Annual Report
2017

Year Ended March 31, 2017

A Message from the Management

Kazuyoshi Terakado,

Masanao Matsushita,

President

Executive Vice President

Thank you for your continued patronage.
On October 1, 2016, Joyo Bank, Ltd. andAshikaga Holdings Co., Ltd. completed a businessintegration through share exchange, and launched
Mebuki Financial Group, Inc. (hereinafter referred toas the “Company”, and together with its subsidiaries
collectively the “Group”), a financial holding company
over the subsidiaries The Joyo Bank, Ltd. and The
Ashikaga Bank, Ltd. We would like to express our
gratitude for your understanding and support withthe startup of this new financial group.
Mebuki is Japanese for “green shoots.” The
name reflects a Group company commitment to callupon a great amount of expertise and creativity to
produce fresh ideas and new values after another.
This company name expresses our desire to bringnew value and vitality to our communities and growsustainably with them.

The management philosophy of the new financialgroup is to “Provide high-quality comprehensive
financial services to continue creating a prosperous
future with local communities.” On that foundation,
we will maintain and deepen our relationships withthe customers and local communities that bothbanks have developed up to this point, and utilize
wide-area networks in an effort to “discover regional
industries, revitalize the local economy, and create
new markets.”
As the driving force in regional development andlocal creation, it is our intention to push forward as afinancial group that contributes to the sustainablegrowth of the region by consolidating the ingenuity of
the Group and providing high-quality comprehensive
financial services. We hope for your continued
kindness and support in the future as well.
September 2017

1

Mebuki Financial Group, Inc.

Corporate History (As of April 3, 2017)
Notice Regarding the Basic
November 2015

Agreement Concerning a Business
Integration through a Share
Exchange of The Joyo Bank, Ltd.
and Ashikaga Holdings Co., Ltd.
Notice Regarding Definitive

April 2016

Agreement Concerning theBusiness Integration of The Joyo
Bank, Ltd. and Ashikaga Holdings
Co., Ltd. through a Share
Exchange

Contents
P.1

A Message from the Management

P.2

Corporate History

P.3-4

About Mebuki Financial Group, Inc.

P.5-6

Market of the new group

P.7-8

Mebuki Financial Group’s Overseas
Business Support Activities

P.9-12Financial Highlights

P.13-14 Initiatives and Measures of the Integration
P.15-18 Corporate Governance
P.19-20 Initiatives for ComplianceP.21-22 Risk Management System

June 2016

October 2016

April 2017

Approval of stock exchange
agreement at the ordinary general
meeting of shareholders of The
Joyo Bank, Ltd. and Ashikaga
Holdings Co., Ltd.
Establishment of the Mebuki
Financial Group, Inc.
Acquired all shares of Mebuki
Lease Co., Ltd. (formerly known as
The Joyo Lease Co., Ltd.) from The
Joyo Bank, Ltd.

P.23

List of Directors

P.24-66 Financial Data
P.67

Corporate Data

P.67

Organization

P.68

Network

P.68

Stock Information

Disclaimer regarding forward-looking
statements
This Annual Report contains certain forward-looking statements, including estimates,
forecasts, targets and plans. Such forward-looking statements are based on the information available and the assumptions
deemed reasonable by management at thetime of publication of the Annual Report, anddo not represent any guarantee by management of future performance. We are under noobligation, and disclaim any obligation, to update or alter our forward-looking statements,
whether as a result of new information, future
events or otherwise.

Annual Report 20172

About Mebuki Financial Group, Inc.
Ideals reflected in the Company’s name and logo
Name

Ideals reflected in the name
The Japanese word mebuki, or “green shoots,” conveys an image of new leaves budding
on tree branches. This word is used in the Group’s name to express its approach of drawing
on the knowledge and creativity of each of its companies to create fresh ideas andnew value. The name Mebuki expresses our wish to create new energy and value
in local communities and pursue sustainable growth along with these communities.

L ogo[Brand logo design concept][Colors in the logo]

The brand’s distinctive logo design shows three fresh young leaves

The main color is “assuring blue,” a distinctive shade which

sprouting, expressing an image of vibrant life and growth. Mebuki

represents wisdom and trust. This is combined with “grow-

Financial Group is symbolically portrayed as firmly rooted in theing green,” a youthful color which represents growth andcommunity, constantly creating new value and developing a prom-

the future.

ising future.

Group Philosophy

Together with local communities, we will continue to build a more prosperous future
by providing high-quality, comprehensive financial services.

3

Mebuki Financial Group, Inc.

Vision of the new Group (strategic goals)

Building the region’s future as a comprehensive financial services group
The Group’s philosophical structure and basic approach of the new Group’s activities

MissionContributing to local communities
by developing and growing together
Expanding into more areas of business, more regions,and a greater scale as an open financial group

VisionGrowthdrivers

Using our network topromote local
economic growth:

Developing andoffering advanced
services:

Building therevenue basethrough integration:

Training
professionals:

We will draw on our
wide-area network, which
includes major corporations in the Metropolitanarea, to increase the flowof commerce, information,
and B2B exchanges.

We will develop
and promoteadvanced financial
services based on
IT and inter-industry collaboration.

Our revenue base will
be strengthened bystreamlining operations and strategicallyreallocating businessresources.

Our training will enable
employees to respondprofessionally tocomplex and diverse
financial needs with anunderstanding of thelocal communities.

One-stop comprehensive financial services including leasing,securities, research functions, and IT services

ValuesSolid relationships of trust with local communities
Regional financial institutions with the top market shares

Underpinnings

Targets for realization of the vision

Second Medium-term Group Business Plan
(FY2019 to FY2021)

First Medium-term Group Business Plan

Producing solid results and upshifting
for the next stage of growth(2nd half of FY2016 to FY2018)
Getting the new Groupon the right track to success

FY2021 (For reference)

Consolidated net income: About 64 billion yen

FY2018

Consolidated ROE:

Consolidated net income: About 47 billion yen
Consolidated ROE:

Over 6%[The vision]

Building
the region’s future
as a comprehensive
financialservices group

Consolidated capital adequacy ratio: Over 10.5%

5% or more

Consolidated capital adequacy ratio: Mid 10% level

About 15 billion yen

Developing systems and other infrastructure

Top line synergy*
Cost saving synergy
Reverse synergy(system migration costs)(depreciation for initial costs to becompleted in FY2024)

About 5 billion yen

2nd half of FY2016

FY2017FY2018*Top line synergy:
After deducting the increased costs related
to top line increases

FY2019FY2020

FY2021

Annual Report 20174

Market of the new group
Impressive share of its core market, Ibaraki and Tochigi prefectures,
Near the greater Tokyo region.

—

Economic scale of our operating area
Ibaraki National Tochigi National Gunma National Saitama National Tokyo National Chiba National
Prefecture Rank Prefecture Rank Prefecture Rank Prefecture Rank Metropolitan Rank Prefecture Rank

Prefectural grossproduct (2014) (¥ trillion)

11.6

11

8.2

16

8.0

17

20.9

5

94.9

1

20.0

6

Population (2016) (thousand)

2,905

11

1,966

19

1,967

18

7,289

5

13,624

1

6,236

6

Prefectural income
per capita (2014) (¥ thousand)

3,088

11

3,204

4

3,092

10

2,903

20

4,512

1

2,970

16

Number of businesses(2016)

115,212

12

86,14320

90,43318

241,0505623,656

1

189,534

9

Manufactured goods
shipped (2014) (¥ trillion)

11.3

8

8.2

12

8.2

13

12.0

7

7.7

15

13.7

6

New Factory Locations(excluding power supply
sector) (2016)
(number / area(ha))

40/ 93ha7/1

29
56
13 / 10/ 47ha/ 54ha3/7

32
10 / 13/ 28ha2/ 1ha

46 / 47

21
16 / 15/ 27haNote: The above ranks are the ranks among the 47 prefectures.
Source: Prefectural gross product and prefectural income per capita data is from the Cabinet Office. Population data and Number of businesses arefrom the Ministry of Internal Affairs and Communications. Manufactured goods shipped and new factory locations data come from the Ministryof Economy, Trade and Industry.

5

Mebuki Financial Group, Inc.

Number ofoffices
IbarakiTochigi
Gunma
SaitamaTokyo
Chiba
Others334 offices
154 offices
120 offices
15 offices
20 offices
6 offices
6 offices
13 offices

as of March 31,2017
Kan-Etsu Expressway
Tohoku Expressway

Joban Expressway

Tochigi
Tochigi
Nikko Nikko

Gunma
Gunma
Utsunomiya

MitoAshikaga
Ashikaga

Mito

Kita-Kanto
Expressway
Ken-O Expressway

Tsukuba
Tsukuba

Ibaraki
Ibaraki

Saitama
SaitamaWithin 100km of Tokyo

TokyoTokyo

ChibaChiba

Annual Report 20176

Mebuki Financial Group’s Overseas Business Support Activities
The Group offers various overseas business support services including foreign currency exchange, overseas remittances, loans andstandby credit in local currencies, and the provision of information obtained from local partner banks and government agencies.
In addition to four overseas representative offices of the Group (three offices of Joyo Bank and one office of Ashikaga Bank, asof March 2017), we offer a wide variety of support services through business alliances with local financial institutions andgovernment agencies in Asia and North America.
所
電
地
定期刊行物
所
電
在 定期刊行物
地 在 話
話

Represen
HongHong
KongKong
RepresentaShanghai
Representative
Office,Shanghai
Representative
Office,JoyoJoyo
BankBank
Address Address
RoomShanghai
1901, Shanghai
International
Room 1901,
International
Trade Trade

Address Address
Suite 16th
1601,Floor,
16th Floor,
Suite 1601,

2201
Road (West),Centre, Centre,
2201 Yan
An YanRoadAn(West),
Shanghai
Shanghai200336 200336
P. R. China
P. R. China
Phone Phone+86-21-6209-0258+86-21-6209-0258
Periodicals
Periodicals
Shanghai
Forefront
Shanghai
Forefront

Tower2,The Gateway,
Tower2,The Gateway,
Harbour
City, Kowloon,
Harbour
City, Kowloon,
Hong Kong
Hong Kong
Phone Phone+852-2251-9475+852-2251-9475
Periodicals
Periodicals
Ashikaga
Ashikaga
Bank Bank
HongReport
Kong Report
Hong Kong

Singapore
Representative
Office,Singapore
Representative
Office,JoyoJoyo
BankBank
Address Address
63 Market
63 Market
Street,Street,#11-03#11-03

of Singapore
Bank ofBank
Singapore
Centre,Centre,
Singapore048942Singapore048942
Phone Phone+65-6225-6543+65-6225-6543
Periodicals
Periodicals
Joyo ASEAN
Joyo ASEAN
News News

Sh

HongHong
KongKong
Mumbai Hanoi
Mumbai
Hanoi
Bangkok
Bangkok
Singapore
Singapore

JakartaJakarta

Majorpartners
alliance partners
Major alliance

Joyo
Bank

Japan Trade
External
Trade Organization
Japan External
Organization(JETRO) (JETRO)Japan International
Cooperation
Agency (JICA)
Japan International
Cooperation
Agency (JICA)

Joyo
Ashikaga
Ashikaga
ofpartners
alliance partners
BusinessBusinessoverviewoverview
of alliance
Bank
Bank
Bank
of various
types of information
overseasdevelopment;
business development;
Provision ofProvisionvarious typesof information
concerningconcerning
overseas businessof information
foreigncountry regulations,etc.
provision ofprovision
information
concerningconcerning
foreign country
regulations,etc.
of various
types of information
overseasdevelopment
business development
in developing
Provision ofProvisionvarious typesof information
concerningconcerning
overseas businessin developing
nations;ofprovisionof information
foreigncountry regulations
nations; provision
information
concerningconcerning
foreign country
regulations

Japan
Bank for International
Cooperation
Japan Bankfor International
Cooperation(JBIC) (JBIC)

loans tosupportbusinessoverseasdevelopment
business development
Provision ofProvisionloans to of
supportoverseas

NipponExportand Investment
Nippon Export
andInvestment
InsuranceInsurance(NEXI) (NEXI)

of various
types
of trade toinsurance
to coverforeign transaction
riskstransactions
in export transactions
Provision ofProvisionvarious typesof tradeinsurancecover foreigntransaction
risks in export

for Small& Mediumand Regional
Innovation, JAPAN
Organization forOrganization
Small & Medium
Enterprises
andEnterprises
Regional Innovation,JAPANof various
types of information
overseasdevelopment;
business development;
Provision ofProvisionvarious typesof information
concerningconcerning
overseas businessof information
foreigncountry regulations,etc.
provision ofprovision
information
concerningconcerning
foreign country
regulations,etc.

Tokio&Marine
NichidoFire Insurance
Tokio Marine
Nichido&Fire
Insurance
Sompo
Japan Nipponkoa
Sompo Japan
Nipponkoa
InsuranceInsuranceof risk information
overseas;ofprovisionof risk management
Provision ofProvisionrisk information
overseas; provisionrisk management
consulting consulting
services; services;of various
types
of P&C insurance
provision ofprovisionvarious typesof P&C
insurance

Mitsui Sumitomo
Mitsui Sumitomo
InsuranceInsurance
SECOM SECOM
Sohgo Services
Security Services
Sohgo Security

7

Mebuki Financial Group, Inc.

security
and crime prevention
Provision ofProvision
security ofsystemandsystem
crime prevention
equipment equipment
overseas; overseas;
securityoverseas
services overseas
provision ofprovision
security ofservicesIn September 2016, Joyo Bank and Ashikaga Bank entered into a business partnership agreement with Guanajuato and Nuevo
León, local state governments of Mexico, and Banamex, a major Mexican financial institution, with respect to overseas businessdevelopment. In November 2016, Joyo Bank entered into a general agreement with Japan Bank for International Cooperation(JBIC), to financially support M&As and stabilization of small and medium-sized overseas business.
Furthermore, the Group also promotes various initiatives to demonstrate its collaborative creation capabilities, including hostingof the Hong Kong Business Meeting and the Hanoi Business Meeting and co-hosting of the Hanoi Factory Network Business Expo.

enativetative
Ashikaga
Office,Office,Ashikaga
Bank Bank

Representative
Office,NewNew
YorkYork
Representative
Office,JoyoJoyo
BankBank
Address Address
712Avenue,
Fifth Avenue,
8th Floor
712 Fifth
8th Floor

NewNY
York,
NY 10019
New York,
10019
U. S. A.
U. S. A.
Phone Phone+1-347-686-8420+1-347-686-8420
Periodicals
Periodicals
JoyoYork
NewReport
York Report
Joyo New

New New
York York

Shanghai
hanghaig

TaipeiTaipei

MexicoMexicoCity City

ManilaManilaCountry/region
Country/regiona

Joyo
Majorpartners
alliance partners
Major allianceBank

East Asia

East Asia

Bank of
China (China)
Bank of China(China)
China

China
Bank of Communications
Bank of Communications(China) (China)

Joyo
Ashikaga
Ashikaga
Bank
Bank
Bank

ofpartners
alliance partners
BusinessBusinessoverviewoverview
of allianceof information
Provision Provisionof information
regardingregarding
China; China;
various services
financial including
services including
establishmentof accounts
provision provisionof variousoffinancial
establishmentof accounts

South East Asia/South Asia

South East Asia/South Asia

CTBCBank (Taiwan)(Taiwan)Taiwan Taiwan CTBC Bankof information
Provision Provisionof information
regardingregarding
Taiwan; Taiwan;
various services
financial including
services including
establishmentof accounts
provision provisionof variousoffinancial
establishmentof accounts

Bank
Kasikorn Kasikorn
Bank
Thailand Thailand
Bank
BangkokBangkok
Bankof information
Provision Provisionof information
regardingregarding
Thailand; Thailand;various services
financial including
services including
establishmentof accounts
provision provisionof variousoffinancial
establishmentof accounts

BankIndonesia
Negara Indonesia
Bank Negara
IndonesiaIndonesia
Bank
CIMB Niaga
Bank CIMB
Niaga

of information
Provision Provisionof information
regardingregarding
Indonesia;Indonesia;
various services
financial including
services including
establishmentof accounts
provision provisionof variousoffinancial
establishmentof accounts

Vietin Bank
Vietin Bank
Vietcombank
Vietnam VietnamVietcombank
Foreign Agency
Investment
Agency of Vietnam
Foreign Investmentof Vietnam
BDO Unibank
BDO Unibank
Philippines
Philippines
Metrobank
Metrobank
India

India

State
Bank of India
State Bankof India

Central America

Central America

BanamexBanamex
Mexico Mexico

Governmentof Aguascalientes,
Governmentof Aguascalientes,
Governmentof Jalisco, etc.
Governmentof Jalisco, etc.

of information
Provision Provisionof information
regardingregarding
Vietnam; Vietnam;
various services
financial including
services including
establishmentof accounts
provision provisionof variousoffinancial
establishmentof accounts
Cooperation
hosting seminars
relevant
to Vietnam;
various support
Cooperation
in hostinginseminars
relevant toVietnam;various support
for businessto Vietnam;of investment-related
information
for businessexpansionexpansion
to Vietnam;
provision provisionof investment-related
informationof information
Philippines;
Provision Provisionof information
regardingregarding
Philippines;
various services
financial including
services including
establishmentof accounts
provision provisionof variousoffinancial
establishmentof accounts
of information
India;
Provision Provisionof information
regardingregarding
India;
various services
financial including
services including
establishmentof accounts
provision provisionof variousoffinancial
establishmentof accounts
of information
Provision Provisionof information
regardingregarding
Mexico; Mexico;various services
financial including
services including
establishmentof accounts
provision provisionof variousoffinancial
establishmentof accountsof localinformation;market information;
Provision Provisionof local market
of investment-related
information
provision provisionof investment-related
information
regardingregarding
Mexico Mexico
Annual Report 20178

Financial Highlights

Mebuki FG (Consolidated Basis)(Billion yen)

FY2016

ResultProgress

Forecast

Net income attributable toowners of the parent

158.4

102.2%

155.0

Capital adequacy ratio

10.62%——The Group’s total income and total expenses were 332.5
billion yen and 163.1 billion yen, respectively.
Net income attributable to owners of the parent reached158.4 billion yen partly because a gain on negative goodwill
associated with the business integration amounting to119.2 billion yen was included.
Consolidated capital adequacy ratio reached 10.62%.

Total of Joyo Bank and Ashikaga Bank (Non-Consolidated Basis)(Billion yen)

FY2016
Joyo + Ashikaga
ResultResultAshikaga Bank

Year-on-yearchangeResultYear-on-yearchangeGross business profit

187.5

(8.3)

105.2

(6.2)

82.3

(2.0)

Net interest income

153.4

(4.4)

85.1

(4.6)

68.2

+0.1

Net fees and commissions

27.6

(2.7)

14.3

(1.1)

13.2

(1.6)

Net other business income
and net trading income

6.3

(1.0)

5.6

(0.4)

0.7

(0.5)

(o/w gains/losses on bondtransactions)

5.6

(2.8)

5.8

(1.7)

(0.2)

(1.0)

115.0

(0.2)

68.5

+0.2

46.4

(0.5)

Personnel expenses

60.4

+0.0

34.7

(0.2)

25.7

+0.3

Non-personnel expenses

47.0

(1.3)

29.5

(0.0)

17.5

(1.3)

Net business income

72.5

(8.0)

36.7

(6.5)

35.8

(1.5)

Core net business income(before general allowance forloan losses)

66.9

(5.1)

30.8

(4.7)

36.0

(0.4)

Net transfer to general allowance
for loan losses (a)

(0.4)

+0.2

(0.6)

+0.0

0.1

+0.1

Net business income

73.0

(8.2)

37.3

(6.5)

35.6

(1.7)

Net non-recurrent gains/losses

(4.0)

(5.3)

(1.7)

(0.4)

(2.3)

(4.8)

o/w Disposal of nonperforming loans (b)

10.0

+4.8

5.4

(0.0)

4.5

+4.8

o/w Gains/losses related tostocks, etc.

9.7

+2.5

7.5

+2.8

2.1

(0.3)

Ordinary profit

68.9(13.6)

35.6

(7.0)

33.2

(6.5)

Other income/losses

(2.1)

(1.0)

(0.8)

(0.1)

(1.3)

(0.9)

Net Income

50.8

(7.7)

24.4

(3.3)

26.4

(4.4)

Credit related costs (a) + (b)

9.5

+5.0

4.7

(0.0)

4.7

+5.0

Expenses9

Year-on-yearchangeJoyo Bank

Mebuki Financial Group, Inc.

Total (Joyo + Ashikaga)
Gross business profit
1H

195.8

187.5

93.3

95.8

96.3

100.0

FY2014FY2015

115.3

87.5

99.9

(Billion yen)

2H

Point

115.0

57.4

56.5

56.6

60.4

58.7

58.3

FY2014FY2016

Core net business income(Billion yen)

2H

117.9

Gross business profit decreased by 8.3 billion yen YoY to 187.5 billion yen due to decreased domestic net interest income caused bya decline in market interest rates and in net fees and commissions.

1H

Expenses
1H

189.6

Point

(Billion yen)

2H

FY2015FY2016

Expenses decreased by 0.2 billion yen YoY to 115.0 billion yen as a result of cost reduction mainly in non-personnel expenses despite increased income taxes.

Net income
1H(Billion yen)

2H
58.6

72.0

68.6

FY2014FY2015

Corporate customers*

727.8
2,741.9

804.4

748.0

3,020.8

3,062.8

Mar-16

Mar-17*Including foreign currency deposits

Point

29.2

FY2016

Net income decreased by 7.7 billion yen YoY to 50.8
billion yen mainly due to decreased gross businessprofit and increased credit related costs.

Balance of loans
Public sector(Billion yen)

Corporate customers*

10,315.4

10,187.1

9,845.8

Individual customers

1,327.3

1,348.3

1,232.9

4,772.2

4,813.1

4,809.6

3,746.2

4,025.6

4,272.8

9,762.1

9,502.6

9,344.2

Mar-15(Billion yen)
Individual customers*

Point

FY2015

13,572.9

13,327.9

12,814.1

31.9

25.0

FY2014

Core net business income decreased by 5.1 billion yen
YoY to 66.9 billion yen mainly because the decrease ofgross business profit exceeded that of expenses.

Public sector

21.6
18.6

34.1

FY2016

Balance of deposits

26.7

32.7

39.1

33.7

Point

43.7

32.9

34.8

50.8

66.9

The balance of deposits increased by 245.0 billion yen YoY to
13,572.9 billion yen overall due to increased deposits by both individual and corporate customers driven by improved customer convenience.

Mar-15Mar-16

Mar-17*Including foreign currency loans

Point

The balance of loans increased by 128.3 billion yen YoY
to 10,315.4 billion yen overall mainly due to an increasein loans to individual customers including housing loans.

Annual Report 201710

Financial Highlights (non-consolidated)

Status of income

Balance of deposits

(Billion yen)Core net business income

Net income

Ordinary profit

Public sector

7,728.7
42.7

40.4
36.5

35.6

35.6

Corporate customers*
8,103.3

390.8

458.1

(Billion yen)
Individual customers*
8,240.3

424.0

1,542.1

1,738.2

1,747.4

5,795.7

5,906.8

6,068.9

30.8
27.7
24.4

23.9

FY2014Point

FY2015Mar-15FY2016

Net income decreased by 3.3 billion yen YoY to 24.4
billion yen mainly due to decreased net interest income and net fees and commissions.

Point

Mar-16

Mar-17The balance of deposits increased by 137.0 billion yen
YoY to 8,240.3 billion yen mainly due to increased deposits of both individual and corporate customers.

*Including foreign currency deposits

Balance of loans
Public sector

Individual customers

758.3

843.4

807.3

Non-consolidated

Consolidated

5,967.0

5,912.7

5,656.4

Status of capital adequacy ratio(Billion yen)

Corporate customers*

12.40%
12.00%

2,821.3

2,828.6

2,776.6

11.86%

11.92%
11.51%
11.23%

Mar-15Point

2,387.4

2,240.5

2,072.4

Mar-16

Mar-15Mar-17The balance of loans increased by 54.3 billion yen YoY
to 5,967.0 billion yen mainly due to an increase inloans to individual customers including housing loans.

Point

Mar-16

Mar-17

Consolidated (Joyo Bank and its subsidiaries) capital
adequacy ratio resulted in 11.86%.

*Including foreign currency loans(Aggregated market share of Joyo Bank and Ashikaga Bank in Ibaraki Prefecture)
We maintain a high degree of market share in both deposits and loans in Ibaraki Prefecture.

Loans

Deposits
J+A
Other

63.7%

J+A

36.3%

52.2%
Other

47.8%

Source: Kinyu Journal, Special Issue of December 201611

Mebuki Financial Group, Inc.

Status of income

Balance of deposits

(Billion yen)Core net business income

Net income

Ordinary profit

Public sector

Corporate customers*

5,085.3

5,224.5

39.8
36.4
32.0

36.0
30.8

29.7

(Billion yen)

33.2

Individual customers*

5,332.5
346.2

323.9

1,199.8

1,282.5

1,315.4

3,548.5

3,595.7

3,693.1

337.0

26.4
19.7

FY2014Point

FY2015FY2016

Mar-15

Net income decreased by 4.4 billion yen YoY to 26.4
billion yen mainly due to decreased net fees andcommissions and increased credit related costs.

Point

Mar-16

Mar-17The balance of deposits increased by 108.0 billion yen
YoY to 5,332.5 billion yen mainly due to increased deposits of both individual and corporate customers.

*Including foreign currency deposits

Balance of loans

Status of capital adequacy ratio(Billion yen)

Public sector

Corporate customers*

4,189.4

4,274.4

Individual customers

Non-consolidated

Consolidated

4,348.4

519.9

504.8

474.6

1,995.6

1,984.5

1,988.2

1,673.7

1,785.0

1,885.4

9.17%

Mar-15Point

Mar-16

8.96%

8.58%

Mar-15Mar-17The balance of loans increased by 74.0 billion yen YoY
to 4,348.4 billion yen mainly due to an increase inloans to individual customers including housing loans.

Point

9.01%

8.67%

Mar-16

8.75%

Mar-17

Consolidated (Ashikaga Bank and its subsidiaries)
capital adequacy ratio resulted in 9.17%.

*Including foreign currency loans(Aggregated market share of Joyo Bank and Ashikaga Bank in Tochigi Prefecture)
We maintain a high degree of market share in both deposits and loans in Tochigi Prefecture.

Loans

Deposits
J+A

J+A

32.8%

45.4%

Other

Other

67.2%

54.6%

Source: Kinyu Journal, Special Issue of December 2016

Annual Report 201712

Initiatives and Measures of the Integration
Hosting the 1st Mebuki Business Award
We hosted the 1st Mebuki Business Award to recognize innovativeand creative business plans in the region.
We integrated the business contests previously hosted separately by Joyo Bank and Ashikaga Bank to invite business plans in
the extended business areas of the both banks.
Out of 646 plans submitted in response to our invitation in the
8 business areas including initiatives for the growth area, regional
revitalization in manufacturing, and the startup area, which will leadto business creation in the region, 28 plans were awarded.

Promoting projects to support local products
As the first joint event of Joyo Bank and Ashikaga Bank after the establishment of Mebuki Financial Group, we held Food Exhibition in Mito and FoodBusiness Meeting in Utsunomiya to provide support for food related business operators from product development to sales channel development.
At Food Exhibition in Mito, about 100 food related business operators
exhibited their products to receive product assessments in an interview
format by international exchange students, Japanese students, businesspeople, and housewives, based on their tasting. The results of the assessments were provided to exhibitors to be utilized in their product development and test marketing.
At Food Business Meeting in Utsunomiya, we supported local food related business operators for sales channel expansion by facilitating an exhibition of about 330 food related business operators where active businessnegotiations were held with many buyers.

Hosting Mebuki FG Manufacturing Business Forum 2017
In February 2017, we hosted a forum for manufacturing firms for the firsttime with the aim of supporting their business expansion. A total of 850
firms and about 2,000 people participated in the forum. We saw active business discussions at the panel exhibition booths of 314 firms. In addition to
390 cases of business negotiations based on technical proposals from 255
companies, we supported the sales channel development and business expansion of local manufacturing firms by inviting exhibition of German andTaiwanese companies and research institutes.

Hosting Mfair Bangkok 2017 and Bangkok Business Meeting
In June 2017, we co-sponsored Mfair Bangkok 2017 and held the Bangkok
Business Meeting in Thailand to support our clients’ sales channel expansion outside Japan. With exhibition of about 190 firms including clients of
Joyo Bank and Ashikaga Bank, and an attendance of about 10,000 people
including those from Japanese companies in Thailand, we saw active business negotiations between exhibitors who sought local procurement orsales channel expansion for their products, and local companies. On theother hand, we offered opportunities for the companies that exhibited or attended to exchange information and develop corporate relationships withboth banks’ clients with operations in Thailand.

13

Mebuki Financial Group, Inc.

Financing by utilizing Mebuki Regional Revitalization Fund
In November 2016, as a part of our regional revitalization initiatives, JoyoBank and Ashikaga Bank established the Mebuki Regional Revitalization
Fund as a joint investment project with Sompo Japan Nipponkoa Insurance
Inc. We provided financial support in the amount of 1.3 billion yen throughthis fund to five business operators that contribute to the promotion of thefood, agriculture and tourism sectors of the region. Furthermore, we increased the total amount of the fund from the original 2.0 billion yen to 4.0
billion yen in June 2017 to strengthen support for creating new business.
We are committed to providing support to increase the volume of intra-regional human exchange and expanding demand associated to inboundtourism from a financial perspective going forward.

Establishment of Mebuki Lease and Mebuki Securities
Establishment of Mebuki Lease Co., Ltd.
On April 3, 2017, we reorganized The Joyo Lease Co., Ltd., a subsidiary of
Joyo Bank, to be a directly-owned subsidiary and renamed it to Mebuki
Lease Co., Ltd. The leasing operations, which had formerly been conductedby the Joyo Lease and Ashikaga Credit Guarantee, a subsidiary of Ashikaga
Bank, have been integrated to be solely conducted by Mebuki Lease.
Furthermore, we newly established business units in Utsunomiya andAshikaga in Tochigi Prefecture to form an organizational structure of 12 business units in total in Ibaraki, Tochigi, Fukushima, Miyagi and Saitama Prefectures, with the aim of meeting the increasingly diversified financing needs ofcustomers in a tailored manner.
Establishment of Mebuki Securities Co., Ltd.
On April 3, 2017, the trade name of The Joyo Securities Co., Ltd. waschanged to Mebuki Securities Co., Ltd. The number of branches of Ashikaga
Bank which provide financial product intermediary services was increased
from the previous 13 to 128 to meet increasingly diversifying investment
needs. We held investment seminars seven times in total to commemorate theestablishment of Mebuki Securities in Tochigi and Ibaraki Prefectures, which
received a good attendance.

Shareholder benefit plan
We introduced the shareholder benefit plan toreturn to the shareholders the achievements of
the revitalization of the regional economy that theGroup targets. We selected local specialty products and tourism services as the complimentary
gifts to shareholders in order to contribute to thegrowth of customers and the region. Shareholders
can select specialty products from the dedicatedcatalogue mainly containing specialty products
from Ibaraki and Tochigi Prefectures, in proportion to the number of shares held.

