($251,849 thousand) and ¥22,758 million as of March 31, 2010
and 2009, respectively.

2010

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) ........................
—
Preferred (Type 4) ........................
—
Preferred (Type 5) ........................
107,432,000

2009

2,800,000,000
400,000,000
200,000,000
200,000,000
90,000,000
110,000,000
1,391,630,146
50,000,000
61,400,000
107,432,000

Preferred stock ( Type 5)
Preferred stock ( Type 5) is noncumulative and nonparticipating for
dividend payments. Stockholders of the preferred stock (Type 5)
are not entitled to vote at a general meeting of stockholders except
when the proposal to pay the prescribed dividends to stockholders is not submitted to the general meeting of stockholders or isrejected 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 Act and the Companies Act. The significant provisions in
the Companies Act that affect financial and accounting matters are
summarized below:
a. Dividends
Under the Companies Act, companies can pay dividends at any
time during the fiscal year in addition to the year-end dividend upon
resolution at the shareholders meeting. For companies that meetcertain criteria such as: (1) having a Board of Directors, (2) having
independent auditors, (3) having a 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 dividendsin-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 Companies Act 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 Act requires that an amount equal to 20% of
dividends must be appropriated as a legal reserve (a component ofretained earnings) or as additional paid-in capital (a component of
capital surplus) depending on the equity account charged upon the

Hokuhoku Financial Group, Inc. Annual Report 201035

payment of such dividends until the total of the aggregate amountof the legal reserve and additional paid-in capital equals 100% ofcommon stock. Under the Companies Act, the total amount ofadditional paid-in capital and legal reserve may be reversed without
limitation. The Companies Act also provides that common stock,legal reserve, additional paid-in capital, other capital surplus andretained earnings can be transferred among the accounts undercertain conditions upon resolution of the shareholders.
c. Treasury stock and treasury stock acquisition rights
The Companies Act 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 shareholders
which is determined by specific formula.
Under the Companies Act, stock acquisition rights, which werepreviously presented as a liability, are now presented as a separate
component of equity.
The Companies Act also provides that companies can purchase both treasury stock acquisition rights and treasury stock.
Such treasury stock acquisition rights are presented as a separate
component of equity or deducted directly from stock acquisitionrights.

17. Per Share Information
Yen

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

2010

2009

¥256.94¥ 12.66¥ 12.14¥234.56¥ 24.91¥ 22.79

Reconciliation of the differences between basic and diluted
earnings per share for the years ended March 31, 2010 and 2009
are as follows:
Millions ofyen
Net income

For the year ended March 31, 2010:
Basic earnings per share
Net income available
to common stockholders .......... ¥17,600
Effect of dilutive securities
Preferred stock..........................
—
Diluted earnings per share
Net income for computation ....... ¥17,600
For the year ended March 31, 2009:
Basic earnings per share
Net income available
to common stockholders .......... ¥34,631
Effect of dilutive securities
Preferred stock..........................
791
Diluted earnings per share
Net income for computation ....... ¥35,423

36

Hokuhoku Financial Group, Inc. Annual Report 2010

Thousands ofshares
Weighted
average shares

Yen
Earnings
per share

1,389,936¥12.66

59,642
1,449,578¥12.14

1,390,260¥24.91

163,879
1,554,139¥22.7918. Fees and Commissions
Fees and commissions for the years ended March 31, 2010 and2009 are as follows:
Millions of yen
2010
2009

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

¥10,904
11,702
5,826
11,430¥39,863¥10,982
12,671
4,967
12,396¥41,017

Millions of yen
2010
2009

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

¥ 1,985
10,002¥11,987¥ 2,112
9,434¥11,547

Thousands of
U.S. dollars
2010$117,198
125,781
62,621
122,855$428,455
Thousands of
U.S. dollars
2010$ 21,341
107,504$128,845

19. Trading Income and Losses(a) Trading income

Millions of yen
2010
2009

Thousands of
U.S. dollars
2010

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

¥ 180
1,338
¥1,518¥ 196
1,436¥1,633$ 1,941
14,384$16,325(b) Trading losses

Millions of yen
2010
2009

Thousands of
U.S. dollars
2010

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

—
—

—
—

—
—

20. Other Expenses
Included in other expenses for the fiscal year ended March 31, 2010
and 2009 were write-offs of loans and bills discounted of ¥3,941
million ($42,367 thousand) and ¥1,193 million, impairment losses
on stocks and other securities of ¥2,151 million ($23,124 thousand)and ¥15,779 million, and losses on sales of loans of ¥1,223 million($13,153 thousand) and ¥1,955 million, respectively.

21. Income Taxes

23. Commitment Lines

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, 2010 and 2009, respectively.
The tax effects of significant temporary differences and tax loss
carryforwards which generated deferred tax assets and liabilities at
March 31, 2010 and 2009 are as follows:

Loan agreements and commitment line agreements relating toloans are agreements which oblige the Group to lend funds up to acertain 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 ¥2,240,812 million ($24,084,397 thousand) and ¥2,218,922
million as of March 31, 2010 and 2009, respectively, out of which,¥2,193,751 million ($23,578,581 thousand) and ¥2,177,913 million
related to loans where the term of the agreement is one year or lessor unconditional cancellation of the agreement is allowed at any
time, as of March 31, 2010 and 2009, respectively.
In many cases, the term of the agreement runs its course
without the loan ever being drawn down. Therefore, the unusedloan commitment will not necessarily affect future cash flows.
Conditions are included in certain loan agreements which allow
the Group either to decline the request for a loan draw down or
to reduce the agreed limit amount where there is due cause to doso, 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 Group in the formof real estate, securities etc. on signing the loan agreement or, in
accordance with the Group’s established internal procedures,confirming the obligor’s financial condition etc. at regular intervals.

Millions of yen
2010
2009

Deferred tax assets:
Allowance for loan losses .......... ¥ 68,614
Depreciation .............................
1,783
Reserve for employee
retirement benefits .................
17,291
Loss on valuation of securities ...
13,695
Valuation difference
on available-for-sale securities ...
—Other .......................................
5,599
Operating loss carryforwards .....
27,405
Subtotal............................... 134,390
Less: Valuation allowance .........
42,388
Total deferred tax assets ...............
92,002
Deferred tax liabilities:
Valuation difference on
available-for-sale securities..... ¥ 4,900
Book-value correction
for securities ..........................
5,122
Land transfer through merger....
3,672
Other .......................................
3,401
Total deferred tax liabilities ............
17,096
Net deferred tax assets ................. ¥ 74,906

Thousands of
U.S. dollars
2010¥ 69,534
1,971$ 737,473
19,174

15,901
14,567

185,853
147,203

9,615
4,828
33,433
149,852
49,974
99,878—60,183
294,555
1,444,441
455,594
988,847—¥ 4,730
—
1,756
6,486
¥ 93,391$

52,66855,05339,46936,560183,750$ 805,097

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, 2010 and 2009 are
as follows:
Millions of yen
2010
2009

Cash and due from banks
in balance sheet ......................... ¥390,229
Due from banks except for
deposits with the Bank of Japan... (128,462)
Cash and cash equivalentsin the statements of cash flows.... ¥261,766

Thousands of
U.S. dollars
2010¥412,377$4,194,214(164,053)(1,380,725)¥248,324$2,813,489

Hokuhoku Financial Group, Inc. Annual Report 201037

24. Segment Information(a) Segment information by business
For the fiscal years ended March 31, 2010 and 2009, segment results are as follows:
Millions of yen
2010
Banking

Lease

Other business

206,1811,135
207,316
173,313
34,002¥12,876952
13,82813,451¥ 377¥ 7,700
5,235
12,936
12,622¥313¥

II. Identifiable assets............................................................. ¥10,083,727
Depreciation expenses......................................................
7,848
Losses on impairment of fixed assets ................................
223
Capital expenditures .........................................................
10,050¥35,26688—
15¥125,908
294
108
120

¥10,244,901
8,231
331
10,186

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

Total

¥

226,758
7,322
234,081
199,387
34,693Elimination or
corporate¥

Consolidated—(7,322)(7,322)(8,042)¥719¥

226,758—
226,758
191,344
35,413¥¥(137,693)———¥10,107,208
8,231
331
10,186

Elimination or
corporate

Consolidated

Millions of yen
2009
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 ................................................................

