Annual Report
2012Year ended March 31, 2012

Hokuhoku Financial Group, Inc.

Company outline (as of March 31, 2012)
Company name: Hokuhoku Financial Group, Inc.
Date of establishment: September 26, 2003
Location of head office: 1-2-26 Tsutsumicho-dori, Toyama City
President: Shigeo Takagi (President, Hokuriku Bank)
Deputy President: Yoshihiro Sekihachi (President, Hokkaido Bank)
Purpose of business: Management and control of subsidiaries and affiliates and ancillary and related business
Capital: ¥70,895 million
Shares issued and outstanding:Common stock................................... 1,391,630,146
Preferred stock ( Type 5)..................... 107,432,000
Exchange listings: Tokyo Stock Exchange (First Section)
Sapporo Securities ExchangeThis document contains forward-looking statements. Statements of this kind do not constitute guarantees of future performance, as factors such as changes in
the operating environment may cause actual performance to differ.
The figures stated in this document are, in principle, rounded down to the nearest whole unit.

CONTENTS

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

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

May 2002

Comprehensive business alliance
between
Hokuriku Bank and Hokkaido BankMay 2003

Agreement on full integration ofmanagement of Hokuriku Bank andHokkaido Bank

The operations of the Hokuhoku Financial Groupextend beyond the limits of a single district.
Our extensive network is outlined below.
Hokuriku district......................................... 149 branches
Toyama prefecture....................................... 91 branches
Ishikawa prefecture...................................... 36 branches
Fukui prefecture............................................ 22 branches
Hokkaido..................................................... 157 branches
Three major metropolitan areas................
Tokyo and Yokohama...................................
Nagoya.........................................................
Osaka and Kyoto..........................................

17 branches
10 branches
3 branches
4 branches

Others (Sendai, Niigata, Nagano, Takayama)....

4 branches

Overseas.....................................................
8 offices
New York Representative Office (Hokuriku Bank)
Yuzhno-Sakhalinsk Representative Office (Hokkaido Bank)
London Representative Office (Hokuriku Bank)
Singapore Representative Office (Hokuriku Bank)
Bangkok Representative Office (Hokuriku Bank)
Dalian Representative Office (Hokuriku Bank)
Shanghai Representative Office (Hokuriku Bank)
Shenyang Representative Office (Hokkaido Bank)(As of June 30, 2012)

LondonSeptember
2003

YuzhnoSakhalinsk

Shenyang
DalianHokugin Financial Group, Inc.
established

New York

Shanghai

Hokuriku Bank Group comes undermanagement of Hokugin Financial
Group

Bangkok
Singapore

Management integration effected
through equity swap
September
2004

Hokkaido

Hokuhoku Financial Group, Inc. isborn.

Hokuriku district
Ishikawa

Toyama

Fukui

Tokyo
Osaka

NagoyaThree major metropolitan areas
Hokuhoku Financial Group, Inc. Annual Report 20121

Message from the Management(from left)

2

Shigeo Takagi

Yoshihiro Sekihachi

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

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

Hokuhoku Financial Group, Inc. Annual Report 2012

We would like to express our sincere appreciation to all of our customers for their continued patronage of the
Hokuhoku Financial Group.
Although economic activity gradually intensified following the Great East Japan Earthquake and reconstructionrelated demand was steady, Japan’s economic future in fiscal 2011 became increasingly uncertain due to a numberof factors. Among these factors were electric power supply problems, the long-term appreciation of the yen, andrestrictions caused by the high price of natural resources that are affecting corporate earnings, not to mention theattention that has been given to financial problems, and the deteriorating balance of trade.
With the aim of becoming a “Close and reliable financial group for local customers,” the Hokuhoku Financial
Group is taking steps to revitalize the local economy by providing financial services that will delight corporate
customers who are working hard to carry on business in a harsh business environment, as well as individual
customers who have various financial needs at each stage of their lifecycle.
In May 2011, thanks to the efforts of all parties, our subsidiary banks, the Hokuriku Bank and the Hokkaido
Bank commenced stable operation of a joint IT system with the Bank of Yokohama. In May 2012, an agreement
was reached to add The 77 Bank to the users of the joint IT system, thereby moving toward greater efficiency.
Along with integrating business processes and shared back office use, we will accelerate synergies and strive toachieve better customer service.
In order to meet the diversifying needs of customers for overseas market entry support, the Hokuriku Bank
established a representative office in Bangkok, Thailand in March 2012 after the one established in Dalian in
2011. The Hokkaido Bank views businesses that make use of their local characteristics, such as agriculture andtourism, as growth businesses and is encouraging the expansion of such businesses by holding business conferences based on the theme of tourism.
Fiscal 2012 marks the final year of the Mid-term Management Plan “Road to 10,” which the Group is now
implementing. The plan is based on the following three policies: “Strengthening Marketing Capabilities,”“Increasing Management Efficiency,” and “Cementing Customer Loyalty.” We will continue our management
effort aimed at becoming a financial group with ¥10 trillion in deposits and growing with our customers in a spiritof co-prosperity with the regional economy.
We therefore ask for your continued support and loyal patronage.

July 2012

Shigeo Takagi

Yoshihiro Sekihachi

President

Deputy President

Hokuhoku Financial Group, Inc. Annual Report 20123

Mid-Term Management Plan
The Hokuhoku Financial Group has positioned the three years beginning April 2010 as the time to “renew endeavor toachieve sustainable growth” and we have started our Mid-term Management Plan “Road to 10.”
Over two years, deposits, loans and our consolidated capital adequacy ratio have surpassed target levels. The earnings
environment has grown harsher, amid prolonged low interest rates and competition with other banks, but we are committed
to securing stable earnings based on our three key management policies of strengthening marketing capabilities, increasing
management efficiency and cementing customer loyalty.