Personnel exchange
We promote personnel exchange between Joyo Bank and Ashikaga Bank forthe purpose of realizing early synergy effects, integrating corporate cultures,promoting further mutual understanding, enhancing skills of employees, anddeveloping human resources knowledgeable in local conditions.
In addition to the Joint-Training held based on each managerial position inwhich a total of about 500 employees from both banks participated in
FY2016, we have also launched a mutual personnel exchange program between both banks from FY2017.
Furthermore, with the aim of facilitating cooperation between branches,
we established the Mebuki Regional Collaboration Meeting in 10 areas where
both banks have overlapping business areas to actively promote co-financing
projects and introduce customers between both banks.
Annual Report 201714

Corporate Governance
Basic approach
A commitment to management characterized by responsibility, and sound, appropriate business operations will
earn greater trust for the Group from all stakeholders — customers, shareholders, local communities and employees — and boost corporate value. By following the approaches listed below, we are working to strengthen andimprove corporate governance.
We respect shareholders’ rights and ensure equality.
We consider the benefits of stakeholders including shareholders and cooperate appropriately with stakeholders.
We disclose company information appropriately and ensure transparency.
We ensure the effectiveness of transparent, fair, prompt and decisive decision-making function and supervisory
function of the Board of Directors on business operation by utilizing independent outside directors.
We work to communicate with shareholders constructively about the continuous growth and improvement of
medium-to-long term corporate values.
The Company has adopted a company with an Audit and Supervisory Committee as a corporate governancesystem, which allows us to realize prompt and decisive decision-making and business execution by entrusting
many of the decision-making authorities relevant to business execution to directors as constituent members of theBoard of Directors in which the Group’s knowledge and expertise are concentrated, while ensuring the transparent
and fair decision-making function and the solid audit and supervisory function through the appointment of multiple
outside directors.
Details of the Company’s organizations<Board of Directors>
The Board of Directors consists of 12 directors (of which three are outside directors). It decides basic corporate
policies and important business matters and supervises the execution of duties by directors. We aim torealize prompt and decisive decision-making and business execution by entrusting most of decision-making
authorities relevant to business execution to directors as constituent members of the Board of Directors in which
our Group’s knowledge and expertise are concentrated, while ensuring the transparent and fair decision-making
function and the solid audit and supervisory function through an appointment of multiple outside directors suchas lawyers and academic experts. The Board of Directors meets once a month in principle.
<Audit and Supervisory Committee>
The Audit and Supervisory Committee, which consists of five directors (of which three are outside directors) who
are Audit and Supervisory Committee Members, audits the execution of duties by directors and determines thedetails of proposals related to the appointment, dismissal, and non-reappointment of the accounting auditors tobe submitted to the General Meeting of Shareholders. The Audit and Supervisory Committee meets once amonth in principle.
<Corporate Governance Committee>
We have established the Corporate Governance Committee as an advisory body to the Board of Directors toenhance the effectiveness of corporate governance for sustainable growth and the medium to long termenhancement of corporate value of the Group. The Corporate Governance Committee, composed by a majorityof outside directors (including outside directors of wholly-owned banks), deliberates matters regarding nomination of director candidates and compensation for directors, and reports back to the Board of Directors.
<Decision-making bodies>
We have established the Management Meeting, the ALM/Risk Management Committee, and the Compliance
Committee as the bodies to discuss and decide important matters regarding business execution based on thedecisions made by the Board of Directors. Each decision-making body reports on the status of deliberation anddecisions on business execution to the Board of Directors under the supervision thereof.
○Management Meeting
The Management Meeting, which consists of all executive directors, is responsible for making decisions on business execution to the extent of the authorities delegated by the Board of Directors, as well as discussion on
important matters regarding business execution. The Management Meeting is held once a month regularly andadditionally as necessary.
○ALM/Risk Management Committee
The ALM/Risk Management Committee, which consists of all executive directors, the general manager of the
Corporate Planning Division, the general manager of the Corporate Management Division and the generalmanager of the Basel Unit of the Corporate Management Division, is responsible for making decisions on business execution relevant to group risk management and ALM to the extent of the authorities delegated by the
Board of Directors and for considering and discussing important matters on business execution. The ALM/Risk
Management Committee meets once a month regularly and additionally as necessary.

15

Mebuki Financial Group, Inc.

○Compliance Committee
The Compliance Committee, consisting of all executive directors, the general manager of the Corporate Planning Division, the general manager of the Corporate Management Division and the general manager of Audit
Division, is responsible for making decisions on business execution regarding compliance to the extent of theauthorities delegated by the Board of Directors, and considering and discussing important matters relevant topractice of compliance. The Compliance Committee holds a meeting quarterly and additionally as necessary.
Status of establishment of internal control system
With the aim of continuously contributing to the sustainable growth of customers and the region through the provision of high-quality, comprehensive financial services based on the Group Philosophy, the Company has adopted
the Basic Policy on Establishment of Internal Control Systems resolved by the Board of Directors as the basic policy to establish a system to ensure that the Group performs their business operations in compliance with applicablelaws and regulations and the Articles of Incorporation under the appropriate audit and supervisory structure and toensure the appropriateness of such system.
(1) System for ensuring the execution of duties by directors and employees in compliance with laws andregulations and the Articles of Incorporation(a) The Company shall position compliance as one of the top priority issues of our Group’s management andensure that all directors and employees thoroughly follow the Basic Rules on Group Compliance which isestablished to set forth corporate ethics, the code of conduct and policy to sever any connection with antisocial forces as the basic policies for corporate activities.
(b) The Board of Directors shall be managed properly pursuant to Rules of the Board of Directors, decide basic
management policies, and supervise the execution of duties by directors appropriately.
(c) The Board of Directors shall establish the section in charge of management and control of the Group’s compliance to organize and establish the management system for compliance. At the same time, the Board of
Directors shall establish the “Compliance Committee” and have such committee make decisions on, andperform analysis, assessment and improvement of, important business execution regarding the complianceof the overall Group. Furthermore, the Board of Directors shall receive periodical reporting from, and supervise the execution of duties performed by, such committee.
(d) The Board of Directors shall establish the reporting system which ensures the directors and employees of
the Group make reports to the Audit and Supervisory Committee or to the section in charge of the management and control of compliance when they discover any director or employee has committed any act
against laws and regulations, any fraudulent act or any act which may fall under the foregoing. At the sametime, the Board of Directors shall establish the whistle-blowing system and the rules on disciplinary action inorder to address any act against laws and regulations or fraudulent act in a strict manner.
(e) The Board of Directors shall establish the internal audit section independent from business execution sections and have it audit the appropriateness and effectiveness of internal management including the management system for compliance.
(2) System for storage and management of information concerning the execution of duties by directors(a) The information concerning the execution of duties by directors shall be stored and managed as minutes
and other relevant documents of various meetings pursuant to the rules established for the appropriate storage and management thereof.
(b) The Audit and Supervisory Committee or Audit and Supervisory Committee Member elected by the Audit and Supervisory Committee may inspect documents concerning the execution of duties by directors, at any time.
(3) Rules and other systems for management of risk of losses(a) The Board of Directors shall establish the rules concerning risks systematically with a primary focus on the
Basic Rules on Group Risk Management which set forth the basic policy and the management system, relevant to risk management, and organize the control section responsible for risk management to appropriately
manage the risk of losses of the Group. Furthermore, the Board of Directors shall establish the business
continuity plan in preparation for the occurrence of a crisis in which the business activities, of the Group areseriously damaged by natural disasters.
(b) Respective risks shall be comprehensively understood, managed and handled to the extent possible, andthe policy and procedures for the respective risks shall be reviewed in a timely and appropriate manner withdetails of business and changes in the market environment taken into account.
(c) The Board of Directors shall appoint the risk management officer as a person responsible for the comprehensive management of risks affecting the Group. At the same time, the Board of Directors shall establish
the ALM/Risk Management Committee, which is responsible for decision-making on important business execution regarding risk management, as well as for the analysis, assessment and improvement of matters relevant to risk management. The Board of Directors shall have such committee understand, analyze andassess the risk status periodically or as deemed necessary, establish the management system to enable
such committee to make necessary instructions in a timely and appropriate manner, and receive periodical
reporting from, and supervise the execution of duties performed by, such committee.

Annual Report 201716

(4) System for ensuring the effective execution of duties by directors(a) The Board of Directors shall establish a business plan to clarify the vision and performance targets of the Group.
(b) The Board of Directors shall set forth basic matters regarding business operations including the organizational structure, division of duties and office organization of the Company to facilitate organizational, efficientand sound business operations.
(c) The Board of Directors shall establish the Rules on Authorities which clarify responsibilities by respective executive directors and decision authorities assigned to respective duties to facilitate efficient business operations.
(d) Executive directors shall realize the appropriate and efficient execution of duties delegated by, and to the extent of authorities assigned by the Board of Directors, and report on the status of the execution of duties tothe Board of Directors periodically.
(5) System for ensuring appropriate business operations by the corporate group made up of the Company
and its subsidiaries(System for ensuring reporting to the Company of matters relevant to the execution of duties by directors of subsidiaries)(a) The Board of Directors shall set forth basic matters regarding the Group’s corporate management including
the matters companies within the Group should discuss with or report to the Company to ensure the soundand appropriate business operations of the Group.
(Rules and other frameworks to control the risk of loss of subsidiaries)(b) The Company shall, directly by itself or indirectly through directly-owned subsidiaries, have companies within
the Group organize necessary management systems including the establishment of rules responding to various existing risks taking the size, characteristics and details of the business of companies within the Group
into account, and manage risks appropriately by precisely recognizing and understanding the characteristicsof the respective risks of the Group.
(System for ensuring the effective execution of duties by directors of subsidiaries)(c) The Company shall have respective companies within the Group, based on the details of business and size ofcompanies within the Group, as well as respective roles within the Group, develop a business plan which reflects, among other factors, the Group Philosophy and the management policy of the Group, and manage thestatus of the execution thereof appropriately for the Group’s organizational and efficient business activities.
(System for ensuring the execution of duties by directors and employees of subsidiaries in compliancewith laws and regulations and the Articles of Incorporation)(d) The Company shall, directly by itself or indirectly through directly-owned subsidiaries, have companies within
the Group establish, and manage appropriately, the management system to ensure, among other factors,
compliance, customer protection and appropriateness of intra-group transactions.
(e) The internal audit section of the Company shall, directly by itself or in cooperation with internal audit sectionsof directly-owned subsidiaries, work to understand the internal audit system of the overall Group, and assess the effectiveness of auditing, periodically and as necessary, to report such assessment results to theBoard of Directors and the Audit and Supervisory Committee.
(6) System for ensuring reliability of financial reporting
The Group shall ensure the reliability of financial reporting by enacting necessary rules , relevant to the designand operations of internal control in order to establish an appropriate management framework for internal control for financial reporting.
(7) Matters concerning employees who are assigned to assist with the duties of the Audit and Supervisory Committee
The Company shall establish the Audit and Supervisory Committee Office and thereto assign one or more employees with abilities and experience sufficient to assist with the duties of the Audit and Supervisory Committee.
(8) Matters to ensure the independence of the employees referred to in the preceding item from directors(excluding directors who are Audit and Supervisory Committee Members) and the effectiveness of
instructions given by the Audit and Supervisory Committee to such employees(a) The Company shall ensure the independence of the employees who are assigned to assist with the duties of the
Audit and Supervisory Committee by, among other factors, requiring the consent of the Audit and Supervisory
Committee upon the transfer of said employees, and also allowing the Audit and Supervisory Committee to submit opinions regarding the performance evaluation of said employees.
(b) The employees who are assigned to assist with the duties of the Audit and Supervisory Committee shall assist
with the duties of the Audit and Supervisory Committee solely based on the instructions given by the Audit andSupervisory Committee Members. At the same time, directors (excluding directors who are Audit and Supervisory
Committee Members) shall give due consideration to ensure that said employees will not be exposed to unfair restrictions in performing such duties.
(9) System concerning reporting to the Audit and Supervisory Committee including the system which ensuresthat directors (excluding directors who are Audit and Supervisory Committee Members) and employees of
the Company, as well as directors, corporate auditors and employees of subsidiaries or those who
received a report from the foregoing persons make reports to the Audit and Supervisory Committee(a) The Board of Directors shall set forth the matters which directors (excluding directors who are Audit and Supervisory Committee Members) and employees of the Company, as well as directors, corporate auditors and employees of subsidiaries or those who received a report from the foregoing persons should report to the Audit and17

Mebuki Financial Group, Inc.

Supervisory Committee in order to enable the Audit and Supervisory Committee to understand material mattersregarding the Group in an efficient, timely and appropriate manner.
(b) Audit and Supervisory Committee Members may, whenever deemed necessary in performing their duties, request
a report from directors (excluding directors who are Audit and Supervisory Committee Members) and employeesof the Company, as well as directors, corporate auditors and employees of subsidiaries or those who received areport from the foregoing persons. Those who are requested to make such reports shall promptly do so as
requested.
(10) System for ensuring that those who made a report set forth in the preceding item not be treateddisadvantageously for the reason of making such a report
The Group shall not apply any disadvantageous treatment, including disciplinary action, any act of retaliationsuch as discrimination or adverse effect on a performance evaluation, to those who made a report to the Audit
and Supervisory Committee for the reason of making such a report.
(11) Matters concerning the policy of handling expenses or liabilities arising in relation to the execution ofduties by Audit and Supervisory Committee Members including procedures for advance payment or
reimbursement of such expenses
The Company shall bear, upon request, all expenses arising in relation to the execution of duties by the Audit
and Supervisory Committee or Audit and Supervisory Committee Members, unless deemed unnecessary forthe execution of duties thereby, including expenses arising upon appointing as necessary, or entrusting
research or other administrative tasks to, lawyers, certified public accountants, or other external experts.
(12) Other systems for ensuring the effectiveness of audits performed by the Audit and Supervisory Committee(a) For ensuring the effectiveness of audits performed by the Audit and Supervisory Committee, the internal audit
section shall, in cooperation with the Audit and Supervisory Committee, ensure the effectiveness of internal auditing performed thereby. At the same time, the internal audit section shall develop the internal audit plan basedon opinions given by the Audit and Supervisory Committee and thereto report on the results of internal auditing.
(b) The representative directors and the accounting auditors shall periodically hold opinion exchange sessions with
the Audit and Supervisory Committee, respectively.
[Corporate Governance Structure of the Group] (as of April 3, 2017)
General Meeting of Shareholders
Appoint/Dismiss

Appoint/Dismiss(2 Representative Directors,
3 Outside Directors, 1 Outside Director eachfrom Joyo Bank and Ashikaga Bank)(12 Directors including
3 Outside Directors)

Cooperate

Audit and Supervisory Committee(5 Audit and Supervisory Committee
Members including 3 Outside Members)

Audit and Supervisory
Committee Office

Management
Meeting

Compliance Committee

ALM/Risk Management
Committee

Group Strategy Committee

Corporate Planning
Division

Corporate Management
Division

Guide/Manage/Supervise

Directly-owned
subsidiaries

Board of Directors

Cooperate
Audit

Internal Audit Section(Audit Division)

Regional Revitalization
Division
Appoint/Dismiss

Report/Request consultation

The Joyo Bank, Ltd.

The Ashikaga Bank, Ltd.

Mebuki Lease Co., Ltd.

(Company with Audit andSupervisory Committee)(Company with Audit andSupervisory Committee)(Company with Auditors)

Guide/Manage/Supervise

Audit

Guide/Manage/Supervise

Report/Request consultation

8 subsidiaries

Audit

Accounting Auditors

Mebuki Financial Group, Inc.

Corporate Governance Committee Consult/Report

Report/Request consultation

3 subsidiaries

Annual Report 201718

Initiatives for Compliance
Mebuki Financial Group

Audit and Supervisory Committee

Board of Directors
Compliance Committee

Corporate Planning DivisionCorporate Management Division

Regional Revitalization Division

Audit Division

Monitor/Supervise
Consult/Report

The Joyo Bank, Ltd.

The Ashikaga Bank, Ltd.

Mebuki Lease Co., Ltd.

Board of Directors
Key bodies in compliance<Joyo Bank>
Compliance Committee<Ashikaga Bank>
Compliance MeetingGroup company management<Joyo Bank>
Corporate Planning Division<Ashikaga Bank>Management Planning Division
SuperviseGroup companies

Managing sections<Joyo Bank>
Corporate Risk Management Division<Ashikaga Bank>
Compliance Management Division
Supervise
Head Office and branches
Officer and staff in change ofmanagement and compliance

Audit and Supervisory Committee

Board ofDirectors

Corporate Auditors

Key bodies in compliance
Compliance Committee

Managing section
General Afairs
Division
Supervise
Head Office and business units
Officer and staff in change ofmanagement and compliance

The Company has established the management system aiming at group-wide comprehensive management
which enables the Group to perform business operations under the appropriate compliance framework.
We aim to enhance the compliance framework by positioning compliance as one of the most material
management tasks.
Organization and structure
We have established the Basic Rules on Group Compliance as the Group’s highest standards for compliance, andthereunder, other relevant rules and regulations systematically.
The Compliance Committee established within the Company is responsible for decisions on compliance-related
important business execution of the Company and the Group, and for analysis, assessment and deliberation onmatters for improvement relevant to group-wide compliance.
Furthermore, we put compliance into practice through, among other factors, the establishment of the Legaland Compliance of the Corporate Management Division as the managing and supervising section in charge ofgroup-wide compliance, the designation of the officer responsible for the Corporate Management Division, and theassignment of compliance staff at each management organization within the Group. Important matters regarding
compliance at directly-owned subsidiaries are consulted on and reported to the Corporate Management Division,
which is responsible for the monitoring and supervision thereof, pursuant to the Rules for Management ofCompanies within the Group.
Compliance program
The Group establishes the compliance program as the action plan to realize compliance. The companies within theGroup establish a program based on the Basic Policy on Group Compliance Program developed annually by theCompany.
The status of the compliance program performed by companies within the Group is reported to and validated
by the Compliance Committee quarterly, and is also subject to the annual overall assessment which is reflected in
the next year’s program.
19

Mebuki Financial Group, Inc.

Severing connections with antisocial forces
The Group has established the basic policy against antisocial forces to stand firmly against and sever any connections with antisocial forces which threaten the order and safety of civil society and hinder sound economic andsocial development.

Regarding severing connections with antisocial forces
Mebuki Financial Group, Inc., and its group companies will take the following initiatives to sever all connections with
antisocial forces.
1. We will respond to antisocial forces as an organization with a strong recognition of our social responsibility.
2. We will maintain close relationships with the police, the Center for Removal of Criminal Organizations and external
expert organizations including lawyers.
3. We will sever all connections with antisocial forces, including any transactions therewith.
4. We will decisively reject any and all unreasonable demands from antisocial forces and take legal action from both
civil and criminal perspectives.
5. We will never provide any funding or benefits to antisocial forces.

Management system for customer protection (initiatives for customer protection)
The Group has established the Group Management Policy for Customer Protection to organize and ensure theappropriate management system for customer protection from the perspective of the protection and improvementof convenience for all existing and future customers of the Group, as well as for facilitating finance.
Joyo Bank and Ashikaga Bank have established a supervising section in charge of consultation, complaints
and other communication from customers, and have also entered into the basic contract for the implementation of
dispute resolution procedures with the Japanese Bankers Association, the designated dispute resolution organization under the Banking Act, to utilize the financial ADR system for dispute resolution with customers through the
involvement of a third party.
Joyo Bank, which concurrently operates a trust business, has also entered into a basic contract for the
implementation of dispute resolution procedures with the Trust Companies Association of Japan, the designateddispute resolution organization under the Trust Business Act and the Act on Engagement in Trust Business Activities by Financial Institutions.

Annual Report 201720

Risk Management System
The Group aims to enhance the risk management system by positioning it as an important management task
from the perspective of the maintenance and improvement of sound corporate management.
Risk management system
The Group undertakes its risk management based on the Basic Rules on Group
Risk Management determined by the Board of Directors of the Company.
In order to perform the matters set forth in the Basic Rules on Group
Risk Management, the Company has established the ALM/Risk Management
Committee, which makes decisions on important business execution regarding the Group’s risk management and performs analysis, assessment andimprovement of the matters relevant to the risk management of the overall
Group. The said committee ensures corporate management emphasizing therisk and return relationship through consideration and discussion focused on
Mebuki Financial Group

closer coordination between risk management and profit management while
controlling risks appropriately, and facilitates prompt and efficientdecision-making by management.
Furthermore, we have organized the integrated risk management section
responsible for the supervision and integrated management of various risks,
and at the same time, established the framework under which the audit section independent from business execution sections performs internal auditing
and validates the appropriateness and effectiveness of the respective risk
management status.

Board of Directors

Decision on important business execution

ALM/Risk Management Committee Analysis, assessment and deliberation on matters for improvement
Integrated risk management section Capturing, measurement, assessment, and reporting

Audit

of risk as a group(Corporate Management Division)
Type of risk

Strategic Risk

Credit Risk

Market Risk

Liquidity Risk

Operational Risk
Corporate Management Division/
Corporate Planning DivisionCorporate Management DivisionInternal audit section

Audit and Supervisory Committee

Validate appropriatenessand effectiveness ofrisk management system

Report/Consult (risk status, response policies)
Instruct (establishment of risk management system)

The Ashikaga Bank, Ltd.

Mebuki Lease Co., Ltd.

Board of Directors

Important meeting bodies for risk management<Ashikaga Bank><Joyo Bank>(1) Management Meeting(1) ALM Committee(2) Risk Management (2) ALM Meeting(3) Credit Portfolio Meeting
Committee

Board ofDirectors

Audit and Supervisory Committee

Integrated risk management section(Risk Management Division)

Integrated risk
management section

Type of risk

Strategic Risk

Type of risk

Credit Risk

Market Risk

Liquidity Risk

Operational Risk

Sections in charge of respective risk categories

Strategic Risk, Credit Risk,
Market Risk, Liquidity Risk,
Operational Risk

Branches, head offices and group companies

Sections in charge of respective risk categories

Integrated risk management
The Group undertakes “integrated risk management” which quantitatively
measures various types of risk including credit risk and market risk, using
statistical methods, such as VaR (value at risk), in order to individually manage increasingly diversified and complicated types of risk relevant to financial
services, and at the same time, to comprehensively capture said risks. We
aim at maintaining an appropriate level of our capital reserves by comparing
and contrasting the total amount of risk with our financial soundness (ourcapital reserves).
Specifically, we allocate capital to each type of risk (credit risk, interest
rate risk, price fluctuation risk and operational risk) in advance to the extent
of our capital reserves and monitor whether the amount of each risk quantified (risk capital used) stays within the extent of allocated capital. Upon the
allocation of capital, we secure a risk buffer to cover losses larger than those
expected in the statistical methods or risks unable to be captured by the statistical methods. We confirm the sufficiency of our capital reserves, including
the capital to cover the aforementioned risks, by performing stress tests bywhich we capture the impact on our capital reserves under assumed scenarios such as a sudden economic downturn. Furthermore, we confirm the reasonableness and effectiveness of the statistical methods through back tests
in which the risk amount calculated by VaR (value at risk) is compared withactual profit or loss.

21

Corporate Auditors

Mebuki Financial Group, Inc.

Audit

Internal audit section

The Joyo Bank, Ltd.

Credit risk management
Credit risk refers to the risk of incurring losses as a result of customers becoming unable to pay the principal and interest of loans as promised primarily due to the deterioration of their financial conditions.
Recognizing credit risk as a material risk in our business operations, theGroup aims to enhance the management system to prevent the emergenceof new non-performing loans and to improve asset soundness.
Credit risk management system
The Group has established the Group Guidelines for Credit Risk Management,
which set forth, as our basic policy of credit risk management, the appropriate management of credit risk on individual loans and the management of
the credit portfolio focusing on risk diversification.
The section in charge of credit risk management, which is organizationally and functionally independent from the business promotion sections, is
responsible for the planning and operational management of the internal
credit rating system, self-assessment systems, write-offs and provisions to
the reserve for loan losses, as well as for the monitoring of loan assets as the
specialized organization for the comprehensive supervision and managementof the credit portfolio.
Management of credit risk on individual loans
We separate the credit-screening sections of companies within the Group
from the business promotion sections to ensure strict screening while also

focusing on credit management during repayment to prevent the status of aclaim from deteriorating.
Internal credit ratings
We categorize our customers into 12-grade rating levels by adding qualitative
assessment to the data on their financial condition and cash flow status. In
addition to serving as the basis for self-assessment systems, internal credit
ratings are used across the full range of credit risk management, including
the capturing of credit risk exposure, the setting of lending rates and the allocation of lending authority.
Self-assessment systems
Companies within the Group strictly implement self-assessment systems
based on common standards and provide appropriate reserves or write down
problem loans based on such assessment. In addition, the reasonableness ofsuch assessment is validated and audited by the sections in charge of validation and auditing, respectively, and is also subject to external audits by accounting auditors.
Quantification of credit risk
The quantification of credit risk refers to the statistical forecasting of future
losses (amount of credit risk) that can be expected due to bankruptcies or thedeterioration of financial conditions of customers. The Group calculates theamount of credit risk for each customer based on “internal credit ratings”
with collateral and other factors taken into account.
Credit portfolio management
We capture loan assets in their entirety as a single portfolio and conductcredit risk management from a macro perspective. Based on the quantification of credit risk, we carry out periodic monitoring such as whether the credit risk is concentrated in specific sectors or corporate groups, and analysis
and evaluation of credit situations by rating and region, or based on composition by industry.

Market risk management
Market risk refers to the risk of incurring losses due to changes in the valueof financial assets and liabilities of the Group caused by fluctuation in interest
rates, foreign exchange rates, and stock prices.
Our subsidiaries are engaged in investment activities based on theirunderstanding of risk supported by sufficient advance research and analysis
of market transactions.
For the appropriate control of market risk, we also perform and report to the
ALM/Risk Management Committee of the Company held periodically the quantitative management and measurement under the ALM (asset and liability management) framework to take action according to the situation.

Liquidity risk management
Liquidity risk refers to the risk of incurring losses primarily due to difficulty insecuring necessary funds caused by an unexpected outflow of funds orsimilar events, or a sharp rise in funding costs.
The Group has established the Group Liquidity Risk Management Rules
to set up the framework under which action plans according to respective
situations ranging from a normal state to urgent cases are defined to promptly respond thereto.
Specifically, under cash flow management in a normal situation, wemanage indicators such as the trend of deposit/loan balances and funding
limits in addition to primary indicators (funding gap and liquid asset balance)
to avoid an increase of liquidity risk. Furthermore, we define and performperiodical drills for action plans upon a liquidity crisis to enhance theeffectiveness in a crisis.

Operational risk management
Operational risk refers to the risk of incurring losses caused by inappropriateness in the Group’s business processes, activities of directors and employees
or system operations, or by external events. The Group classifies and manages such risk according to the following six categories: administrative risk,
system risk, compliance (legal) risk, personnel management risk, tangible
asset risk, and reputational risk.
Furthermore, the Group designates the sections responsible for each of
the aforementioned six categories, and also has the comprehensive risk
management section manage overall operational risk.
Administrative risk
Administrative risk refers to the risk of incurring losses due to directors, employees or external contractors neglecting precise administration, causing incidents, or committing acts of fraud.
In the Group, the sections responsible for administrative risk and thecomprehensive risk management section responsible for operational risk
gather information on and analyze the causes of administrative incidents
occurring inside or outside the Group to establish or revise administrative
rules or enhance the efficiency of administrative processes through the information system based on the results of such analysis. In addition, the Group
has the internal audit section validate the effectiveness of the risk management system to establish the framework to detect or prevent administrative
incidents.
System risk
System risk is the risk of incurring losses primarily due to the failure ofcomputer systems, erroneous computer operation, or inappropriate computeruse.
The Group has taken necessary measures to ensure the safety and reliability of computer systems including failure response exercises aiming toestablish the framework for early recovery from system failure, in addition to
sufficient advance testing upon the development or operation of systems, thecontinuous monitoring of operational status and duplexing facilities.
Compliance (legal) risk, personnel management risk, tangible asset risk
and reputational risk
We also identify and assess risk through methods in line with risk characteristics and take appropriate actions for: compliance (legal) risk, the risk of incurring losses mainly due to an illegal act committed by directors andemployees; personnel management risk, the risk of incurring losses mainly
due to an act in violation of laws, regulations or agreements relevant to employment, health or safety; tangible asset risk, the risk of incurring losses due
to damage to tangible assets caused by disasters or defective managementof buildings; and reputational risk, the risk of incurring losses due to the deterioration of credit worthiness mainly attributable to reputational damage
caused by inappropriate actions taken by the Group or the circulation of
unfounded rumors.

Crisis management and business continuity management
We have established the framework for the continuity or early recovery of important business operations including the repayment of deposits, fund transfer and remittance upon facing a crisis such as a natural disaster, system
failure or pandemic, as well as limiting human and physical damage to theminimum extent possible.
Upon the occurrence of a crisis, we will establish emergency response
headquarters at the Company and directly-owned subsidiaries to respondto such emergencies in cooperation with each other. Furthermore, we continuously perform crisis management exercises and review the business
continuity plan to enhance the effectiveness thereof upon facing a crisis.

Annual Report 201722

List of Directors (as of June 28, 2017)

Directors[Directors (excluding Directors who are Audit and Supervisory Committee Members)]

President and Director Executive Vice President and Director
Kazuyoshi Terakado Masanao Matsushita

Director
Hideo Sakamoto

Director
Yutaka Horie

Director
Ritsuo Sasajima

Director
Kazuyuki Shimizu

Director
Eiji Murashima[Directors who are Audit and Supervisory Committee Members]

Director
Yoshiaki Terakado

23

Director
Kunihiro Ono

Outside Director
Ryuzaburo Kikuchi

Outside Director
Toru Nagasawa

Outside Director
Takashi Shimizu[Directors (excluding Directors who are Audit and Supervisory Committee Members)][Directors (excluding Directors who are Audit and Supervisory Committee Members)]

Chairman and Director

Kunio Onizawa

Chairman and Director

Satoshi Fujisawa

President and Director

Kazuyoshi Terakado

President and Director

Masanao Matsushita

Deputy President and Director Hideo Sakamoto

Senior Managing Director Kiyoshi Kato

Senior Managing Director Ritsuo Sasajima

Senior Managing Director Yutaka Horie

Managing Director

Eiji Murashima

Managing Director

Kazuyuki Shimizu

Managing Director

Masaru Seki

Managing Director

Keizo Shinozaki

Managing Director

Hiroaki Yokochi

Director

Takashi Satake

Managing Director

Jun Kawauchi

Director

Yoshiaki Kosugi

Managing Director

Hidebumi Nishino

Director

Eisuke Suzuki

Managing Director

Hitoshi Takenouchi

Director

Hiroo Shimada

Director

Mitsugu Hoshino

Director

Hiroshi Arai

[Directors who are Audit and Supervisory Committee Members][Directors who are Audit and Supervisory Committee Members]

Director

Hideo Torihata

Director

Akihiko Kuwako

Director

Takao Shimizu

Outside Director

Yoshio Kohra

Outside Director

Toshihiko Kawamura

Outside Director

Junichi Sato

Outside Director

Toshio Mizushima

Outside Director

Shoji Fukui

Outside Director

Kinichi Suzuki

Mebuki Financial Group, Inc.