¥ 217,075
1,461
218,536
200,515¥ 18,020¥14,224
1,228
15,453
14,945¥ 507¥ 8,348
6,515
14,864
12,886¥ 1,977¥

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

¥9,937,253
6,641
9
13,939¥39,946167—
0¥139,521
327
5
455¥10,116,721
7,135
14
14,395¥

239,648
9,206
248,854
228,348
20,505¥—(9,206)(9,206)(10,099)¥893¥ 239,648—
239,648
218,249¥ 21,399¥(187,635)———¥9,929,086
7,135
14
14,395

Elimination or
corporate

Consolidated

Thousands of U.S. dollars
2010
Banking

Lease

Other business

Total

I. Ordinary income(1) Ordinary income from outside customers ...................... $ 2,216,049(2) Ordinary income from intersegment transactions ...........
12,201
Total ................................................................................
2,228,250
Ordinary expenses............................................................
1,862,787
Ordinary profits ................................................................ $365,463$138,398
10,233
148,631
144,575$ 4,056$

82,76956,268139,037
135,664$
3,373$ 2,437,216
78,702
2,515,918
2,143,026$
372,892$—(78,702)(78,702)(86,440)
7,738$ 2,437,216—
2,437,216
2,056,586$
380,630

II. Identifiable assets............................................................. $108,380,559
Depreciation expenses......................................................
84,360Losses on impairment of fixed assets ................................
2,397
Capital expenditures .........................................................
108,023$379,041
953—
165$1,353,268
3,161
1,167
1,298

$110,112,868
88,474
3,564
109,486$(1,479,936)———$108,632,932
88,474
3,564
109,486$(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 income 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.

38

Hokuhoku Financial Group, Inc. Annual Report 201025. Lease Transactions(1) Finance Lease Transactions(Lessee)
The Group leases ATMs, computer equipment, software and otherassets.
As discussed in Note 3 (12), the Group accounts for leases
which existed at the transition date and did not transfer ownershipof the leased property to the lessee as operating lease transactions. Pro forma information for the year ended March 31, 2010
and 2009 as described below are for such leases existing at thetransition date.
Pro forma information with respect to the leased property, suchas acquisition cost, accumulated depreciation and net book value
at March 31, 2010 and 2009 are as follows:

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

Millions of yen
2010
2009

Thousands of
U.S. dollars
2010¥3,2262,181¥1,045$34,684
23,449$11,235¥4,1882,435¥1,753

Pro forma amounts of obligations under finance leases at March
31, 2010 and 2009 are as follows:

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

Millions of yen
2010
2009

Thousands of
U.S. dollars
2010

¥ 516
529
¥1,045$ 5,549
5,686$11,235

¥ 652
1,101
¥1,753

Pro forma information concerning lease payments and depreciation expenses for the years ended March 31, 2010 and 2009
are as follows:
Millions of yen
2010
2009

Lease payments............................
Depreciation expenses ..................

¥652
652

¥690
690

Thousands of
U.S. dollars
2010$7,008
7,008

The method of calculating the pro forma amounts of depreciation expenses for the years ended March 31, 2010 and 2009 are
as follows:
Depreciation is computed based on the straight-line method
over the period of lease, with no residual value.
(2) Operating Lease Transactions(Lessee)
The minimum rental commitments under noncancelable operatingleases as of March 31, 2010 and 2009 are as follows:
Millions of yen
2010
2009

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

¥212
323
¥535

¥—
—
¥—

Thousands of
U.S. dollars
2010$2,284
3,476$5,76026. Retirement Benefits(a) Overview of the Group’s retirement benefit plans
The Hokuriku Bank, Ltd. provides the defined benefit programs that include a corporate pension plan, a qualified retirement pension plan
and a retirement lump sum grant. At the time of retirement, employees may be issued a premium retirement grant that is not subject toinclusion in the actuarial computation of projected benefit obligations in conformity with 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. wasfurther 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 Banks have established benefit trust arrangements as a part of their plan assets.
(b) Retirement benefit
Millions of yen
2010
2009

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) .....................................................................................................

¥(92,643)
58,473(34,170)
9,474
19,055(1,251)(6,892)
1,260¥ (8,153)¥(93,095)
48,736(44,359)
11,36928,695(2,504)(6,799)2,161¥ (8,960)

Thousands of
U.S. dollars
2010$(995,741)
628,473(367,268)
101,832
204,806(13,453)(74,083)
13,551$ (87,634)

Hokuhoku Financial Group, Inc. Annual Report 201039

(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
2010
2009

Thousands of
U.S. dollars
2010¥2,1092,097(1,826)(1,252)
4,341
1,894
152
¥7,517$22,672
22,549(19,633)(13,466)
46,666
20,366
1,644$80,798¥1,9302,103(2,072)(1,997)
2,569
1,900
202
¥4,635(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.........................................................................................

2010

2009

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

27. Financial Instruments and Related Disclosures
On March 10, 2008, the ASBJ revised ASBJ Statement No. 10 “Accounting Standard for Financial Instruments” and issued ASBJ GuidanceNo. 19 “Guidance on Accounting Standard for Financial Instruments and Related Disclosures.” This accounting standard and the guidance
are applicable to financial instruments and related disclosures at the end of the fiscal years ending on or after March 31, 2010 with early
adoption permitted from the beginning of the fiscal years ending before March 31, 2010. The Group applied the revised accounting standard
and the new guidance effective March 31, 2010.
(1) Group Policy on financial instruments
The Group provides a wide variety of financial services, centered on banking services such as deposit-taking and lending.
Our lending activities are aimed at achieving co-prosperity with the regional economy and we endeavor to manage our lending in a soundand appropriate manner, while simultaneously working to strengthen credit risk management.
Investments in securities are strictly managed based on the Group’s risk management policies and regulations. Regarding deposit-taking
operations, the Group aims to ensure stable fund raising through the expansion and upgrading of financial services for all customers in theregion. Borrowed money and corporate bonds are considered a means of medium- to long-term fundraising.
Given the different term structures of the Group’s financial assets such as loans and financial liabilities such as deposits, it is exposed tointerest-rate fluctuation risk in the financial markets. For this reason, the Group conducts comprehensive asset liability management (ALM) toappropriately control such market risk and ensure stable earnings.
(2) Nature and extent of risks arising from financial instruments
The financial assets held by the Group consist primarily of securities and loans to domestic customers. Loans are subject to credit risks which
could cause financial loss to the Group, such as declines or losses in asset value resulting from a possible deterioration in the financial condition of borrowers. With regard to securities, the Group is exposed to the credit risk of issuers, interest-rate risk, and market price volatility risk.
However, the Group takes adequate steps to diversify these risks.
Financial liabilities, including deposits and borrowed money, are exposed to liquidity risk arising from the possibility that the Group may be
obliged to procure funds at interest rates significantly higher than normal owing to a sudden change in the market environment or a deterioration in the Group’s financial position.
The Banks make use of currency-related derivatives such as currency swaps, forward exchange contracts, and currency options, aswell as interest-related derivatives such as interest-rate swaps, interest-rate futures, and interest-rate caps, to meet the ALM needs of the
Banks themselves as well as the various needs of the Banks’ customers. These derivatives are exposed to the following risks among others:interest-rate risk, the risk of exchange rate fluctuations, price volatility risk, and credit risk.
However, none of the Group’s financial assets and liabilities are attended by notably high risk levels, nor do they include any particularderivatives with high market price volatility.
The Hokuriku Bank, Ltd. applies hedge accounting to hedge the value of some of its assets and liabilities against interest-rate fluctuations.
When applying hedge accounting, the Hokuriku Bank, Ltd. adopts integrated management in both hedging instruments and hedged items aslong as hedging is installed and evaluates the effectiveness of the hedges.