Overview of Management Plan
Title

Mid-Term Management Plan, “Road to 10”

Period3 years (April 2010 to March 2013)

Position

Renew endeavor to achieve sustainable growth ~Achieve JPY 10 trillion in deposit~

Target corporate profile Close and reliable financial group for local customers
1. Establishing a stable earnings base to deal with uncertainty over economy
Main theme

2. Smooth migration and strategic utilization of joint banking system (MEJAR*), and upgrading human resources
and service delivery channels
3. Accumulating capital surplus to meet new rules of regulatory capital, increase in dividends and redemption ofpreferred stock*MEJAR = Most Efficient Joint Advanced Regional banking-system

Basic Policies in Management Plan
We will keep on three key policies and implement proper measures after full repayment of public funds to achieve JPY 10
trillion in deposit.
Mid-Term
Management Plan
“Road to 10”

Renew endeavor to achievesustainable growth

I. Strengthening Marketing Capabilities II. Increasing Management Efficiency III. Cementing Customer Loyalty■ Expansion of earnings base■ Client-focused consulting
services■ Expansion of investment insecurities■ Smooth migration and strategic
utilization of joint banking system■ Pursuit of further synergy■ Increasing sales force■ Improvement in quality of capital■ Stable increase of common stock
dividends

Target Figures for Fiscal Year ending March 31, 2013 (Hokuriku Bank and Hokkaido Bank)‘11/3 result‘13/3 plan

JPY 9,277.6 bn

JPY 9,579.4 bn

JPY 9,550.0 bn

Loans (avg. balance)

JPY 7,113.3 bn

JPY 7,267.3 bn

JPY 7,200.0 bn

JPY 56.7 bn

JPY 55.7 bn

JPY 70.0 bn

Core net business profit

JPY 18.4 bn

JPY 14.1 bn

JPY 25.5 bn

11.29% (7.45%)

11.72% (7.82%)

Above 11.5% (Above 7.5%)

OHR

63.47%

64.37%58%

ROA (Core net business profit basis)

0.56%

0.53%

0.68%

Net income*Capital adequacy ratio* (Tier 1 capital ratio*)

ROE* (Core net income basis)

4.60%

3.26%

Above 6%

NPL ratio

2.96%

3.17%

Around 3%*FG consolidated

4‘12/3 result

Deposits (avg. balance)

Hokuhoku Financial Group, Inc. Annual Report 2012

I. Strengthening Marketing Capabilities
Our aim is to become a “Close and reliable financial group for local customers” through “Triple R” strategies
Retail ~Close to Customers~

Region ~Contribution to local community~

Increasing contact with customers and diversify
transactions of each account
Enhancing segment marketing
Expanding business to SMEs (Maruho loan* etc.)*Loans guaranteed by credit guarantee
corporations
Promotion of housing loan
Increase in salary deposit and pension transfer
accounts

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

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

Strategic allocation of Human Resources

Strengthen alliance

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

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

II. Increasing Management Efficiency
Smooth migration and strategic utilization of joint banking system
Acceleration of synergy

Migration (Started in May 2011)
Bank of Yokohama
Started advanced operations
from Jan. 2010

Cutback on future expenses

Joint Use of Banking System(MEJAR)
Hokuriku Bank

Two brand operation

Decrease in R&D cost

Hokkaido Bank

Integration of business process

Joint procurement of business forms & equipments

Shared administrative manuals &numerical tables

Extensive consolidated useof back office

Joint employee training &audit programs

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

Hokuhoku Services
Hokkaido Dept. (Mar. 2010)

Reallocation of human resources andincrease in sales force

Enhancement of management andgovernanceToyama Dept. (Sep. 2010)

III. Cementing Customer Loyalty
Ensuring stable earnings to improve quality of capital
Capital adequacy ratio/Tier 1 capital ratio <FG consolidated>
Capital adequacy
ratio

Tier 1 capital ratio

10.83%

7.05%

11.29%

7.45%

11.72%

Above 11.5%

7.82%

Above 7.5%

Improving quality of capital

Raising Tier 1
by incomeDeferred tax assets toTier 1 capital

21.03%

17.14%

10.93%
Below 10.0%’10/3 result’11/3 result’12/3 result

Aiming at capital adequacy ratio of
12% and Tier 1 capital ratio of 8%

Stable increase ofcommon stock dividends’13/3 plan

Hokuhoku Financial Group, Inc. Annual Report 20125

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

FY2011FY2010Ordinary income
Ordinary profits
Net income

207.9
38.8
14.1

Change
(6.6)
1.6
(4.2)

214.6
37.2
18.4

Capital adequacy ratio

11.72%+0.43%

11.29%In the fiscal year ended March 31, 2012, Hokuhoku FG
recorded ordinary income of ¥207.9 billion, a decrease of¥6.6 billion year on year on a consolidated basis. Ordinary
profits, on the other hand, increased ¥1.6 billion year on

year to ¥38.8 billion, and net income fell ¥4.2 billion to¥14.1 billion.
Our capital adequacy ratio stood at 11.72% at theterm-end on a consolidated basis, an increase of 0.43
percentage points from the previous term-end.
In terms of the fiscal year-end dividend for 2011, theGroup paid ¥7.5 per share for shareholders of preferredstock (type 5), the same amount as specified in advance.
As for the dividends for shareholders of common stock,
although an interim dividend was not paid, a fiscal year-end
dividend of ¥3.75 per share was paid, the same amountthat was paid at the end of fiscal 2010.

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

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

Hokuriku Bank andHokkaido Bank
FY2011FY2010Change
193.0
(2.8)
195.8
156.3
0.9
155.4
100.6
2.0
98.6
55.7
(1.0)
56.7
10.4
(4.1)
14.5
(1.4)
(0.3)
(1.0)
40.5
3.5
37.0
16.6
(2.9)
19.6

Despite a decline in net fees and commissions, core grossbusiness profits increased ¥0.9 billion year on year to¥156.3 billion due to an increase in net interest income
and income from derivatives. Core net business profits
decreased ¥1.0 billion year on year to ¥55.7 billion due
to factors including a ¥2.0 billion year-on-year increase in
expenses for the renewal of the IT system in May 2011.
Ordinary profits grew ¥3.5 billion year on year to ¥40.5
billion due to a ¥4.1 billion year-on-year decrease in total
credit costs.
Net income decreased ¥2.9 billion year on year to¥16.6 billion due to an increase in income taxes-deferred
accompanying a lowered corporate tax rate (change of ¥5.1
billion).