Financial Data

Consolidated Balance Sheet
March 31, 2017

Mebuki Financial Group, Inc. and Consolidated Subsidiaries

Millions of Yen
2017
2016

Thousands of
U.S. Dollars(Note 1)2017

ASSETSCash and due from banks (Notes 3, 10, and 22)������������������������������������������������������� ¥ 1,393,762
Call loans and bills bought (Note 22)������������������������������������������������������������������������
5,160
15,952
Monetary claims bought (Note 22)���������������������������������������������������������������������������
Trading assets (Notes 4 and 22)������������������������������������������������������������������������������
7,226
Trading account securities (Notes 4 and 22)�������������������������������������������������������������
—Securities (Notes 4, 10, and 22)������������������������������������������������������������������������������
4,190,681
Loans and bills discounted (Notes 6, 10, 22, and 26)����������������������������������������������� 10,244,730
Foreign exchanges (Note 6)�������������������������������������������������������������������������������������
7,222
Lease receivables and investments in lease (Note 21)����������������������������������������������
48,366
Other assets (Notes 10 and 23)�������������������������������������������������������������������������������
120,249
Tangible fixed assets (Note 7)����������������������������������������������������������������������������������
117,732
Intangible fixed assets (Note 8)��������������������������������������������������������������������������������
12,414
Asset for retirement benefits (Note 13)���������������������������������������������������������������������
12,275
Deferred tax assets (Note 20)����������������������������������������������������������������������������������
1,609
Customers’ liabilities for acceptances and guarantees (Note 9)����������������������������������
25,916
Allowance for loan losses����������������������������������������������������������������������������������������
(78,840)
Allowance for investment losses������������������������������������������������������������������������������
(9)
TOTAL�������������������������������������������������������������������������������������������������������������� ¥16,124,452¥ 437,509
414
7,627
—
3,569
1,296,769
4,235,174
4,377—
34,277
24,42478,601
10,466584
12,913(40,679)—¥6,106,037$ 12,423,232
46,000142,196
64,413—37,353,432
91,315,896
64,381
431,113
1,071,839
1,049,402
110,654
109,421
14,348231,001(702,740)(80)$143,724,509

LIABILITIES AND EQUITY
LIABILITIES:
Deposits (Notes 10 and 22)������������������������������������������������������������������������������������� ¥13,507,047
Negotiable certificates of deposit (Note 22)���������������������������������������������������������������
284,705
303,312Call money and bills sold (Note 22)��������������������������������������������������������������������������
Payables under securities lending transactions (Notes 10 and 22)�����������������������������
167,640
Trading liabilities�����������������������������������������������������������������������������������������������������
511
Borrowed money (Notes 10, 11, and 22)������������������������������������������������������������������
735,593
Foreign exchanges��������������������������������������������������������������������������������������������������
757
5,000
Bonds (Note 12)�����������������������������������������������������������������������������������������������������
33,657
Bonds with warrants (Note 12)���������������������������������������������������������������������������������
Due to trust account�����������������������������������������������������������������������������������������������
13
140,446
Other liabilities �������������������������������������������������������������������������������������������������������
Provision for directors’ bonuses ������������������������������������������������������������������������������
111
Liability for retirement benefits (Note 13)������������������������������������������������������������������
8,896
51
Provision for directors’ retirement benefits���������������������������������������������������������������
Provision for reimbursement of deposits�������������������������������������������������������������������
3,480
1,548
Provision for contingent losses��������������������������������������������������������������������������������
Provision for point card certificates��������������������������������������������������������������������������
294
12
Provision for losses on interest repayments��������������������������������������������������������������
Reserves under special laws������������������������������������������������������������������������������������
2
31,410
Deferred tax liabilities (Note 20)�������������������������������������������������������������������������������
Deferred tax liabilities for land revaluation����������������������������������������������������������������
9,454
1,501
Negative goodwill����������������������������������������������������������������������������������������������������
Acceptances and guarantees (Note 9)����������������������������������������������������������������������
25,916
Total liabilities��������������������������������������������������������������������������������������������������� 15,261,366¥5,206,700
174,878
78,00025,263—
251,726
282———
46,266
57
—
311
858
464
134
—
—
5,074
—
—
12,9135,802,932$120,394,402
2,537,706
2,703,564
1,494,252
4,560
6,556,676
6,753
44,567300,000
118
1,251,860
992
79,298462
31,026
13,8032,629
110
18279,977
84,274
13,382231,001
136,031,431

117,495
29,025—
113,594—

1,047,291
1,323,564
1,724
4,114,729(62)

48,527(3,951)—(1,585)42,990303,105¥6,106,037

1,145,784(6,008)114,488(48,431)1,205,833
7,693,078$143,724,509

EQUITY (Notes 14 and 15):
117,495
Common stock�������������������������������������������������������������������������������������������������������
Capital surplus�������������������������������������������������������������������������������������������������������
148,490193
Stock acquisition rights�������������������������������������������������������������������������������������������
Retained earnings���������������������������������������������������������������������������������������������������
461,631
Treasury stock��������������������������������������������������������������������������������������������������������
(6)
Accumulated other comprehensive income:
128,545
Unrealized gains on available-for-sale securities (Note 5)�������������������������������������
Deferred losses on derivatives under hedge accounting (Note 23)�������������������������
(674)
Land revaluation surplus (Note 7)�����������������������������������������������������������������������
12,844
Defined retirement benefit plans (Note 13)����������������������������������������������������������
(5,433)
Total accumulated other comprehensive income��������������������������������������������
135,282
Total equity���������������������������������������������������������������������������������������������
863,086
TOTAL������������������������������������������������������������������������������������������������������������������������� ¥16,124,452
See notes to consolidated financial statements.

Annual Report 201724

Consolidated Statement of Income
Year Ended March 31, 2017

Mebuki Financial Group, Inc. and Consolidated Subsidiaries

Millions of Yen
2017
2016

INCOME:Interest income:Interest on loans and discounts��������������������������������������������������������������������������
Interest and dividends on securities��������������������������������������������������������������������
Interest on call loans and bills bought�����������������������������������������������������������������
Interest on deposits with banks��������������������������������������������������������������������������
Other interest income����������������������������������������������������������������������������������������
Trust fees���������������������������������������������������������������������������������������������������������������
Fees and commissions��������������������������������������������������������������������������������������������
Trading income������������������������������������������������������������������������������������������������������
Other operating income�������������������������������������������������������������������������������������������
Gain on negative goodwill����������������������������������������������������������������������������������������
Other income (Note 17)�������������������������������������������������������������������������������������������
Total income������������������������������������������������������������������������������������������������
EXPENSES:Interest expenses:
Interest on deposits�������������������������������������������������������������������������������������������
Interest on negotiable certificates of deposit��������������������������������������������������������
Interest on call money and bills sold�������������������������������������������������������������������
Interest on payables under securities lending transactions�����������������������������������
Interest on borrowing and rediscounts����������������������������������������������������������������
Interest on bonds����������������������������������������������������������������������������������������������
Other interest expenses�������������������������������������������������������������������������������������
Fees and commissions��������������������������������������������������������������������������������������������
Other operating expenses����������������������������������������������������������������������������������������
General and administrative expenses (Note 18)��������������������������������������������������������
Provision of allowance for loan losses����������������������������������������������������������������������
Other expenses (Note 19)����������������������������������������������������������������������������������������
Total expenses���������������������������������������������������������������������������������������������
INCOME BEFORE INCOME TAXES���������������������������������������������������������������������������������
INCOME TAXES (Note 20)
Current������������������������������������������������������������������������������������������������������������������
Deferred�����������������������������������������������������������������������������������������������������������������
Total income taxes���������������������������������������������������������������������������������������NET INCOME���������������������������������������������������������������������������������������������������������������NET INCOME ATTRIBUTABLE TO NONCONTROLLING INTERESTS������������������������������������NET INCOME ATTRIBUTABLE TO OWNERS OF THE PARENT�������������������������������������������

¥ 89,325
35,186
66
502
419
22
36,2452,241
12,964
119,219
36,316
332,510¥55,936
16,958
393
404
114
—
22,138
—
1,692
—
4,838
102,474$ 796,199
313,633
591
4,481
3,743
204
323,072
19,980115,555
1,062,657
323,7022,963,818

2,572
48
595
1,198
1,101
233
4,537
10,036
7,017
98,0886,277
31,407
163,115
169,395

2,079
212
8
211
1,537
—
783
6,198
192
55,471
2,013
3,595
72,30430,17022,932430
5,305
10,686
9,819
2,082
40,44389,45662,548874,308
55,957
279,952
1,453,919
1,509,899

16,880(5,968)
10,911¥158,483
28¥158,455

5,805
1,912
7,717
¥22,452—¥22,452

150,460(53,199)
97,261$1,412,638
252$1,412,386

Yen

PER SHARE OF COMMON STOCK (Note 16):
Basic net income����������������������������������������������������������������������������������������������������
Diluted net income��������������������������������������������������������������������������������������������������Cash dividends applicable to the year (Note 14)��������������������������������������������������������

Thousands of
U.S. Dollars(Note 1)2017

¥ 156.78
156.72
12.00

U.S. Dollars¥67.37
—
10.00

$1.40
1.40
0.11

See notes to consolidated financial statements.

Consolidated Statement of Comprehensive Income
Year Ended March 31, 2017

Mebuki Financial Group, Inc. and Consolidated Subsidiaries

Millions of Yen
2017
2016

NET INCOME
OTHER COMPREHENSIVE INCOME (Note 24):
Unrealized gains (losses) on available-for-sale securities�������������������������������������������
Deferred gains (losses) on derivatives under hedge accounting����������������������������������
Defined retirement benefit plans ����������������������������������������������������������������������������
Total other comprehensive income (loss)������������������������������������������������������������������COMPREHENSIVE INCOME
TOTAL COMPREHENSIVE INCOME ATTRIBUTABLE TO:
Owners of the parent����������������������������������������������������������������������������������������������
Noncontrolling interests�������������������������������������������������������������������������������������������

25

See notes to consolidated financial statements.

Mebuki Financial Group, Inc.

Thousands of
U.S. Dollars(Note 1)
2017

¥158,483¥22,452$1,412,638(6,507)
2,399
5,233
1,125
¥159,609

3,822(3,301)(3,658)(3,136)¥19,315(58,006)
21,38446,653
10,031$1,442,669¥159,581
27¥19,315—$1,442,423
247

Consolidated Statement of Changes in Equity
Year Ended March 31, 2017

Mebuki Financial Group, Inc. and Consolidated Subsidiaries

Millions of Yen
Accumulated othercomprehensive income

BALANCE, APRIL 1, 2015�������������������������������Cash dividends�����������������������������������������
Net income attributable to owners ofparent����������������������������������������������������
Net changes except for stockholders
equity during the fiscal year���������������������
Total changes during the fiscal year����������������
BALANCE, MARCH 31, 2016��������������������������

CommonStock(Note 14)

CapitalSurplusRetained
Earnings¥117,495¥29,025¥ 94,474(3,332)

Unrealized
Gains onAvailablefor-Sale
Securities

Deferred
Losses on
Derivatives
under Hedge
Accounting

DefinedRetirement
BenefitPlans¥44,704¥ (650)¥ 2,072

Total
Equity¥287,121(3,332)

22,452—¥117,495—¥29,025

19,120¥113,594

22,452
3,822
3,822¥48,527(3,301)(3,301)¥(3,951)(3,658)(3,658)¥(1,585)(3,136)
15,983¥303,105Millions of Yen

CommonStock(Note 14)BALANCE, APRIL 1, 2016�������������������������
Increase due to share exchange����������Cash dividends�����������������������������������
Net income attributable to owners ofparent���������������������������������������������
Purchase of treasury stock������������������
Disposal of treasury stock�������������������
Retirement of treasury stock����������������
Changes due to acquiring equity ofconsolidated subsidiaries������������������
Reversal of land revaluation surplus�����
Net changes during the fiscal year�������
Total changes during the fiscal year����������
BALANCE, MARCH 31, 2017��������������������

¥ 85,113
32,382

CapitalSurplus¥ 58,574
90,616(1,832)Stock
Acquisition
RightsRetained
Earnings

Treasury
Stock

¥132

¥333,964¥(21,569)

Accumulated Other Comprehensive Income
Unrealized Deferred Gains
Gains (Losses) (Losses) on
DefinedLand
on Available- Derivatives
under Hedge Revaluation Retirement
for-Sale
Benefit Plans
Surplus
Accounting
Securities¥135,031¥(3,073)¥13,002¥(10,667)

Total¥134,293

Noncontrolling
Interests¥1,562(9,397)
158,455

1(0)(21,548)

158,455(11)
25—

21,562
¥
(6)

1,131
158
(512)
271,016¥863,086

158
89,916¥148,490

61
61
¥193

127,666¥461,631¥592,070
122,998(11,230)(11)
25
21,5481,131

32,382¥117,495

Total
Equity(6,485)(6,485)¥128,545

2,399
2,399
¥ (674)

(158)
(158)
¥12,844

5,233
5,233
¥ (5,433)

988
988¥135,282(1,562)(1,562)—Thousands of U.S. Dollars

CommonStock(Note 14)

CapitalSurplus

BALANCE, APRIL 1, 2016������������������������� $ 758,651 $ 522,097
Increase due to share exchange���������� 288,640
807,704
Cash dividends�����������������������������������
(16,337)
Net income attributable to owners ofparent���������������������������������������������
Purchase of treasury stock������������������
Disposal of treasury stock�������������������
12
Retirement of treasury stock����������������
Changes due to acquiring equity ofconsolidated subsidiaries������������������
10,088
Reversal of land revaluation surplus�����
Net changes during the fiscal year�������
801,467
Total changes during the fiscal year���������� 288,640
BALANCE, MARCH 31, 2017�������������������� $1,047,291 $1,323,564

Stock
Acquisition
RightsRetained
Earnings$1,180 $2,976,776

TreasuryStock

Accumulated Other Comprehensive Income
Unrealized Deferred Gains
Gains (Losses) (Losses) on
DefinedLand
on Available- Derivatives
under Hedge Revaluation Retirement
for-Sale
Benefit Plans
Surplus
Accounting
Securities$(192,259) $1,203,596$(27,392)$115,901

Total$(95,084) $1,197,020(83,765)
1,412,386(8)(192,073)(57,812)
192,197(57,812)$(62) $1,145,784

Total
Equity$13,924 $5,277,389
1,096,344(100,102)
1,412,386
(102)
230
—

(102)
226
192,0731,413
544
544 1,137,952$1,724 $4,114,729

Noncontrolling
Interests

21,384
21,384$ (6,008)(1,413)(1,413)$114,488

46,653
8,812
46,653
8,812$(48,431) $1,205,833

10,088
1,413(13,924)(4,567)(13,924) 2,415,690— $7,693,078

See notes to consolidated financial statements.

Annual Report 201726

Consolidated Statement of Cash Flows
Year Ended March 31, 2017

Mebuki Financial Group, Inc. and Consolidated Subsidiaries

Millions of Yen
2017
2016
OPERATING ACTIVITIES:
Income before income taxes�������������������������������������������������������������������������������������������������������������������
Adjustments for:
Income taxes paid����������������������������������������������������������������������������������������������������������������������������
Depreciation and amortization����������������������������������������������������������������������������������������������������������
Impairment loss�������������������������������������������������������������������������������������������������������������������������������
Amortization of goodwill�������������������������������������������������������������������������������������������������������������������
Gain on negative goodwill�����������������������������������������������������������������������������������������������������������������
Loss on step acquisition�������������������������������������������������������������������������������������������������������������������
Amortization of negative goodwill������������������������������������������������������������������������������������������������������
Decrease in allowance for loan losses�����������������������������������������������������������������������������������������������
Increase in provision for directors’ bonuses���������������������������������������������������������������������������������������
Increase in asset for retirement benefits��������������������������������������������������������������������������������������������
Increase in liabilities for retirement benefits���������������������������������������������������������������������������������������
Increase in provision for directors’ retirement benefits������������������������������������������������������������������������
Increase in provision for reimbursement of deposits���������������������������������������������������������������������������
Decrease in provision for contingent losses���������������������������������������������������������������������������������������
Increase in provision for point card certificates����������������������������������������������������������������������������������
Decrease in provision for interest repayments������������������������������������������������������������������������������������
Gain on fund management���������������������������������������������������������������������������������������������������������������
Financing expenses�������������������������������������������������������������������������������������������������������������������������
Gains related to securities����������������������������������������������������������������������������������������������������������������
Foreign exchange losses (gains)�������������������������������������������������������������������������������������������������������
Loss on disposal of fixed assets��������������������������������������������������������������������������������������������������������
Loss on reduction of fixed assets������������������������������������������������������������������������������������������������������
Net decrease in trading assets���������������������������������������������������������������������������������������������������������
Net decrease in trading liabilities������������������������������������������������������������������������������������������������������
Net increase in loans and bills discounted�����������������������������������������������������������������������������������������
Net increase in deposits�������������������������������������������������������������������������������������������������������������������
Net increase (decrease) in negotiable certificates of deposit���������������������������������������������������������������
Net increase in borrowed money (excluding subordinated borrowings)������������������������������������������������
Net decrease in deposit (excluding deposit paid to Bank of Japan)������������������������������������������������������
Net decrease in deposit (excluding cash equivalents)�������������������������������������������������������������������������
Net decrease (increase) in call loans�������������������������������������������������������������������������������������������������
Net decrease in trading account securities����������������������������������������������������������������������������������������
Net increase in call money���������������������������������������������������������������������������������������������������������������
Net increase in payables under securities lending transactions�����������������������������������������������������������
Net decrease in foreign exchanges - assets��������������������������������������������������������������������������������������
Net decrease in foreign exchanges - liabilities�����������������������������������������������������������������������������������
Net increase in lease receivables and investments in lease����������������������������������������������������������������
Net decrease in due to trust account�������������������������������������������������������������������������������������������������
Proceeds from fund management�����������������������������������������������������������������������������������������������������
Payments for finance�����������������������������������������������������������������������������������������������������������������������
Other--net���������������������������������������������������������������������������������������������������������������������������������������
Total adjustments����������������������������������������������������������������������������������������������������������������������������
Net cash provided by operating activities�������������������������������������������������������������������������������������������������

27

Mebuki Financial Group, Inc.

Thousands of
U.S. Dollars(Note 1)2017

¥ 169,395¥ 30,170$ 1,509,899(16,614)
7,327
1,463
—
(119,219)
184
(158)
(400)
44
(1,323)
8,764
13
317
(18)
38
(2)
(131,337)
10,305(4,941)(12,902)
431
—
1,225
(383)
(153,758)
270,177
37,290272,353—
57,258(1,499)—35,956
15,881
1,256(409)(5,135)(0)129,285(8,791)(62,863)
329,815¥ 499,210(12,405)
3,495
50
6,202
—
—
—
(3,222)
3(1,893)
—
48
55
(31)
19
—
(73,805)
4,832(1,212)
7,905
108
26
—
—
(84,707)
135,589(22,500)
29,180
251
—
1,569
607
78,00022,789
1,460
(83)
—
—
73,908(7,692)(9,273)
149,277¥ 179,447(148,089)
65,311
13,046—(1,062,657)
1,642(1,409)(3,574)393(11,794)
78,121
119
2,826
(166)
347
(22)
(1,170,667)
91,855(44,043)(115,009)
3,848—
10,924(3,422)(1,370,518)
2,408,210
332,384
2,427,611—
510,368(13,362)—
320,495
141,557
11,198(3,647)(45,776)(0)1,152,381(78,364)(560,328)
2,939,790$ 4,449,689

Millions of Yen
2017
2016
INVESTING ACTIVITIES:
Purchases of securities��������������������������������������������������������������������������������������������������������������������
Proceeds from sales of securities�����������������������������������������������������������������������������������������������������
Proceeds from redemption of securities��������������������������������������������������������������������������������������������
Purchases of tangible fixed assets����������������������������������������������������������������������������������������������������
Proceeds from sales of tangible fixed assets�������������������������������������������������������������������������������������
Purchases of intangible fixed assets�������������������������������������������������������������������������������������������������
Other--net���������������������������������������������������������������������������������������������������������������������������������������
Net cash provided by investing activities��������������������������������������������������������������������������������������������
FINANCING ACTIVITIES:
Repayments of subordinated borrowings�������������������������������������������������������������������������������������������
Redemption of subordinated bonds���������������������������������������������������������������������������������������������������
Purchase of treasury stocks�������������������������������������������������������������������������������������������������������������
Proceeds from sales of treasury stocks���������������������������������������������������������������������������������������������Cash dividends paid�������������������������������������������������������������������������������������������������������������������������
Dividends paid to noncontrolling interests������������������������������������������������������������������������������������������
Payments from changes in ownership interests that do not result in change in scope of consolidation�������
Net cash provided by financing activities�������������������������������������������������������������������������������������������
EFFECT OF EXCHANGE RATE CHANGES ON CASH AND CASH EQUIVALENTS��������������������������������������������NET INCREASE IN CASH AND CASH EQUIVALENTS����������������������������������������������������������������������������������
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR�����������������������������������������������������������������������������
INCREASE IN CASH AND CASH EQUIVALENTS DUE TO SHARE EXCHANGE������������������������������������������������
CASH AND CASH EQUIVALENTS, END OF YEAR (Note 3)��������������������������������������������������������������������������
NONCASH INVESTING AND FINANCING ACTIVITY:
Increase in assets and liabilities due to share exchange when it was decided that The Joyo Bank, Ltd.
would be the acquiring company and Mebuki Financial Group, Inc. would be the acquired company(Note 27)
Total assets:������������������������������������������������������������������������������������������������������������������������������������
Of which, loans and bills discounted�������������������������������������������������������������������������������������������
Of which, securities�������������������������������������������������������������������������������������������������������������������
Of which, allowance for loan losses��������������������������������������������������������������������������������������������
Total liabilities:��������������������������������������������������������������������������������������������������������������������������������
Of which, deposits���������������������������������������������������������������������������������������������������������������������

Thousands of
U.S. Dollars(Note 1)2017¥(1,405,130)
1,017,603
271,065(4,973)167(3,348)(94)(124,710)¥(330,762)
85,566
154,466(2,093)
0
(760)
(71)
(93,654)$(12,524,558)
9,070,359
2,416,128(44,331)
1,491(29,848)(841)(1,111,600)—(10,000)(11)
3(11,230)(1)(453)(21,693)29352,836
396,713620,343¥1,369,893(10,000)———(3,332)——(13,332)(21)
72,438363,712—¥436,150—(89,135)(102)
27(100,102)(9)(4,045)(193,365)
266
3,144,990
3,536,090
5,529,399$12,210,479¥6,207,461
4,221,375
1,314,586(38,581)5,964,697
5,148,407

¥—
—
—
—
—
—

$55,329,902
37,627,018
11,717,500(343,897)
53,166,033
45,890,077

See notes to consolidated financial statements.

Annual Report 201728

Notes to Consolidated Financial Statements
Year Ended March 31, 2017

Mebuki Financial Group, Inc. and Consolidated Subsidiaries

1. BASIS OF PRESENTATION
The accompanying consolidated financial statements of Mebuki Financial Group,
Inc. (the “Company”) and its consolidated subsidiaries (together, the “Group”)
have been prepared in accordance with the provisions set forth in the Japanese
Financial Instruments and Exchange Act and its related accounting regulations, inaccordance with the Enforcement Regulation for the Banking Act and in accordance with accounting principles generally accepted in Japan (“Japanese
GAAP”), which are different in certain respects as to the application and disclosure requirements of International Financial Reporting Standards.
In preparing these consolidated financial statements, certain reclassifications and rearrangements have been made to the consolidated financial statements issued domestically in order to present them in a form which is morefamiliar to readers outside Japan.
The consolidated financial statements are stated in Japanese yen, the currency of the country in which the Company is incorporated and operates. The
translations of Japanese yen amounts into U.S. dollar amounts are included solely for the convenience of readers outside Japan and have been made at the rateof ¥112.19 to $1, the approximate rate of exchange at March 31, 2017. Suchtranslations should not be construed as representations that the Japanese yenamounts could be converted into U.S. dollars at that or any other rate.
The Company conducted a share exchange on October 1, 2016, underwhich the Company (formerly Ashikaga Holdings, Co., Ltd. (“AHD”)) became thewholly-owing parent company and The Joyo Bank, Ltd. (“Joyo”) became thewholly-owned subsidiary. Based on the Accounting Standard for Business Combinations, this share exchange is a reverse acquisition wherein AHD is considered to be the acquired company and Joyo to be the acquiring company. As aresult, the consolidated assets and liabilities of AHD were transferred to the consolidated balance sheet of Joyo at their fair value. Additionally, the consolidated
statement of income for the year ended March 31, 2017, includes those of Joyofor the period from April 1, 2016, to September 30, 2016, and those of theCompany for the period from October 1, 2016, to March 31, 2017. Therefore,
there is no continuity from the consolidated financial statements of the Company
for the prior fiscal year to the consolidated financial statements of the Company
for the current fiscal year.
As comparative information, the Company presented consolidated financial
statements and accompanying notes of the former AHD as comparative information in the consolidated financial statements for this fiscal year.
Furthermore, there is no continuity of cash and cash equivalents in the consolidated statement of cash flows from the end of the prior fiscal year to the beginning of the current fiscal year.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIESa. Consolidation — The consolidated financial statements as of March 31,
2017, include the accounts of the Company and its 14 (four in 2016) significant
subsidiaries.
Under the control and influence concepts, those companies in which theCompany, directly or indirectly, is able to exercise control over operations are fully consolidated.
All consolidated subsidiaries have a fiscal year ending on March 31, whichis the same as the fiscal year of the Company.
The consolidated financial statements as of March 31, 2017 do not include
the accounts of two subsidiaries (one in 2016) because the total assets, total income, net income, and retained earnings of the entity would not have had a material effect on the consolidated financial statements.
Investments in unconsolidated subsidiaries and associated companies werestated at cost. If the equity method of accounting had been applied to the investments in these companies, the effect on the accompanying consolidated financial
statements would not be material.
All significant intercompany balances and transactions have been eliminatedin consolidation. All material unrealized profit included in assets resulting fromtransactions within the Group is also eliminated.

29

Mebuki Financial Group, Inc.

Negative goodwill represents the difference between the cost of an acquisition and the fair value of the net assets of the acquired subsidiary at the date ofacquisition. Negative goodwill incurred before March 31, 2010, is amortized using the straight-line method over 20 years.
b. Business Combinations — Business combinations are accounted for using
the purchase method. Acquisition-related costs, such as advisory fees or professional fees, are accounted for as expenses in the periods in which the costs are
incurred. If the initial accounting for a business combination is incomplete by theend of the reporting period in which the business combination occurs, an acquirer shall report in its financial statements provisional amounts for the items forwhich the accounting is incomplete. During the measurement period, which shallnot exceed one year from the acquisition, the acquirer shall retrospectively adjust
the provisional amounts recognized at the acquisition date to reflect new information obtained about facts and circumstances that existed as of the acquisition
date and that would have affected the measurement of the amounts recognized
as of that date. Such adjustments shall be recognized as if the accounting for thebusiness combination had been completed at the acquisition date. The acquirer
recognizes any bargain purchase gain in profit or loss immediately on the acquisition date after reassessing and confirming that all of the assets acquired and allof the liabilities assumed have been identified after a review of the procedures
used in the purchase price allocation. A parent’s ownership interest in a subsidiary might change if the parent purchases or sells ownership interests in its subsidiary. The carrying amount of noncontrolling interest is adjusted to reflect thechange in the parent’s ownership interest in its subsidiary while the parent retains its controlling interest in its subsidiary. Any difference between the fair value of the consideration received or paid and the amount by which thenoncontrolling interest is adjusted is accounted for as capital surplus as long as
the parent retains control over its subsidiary.
The Company conducted a share exchange on October 1, 2016, underwhich the Company (formerly AHD) became the wholly-owing parent company
and Joyo became the wholly-owned subsidiary and accounted for this share exchange by the purchase method of accounting (see Note 27).
c. Trading Assets and Trading Liabilities — Transactions for “trading purposes” (seeking to capture gains arising from short-term changes in interest rates,
currency exchange rates or market prices of securities and other market-related
indices or from arbitrage between markets) are valued at market or fair value,and have been included in trading assets and trading liabilities on a trade datebasis. Gain or loss on such trading transactions are reflected as trading income
or trading expenses in the consolidated statement of income.
Among the trading assets and liabilities, securities and monetary claims arecarried at market value as of the balance sheet date. Derivatives including
swaps, futures, and options are valued assuming settlement on the balance
sheet date.
Trading income or trading expenses include interest received or paid during
the fiscal year. The year-on-year valuation differences of securities and monetaryclaims are also recorded in the above-mentioned accounts. As for the derivatives, assuming that the settlement will be made in cash, the year-on-year valuation differences are also recorded in the above-mentioned accounts.
d. Securities — Securities are classified and accounted for, depending on management’s intent, as follows:(1) held-to-maturity debt securities, which are expected to be held -to- maturity with the positive intent and ability to hold to maturity, are stated at amortized cost using the straight-line method.
(2) investments in unconsolidated subsidiaries that are not accounted for by theequity method are stated at cost determined by the moving-average method.
(3) available-for-sale securities are stated at fair value with unrealized gains
and losses, net of applicable taxes, reported in a separate component of equity. Securities whose fair values cannot be reliably determined are stated atcost determined by the moving-average cost method.

For other-than-temporary declines in fair value, securities are reduced to
net realizable value by a charge to income.
e. Tangible Fixed Assets — Tangible fixed assets (except for leased assets) arestated at cost, less accumulated depreciation. Depreciation of tangible fixed assets owned by the consolidated banking subsidiaries is computed by the straightline method.
The range of useful lives is from 3 to 50 years for buildings and from 3 to
20 years for other tangible fixed assets.
Depreciation of tangible fixed assets owned by the other subsidiaries ismainly computed by the declining-balance method in estimated useful lives.
Depreciation of leased assets from finance lease transactions that do notdeem to transfer ownership of the leased property to the lessee is computed using the straight-line method over the respective lease periods. The residual valueof leased assets is determined using the guaranteed residual value indicated on
the lease contracts where provided; otherwise, they have a nil residual value.
f. Intangible Fixed Assets — Amortization of intangible fixed assets is computed by the straight-line method. The cost of computer software obtained for internal use is amortized principally using the straight-line method over the estimateduseful lives of mainly five years.
g. Long-Lived Assets — The Group reviews its long-lived assets for impairment
whenever events or changes in circumstances indicate the carrying amount of anasset or asset group may not be recoverable. An impairment loss is 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 bemeasured as the amount by which the carrying amount of the asset exceeds its
recoverable amount, which is the higher of the discounted cash flows from thecontinued use and eventual disposition of the asset or the net selling price at disposition.
h. Allowance for Loan Losses — The consolidated banking subsidiaries haveprovided an allowance for loan losses, which is determined based on management’s judgment and assessment of future losses based on their self-assessment
systems. These systems reflect past experience of credit losses; possible credit
losses; business and economic conditions; the character, quality, and performanceof the portfolio; value of collateral or guarantees; and other pertinent indicators.
The consolidated banking subsidiaries have implemented self-assessment
systems to determine their asset quality. The quality of all loans is assessed by
the branches and the related head office divisions with a subsequent audit by theInternal Audit division, which is independent from these divisions in accordancewith the consolidated banking subsidiaries’ policy and guidelines for the self-assessment of asset quality.
The consolidated banking subsidiaries have established credit rating systems under which their customers are classified into five categories. The credit
rating systems are used in the self-assessment of asset quality. All loans areclassified into five categories for self-assessment purposes: “normal,” “in needof caution,” “possible bankruptcy,” “virtual bankruptcy,” and “legal bankruptcy.”
For claims on borrowers that have entered into bankruptcy, special liquidation proceedings, or similar legal proceedings (“legal bankruptcy”), or borrowersthat are not legally or formally insolvent but are regarded as substantially in thesame situation (“virtual bankruptcy”), an allowance is provided based on theamount of claims, after the write-offs as stated below, net of the expectedamount of recoveries from collateral and guarantees.
For claims on borrowers that are not currently bankrupt but are likely to become bankrupt in the future (“possible bankruptcy”), an allowance is provided in
the amount deemed necessary based on an overall solvency assessment of theclaims, net of the expected amount of recoveries from collateral and guarantees.
For claims on borrowers whose loans are classified as “restructured loans”
over a certain amount, for which future cash flows from the collection of principal

and interest are reasonably estimated, an allowance is provided for the difference
between the present value of expected future cash flows discounted at the contracted interest rate and the carrying value of the claims based on the discounted
cash flow method.
For other claims, an allowance is provided based on the actual historicalloss ratio.
For collateralized or guaranteed claims of borrowers who are in “virtual
bankruptcy” or “legal bankruptcy,” the amount exceeding the estimated value ofcollateral or guarantees has been deducted as deemed uncollectible directly fromthose claims. As of March 31, 2017 and 2016, the deducted amounts were¥23,642 million ($210,738 thousand) and ¥11,342 million, respectively.
Other consolidated subsidiaries determine allowances for loan losses thatare provided for general claims at an amount based on the actual historical rateof loan losses and for specific claims (from potentially bankrupt customers, etc.)
at an estimate of the amounts deemed uncollectible based on the respective
assessments.
i. Allowance for Investment Losses — Allowance for investment losses is provided at the amount deemed necessary to cover estimated possible losses on investments which one consolidated banking subsidiary may incur in the future.
j. Provision for Directors’ Bonuses — Provision for directors’ bonuses (including executive officers) is provided in the amount of the estimated bonuses thatare attributable to each fiscal year.
k. Employees’ Retirement Benefits — The Company accounts for the liability
for retirement benefits based on the projected benefit obligations and plan assets atthe balance sheet date. The projected benefit obligations are attributed to periods
on a benefit formula basis. Actuarial gains and losses and past service costs thatare yet to be recognized in profit or loss are recognized within equity (accumulated
other comprehensive income), after adjusting for tax effects and are recognized in
profit or loss from the next year of incurrence and the year of incurrence, respectively, by the straight-line method over a period (mainly ten years) no longer thanthe expected average remaining service period of the employees.
l. Provision for Directors’ Retirement Benefits — Provision for directors’ retirement benefits, which is provided for payments of retirement benefits to directors, is recorded in the amount deemed accrued at the fiscal year end datebased on the estimated amount of benefits.
m. Provision for Reimbursement of Deposits — Provision for reimbursementof deposits, which were derecognized as liabilities under certain conditions, isprovided for possible losses on future claims and is calculated based on the historical reimbursement experience.
n. Provision for Contingent Losses — Provision for contingent losses is provided for possible loan losses guaranteed by the credit guarantee corporations in
an amount deemed necessary based on estimated losses in the future, calculated using historical default rates after exclusion of contingent losses covered byother reserves.
o. Provision for Point Card Certificates — Provision for point card certificates,
which is provided for the future use of points granted to customers under credit
card points program, is calculated by converting the outstanding points into amonetary amount and rationally estimating and recognizing the amount that will
be redeemed in the future.
p. Provision for Losses on Interest Repayments — Some consolidated subsidiaries provide a provision for losses on interest repayments in an amountdeemed necessary based on estimated amounts to be repaid, taking into accounthistorical records of interest repayments on the portion of loans whose interest
rates exceeded the maximum interest rate stipulated by the Interest Limitation Law.