40

Hokuhoku Financial Group, Inc. Annual Report 2010

(3) Risk management for financial instruments
The Banks have established risk management departments and have stipulated basic requlations for risk management and other regulations
pertaining to risk. In addition, the Banks have established an ALM Committee and a Comprehensive Risk Management Committee, where
quantified risks and administration matters are discussed regularly to ensure that all categories of risk are managed effectively. Changes inregulations and organizational structures of the Banks are under review or supervision of the Company to conform to the Groups’ policy andthe results of above committees are reported to the Company.
(a) Credit Risk Management
The Groups’ fundamental policy is to strive for improved earnings and ensure sound business operations through the appropriate management of credit risk. In line with this policy, the Company and the Banks collaborated in establishing various regulations, including Credit
Risk Management Regulations, and also ensuring the effective operation of internal checking functions by separating business promotion
departments from credit risk management departments. Rigorous screening is also conducted and credit ratings are granted based on theirCredit Policy. Additionally the setting of credit limits is managed on an individual customer basis to avoid the risk of an overconcentrationof loans in particular sectors. Finally, the Banks carry out self-assessment procedures and credit risk quantification and the risk situation isregularly reported to the Banks’ Board of Directors.
As for loan screening process of the Banks, the branches concerned carefully analyze each separate loan application and screen eachcustomer involved. In the event that the decision exceeds the limits of authority of the branch manager, the appropriate loan screening
departments at the headquarters of the Banks carry out its own analysis and screening. Specialized staff members in place within thescreening departments are responsible for particular industries and geographical areas. These specialists provide the appropriate advice andguidance to the branches based on the particular features of the customer.
Concerning the creditworthiness of security issuers and counterparty risk in derivatives transactions, credit information and the state oftransactions are regularly monitored and managed in the risk management departments of the Banks.
(b) Market Risk Management
Having stipulated regulations such as Market Risk Management Regulations and an arranged organizational structure including ALM andother committees, the Banks appropriately control market risk associated with lending and deposit-taking in order to ensure stable earnings.
Interest Rate Risk Management
The risk management departments of the Banks regularly and comprehensively grasp the interest rates and time-frames involved in the
Banks’ financial assets and liabilities and monitor interest risk levels through methods such as gap analysis and sensitivity analysis of interest
rate, based on the Banks’ Interest Rate Risk Management Regulations and other related regulations where the methods and procedures tobe employed for risk management are described in detail.
The Banks set ceiling amounts for each type of interest rate risk to control it appropriately. Derivatives such as interest-rate swaps
and interest-rate caps are employed from ALM perspective, so that the Banks reduce interest rate risk by hedging against interest rate
fluctuations.
Foreign Exchange Risk Management
Using measures like currency swaps to reduce foreign exchange risk, the Banks manage exchange risk arising from fluctuations in foreignexchange rates that affect the values of assets and liabilities denominated in foreign currencies.
Price Volatility Risk Management
In investment in instruments such as securities, the Banks carry out prior screening, and set investment ceilings, and then constantly monitor
the investment status to minimize price volatility risk. Every process above has to be strictly under the supervision of the Banks’ Board of
Directors and to be in line with policies laid down by Management Committees. A high percentage of the stocks held by the Banks are
acquired and held for long-term strategic purposes. The Banks monitor the market conditions and financial positions of the securities issuers.
Value at Risk (VaR) and other methods is used to determine the amount of market risk for each securities held. The staffs of the responsible
departments make regular reports to the Banks’ Board of Directors and Management Committees so that they confirm the price risk iscontrollable and all rules pertaining to market risk management are being followed correctly.
Derivatives
The Banks arrange organizational structure securing separation and internal check-and-balance mechanism among front sections (specializing in market transactions), middle sections (engaging in risk management) and back sections (responsible for book entries and settlements).
Management sections confirm the validity of transactions, value the Banks’ daily derivative positions, and measure gains and losses as wellas risk levels. Derivative transactions are carefully managed in such a way that losses never exceed a predetermined maximum.
(c) Liquidity Risk Management
In accordance with the Banks’ rules for management of liquidity risk, the Banks form an accurate appraisal of fund operations and procurement, and take measures to ensure smooth cash flows. Specifically, the Banks set benchmarks in various different categories to checkliquidity risk on a daily basis, and maintain adequate levels of high-liquidity assets that are readily convertible into cash, such as government
bonds.
We have in place mechanisms for periodically assessing and managing liquidity risk through ALM committees, to prepare for every
categories of concerned situations.

Hokuhoku Financial Group, Inc. Annual Report 201041

(4) Supplementary explanation relating to fair values of financial instruments
The fair values of financial instruments include, in addition to values determined based on market prices, valuations calculated on a reasonable basis if no market price is available. Certain assumptions are used for the calculation of such amounts. Accordingly, the result of suchcalculation may vary if different assumptions are used.
(5) Fair values of financial instruments
The fair values of the main financial instruments at March 31, 2010 are as follows. These amounts do not include unlisted stocks whose fairvalues are extremely difficult to determine (see (b) Financial instruments whose fair values are deemed to be extremely difficult to determine).
(a) Fair value of financial instruments
Millions of yen
Consolidatedbalance sheet
amountFair value¥ 390,229
104,992¥ 390,229
104,992
74,6191,908,451

791—

Total assets ................................................................................................................................................

73,827
1,908,451
6,981,201(82,289)6,898,912¥9,376,413

6,976,319¥9,454,613

77,407¥78,199

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

¥9,011,487
248,175¥9,259,663¥9,025,859
248,294¥9,274,154¥14,372119¥14,491¥¥¥

March 31, 2010

Cash and due from banks............................................................................................................................
Monetary claims bought (*1) ........................................................................................................................
Securities
Bonds classified as held-to-maturity ........................................................................................................
Available-for-sale securities ....................................................................................................................
Loans and bills discounted ..........................................................................................................................
Allowance for loan losses (*1)..................................................................................................................

Derivative transactions (*2)
Derivative transactions not qualifying for hedge accounting .......................................................................
Derivative transactions qualifying for hedge accounting .............................................................................
Total ..........................................................................................................................................................

¥

5,786
3,132
8,918

¥

5,786
3,132
8,918

Unrealized gain
(losses)¥———(*3) —¥—

Thousands of U.S. dollars

March 31, 2010

Consolidatedbalance sheet
amountFair value

Cash and due from banks............................................................................................................................ $ 4,194,214
Monetary claims bought (*1) ........................................................................................................................
1,128,463
Securities
Bonds classified as held-to-maturity ........................................................................................................
793,508
Available-for-sale securities ....................................................................................................................
20,512,166
Loans and bills discounted ..........................................................................................................................
75,034,408
Allowance for loan losses (*1)..................................................................................................................
(884,449)
74,149,959
Total assets ................................................................................................................................................ $100,778,310$ 4,194,214
1,128,463

Deposits ................................................................................................................................................ $ 96,856,057
Borrowed money ....................................................................................................................................
2,667,410
Total .......................................................................................................................................................... $ 99,523,467
Derivative transactions (*2)
Derivative transactions not qualifying for hedge accounting ....................................................................... $Derivative transactions qualifying for hedge accounting .............................................................................
Total .......................................................................................................................................................... $62,19433,666
95,860

Unrealized gain
(losses)$——

802,018
20,512,166

8,510
—

74,981,942$101,618,803

831,983$840,493$ 97,010,531
2,668,689$ 99,679,220$154,474
1,279$155,753$$$

62,19433,666
95,860—(*3) —$—*1. Allowance for loan losses shown on this table represent the general allowance and specific allowance for loan losses. Figures for allowance for losses
on monetary claims bought are directly deducted from the balance of monetary claims bought as the amount concerned is insignificant.
*2. Derivative transactions included in trading assets & liabilities and other assets & liabilities are shown together. Assets and liabilities arising from derivative transactions are shown within parentheses with respect to net liabilities.
*3. As interest-rate swaps subject to exceptional treatment are accounted for together with the loans being hedged by the swaps, their fair value isincluded in the loans in question on the balance sheet.

42

Hokuhoku Financial Group, Inc. Annual Report 2010

Cash and due from banks
The book values of cash and due from banks approximate their fair values.
Monetary claims bought
The fair values of trust beneficiary rights relating to mortgage loans purchased by the Banks and relating to loan claims are determined basedon the quoted prices obtained from the counterparty financial institutions. The fair value of small-lot monetary claims resulting from asset
liquidation is determined by discounting the cash flows at the market interest rate.
Securities
The fair values of stocks are calculated on the basis of the average price of the stocks on the stock market for the one-month period immediately preceding the last day of the accounting term. The fair values of bonds are calculated using the price indicated on the securities markets
or other officially announced price. In the event that neither of these fair values are available, the price is based on a reasonable estimate. For
investment trusts, the fair value is calculated on the basis of a publicly available benchmark price.
For privately-placed bonds guaranteed by one of the Banks, the present value is separately calculated using the present value discounted
by the market interest rate where the credit risk of each bond issuer and the remaining period of bonds are considered.
Regarding variable rate Japanese Government Bonds (the “JGBs”) that are included in the amount presented under the line item
“Securities” in the table above, prices calculated from reasonable estimates are continuously used as the Group’s own criteria for those issues
whose market price cannot be treated as fair value, according to Practical Issue Task Force No. 25, Practical Solution on Measurement ofFair Value for Financial Assets (October 28, 2008, Accounting Standard Board of Japan). In this way, compared with the statement on the
consolidated balance sheet amount of the market prices, the values have been increased for the reporting term by ¥11,470 million ($123,282
thousand) for securities and by ¥6,836 million ($73,476 thousand) for valuation difference on available-for-sale securities, and the value has
decreased by ¥4,633 million ($49,806 thousand) for deferred tax assets.
The reasonably estimated value of the JGBs is calculated using the future cash flows estimated from the bond yield rate, which is thendiscounted at a discount rate based on the same yield rate. The yield rate of the JGBs and the volatility of that yield rate are the principal
variables employed in determining the fair value of the bond.
For more detailed information regarding the different types of securities, classified according to holding purpose, see “28. Fair Value ofSecurities and Money Held in Trust (1) Securities.”
Loans and bills discounted
As loans with variable interest rates reflect short-tem market interest rates, the fair value will approximate the book value unless the creditworthiness of the borrower changes subsequent to the granting of the loan. Because of this, the book value is employed as the fair value.
For loans with fixed interest rates, the fair value is calculated using the total future cashflow from principal and interest discounted by current market interest rates, taking account the credit risk involved. This calculation is performed separately for each different category of loan,classified by type of loan, internal credit ratings and maturity length. For loans whose repayment period is one year or less, the book value isa close approximation to the fair value and is therefore employed as such.
Regarding the fair value of claims on bankrupt borrowers, substantially bankrupt borrowers, and potentially bankrupt borrowers, credit
losses are estimated based on the present value of estimated future cash flows or the estimated value recoverable from collateral andguarantees. Since the fair value is approximate to the value stated on the consolidated balance sheet amount as of the settlement date,minus the present value of estimated bad debt, this figure is therefore treated as the fair value.
For the category of loans whose maturity is not fixed because of the loan ceiling set within the estimated value recoverable from thecollateral, the book value is regarded as approximate to the fair value because of the expected period for repayment and the interest rates
applied. The book value is therefore employed as the fair value.
Deposits
For demand deposits, the amount payable on demand as of the consolidated balance sheet date (i.e., the carrying amount) is considered tobe the fair value. In addition, the fair value of time deposits is calculated by discounting the estimated future cash flows for each of the specified periods. This calculation is performed separately as per remaining maturity of time deposits. The discount rate employed is the interest
rate that would be applied to newly accepted deposits. In the event that the deposit term is one year or less, the book value is regarded as
approximate to the fair value and is therefore treated as such.
Borrowed money
Borrowed money with floating interest rates reflects market interest rates and because the credit standing of the Company and its consolidated subsidiaries has changed little since the taking out of these loans, the book value is regarded as approximate to the fair value and istherefore treated as such.
For money borrowed through loans carrying fixed interest rates, the current value of these loans is determined by discounting the total of
their principal plus interest (separately for each specific period) at the rate currently applied to other loans of the same duration and terms. For
loans whose repayment period is one year or less, the book value is regarded as being approximate to the fair value and is therefore treatedas such.