(¥ billion)(¥ billion)

Hokkaido Bank

Hokuriku Bank
FY2011

6FY2010Ordinary income
Core gross business profits
Expenses
Core net business profits
Credit costs
Ordinary profits
Net income

105.4
88.5
54.2
34.3
4.4
27.4
11.4

Change
(3.4)
(0.0)
0.3
(0.3)
(2.6)
4.5
(0.5)

Capital adequacy ratio

11.85%+0.53%

Hokuhoku Financial Group, Inc. Annual Report 2012

108.8
88.5
53.8
34.6
7.1
22.9
11.9
11.32%FY2011FY2010

87.5
67.8
46.4
21.4
5.9
13.1
5.2

Change
0.5
1.0
1.6
(0.6)
(1.4)
(1.0)
(2.4)

87.0
66.8
44.7
22.1
7.4
14.1
7.7

10.80%+0.21%

10.59%

Core Gross Business Profits (Both banks)
Net interest income increased ¥0.4 billion year on yearto ¥131.1 billion, due to our accumulation of securities
centered on Japanese government bonds.
Net fees and commissions decreased ¥1.9 billion year
on year to ¥18.9 billion due to a decrease in investment
trusts and insurance sales commissions.
Net interest income

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

Others

160.9
8.3
22.1

155.4
3.8
20.8

156.3
6.2
18.9

130.3

130.7

131.1

2010

2011

2012

Other net operating income increased ¥2.4 billion year
on year to ¥6.2 billion due to an increase in income fromderivatives.
As a result, core gross business profits increased ¥0.9
billion year on year to ¥156.3 billion.

● Net interest income = income from interest on loans, receivable bonds
and dividends on equity shares, after deduction of interest on deposits● Net fees and commissions = fees and commissions received relating
to remittance, investment trust and insurance sales agency businesses
after deduction of corresponding expenses● Other net operating income = income from foreign exchange transactions and derivatives transactions(¥ billion)
Years ended
March 31Core Net Business Profits (Both banks)
Hokuriku Bank

Hokkaido Bank

Although core gross business profits increased year on
year, core net business profits decreased ¥1.0 billion year
on year to ¥55.7 billion due to an increase in salaries paid
following an increase in the headcount and an increase ingeneral and administrative expenses accompanying therenewal of the IT system in May 2011.

ROA

0.68%
0.56%

0.53%

66.4
56.7

55.7

34.6

34.3

38.3

28.1

22.1

21.4

2011

2012

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

(¥ billion)
Years ended
March 31

2010

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

Net Income (Both banks)
Hokuriku Bank

Ordinary profits grew ¥3.5 billion year on year to ¥40.5
billion due to a ¥4.1 billion year-on-year decrease in total
credit costs owing to a decline in large-scale bankruptcies.
However, net income declined ¥2.9 billion year on year to¥16.6 billion due to an increase in income taxes-deferred
accompanying a lowered corporate tax rate (change of ¥5.1
billion).

Hokkaido Bank

26.0

19.6
15.6

16.6
11.9
11.4

10.3

Years ended
March 31

2010

7.7

2011

5.2

(¥ billion)

2012

Hokuhoku Financial Group, Inc. Annual Report 20127

Performance highlights

Deposits (Including negotiable certificates of deposit) (Both banks)
Hokuriku Bank

9,523.8

9,700.8

5,439.9

5,545.1

3,813.6

4,083.9

4,155.7

2010

2011

2012

9,120.3

5,306.7

Deposits continued to increase primarily from individual
customers, reaching ¥9,700.8 billion, ¥177.0 billion higher
than at the end of March 2011.

Hokkaido Bank(¥ billion)
End of March

Loans and Bills Discounted (Both banks)
Hokuriku Bank

7,241.1

7,287.0

4,252.3

4,233.9

2,851.0

2,988.8

3,053.0

2010

2011

2012

6,993.6

4,142.6

Due to an increase in loans to local governments andhousing loans, loans came to ¥7,287.0 billion, ¥45.8 billion
higher than at the end of March 2011.

Hokkaido Bank(¥ billion)
End of March

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

Outstanding Loans to SMEs (Both banks)
Hokuriku Bank

Outstanding loans to SMEs stood at ¥4,765.0 billion, ¥61.3

Hokkaido Bank

4,890.6

4,826.3

4,765.0

2,882.2

2,871.3

2,826.5

2,008.3

1,955.0

1,938.4

2010

2011

2012

billion lower than at the end of March 2011.
We actively pursued our initiatives to facilitate regional
finance because we believe this is an important role forthe bank, but outstanding loans decreased due to thestagnation in business funding needs resulting from weakeconomic recovery.

(¥ billion)
End of March

8

Hokuhoku Financial Group, Inc. Annual Report 2012

Capital Adequacy Ratio (Hokuhoku Financial Group, Inc.; on a consolidated basis)
Regulatory Capital
Capital adequacy ratio

10.83%

7.05%

11.29%

7.45%

11.72%

7.82%

570.5

561.6

546.7

Our capital adequacy ratio, which indicates financial soundness, rose 0.43 percentage points from the end of March2011 to reach 11.72%.
Retained earnings increased due to the accumulationof earnings, and as a result Tier 1 capital increased ¥10.2
billion from the end of March 2011 to ¥381.1 billion, andregulatory capital also increased ¥8.9 billion to reach¥570.5 billion.

Tire 1 capital
Tier 1 capital ratio

370.8

356.0

381.1
(¥ billion)

2010

End of March2011● Capital adequacy ratio
This ratio indicates the proportion of the bank’s regulatory capital(capital stock, capital surplus, retained earnings and supplementaryelements) to its risk-weighted assets. The higher the ratio, the healthierits financial position.
● Tier 1 capital ratio
This ratio indicates the proportion of a bank’s Tier 1 capital (the basic
element of regulatory capital; basically capital stock, capital surplus,
and retained earnings) to its risk-weighted assets (principally loans).
The higher the ratio, the healthier its core banking operations.

2012* Calculated in accordance with the current BIS standards (Basel II).

Disclosed Claims under the Financial Reconstruction Law (Both banks)
Due in part to the ongoing economic downturn, disclosed
claims under the Financial Reconstruction Law increased¥16.2 billion from the end of March 2011 to ¥236.8 billion.
The NPL ratio also increased 0.21 percentage points
year on year to 3.17%.
Substandard claims
Bankrupt and substantially bankrupt claims.