Annual Report 201730

q. Reserves under Special Laws — Reserves under special laws is a reservefor contingent liabilities and provided for compensation for losses from securities-related transactions or derivative transactions in the amount of ¥2 million($18 thousand) as of March 31, 2017, pursuant to Article 46-5-1 of the Financial Instruments and Exchange Act and Article 175 of the related cabinet order.
r. Stock Options — Compensation expense for employee stock options whichwere granted on and after May 1, 2006 are recognized based on the fair value atthe date of grant and over the vesting period as consideration for receiving goods
or services in accordance with the Accounting Standards Board of Japan(“ASBJ”) Statement No. 8, “Accounting Standard for Stock Options”. Stock options granted to nonemployees are accounted for based on the fair value of either
the stock option or the goods or services received. In the balance sheet, thestock option is presented as a stock acquisition right as a separate component ofequity until exercised. The accounting standard allows unlisted companies tomeasure options at their intrinsic value if they cannot reliably estimate fair value.
s. Stock Issue Costs — Stock issue costs are charged to income as incurred.
t. Leases — Finance leases that are not deemed to transfer ownership of theleased property to the lessee are recognized as investments in lease.
As a lessor, income and expenses are recognized when lease receivables
are collected as for finance lease transactions that do not transfer ownership of
the property.
In March 2007, the ASBJ issued ASBJ Statement No. 13, “AccountingStandard for Lease Transactions,” which revised the previous accounting standard for lease transactions issued in June 1993. Under the previous accounting
standard, finance leases that were deemed to transfer ownership of the leased
property to the lessee were treated as sales. However, other finance leases werepermitted to be accounted for as operating lease transactions if certain “as ifsold” information was disclosed in the note to the lessor’s financial statements.
As for finance lease transactions that do not transfer ownership of theleased property and which commenced prior to April 1, 2008, their treatment
was as follows.
As a lessor, in line with the stipulations of Article 81 of the Guidance on Accounting Standard for Lease Transactions the ASBJ Guidance No. 16, March 25,2011), book value (after deduction of accumulated depreciation) of lease assets
included in tangible fixed assets and intangible assets as of the previous balance
sheet date (March 31, 2008) was recorded as the initial balance of “Lease receivables and investments in lease.”u. Income Taxes — The provision for income taxes is computed based on thepretax income included in the consolidated statement of income. The asset andliability 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 bases of assets and liabilities. Deferred taxes are measured
by applying currently enacted income tax rates to the temporary differences.
The Group applied ASBJ Guidance No. 26, “Guidance on Recoverability ofDeferred Tax Assets,” effective April 1, 2016. There was no impact from this forthe year ended March 31, 2017.
The Group files a tax return under the consolidated corporate-tax system,
which allows companies to base tax payments on the combined profits or lossesof the parent company and its wholly-owned subsidiaries.
v. Translation of Foreign Currencies — Assets and liabilities denominated inforeign currencies are translated at exchange rates prevailing as of the consolidated balance sheet date.
w. Derivatives and Hedging Activities — Derivative financial instruments areclassified and accounted for as follows: (a) all derivatives, except those enteredinto for hedging purposes, are recognized as either assets or liabilities and measured at fair value with gains or losses on derivative transactions recognized in

31

Mebuki Financial Group, Inc.

the consolidated statement of income or (b) for derivatives used for hedging purposes, if the derivatives qualify for hedge accounting because of high correlationand effectiveness between the hedging instruments and the hedged items, gains
or losses on the derivatives are deferred until maturity of the hedged transactions(deferral hedge accounting).
The consolidated banking subsidiaries apply deferral hedge accounting
based on the rules of the Japanese Institute of Certified Public Accountants (the“JICPA”) Industry Audit Committee Report No. 24, “Accounting and Auditing
Treatments on the Application of Accounting Standards for Financial Instrumentsin the Banking Industry,” for interest rate derivatives to manage interest rate risk
from various financial assets and liabilities as a whole. Under these rules, the effectiveness of a fair value hedge is assessed by an identified group of hedge deposits, loans, and similar instruments and by a corresponding group of hedging
instruments, such as interest rate swaps in the same maturity category. Also,
under these rules, the effectiveness of cash flow hedges is assessed based on
the correlation between a base interest rate index of the hedged cash flow andthat of the hedging instrument.
The consolidated banking subsidiaries apply deferral hedge accounting
based on the rules of the JICPA Industry Audit Committee Report No. 25, “Accounting and Auditing Treatments for Foreign Currency Transactions in the Banking Industry,” to currency swaps and funding swaps used for the purpose ofcurrency exchange. Under the deferral hedge accounting, hedged items are
identified by grouping the foreign currency-denominated financial assets and liabilities by currencies and designating derivative transactions, such as currency
swap transactions and foreign exchange swaps as hedging instruments. Effectiveness of derivative transactions, such as currency swap transactions and foreign exchange swap transactions, is reviewed by comparing the total foreign
currency position of the hedged items and the hedging instrument by currency.
One consolidated banking subsidiary applies individual deferral hedge accounting to offsetting the price fluctuation of the strategic shares that are classified under available-for-sale securities, using stock forward contracts as hedged
items. The hedge effectiveness of derivative transactions is reviewed by comparing the changes in value of hedged item and hedging instruments.
The consolidated banking subsidiaries apply individual deferral hedge accounting and exceptional accrual method for interest rate swap to some assets
and liabilities. Some consolidated subsidiaries apply the exceptional accrual
method for interest rate swap to some liabilities.
x. Cash and Cash Equivalents — Cash and cash equivalents in the statementsof cash flows represent cash and due from banks in the consolidated balance
sheets, excluding deposits with banks other than the Bank of Japan of the banking subsidiaries and excluding the time deposits of the Company and the otherconsolidated subsidiaries.
y. Consumption Taxes — Consumption tax is excluded from transactions reported by the Group. However, non-deductible consumption tax on tangible fixed
assets is charged to income as incurred.
z. Per Share Information — Basic net income per share of common stocks iscomputed by dividing net income attributable to common shareholders by theweighted-average number of shares of common stock outstanding for the period,
retroactively adjusted for stock splits.
Diluted net income per share reflects the potential dilution that could occur
if securities were exercised or converted into common stock. Diluted net income
per share of common stock assumes full conversion of the outstanding convertible notes and bonds at the beginning of the year (or at the time of issuance) with
an applicable adjustment for related interest expense, net of tax, and full exerciseof outstanding warrants.
Cash dividends per share presented in the accompanying consolidated
statement of income are dividends applicable to the respective years, including
dividends to be paid after the end of the year.

3. CASH AND CASH EQUIVALENTS
The reconciliation of “Cash and cash equivalents” in the consolidated statementof cash flows and “Cash and due from banks” in the consolidated balance sheet
as of March 31, 2017 and 2016, was as follows:
Thousands of
U.S. Dollars
2017

Millions of Yen
2017
2016

Cash and due from banks¥1,393,762
Interest-bearing deposits included
in due from banks (other than due
from the Bank of Japan)��������������������
—Deposits with banks of the banking
subsidiaries other than the Bank ofJapan����������������������������������������������
(23,868)
Cash and cash equivalents����������������� ¥1,369,893¥437,509$12,423,232(1,358)——¥436,150(212,753)$12,210,479

4. TRADING SECURITIES AND SECURITIESThe amounts shown in the following tables include “Securities”, trading securities in “Trading assets” and trust beneficiary right in “Monetary claims bought”
described in the consolidated balance sheets.
Net unrealized gains (losses) recognized as income as of March 31, 2017and 2016, were as follows:
Thousands of
U.S. Dollars
2017

Millions of Yen
2017
2016

Trading securities��������������������������������

¥(32)$(285)¥39

Securities as of March 31, 2017 and 2016 consisted of the following:Thousands of
U.S. Dollars
2017

Millions of Yen
2017
2016

Japanese national government bonds���� ¥1,145,390¥351,547
Japanese local government bonds������
628,036
251,967
Japanese corporate bonds�����������������
672,639
205,872
Japanese corporate stocks�����������������
311,020
48,649Other securities��������������������������������� 1,433,593
438,732
Total������������������������������������������������� ¥4,190,681 ¥1,296,769$10,209,386
5,597,973
5,995,539
2,772,270
12,778,265$37,353,432

The cost and aggregate fair value of available-for-sale securities andheld-to-maturity securities as of March 31, 2017 and 2016, were as follows:

March 31, 2017

Cost

Millions of Yen
Unrealized Unrealized
Gains
LossesSecurities classified as:
Available-for-sale:���������������� ¥3,857,001 ¥216,101
Equity securities��������������� 159,550 147,566
Debt securities:���������������� 2,283,438 27,636
Japanese national
government bonds����� 1,044,508 14,948
Japanese local
government bonds����� 626,225
2,939Japanese corporate
bonds������������������������ 612,704
9,749
Others:���������������������������� 1,414,013 40,898
Foreign bonds������������� 686,614
2,465
Others������������������������ 727,399 38,433
Held-to-maturity:������������������ 139,385
488
Japanese national
government bonds����������
88,00625
Japanese local
government bonds����������
249
1
Japanese corporate
bonds����������������������������
51,129461

Fair Value¥33,284 ¥4,039,818
418
306,697
4,393 2,306,681
2,071

1,057,384

1,378

627,786943
28,472
9,434
19,038
1,169

621,509
1,426,439
679,645746,793
138,705

1,142

86,888—251

2651,565

March 31, 2016

Cost

Millions of Yen
Unrealized Unrealized
Gains
LossesSecurities classified as:
Available-for-sale:���������������� ¥1,137,194 ¥72,825
Equity securities���������������
21,195 26,717
Debt securities:���������������� 703,624 31,283
Japanese national
government bonds����� 260,457 18,300
Japanese local
government bonds����� 243,646
8,332Japanese corporate
bonds������������������������ 199,520
4,650
Others:���������������������������� 412,374 14,825
Of which foreign bonds�� 156,610
3,075
Held-to-maturity:������������������
88,788 13,840
Japanese national
government bonds����������
72,789 13,734
Japanese corporate
bonds����������������������������
1,999
46
Others:����������������������������
14,00058
Of which foreign bonds��
14,00058

March 31, 2017

Cost

Fair Value¥4,600 ¥1,205,419
686
47,225308
734,599—

278,75811

251,967

297
3,605
590
—

203,873423,594
159,095
102,628—

86,524

—
—
—

2,045
14,05814,058

Thousands of U.S. Dollars
Unrealized Unrealized
Gains
LossesFair Value

Securities classified as:
Available-for-sale:���������������� $34,379,191 $1,926,211
Equity securities��������������� 1,422,142 1,315,326
Debt securities:���������������� 20,353,312 246,340
Japanese national
government bonds����� 9,310,171 133,242
Japanese local
government bonds����� 5,581,831
26,198Japanese corporate
bonds������������������������ 5,461,310
86,900
Others:���������������������������� 12,603,737 364,545
Foreign bonds������������� 6,120,102
21,973
Others������������������������ 6,483,635 342,572
Held-to-maturity:������������������ 1,242,409
4,355Japanese national
government bonds����������
784,438
230
Japanese local
government bonds����������
2,228
9Japanese corporate
bonds����������������������������
455,743
4,116$296,684 $36,008,718
3,732
2,733,735
39,164 20,560,489
18,466

9,424,948

12,2855,595,744

8,414
253,788
84,091
169,698
10,424

5,539,796
12,714,494
6,057,984
6,656,510
1,236,341

10,188774,480

—

2,238

236

459,623

Annual Report 201732

Information on available-for-sale securities that were sold during the years
ended March 31, 2017 and 2016, is as follows:

March 31, 2017

Millions of Yen
Realized
Realized
Proceeds
Gains
LossesAvailable-for-sale:
Equity securities������������������������������������� ¥ 9,768
Debt securities:�������������������������������������� 520,395
Japanese national government bonds���� 416,573
Japanese local government bonds������ 55,234
Japanese corporate bonds������������������ 48,587
Others:�������������������������������������������������� 450,759
Foreign bonds������������������������������������ 284,282
Others����������������������������������������������� 166,477
Total���������������������������������������������������������� ¥980,923

March 31, 2016

¥

47
1,209
876
261
71
6,477
3,419
3,058
¥7,734

Millions of Yen
Realized
Realized
Proceeds
Gains
LossesAvailable-for-sale:
Equity securities������������������������������������� ¥ 4,135
Debt securities:�������������������������������������� 51,980
Japanese national government bonds���� 51,104
Japanese corporate bonds������������������
875
Others��������������������������������������������������� 12,480
Total���������������������������������������������������������� ¥68,596

March 31, 2017

¥ 3,446
6,984
6,466
110
406
10,531
3,009
7,522¥20,962¥3,290
684
678
5
210
¥4,185

¥ 2
0
—
0
978
¥980

Thousands of U.S. Dollars
Realized
Realized
Proceeds
Gains
LossesAvailable-for-sale:
Equity securities������������������������������������� $ 87,073
Debt securities:�������������������������������������� 4,638,519
Japanese national government bonds���� 3,713,108
Japanese local government bonds������ 492,327
Japanese corporate bonds������������������ 433,085
Others:�������������������������������������������������� 4,017,825
Foreign bonds������������������������������������ 2,533,935
Others����������������������������������������������� 1,483,889
Total���������������������������������������������������������� $8,743,417$ 30,719
62,256
57,642989
3,625
93,874
26,826
67,048$186,849$ 421
10,780
7,815
2,330
634
57,741
30,481
27,260$68,942

Marketable available-for-sale securities, whose fair value significantly declined in comparison with the acquisition cost and whose fair value is not considered likely to recover to their acquisition cost, are written down and recognized
as impairment losses.
The impairment losses on marketable available-for-sale securities for theyears ended March 31, 2017 and 2016, were nil and ¥36 million including
bonds of ¥36 million, respectively.
Pursuant to “Practical Guidelines for Accounting for Financial Instruments”(JICPA Accounting Committee Report No. 14, April 14, 2015), the criteria for determining whether the fair value is “significantly declined” are defined that securities whose fair value has declined by 30% or more of the acquisition cost are
deemed to be impaired.
As of March 31, 2017 and 2016, securities included equity investments inunconsolidated subsidiaries and associated companies of ¥9 million ($82 thousand) and ¥9 million and capital subscriptions of ¥2,145 million ($19,120 thousand) and ¥452 million, respectively.

33

Mebuki Financial Group, Inc.

5. UNREALIZED GAINS ON AVAILABLE-FOR-SALE SECURITIES
Unrealized gains on available-for-sale securities as of March 31, 2017 and2016, consisted of the following:
Millions of Yen
2017
2016

Unrealized gains:������������������������������� ¥182,976
Available-for-sale securities����������� 182,976
Money held in trust, except fortrading and held-to-maturity
purpose���������������������������������������
—Deferred tax liabilities:������������������������ 54,431
Unrealized gains on available-for-salesecurities before adjustments byownership share������������������������������� 128,545
Noncontrolling interests����������������������
—Company's ownership share in
unrealized gains on available-for-salesecurities held by affiliates accounted
for using the equity method���������������
—Unrealized gains on available-for-salesecurities����������������������������������������� ¥128,545

Thousands of
U.S. Dollars
2017¥68,225
68,225$1,630,952
1,630,952—
19,697—
485,168

48,527—

1,145,784———¥48,527$1,145,784

As of March 31, 2017 and 2016, the total unrealized gains include an unrealized gain of ¥159 million ($1,426 thousands) and nil respectively on available-for-sale-securities, contained in certain fund.

6. LOANS AND BILLS DISCOUNTED
The following loans were included in loans and bills discounted as of March 31,2017 and 2016:
Millions of Yen
2017
2016

Loans to borrowers
in legal bankruptcy �������������������������� ¥ 2,757
Past due loans����������������������������������� 151,089
Loans past due
for three months or more������������������
805
Restructured loans�����������������������������
36,280Total������������������������������������������������� ¥190,932

Thousands of
U.S. Dollars
2017¥ 1,704
69,914$ 24,582
1,346,729—
20,340¥91,959

7,179
323,380$1,701,870

The amounts above are stated before the deduction of the allowance forloan losses.
“Loans to borrowers in legal bankruptcy” are nonaccrual loans, which arehighly probable to become unrecoverable. Specific conditions for inclusion in thiscategory are as follows:(i) Borrowers have made application for procedures under the Corporate Reorganization Act, Civil Rehabilitation Act, Bankruptcy Act, liquidation under theCompanies Act of Japan (the “Companies Act”), or liquidation under other legal provisions.
(ii) Clearance of promissory notes or bills issued by the borrower is suspended.
“Past due loans” are loans on which accrued interest income is not recognized, excluding “loans to borrowers in legal bankruptcy” and loans on which interest payments are deferred in order to support the borrowers’ recovery from financial difficulties.
“Loans past due for three months or more” include accruing loans for whichprincipal or interest is past due three months or more.
“Restructured loans” are loans to borrowers in financial difficulty to whom
the Group has provided financial support through modification of the lending
terms to be more favorable to the borrower, including reduction of interest rates,
suspension of repayment of principal and interest, and debt forgiveness.

Contracts of overdraft facilities and loan commitment limits are contracts
under which the consolidated banking subsidiaries and certain consolidated subsidiaries lend to customers up to the prescribed limits in response to customer
applications for loans as long as there is no violation of any condition in the contracts. As of March 31, 2017 and 2016, the amounts of unused commitments
were ¥2,938,456 million ($26,191,785 thousand) and ¥1,249,546 million, respectively. As of March 31, 2017 and 2016, the amounts of unused commitments whose remaining contract terms were within one year were ¥2,064,015
million ($18,397,497 thousand) and ¥1,213,114 million, respectively.
As many of these commitments expire without being drawn down, the unused amount does not necessarily represent a future cash requirement. Most ofthese contracts have conditions whereby the consolidated banking subsidiaries
and certain consolidated subsidiaries can refuse customer applications for loans
or decrease the contract limits for certain reason (e.g., changes in financial situation and deterioration in customers’ creditworthiness). At the inception of thecontracts, the consolidated banking subsidiaries and certain consolidated subsidiaries obtain real estate, securities, or other assets as collateral if considered tobe necessary. Subsequently, the consolidated banking subsidiaries and certain
consolidated subsidiaries perform periodic reviews of the customers’ businessresults based on the internal rules and take necessary measures to reconsider
conditions in the contracts and/or require additional collateral and guarantees.
Discounting bills are treated as secured lending transactions. As of March
31, 2017 and 2016, consolidated banking subsidiaries have the right to sell or
repledge bills discounted and foreign exchange bills bought and their total facevalue was ¥44,662 million ($398,097 thousand) and ¥25,527 million, respectively.

8. INTANGIBLE FIXED ASSETS
Intangible fixed assets as of March 31, 2017 and 2016, consisted of the following:
Millions of Yen
2017
2016

Software�������������������������������������������� ¥ 8,254—
Goodwill��������������������������������������������
Other������������������������������������������������
4,160
Total������������������������������������������������� ¥12,414¥ 2,087
75,979534¥78,601

Thousands of
U.S. Dollars
2017$ 73,572—
37,082$110,654

Goodwill on acquisition of subsidiaries is amortized using the straight line
method over 20 years.
The amortization expense for goodwill included in general and administrative
expenses for the year ended March 31, 2017 and 2016, amounted to nil and¥6,202 million, respectively.

9.	CUSTOMERS’ LIABILITIES FOR ACCEPTANCES AND GUARANTEESAll contingent liabilities arising from acceptances and guarantees are reflected in
acceptances and guarantees in the Consolidated Balance Sheet. As a contra account, customers’ liabilities for acceptances and guarantees are presented asassets, representing the consolidated banking subsidiaries’ and certain consolidated subsidiaries’ rights of indemnity from the applicants.
Guarantee obligations for private placement bonds included in “Securities”(provided in accordance with the Article 2-3 of the “Financial Instruments andExchange Act”) as of March 31, 2017 and 2016, were ¥115,880 million($1,032,892 thousand) and ¥63,410 million, respectively.

7. TANGIBLE FIXED ASSETS
Tangible fixed assets as of March 31, 2017 and 2016, consisted of the following:
Millions of Yen
2017
2016

Buildings������������������������������������������� ¥ 41,423
Land������������������������������������������������� 63,107
Leased assets������������������������������������
26
652
Construction in progress���������������������
Other������������������������������������������������ 12,522
Total������������������������������������������������� ¥117,732¥ 7,527
12,79816
435
3,647¥24,424

Thousands of
U.S. Dollars
2017$ 369,224
562,509
232
5,817
111,621$1,049,402

The accumulated depreciation of tangible fixed assets as of March 31,2017 and 2016, amounted to ¥126,558 million ($1,128,077 thousand) and¥39,480 million, respectively.
Under certain conditions, such as exchanges of fixed assets of similar kinds
and sales and purchases resulting from expropriation, Japanese tax laws permit
companies to defer the profit arising from such transactions by reducing the costof the assets acquired or by providing a special reserve in the equity section. Asof March 31, 2017 and 2016, such deferred profit amounted to ¥9,864 million($87,926 thousand) and ¥2,774 million, respectively. Newly-recognized amounts
for the years ended March 31, 2017 and 2016, were ¥7 million ($63 thousand)and ¥26 million, respectively.
Under the “Law of Land Revaluation,” one banking subsidiary elected a onetime revaluation of its own-use land to a value based on real estate appraisal information as of March 31, 1998. The resulting revaluation reserve for land represents unrealized appreciation of land and is stated, net of income taxes, as acomponent of equity. There was no effect on the consolidated statement of income. Continuous readjustment is not permitted, unless the land value subsequently declines significantly such that the amount of the decline in value should
be removed from the revaluation reserve for land account and related deferred
tax liabilities. As of March 31, 2017 and 2016, the carrying amount of the land
after the above one-time revaluation exceeded the market value by ¥28,106 million ($250,524 thousand) and nil, respectively.

10. ASSETS PLEDGED AS COLLATERAL
Assets pledged as collateral and the related liabilities as of March 31, 2017 and2016, were as follows:
Millions of Yen
2017
2016

Assets pledged as collateral:
Cash and due from banks��������������— ¥4Securities�������������������������������������� ¥1,081,752 280,162
Loans and bills discounted�������������
—11,050Total��������������������������������������������� ¥1,081,752 ¥291,217
Related liabilities to above assets:
Deposits��������������������������������������� ¥ 149,269 ¥113,379
Call money and bills sold5,609—
Payables under securities lending
25,263transactions��������������������������������� 167,640
Borrowed money��������������������������� 646,948 181,710

Thousands of
U.S. Dollars
2017—$9,642,149—$9,642,149$1,330,506
50,0001,494,252
5,766,543

Additionally, securities amounting to ¥103,860 million ($925,756 thousand)and ¥67,707 million as of March 31, 2017 and 2016, respectively, were
pledged as collateral for settlements of exchange or as substitute securities for
margins on futures transactions.
One consolidated subsidiary’s lease receivables amounting to ¥117 million($1,048 thousand) and nil as of March 31, 2017 and 2016, respectively, were
pledged as collateral for borrowed money.
Moreover, other assets included deposits for central counterparty amounting to ¥26,371 million ($235,058 thousand) and nil, cash collateral paid for financial instruments amounting to ¥3,327 million ($29,660 thousand) and¥5,090 million, and guarantee deposits amounting to 2,062 million ($18,384
thousand) and ¥745 million as of March 31, 2017 and 2016, respectively.

Annual Report 201734

11. BORROWED MONEY

13. RETIREMENT AND PENSION PLANS

Borrowed money as of March 31, 2017 and 2016, consisted of the following:Thousands of
U.S. Dollars
2017

Millions of Yen
2017
2016

Borrowed money of which theweighted-average annual interest
rates were 0.28%, due from April,2017 to March, 2026����������������������� ¥735,593$ 6,556,676¥251,726

Annual maturities of borrowed money as of March 31, 2017, for the next
five years were as follows:Year Ending March 31

2018������������������������������������������������
2019������������������������������������������������
2020������������������������������������������������
2021������������������������������������������������
2022������������������������������������������������

Millions of Yen

Thousands of
U.S. Dollars¥502,373
73,39142,96846,611
221$4,477,881
654,176
383,002415,474
1,979

Borrowed money included borrowings from the Bank of Japan and other financial institutions. In addition, borrowed money included subordinated borrowings totaling ¥70,000 million ($623,942 thousand) and ¥70,000 million as ofMarch 31, 2017 and 2016, respectively.

12. BONDS
Bonds as of March 31, 2017 and 2016, consisted of the following:Thousands of
U.S. Dollars
2017

Millions of Yen
2017
2016

Unsecured Euro-US dollardenominated convertible bonds withstock acquisition rights issued by theCompany, date of issue October 1,
2016, due April 24, 2019*1��������������
Unsecured straight bonds issued by
Joyo, date of issue May 24, 2000,
due May 22, 2020, 2.64% interest�����
Total�������������������������������������������������

¥33,657¥—$300,000

5,000¥38,657—¥—

44,567$344,567*1 On October 1, 2016, the Company succeeded Euro-US dollar-denominated convertible bonds
which were originally issued by Joyo.

Information on convertible bonds with stock acquisition rights is as follows:
Name
Euro-US dollar-denominated convertible bonds withstock acquisition rights issued by the Company due
2019Type of stock:

Common stock

Issue price of stockacquisition rights:

Free of charge

Issue price of stock:$5.11

Total sum of issue price: $300,000 thousand
Grant ratio of stockacquisition rights:
Exercise period of stockacquisition rights:
Substitute payment:

100.0%
From October 1, 2016 to April 10, 2019
On execution of the stock acquisition rights, the corresponding bonds are to be invested, and the bond’s
price is same as face amount.

Annual maturities of bonds as of March 31, 2017, for the next five years
were as follows:Year Ending March 31

2018������������������������������������������������
2019������������������������������������������������
2020������������������������������������������������
2021������������������������������������������������
2022������������������������������������������������

35

Mebuki Financial Group, Inc.

Millions of Yen¥——
33,657
5,000—

Thousands of
U.S. Dollars$——
300,000
44,567—(1) Outline of the adopted retirement benefit plans(Year Ended March 31, 2017)
The Company’s banking subsidiary, Joyo, and its consolidated subsidiaries haveadopted defined employees’ retirement benefit plans, i.e., the employees’ welfare
pension fund supplemented by the employees’ public pension system and lumpsum retirement benefits.
In addition, extra benefits which are excluded from the projected benefit obligation in employees’ retirement benefits accounting may be paid on a case-bycase basis. Joyo has established an employees’ retirement benefit trust.
The Company’s banking subsidiary, Ashikaga Bank, Ltd. (“Ashikaga”), andits consolidated subsidiaries have adopted funded and unfunded defined benefit
plans as well as defined contribution plans to provide for the employees’ retirement benefits. All of the retirement benefit plans are managed in an integrated
manner through retirement benefit points which are determined based on yearsof service and capabilities of employees, as well as employee performance evaluation. The determined points are then allocated to each plan.
The defined benefit pension plans (funded plans) have introduced pension
plans similar to cash balance plan-type pension plans. Under the plan, each participant will set up a virtual individual account where pension or lump-sum payments will be made based on the accumulated retirement benefit points allocated. A retirement benefit trust is established for this defined benefit pension plan.
Under the lump-sum retirement benefit plans (unfunded plans that have become funded plans due to the establishment of a retirement benefit trust), lumpsum payments are made based on the accumulated retirement benefit points allocated. In some cases, premium severance payments may be made to employees in conjunction with the employees’ retirement, etc.
Under the defined contribution plans, contribution amount is decided basedon the accumulated retirement benefit points allocated.
The Company’s consolidated subsidiaries are members of the defined benefit pension funds under the multiemployer plans, and as the amount of plan assets corresponding to the contribution of each subsidiary may be reasonably calculated, such information is included in the notes to defined benefit plans.
Regarding the lump-sum retirement benefit plans adopted by certain consolidated subsidiaries, liability for retirement benefits and retirement benefit expenses are calculated by the simplified method.
(Year Ended March 31, 2016)
AHD’s consolidated subsidiaries have adopted funded and unfunded defined
benefit plans as well as defined contribution plans to provide for the employees’
retirement benefits. All of the retirement benefit plans are managed in an integrated manner through retirement benefit points which are determined based on
years of service and capabilities of employees, as well as employee performance
evaluation. The determined points are then allocated to each plan.
The defined benefit pension plans (funded plans) have introduced pension
plans similar to cash balance plan-type pension plans. Under the plan, each participant will set up a virtual individual account where pension or lump-sum payments will be made based on the accumulated retirement benefit points allocated. A retirement benefit trust is established for this defined benefit pension plan.
Under the lump-sum retirement benefit plans (unfunded plans that have become funded plans due to the establishment of a retirement benefit trust), lumpsum payments are made based on the accumulated retirement benefit points allocated. In some cases, premium severance payments may be made to employees in conjunction with the employees’ retirement, etc.
Under the defined contribution plans, contribution amount is decided basedon the accumulated retirement benefit points allocated.
Regarding the lump-sum retirement benefit plans adopted by certain consolidated subsidiaries, liability for retirement benefits and retirement benefit expenses are calculated by the simplified method.
AHD’s consolidated subsidiaries are members of the defined benefit pension
funds under the multiemployer plans, and as the amount of plan assets corresponding to the contribution of each subsidiary may be reasonably calculated,such information is included in the notes to defined benefit plans.

(2) Defined benefit plans(a) The changes in defined benefit obligation for the years ended March 31, 2017and 2016, were as follows:
Millions of Yen
2017
Year ended March 31, 2017
Balance at beginning of year��������������������������������� ¥ 76,181
Increase due to share exchange����������������������� 42,016
2,767
Current service cost�����������������������������������������
Interest cost����������������������������������������������������
387
Actuarial losses�����������������������������������������������
651(4,493)
Benefits paid���������������������������������������������������
Past service cost���������������������������������������������
—Other��������������������������������������������������������������
18
Balance at end of year����������������������������������������� ¥117,530

Thousands of
U.S. Dollars
2017$ 679,040
374,513
24,6673,457
5,807(40,049)—
168$1,047,603*Figures above exclude retirement and benefit plans calculated by the simplified method.
Millions of Yen
2016
Year ended March 31, 2016

Balance at beginning of year (as previously
reported)������������������������������������������������������������ ¥38,872
Cumulative effect of accounting change������������
——Balance at beginning of year (as restated)�������������
Current service cost�����������������������������������������
1,520
Interest cost����������������������������������������������������
443
4,198
Actuarial losses�����������������������������������������������
Benefits paid���������������������������������������������������
(2,331)Others������������������������������������������������������������
48
Balance at end of year����������������������������������������� ¥42,752(b) The changes in plan assets for the years ended March 31, 2017 and 2016,
were as follows:
Millions of Yen

Thousands of
U.S. Dollars
2017$ 546,429
484,271
16,16340,06827,087(25,049)
168$1,089,137*Figures above exclude retirement and benefit plans calculated by the simplified method.
Millions of Yen
2016
Year ended March 31, 2016

Balance at beginning of year��������������������������������� ¥52,757
Expected return on plan assets�������������������������
1,740
Actuarial losses�����������������������������������������������
(1,755)Contributions from the employer�����������������������
2,045
Benefits paid���������������������������������������������������
(1,624)
Others������������������������������������������������������������
36
Balance at end of year����������������������������������������� ¥53,199

Balance at beginning of year���������������������������������
Increase due to the share exchange����������������������
Retirement benefit expense����������������������������������
Benefits paid�������������������������������������������������������
Contribution to the defined benefit pension plan�����
Net balance at end of year������������������������������������

Millions of Yen
2017

Thousands of
U.S. Dollars
2017

¥ 598
620
454
(67)
(325)
¥1,280$ 5,332
5,532
4,050
(598)
(2,904)$11,411(d) Reconciliation between the liability recorded in the consolidated balance sheet
and the balances of defined benefit obligation and plan assets was as follows:
Millions of Yen
2017

Thousands of
U.S. Dollars
2017Year ended March 31, 2017
Funded defined benefit obligation������������������������� ¥125,279
Plan assets���������������������������������������������������������� (128,658)(3,379)Total�������������������������������������������������������������������
Unfunded defined benefit obligation����������������������
—Net asset arising from defined benefit obligation���� ¥ (3,379)$1,116,669(1,146,792)(30,123)—$ (30,123)

Millions of Yen
2017

Thousands of
U.S. Dollars
2017

Liability for retirement benefits������������������������������ ¥ 8,896
Asset for retirement benefits��������������������������������� (12,275)
Net asset arising from defined benefit obligation���� ¥ (3,379)*Figures above include retirement and benefit plans calculated by the simplified method.