Hokuhoku Financial Group, Inc. Annual Report 201043

Derivative transactions
Derivative transactions include interest rate-related transactions (futures, options, swaps and others), foreign exchange-related transactions(futures, options, swaps and others) and commodity-related transactions and are based on the prices on securities exchanges, discounted
value of future cash flows, option pricing models and others.
(b) Financial instruments whose fair values are deemed to be extremely difficult to determine
Financial instruments whose fair values are deemed to be extremely difficult to determine are indicated below, and are not included in “Assets
Monetary claims bought” and “Assets Available-for-sale securities” in the fair value information of financial instruments.

March 31, 2010

Thousands ofMillions of yen
U.S. dollars
Consolidated balance sheet amount

Monetary claims bought (Subordinated beneficiary rights in securitization of mortgage loans) (*1) ...............................................
Unlisted stocks (*1) (*2) ..........................................................................................................................................................
Unlisted foreign securities (*1) ................................................................................................................................................
Total .....................................................................................................................................................................................

¥26,757
31,224
0¥57,982$287,589
335,6078$623,204*1. These items are excluded from “fair value information of financial instruments” on the basis that no market price is available and a determination of thefair value would be extremely difficult.
*2. Unlisted stocks were written down by ¥336 million ($3,620 thousand) for the year ended March 31, 2010.
*3. Reflecting recent amendments to Japanese accounting standards for financial instruments, trust beneficiary rights, which were formerly classified as
securities without fair value, are now included in fair value information of financial instruments on the basis of fair value estimates for the reporting year.
The fair value of trust beneficiary rights for the reporting term, as stated on the consolidated balance sheet, is ¥104,883 million ($1,127,291 thousand).

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

March 31, 2010

Within 1 year

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

¥ 274,482
2,182
135,112
8,765
—
8,765
—
126,347
26,60027,774
66,395
5,576
2,334,580¥2,746,357

March 31, 2010

Within 1 year

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

$ 2,950,153
23,4591,452,197
94,207—
94,207—
1,357,990
285,901
298,522713,628
59,93925,092,224$29,518,033

After 1 year
through 3 years

Millions of yen
After 3 years
through 5 years

After 5 years
through 7 years

After 7 years

¥

¥

¥

¥

—
1,434
369,925
16,1291,529
14,600—353,796
122,600
72,347
143,560
15,2891,230,505¥1,601,865

After 1 year
through 3 years$—
15,417
3,975,989
173,357
16,435
156,922—3,802,632
1,317,713
777,595
1,542,992
164,332
13,225,551$17,216,957—
1,450
399,21218,7808,000
10,780—380,432
127,100
147,512
93,113
12,706993,218¥1,393,881——
273,371
20,610—15,945
4,665
252,761
200,100
30,681
8,679
13,300557,966¥831,337

Thousands of U.S. dollars
After 3 years
After 5 years
through 5 years
through 7 years$—
15,5854,290,761
201,849
85,985
115,864—
4,088,912
1,366,079
1,585,472
1,000,789
136,572
10,675,180$14,981,526$——
2,938,212
221,520—
171,378
50,142
2,716,692
2,150,688
329,766
93,286
142,952
5,997,060$8,935,272—
100,201
658,003
9,775
7,000
775
2,000
648,228
439,200
128,967
61,121
18,938
1,621,643¥2,379,849

After 7 years$—
1,076,971
7,072,270
105,063
75,2378,330
21,496
6,967,207
4,720,554
1,386,155
656,942
203,556
17,429,535$25,578,776

Loans and bills discounted
Claims on bankrupt borrowers, substantially bankrupt borrowers, and potentially bankrupt borrowers amounted to ¥201,782 million($2,168,776 thousand) and those with no contractual maturities amounted to ¥41,502 million ($446,075 thousand) are not included in thetable above.

44

Hokuhoku Financial Group, Inc. Annual Report 2010

(7)Maturity analysis for financial liabilities with contractual maturities

March 31, 2010

Within 1 year

After 1 year
through 3 years

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

¥7,413,741
153,454¥7,567,195¥1,221,836
579¥1,222,415

March 31, 2010

Within 1 year

After 1 year
through 3 years

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

$79,683,379
1,649,334$81,332,713$13,132,380
6,223$13,138,603

Millions of yen
After 3 years
through 5 years

After 5 years
through 7 years

After 7 years¥372,602
2,332¥374,935¥ 1,305
29,010¥30,315¥ 2,000
62,500¥64,500

Thousands of U.S. dollars
After 3 years
After 5 years
through 5 years
through 7 years$4,004,758
25,073$4,029,831$ 14,035
311,801$325,836

After 7 years$ 21,505
671,754$693,259

Deposits
Demand deposits are included in the “ Within 1 year category.”

28. Fair Value of Securities and Money Held in Trust(1) Securities
The fair value of securities at March 31, 2010 and 2009 were 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 paper 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.
(As of March 31, 2010)(a) Securities classified as trading purposes

Valuation gains included in earnings for the fiscal year .............................................................................................................

Millions of yen

Thousands of
U.S. dollars

¥30

$327

(b) Bonds classified as held-to-maturity
Millions of yen

TypeConsolidatedbalance sheet
amountFair value

Japanese government bonds ...................................................................
Japanese corporate bonds.......................................................................
Other .....................................................................................................
Subtotal..................................................................................................

¥16,40937,816—54,225¥16,855
38,292—55,147

¥445
476
—
922

Japanese government bonds ...................................................................
Japanese corporate bonds.......................................................................
Other .....................................................................................................
Subtotal..................................................................................................
Total ..........................................................................................................................................................

—
12,943
6,659
19,602¥73,827—
12,8496,622
19,472¥74,619

—
(93)
(36)
(130)
¥791

Bonds whose fair values exceed
the consolidated balance
sheet amount

Bonds whose fair values do not
exceed the consolidatedbalance sheet amount

Unrealized gains(losses)Thousands of U.S. dollars

Type

Consolidatedbalance sheet
amountFair value

Unrealized gains(losses)

Japanese government bonds ...................................................................
Japanese corporate bonds.......................................................................
Other .....................................................................................................
Subtotal..................................................................................................

$176,370
406,449—
582,819$181,162
411,568—
592,730$4,792
5,119
—
9,911

Japanese government bonds ...................................................................
Japanese corporate bonds.......................................................................
Other .....................................................................................................
Subtotal..................................................................................................
Total ..........................................................................................................................................................