Doubtful claims
NPL ratio● Disclosed Claims under the Financial Reconstruction Law: The bankclassifies both loans and other assets in line with the stipulations of the
Financial Reconstruction Law.
● Claims subject to disclosure: loans, customers’ liabilities for acceptances and guarantees, foreign exchanges, accrued interest, suspense
payments, securities loaned, private bonds with the Bank’s own
guarantees (regarding claims on obligors requiring caution, loans andprivate bonds with the Bank’s own guarantees only).
Substandard
claimsThis category is defined as claims on borrowers
requiring caution under asset self-assessment.
This category comprises past due loans (threemonths or more) and restructured loans underthe Banking Law.

Doubtful claims

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

Bankrupt andsubstantiallybankrupt claims

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

3.17%
2.98%

2.96%

215.2
16.8

220.5

142.6

End of March

38.0

133.7

236.8
50.5

146.6

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

55.8

48.9

39.7

2010

2011

2012

(¥ billion)

Ratings
Japan Credit Rating
Agency, Ltd.

Rating and Investment
Information, Inc.

A

A

JCR

R&I

“Ratings” are determined by ratings agencies, third-party
institutions with no vested interest in the companies theyrate, and indicate a company’s creditworthiness and ability
to fulfill obligations.
Hokuhoku Financial Group Inc., Hokuriku Bank andHokkaido Bank have obtained “A (single A flat)” ratingsfrom both JCR and R&I and are considered as being highly
creditworthy.
Hokuhoku Financial Group, Inc. Annual Report 20129

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

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

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

Hokuhoku Financial Group, Inc.
Shareholders’ Meeting

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

Executionof
PDCA

Planning Group

Board of Directors

Audit Group

Hokkaido Bank
Other
Subsidiaries

Shareholders’ Meeting
Board of Auditors

Shareholders’ Meeting
Board of Auditors

Board of Directors

Board of Directors

Each bank sends an
executive tothe other’s Board.

1. Board of Directors
Responsible for decisions related to important management
policies involving the Group as a whole; and for overseeing
the general management, and risk management and auditing
conducted by the holding company and its subsidiaries.
2. Board of Auditors
Determines auditing policies and assigns specific duties toparticular statutory auditors, and monitors the performance of
duties by the directors.
Three of the four members of the board are external
auditors, ensuring a high degree of independence in auditing
activities.
Hokuhoku Financial Group, Inc. Annual Report 2012

1 external director

Risk Management Group

Hokuriku Bank

10

Board of Auditors

Management Committee

Administration GroupManagement Committee

3 external auditors

Internal Audit

Management Committee

3. Management Committee
Composed of full time directors of the Company, this bodymakes decisions — based on the basic policies laid down by
the Board of Directors — on matters relating to operational
policies involving the entire Group and on the implementation ofhighly important tasks by specific divisions.
4. Business Promotion Committee
Composed of the full-time directors and presidents ofsubsidiaries; is responsible for disseminating major issues andmanagement policies affecting the whole Group, as well as
keeping track of business results at each company, to ensure
appropriate conduct of business.

Basic policy on internal controls
1. Ensuring that Directors perform their duties in conformity
with the law and with our articles of incorporation
In addition to settling matters involving the law or the articles
of incorporation, the Board of Directors decides on basic
management policy and major issues affecting conduct ofoperations, sets up organizations and systems, and supervises
performance of duties by directors. It also recommends
external directors for appointment at Shareholders’ Meetings,
and ensures more rigorous checks and balances.
Corporate Auditors attend important meetings including
those of the Board of Directors, investigate the Company’s
operations and financial position, and audit the performance of
duties by directors from an independent standpoint.
2. Storage and management of information relating toperformance of duties by directors
Based on its own regulations and document management
rules, the Board of Directors creates systems for storage andmanagement of information regarding performance of duty bydirectors.
3. Setting up rules and other systems that ensure
management of risk of losses
The Board of Directors decides on basic risk management
policy and regulations, and establishes management systems,
based on an assessment of the degree of risk to which theCompany and Group companies are exposed, and of thesignificance of risk-control measures. We have compiled acontingency plan and established a crisis management system
for unexpected events and risks such as natural disasters.
Each company in the Group conducts due risk management in close partnership with risk management departmentsof other Group members, following the Group’s basic policy.
4. Ensuring efficient performance of duties by directors
The Board of Directors sets overall organizational standards forbasic tasks and assignment of duties to operational entities,
and the Company and all Group members have systems
enabling well-organized and efficient conduct of business
operations.
The Management Committee coordinates business operations in a prompt and effective way, based on delegation of
authority and assignment of duties by the Board of Directors.
To this end, it makes active use of teleconferencing andother telecommunications-based systems.
5. Ensuring that employees conform to the law and thearticles of incorporation in the performance of duties
The Board of Directors regards compliance as one ofmanagement’s most important tasks and recognizes that anincomplete compliance system could weaken our businessfoundation. In view of this, we have established a set of rules toserve as a basic policy and compliance charter.
Based on the above charter, the Company and Group
members carry out their business in partnership, in a fair andhonest way.
Additionally, the Board of Directors determines policies

for the management of customer protection, and develops
management policies and structures for protection of customer
interests.
The Company and Group members set up a whistleblower
and consultation hot line for executives and employees who
uncover unlawful and wrongful behavior.
The Company has no connections with anti-social elementsthat threaten public order or security, and avoids all businessdealings with such groups.
6. Ensuring the appropriateness of operations within theGroup
The Board of Directors is responsible for overall Groupmanagement, compiling the Group management regulations,preparing frameworks for agenda-setting and reporting foreach Group company with regard to important matters, andreceiving reports from internal auditing departments on thefindings of audits into the status of legal observance and risk
management and the propriety and effectiveness of business
operations.
We also have in place mechanisms to ensure the propriety
of financial reporting, enabling accurate and clear statements ofour financial position and business results.
7. Deployment of employees as assistants to Corporate
Auditors
When receiving a request from a Corporate Auditor for help
in the conduct of auditing duties, the Board of Directors
shall respect the auditor’s views and provide the necessary
personnel based on expertise required. In addition, to ensure
the independence of these employees vis a vis the Board of
Directors, prior agreement of the Board of Auditors is requiredfor personnel transfers and disciplinary measures.
8. Reporting by the Board of Directors and employee
assistants to the Corporate Auditors, and other reportingto the Corporate Auditors
Directors shall submit reports to the Corporate Auditors as
follows.
(1) Directors shall report to the Board of Auditors whenevermatters that could cause significant losses to the Company
are discovered.
(2) An effective and flexible reporting system shall be established for reporting to the Board of Auditors by directors andemployees, on the matters designated in advance by the
Corporate Auditors and directors.
(3) The Corporate Auditors may request reports from the directors or employees as needed.
9. Ensuring effective auditing by Corporate Auditors
The Board of Directors shall give due acknowledgement to
the importance and usefulness of auditing by the Corporate
Auditors, and if the Corporate Auditors request creation of asystem for smoother and more effective performance of auditing duties, they shall give this due consideration. The Board
of Auditors shall conduct regular meetings with representative
directors and accounting auditors.