2017
Year ended March 31, 2017
Balance at beginning of year��������������������������������� ¥ 61,303
Increase due to share exchange����������������������� 54,330
1,813
Expected return on plan assets�������������������������
Actuarial gains������������������������������������������������
4,495
Contributions from the employer�����������������������
3,038(2,810)Benefits paid���������������������������������������������������
Others������������������������������������������������������������
18
Balance at end of year����������������������������������������� ¥122,190(c) The changes in liability for retirement benefits adopting the simplified method
for the year ended March 31, 2017, were as follows:$ 79,298(109,421)$ (30,123)*Figures above include retirement and benefit plans calculated by the simplified method.
Millions of Yen
2016
Year ended March 31, 2016

Funded defined benefit obligation������������������������� ¥ 42,752
Plan assets���������������������������������������������������������� (53,199)
Total������������������������������������������������������������������� (10,446)
Unfunded defined benefit obligation����������������������
—Net asset arising from defined benefit obligation���� ¥(10,446)
Millions of Yen
2016

Liability for retirement benefits������������������������������ ¥—Asset for retirement benefits��������������������������������� (10,446)
Net asset arising from defined benefit obligation���� ¥(10,446)*Figures above include retirement and benefit plans calculated by the simplified method.

(e) The components of net periodic benefit costs for the years ended March 31,2017 and 2016, were as follows:Year ended March 31, 2017
Service cost���������������������������������������������������������
Interest cost��������������������������������������������������������
Expected return on plan assets�����������������������������
Recognized actuarial losses����������������������������������
Amortization of prior service cost��������������������������
Retirement benefit expense calculated by thesimplified method������������������������������������������������
Others�����������������������������������������������������������������
Net periodic benefit costs�������������������������������������

Millions of Yen
2017

Thousands of
U.S. Dollars
2017¥2,767387(1,813)
3,688—$24,667
3,457(16,163)
32,877—454(9)¥5,4754,050(82)$48,806

Annual Report 201736

Year ended March 31, 2016
Service cost���������������������������������������������������������
Interest cost��������������������������������������������������������
Expected return on plan assets�����������������������������
Recognized actuarial losses ���������������������������������
Amortization of prior service cost��������������������������
Others (non-actuarial-basis cost)��������������������������
Net periodic benefit costs�������������������������������������

14. EQUITY

Millions of Yen
2016

Japanese companies are subject to the Companies Act. The significant provisions in the Companies Act that affect financial and accounting matters are summarized below:¥1,520443(1,740)
767
(144)
12
¥ 858

*Service cost above includes retirement benefit expense calculated by the simplified method.

(f) Amounts recognized in other comprehensive income (before income tax effect)
in respect of defined retirement benefit plans for the years ended March 31,2017 and 2016, were as follows:

Prior service cost�������������������������������
Actuarial losses���������������������������������
Total�������������������������������������������������

Millions of Yen
2017
2016

Thousands of
U.S. Dollars
2017

¥ —
(7,532)¥(7,532)$—(67,138)$(67,138)¥ (144)(5,186)¥(5,331)(g) Amounts recognized in accumulated other comprehensive income (before income tax effect) in respect of defined retirement benefit plans as of March
31, 2017 and 2016, were as follows:
Millions of Yen
2017
2016

Unrecognized prior service cost����������
Unrecognized actuarial (gains) losses����
Total�������������������������������������������������

¥

—
7,815
¥7,815¥ 1,013(3,292)¥ (2,278)

Thousands of
U.S. Dollars
2017

$

—
69,664$69,664(h) Plan assets
a. Components of plan assets
Plan assets as of March 31, 2017 and 2016, consisted of the following:
Debt investments�������������������������������������������������������
Equity investments�����������������������������������������������������
General accounts�������������������������������������������������������
Short-term assets������������������������������������������������������
Others�����������������������������������������������������������������������
Total�������������������������������������������������������������������������

2017

2016

47.9%
31.7%
12.6%
—
7.8%
100.0%

63%
21%
8%
4%
4%
100%

* As of March 31, 2017 and 2016, total plan assets that were set up on corporate pension
plans include retirement benefit trust of 20.9% and 25%, respectively.

b. Method of determining the expected rate of return on plan assets
The expected rate of return on plan assets is determined considering the longterm rates of return which are expected currently and in the future from the various components of the plan assets.
(i) Assumptions used for the years ended March 31, 2017 and 2016, were set
forth as follows:
2017

2016

Discount rate����������������������������������������������0.20% — 0.57% 0.3% — 1.0%
Expected rate of return on plan assets����������2.50% — 3.30%
3.3%
Expected rate of increase in salary���������������4.63% — 9.00%
9.0%(3) Defined contribution plans
The amounts of the required contribution to the defined contribution plans of certain consolidated subsidiaries were ¥598 million ($5,333 thousand) and ¥298
million as of March 31, 2017 and 2016, respectively.

37

Mebuki Financial Group, Inc.

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. Additionally, for companies that meet certain criteria including (1)having a Board of Directors, (2) having independent auditors, (3) having an Audit& Supervisory Board, and (4) the term of service of the directors being prescribedas one year rather than the normal two-year term by its articles of incorporation,
the Board of Directors may declare dividends (except for dividends-in-kind) at
any time during the fiscal year if the company has prescribed so in its articles ofincorporation. With respect to the third condition above, the Board of Directors ofcompanies with (a) board committees (namely, appointment committee, compensation committee and audit committee) or (b) an audit and supervisory committee(as implemented under the Companies Act effective May 1, 2015) may also declare dividends at any time because such companies, by nature, meet the criteria under the Companies Act. The Company is organized as a company with anaudit and supervisory committee. The Company meets all the above criteria,
and accordingly, the Board of Directors may declare dividends (except for dividends-in-kind) at any time during the fiscal year.
The Companies Act permits companies to distribute dividends-in-kind (noncash assets) to shareholders subject to certain limitations and additional requirements.
Semiannual interim dividends may also be paid once a year upon resolution
by the Board of Directors if the articles of incorporation of the company so stipulate. The Companies Act provides certain limitations on the amounts available fordividends or the purchase of treasury stock. The limitation is defined as theamount available for distribution to the shareholders, but the amount of equity
after dividends must be maintained at no less than ¥3 million.
b. Increases/Decreases and Transfer of Common Stock, Reserve, andSurplus
The Companies Act requires that an amount equal to 10% of dividends must be
appropriated as a legal reserve (a component of retained earnings) or as additional paid-in capital (a component of capital surplus) depending on the equity
account that was charged upon the payment of such dividends until the aggregate amount of the legal reserve and additional paid-in capital equals 25% ofcapital stock. Under the Companies Act, the total amount of additional paid-in
capital and legal reserve may be reversed without limitation. The Companies Act
also provides that capital stock, legal reserve, additional paid-in capital, othercapital surplus, and retained earnings can be transferred among the accounts
within equity under certain 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 anddispose of such treasury stock by resolution of the Board of Directors. The
amount of treasury stock purchased cannot exceed the amount available for distribution to the shareholders which is determined by a specific formula. Under
the Companies Act, stock acquisition rights are presented as a separate component of equity. The Companies Act also provides that companies can purchaseboth 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 acquisition rights.

(1) Capital Stock Changes during the YearThe changes in the number and class of issued stock and treasury stock for the year ended March 31, 2017, were as follows:

As of March 31, 2016

Issued stock:
Common stock
Total
Treasury stock
Common stock
Total

Shares in Thousands
Changes During the Year
Increase
Decrease

As of March 31, 2017

333,250
333,250

845,805*1
845,805——

1,179,055
1,179,055——

1,306*2
1,306

3*3
3

1,303
1,303

*1 845,845 shares are issued due to the share exchange with Joyo on October 1, 2016.
*2 The number of shares of treasury stocks increased by 1,290 thousand shares due to a dividend-in-kind from a subsidiary and by 16 thousand shares due to purchases of shares less than the
trading unit.
*3 The number of shares of treasury stock decreased by 3 thousand shares due to sales to shareholders in response to their demand to buy additional shares up to the trading unit.

The changes in the number and class of issued stock and treasury stock for the year ended March 31, 2016, were as follows:

As of March 31, 2015

Issued stock:
Common stock
Total

333,250
333,250

Shares in Thousands
Changes During the Year
Increase
Decrease——

As of March 31, 2016——

333,250
333,250(2) Cash Dividends Per Share
Cash dividends per share for the years ended March 31, 2017 and 2016, were as follows:Year ended March 31, 2017
Dividends paid in the fiscal year ended March 31, 2017
The following cash dividend payments were approved at the Board of Directors’ meeting held on May 13, 2016, and November 14, 2016:
The amounts of dividends below were paid to shareholders recorded in the resister of shareholders of AHD at market closing time on March 31, 2016, or September 30,
2016.
Cash dividends approved at the Board of Directors’ meeting held on May 13, 2016:

Common stock
Cash dividends approved at the Board of Directors’ meeting held on Nov. 14, 2016:

Common stock

Cash dividends approved at the Board of Directors’ meeting held on May 13, 2016:

Common stock
Cash dividends approved at the Board of Directors’ meeting held on Nov. 14, 2016:

Common stock

Total Amount(Millions of Yen)

¥1,499Total Amount(Millions of Yen)

¥1,832
Total Amount(Thousands of
U.S. Dollars)$13,367
Total Amount(Thousands of
U.S. Dollars)$16,337

Per Share Amount(Yen)
Dividend Record Date

¥4.50

Mar. 31, 2016

Per Share Amount(Yen)
Dividend Record Date

¥5.50

Sep. 30, 2016

Mar. 31, 2016

Effective Date

Jun. 8, 2016

Per Share Amount(U.S. Dollars)
Dividend Record Date

$0.05

Effective Date

Dec. 2, 2016

Per Share Amount(U.S. Dollars)
Dividend Record Date

$0.04

Effective Date

Jun. 8, 2016

Sep. 30, 2016

Effective Date

Dec. 2, 2016

Being paid by the Company before the business integration, the dividend whose record date is March 31, 2016, which is before the share exchange, is not included in thechanges in shareholder equity.
The Company conducted a share exchange whereby the Company became the wholly-owing parent company and Joyo became the wholly-owned subsidiary of the Company on October 1, 2016. In regard to the following dividend amount, the dividend payment resolved at Joyo’s ordinary general meeting of shareholders were paid by Joyo
to the shareholders recorded in the register of shareholders of Joyo at market closing time on March 31, 2016 and so the amount approved at Joyo’s board meeting was
paid to those who were on the record as shareholders of Joyo at market closing time on September 30, 2016.
Cash dividends approved at the Ordinary General Meeting of Shareholders held on Jun. 28, 2016:

Common stock
Cash dividends approved at the Board of Directors’ meeting held on Nov. 7, 2016:

Common stock

Cash dividends approved at the Ordinary General Meeting of Shareholders held on Jun. 28, 2016:

Common stock
Cash dividends approved at the Board of Directors’ meeting held on Nov. 7, 2016:

Common stock

Total Amount(Millions of Yen)

¥5,060Total Amount(Millions of Yen)

¥4,337
Total Amount(Thousands of
U.S. Dollars)$45,103
Total Amount(Thousands of
U.S. Dollars)$38,662

Per Share Amount(Yen)
Dividend Record Date

¥7.00

Mar. 31, 2016

Per Share Amount(Yen)
Dividend Record Date

¥6.00

Sep. 30, 2016

Mar. 31, 2016

Sep. 30, 2016

Effective Date

Jun. 29, 2016

Per Share Amount(U.S. Dollars)
Dividend Record Date

$0.05

Effective Date

Dec. 2, 2016

Per Share Amount(U.S. Dollars)
Dividend Record Date

$0.06

Effective Date

Jun. 29, 2016

Effective Date

Dec. 2, 2016
Annual Report 201738

Dividends to be paid after March 31, 2017
Cash dividends approved at the Board of Directors’ meeting held on May 12, 2017:

Common stock

Total Amount(Millions of Yen)

¥7,655

Cash dividends approved at the Board of Directors’ meeting held on May 12, 2017:

Common stock

Total Amount(Thousands of
U.S. Dollars)$68,236

Per Share Amount(Yen)
Dividend Record Date

¥6.50

Mar. 31, 2017

Per Share Amount(U.S. Dollars)
Dividend Record Date

$0.06

Effective Date

Jun. 5, 2017

Mar. 31, 2017

Effective Date

Jun. 5, 2017

Of the per share amount above, ¥1.00 ($0.01) is the amount of a commemorative dividend for the business integration.
Year ended March 31, 2016:
Dividends paid in the fiscal year ended March 31, 2016
The following cash dividend payments were approved at the Board of Directors’ meeting held on May 13, 2015, and November 10, 2015:
Cash dividends approved at the Board of Directors’ meeting held on May 13, 2015:

Common stock

Total Amount(Millions of Yen)

¥1,499Cash dividends approved at the Board of Directors’ meeting held on Nov. 10, 2015:

Common stock

Total Amount(Millions of Yen)

¥1,832Per Share Amount(Yen)
Dividend Record Date

¥4.50

Mar. 31, 2015

Per Share Amount(Yen)
Dividend Record Date

¥5.50

Effective Date

Jun. 4, 2015

Sep. 30, 2015

Effective Date

Dec. 3, 2015

Dividends to be paid after March 31, 2016
Cash dividends approved at the Board of Directors’ meeting held on May 13, 2016:

Common stock

Total Amount(Millions of Yen)

¥1,499Per Share Amount(Yen)
Dividend Record Date

¥4.50

Mar. 31, 2016

Effective Date

Jun. 8, 201615. STOCK OPTIONSThe Company’s stock option plans grant options to directors and others to purchase certain shares of the Company’s common stock in the respective exercise periods.
Year ended March 31, 2017:
The Company recorded stock option expenses in “General and administrative expenses” of ¥83 million ($747 thousand) for the fiscal years ended March 31, 2017.
The stock options outstanding as of March 31, 2017, were as follows:
Stock Options

Mebuki Financial Group, Inc.
1st Series of Stock
Acquisition Rights
Mebuki Financial Group, Inc.
2nd Series of Stock
Acquisition Rights
Mebuki Financial Group, Inc.
3rd Series of Stock
Acquisition Rights
Mebuki Financial Group, Inc.
5th Series of Stock
Acquisition Rights
Mebuki Financial Group, Inc.
6th Series of Stock
Acquisition Rights
Mebuki Financial Group, Inc.
7th Series of Stock
Acquisition Rights
Mebuki Financial Group, Inc.
8th Series of Stock
Acquisition Rights
Mebuki Financial Group, Inc.
9th Series of Stock
Acquisition Rights
Mebuki Financial Group, Inc.
10th Series of Stock
Acquisition Rights
Mebuki Financial Group, Inc.
11th Series of Stock
Acquisition Rights
Mebuki Financial Group, Inc.
12th Series of Stock
Acquisition Rights
Mebuki Financial Group, Inc.
13th Series of Stock
Acquisition Rights

39

Mebuki Financial Group, Inc.

Persons Granted

Number of Options
Granted (Shares)

Date of Grant

Exercise
Price

Exercise Period

10 directors of Joyo

16,83324-Aug-09¥1

From October 1, 2016,
to August 24, 2039

10 directors of Joyo

23,63421-Jul-10¥1From October 1, 2016,
to July 21, 2040

10 directors of Joyo

43,43020-Jul-11¥1

From October 1, 2016,
to July 20, 2041

10 directors of Joyo

42,02419-Jul-12¥1

From October 1, 2016,
to July 19, 2042

16 executive officers of Joyo

5,089

19-Jul-12¥1

From October 1, 2016,
to July 19, 2042

10 directors of Joyo

39,24118-Jul-13¥1

From October 1, 2016,
to July 18, 2043

15 executive officers of Joyo

12,42818-Jul-13¥1

From October 1, 2016,
to July 18, 2043

10 directors of Joyo

40,65618-Jul-14¥1

From October 1, 2016,
to July 18, 2044

14 executive officers of Joyo

16,04018-Jul-14¥1

From October 1, 2016,
to July 18, 2044

10 directors of Joyo

40,041

17-Jul-15¥1

From October 1, 2016,
to July 17, 2045

13 executive officers of Joyo

22,83017-Jul-15¥1

From October 1, 2016,
to July 17, 2045

29 directors of the Company,
Joyo and Ashikaga

142,176

6-Dec-16¥1

From December 7, 2016,
to December 6, 2046

Stock Options

Mebuki Financial Group, Inc.
14th Series of Stock
Acquisition Rights
2009 Stock Option
2010 Stock Option

Number of Options
Granted (Shares)

Persons Granted

Exercise Period

63,9106-Dec-16¥1

From December 7, 2016,
to December 6, 2046

2,684,900

2-Mar-09¥550

From March 2, 2011,
to December 31, 2018

2,698,700

4-Jan-10¥550

From January 4, 2012,
to December 31, 2018

16 executive officers of Joyo
6 directors and executive officers of the company
10 directors and executive officers of Ashikaga
1,848 employees of Ashikaga
6 directors and executive officers of the company
10 directors and executive officers of Ashikaga
1,878 employees of Ashikaga

Exercise
Price

Date of Grant* As a result of the share exchange conducted between the Company and Joyo on October 1, 2016, stock acquisition rights of the Company were allotted to the holders of stock acquisition rights
of Joyo based on the share exchange ratio.

The stock option activity was as follows:
Mebuki FG
1st

Mebuki FG
2nd

Mebuki FG
3rd

Mebuki FG
5thYear ended March 31, 2017
Non-vested (shares):
April 1, 2016 — Outstanding
GrantedCanceled
VestedMarch 31, 2017 — Outstanding—
16,833——
16,833—23,634——
23,634—43,430——43,430—42,024——42,024

Vested (shares):
April 1, 2016 — Outstanding
VestedExercised
Canceled
March 31, 2017 — Outstanding

—
—
—
—
—

—
—
—
—
—

—
—
—
—
—

—
—
—
—
—

¥1
$0.01
—
—
¥417
$3.72

¥1
$0.01
—
—
¥297
$2.65

¥1
$0.01
—
—
¥300
$2.67

¥1
$0.01
—
—
¥310
$2.76

Excise price(Yen / US Dollars)
Average stock price at exercise(Yen / US Dollars)
Fair value price at grant date
(Yen / US Dollars)

Mebuki FG
6th

Mebuki FG
7th

Mebuki FG
8th

Mebuki FG
9thYear ended March 31, 2017
Non-vested (shares):
April 1, 2016 — Outstanding
GrantedCanceled
VestedMarch 31, 2017 — Outstanding

—
5,089
—
—
5,089

—
39,241——
39,241—
12,428——12,428—40,656——40,656

Vested (shares):
April 1, 2016 — Outstanding
VestedExercised
Canceled
March 31, 2017 — Outstanding

—
—
—
—
—

—
—
—
—
—

—
—
—
—
—

—
—
—
—
—

¥1
$0.01
—
—
¥331
$2.95

¥1
$0.01
—
—
¥518
$4.62

¥1
$0.01
—
—
¥542
$4.83

¥1
$0.01
—
—
¥500
$4.46

Excise price(Yen / US Dollars)
Average stock price at exercise(Yen / US Dollars)
Fair value price at grant date
(Yen / US Dollars)

Annual Report 201740

Mebuki FG
10th

For the year ended March 31, 2017
Non-vested (shares):
April 1, 2016 — Outstanding
GrantedCanceled
VestedMarch 31, 2017 — Outstanding

Mebuki FG
13th—
40,041——40,041—
22,830——22,830—142,176——
142,176

—
—
—
—
—

—
—
—
—
—

—
—
—
—
—

—
—
—
—
—

¥1
$0.01
—
—
¥525
$4.68

¥1
$0.01
—
—
¥680
$6.06

¥1
$0.01
—
—
¥708
$6.31

¥1
$0.01
—
—
¥345
$3.08

Mebuki FG
14th2009 Stock
Option2010 Stock
OptionYear ended March 31, 2017
Non-vested (shares):
April 1, 2016 — Outstanding
GrantedCanceled
VestedMarch 31, 2017 — Outstanding—
63,910——63,910—1,943,200
86,600—1,856,600—
2,017,200
87,500—1,929,700

Vested (shares):
April 1, 2016 — Outstanding
VestedExercised
Canceled
March 31, 2017 — Outstanding

—
—
—
—
—

—
—
—
—
—

—
—
—
—
—

¥1
$0.01
—
—
¥374
$3.33

¥550
$4.90
—
—
—
—

¥550
$4.90
—
—
—
—

Excise price(Yen / US Dollars)
Average stock price at exercise(Yen / US Dollars)
Fair value price at grant date
(Yen / US Dollars)

41

Mebuki FG
12th—
16,040——16,040

Vested (shares):
April 1, 2016 — Outstanding
VestedExercised
Canceled
March 31, 2017 — Outstanding
Excise price(Yen / US Dollars)
Average stock price at exercise(Yen / US Dollars)
Fair value price at grant date
(Yen / US Dollars)

Mebuki FG
11th

Mebuki Financial Group, Inc.

The Assumptions Used to Measure Fair Value of Stock Option
Stock options received from Joyo and issued by the Company were valued using the Black-Scholes option-pricing model and the following principal parameters:

1

Volatility of stock price* :Estimated remaining outstanding period*2:
Estimated dividend*3:
Interest rate with risk free*4:1Volatility of stock price* :Estimated remaining outstanding period*2:
Estimated dividend*3:
Interest rate with risk free*4:1Volatility of stock price* :Estimated remaining outstanding period*2:
Estimated dividend*3:
Interest rate with risk free*4:

Mebuki FG
1st

Mebuki FG
2nd

Mebuki FG
3rd

Mebuki FG
5th

33.93%
6 years¥8 per share
0.76%

33.00%
6 years¥8 per share
0.45%

34.16%
6 years¥8 per share
0.48%

32.54%
6 years¥8 per share
0.26%

Mebuki FG
6th

Mebuki FG
7th

Mebuki FG
8th

Mebuki FG
9th

33.56%
6 years¥8.5 per share
0.38%

27.19%
3 years¥8.5 per share
0.14%

Mebuki FG
10th

Mebuki FG
11th

Mebuki FG
12th

Mebuki FG
13th

25.77%
3 years¥9 per share
0.08%

25.64%
6 years¥10 per share
0.14%

26.72%
3 years¥10 per share
0.03%

29.13%
6 years¥11 per share(0.08)%

24.41%
3 years¥8 per share
0.10%

30.90%
6 years¥9 per share
0.19%

Mebuki FG
14th
1

Volatility of stock price* :Estimated remaining outstanding period*2:
Estimated dividend*3:
Interest rate with risk free*4:30.89%
3 years¥11 per share(0.15)%*1. Volatility of stock price is calculated based on the actual stock price of Joyo during the period bellow.
Mebuki FG 1st : From August 22, 2003 to August 21, 2009
Mebuki FG 2nd : From July 21, 2004 to July 20, 2010
Mebuki FG 3rd : From July 20, 2005 to July 19, 2011
Mebuki FG 5th : From July 19, 2006 to July 18, 2012
Mebuki FG 6th : From July 21, 2009 to July 18, 2012
Mebuki FG 7th : From July 18, 2007 to July 17, 2013
Mebuki FG 8th : From July 20, 2010 to July 17, 2013
Mebuki FG 9th : From July 18, 2008 to July 17, 2014
Mebuki FG 10th : From July 19, 2011 to July 17, 2014
Mebuki FG 11th : From July 17, 2009 to July 16, 2015
Mebuki FG 12th : From July 17, 2012 to July 16, 2015
*2. Average tenure of retired directors and executive officers of Joyo
*3. Actual dividend payments conducted by Joyo just before each stock option was issued*4. Yield of Japanese government bonds approximating the estimated remaining outstanding period at the time when Joyo issued each stock option*5. Volatility of stock price is calculated based on the actual stock price of the Company during the period. Only a short time has passed since the business combination was conducted through ashare exchange between the Company and Joyo, during the period before the business combination was completed, volatility of stock price is calculated based on the actual stock price of asimilar publicly-traded company.
Mebuki FG 13th : From December 6, 2010 to December 5, 2016
Mebuki FG 14th : From December 6, 2013 to December 5, 2016
*6. Average tenure of retired directors and executive officers of Joyo and Ashikaga*7. Estimated dividend of FY2017 (excluding a commemorative dividend)*8. Yield of Japanese government bonds approximating the estimated remaining outstanding period

The Method Used to Estimate the Number of Stock Options Expected to Vest
Since it is difficult to rationally estimate the number of unexercised options in the future, a method of only reflecting actual unexercised options is adopted.
(2009 Stock Option and 2010 Stock Option)
As the Company was an unlisted company when stock option rights were granted, they were measured at their intrinsic value because the fair value of stock options cannot be reliably estimated. The Company does not recognize relevant expenses, since their fair value on the date of grant was zero. The amounts of their intrinsic value asof March 31, 2017, were nil.

Annual Report 201742

Year ended March 31, 2016:
The Company recorded stock option expenses in “General and administrative expenses” of nil for the fiscal years ended March 31, 2016.
The stock options outstanding as of March 31, 2016, were as follows:
Stock Options

2009 Stock Option

2010 Stock Option

Persons Granted

Number of Options
Granted (Shares)*1

Date of Grant

ExercisePrice2,684,900

2 - Mar - 09

¥550

From March 1, 2011,
to December 31, 2018

2,698,700

4 - Jan - 10550

From January 1, 2012,
to December 31, 2018

6 directors and executive officers of the Company
10 directors and executive officers of the consolidated banking
subsidiary
1,848 employees of the consolidated banking subsidiary
6 directors and executive officers of the Company
10 directors and executive officers of the consolidated banking
subsidiary
1,878 employees of the consolidated banking subsidiary

Exercise Period*1 On October 19, 2013, the Company made a stock split by way of a free share distribution at the rate of 0.01 shares for each outstanding common stock. All share amounts of options granted
in above table have been adjusted to reflect the stock split.

The stock option activity was as follows:2009 Stock
OptionFor the year ended March 31, 2016
Non-vested (shares):
April 1, 2015 — Outstanding
GrantedCanceled
VestedMarch 31, 2016 — Outstanding
Vested (shares):
April 1, 2015 — Outstanding
VestedExercised
Canceled
March 31, 2016 — Outstanding

2010 Stock
Option2,642,600—
699,400—
1,943,200

2,655,900—
638,700—
2,017,200

—
—
—
—
—

—
—
—
—
—

The Assumptions Used to Measure Fair Value of Stock Option
As the Company was an unlisted company when stock option rights were granted, they were measured at their intrinsic value because the fair value of the stock option
could not be reliably estimated. The Company does not recognize relevant expenses as their fair value on the date of grant was zero. The amounts of their intrinsic value
as of March 31, 2016, were nil.
The Method Used to Estimate the Number of Stock Options Expected to Vest
Since it is difficult to rationally estimate the number of unexercised options in the future, a method of only reflecting actual unexercised options is adopted.

43

Mebuki Financial Group, Inc.

16. PER SHARE OF COMMON STOCK

18. GENERAL AND ADMINISTRATIVE EXPENSES(1) Net income per share
Reconciliation of the differences between basic and diluted net income per share(“EPS”) for the years ended March 31, 2017 and 2016, was as follows:

General and administrative expenses for the years ended March 31, 2017 and2016, consisted of the following:

Millions of Thousands ofYen
SharesNet Income
WeightedAttributable
Averageto Owners of
Sharesthe Parent

Yen

U.S. Dollars

380

Year Ended March 31, 2016
Basic EPS —Net income available
to common shareholders������� ¥ 22,452
Effect of dilutive securities�������
—
¥

—

$1.40

Thousands of
U.S. Dollars
2017$382,585
53,093438,630$874,308

Millions of Yen
2016

$1.40

Diluted EPS —Net income
for computation��������������������� ¥158,455 ¥1,011,047 ¥156.72

Diluted EPS —Net income
for computation *1�����������������

Salaries and allowances���������������������������������������� ¥42,922
Periodic benefit costs��������������������������������������������
5,956
Other������������������������������������������������������������������� 49,209
Total��������������������������������������������������������������������� ¥98,088

EPS

Year Ended March 31, 2017
Basic EPS —Net income available tocommon shareholders����������� ¥158,455 ¥1,010,667 ¥156.78
Effect of dilutive securities:
Warrants��������������������������������

Millions of Yen
2017

Salaries and allowances���������������������������������������� ¥20,165
Amortization of goodwill����������������������������������������
6,202
Other������������������������������������������������������������������� 29,103
Total��������������������������������������������������������������������� ¥55,471

19. OTHER EXPENSES
Other expenses for the years ended March 31, 2017 and 2016, consisted of thefollowing:¥ 333,250 ¥ 67.37
—
¥

— ¥

Millions of Yen
2017
2016

—

*1. Since the average share price during the fiscal year did not exceed the exercise priceand the shares were not dilutive, diluted EPS is not shown because a decrease in net income available to common shareholders as a result of dilution did not incur.