—
139,117
71,572
210,689$793,508—
138,107
71,180209,287$802,017—(1,010)(392)(1,402)$8,509Bonds whose fair values exceed
the consolidated balance
sheet amount

Bonds whose fair values do not
exceed the consolidatedbalance sheet amount

Hokuhoku Financial Group, Inc. Annual Report 201045

(c) Available-for-sale securities
Millions of yen

TypeAvailable-for-sale securities
whose consolidated balance
sheet amount exceed
acquisition cost

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

Stocks ....................................................................................................
Bonds ....................................................................................................
Japanese government bonds...............................................................
Japanese local government bonds .......................................................
Japanese corporate bonds ..................................................................
Other .....................................................................................................
Subtotal..................................................................................................
Total ..........................................................................................................................................................
Available-for-sale securities
whose consolidated balance
sheet amount dose notexceed acquisition cost

Consolidatedbalance sheet
amountAcquisition
cost¥

59,774
1,390,982
690,918
368,713331,351
76,134
1,526,892¥

49,1971,370,681
681,188362,676
326,816
74,954
1,494,833¥10,577
20,301
9,730
6,036
4,534
1,179
32,05847,918328,862
236,092
46,50046,269109,662
486,442¥2,013,335

59,447
330,371
237,206
46,633
46,530114,664
504,483¥1,999,316(11,529)(1,509)(1,114)(133)(261)(5,002)(18,040)¥14,018

Unrealized gains(losses)Thousands of U.S. dollars

Type

Available-for-sale securities
whose consolidated balance
sheet amount exceed
acquisition cost

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

Stocks ....................................................................................................
Bonds ....................................................................................................
Japanese government bonds...............................................................
Japanese local government bonds .......................................................
Japanese corporate bonds ..................................................................
Other .....................................................................................................
Subtotal..................................................................................................
Total ..........................................................................................................................................................
Available-for-sale securities
whose consolidated balance
sheet amount dose notexceed acquisition cost

46

Hokuhoku Financial Group, Inc. Annual Report 2010

Consolidatedbalance sheet
amountAcquisition
cost

Unrealized gains(losses)$642,460
14,950,375
7,426,034
3,962,952
3,561,389
818,304
16,411,139$

528,777
14,732,169
7,321,453
3,898,068
3,512,648
805,622
16,066,568$113,683
218,206
104,581
64,884
48,741
12,682
344,571515,030
3,534,633
2,537,539
499,791
497,303
1,178,655
5,228,318$21,639,457

638,949
3,550,852
2,549,515
501,220
500,117
1,232,418
5,422,219$21,488,787(123,919)(16,219)(11,976)(1,429)(2,814)(53,763)(193,901)$150,670

(d) Available-for-sale securities sold during the year ended March 31, 2010
Millions of yen
Proceeds fromsales

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

¥

4,214
1,275,822
1,171,022
37,54867,2516,560¥1,286,597

Gains on sales

Losses on sales

¥ 888
5,560
4,129
498
932
87
¥6,536

¥ 521
1,341
1,324
14
3
1,077
¥2,940Thousands of U.S. dollars
Proceeds fromsales

Gains on sales

Losses on sales

Stocks ........................................................................................................................................................ $45,293
Bonds ........................................................................................................................................................ 13,712,628
Japanese government bonds................................................................................................................... 12,586,227
Japanese local government bonds ...........................................................................................................
403,576
Japanese corporate bonds ......................................................................................................................
722,825
Other .........................................................................................................................................................
70,508
Total .......................................................................................................................................................... $13,828,429$ 9,547
59,76744,386
5,359
10,022
944$70,258$ 5,608
14,422
14,233157
32
11,580$31,610

Millions of yen

Thousands of
U.S. dollars¥1,759309¥2,069$18,9153,331$22,246(e) Impairment (“Devaluation”) of securities

Stocks ...................................................................................................................................................................................
Other ....................................................................................................................................................................................
Total .....................................................................................................................................................................................
(As of March 31, 2009)(a) Securities classified as trading purposes

Millions of yen

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

¥3,78328(b) Bonds classified as held-to-maturity with fair value
Millions of yen

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

Consolidatedbalance sheet
amountFair
value

Net unrealized
gains (losses)

Unrealized
gains¥16,396
4,464
30,183
11,601¥62,646¥16,839
4,471
28,967
11,288¥61,566¥ 442
6(1,216)(312)¥(1,079)

¥443
6
18
—
¥468

Unrealized
losses

¥

0
—
1,235
312
¥1,548

Hokuhoku Financial Group, Inc. Annual Report 201047

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

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

Acquisition
cost

Consolidatedbalance sheet
amountNet unrealized
gains (losses)

Unrealized
gains

Unrealized
losses¥ 114,477
1,264,669
702,737
256,002305,929
113,964¥1,493,112¥ 104,451
1,260,759
699,552
256,379
304,826
99,967¥1,465,177¥(10,026)(3,910)(3,184)376(1,102)(13,997)¥(27,934)¥ 8,832
4,398
2,428
1,131
838
74
¥13,305¥18,858
8,309
5,613
754
1,941
14,072¥41,240

Note: Consolidated balance sheet amounts are determined as follows:
StocksAverage market price during one month before the fiscal year-end
Bonds and other Market price at fiscal year-end(d) Available-for-sale securities sold during the year ended March 31, 2009
Millions of yen

Proceeds from sales.................................................................................................................................................................
Gains on sales .........................................................................................................................................................................
Losses on sales .......................................................................................................................................................................

¥660,522
3,580
2,279

(e) Securities with no available fair value
Millions of yen
Consolidated balance sheet amount

Bonds classified as held-to-maturity..........................................................................................................................................
Privately placed bonds .........................................................................................................................................................
Available-for-sale securities ......................................................................................................................................................
Unlisted stocks ....................................................................................................................................................................
Unlisted foreign securities ....................................................................................................................................................
Other ..................................................................................................................................................................................

¥ 37,925
37,925
234,673
29,4590
205,213(f) Change in classification of securities
Not applicable.
(g) Redemption schedule of available-for-sale securities with maturities and held-to-maturity bonds

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

48

Hokuhoku Financial Group, Inc. Annual Report 2010

Within 1 year

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

After 10 years¥168,626
73,682
24,81070,133
13,479¥182,106¥703,755
232,077
152,349
319,328
27,185¥730,941¥135,387
134,617—769
17,283¥152,670¥421,980
275,576
83,68362,72033,731¥455,712

(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 ....................................................................................

Millions of yen
2010
2009

Thousands of
U.S. dollars
2010¥4,00032¥3,852
5$42,992
349

Millions of yen
2010
2009

Thousands of
U.S. dollars
2010(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 ..........................................................................................................................
Difference................................................................................................................................................................
Other money held in trust whose consolidated balance sheet amount exceed acquisition cost ..................................
Other money held in trust whose consolidated balance sheet amount dose not exceed acquisition cost ....................
Net unrealized gains.................................................................................................................................................
Unrealized gains ..................................................................................................................................................
Unrealized losses.................................................................................................................................................

¥400
400
0
0
—
—
—
—

¥900
899
—
—
—
(0)
—
0

$4,300
4,299
1
1
—
—
—
—

Note: Consolidated balance sheet amount is calculated by using market prices at 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 (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.................................................................................................................................................

Millions of yen
2010
2009

Thousands of
U.S. dollars
2010¥14,018
14,0180(4,900)9,118
12¥(27,935)(27,934)(0)
9,615(18,320)0$150,671
150,6701(52,668)
98,003
139

75¥ 9,180(21)¥(18,341)

813$ 98,677

Hokuhoku Financial Group, Inc. Annual Report 201049

29. Derivatives(As of March 31, 2010)(1) Derivative transactions to which hedge accounting is not applied· Interest Rate-Related Transactions

March 31, 2010

Contract
value

Millions of yen
Fair
value

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 ..........................................................................................................................................................

¥705,503
745,535
337,895
338,108
16,196
7,398/¥11,969(6,774)(3,124)
3,125
(14)
7
¥ 5,187¥11,969(6,774)
1,705
3,125
829
(183)
¥10,671

March 31, 2010

Contract
value

Thousands of U.S. dollars
Fair
value

Recognizedgain (loss)$7,582,797
8,013,062
3,631,722
3,634,010
174,081
79,516/$128,647(72,810)(33,587)
33,589(159)
77$ 55,757$128,647(72,810)
18,33233,5898,916(1,971)$114,703

March 31, 2010

Contract
value

Millions of yen
Fair
value

Recognizedgain (loss)

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

¥ 59,686
19,741
22,409703,836
703,836
/

142
(46)
410
(62,707)62,707
¥ 505

142
(46)
410
5,036
9,808
¥15,351

March 31, 2010

Contract
value

Thousands of U.S. dollars
Fair
value

Recognizedgain (loss)$ 641,511
212,185
240,8637,564,883
7,564,883/$ 1,528(503)
4,410(673,982)
673,980$ 5,433$ 1,528(503)
4,410
54,137
105,425$164,997

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

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

50

Hokuhoku Financial Group, Inc. Annual Report 2010¥¥

· Commodity Related Transactions

March 31, 2010

Contract
value

Millions of yen
Fair
value

Recognizedgain (loss)

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

¥1,630
1,630
/

¥255
(162)
¥ 93

¥255
(162)
¥ 93

March 31, 2010

Contract
value

Thousands of U.S. dollars
Fair
value

Recognizedgain (loss)

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

$17,521
17,521/$2,745(1,741)$1,004$2,745(1,741)$1,004At March 31, 2010, the Group had no outstanding derivative contracts in stock related transactions, bond related transactions or credit
derivative transactions.
(2) Derivative transactions to which hedge accounting is applied· Interest Rate-Related Transactions
March 31, 2010
Hedge accounting method

Millions of yen
TypeMain financial instrument hedged

Swaps
Exceptional treatment forinterest swaps
Receive/fixed and pay/floating
Loans and bills discounted
Total .....................................................................................................................................................................................
March 31, 2010
Hedge accounting method

Type

Contract
value

Fair
value

¥5,000/(Note)

Thousands of U.S. dollars
Contract
Fair
value
value

Main financial instrument hedged

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

$53,740/(Note)

Note: Amounts resulting from interest swaps with exceptional treatment are accounted for together with the financial instruments thus hedged. As a result, thefair value is included in the fair value of the loans stated in “27. Financial Instruments.”· Foreign Exchange-Related Transactions
March 31, 2010

Millions of yen
Contract
value

Fair
value

Swaps
Foreign securities
Accounting method employedin principle
Forward contracts
Call loans and foreign due from banks
Total .....................................................................................................................................................................................