Hokuhoku Financial Group, Inc. Annual Report 201211

Corporate Governance

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

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

12

Hokuhoku Financial Group, Inc. Annual Report 2012

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

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

Systembetter life for its customers.

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

Basic policy on compliance
1. Recognition of the Group’s basic mission and social
responsibilities
As a regional financial institution, the Group recognizes
its public duties and social responsibilities and strives togain greater trust through the conduct of sound business
operations.
2. Providing quality financial services
By providing high-quality, integrated financial services,
the Group will contribute to the stable economic andsocial development of the operating regions and to a

3. Strict observance of laws and regulations
The Group strictly observes all relevant laws and regulations, and conducts business in a trustworthy and honest
way that conforms to its own standards of corporate
ethics and to social norms.
4. Elimination of ties with anti-social elements
The Group contributes to a healthy society by resolutely
refusing to associate or work with anti-social elementsthat threaten social peace and security.
5. Ensuring management transparency
The Group aims for a highly transparent management
and organizational culture through accurate disclosureand swift decision-making.

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

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

Risk Management Group
Other subsidiaries

Board of Directors

Management Committee

Hokkaido Bank

Board of Directors

Corporate Auditors
Board of Auditors

Audit Group

Corporate
Auditor(s)Board of Directors
Corporate Auditors
Board of Auditors

President

Management Committee

Compliance OfficeCompliance General Department

Compliance Department

Compliance officers, etc.

Compliance officers, etc.

Compliance manager

Compliance Committee

Compliance Committee

Hokuhoku Financial Group, Inc. Annual Report 201213

Approach to Compliance

Program’s execution, ensuring that compliance proceduresare put into practice.

Measures to accelerate customer protection
and customer convenience
To protect customers’ assets, information and otherinterests, the Group has established policies and basic rules
for the management of customer protection.
Furthermore, in order to provide pertinent explanations
to our customers in accordance with the Japanese Financial
Instruments and Exchange Act and other laws, and toproperly handle customer claims and consultations throughcustomer consultation office, which serves as points ofcontact, we have formulated protocols and an appropriate
response structure, based on five separate considerations.
The Compliance General Section of every Group
member is the office responsible for overall managementof customer protection. Compliance officials at each Group
Basic rules of management ofcustomer protection

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

Policies for management of customer protection

Explaining to the customer

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

Customer service support

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

Protection of customer data

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

Outsourcing
Conflict of interest

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

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

Whistleblower protection system
The Group has set up a whistleblower and consultation
hot line and developed a framework for strengthening thecompliance system including checks and balances in orderto promptly detect and counteract any unlawful and wrongful behavior.

Measures to deal with financial crime
In recent years, bank card theft and “furikomi” (phishing)14

member work in partnership for ongoing review of management systems, problem resolution and data analysis,through which various improvement policies may be drawn
up and implemented.

Hokuhoku Financial Group, Inc. Annual Report 2012

fraud cases have increased. Subsidiary banks havestrengthened security measures to nip this problem in thebud. The banks properly reimburse victims of such scams
based on legislation mandating their relief.
Additionally, we are working to prevent money laundering by properly confirming the identification of individuals as
mandated by the Act on Prevention of Transfer of Criminal
Proceeds.

Financial alternative disputes resolution (ADR) system
In order to promptly and properly respond to customer
opinions and complaints, our subsidiary banks have concluded agreements with the Japanese Bankers Association,
which is a designated dispute resolution organization.
This designated dispute resolution organization works toresolve disputes from a fair and neutral position.
Name of designated dispute resolution organization:
Japanese Bankers Association
Inquiries:
Japanese Bankers Association Customer Relations Center
Telephone number:
0570-017109 or 03-5252-3772

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

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

Audit Group
Other Subsidiaries

Hokuriku Bank
Hokkaido Bank

Board of Directors
Corporate Auditors, Board of Auditors
Management Committee

ALM Committee

Comprehensive Risk Management Committee
Operational Risk Subcommittee

Market risk

Liquidity risk

Allocation of risk capital
The Group quantifies, in as integrated manner as possible,
the various types of risks that occur in its operations, andmanages the risks to ensure that the total amount of risk is
kept within the range of the Group’s management capacity.
After subsidiary banks numerically quantify credit risk,
market risk and operational risk and estimate maximum
potential loss for each of the risks, risk capital allocations
are undertaken using Tier 1 portions of the banks’ regulatory capital as the source of funding. Risk is thus controlled
and managed within a range permissible in banking
operations.

Credit risk

Tier 2
Exclusion
items

Operational risk

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

ExcessTier 1

Regulatory
capitalMarket risk
Risk capital
allocation
at subsidiarybanks

Source offunding

Market risk
Credit risk
Credit risk
Operational risk

Operational risk

Risk capital
allocation at
subsidiary banks

Risk level at
subsidiary banks

Hokuhoku Financial Group, Inc. Annual Report 201215

Risk management system

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

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

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

16Management system

Internal ratings system

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

To enable objective appraisal of credit risk in lending
operations, the subsidiary banks have introduced aninternal ratings system. Using 15 credit ratings based on
financial data and qualitative information regarding borrower
creditworthiness, the system enables ongoing monitoring ofchanges in rating.
Based on the ratings generated by the internal ratingssystem at the subsidiary banks, we compute credit risk andforecast loss rates for each individual borrower category,
and then ensure that interest rates duly match risk. In
conformity to Groupwide management rules for credit
limits, we seek to enhance credit risk management by suchmeans as curbing the risk of credit concentration in termsof the aggregate of on-balance-sheet and off-balance-sheet
credits.