(2) Total equity per share
Total equity per share as of March 31, 2017 and 2016, was as follows:
Yen
2017

Total equity per share������������������������� ¥732.66

2016

U.S. Dollars
2017¥909.54$6.53

Total equity per share as of March 31, 2017 and 2016, is calculated based on
the following:
Millions of Yen
2017
2016

Total equity���������������������������������������� ¥863,086
Deductions from total equity���������������
193
Total equity available
to common shareholders������������������ ¥862,892

Thousands of
U.S. Dollars
2017¥303,105—$ 7,693,078
1,724¥303,105$ 7,691,354

Number of Shares in Thousands
2017
2016

Number of shares of common stock used incomputing total equity pershare at the year-end�������������������������������������������� 1,177,751

Write-off amount of loans������������������� ¥ 3,940
Loss on sales of stocks andother securities��������������������������������
2,211
Loss on devaluation of stocks andother securities��������������������������������
46
Loss on sales of loans������������������������
232
Loss on disposal of fixed assets����������
438
Impairment losses*1���������������������������
1,463
Other������������������������������������������������ 23,075
Total�������������������������������������������������� ¥31,407

Thousands of
U.S. Dollars
2017¥1,656$ 35,122980

19,714

8
110
108
50
680
¥3,595

411
2,075
3,905
13,046205,679$279,952*1 For the fiscal year ended March 31, 2017, impairment losses on long-lived assets wererecognized mainly on the properties of Bank’s branches in Tochigi and Ibaraki prefecture,
which were decided to be closed, as returns on investment cannot be realized. The components of impairment losses by fixed assets for the years ended March 31, 2017 wereas follows:Land������������������������������������������������������������������������������������
Software�������������������������������������������������������������������������������
Equipment����������������������������������������������������������������������������
Leasehold�����������������������������������������������������������������������������
Buildings������������������������������������������������������������������������������

Millions of Yen

Thousands of
U.S. Dollars

2017

2017

¥470
324
266
202
198

$4,197
2,893
2,379
1,809
1,769

333,250

17. OTHER INCOME
Other income for the years ended March 31, 2017 and 2016, consisted of thefollowing:
Millions of Yen
2017
2016

Gain on sales of stock andother securities�������������������������������� ¥ 9,902
Gain on disposal of fixed assets����������
6
Recoveries of write-off claims�������������
2,688
Other������������������������������������������������ 23,718
Total������������������������������������������������� ¥36,316¥3,290—524
1,023¥4,838

Thousands of
U.S. Dollars
2017$ 88,268
57
23,962
211,415$323,702

Annual Report 201744

20. INCOME TAXES

21. LEASESThe Group is subject to Japanese national and local income taxes which, in theaggregate, resulted in a normal effective statutory tax rate of 30.86% and 32.8%
for the years ended March 31, 2017 and 2016, respectively.
The tax effects of significant temporary differences and loss carry forwards
which result in deferred tax assets and liabilities as of March 31, 2017 and2016, were as follows:

The minimum rental commitments under noncancelable operating leases as ofMarch 31, 2017, were as follows:
LesseeThousands of
U.S. Dollars
2017

Due within one year���������������������������������������������
Due after one year�����������������������������������������������
Total�������������������������������������������������������������������

¥ 14,440$ 258,533

11,592
3,493
1,593
—
—

117,813
114,382
15,864
15,6729,841

LessorMillions of Yen
2017
2016

Deferred tax assets:
Allowance for loan losses��������������� ¥ 29,004
Write-offs of securities������������������� 13,217

Liability for retirement benefits������� 12,832
1,779
Tax loss carryforwards�������������������
Provision for employee bonuses�����
1,758
Depreciation����������������������������������
1,104
Provision for reimbursement of
1,058—
deposits��������������������������������������
Other��������������������������������������������
9,783
5,968
37,087
Subtotal deferred tax assets������� 70,538
Less valuation allowance���������������� (18,485) (21,049)
Total deferred tax assets����������� 52,053
16,038Deferred tax liabilities:
Unrealized gains on availablefor-sale securities������������������������ (69,694) (19,697)
Retirement benefit trust(4,467)—
Reversal of allowance for loan
losses after elimination of(22)—intercompany balances�����������������
Property revaluationsin preparing consolidated
financial statements���������������������
—(737)
Other��������������������������������������������
(7,669)(93)
Total deferred tax liabilities�������� (81,854) (20,528)
Net deferred tax liabilities������������������� ¥(29,800) ¥ (4,490)

9,434
87,207628,745(164,771)
463,974(621,216)(39,822)(203)—(68,362)(729,603)$(265,629)

A reconciliation between the normal effective statutory tax rate and the actual effective tax rate reflected in the accompanying consolidated statement ofincome for the year ended March 31, 2017, with the corresponding figures for
2016, was as follows:

45

2017

2016

Normal effective statutory tax rate����������������������������
Gain on negative goodwill����������������������������������������
Change in valuation allowance���������������������������������
Dividends exempted from taxation����������������������������
Expenses that are not deductiblefor income tax purposes�����������������������������������������
Effect of change in income tax rate
Consolidation adjustments,
such as amortization of goodwill�����������������������������
Adjustments, such as residential tax
on a per capita basis���������������������������������������������
Effect of consolidated tax payment���������������������������

30.86%(21.71)(2.67)(0.27)

32.8 %—(19.0)(13.4)

0.05
—

0.3
5.7

—

19.6

—

0.3

Other — net�����������������������������������������������������������
Actual effective tax rate�������������������������������������������

0.18
6.44%

(0.4)
(0.3)
25.6%

Mebuki Financial Group, Inc.

Due within one year���������������������������������������������
Due after one year�����������������������������������������������
Total�������������������������������������������������������������������

Millions of Yen
2017

Thousands of
U.S. Dollars
2017

¥ 69
156
¥226

$ 622
1,398
$2,020Millions of Yen
2017

Thousands of
U.S. Dollars
2017

¥1
3
¥5

$16
34
$50

22. FINANCIAL INSTRUMENTS AND RELATED DISCLOSURES(1) Group Policies for Financial Instruments(For the year ended March 31, 2017)
The Group provides financial services, centering on banking. As the central business operation of the Group, the consolidated banking subsidiaries raise funds bydeposits as its basic function as a bank; the banking subsidiaries also procure
funds by call money transactions from short-term markets to maintain an adequate degree of liquidity. The banking subsidiaries manage those funds throughlending to corporate customers and individuals, such as housing loans, investingin securities, mainly bonds, and investing in money markets.
The Group utilizes Asset Liability Management (ALM) to avoid unfavorable
floating interest rate fluctuation of the financial assets and liabilities it holds. As apart of ALM, the Group has entered into derivative transactions.
(For the year ended March 31, 2016)
The Group provides various financial services, centering on banking. The Company is a bank-holding company and financed by subordinate debts to acquire
shares of the consolidated banking subsidiary, Ashikaga. As the central business
operation of the Group, the consolidated banking subsidiary raises funds by deposits as its basic function as a bank; the consolidated banking subsidiary also
procures funds by call money transactions from short-term markets to maintainan adequate degree of liquidity. The consolidated banking subsidiary manages
those funds lending to corporate customers and individuals, such as mortgages
and investing securities, mainly bonds, and lending to counterparties in shortterm markets.
The Group utilizes ALM to avoid unfavorable floating interest rate fluctuations of financial assets and liabilities it holds. As a part of ALM, the Group hasentered into derivative transactions.
(2) Nature and Extent of Risks Arising from Financial Instruments(For the year ended March 31, 2017)
The Group’s financial assets are mainly loans made by the consolidated banking
subsidiaries to domestic corporations and individuals in Japan, which are exposed not only to interest rate fluctuation risks, but also to customers’ credit
risks. Securities and investment securities, such as bonds, stocks, and investment trusts, are possessed to trade, to hold to maturity dates to generate stableinterest income and to promote business relationships with the issuers. These
securities are exposed to the issuers’ credit risks, interest rate fluctuation risks,and market price fluctuation risks.
The Group’s main financial liabilities are deposits received by the consolidated baking subsidiaries, which are exposed to interest rate fluctuation risks
and liquidity risks. Borrowed money and bonds are exposed to the risks that theGroup may not be able to repay them on their maturity dates if, under certain circumstances, the Group is not able to access to a capital market.
The consolidated banking subsidiaries utilize derivative transactions tohedge the customers’ interest and currency risks and to control the interest rate
fluctuation risks in ALM. Derivatives transactions are utilized to hedge interest
rate fluctuation risks, foreign currency exchange rate fluctuation risks, and market price fluctuation risks on the Group’s financial assets and liabilities. Derivatives mainly include interest rate swaps, currency swaps, and bond futures, andare exposed to the interest rate fluctuation risks, market price fluctuation risks,
foreign currency exchange rate fluctuation risks, and credit risks.
Hedge accounting is applied to certain derivatives.
In hedge transactions against foreign currency fluctuation rate risks, mainly
currency swaps and foreign exchange swaps, the effectiveness of hedging isdetermined by confirming that amount of the hedging instruments is generally
consistent with that of the hedged items. Regarding an exceptional accounting
treatment in interest rate swaps, posttesting is conducted to confirm that requirements for the treatment are satisfied.
Derivatives transactions to which hedge accounting is not applied are exposed to interest rate fluctuation risks, foreign currency exchange rate fluctuation
risks, price fluctuation risks, and credit risks.
(For the year ended March 31, 2016)
The Group’s financial assets are mainly loans made by the consolidated banking
subsidiary to domestic corporations and individuals in Japan. These loans are
exposed to not only interest rate fluctuation risks, but also customers’ credit
risks. Securities and investment securities, such as bonds, stocks, and investment trusts, are held to their maturity dates to generate stable interest income topromote business relationships with issuers. These securities are exposed to theissuers’ credit risks, interest rate fluctuation risks, and market price fluctuation
risks.
The Group’s main financial liabilities are deposits received by the consolidated banking subsidiary. These deposits are exposed to interest rate fluctuation
risks and liquidity risks. Subordinated debts raised by the Company and otherborrowed money raised by the consolidated banking subsidiary are exposed to
the risks that the Group may not be able to repay them on their maturity dates if,
under certain circumstances, the Group is not able to access to a capital market.
The consolidated banking subsidiary utilizes derivative transactions to hedge
the customers’ interest and currency risks, to control the interest rate fluctuation
risks in ALM, and to treat as the alternative way of on-balance-asset management under the appropriate risk control. Derivatives mainly include interest rate
swaps, currency swaps, and bond futures, and are exposed to the interest rate
fluctuation risks, market price fluctuation risks, foreign currency exchange rate
fluctuation risks, and credit risks.
Hedge accounting is applied to certain derivatives that address currency exchange rate fluctuation risks.
The consolidated banking subsidiary applies deferral hedge accounting
based on the rules of the JICPA Industry Audit Committee Report No. 25 forcurrency swaps and funding swaps used for the purpose of currency exchange.
Under deferral hedge accounting, hedged items are identified by grouping theforeign currency-denominated financial assets and liabilities by currencies anddesignating derivative transactions, such as currency swap transactions andforeign exchange swaps, as hedging instruments. Hedge effectiveness is reviewed by comparing the total foreign currency position of the hedged items
and hedging instrument by currency.
In addition, the Company conducts interest rate swaps, whose purpose is tooffset the market fluctuations of securities held in “Available-for sale securities”
and uses deferred hedges. Regarding swaps that meet the requirements for the
special treatment of interest rate swaps, the Company continues to verify whether they meet special requirements with “posttesting.”
Derivative transactions to which hedge accounting is not applied are exposed to interest rate fluctuation risks, foreign currency exchange rate fluctuation
risks, price fluctuation risks, and credit risks.

(3) Risk Management for Financial Instruments(For the year ended March 31, 2017)(a) Integrated Risk Management
The Group conducts integrated risk management to holistically control risks fromvarious financial assets and liabilities and risks related to the banking business.
More specifically, the periodically quantified risks of the Group are controlled so
as not to exceed Tier 1 capital allocated by each risk category. The bank assesses unquantifiable risks using stress tests and other measures.
(b) Credit Risk Management
The group has enacted “Group Guidelines for Credit Risk Management,” which
provides for basic policies comprising appropriate credit exposure management
on individual and portfolio bases. The portfolio-based credit exposure management involves diversification of risks.
Credit risk management divisions have been segregated from the divisions
under business headquarters to achieve rigorous credit review, and conduct
monitoring of borrowers’ financial condition to prevent deterioration of loans.
In the self-assessments that evaluate the quality of assets, the business offices categorize the borrowers based on credit ratings, which are then reviewed
by credit-related divisions in the headquarters. Furthermore, audit divisions examine results and process of the self-assessments for accuracy and adequacy.
As for credit risks of the issuers of securities and the counterparties of derivatives transactions, global markets and market operation divisions monitor
credit information and market prices and gives the issuers and counterparties
credit ratings as well as carry out assessments of the issuers and counterparties
like general borrowers.
(c) Market Risk Management① Market Risk Management Measures
The Group manages market risks by ALM. Risk management policies and procedures are prescribed in relevant ALM rules and manuals, and these policies, decided in ALM/Risk Management Committee and so forth, are closely monitored
and regularly discussed.
② Market Risk Quantitative information(i) Banking Accounta. Interest Rate Risk
The Group adopts the variance-covariance method as the measurement method(a holding period of six months, a confidence interval of 99%, and an observation
period of one year) for calculating VaR related to interest rate risk of loans andbills discounted, domestic bonds, deposits, borrowed money, corporate bonds,
and derivatives such as interest rate swaps. The Group uses the historical simulation method (a holding period of six months, a confidence interval of 99%, andan observation period of five years) for the calculation of VaR related to interest
rate risk of foreign bonds, trust beneficiary right, market fund transaction, andderivatives like interest rate swaps and currency swaps.
As of March 31, 2017, the Group’s VaR related to interest rate risks, which issimple sum of its banking subsidiaries’ VaR, was ¥69,256 million ($617,312
thousand).
b. Price Fluctuation Risk
The Group adopts the historical simulation method (a holding period of six
months, a confidence interval of 99%, and an observation period of five years)
for calculating VaR related to price fluctuation risk of listed equities and investment trust.
As of March 31, 2017, the Group’s VaR related to price fluctuation risk,
which is simple sum of its banking subsidiaries’ VaR, was ¥130,317 million($1,161,577 thousand). Correlation between interest rate risk and price fluctuation risk has not been considered.
(ii) Trading Account
The Group adopts the historical simulation method (a holding period of ten days,

Annual Report 201746

a confidence interval of 99%, and an observation period of 5 years) for calculating VaR related to trading securities; trading purpose foreign exchange transactions; and trading purpose derivatives, such as forward transactions and option
transactions. As of March 31, 2017, the Group’s VaR related to trading account,which is simple sum of its banking subsidiaries’ VaR, was ¥11 million ($102
thousand).
(iii) Validity of VaR
The Group performs back testing to compare VaR calculated by its internal measurement model with the actual profit and loss to confirm whether the model
captures market risks with sufficient accuracy. However, there could be cases inwhich VaR cannot capture risks under sudden and dramatic changes in market
conditions beyond normal circumstances since VaR is statistically calculated
based on historical market fluctuation.
(d) Management of Liquidity Risk in Funding
Under “Group Liquidity Risk Management Rules,” the Group conducts financing
activities after fully analyzing its cash flows and strives to maintain the diversity
and stability of funding sources, while paying continuous attention to the balance
sheet structure, lines of credit provided to the Group, collateral management,
and costs to maintain the liquidity.
(For the year ended March 31, 2016)(a) Credit risk management
The Group has implemented and operated a credit control system that includes
credit review of each individual loan application, establishing credit limits, managing credit information, internal credit rating, securing adequate guarantees andcollaterals, and handling troubled loans. These credit control managements are
performed by the Credit Supervising Division I and the Credit Supervising DivisionII, as well as at each banking office of the consolidated banking subsidiary. In
addition, these credit information and matters are regularly reported to and discussed by, the Credit Portfolio Meeting and the Board of Directors. The Internal
Audit Division monitors the status of credit management.
To monitor the credit risks of security issuers and counterparty risks of derivatives, the International and Treasury Administration Division of the consolidated banking subsidiary regularly obtains and reviews relevant credit and fair value
information.
(b) Market risk management① Interest rate risk management
The Group manages risks of interest rate fluctuations by ALM. Risk management
policies and procedures are prescribed in relevant ALM rules and manuals, andany policies decided to be implemented are closely monitored and regularly discussed in the ALM Meeting. The Company’s Risk Management Group in theBusiness Administration Department maintains comprehensive information on interest rates and durations of financials assets and liabilities, performs gap analyses and the interest rate sensitive analyses, and reports monthly results at the
ALM Meeting. The Group utilizes derivative transactions, such as interest rate
swaps, to hedge the interest rate fluctuation risks.

47

limits, and constant monitoring. The Group holds most stocks for the purpose ofbusiness promotion and regularly monitors financial conditions of issuers.
Such financial conditions of the issuers are regularly reported to the Boardof Directors and the ALM Meeting by the Risk Management Division and the International and Treasury Administration Division.
The Risk Management Division and the International and Treasury Administration Division monitor market risk quantity of derivative transactions relating tosecurities, currencies, and interest rates using value at risk (VaR), and monitor
the Group’s compliance with the aforementioned policies and procedures.
④ Market risk quantitative information
Financial instruments exposed to major risk factors, such as interest rate risk andprice fluctuation risk, are mainly “Loans and bills discounted,” “Securities,” “Deposits,” “Negotiable certificates of deposit,” “Subordinate debts of borrowed
money,” and “Derivatives.” The Group performs quantitative analysis on these financial instruments held by the consolidated banking subsidiary and utilizes its
results to allocate risk capital and control market risks. The Company and subsidiaries other than the consolidated banking subsidiary do not perform quantitative analysis.
(i) Financial instruments held by the consolidated banking subsidiarya. “Loans and bills discounted,” yen-denominated bonds of “Securities,” “Deposits,” and “Negotiable certificates of deposit”
The consolidated banking subsidiary classifies its financial assets and financial liabilities into a fixed-interest rate group and a floating interest rate group in its
quantitative analysis. In each group, the financial assets and liabilities are disaggregated by each interest due date and analyzed effects of interest fluctuations
by period. If all risk factors, other than the interest rate, are constant and the interest rate is assumed to increase by 10 basis points (0.10%), the net fair valueof financial assets after offsetting with financial liabilities decreases by ¥72 million. As previously mentioned, this net fair value amount is obtained assumingthat all risk factors are constant, except for the interest rate, and no correlation
between the interest rate and other risk factors was considered. If the interest
rate fluctuates more than 10 basis points (0.10%), the impact may be greaterthan the net fair value amount above.
The consolidated banking subsidiary considers those liquid deposits of “Deposit” that have no activities for certain periods as “core” deposits and manages
the interest rate risk by categorizing them into maturity periods of up to 10 years.

② Currency risk management
The International and Treasury Administration Division of the consolidated banking subsidiary manages the subsidiary’s foreign exchange positions and hedges
the risks of exchange rate fluctuations by using derivative transactions, such as
funding swaps.

b. Other financial instruments
The Group performs quantitative analysis using VaR. For the calculation of VaR,
the consolidated banking subsidiary uses the variance-covariance method (holding period: appropriate period depends on the nature of the instruments from one
month to six months, confidence interval: 99.9% (stocks held to promote business relationships with issuers only are 99.0%), and observation period: oneyear). The simple aggregated VaR of each instrument is ¥55,631 million as ofMarch 31, 2016.
The Group carries out backtesting to compare the VaR calculated based on
the above model, with hypothetical profits and losses calculated assuming thatall positions were fixed at the point of the risk amount measurement. It should be
noted that VaR measures the amount of market risk at certain probability levels
statistically calculated based on historical market fluctuations; therefore, there
may be cases where market risks cannot be captured in such situations whenmarket conditions are changing dramatically beyond what was historically experienced.

③ Price fluctuation risk management
The Group manages investment instruments, including securities, in accordancewith security investment and market risk management policies and procedures
after certain policies are determined in the ALM Meeting. The International andTreasury Administration Division of the consolidated banking subsidiary reduces
the price fluctuation risks through advance screening, establishing investment(ii) Financial instruments held by the Company and subsidiaries other than the
consolidated banking subsidiary
Financial instruments held by the Company and subsidiaries other than the consolidated banking subsidiary, which are affected by interest rate risk, are subordinate debts of “Borrowed money.” If all risk factors, other than the interest rate,
are constant, the fair value of the financial liabilities decreases by ¥235 million

Mebuki Financial Group, Inc.

when the interest rate increases by 10 basis points (0.10%). As previously mentioned, this fair value amount is obtained assuming that all risk factors are constant, except for the interest rate, and no correlation between the interest rate
and other risk factors was considered. If the interest rate fluctuates more than 10
basis points (0.10%), the impact may be greater than the fair value amountabove.
(c) Liquidity risk management
The Group carries out adequate timely cash management through the ALM
Meeting, and also manages liquidity risks by diversifying financing methods andbalancing long-term and short-term funding with the consideration of market environment.
(4) Supplementary Explanation on Fair Values of Financial Instrument
The fair values of financial instruments are based on their market prices and, incases, where market prices are not readily available, reasonably calculated prices. Such prices have been calculated using certain assumptions and may differ if
calculated based on different assumptions.
(5) Fair Values of Financial Instruments(For the year ended March 31, 2017)(a) Fair value of financial instruments
Millions of Yen
March 31, 2017

Carrying
AmountFair Value(1) Cash and due from banks����������������������� ¥ 1,393,762 ¥ 1,393,762(2) Securities:
Held-to-maturity securities����������������������
139,385
138,705
Available-for-sale securities��������������������� 4,036,244 4,036,244(3) Loans and bills discounted���������������������� 10,244,730
Allowance for loan losses*1���������������������
(72,767)
Net���������������������������������������������������� 10,171,962 10,283,426
Total assets������������������������������������������������ ¥15,741,355 ¥15,852,138(1) Deposits������������������������������������������������ ¥13,507,047 ¥13,508,898(2) Negotiable certificates of deposit�������������
284,705
284,757(3) Call money and bills sold������������������������
303,312303,312(4) Payables under securities lendingtransactions�����������������������������������������
167,640
167,640(5) Borrowed money������������������������������������
735,593736,548
Total liabilities��������������������������������������������� ¥14,998,299 ¥15,001,158
Derivative instruments*2 :Hedge accounting is not applied�������������� ¥1,754 ¥
1,754
Hedge accounting is applied��������������������
(475)
(475)
Total derivative instruments������������������������� ¥1,279 ¥
1,279

Unrealized
Gains(Losses)
¥—
(680)
—

111,464¥110,783¥(1,850)
(52)
—
—
(955)
¥(2,858)
¥—
—
¥—

March 31, 2017

Thousands of U.S. Dollars
Carrying
Unrealized
AmountFair Value
Gains(1) Cash and due from banks����������������������� $ 12,423,232 $ 12,423,232(2) Securities:
Held-to-maturity securities���������������������� 1,242,409 1,236,341
Available-for-sale securities��������������������� 35,976,866 35,976,866(3) Loans and bills discounted���������������������� 91,315,896
Allowance for loan losses*1���������������������
(648,613)
Net���������������������������������������������������� 90,667,283 91,660,812
Total assets������������������������������������������������ $140,309,790 $141,297,251(1) Deposits������������������������������������������������ $120,394,402 $120,410,895(2) Negotiable certificates of deposit������������� 2,537,706 2,538,175(3) Call money and bills sold������������������������ 2,703,564 2,703,564(4) Payables under securities lendingtransactions����������������������������������������� 1,494,252 1,494,252(5) Borrowed money������������������������������������ 6,556,676 6,565,193
Total liabilities��������������������������������������������� $133,686,600 $133,712,078
Derivative instruments*2 :Hedge accounting is not applied�������������� $15,641 $15,641Hedge accounting is applied��������������������
(4,234)(4,234)
Total derivative instruments������������������������� $11,407 $
11,407$—(6,068)—993,529$987,461$ 16,493
469
—
—
8,516
$ 25,478
$

—

$

—

—

*1 Allowances for loan losses relevant to loans and bills discounted have been deducted.
*2 Derivative instruments recorded as trading assets, trading liabilities, other assets and other liabilities include derivative transactions. Derivative instruments are presented as net ofassets and liabilities associated with derivative transactions.

Assets(1) Cash and due from banks
The fair values of these items approximate the carrying amount, which are
deemed to be the fair value.
(2) Securities
The fair values of marketable equity securities are measured at the quoted
market price of the stock exchange for equity instruments. Fair values of bonds
are measured at the market price or the quoted price obtained from financial
institutions. Fair values of investment trusts are measured at the quoted price.
The fair values of private placement bonds are determined by discounting
future cash flows. The discount rates used in the calculation were calculated
based on the bankruptcy probability by credit rating and the coverage ratio of
each claim.
We treat market prices as fair values for floating-rate Japanese Government
Bonds and securitized products.
(3) Loans and bills discounted
The carrying amounts of loans and bills discounted with floating-interest rates
approximate fair value as long as customers’ credit risks have not changed
significantly after lending because the market rates are promptly reflected in the
floating interest rates.
The fair values of loans and bills discounted with fixed-interest rates are
determined by discounting the principal and interest amount with the interest
rate used for new loans for each category of loan calculated based on thebankruptcy probability by credit rating and the coverage ratio of each claim,
internal credit rating, and loan period. The carrying amounts of loans and bills
discounted with maturity less than one year approximate fair value because of
their short maturities.
For loans to obligors classified as “legal bankruptcy,” “virtual bankruptcy,”and “possible bankruptcy,” an allowance is provided based on the discounted
cash flow method or based on amounts expected to be collected through thedisposal of collateral or execution of guarantees. The carrying value, net of theallowance, as of the consolidated balance sheet date is a reasonable estimate of
the fair values of those loans.

Annual Report 201748

The carrying amounts of loans and bills discounted that do not have fixedmaturities due to loan characteristics, such as limited loan amounts within thevalue of pledged assets, approximate fair value due to their expected repayment
periods and interest rate conditions.
Liabilities(1) Deposits
The fair values of demand deposits are recognized as the payment at the date of
the consolidated balance sheet. The fair values of time deposits are determinedby discounting the contractual cash flows grouped by the remaining duration at
the rates that would be applied for similar new contracts.
(2) Negotiable certificates of deposit
Refer to (1) Deposits.
(3) Call money and bills sold
The carrying amounts of call money and bills sold approximate fair value because
they have maturities of one year or less.
(4) Payables under securities lending transactions
Refer to (3) Call money and bills sold.
(5) Borrowed Money
The fair value of borrowed money is discounted at the rate that would be applied
for similar new contracts. The carrying amount of borrowed money with maturityof less than one year approximates fair value because of its short maturity period.
Derivatives
See “Note 23. DERIVATIVES.”(b) Carrying amount of financial instruments whose fair value cannot be reliably
determined
Millions of Yen
2017

Equity securities without readily
available market price*1*2����������������������������������� ¥ 4,323
Investments in partnerships*3������������������������������� 10,727
Total������������������������������������������������������������������� ¥15,051

Thousands of
U.S. Dollars
2017$ 38,536
95,621$134,157*1 Equity securities without readily available market prices are out of the scope of the fairvalue disclosure because their fair values cannot be reliably determined.
*2 During the year ended March 31, 2017, impairment losses on equity securities without
readily available market price of ¥46 million ($411 thousand) was recognized.
*3 Investments in partnerships, the assets of which comprise equity securities without readily available market price, are out of the scope of the fair value disclosure.

(For the year ended March 31, 2016)(a) Fair value of financial instruments
Millions of Yen
March 31, 2016

Carrying
AmountFair Value(1) Cash and due from banks����������������������� ¥ 437,509 ¥ 437,509(2) Call loans and bills bought����������������������
414414(3) Monetary claims bought*1�����������������������
7,604
7,604
(4) Trading account securities :Securities held for trading purposes�������
3,596
3,596
(5) Securities:
Held-to-maturity securities����������������������
88,788102,628
Available-for-sale securities��������������������� 1,205,419 1,205,419(6) Loans and bills discounted���������������������� 4,235,174
Allowance for loan losses*1���������������������
(40,564)
Net���������������������������������������������������� 4,194,609 4,242,480
Total assets������������������������������������������������ ¥5,937,942 ¥5,999,653(1) Deposits������������������������������������������������ ¥5,206,700 ¥5,209,198(2) Negotiable certificates of deposit�������������
174,878
174,921(3) Call money and bills sold������������������������
78,00078,000(4) Payables under securities lendingtransactions�����������������������������������������
25,26325,263(5) Borrowed money������������������������������������
251,726
252,869
Total liabilities��������������������������������������������� ¥5,736,569 ¥5,740,252
Derivative instruments*2 :Hedge accounting is not applied�������������� ¥
608 ¥
608
Hedge accounting is applied��������������������
(3,126)(3,126)
Total derivative instruments������������������������� ¥ (2,517) ¥ (2,517)

Unrealized
Gains

¥

—
—
—
—

13,840—47,870¥61,710¥ 2,497
42
—
—
1,142
¥ 3,682¥¥———*1 Allowances for loan losses relevant to loans and bills discounted have been deducted.
Allowances for loan losses relevant to monetary claims bought are excluded from theconsolidated balance sheet amounts directly due to its immateriality.
*2 Derivative instruments include derivative transactions both in other assets and liabilities.
Derivative instruments are presented as net of assets and liabilities associated with derivative transactions.

Assets(1) Cash and due from banks
The carrying amounts of due from banks with no maturities approximate fairvalues. For due from banks with maturities, the carrying amounts approximate
fair values because they have short maturities of one year or less.
(2) Call loans and bills bought
The carrying amounts of call loans and bills bought and monetary claims bought
approximate fair values because they have short contract terms of one year or
less.
(3) Monetary claims bought
Refer to (2) Call loans and bills bought.
(4) Trading account securities
The fair values of securities held-for-trading purposes are measured at themarket price or the quoted price obtained from financial institutions.
(5) Securities
The fair values of marketable equity securities are measured at the quoted
market price of the stock exchange for equity instruments. Fair values of bonds
are measured at the market price or the quoted price obtained from financial
institutions. Fair values of investment trusts are measured at the quoted price.
The fair values of private placement bonds are determined by discounting
future cash flows at the rate that consists of the risk-free rate and the credit risk
premium that corresponds to the internal credit rating.

49

Mebuki Financial Group, Inc.

(6) Loans and bills discounted
The carrying amounts of loans and bills discounted with floating interest rates
approximate fair value as long as customers’ credit risks have not changed
significantly after lending because the market rates are promptly reflected in the
floating interest rates.
The fair values of loans and bills discounted with fixed-interest rates are
determined by discounting the principal and interest amount with the interest
rate used for new loans for each category of loan, internal credit rating, and loan
period. The carrying amounts of loans and bills discounted with maturity lessthan one year approximate fair value because of their short maturities.
For loans to obligors classified as “legal bankruptcy,” “virtual bankruptcy,”and “possible bankruptcy,” a reserve is provided based on the discounted cash
flow method or based on amounts expected to be collected through the disposalof collateral or execution of guarantees. The carrying value, net of the reserve, asof the consolidated balance sheet date is a reasonable estimate of the fair valuesof those loans.
The carrying amounts of loans and bills discounted that do not have fixedmaturities due to loan characteristics, such as limited loan amounts within thevalue of pledged assets, approximate fair value due to their expected repayment
periods and interest rate conditions.

Derivatives
See “Note 23. DERIVATIVES.”(b) Carrying amount of financial instruments whose fair value cannot be reliably
determined
Millions of Yen
2016

Equity securities without readily
available market price*1*3�����������������������������������
Investments in partnerships*2�������������������������������
Total�������������������������������������������������������������������

¥1,423
1,138¥2,561*1 Equity securities without readily available market price are out of the scope of the fair value disclosure because their fair values cannot be reliably determined.
*2 Investments in partnerships, the assets of which comprise equity securities without readily available market price, are out of the scope of the fair value disclosure.
*3 During the years ended March 31, 2016, impairment losses on equity securities without
readily available market price of ¥8 million was recognized.

Liabilities(1) Deposits
The fair values of demand deposits are recognized as the payment at the date of
the consolidated balance sheet. The fair values of time deposits and negotiablecertificates of deposits are determined by discounting the contractual cash flowsgrouped by the remaining duration at the rates that would be applied for similar
new contracts.
(2) Negotiable certificates of deposit
Refer to (1) Deposits.
(3) Call money and bills sold
The carrying amounts of call money and bills sold approximate fair values
because they have short maturities of one year or less.
(4) Payables under securities lending transactions
Refer to (3) Call money and bills sold.
(5) Borrowed Money
The fair value of borrowed money with fixed interest rates is determined bydiscounting the principal and interest amount grouped by the remaining duration
at the rate that would be applied for similar new contracts. The carrying amountof borrowed money with maturity of less than one year approximates fair value
because of its short maturity period.