¥10,234
98,188/¥1,363
1,768¥3,132

March 31, 2010

Thousands of U.S. dollars
Contract
Fair
value
value

Hedge accounting method

Hedge accounting method

Type

Type

Main financial instrument hedged

Main financial instrument hedged

Swaps
Foreign securities
Accounting method employedin principle
Forward contracts
Call loans and foreign due from banks
Total .....................................................................................................................................................................................

$ 110,000
1,055,331/$14,655
19,011$33,666

At March 31, 2010, the Group had no outstanding derivative contracts in stock related transactions, bond related transactions, commodity related transactions or credit derivative transactions.

Hokuhoku Financial Group, Inc. Annual Report 2010

51

(As of March 31, 2009)
The Banks use swaps, futures, forward and option contracts, and other similar types of contracts based on either interest rates, foreignexchange rates or security 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 a strict risk management structure.
Derivative transactions are accompanied by losses arising from credit risk and losses resulting from market risk.
Derivative 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, 2009

Contract
value

Millions of yen
Fair
value

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 ..........................................................................................................................................................

¥786,279
820,915
405,080
398,324
29,225
18,881/¥10,466(6,031)(3,784)
3,793
(67)
56
¥ 4,433¥10,466(6,031)
2,314
3,793
1,239
(330)
¥11,451

March 31, 2009

Contract
value

Millions of yen
Fair
value

Recognizedgain (loss)

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

¥ 71,853
14,196
17,799816,580
816,580/· Foreign Exchange-Related Transactions

¥

300
(106)
699
(75,901)
75,901
¥ 894

¥

300
(106)
699
(2,758)19,420¥17,555

At March 31, 2009, the Group had no outstanding derivative contracts in stock related transactions, bond related transactions, commodity related transactions and credit derivative transactions.

30. Subsequent Events
Appropriations of retained earnings
The following appropriations of retained earnings at March 31, 2010 were approved at the Company’s general stockholders meeting held on
June 25, 2010:

Cash dividends, ¥3.50 per share on common stock ...................................................................................................................
Cash dividends, ¥7.50 per share on preferred stock (Type5).......................................................................................................

52

Hokuhoku Financial Group, Inc. Annual Report 2010

Millions of yen

Thousands of
U.S. dollars¥4,863805$52,276
8,660

INDEPENDENT AUDITORS’ REPORTTo the Board of Directors of
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, 2010 and 2009, 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 the Company and consolidated subsidiaries as of March 31, 2010 and 2009, and the consolidated resultsof their operations and their cash flows for the years then ended in conformity with accounting principles generally acceptedin Japan.
Our audits also comprehended the translation of Japanese yen amounts into U.S. dollar amounts and, in our opinion, suchtranslation has been made in conformity with the basis stated in Note 1. Such U.S. dollar amounts are presented solely for theconvenience of readers outside Japan.

June 9, 2010
DELOITTE TOUCHE TOHMATSU LLC

Hokuhoku Financial Group, Inc. Annual Report 201053

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

2010

2009

Thousands of
U.S. dollars
2010

AssetsCash and due from banks .................................................................................
Call loans and bills bought .................................................................................
Monetary claims bought ....................................................................................
Trading assets ...................................................................................................
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 ..................................................................................
Allowance for investment losses ........................................................................
Total assets .....................................................................................................

¥ 264,426
55,631
131,640
7,156
1,015,927
4,142,634
5,659
66,25883,401
4,320
53,062
69,217(46,615)—¥5,852,721¥ 293,653
20,726
154,750
6,589
858,854
4,290,055
6,649
73,92068,573
3,175
66,12681,703(49,391)(1,035)¥5,874,352$ 2,842,071
597,935
1,414,880
76,914
10,919,253
44,525,305
60,833
712,148
896,40746,439570,325
743,956(501,029)—$62,905,437

Liabilities and net assets
Liabilities
Deposits ............................................................................................................
Call money and bills sold ...................................................................................
Trading liabilities ................................................................................................
Borrowed money ...............................................................................................
Foreign exchanges ............................................................................................
Other liabilities ...................................................................................................
Reserve for employee retirement benefits ..........................................................
Reserve for directors’ and corporate auditors’ retirement benefits......................
Reserve for contingent loss................................................................................
Reserve for reimbursement of deposits..............................................................
Deferred tax liabilities for land revaluation ...........................................................
Acceptances and guarantees ............................................................................
Total liabilities ..................................................................................................

¥5,306,740—
2,719
167,926
99
77,211
1,520
592
1,607
1,295
8,969
69,217
5,637,902¥5,092,556
10,0002,263
360,040
35
83,200
584
—
977
1,643
9,054
81,7035,642,059$57,037,198—
29,233
1,804,888
1,075
829,871
16,344
6,373
17,277
13,922
96,408743,956
60,596,545

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

140,409
14,99843,033
198,441
7,611
(17)
8,784
16,377
214,819¥5,852,721

140,409
14,99875,571
230,980(7,550)
(45)
8,908
1,312
232,293¥5,874,352

1,509,131
161,209462,527
2,132,867
81,804(191)
94,412
176,025
2,308,892$62,905,437

Millions of yen
March 31

54

Hokuhoku Financial Group, Inc. Annual Report 2010

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

2010

2009

Thousands of
U.S. dollars
2010

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

¥ 74,271
9,787
1,286
1,795
20,344
1,413
2,654
5,461
117,016¥ 81,231
9,664
1,291
2,040
20,892
1,534
5,351
2,306
124,314$ 798,277
105,192
13,831
19,297
218,669
15,19228,53558,705
1,257,698

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

11,673
—
2,301
578
6,773
1,135
55,141
11,945
5,683
95,231

15,810
60
3,100
493
6,571
2,316
53,11020,332
14,931
116,728

125,468—
24,732
6,221
72,797
12,200592,666
128,389
61,086
1,023,559

21,784

7,586

234,139

90
(104)
6,141
¥ 15,656

745—(19,595)¥ 26,436

972(1,122)66,010$ 168,279

Millions of yen
Years ended March 31

Income before income taxes..............................................................................
Income taxes:
Current .........................................................................................................
Refund for prior periods ................................................................................
Deferred .......................................................................................................
Net income.......................................................................................................

Hokuhoku Financial Group, Inc. Annual Report 201055

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

2010

2009

Thousands of
U.S. dollars
2010

AssetsCash and due from banks .................................................................................
Call loans and bills 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 .....................................................................................................

¥ 124,692
22,791
2,501
4,400
999,158
2,851,049
5,518
126,148
32,577
3,005
22,10027,963(25,372)¥4,196,534¥ 117,569
40,0002,130
4,751
866,2022,863,495
6,732
66,21231,5103,418
28,03825,409(29,431)¥4,026,037$ 1,340,204
244,961
26,88947,292
10,739,019
30,643,267
59,314
1,355,854
350,150
32,301
237,534
300,548(272,701)$45,104,632

Liabilities and net assets
Liabilities
Deposits ............................................................................................................
Borrowed money ...............................................................................................
Foreign exchanges ............................................................................................
Bonds payable ..................................................................................................
Other liabilities ...................................................................................................
Reserve for employee retirement benefits ..........................................................
Reserve for directors’ and corporate auditors’ retirement benefits......................
Reserve for contingent loss................................................................................
Reserve for reimbursement of deposits..............................................................
Acceptances and guarantees ............................................................................
Total liabilities ..................................................................................................

¥3,813,608
123,200
42
15,00057,832
6,317
455
544
825
27,963
4,045,790¥3,649,919
98,30019—
84,899
8,068
—
581
553
25,4093,867,751$40,988,911
1,324,162
460
161,221621,593
67,901
4,898
5,854
8,877
300,548
43,484,425

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

93,524
16,79534,383
144,702
6,041
6,041
150,744¥4,196,534

93,524
16,79552,467
162,786(4,500)(4,500)158,285¥4,026,037

1,005,202
180,515
369,554
1,555,271
64,93664,936
1,620,207$45,104,632

Millions of yen
March 31

56

Hokuhoku Financial Group, Inc. Annual Report 2010

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

2010

2009

Thousands of
U.S. dollars
2010

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

¥56,708
9,584
16
1
235
15,475
9,748
3,316
95,086¥59,529
9,847
76
0
389
16,057
7,411
3,608
96,921$ 609,508
103,014
179
11
2,535
166,328
104,777
35,644
1,021,996

Expenses
Interest expense:
Interest on deposits ......................................................................................
Interest on borrowings and rediscounts ........................................................
Interest on bonds payable ............................................................................
Other interest expense .................................................................................
Fees and commissions ......................................................................................
Other ordinary expenses ....................................................................................
General and administrative expenses.................................................................
Provision of allowance for loan losses ................................................................
Other expenses .................................................................................................
Total expenses ..................................................................................................