Hokuhoku Financial Group, Inc. Annual Report 2012

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

Borrower categorization by asset self-assessment

Normal borrowers

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

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

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

Market risk management
Basic policy
Market risk is the risk of incurring losses due to fluctuations in the value of assets and liabilities held by the Group, or theearnings generated by the Group, that are caused by fluctuations in various risk factors in the market, such as interest rates,
stock prices, and foreign exchange rates.
At the subsidiary banks, where market risk is critical to transactions, we have created regulations for market risk
management and assets and liabilities are subject to asset-liability management (ALM), so that Hokuhoku Financial Group
controls such risk in order to ensure stable earnings.

Types of risk and management system(1) Interest-Rate Risk
Bonds and other marketable securities, deposits and loans
are exposed to the risks of declining profits or incurring
losses due to interest rate fluctuations in the operating
environment where there are different interest rates or time
structures between assets and liabilities. The subsidiarybanks have set regulations on interest rate management todisperse risk, and their ALM Committees control interestrate risk appropriately.
The sections in charge of risk management assess risk
level daily, using such indicators as value-at-risk (VaR), thelargest predicted loss that is possible given a fixed confidence interval, and others. They also periodically run gap
analysis and duration analysis (a measure for evaluating thesensitivity of the asset’s price to interest rate movements)
to monitor interest-rate risk. The results are reported andreviewed at ALM Committees for implementation of necessary measures.
To ensure that the subsidiary banks are not exposed toexcessive interest risk, we set various investment ceilings

for bonds and other securities based on risk capital allocation under VaR, and manage both the balance and risk levelof marketable securities. We have also set rules for whenlosses (unrealized and realized) are mounting.
We have established a system of checks on the business units in charge of transacting market-related business(front office), the processing departments (back office) andthe risk management group (middle office). The front officeconducts operations in strict observance of management
policies and ceiling amounts stipulated by the Management
Committee. The middle office continuously monitors risk
levels and observance of various rules and sets “trigger
points” to enable early defusing of risk issues. They discuss
measures to respond to these issues at ALM Committees
and regularly report to the Management Committee.
When market prices fluctuate significantly, making it
impossible to accurately assess risk levels or raising theprospect of unforeseen risk, we periodically carry out stresstests to calculate the extent of expected losses undercertain scenarios.

Hokuhoku Financial Group, Inc. Annual Report 201217

Risk management system(2) Stock Price Fluctuation Risk
Among securities, stock prices are exposed to the risk ofdeclining asset prices arising from fluctuations in market
prices. However, as with management of interest-rate risk,
we have set various ceilings and monitor at-risk amounts.
We conduct strict management by regularly reporting torelevant committees including the Management Committee.
We also review stock holdings, not only in pre-screening
them, but periodically monitoring the market conditions andfinancial positions of individual corporations after we haveacquired the holdings.
(3) Foreign Exchange Rate Risk
Foreign currency assets and liabilities are exposed to
the risk that losses will be incurred because the price of
exchange differs from the price that was initially planned.
To reduce such risk, we regularly monitor the internationalsituation and major forex indicators in Europe and the US,
and conduct risk management with due consideration of
the maturity of individual assets and liabilities. We also use
currency swaps.
(4) Derivative Transactions Risk
To meet the various needs of customers, and for ALM/
hedging purposes, the subsidiaries separately engage in
foreign currency derivative transactions such as swaps
and options, as well as interest rate swaps, caps, forward
interest-rate-related derivatives and other interest-rated
based derivatives.
Derivatives are exposed to various kinds of market risk.
Through daily management of the market value of our positions and risk evaluation, we ensure losses do not exceed
certain thresholds.

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

18

Hokuhoku Financial Group, Inc. Annual Report 2012

Operational risk management
Basic policy
Operational risk refers to the risk of losses arising because operational processes, the conduct of executives and employees,
or computer systems are inappropriate, or because of external events.
The Group categorizes operational risk as follows. We take ongoing measures to correctly recognize, appraise and manage each type of risk, and avoid or reduce losses significantly affecting business activities.
Administrative risk

Risk of losses due to executives and employees neglecting to carry out accurate business processes,
causing an accident, or committing an illegal act

System risk

Risk of losses due to system failures such as the crashing and malfunction of computer systems, andmisuse of computers

Legal risk

Risk of losses due to breaches of obligations resulting from negligence toward customers

Personnel risk

Risk of losses due to unfair or discriminatory behavior in personnel management

Tangible asset risk

Risk of losses due to natural disasters damaging tangible assets

Reputational risk

Risk of losses due to a decline in trust in the Group caused by deterioration in its reputation or the
spreading of unjustified rumors

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

Risk management systems by major category• Administrative risk management
The Group has closely analyzed the cause of administrative
incidents and problems and discussed measures to prevent
recurrence, so as to prevent accidents and problems in
administrative operations and maintain quality of operationin terms of promptness and accuracy. At the same time,

we endeavor to raise administrative operation standards bysetting rules for proper processing, improving administrative
processing systems, dispatching advisory staff from thehead office, centralizing clerical work at branches andintroducing equipment to automate procedures.
• System risk management
With the increasing sophistication of financial business andthe growth in transaction volumes, it is becoming more
important to ensure that computer systems cannot fail andthat they always operate stably.
The Group has formulated basic rules for systemrisk management (System Risk Standards) and otherregulations, and has established a rigorous management
and operating structure with a variety of backup and othersecurity management measures in place.
Additionally, the subsidiary banks successfully completed
the migration to the new MEJAR system in May 2011 andcontinue to ensure its stable operation.

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

Hokuhoku Financial Group, Inc. Annual Report 201219

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

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

To meet diversifying customer needs
While fostering close links between the Group and the regions we serve, we will listen to customer opinions
and take measures to make our branches more appealing and to offer better services.

Enhancing Branch Appeal• Enhancement of consultation spaces“Hokugin Point Club Salon” (Takaoka) “Odori Personal Lounge” (Sapporo)• Kanazawa Toiyamachi Branch Awarded the Kanazawa Urban
Structure Award (Hokuriku Bank)
For the purpose of improving urban aesthetics, the Kanazawa
Urban Structure Award has been awarded since 1978 toarchitectural structures that are in harmony with the surrounding
environment. The award-winning Kanazawa Toiyamachi Branch
was reopened in a new building in October 2010. The newbranch’s exterior features a tiled roof and plaster walls that fit
in with the old town of Kanazawa. In addition, Japanese cedar
produced in Ishikawa Prefecture is used for floors, making ita branch that promotes theconcept of local production
for local consumption.