Annual Report 201750

(6) Maturity Analysis for Financial Assets and Liabilities with Contractual Maturities

March 31, 2017

Due from banks�������������������������������������������������
Securities:���������������������������������������������������������
Held-to-maturity securities�����������������������������
Japanese national government bonds���������
Japanese local government bonds�������������
Japanese corporate bonds�������������������������
Available-for-sale securities
with contractual maturities����������������������������
Japanese national government bonds���������
Japanese local government bonds�������������
Japanese corporate bonds�������������������������
Foreign currency bonds�����������������������������
Other��������������������������������������������������������
Loans and bills discounted*1�������������������������������
Total�����������������������������������������������������������������

March 31, 2016

Due in 1 Yearor Less

Due after 1 Yearthrough 3 Years

Millions of Yen
Due after 3 Years
Due after 5 Years
through 5 Years
through 7 Years

Due after 7 Years
through 10 Years

Due after 10 Years¥1,268,298
361,435
14,407——
14,407¥¥¥¥

347,028
205,000
49,49743,74944,886
3,894
2,235,506¥3,865,240

806,788395,300
104,546
123,563
146,694
36,683
1,788,224¥2,622,106

610,290
214,500
121,618
133,213112,716
28,241
1,390,264¥2,033,326

Due in 1 Yearor Less

Due after 1 Yearthrough 3 Years

Millions of Yen
Due after 3 Years
Due after 5 Years
through 5 Years
through 7 Years—
833,882
27,0937,000
200
19,893—643,062
32,771
18,00050
14,721¥—
367,724
1,085
—
—
1,085

366,639
25,000139,543
84,183
98,02019,891
872,298¥1,240,023

Due from banks�������������������������������������������������
Call loans and bills bought����������������������������������
Monetary claims bought�������������������������������������
Securities:���������������������������������������������������������
Held-to-maturity securities�����������������������������
Japanese national government bonds���������
Japanese corporate bonds�������������������������
Other��������������������������������������������������������
Available-for-sale securities
with contractual maturities����������������������������
Japanese national government bonds���������
Japanese local government bonds�������������
Japanese corporate bonds�������������������������
Other��������������������������������������������������������
Loans and bills discounted*2�������������������������������
Total�����������������������������������������������������������������

¥ 377,621
414
7,627
107,987
14,000——14,000¥———176,411
2,000
—
2,000
—

¥

—
—
—
141,470
23,00023,000——¥93,98730,00018,981
38,6256,380
983,209¥1,476,861

174,41130,00042,97953,52947,902
719,915¥896,326

118,470
25,00034,66918,954
39,846557,710¥699,180

70,44045,0008,730
1,397
15,313362,221¥432,661

March 31, 2017

Due in 1 Yearor Less

Due after 1 Yearthrough 3 Years$11,304,912
3,221,640
128,421——
128,421$

3,093,218
1,827,257
441,195
389,961
400,095
34,71019,926,076$34,452,628

7,191,270
3,523,487
931,868
1,101,381
1,307,558
326,977
15,939,252$23,372,021

Due from banks�������������������������������������������������
Securities:���������������������������������������������������������
Held-to-maturity securities�����������������������������
Japanese national government bonds���������
Japanese local government bonds�������������
Japanese corporate bonds�������������������������
Available-for-sale securities
with contractual maturities����������������������������
Japanese national government bonds���������
Japanese local government bonds�������������
Japanese corporate bonds�������������������������
Foreign currency bonds�����������������������������
Other��������������������������������������������������������
Loans and bills discounted*1�������������������������������
Total�����������������������������������������������������������������

—7,432,769
241,498
62,394
1,783
177,322—606,278
1,022
—
—
1,022

—
347,886
50,00050,000——605,256
108,600
193,048
69,635207,062
26,909980,891¥1,587,169

297,886
60,0008,655
149,368
71,9827,880
2,622,773¥2,970,659

Due after 7 Years
through 10 Years

Due after 10 Years———
242,151————¥

242,151
20,000137,616
37,424
47,111
402,033¥644,185

149,380
100,000—
49,380—1,042,697¥1,242,077

Thousands of U.S. Dollars
Due after 3 Years
Due after 5 Years
through 5 Years
through 7 Years

Due after 7 Years
through 10 Years

Due after 10 Years

$

$

$

—
5,731,906
292,110
160,442446
131,2225,439,796
1,911,935
1,084,042
1,187,395
1,004,697
251,727
12,392,050$18,123,956

$

—
—
—
70,440—————3,277,695
9,671
—
—
9,671

3,268,024
222,836
1,243,816
750,366
873,704
177,300
7,775,193$11,052,888¥—
5,404,036
9,114
—
—
9,114

5,394,922
968,001
1,720,732
620,688
1,845,641
239,860
8,743,125$14,147,161———
199,380
50,00050,000———3,100,871
445,673445,673——

2,655,198
534,807
77,1471,331,390
641,61070,24423,377,958$26,478,828*1 As of March 31, 2017, loans and bills discounted with no contractual maturities amounting to ¥200,924 million ($1,790,932 thousand) and loans and bills discounted whose cash flow cannot
be estimated, such as “legal bankruptcy,” “virtual bankruptcy,” and “possible bankruptcy” loans, amounting to ¥153,847 million ($1,371,310 thousand) are not included.
*2 As of March 31, 2016, loans and bills discounted with no contractual maturities amounting to ¥114,900 million and loans and bills discounted whose cash flow cannot be estimated, such as“legal bankruptcy,” “virtual bankruptcy,” and “possible bankruptcy” loans, amounting to ¥63,828 million are not included.

51

Mebuki Financial Group, Inc.

Millions of Yen
Due after 3 Years
Due after 5 Years
through 5 Years
through 7 Years

Due in 1 Yearor Less

Due after 1 Yearthrough 3 Years

Deposits * �������������������������������������������������������� ¥12,402,723
284,605
Negotiable certificates of deposit������������������������
303,312Call money and bills sold������������������������������������
Payables under securities lending transactions����
167,640
Borrowed money������������������������������������������������
502,373
Total����������������������������������������������������������������� ¥13,660,655¥964,401
100——
156,360¥1,120,862

March 31, 2016

Due in 1 Yearor Less

Due after 1 Yearthrough 3 Years

Deposits *1��������������������������������������������������������
Negotiable certificates of deposit������������������������
Borrowed money������������������������������������������������
Total�����������������������������������������������������������������

¥4,752,916
174,878
62,014¥4,989,810¥382,418—
118,110¥500,528

March 31, 2017

Due in 1 Yearor Less

Due after 1 Yearthrough 3 Years

Thousands of U.S. Dollars
Due after 3 Years
Due after 5 Years
through 5 Years
through 7 Years

Deposits * �������������������������������������������������������� $110,551,062
Negotiable certificates of deposit������������������������
2,536,814
2,703,564
Call money and bills sold������������������������������������
1,494,252
Payables under securities lending transactions����
Borrowed money������������������������������������������������
4,477,881
Total����������������������������������������������������������������� $121,763,572$8,596,149
891——
1,393,716$9,990,756$1,128,525———
684,856$1,813,381

March 31, 20171

1

¥126,609———
76,833¥203,443

Due after 7 Years
through 10 Years¥9,161———
12¥9,173¥4,152———
12¥4,164

Millions of Yen
Due after 3 Years
Due after 5 Years
through 5 Years
through 7 Years¥ 69,441—
71,602¥141,043

Due after 7 Years
through 10 Years

¥733
—
—
¥733

¥1,192——¥1,192

Due after 7 Years
through 10 Years$81,657———
112$81,769$37,009———112$37,121

Due after 10 Years

¥—
—
—
—
—
¥—

Due after 10 Years

¥—
—
—
¥—

Due after 10 Years

¥—
—
—
—
—
¥—

*1 The cash flow of demand deposits is included in “Due in one year or less.”

23. DERIVATIVES(1) Derivative Transactions to Which Hedge Accounting Is Not Applied at March 31, 2017 and 2016
With respect to derivatives to which hedge accounting is not applied, contract amount or notional principal, fair value and the related valuation gains (losses) at the fiscal
year end date by transaction type and valuation method of fair value are as follows. Note that contract amounts do not represent the market risk exposure associated with
derivatives.
Consolidated banking subsidiaries had the following derivative contracts, which were quoted on listed exchanges, outstanding as of March 31, 2017 and 2016, as
follows:

March 31, 2017

Contract
AmountBond-related transactions
Bond futures:
Sold����������������������������������������������
Bought������������������������������������������
Total���������������������������������������������������

¥2,553——

March 31, 2016

Contract
AmountBond-related transactions
Bond futures:
Sold���������������������������������������������
Bought�����������������������������������������
Total���������������������������������������������������

¥3,465453—

Millions of Yen
Contract AmountDue afterFair
One Year
Value

—
—
—

¥ (1)
—
¥ (1)

Millions of Yen
Contract AmountDue afterFair
One Year
Value

—
—
—

¥(14)
—
¥(14)

Unrealized
Gains/Losses

Contract
Amount

¥ (1)
—
¥ (1)

$22,762——

Thousands of U.S. Dollars
Contract AmountDue afterFair
One Year
Value

—
—
—

$(10)
—
$(10)

Unrealized
Gains/Losses

$(10)
—
$(10)

Unrealized
Gains/Losses

¥(14)
—
¥(14)

Note: 1 The transactions above are stated at fair value and the related valuation gains (losses) are reported in the consolidated statement of income.
2 Fair values of transactions above are determined based on closing prices at the Osaka Exchange or other relevant exchanges.

Annual Report 201752

Consolidated banking subsidiaries had the following derivative contracts, which were not quoted on listed exchanges, outstanding as of March 31, 2017 and 2016, as follows:

March 31, 2017

Contract
AmountMillions of Yen
Contract AmountDue afterFair
One Year
Value

Unrealized
Gains/Losses

Contract
AmountThousands of U.S. Dollars
Contract AmountDue afterFair
One Year
Value

Unrealized
Gains/Losses

Interest rate-related transactions
Interest rate swaps:
Receive fixed and pay floating�����
Receive floating and pay fixed�����
Swaptions:¥106,628
106,628¥87,406
87,406¥1,629(296)¥1,629(296)$ 950,426
950,426$ 779,092
779,092$14,524(2,643)$14,524(2,643)

Sold������������������������������������������
Bought��������������������������������������
Total����������������������������������������������������
Currency-related transactions

2,030
2,030
—

—
—
—

(1)
1
¥1,3329
1¥1,34318,09418,094
—

—
—
—

(10)
10
$11,88188
10$11,979

Currency swaps�������������������������������
Forward exchange contracts:¥276,519¥181,614

¥ 393

¥ 393

$2,464,740$1,618,811$ 3,510$ 3,510

Sold������������������������������������������
Bought��������������������������������������
Currency option contracts:

45,875
46,771

4,937
4,191

(1,048)1,064(1,048)
1,064

408,911416,895

44,01237,357(9,345)9,486(9,345)9,486

Sold������������������������������������������
Bought��������������������������������������
Total����������������������������������������������������

70,34470,344—37,36337,363—(1,941)
1,954
¥ 422

(484)
1,223
¥1,148627,015
627,015—333,037
333,037—(17,305)
17,424$ 3,770(4,322)
10,904$10,233

March 31, 2016

Interest rate-related transactions
Interest rate swaps:
Receive fixed and pay floating������
Receive floating and pay fixed������
Total����������������������������������������������������
Currency-related transactions
Currency swaps�������������������������������
Forward exchange contracts:
Sold�������������������������������������������
Bought���������������������������������������
Total����������������������������������������������������

Contract
AmountMillions of Yen
Contract AmountDue afterFair
One Year
Value

Unrealized
Gains/Losses¥ 6,000
6,000—¥ 6,000
6,000
—

¥ 30
58
¥ 88

¥ 30
58
¥ 88

¥194,402¥160,906

¥311

¥311

5,650
14,651
—

135
—
—

188
33
¥534

188
33
¥534

Note: 1 The transactions above are stated at fair value and the related valuation gains (losses) are reported in the consolidated statement of income.
2 Fair values of transactions above are determined based on a discounted cash flows model, an option pricing model or other models as appropriate.

53

Mebuki Financial Group, Inc.

(2) Derivative Transactions to Which Hedge Accounting is Applied at March 31, 2017 and 2016
With respect to derivatives to which hedge accounting is applied, contract amount or notional principal and fair value at the fiscal year end date by transaction type andhedge accounting method and valuation method of fair value are as follows. Note that contract amounts do not represent the market risk exposure associated with derivatives.
Consolidated banking subsidiaries had the following derivative contracts, which were accounted for based on principle method, outstanding as of March 31, 2017and 2016, as follows:

March 31, 2017

Hedged Item

Contract
AmountMillions of Yen
Contract AmountDue after
One YearThousands of U.S. Dollars
Contract AmountDue after
Fair
Contract
One YearValue
AmountFair
Value¥ 40,000¥30,000¥(543)$ 356,538$267,404$(4,844)——¥(543)——$(4,844)¥161,342
103,10279,207¥84,642——¥ (58)
825(722)$1,438,122
919,000
706,009$754,454——$ (524)
7,357(6,440)

—

—

¥ 44

—

—

$ 393

Interest rate-related transactions*1*4
Interest rate swaps:
Interest-bearing financial assets
and liabilities, including loans,available-for-sale securities,
deposits and negotiable
Receive floating and pay fixed������ certificates of deposit, etc.
Total�����������������������������������������������
Currency-related transactions*2*5
Loans, securities, deposits,
Currency swaps������������������������������� foreign exchanges, etc., which
Forward exchange contracts������������ are denominated in foreign
Others�������������������������������������������� currencies
Total�����������������������������������������������
Equity-related transactions*3*6
Stock forward contracts�������������������Available-for-sale securities¥ 4,473—

Total�����������������������������������������������

¥

—

¥ 24

—

¥ 24

$

39,874
—

$

—

$ 216

—

$ 216

Note: 1. Interest rate-related transactions are primarily accounted for using the deferral method in accordance with “Accounting and Auditing Treatment relating to the Adoption of ‘Accounting
for Financial Instruments’ for Banks” (JICPA Industry Audit Committee Report No. 24, February 13, 2002).
2. Currency-related transactions are primarily accounted for using the deferral method in accordance with “Accounting and Auditing Treatment relating to Accounting for Foreign Currency
Transactions in the Banking Industry” (JICPA Industry Audit Committee Report No. 25, July 29, 2002).
3. Equity-related transactions are accounted for using the deferral method.
4. Fair values of exchange-traded transactions are determined based on closing prices at the Tokyo Financial Exchange or other relevant exchanges. Fair values of over-the-counter tradedtransactions are determined based on a discounted cash flows model, an option pricing model or other models as appropriate.
5. Fair value is determined based on a discounted cash flows model.
6. Fair value is determined based on prices provided by correspondent financial institutions.

March 31, 2016

Hedged Item

Interest rate-related transactions
Interest rate swaps:
Receive floating and pay fixed������Bonds (available-for-sale securities)
Total�����������������������������������������������
Currency-related transactions
Currency swaps�������������������������������Loans, deposits, due from banks,etc., which are denominated in
Forward exchange contracts������������ foreign currencies
Total�����������������������������������������������

Contract
AmountMillions of Yen
Contract AmountDue after
One Year¥50,000¥50,000¥(5,691)——¥(5,691)¥45,072
43,156¥45,072
—

—

—

Fair
Value

¥

803
1,761

¥ 2,564

Note: 1 These derivatives are accounted for using deferred hedge accounting.
2 Fair values of transactions above are determined based on a discounted cash flow model.

One consolidated banking subsidiary had the following derivative contracts, which were accounted for by the exceptional accrual method, outstanding as of March
31, 2017.

March 31, 2017

Hedged Item

Contract
AmountMillions of Yen
Contract AmountDue after
One Year

Fair
Value

Thousands of U.S. Dollars
Contract AmountDue after
Fair
Contract
One YearValue
Amount¥ 2,000
24,016¥ —18,594¥ 21(852)$ 17,827
214,071$—
165,740$ 187(7,598)——¥(831)——$(7,411)

Interest rate-related transactions
Interest rate swaps:
Receive fixed and pay floating������Loans and borrowed money
Receive floating and pay fixed������
Total�����������������������������������������������

Note: The exceptional accrual method of hedge accounting, as specifically permitted for certain interest rate swaps, is valued with the hedged items as a whole, so that the fair value is included in
the fair value of borrowed money and loans and bills discounted (“Note 22. FINANCIAL INSTRUMENTS AND RELATED DISCLOSURES (5) Fair Values of Financial Instruments”).

Annual Report 20175424. OTHER COMPREHENSIVE INCOME (LOSS)
The components of other comprehensive income (loss) for the years ended
March 31, 2017 and 2016, were as follows:
Millions of Yen
2017
2016

Unrealized gains (losses)
on available-for-sale securities:
Gains arising during the year���������� ¥ 4,630
Reclassification adjustments
to profit or loss����������������������������� (14,419)
Amount before
income tax effect��������������������� (9,789)
Income tax effect����������������������
3,281
Total������������������������������������������������� ¥ (6,507)
Deferred gains (losses) on derivatives
under hedge:
Gains arising during the year���������� ¥ 6,412
Reclassification adjustments
to profit or loss����������������������������� (2,963)
Amount before
income tax effect���������������������
3,448
Income tax effect���������������������� (1,049)
Total������������������������������������������������� ¥ 2,399
Defined retirement benefit plans:
Gains arising during the year���������� ¥ 3,843
Reclassification adjustments
3,688
to profit or loss�����������������������������
Amount before
income tax effect���������������������
7,532
Income tax effect���������������������� (2,298)
Total������������������������������������������������� ¥ 5,233
Total other comprehensive
income (loss)������������������������������������ ¥ 1,125

Thousands of
U.S. Dollars
2017¥7,455$ 41,276(3,128)(128,530)

4,326
(504)
¥3,822(87,255)
29,249$ (58,006)¥(6,786)$ 57,154

2,061(26,418)(4,724)
1,423¥(3,301)

30,736(9,352)$ 21,384¥(5,954)$ 34,261

622

32,877(5,331)
1,673¥(3,658)

67,138(20,486)$ 46,653¥(3,136)$ 10,031

Under ASBJ revised ASBJ Statement No. 17, “Accounting Standard for Segment
Information Disclosures,” and ASBJ Guidance No. 20, “Guidance on AccountingStandard for Segment Information Disclosures,” an entity is required to report financial and descriptive information about its reportable segments. Reportablesegments are operating segments or aggregations of operating segments thatmeet specified criteria. Operating segments are components of an entity about
which separate financial information is available, and such information is evaluated regularly by the chief operating decision maker in deciding how to allocate resources and in assessing performance. Generally, segment information isrequired to be reported on the same basis as is used internally for evaluating operating segment performance and deciding how to allocate resources to operating segments.
The Group engages in banking and other related activities, such as leasing,securities, and credit card service. Segment information is not disclosed due tothe immateriality of operations other than banking.

Mebuki Financial Group, Inc.

March 31, 2017

Millions of Yen
Lending Investment
Operations Operations
Other

Ordinary income
from external customers���������� ¥89,325

March 31, 2016

¥56,209¥21,201$501,018

Total¥25,336 ¥102,474

Thousands of U.S. Dollars
Lending Investment
Operations Operations
Other

Ordinary income
from external customers���������� $796,199

Total¥67,750 ¥213,284

Millions of Yen
Lending Investment
Operations Operations
Other

Ordinary income
from external customers���������� ¥55,936

March 31, 201725. SEGMENT INFORMATION

55

Other segment-related information:(1) Information by services

Total$603,888 $1,901,104(2) Information by geographic region
Since the ordinary income and total tangible fixed assets attributable to the “Japan” segment account for more than 90% of the total of all geographic segments, geographical segment information has not been presented.
(3) Information by major customers
Since there has been no specific customer to whom the Group sells more than
10% of total ordinary income on the consolidated statement of income, information on major customers has not been presented.
(4) Information on loss on impairment of fixed assets by reportable segment
Information on loss on impairment of fixed assets is not disclosed due to immateriality, except for the banking business.
(5) Information on amortization and unamortized balance of goodwill by reportable segment
Information on amortization and unamortized balance of goodwill is not disclosed
due to immateriality, except for the banking business.
(6) Information on gain on negative goodwill by reportable segment
Information on gain on negative goodwill is not disclosed due to immateriality, except for the banking business.

26. RELATED PARTY TRANSACTIONS
Related party transactions of consolidated subsidiaries of the Company with its directors or major individual shareholders for the years ended March 31, 2017 and 2016,
were as follows:Year ended March 31, 2017

Location

Capital(Millions of Yen/Thousands of
U.S. Dollars)

Business

Ownerships

Relationship

Yoshie Suto

—

—

—

—

—

Loan

¥28
($257)

Loans andbills
discounted¥48($431)

Companies in which a
Ito dentist
majority of voting rights isowned by a director or
director's close relatives

Ibaraki¥22($202)

Dental Clinic

—

—

Loan

¥12
($114)

Loans andbills
discounted¥28($251)

Loan¥114($1,022)

Loans andbills
discounted¥100($891)

Underwriting
privateplacement
bond

¥100
($891)

Securities¥100($891)Type

A director or
director's close relative

Name

Yokokura
HontenCO., LTD.

Tochigi¥20($178)

Wholesale——Transactions(Millions of Yen/
Thousands of U.S. Dollars)

Outstanding Balance(Millions of Yen/
Thousands of U.S. Dollars)

Terms and conditions on transactions and transaction policy:
The interest rate on loans is reasonably determined considering the market rate.

Year ended March 31, 2016
Type

Name

Location

Capital(Millions of Yen)

Business

Ownerships

RelationshipTransactions(Millions of Yen)

Loan
Yokokura
HontenCO., LTD. (*2,3)

Companies in which amajority of voting rights isowned by a director or
ITATSU
director’s close relatives
CO., LTD. (*2,4,6)
Ryomo
Seikeihin Toso
Co., Ltd (*2,5,6)

Tochigi¥20

Wholesale—

Loans of
Ashikaga¥145

Underwriting
privateplacement
bond

¥100

Tochigi¥30

Wholesale—

Loans of
Ashikaga

Loan

¥458

Gunma

¥20

Manufacturing—

Loans of
Ashikaga

Loan

¥13

Outstanding Balance(Millions of Yen)

Loans andbills
discounted¥100

Securities¥100

Loans andbills
discounted
Loans andbills
discounted

¥438
¥12

Terms and conditions on transactions and transaction policy:
Note 1: Transaction amounts were reported at the average balance for the period.
Note 2: The interest rate on loans is reasonably determined considering the market rate.
Note 3: A majority of the voting rights is owned by a close relative of Mr. Mitsuhiro Kitamura, an outside director of the Company.
Note 4: A majority of the voting rights is owned by a close relative of Mr. Toshio Itabashi, retired as an outside director of the Company on June 25, 2015.
Note 5: A majority of the voting rights is owned by ITATSU Co., LTD.
Note 6: This is not a related party as Mr. Toshio Itabashi retired as an outside director of the Company on June 25, 2015. Transaction amounts were reported at the average balanced during theperiod of an outside director of the Company. Outstanding balances were reported at the end of the period in which it ceased to be a related party.
Note 7: Transaction amounts do not include consumption taxes.

27. BUSINESS COMBINATIONThe Business Integration of AHD and Joyo (together, the “Companies”) resolved
to consummate a business integration through a share exchange. At the sametime, AHD, Joyo, and Ashikaga entered into a business integration agreement.
AHD conducted a share exchange which made AHD a wholly-owing parent
company and Joyo a wholly-owned subsidiary, and changed its trade name to“Mebuki Financial Group, Inc.” on October 1, 2016, as the effective date, after
the approval for the share exchange by the ordinary general meeting of shareholders of each of the Companies held on June 28, 2016, and the approval forthe business integration has been issued by the Financial Services Agency of Japan on September 29, 2016.
(1) Outline of the Business Combination(a) Name of the acquired company and its business outline
Name of the Acquired Company : AHD
Business content: Bank holding company(b) Major reasons for the business combination
The new financial group established through the integration of the Companies
will aim to maintain and promote the relationships with customers and the deep
understanding of the local communities that Joyo and Ashikaga have developed
over the years, and to realize the advancement of comprehensive financial
services and operational efficiencies by taking advantage of the wide area
network and other connections formed through the Business Integration of theCompanies.
Through the above-mentioned efforts, the Companies will provide moreconvenient and high-quality comprehensive financial services that can beachieved only through the integration of leading regional banks. In addition, theCompanies will aim to become a group that is highly evaluated by eachstakeholder through the achievement of persistent growth as a driving force ofregional development and revitalization, the improvement of corporate value in
response to the expectations of shareholders and markets, and the expansion of
the opportunities for officers and employees to play an active part and enhancetheir pride and enjoyment in their duties. Furthermore, the Companies will aim to

Annual Report 201756

become a financial group that is open to other regional financial institutions whoshare the corporate ideals with each other.

(5) Major acquisition-related costs
Advisory fee, etc.: ¥649 million ($5,786 thousand)(c) Date of the business combination
October 1, 2016

(6) Amount of the difference between the total cost of each transaction
and the acquisition cost of the acquired company
Loss on step acquisitions: ¥184 million ($1,642 thousand)(d) Legal form of the business combination
Share exchange, under which AHD became the wholly owing parent company,
and Joyo became the wholly owned subsidiary.
(e) Name of the company after the business combination
Mebuki Financial Group, Inc.
(f) Rating of voting rights acquired
Voting right ratio before the share exchangeAcquired voting right ratio on the date of the business combination 
Voting right ratio after the share exchange

0.39%
99.61%
100.00%(g) Basis for determining the acquirer
By applying “Accounting Standard for Business Combinations” (ASBJ Statement
No. 21), and the “Guidance on Accounting Standard for Business Combinations,”
and “Accounting Standard for Business Divestitures” (ASBJ Guidance No. 10), it
has been decided that Joyo would be the acquiring company and AHD would be
the acquired company, mainly because shareholders of Joyo, a wholly-owned
subsidiary, will have the largest percentage of voting rights of the integrated
company.
(2) The period for which the operations of the acquired company areincluded in the consolidated financial statements
From October 1, 2016, to March 31, 2017(3) Acquisition cost of the acquired company and related details of eachclass of consideration
Millions of Yen

Market value of AHD common shares
held by Joyo immediately before thedate of the business combination������
Market value of Joyo common sharesas if to be issued by Joyo on the dateof the business combination��������������
Acquisition cost���������������������������������

¥464

122,998¥123,463

Thousands of
U.S. Dollars

$

4,139

1,096,344$1,100,483(4) Exchange ratio by type of shares and methods of calculating the shareexchange ratio and number of shares allotted(a) Exchange ratio by type of shares
Joyo shareholders received 1.17 shares of the Company’s common stock foreach share of Joyo common stock.
(b) Methods of calculating the share exchange ratio
To ensure fairness of calculation of the share exchange ratio, the Companies appointed third-party valuation institutions independent of both parties. Joyo has
appointed Mitsubishi UFJ Morgan Stanley Securities Co., Ltd. for its third-party
valuation and AHD has appointed Pricewaterhouse Coopers for its third-party valuation. Based on the analysis results, the Companies have carefully consulted
and considered matters, and have reached the conclusion that the above common share exchange ratio is appropriate for the business integration.
(c) Number of shares delivered
Common shares: 845,805,218 shares

57

Mebuki Financial Group, Inc.

(7) The assets acquired and the liabilities assumed at the acquisition dateare as follows:

Total assets:��������������������������������������
Of which, loans and bills
discounted���������������������������������
Of which, securities����������������������
Of which, allowance
for loan losses����������������������������
Total liabilities:�����������������������������������
Of which, deposits�����������������������

Millions of Yen

Thousands of
U.S. Dollars¥6,207,461$55,329,902

4,221,375
1,314,586

37,627,018
11,717,500(38,581)¥5,964,697
5,148,407(343,897)$53,166,033
45,890,077(8) Amount and reason for gain on negative goodwill incurred(a) Amount of gain on negative goodwill incurred¥119,219 million ($1,062,657 thousand)(b) Reason for gain on negative goodwill incurred
Gain on negative goodwill was recognized because the fair value of AHD’s net
assets at the time of the business combination exceeded the acquisition cost.
(9) Approximate amounts of impact of the business combination on the
Company’s consolidated statement of income for the fiscal year under review assuming the business combination was completed at the beginningof the fiscal year
If this business combination had been completed as of April 1, 2016, the beginning of the current fiscal year, the unaudited condensed pro forma consolidated
statement of income for the year ended March 31, 2017, would be as follows:

Ordinary income��������������������������������
Ordinary profit������������������������������������
Net income attributableto owners of the parent���������������������

Millions of Yen

Thousands of
U.S. Dollars¥52,972
18,690$472,170
166,595

12,027

107,208

Since this business integration is a reverse acquisition, figures above do not include gain on negative goodwill without recalculation. Therefore, the pro forma
consolidated statement of income does not show the figures if business integration was carried out at the beginning of the current fiscal year.

28. SUBSEQUENT EVENTSThe Company resolved at the meeting of the board of directors held on March
21, 2017, that it shall acquire all shares of The Joyo Lease Co., Ltd. (“Joyo
Lease”), a wholly-owned subsidiary of Joyo, through dividends-in-kind and conducted the acquisition on April 3, 2017, which made Joyo Lease a directly andwholly-owned subsidiary of the Company. The trade name of Joyo Lease waschanged to “Mebuki Lease Co., Ltd.” on April 3, 2017.

Annual Report 201758

Consolidated Balance Sheet (Unaudited)
March 31, 2017

The Joyo Bank, Ltd. and Consolidated Subsidiaries

Millions of Yen
2017
2016

ASSETSCash and due from banks��������������������������������������������������������������������������������������������������
Call loans and bills bought�������������������������������������������������������������������������������������������������
Monetary claims bought�����������������������������������������������������������������������������������������������������
Trading assets��������������������������������������������������������������������������������������������������������������������
Securities����������������������������������������������������������������������������������������������������������������������������
Loans and bills discounted�������������������������������������������������������������������������������������������������
Foreign exchanges�������������������������������������������������������������������������������������������������������������
Lease receivables and investments in lease���������������������������������������������������������������������
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����������������������������������������������������������������������������������������������������������������������������

¥ 754,138
3,365
8,161
4,060
2,789,315
5,915,412
2,826
46,25085,36993,9309,936
1,022
47,619(39,621)(9)¥9,721,778¥ 442,713
2,000
9,977
5,918
2,736,884
5,869,596
4,241
42,50264,583
94,3009,936
1,986
14,727(40,659)(9)¥9,258,701$ 6,721,975
30,00072,74536,19024,862,422
52,726,737
25,192412,254760,939
837,243
88,567
9,115
424,451(353,162)(80)$86,654,588

LIABILITIES AND EQUITY
LIABILITIES:
Deposits������������������������������������������������������������������������������������������������������������������������������
Negotiable certificates of deposit���������������������������������������������������������������������������������������
Call money and bills sold���������������������������������������������������������������������������������������������������
Payables under securities lending transactions����������������������������������������������������������������
Trading liabilities�����������������������������������������������������������������������������������������������������������������
Borrowed money�����������������������������������������������������������������������������������������������������������������
Foreign exchanges�������������������������������������������������������������������������������������������������������������
Bonds����������������������������������������������������������������������������������������������������������������������������������
Bonds with warrants�����������������������������������������������������������������������������������������������������������
Due to trust account�����������������������������������������������������������������������������������������������������������
Other liabilities��������������������������������������������������������������������������������������������������������������������
Provision for directors’ bonuses����������������������������������������������������������������������������������������
Liability for retirement benefits������������������������������������������������������������������������������������������
Provision for directors’ retirement benefits�����������������������������������������������������������������������
Provision for reimbursement of deposits���������������������������������������������������������������������������
Provision for point card certificates�����������������������������������������������������������������������������������
Provision for losses on interest repayments����������������������������������������������������������������������
Provision for contingent losses������������������������������������������������������������������������������������������
Reserves under special laws����������������������������������������������������������������������������������������������
Deferred tax liabilities���������������������������������������������������������������������������������������������������������
Deferred tax liabilities for land revaluation������������������������������������������������������������������������
Negative goodwill����������������������������������������������������������������������������������������������������������������
Acceptances and guarantees���������������������������������������������������������������������������������������������
Total liabilities���������������������������������������������������������������������������������������������������������������

¥8,225,513
35,402
61,337
135,417511
445,546
501
5,000
—
13
97,481
51
8,896
33
2,585
139
4
1,038
2
30,9769,454
1,501
47,619¥9,109,027¥8,088,463
22,68945,560130,247895
174,118886
15,00033,804
13
78,62748
15,475
38
2,354
145
6
1,045
2
31,295
9,526
1,659
14,727¥8,666,631$73,317,705
315,555
546,730
1,207,034
4,560
3,971,352
4,468
44,567—
118
868,893458
79,298301
23,049
1,246
40
9,258
18
276,104
84,274
13,382424,451$81,192,863

¥

¥

$

EQUITY:
Common stock��������������������������������������������������������������������������������������������������������������������
Capital surplus��������������������������������������������������������������������������������������������������������������������
Stock acquisition rights������������������������������������������������������������������������������������������������������
Retained earnings���������������������������������������������������������������������������������������������������������������
Treasury stock��������������������������������������������������������������������������������������������������������������������
Accumulated other comprehensive income:Unrealized gains on available-for-sale securities��������������������������������������������������������
Deferred losses on derivatives under hedge accounting��������������������������������������������
Land revaluation surplus����������������������������������������������������������������������������������������������
Defined retirement benefit plans����������������������������������������������������������������������������������
Total accumulated other comprehensive income�������������������������������������������������
Noncontrolling interests������������������������������������������������������������������������������������������������������
Total equity��������������������������������������������������������������������������������������������������������������
TOTAL���������������������������������������������������������������������������������������������������������������������������������������

59

Thousands of
U.S. Dollars
2017

Mebuki Financial Group, Inc.