7,192
1,389
175
1
6,863
2,288
44,5199,172
5,846
77,44810,080
1,092
—
2
6,573
3,441
41,12012,8096,952
82,07377,301
14,9301,883
1673,77024,602478,493
98,59062,836
832,421

17,638

14,848

189,575

7,881
779(1,407)¥10,384

6,879—(3,496)¥11,464

84,7098,380(15,126)$ 111,612

Millions of yen
Years ended March 31

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

Hokuhoku Financial Group, Inc. Annual Report 201057

CORPORATE INFORMATION(as of March 31, 2010)

The Hokuhoku Financial Group is composed of the holding company and 11 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.
The Hokuriku Bank, Ltd.

The Hokkaido Bank, Ltd.

Hokugin Lease Co., Ltd.
(Leasing)

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

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

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

Hokuriku International Cayman Limited(Finance)

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

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

Hokugin Software Co., Ltd.
(Software development)*1. Name changed from Nihonkai Services Co.,Ltd.
*2. Equity method-affiliated company

Hokuhoku Services Co., Ltd.*1(Servicer)
Hokuhoku Capital Co., Ltd.*2(Venture capital, IPO consulting)Major subsidiaries(units: millions of yen, %)Company name

Address

Main business activities

Established

Capital

FG’s share of
voting rights

Dividend

The Hokuriku Bank, Ltd.

1-2-26 Tsutsumicho-dori, Toyama City

Banking

July 31, 1943

140,409100.003,997

The Hokkaido Bank, Ltd.

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

Banking

March 5, 1951

93,524100.001,944

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—

Hokuhoku Services Co., Ltd.

1-6-8 Chuo-dori, Toyama City

Servicer

December 5, 2003

500

100.00—

Hokugin Business Services Co., Ltd.

1883 Hiyodorijima, Toyama City

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

30(100.00)—

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

Finance

April 27, 1993

US$1,000(100.00)—

Dogin Business Service, Ltd.

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

June 8, 1979
Document management,
cash management,
concentrated business processing

50(100.00)—

Dogin Card Co., Ltd.

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

Credit card operations,
June 13, 1977
loan guarantees, credit guarantees

1,226(100.00)—

Hokuhoku Capital Co., Ltd.

1-6-8 Chuo-dori, Toyama City

Venture Capital

250

5.00
(38.75)—January 11, 1985

( ) Indicates voting rights involving shares held by subsidiaries* Hokugin Office Services Co., Ltd. and Hokugin Corporate Co., Ltd. completed liquidation procedures on June 24, 2009 and September 30, 2009, respectively.
In addition, Hokugin Real Estate Services Co., Ltd. was absorbed by merger by The Hokuriku Bank, Ltd. on March 25, 2010. In fiscal 2009, the profit and loss of these three companies alone
are reflected in the consolidated financial statement.

58

Hokuhoku Financial Group, Inc. Annual Report 2010

OUTLINE OF SUBSIDIARIES - HOKURIKU BANKThe Hokuriku Bank, Ltd..
http://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)

Company outline (as of March 31, 2010)
Company name: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¥5,852.7 billion¥5,306.7 billion¥4,142.6 billion
Common stock

1,047,542,335

Capital adequacy ratio(non-consolidated):
10.80%
Employees:
2,611
Branches (as of June 30, 2010)
Domestic:
187 (132 branches, 55 sub-branches)
Overseas:
4 representative offices

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

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

October 2002

Launched over-the-counter sales of life insurance

March 2003

Took over part of the Ishikawa Bank’s operations

September 2003

Established Hokugin Financial Group, Inc. through sharetransfer, then became subsidiary of the Hokugin Financial
Group, Inc.

September 2004

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

December 2004

Launched securities agency operations

March 2006

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

Hokuhoku Financial Group, Inc. Annual Report 201059

OUTLINE OF SUBSIDIARIES - HOKKAIDO BANKThe Hokkaido Bank, Ltd..
http://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, 2010)
Company name: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¥4,196.5 billion¥3,813.6 billion¥2,851.0 billion
Common stock:
Preferred stock ( Type 2):

486,634,512
107,432,000

Capital adequacy ratio(non-consolidated):
10.19%
Employees:
1,910
Branches (as of June 30, 2010)
Domestic:
138 (130 branches, 8 sub-branches)
Overseas:
2 representative offices

60

Hokuhoku Financial Group, Inc. Annual Report 2010

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, Inc.
parent of Hokuriku Bank; Hokuhoku Financial Group, Inc.
launched

April 2005

Launched securities agency operations

March 2006

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

BOARD OF DIRECTORS AND CORPORATE AUDITORS
Hokuhoku Financial Group, Inc.
President:
Shigeo Takagi
Deputy President:
Yoshihiro Sekihachi

Directors:
Satoshi Kawai
Masahiro Sasahara
Taminori Iwasaki
Tetsuya Kitani
Eishin Ihori
Yuji Oshima

Corporate Auditors:
Masato Matsumoto
Yoshihiro Minami
Yasuhiro Ishiguro
Norikiyo Hayashi

Managing Directors:
Tatsuro Ishikuro
Hidenori Mugino

Corporate Auditors:
Takashi Hirase
Kenichi Nakamura
Isao Nagahara
Tatsuo Kawada
Mitsuhiro Tokuno

The Hokuriku Bank, Ltd.
President:
Shigeo Takagi
Deputy President:
Satoshi Kawai

Director:
Tetsuya Kitani

Senior Managing Directors:
Taminori Iwasaki
Tatsuya Kaseda

The Hokkaido Bank, Ltd.
President:
Yoshihiro Sekihachi
Deputy President:
Masahiro Sasahara

Managing Directors:
Hiroshi Sagayama
Akihiko Soma
Ikuo Takada

Corporate Auditors:
Keiji Okuda
Tatsuhiro Ishikawa
Michio Hatamoto
Masao Hoshi

Directors:
Toshihiro Katayama
Satoshi Kawai

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: RIKBJPJTTreasury 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 Road 2201,
Changning, Shanghai 200336, P.R.
CHINA
Telephone: +86-21-6270-8108
Facsimile: +86-21-6270-8338
E-mail: shanghai@hokugin.net
Singapore Representative Office
6 Battery Road # 17-04 Singapore
049909
Telephone: +65-6534-0010
Facsimile: +65-6534-0070
E-mail: hokuriku@singnet.com.sg
London Representative Office
Level 12, City Tower, 40 Basinghall
Street, London EC2V 5DE UK
Telephone: +44-20-7374-6028
Facsimile: +44-20-7374-6055
E-mail: London@hokugin.co.uk

The Hokkaido Bank, Ltd.
International Division
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
Yuzhno-Sakhalinsk Representative Office
Diplomat Office No.404 Chekhova street
1A, Yuzhno-Sakhalinsk 693020, Russia
Telephone: 7-4242-46-1774
Facsimile: 7-4242-46-1775
E-mail: tsushima@hbkys.ru
Hokuhoku Financial Group, Inc. Annual Report 201061

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

（截至 2010 年 3 月 31 日）

北北金融集团的经营活动范围不是限于一个地域，而
是在广泛的地域内展开着。
我们广泛的营业网点分布在下面所写的地区范围里：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）北陆地区 ..................................................... 148 分行（或支行）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

富山县 ......................................................... 90 分行（或支行）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 5 种优先股.......... 107,432,000 股
上市交易所∶ 东京证券交易所（第一部）札幌证券交易所简历

石川县 ......................................................... 36 分行（或支行）福井县 ......................................................... 22 分行（或支行）北海道地区.................................................. 156 分行（或支行）三大都市圈.................................................. 17 分行（或支行）其他地区 .....................................................

4 分行（或支行）

海外 ............................................................