• Upgrade sub-branches into branches
In fiscal 2011, Hokuriku Bank upgraded three sub-branches into
branches and Hokkaido Bank upgraded one sub-branch into a
branch.
Equipped with full banking functions and offering a service
specialized in retail services mainly to individuals and family businesses, the new branches will aim to help their banks to become
an even closer and more reliable partner for local customers intheir respective regions.
• Reopening of Teshio Branch in a New Building (Hokkaido Bank)The Teshio Branch was relocated to a new building, as the original
building had deteriorated after 45 years of use. The brick exteriorsof the new branch blend in well with the local environment, and a
dedicated consultation booth has been set up to provide customers with advice on asset management within the relaxed interiorsof the branch.

Teshio Branch

Kanazawa Toiyamachi Branch

20

Hokuhoku Financial Group, Inc. Annual Report 2012

Consultation boothSupport regional economic development through wide area networks
across Japan and some overseas locations
The Hokuhoku Financial Group aims to help spur regional economic growth by further strengthening wide-area networks spanning the Hokuriku, Hokkaido and three major metropolitan areas of Japan, as well as overseas networks.
■ Hokuhoku FG■ Hokuriku Bank

■ Hokkaido Bank

Agreements with overseas municipal andother government organizations

Association of bank clients (as of March 31, 2012)Year■ Hokuriku Bank
Hokuriku Choujou Association
Hokuhoku ASEAN Association
Shanghai Choujou Association
Dalian Choujou Association■ Hokkaido Bank
Hokkaido Choujou Association

No. of companies

Month/Location

2004 10 ■ Dalian
2005 11 ■ Shenyang
2006 4 ■ Shanghai
9 ■ Liaoning
11 ■ Vietnam govt.
2007 3 ■ Changchun
6 ■ Suzhou
2008 2 ■ Guangdong
6 ■ Harbin
2009 2 ■ Ningbo
11 ■ Khabarovsk
12 ■ Wuxi
2 ■ Sakhalin
4 ■ Kunshan
2010
6 ■ Dalian Sub-Council of CCPT*
1 ■ Yingkou
3 ■ Jinzhou New Area
2011
6 ■ Shenyang Sub-Council of CCPT*
2012 8 ■ Shaoxing* CCPT: Council for the Promotion of International Trade

Alliances with overseas banks and other partners
Year

Month

2002
2005
2006
2007

10
12
7
9
9
12
4
9
12
8
4
4
6
8
10
11
12
5

2008
2009
2010

2011

2012

■ Bank of China■ KASIKORNBANK (Thailand)■ Standard Chartered Bank
■ State Bank of India■ Mizuho Corporate Bank
■ Bank of Communications, PRC■ Financial Information Service Co., Taiwan■ Deutche Bank
■ Vietcombank■ Liaoning Radio and Television■ Nippon Export and Investment Insurance■ Bank Negara Indonesia■ KASIKORNBANK (Thailand)■ Gazprombank■ Tokio Marine & Nichido Fire Insurance Co., Ltd.
■ Bank of shanghai■ Nippon Export and Investment Insurance■ Sberbank

Business-matching events (fiscal 2011-2012)
Year

Month

Location

Industry■ Hokuhoku FG, ■■ Both Bank
9
Shanghai Manufacturing
2011
10
DalianAll industry types
11
Tokyo
Food
■ Hokuriku Bank
6
Ishikawa
Food
8
ToyamaManufacturing
10
Tokyo
Food
2011
11
ToyamaMiscellaneous
12
Fukui
Food
12
ToyamaFood
2012
2
ToyamaFood■ Hokkaido Bank
6
SapporoMiscellaneous
6
SapporoFood
2011
9
Shenyang Construction, Food, IT
10
SapporoMiscellaneous
6
SapporoMiscellaneous
2012
6
SapporoFood

Exhibiting companies(No. of business meetings)

450 (15,000)
365 (504)612
47
92 (c. 1,000)
49 (180)
91 (564)
19 (30)15 (30)61 (c. 200)788 (100)
30 (100)85 (120)103 (c. 400)
128 (c. 500)
80 (366)

1,092
152
206
70
241

Support of customers expanding overseas business2011 China-Japan Manufacturing Business Conference held in Shanghai
This conference was held jointly withJapanese regional banks and municipalities,
in Shanghai, China, on September 6-7,
2011, and hosted by NC Network China (acompany that supports business matchingfor manufacturers in China). This conferenceis specifically designed to help companies in the manufacturingindustry (particularly the automotive, consumer electronic, machineryand metal industries) to expand sales channels in the Chinese market
and form partnerships with contractors and suppliers in China. A
record 469 businesses exhibited at the 2011 conference.
It was our seventh case of sponsorship of the event in Shanghai,
the largest number of times among the sponsoring partners. A totalof 16 of the Group’s clients exhibited.
The 2011 Dalian China-Japan Trade Investment Business Conference
The Group co-sponsored the 2011 Dalian
China-Japan Trade Investment Business
Conference that was held in Dalian World
Expo Plaza on October 28-29, 2011 (hosted
by Dalian Municipal People’s Government).
This marked the fourth year the business
conference was held. The companies that exhibited at the conference
are mainly engaged in the manufacturing and marketing of machinery,industrial goods, foodstuffs, agricultural products, and housewares.
Participating companies included 251 Japanese companies
seeking import-export trade relationships, consignment production,and technological and marketing partnerships with companies innortheast China. Both preliminary and free-form business matchingtalks with Chinese companies were conducted over the two days ofthe conference.
Eleven Hokuriku Bank clients participated, mainly pharmaceuticals
and foodstuffs companies from Toyama Prefecture. Hokkaido Bankran a booth providing consultation services with lawyers from both
Japan and China, as well as a booth promoting tourism in Hokkaido.
On the 28th there were approximately 8,000 visitors and approximately 250 business meetings were held.