85,11359,705—329,982—

130,597(574)
12,844(4,918)137,949—
612,750¥9,721,778

85,11358,574132
333,964(21,569)

135,031(3,073)13,002(10,667)
134,293
1,562
592,070¥9,258,701

758,651
532,185—
2,941,284—

1,164,076(5,121)
114,488(43,840)
1,229,604—
5,461,724$86,654,588

Consolidated Statement of Income (Unaudited)Year Ended March 31, 2017

The Joyo Bank, Ltd. and Consolidated Subsidiaries

Millions of Yen
2017
2016

INCOME:Interest income:Interest on loans and discounts�����������������������������������������������������������������������������������
Interest and dividends on securities����������������������������������������������������������������������������
Interest on call loans and bills bought�������������������������������������������������������������������������
Interest on deposits with banks�����������������������������������������������������������������������������������
Other interest income���������������������������������������������������������������������������������������������������
Trust fees����������������������������������������������������������������������������������������������������������������������������
Fees and commissions�������������������������������������������������������������������������������������������������������
Trading income�������������������������������������������������������������������������������������������������������������������
Other operating income������������������������������������������������������������������������������������������������������
Other income����������������������������������������������������������������������������������������������������������������������
Total income������������������������������������������������������������������������������������������������������������
EXPENSES:Interest expenses:
Interest on deposits������������������������������������������������������������������������������������������������������
Interest on negotiable certificates of deposit��������������������������������������������������������������
Interest on call money and bills sold���������������������������������������������������������������������������
Interest on payables under securities lending transactions���������������������������������������
Interest on borrowing and rediscounts������������������������������������������������������������������������
Interest on bonds����������������������������������������������������������������������������������������������������������
Other interest expenses�����������������������������������������������������������������������������������������������
Fees and commissions�������������������������������������������������������������������������������������������������������
Other operating expenses��������������������������������������������������������������������������������������������������
General and administrative expenses��������������������������������������������������������������������������������
Provision of allowance for loan losses�������������������������������������������������������������������������������
Other expenses�������������������������������������������������������������������������������������������������������������������
Total expenses��������������������������������������������������������������������������������������������������������
INCOME BEFORE INCOME TAXES�������������������������������������������������������������������������������������������
INCOME TAXES
Current��������������������������������������������������������������������������������������������������������������������������������
Deferred������������������������������������������������������������������������������������������������������������������������������
Total income taxes��������������������������������������������������������������������������������������������������NET INCOME�����������������������������������������������������������������������������������������������������������������������������NET INCOME ATTRIBUTABLE TO NONCONTROLLING INTERESTS����������������������������������������NET INCOME ATTRIBUTABLE TO OWNERS OF THE PARENT������������������������������������������������

¥ 63,653
28,634
33
315
378
22
25,4792,253
11,93934,988167,698¥ 66,321
29,208
38
323
353
25
26,5142,211
9,556
28,847
163,400$ 567,369
255,232
299
2,809
3,369
204
227,106
20,087
106,423
311,871
1,494,771

2,124
11
471
957
616
233
3,539
6,746
6,757
74,046
4,160
28,672
128,336
39,361

2,629
21
255
605
358
254
2,452
6,477
4,163
70,784
2,754
25,611
116,368
47,032

18,939
98
4,199
8,532
5,498
2,082
31,54760,13060,232660,01137,089255,567
1,143,923
350,848

12,794(916)
11,877¥ 27,483
28¥ 27,455

13,937
1,925
15,862¥ 31,169135¥ 31,034

114,044(8,172)
105,872$ 244,976
252$ 244,724

Yen

PER SHARE OF COMMON STOCK
Basic net income����������������������������������������������������������������������������������������������������������������
Diluted net income��������������������������������������������������������������������������������������������������������������

Thousands of
U.S. Dollars
2017¥37.97—

U.S. Dollars¥42.93
42.91

$0.33
—

Consolidated Statement of Comprehensive Income (Unaudited)Year Ended March 31, 2017

The Joyo Bank, Ltd. and Consolidated Subsidiaries

Millions of Yen
2017
2016

NET INCOME�����������������������������������������������������������������������������������������������������������������������������
OTHER COMPREHENSIVE INCOME
Unrealized gains (losses) on available-for-sale securities������������������������������������������������
Deferred gains (losses) on derivatives under hedge accounting��������������������������������������
Land revaluation surplus���������������������������������������������������������������������������������������������������
Defined retirement benefit plans��������������������������������������������������������������������������������������
Total other comprehensive income (loss)��������������������������������������������������������������COMPREHENSIVE INCOME������������������������������������������������������������������������������������������������������
TOTAL COMPREHENSIVE INCOME ATTRIBUTABLE TO:
Owners of the parent����������������������������������������������������������������������������������������������������������
Noncontrolling interests������������������������������������������������������������������������������������������������������

Thousands of
U.S. Dollars
2017¥27,483¥31,169$244,976(4,455)
2,498
—
5,749
3,792
¥31,276(24,888)(1,348)498(6,911)(32,649)¥(1,479)(39,714)
22,272—
51,24433,802$278,778¥31,248
27¥(1,605)125$278,531
247
Annual Report 201760

Consolidated Statement of Changes in Equity (Unaudited)Year Ended March 31, 2017

The Joyo Bank, Ltd. and Consolidated Subsidiaries

Millions of Yen

BALANCE, APRIL 1, 2015�������������������������Cash dividends�����������������������������������
Net income attributableto owners of parent��������������������������
Purchase of treasury stock������������������
Disposal of treasury stock�������������������
Reversal of land revaluation surplus�����
Net changes during the fiscal year�������
Total changes during the fiscal year����������
BALANCE, APRIL 1, 2016�������������������������Cash dividends�����������������������������������
Net income attributableto owners of parent��������������������������
Purchase of treasury stock������������������
Disposal of treasury stock�������������������
Retirement of treasury stock����������������
Changes due to acquiring equity ofconsolidated subsidiaries������������������
Reversal of land revaluation surplus�����
Net changes during the fiscal year�������
Total changes during the fiscal year����������
BALANCE, MARCH 31, 2017��������������������

CommonStockCapitalSurplus¥85,113¥58,574

Stock
Acquisition
Rights¥147

Retained
Earnings

TreasuryStock

Accumulated Other Comprehensive Income
Unrealized Deferred Gains
Gains (Losses) (Losses) on
Definedon Available- Derivatives
Land
under Hedge Revaluation Retirement
for-Sale
Accounting
Benefit Plans
Securities
Surplus¥311,093(8,312)¥(21,619)¥159,909¥(1,725)¥12,666¥ (3,756)

Total¥167,094

Noncontrolling
Interests¥1,43731,034(12)
161—¥85,113—¥58,574

(14)
(14)
¥132

22,871¥333,964(10,046)

(28)
78

49
¥(21,569)(24,878)(24,878)¥135,031(1,348)(1,348)¥(3,073)

336
336¥13,002(6,911)(6,911)¥(10,667)(32,801)(32,801)¥134,293

124
124¥1,562

27,455(0)(21,548)

(132)
(132)
¥ —

(3,981)¥329,982

31,034(28)
65
161(32,691)(9,769)¥592,070(10,046)
27,455(4)
24—

21,569
¥
—

1,131
158
1,961
20,680¥612,750

158
1,131¥59,705¥601,840(8,312)(4)
25
21,5481,131—¥85,113

Total
Equity(4,433)(4,433)¥130,597

2,498
2,498
¥ (574)

(158)
(158)
¥12,844

5,749
5,749
¥ (4,918)

3,655
3,655
¥137,949(1,562)(1,562)¥ —Thousands of U.S. Dollars

BALANCE, APRIL 1, 2016�������������������������Cash dividends�����������������������������������
Net income attributableto owners of parent��������������������������
Purchase of treasury stock������������������
Disposal of treasury stock�������������������
Retirement of treasury stock����������������
Changes due to acquiring equity ofconsolidated subsidiaries�����������������
Reversal of land revaluation surplus�����
Net changes during the fiscal year�������
Total changes during the fiscal year����������
BALANCE, MARCH 31, 2017��������������������

61

Mebuki Financial Group, Inc.

CommonStockCapitalSurplus$758,651$522,097

Stock
Acquisition
RightsRetained
Earnings

TreasuryStock

Accumulated Other Comprehensive Income
Unrealized Deferred Gains
Gains (Losses) (Losses) on
DefinedLand
on Available- Derivatives
under Hedge Revaluation Retirement
for-Sale
Benefit Plans
Surplus
Accounting
Securities$ 1,180 $2,976,776 $ (192,259) $1,203,596(89,547)$(27,392)$115,901

Total$(95,084) $1,197,020

244,724(8)(192,073)

1,413
10,088$532,185(1,180)(39,520)(1,180)(35,492)
192,259(39,520)$ — $2,941,284 $— $1,164,076

Total
Equity$ 13,924 $5,277,389(89,547)
244,724
(40)
218
—

(40)
226
192,073

10,088—$758,651

Noncontrolling
Interests

22,272
22,272$ (5,121)(1,413)(1,413)$114,488

51,24432,58351,24432,583$(43,840) $1,229,604

10,088
1,413(13,924)
17,480(13,924)
184,336$— $5,461,724

Consolidated Statement of Cash Flows (Unaudited)Year Ended March 31, 2017

The Joyo Bank, Ltd. and Consolidated Subsidiaries

OPERATING ACTIVITIES:
Income before income taxes������������������������������������������������������������������������������������������������
Adjustments for:
Income taxes paid�������������������������������������������������������������������������������������������������������
Depreciation and amortization�����������������������������������������������������������������������������������������
Impairment loss����������������������������������������������������������������������������������������������������������
Amortization of negative goodwill�������������������������������������������������������������������������������������
Decrease in allowance for loan losses�������������������������������������������������������������������������������
Increase (decrease) in provision for directors’ bonuses�����������������������������������������������������������
Decrease in asset for retirement benefits���������������������������������������������������������������������������
Increase in liabilities for retirement benefits������������������������������������������������������������������������
Decrease in provision for directors’ retirement benefits�����������������������������������������������������������
Increase in provision for reimbursement of deposits��������������������������������������������������������������
Increase (decrease) in provision for point card certificates�������������������������������������������������������
Decrease in provision for contingent losses�������������������������������������������������������������������������
Decrease in provision for interest repayments����������������������������������������������������������������������
Gain on fund management���������������������������������������������������������������������������������������������
Financing expenses�����������������������������������������������������������������������������������������������������
Gains related to securities���������������������������������������������������������������������������������������������
Foreign exchange losses�����������������������������������������������������������������������������������������������
Loss on disposal of fixed assets��������������������������������������������������������������������������������������
Net decrease (increase) in trading assets���������������������������������������������������������������������������
Net increase (decrease) in trading liabilities�������������������������������������������������������������������������
Net increase in loans and bills discounted��������������������������������������������������������������������������
Net increase in deposits������������������������������������������������������������������������������������������������
Net increase in negotiable certificates of deposit������������������������������������������������������������������
Net increase (decrease) in borrowed money (excluding subordinated borrowings)���������������������������
Net decrease (increase) in deposit (excluding cash equivalents)������������������������������������������������
Net decrease in call loans����������������������������������������������������������������������������������������������
Net increase in call money���������������������������������������������������������������������������������������������
Net increase (decrease) in payables under securities lending transactions������������������������������������
Net decrease (increase) in foreign exchanges - assets�����������������������������������������������������������
Net increase (decrease) in foreign exchanges - liabilities���������������������������������������������������������
Net increase in lease receivables and investments in lease������������������������������������������������������
Net decrease in due to trust account���������������������������������������������������������������������������������
Proceeds from fund management������������������������������������������������������������������������������������
Payments for finance���������������������������������������������������������������������������������������������������
Other--net�����������������������������������������������������������������������������������������������������������������
Total adjustments�������������������������������������������������������������������������������������������������������
Net cash provided by operating activities���������������������������������������������������������������������������������INVESTING ACTIVITIES:
Purchases of securities�������������������������������������������������������������������������������������������������
Proceeds from sales of securities�������������������������������������������������������������������������������������
Proceeds from redemption of securities�����������������������������������������������������������������������������
Purchases of tangible fixed assets�����������������������������������������������������������������������������������
Proceeds from sales of tangible fixed assets�����������������������������������������������������������������������
Purchases of intangible fixed assets���������������������������������������������������������������������������������
Net cash provided by investing activities����������������������������������������������������������������������������
FINANCING ACTIVITIES:Redemption of subordinated bonds and bonds with warrants���������������������������������������������������
Purchase of treasury stocks�������������������������������������������������������������������������������������������
Proceeds from sales of treasury stocks������������������������������������������������������������������������������Cash dividends paid�����������������������������������������������������������������������������������������������������
Dividends paid to noncontrolling interests���������������������������������������������������������������������������
Payments from changes in ownership interests that do not result in change in scope of consolidation������
Net cash provided by financing activities����������������������������������������������������������������������������
EFFECT OF EXCHANGE RATE CHANGES ON CASH AND CASH EQUIVALENTS�������������������������������������NET INCREASE IN CASH AND CASH EQUIVALENTS���������������������������������������������������������������������
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR����������������������������������������������������������������
CASH AND CASH EQUIVALENTS, END OF YEAR�������������������������������������������������������������������������

Millions of Yen
2017
2016

Thousands of
U.S. Dollars
2017

39,361¥ 47,032$(17,123)
6,345
559
(158)
(1,038)
2
—
8,764
(4)
231
(5)
(7)
(1)
(99,635)
7,953(8,757)
3,483
265
1,858
(383)
(45,815)
137,050
12,712
271,427
23,825450
15,777
5,169
1,415
(384)
(3,747)(0)99,461(7,860)(20,586)
391,240
430,602(11,713)
6,173
208
(158)
(1,106)
(13)
1,438
7,478
(1)
189
6
(123)
(1)
(103,468)
6,577(5,953)20,018
444
(918)
734
(251,576)
372,864
12,644(171,269)(43,084)
14,8891,235(13,147)(944)
334(3,931)(0)
103,618(6,756)(23,741)(89,053)(42,020)(152,632)
56,557
4,984(1,409)(9,254)24—
78,121
(42)
2,065
(50)
(63)
(16)
(888,094)
70,895(78,061)
31,054
2,362
16,563(3,422)(408,377)
1,221,590
113,3102,419,354
212,367
4,012
140,63146,077
12,614(3,430)(33,407)(0)
886,542(70,063)(183,494)
3,487,307
3,838,155(1,197,236)
967,791
190,545(3,598)167(2,839)(45,169)(881,587)
606,454
233,760(3,482)494(1,990)(46,350)(10,671,509)
8,626,359
1,698,419(32,071)
1,491(25,309)(402,620)(40,324)(4)
1(9,397)(1)(453)(50,179)(3)
335,250
396,713¥ 731,964—(28)
7(8,312)(1)—(8,334)(13)(96,719)
493,433¥ 396,713(359,426)(40)
15(83,765)(9)(4,045)(447,269)(29)
2,988,236
3,536,090$ 6,524,326¥

350,848

NONCASH INVESTING AND FINANCING ACTIVITY:
Not applicable.

Annual Report 201762

Non-Consolidated Balance Sheet (Unaudited)
March 31, 2017 The Joyo Bank, Ltd.

Millions of Yen
2017
2016

63

Thousands of
U.S. Dollars
2017

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���������������������������������������������������������������������������������������������
Prepaid pension cost����������������������������������������������������������������������������������������������
Customers’ liabilities for acceptances and guarantees����������������������������������������������
Allowance for loan losses����������������������������������������������������������������������������������������
Allowance for investment losses������������������������������������������������������������������������������
TOTAL��������������������������������������������������������������������������������������������������������������

¥ 754,116
3,365
8,161
4,060
2,793,575
5,967,030
2,826
48,07685,8549,531
7,231
47,620(34,416)(9)¥9,697,024¥ 442,654
2,000
9,977
5,918
2,739,570
5,912,707
4,241
36,51586,5209,456
7,825
14,728(35,715)(9)¥9,236,391$ 6,721,777
30,00072,74536,19024,900,399
53,186,829
25,192428,528
765,261
84,95964,454424,461(306,769)(80)$86,433,945

LIABILITIES AND EQUITY
LIABILITIES:
Deposits�����������������������������������������������������������������������������������������������������������������
Negotiable certificates of deposit�����������������������������������������������������������������������������
Call money and bills sold�����������������������������������������������������������������������������������������
Payables under securities lending transactions���������������������������������������������������������
Trading liabilities�����������������������������������������������������������������������������������������������������
Borrowed money����������������������������������������������������������������������������������������������������
Foreign exchanges��������������������������������������������������������������������������������������������������
Bonds��������������������������������������������������������������������������������������������������������������������
Bonds with warrants�����������������������������������������������������������������������������������������������
Due to trust account�����������������������������������������������������������������������������������������������
Other liabilities��������������������������������������������������������������������������������������������������������
Provision for directors’ bonuses�������������������������������������������������������������������������������
Provision for directors’ retirement benefits���������������������������������������������������������������
Provision for reimbursement of deposits�������������������������������������������������������������������
Provision for contingent losses��������������������������������������������������������������������������������
Provision for point card certificates��������������������������������������������������������������������������
Deffered tax liabilities����������������������������������������������������������������������������������������������
Deferred tax liabilities for land revaluation����������������������������������������������������������������
Acceptances and guarantees�����������������������������������������������������������������������������������
Total liabilities���������������������������������������������������������������������������������������������������

¥8,240,398
56,252
61,337
135,417511
436,978
501
5,000
—
13
63,079
48
8,415
2,585
1,038
106
35,662
8,774
47,6209,103,740¥8,103,353
39,53945,560130,247895
164,751886
15,00033,80413
50,212
46
7,355
2,354
1,045
112
36,706
8,846
14,7288,655,459$73,450,381
501,401
546,730
1,207,034
4,560
3,894,986
4,468
44,567—
118
562,253432
75,00923,0499,258
945
317,874
78,214424,461
81,145,742

EQUITY:
Common stock�������������������������������������������������������������������������������������������������������
Capital surplus�������������������������������������������������������������������������������������������������������
Stock acquisition rights�������������������������������������������������������������������������������������������
Retained earnings���������������������������������������������������������������������������������������������������
Treasury stock��������������������������������������������������������������������������������������������������������
Valuation adjustments:��������������������������������������������������������������������������������������������
Unrealized gains on available-for-sale securities��������������������������������������������������
Deferred losses on derivatives under hedge accounting���������������������������������������
Land revaluation surplus������������������������������������������������������������������������������������
Total equity��������������������������������������������������������������������������������������������������
TOTAL�������������������������������������������������������������������������������������������������������������������������

85,11358,574—308,341—
141,254
130,542(574)
11,287593,283¥9,697,024

85,11358,574132
315,717(21,963)
143,357
134,985(3,073)
11,445¥ 580,932¥9,236,391

758,651
522,097—
2,748,388—
1,259,067
1,163,581(5,121)
100,6075,288,203$86,433,945

Mebuki Financial Group, Inc.

Non-Consolidated Statement of Income (Unaudited)Year Ended March 31, 2017

The Joyo Bank, Ltd.

Millions of Yen
2017
2016

INCOME:Interest income:Interest on loans and bills discounted�����������������������������������������������������������������
Interest and dividends on securities��������������������������������������������������������������������
Interest on call loans and bills bought�����������������������������������������������������������������
Interest on deposits with banks��������������������������������������������������������������������������
Other interest income����������������������������������������������������������������������������������������
Trust Fees��������������������������������������������������������������������������������������������������������������
Fees and commissions��������������������������������������������������������������������������������������������
Trading income������������������������������������������������������������������������������������������������������
Other operating income�������������������������������������������������������������������������������������������
Other income���������������������������������������������������������������������������������������������������������
Total income������������������������������������������������������������������������������������������������
EXPENSES:Interest expenses:
Interest on deposits�������������������������������������������������������������������������������������������
Interest on negotiable certificates of deposit��������������������������������������������������������
Interest on call money and bills sold�������������������������������������������������������������������
Interest on payables under securities lending transactions�����������������������������������
Interest on borrowed money�������������������������������������������������������������������������������
Interest on bonds����������������������������������������������������������������������������������������������
Interest on interest swap������������������������������������������������������������������������������������
Other interest expenses�������������������������������������������������������������������������������������
Fees and commissions��������������������������������������������������������������������������������������������
Other operating expenses����������������������������������������������������������������������������������������
General and administrative expenses�����������������������������������������������������������������������
Provision of allowance for loan losses����������������������������������������������������������������������
Other expenses������������������������������������������������������������������������������������������������������
Total expenses���������������������������������������������������������������������������������������������
INCOME BEFORE INCOME TAXES ��������������������������������������������������������������������������������
INCOME TAXES:
Current������������������������������������������������������������������������������������������������������������������
Deferred�����������������������������������������������������������������������������������������������������������������
Total income taxes���������������������������������������������������������������������������������������NET INCOME���������������������������������������������������������������������������������������������������������������

Thousands of
U.S. Dollars
2017¥63,726
28,625
33
315
401
22
22,154449
11,997
13,332141,059¥66,434
29,187
38
323
376
25
22,967
767
9,570
9,103
138,796$568,024
255,149
299
2,809
3,578
204
197,473
4,008
106,943
118,839
1,257,327

2,125
13
471
957
616
233
2,478
1,007
7,815
6,757
72,544
3,811
7,379
106,21134,847

2,631
25
255
605
358
254
1,776
606
7,504
4,163
69,6902,796
6,063
96,73342,062

18,950
123
4,199
8,532
5,498
2,082
22,0898,977
69,661
60,232646,62233,974
65,774
946,713
310,613

10,477(84)
10,392¥24,454

12,532
1,755
14,288¥27,774

93,387(750)
92,637$217,976

Annual Report 201764

Non-Consolidated Financial Statements (Unaudited)
March 31, 2017 The Ashikaga Bank, Ltd.

Millions of Yen
2017
2016

65

Thousands of
U.S. Dollars
2017

ASSETSCash and due from banks���������������������������������������������������������������������������������������
Call loans and bills bought���������������������������������������������������������������������������������������
Monetary claims bought������������������������������������������������������������������������������������������
Trading account securities��������������������������������������������������������������������������������������
Securities���������������������������������������������������������������������������������������������������������������
Loans and bills discounted��������������������������������������������������������������������������������������
Foreign exchanges��������������������������������������������������������������������������������������������������
Other assets�����������������������������������������������������������������������������������������������������������
Tangible fixed assets����������������������������������������������������������������������������������������������
Intangible fixed assets���������������������������������������������������������������������������������������������
Prepaid pension cost����������������������������������������������������������������������������������������������
Deferred tax assets�������������������������������������������������������������������������������������������������
Customers’ liabilities for acceptances and guarantees����������������������������������������������
Allowance for loan losses����������������������������������������������������������������������������������������
TOTAL��������������������������������������������������������������������������������������������������������������

¥ 639,631
1,795
7,791
3,166
1,417,158
4,348,447
4,396
32,10625,872
2,370
15,323
2,461
11,953(34,746)¥6,477,729¥ 437,507
414
7,627
3,596
1,325,749
4,274,437
4,377
24,91625,2752,569
12,786—
12,913(33,328)¥6,098,844$ 5,701,320
16,00069,451
28,223
12,631,771
38,759,675
39,190286,176
230,613
21,133
136,581
21,943
106,550(309,708)$57,738,919

LIABILITIES AND EQUITY
LIABILITIES:
Deposits�����������������������������������������������������������������������������������������������������������������
Negotiable certificates of deposit�����������������������������������������������������������������������������
Call money and bills sold�����������������������������������������������������������������������������������������
Payables under securities lending transactions���������������������������������������������������������
Borrowed money����������������������������������������������������������������������������������������������������
Foreign exchanges��������������������������������������������������������������������������������������������������
Other liabilities��������������������������������������������������������������������������������������������������������
Provision for directors’ bonuses�������������������������������������������������������������������������������
Provision for directors’ retirement benefits���������������������������������������������������������������
Provision for reimbursement of deposits�������������������������������������������������������������������
Provision for contingent losses��������������������������������������������������������������������������������
Provision for point card certificates��������������������������������������������������������������������������
Deffered tax liabilities����������������������������������������������������������������������������������������������
Acceptances and guarantees�����������������������������������������������������������������������������������
Total liabilities���������������������������������������������������������������������������������������������������

¥5,332,582
289,303
241,975
32,222220,047256
30,324
53
—
895
509
111
—
11,953
6,160,235¥5,224,561
224,878
78,00025,263
181,726282
30,426
25
132
858
464
90
7,296
12,913
5,786,919$47,531,707
2,578,689
2,156,834
287,218
1,961,382
2,285
270,292
481
—
7,978
4,545
993
—
106,550
54,908,951

EQUITY:
Common stock�������������������������������������������������������������������������������������������������������
Retained earnings:��������������������������������������������������������������������������������������������������
Valuation adjustments:��������������������������������������������������������������������������������������������
Unrealized gains on available-for-sale securities��������������������������������������������������
Deferred losses on hedges���������������������������������������������������������������������������������
Total equity��������������������������������������������������������������������������������������������������
TOTAL�������������������������������������������������������������������������������������������������������������������������

135,000
145,333
37,16037,259(99)
317,494¥6,477,729

135,000
129,428
47,49551,447(3,951)
311,924¥6,098,844

1,203,316
1,295,424
331,227
332,115(887)
2,829,967$57,738,919

Mebuki Financial Group, Inc.

Non-Consolidated Statement of Income (Unaudited)Year Ended March 31, 2017

The Ashikaga Bank, Ltd.

Millions of Yen
2017
2016

INCOME:Interest income:Interest on loans and bills discounted�����������������������������������������������������������������
Interest and dividends on securities��������������������������������������������������������������������
Interest on call loans and bills bought�����������������������������������������������������������������
Interest on deposits with banks��������������������������������������������������������������������������
Other interest income����������������������������������������������������������������������������������������
Fees and commissions��������������������������������������������������������������������������������������������
Other operating income�������������������������������������������������������������������������������������������
Other income���������������������������������������������������������������������������������������������������������
Total income������������������������������������������������������������������������������������������������
EXPENSES:Interest expenses:
Interest on deposits�������������������������������������������������������������������������������������������
Interest on negotiable certificates of deposit��������������������������������������������������������
Interest on call money and bills sold�������������������������������������������������������������������
Interest on payables under securities lending transactions�����������������������������������
Interest on borrowed money�������������������������������������������������������������������������������
Other interest expenses�������������������������������������������������������������������������������������
Fees and commissions payments����������������������������������������������������������������������������
Other operating expenses����������������������������������������������������������������������������������������
General and administrative expenses�����������������������������������������������������������������������
Provision of allowance for loan losses����������������������������������������������������������������������
Other expenses������������������������������������������������������������������������������������������������������
Total expenses���������������������������������������������������������������������������������������������
INCOME BEFORE INCOME TAXES���������������������������������������������������������������������������������
INCOME TAXES:
Current������������������������������������������������������������������������������������������������������������������
Deferred�����������������������������������������������������������������������������������������������������������������
Total income taxes���������������������������������������������������������������������������������������NET INCOME���������������������������������������������������������������������������������������������������������������

Thousands of
U.S. Dollars
2017¥51,017
20,07360373
82
20,040
1,772
4,348
97,768¥53,724
16,958393
404
102
21,253
1,343
6,366
100,545$454,744
178,920
537
3,329
732
178,632
15,80038,760871,453

1,110
85
152
411
40
1,508
6,747
1,062
46,526
4,444
3,717
65,80731,960

2,082
226
8
211
150
779
6,314
36
47,711—
3,559
61,07939,466

9,894
762
1,359
3,668
365
13,44760,146
9,474
414,71139,61233,139586,576
284,877

9,350(3,802)
5,547¥26,412

10,468(1,861)
8,607¥30,859

83,345(33,894)
49,451$235,427

Annual Report 201766

Corporate Data (as of March 31, 2017)
Mebuki Financial Group, Inc.

The Joyo Bank, Ltd.

7-2, Yaesu 2-chome, Chuo-ku, Tokyo(Mito Head Office)5-5, Minami-machi 2-chome, Mito, Ibaraki Prefecture(Utsunomiya Head Office)1-25, Sakura 4-chome, Utsunomiya, Tochigi Prefecture
Paid in capital
117.4 billion yen
Establishment
April 1, 2008
(Change of tradename: October 1, 2016)
Stock exchange listing Tokyo Stock Exchange
Number of employees 123
Credit ratings
A (R&I)

July 30, 1935
5-5, Minami-machi 2-chome, Mito, Ibaraki Prefecture85.1 billion yen
Domestic: 180 offices (Head Office, 151 branches, 29 sub-branches)
Overseas: 3 Representative Offices (Shanghai, Singapore, New York)
Number of employees* 3,281
Credit ratings
A+ (R&I) A2 (Moody’s)

Address
Head Office address*Excluding those transferred to external organizations

FoundedHead Office
Paid in capital
Network

The Ashikaga Bank, Ltd.
October 1, 1895
1-25, Sakura 4-chome, Utsunomiya, Tochigi Prefecture
135.0 billion yen
Domestic: 154 offices (Head Office, 105 branches, 49 sub-branches)
Overseas: 1 Representative Office (Hong Kong)
Number of employees* 2,801
Credit ratings
A+ (R&I)
FoundedHead Office
Paid in capital
Network

Organization (as of April 3, 2017)（holding company）

General Meeting of Shareholders
Accounting Auditors
Corporate GovernanceCommittee

Cooperate

Board of Directors
Audit and Supervisory Committee

Consult/
ReportCompliance Committee

Management Meeting

Audit and Supervisory Committee Office

ALM/Risk Management Committee

Group Strategy Committee

Corporate Planning DivisionCorporate Management Division Regional Revitalization Division

Audit Division

directly-owned subsidiary

Company with Audit and Supervisory Committee

67

Mebuki Financial Group, Inc.

Company with Audit and Supervisory Committee

Company with Auditors

Network (as of March 31, 2017)
Domestic: 334 offices, Overseas: 4 locations
Tochigi
Joyo: 8
Ashikaga: 112
Gunma
Ashikaga: 15

New York

SaitamaJoyo: 3
Ashikaga: 17

MiyagiJoyo: 1

Shanghai
Fukushima
Joyo: 10
Ashikaga: 1
Hong Kong
IbarakiJoyo: 146
Ashikaga: 8
Chiba
Joyo: 6
Osaka
Joyo: 1

SingaporeTokyo
Joyo: 5
Ashikaga: 1

Joyo BankNew York
Address 712 Fifth Avenue, 8th Floor, New York, NY
Representative Office10019 U.S.A.
Shanghai
Address R oom 1901, Shanghai International Trade Centre, 2201
Representative Office
Yan An Road (West), Shanghai 200336 P. R. China
Singapore
Address 63 Market Street, #11-03 Bank of Singapore
Representative OfficeCentre, Singapore 048942
Ashikaga Bank
Hong Kong
Address Suite 1601, 16th Floor, Tower2, The Gateway,
Representative Office
Harbour City,Kowloon, Hong Kong

Mebuki Financial Group, Inc.
Address 7-2, Yaesu 2-chome, Chuo-ku, Tokyo
Joyo Bank
Head Office 5-5, Minami-machi 2-chome, Mito,
Ibaraki Prefecture
Ashikaga Bank
Head Office 1-25, Sakura 4-chome, Utsunomiya,Tochigi Prefecture

Stock Information (As of March 31, 2017)
Capital and number of issued shares
Paid in capital

117,495,550,000 yen

Number of issued shares

1,179,055,218 sharesof which, common stock

1,179,055,218 shares

Major shareholders
Mebuki Financial Group, Inc.
Name

Nomura Financial Partners Co., Ltd.
Sompo Japan Nipponkoa Insurance Inc.
Japan Trustee Services Bank, Ltd. (trust account)
Nippon Life Insurance Company
The Bank of Tokyo-Mitsubishi UFJ, Ltd.
The Master Trust Bank of Japan, Ltd. (trust account)
Japan Trustee Services Bank, Ltd. (trust account 9)
State Street Bank And Trust Company 505223
Sumitomo Life Insurance Company
The Dai-ichi Life Insurance Company, Limited
Total

Joyo Bank
Number of Shareholding ratio toshares held the total number of(thousand shares) issued shares (%)

122,900
46,11838,662
34,48733,92028,32026,331
24,81521,65919,948397,165

10.42
3.91
3.27
2.92
2.87
2.40
2.23
2.10
1.83
1.69
33.68

Name

Mebuki Financial Group, Inc.

Number of Shareholding ratio toshares held the total number of(thousand shares) issued shares (%)

722,910100.00Ashikaga Bank
Name

Mebuki Financial Group, Inc.

Number of Shareholding ratio toshares held the total number of(thousand shares) issued shares (%)

1,340,520

100.00

Annual Report 201768