6 代表处

上海代表处

（北陆银行）

沈阳代表处

（北海道银行）新加坡代表处 （北陆银行）自从 1877 年北陆银行成立以来已经在北陆地区设立了广纽约代表处（北陆银行）

南萨哈林斯克代表处 （北海道银行）域性的经营网点。
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伦敦代表处（北陆银行）（2010 年 6 月 30 日）

经营网点。
北海道银行成立于 1951 年，以支援中小企业和个人业务为中心在北海道道内的各个地区都设有营业网点。
北陆银行和北海道银行于 2004 年 9 月进行了经营统合，ଡ‫ں‬

成立了（控股公司）北北金融控股集团股份有限公司。现在，௕൶ߺૂ๑৻

෎Ⴠ

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。

ఊᆢ
ණ߽

ူࣩ಄

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
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
2003 年 9 月

设立北银金融控股集团股份有限公司ҽ߽‫ل‬

北陆银行成为北银金融控股集团伞下的银行通过股份交换实现经营统合
2004 年 9 月

北北金融控股集团股份有限公司诞生

注：北银金融控股集团股份有限公司改名为北北金融控股集团ҽଇٜഘ股份有限公司。

෩‫׎‬

‫ݙ‬඙

݁ঀ

‫ॻڍ‬
‫ؙ‬᐀

ண߁ྏ

ൻ‫ڞؙ‬ชത

62

Hokuhoku Financial Group, Inc. Annual Report 2010

北北金融控股集团 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）董事致辞
感谢各位一向对本金融集团公司的支持和惠顾。
2009 年，我国经济受雷曼兄弟事件引起的世界性的经济倒退的连累，政府采取了经济对策对付该冲击，现在地方经济呈现逐渐恢复的迹象；但是欧洲接着发生的财政
危机引发的新一轮金融危机又作为一个新的问题摆在我们面前，使得今后的世界经济
前景很不明朗。另一方面，少子高龄化和财政问题等日本特有的难题需要克服，我们要从各方面着手解决经营管理方面的难题，摆脱这个困境。
在如此经济环境下，本公司 2010 年度开始着手实施 3 年中期经营计划 [Road to 10]。
作为有地方亲和力，可以被依靠的金融集团，以持续性增长为目标，将在这 3 年中再造业务基盘，把这个期间定位于实现存款额达到 10 兆日元的金融集团的目标而巩固经营基础的时期。
我们一直努力坚持「强化营业力」，「经营效率化」「经营基础的稳定化」三个经营的理念，，以这 3 个理念为经营支柱脚踏实地向着计划中提出的目标前进。
另外，作为地区固有的金融机构我们可以积极地解决地区资金的供给问题。集团设置咨询、投诉联系窗口，完善总部、各分行的体制和人才培养，由专业部门针对中小企业客户进行改善经营管理，重组协助业务为区域经济的持续性发展起到重要作用。
最后，愿广大客户能一如既往地支持本集团。
董事长

高木繁雄
2010 年 7 月
Hokuhoku Financial Group, Inc. Annual Report 201063

中期经营计划
本集团自1998年3月份，接受政府资金的注入以来，在[经营健全化的计划]的基础上，一直致力于提高收益力，经营效率
化，强化财务体质的努力。在着手实施计划和努力经营健全化业务，于2009年8月全部归还了注入的政府资金。
今后3年定位于 [面向未来挑战持续性增长的新时期]，根据新的中期经营计划 [Road to 10]，努力解决经营问题。
我们一直努力坚持「强化营业力」，「经营效率化」，「经营基础的稳定化」三个经营支柱，归还政府资金后开展集团状况相符合的各种经营措施，向存款额达到10兆日元的目标稳步前进。
计划的概要
名称
期间
定位
集团目标形象中期经营计划 [Road to 10]
3年间（2010年4月~2013年3月）
面向未来挑战持续性增长的新时期 ~向存款额10兆日元的金融集团稳步迈进~成为有地方亲和力，可以被依靠的金融集团
1．在经济前景不明朗的环境中再造有稳定收益的基盘

解决课题

2．3行共同利用系统稳定运作，人员的灵活配备和店铺营业设施的完善
3．面向新资本充足率的规则，增发股息，偿还民间优先股而积累剩余金

2013年3月目标数（2行合算，联结）存款平均余额
贷款平均余额
主营业务净利润联结本期净利润联结资本充足率（联结 Tier1 比率）
OHR
ROA（主营业务净利润为基础）
ROE（联结本期净利润为基础）
不良债权比率

9兆5,500亿日元
7兆2,000亿日元
700亿日元255亿日元11.5%以上（7.5%以上）
58%
0.68%
6%以上
3%程度

计划的基本方针经营健全化计划

I. 强化营业力

II. 经营效率化

III. 经营基础的稳定化· 收益机会的追求· 稳健的运用有价证券· 营业店铺的重整· 后方操作平台的共同化· 灵活雇用钟点工· 降低不良债权比率· 归还政府资金· 提高资本充足率n3
 行共同利用系统稳定运作和灵活运用战略n 进一步追求协同作用（Synergy）
n 增强营业人员

n 提高资本的质量n 阶段性地增发普通股股息政府资金归还后

中期经营计划
[Road to 10]n 扩充强化收益基盘
n 以顾客的立场提供咨询业务n 扩大有价证券的运用面向未来挑战持续性增长的新时期

64

Hokuhoku Financial Group, Inc. Annual Report 2010

I. 强化营业力实施“3个R”以实现“成为有地方亲和力，可以被依靠的金融集团”的目标Retail~~亲和力~~顾客数的扩大和交易多面化，主干化的推进顾客层次的细分，分别营销扩大小型企业交易（信用保证协会担保贷款等）推进住房贷款
增加代付工资和退休金的客户（公司）数Relation~~被信赖的~~

Region~~与地方区域的紧密联系~~提供顾及顾客方便的店铺机能
店铺的战略性重新配置（改变形式、搬迁）商务中心，咨询专用房，企业的招揽，产业学府政府的协作，
CSR，帮助地方的成长型行业（农业、医疗、环境）活跃的商务解决方案的展开
顾客生命周期各阶段相符合的商品营销
法人：创业 成长 事业扩大 事业继承个人：人生各阶段的个别咨询总部 PB（私人银行）小组
海外代表处的灵活运用

战略性的人员配置

加强联盟

提高行员的对外交际能力集团内人才交流而共享营销经验（诀窍）运用集团公司（北北债权回收株式会社）
他行、信用金库、信用合作社、便利店等的协作

II. 经营效率化
3行共同利用系统稳定运作和灵活运用战略2011年5月开始运作

协同作用（Synergy）的加速横滨银行于2010年1月先行运作压缩经费

3行系统共同利用(MEJAR)
2个品牌的营业

北陆银行

北海道银行
调整人员提高对外营业服务开发成本的降低事务手续共通化

共同筹备系统机器和票据事务处理要领和管理报表的共通化

扩大后方事务共同化扩大研修和监查业务的共同化制度变更应对方式的共通化（遵守市场价格核算、IFRS和新资本充
足率规定）北北债权回收株式会社

经营管理治理强化

北海道事业总部（2010年3月）
富山事业总部（2010年秋预定）III. 经营基础的稳定化
积累收益提高资本的质量资本充足率･Tier1 比率（北北金融控股集团联结）资本充足率Tier1 比率11.5%以上

10.83%

资本充足率12％Tier1 比率 8 ％（预期）7.5%以上7.05%

提高资本充足质量收益增加Tier1也提高递延税项资产
对Tier1比率

21.03%
10.0%以下

2010/3实际成绩阶段性增发普通股份股息2013/3计划

Hokuhoku Financial Group, Inc. Annual Report 2010

65

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）

2009 年度

2008 年度

本集团 2009 年度联结经常收益比前年减少了 128
亿日元为 2,267 亿日元，联结经常利润比前年增加了
140 亿日元为 354 亿日元，联结净利润比前年减少了

前年比
经常收益

2,267

－ 128

2,396

经常利润

354

140

213

本期净利润

192

－ 178

370

资本充足率

10.83%＋ 0.02%10.81%

178 亿日元为 192 亿日元。
联结资本充足率比前年上升 0.02%，为 10.83%。

营业概况（北陆银行、北海道银行）（货币单位：亿日元）

和劳动利益的减少，再加上 2011 年计划改进基干系统

2 行合算
2009 年度代表银行本业务收益力的主营业务净利润随着资金利益

2008 年度

经费的增加，比前年度减少 103 亿日元为 664 亿日元。
由于信贷相关成本比前年度减少 100 亿日元和有价

前年比
经常收益

2,074

－ 111

2,185

证券等相关盈亏改善了 179 亿日元，经常利润比前年度

主营业务毛利润

1,609

－ 74

1,683

增加 155 亿日元，为 368 亿日元。

经费 ( 临时处理部分除外 )

944

＋ 28

915

主营业务净利润

664

－ 103

768

信贷相关成本

255

－ 100

355

2

＋ 179

－ 176

经常利润

368

＋ 155

213

本期净利润

260

－ 118

379

有价证券等相关盈亏

本期净利润由于前年度法人税调整额的减少，为260 亿日元。

（货币单位：亿日元）

北陆银行
2009 年度

北海道银行
2008 年度

2009 年度

前年比

前年比

1,137

－ 105

1,242

937

－5

943

主营业务毛利润

901

－ 46

947

708

－ 27

735

经费 ( 临时处理部分除外 )

518

＋4

513

426

＋ 24

402

主营业务净利润

383

－ 50

434

281

－ 52

333

信贷相关成本

134

－ 80

214

120

－ 20

140

经常利润

199

＋ 111

88

169

＋ 44

125

本期净利润

156

－ 107

264

103

－ 10

114

资本充足率

10.80%＋ 0.57%

10.23%

10.19%－ 0.26%10.45%

经常收益66

2008 年度

Hokuhoku Financial Group, Inc. Annual Report 2010

Hokuhoku Financial Group, Inc.

Printed in Japan