Hokuhoku Financial Group, Inc. Annual Report 201221

corporate social responsibility

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

IR meetings for individual investors

November 2011: Fiscal 2011 interim results (Tokyo)
May 2012: F iscal 2011 results ( Tokyo)

June 2012: Two cities in Hokuriku ( Toyama and Kanazawa) andtwo cities in Hokkaido (Sapporo and Asahikawa)IR overseas roadshow

General meeting of shareholders

July 2012: E urope (Paris, London, Edinburgh)
North America (New York, Boston, SF)

June 2012: 9th ordinary general meeting of shareholders ( Sapporo,with live broadcast to Toyama)

Advancing with regional communities
We take part in social contribution activities.
Financial education• All-Japan high-school quiz in finance and economy “Economics
Koshien,” in Hokkaido, Toyama and Fukui prefectures• Management school for the managers who will form the next
generation of business leaders• Dispatch of lecturers to high schools and universities• Internships

Support for industry-academia cooperation
The Group has concluded cooperation agreements with universities
in the region, and is supporting industry-academia cooperation bytaking on an intermediary role in joint research and use of its resultswith local companies, and by promoting business matching basedon intellectual property assets.

Support for arts and culture• Arranging and supporting
concerts

Lilac Concert• Establishment of art galleries• Michinoku Maru port call event held
Trade through kitamaebune (northern-boundships) contributed to the development of
Hokkaido, which also formed the basis of
the industry that underpinned the regional
economy in Hokuriku.
The Michinoku Maru is a kitamaebune
The Michinoku Maru
that was restored by shipbuilders from
Aomori Prefecture, Iwate Prefecture, and Hokkaido. The boat
is the property of the Michinoku Traditional Wooden Boat
Museum in Aomori Prefecture. During the summer of 2011, theMichinoku Maru traveled along traditional trade routes on the
Sea of Japan while calling at ports in ten prefectures.
Hokkaido Bank and Hokuriku Bank served as special sponsors for events held at Otaru Port and Fushiki-Toyama Port,
respectively, to commemorate the port calls by the Michinoku
Maru. At these ports, ship tours and exhibits were held to
educate visitors about kitamaebune culture. Local products
from Tohoku were also sold as partof the Group’s support efforts for that
region, events that proved to be very
popular with the many visitors.

Head Office Sales Department,
Hokuriku Bank

Helping conserve the regional environment
Measures undertaken as a financial institution
Environmentally-friendly housing loans, intermediary role in carbonrights trading, lending based on environmental ratings.

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

• Forest campaign
At Hokkaido Bank, project members are taking the lead in thinking
about and working on environmental issues through the creationof forests.
In September 2011, the third tree-planting was held in “DoginForest.” Branches also cooperated with local governments intree-planting activities.

Further environmental protection activities• Establishment of rooftop garden systems
Forest campaign

22

Hokuhoku Financial Group, Inc. Annual Report 2012

Topics

Hokuriku Bank
1. Economic Exchange Memorandum Concluded with
the Shaoxing Municipal People’s Government
In August 2011, a memorandum to promote economic
exchange was concluded with the Municipal Bureau ofCommerce of Shaoxing in Zhejiang, China, for the purposeof providing mutual support for clients that conduct local
investments in Shaoxing and companies from Shaoxing thatare expanding their business in Japan.
Shaoxing is associated with Mao-era PRC Premier Zhou
Enlai, who accomplished much to normalize diplomatic
relations between Japan and China. It is also the sister cityof Nanto, Toyama, which is the birth place of the Japanesepolitician Kenzo Matsumura, who had a close relationshipwith Zhou.

2. Business Partnership Agreement Concluded with the
Bank of Shanghai
In November 2011, the Group concluded a business
partnership agreement with the Bank of Shanghai, which
is based in Shanghai, China. The Bank of Shanghai is aregional bank with approximately 250 business locations,mainly in Shanghai. Considering that approximately 200 of
the Group’s clients that are expanding their businesses in
China are focused on the Shanghai region, this partnershipshould allow the Group to provide higher-quality informationand financial services for these clients. This partnershipwith the Bank of Shanghai marks the fourth businessalliance that Hokuriku Bank has entered with banks in
China, in addition to its partnerships with the Bank of China,
Standard Chartered Bank, and Bank of Communications
Limited.

3. F
 irst Regional Bank in Hokuriku to Introduce a Mobile
Financial Service Vehicle; Agreement Concluded with
Toyama Prefecture to Provide Support During Disasters
In February 2012,
Hokuriku Bank
became the firstregional bank in
Hokuriku region to
introduce a mobile
Mobile Financial Service Vehicle
financial service
vehicle, using a remodeled minibus. This mobile financial
service vehicle provides housing loan and pension consultation services at show-house sites and locations without bankbranches or offices. It is expected that it will be possible
to use the vehicle in relief efforts during disasters, suchas for the transport of relief supplies and the provision of
emergency power sources, and as a temporary sub-branchwith ATMs.
In addition, Hokuriku Bank concluded an agreementwith Toyama Prefecture to provide support during disasters.
The agreement includes stipulations on the provision of relief
supplies and the dispatch of employees as disaster relief
volunteers in the event of disasters such as earthquakes, theprovision of water and toilet facilities at branches sothat they can be used as
temporary evacuation sites
for people who become
stranded, and emergency
Agreement with Toyama Prefecture on
finance programs.
disaster relief

4. S
 tart of 24 Hours-a-Day Customs Duties Automatic
Debit Service
In March, the Group started providing 24 hours-a-day
automatic debit services for payers of custom duties andtaxes on imports. This service was the first of its kind to
be provided by a regional bank in Hokuriku when it was
introduced in 2010 and the number of contract clients has
increased steadily. When the number of companies using theservice reached about 1,000, the Group decided to improve
convenience by providing 24 hours-a-day support. Provisionof service 24 hours-a-day allows the payment of duties andtaxes on weekends, holidays, and late at night, decreasing
the number of days required for the collection of freight.

Hokuhoku Financial Group, Inc. Annual Report 201223

5. Establishment of a Representative Office in Bangkok,
Thailand

6. B
 est Partner Award from Nihon M&A Center Inc.

A representative office was established in Bangkok,
Thailand, on March 20, 2012. More and more regional
companies from Hokuriku are entering the South East Asian
region in response to the high levels of economic growth
and the improving industrial standards seen there. Working
together with representative offices in Bangkok andSingapore, Hokuriku Bank not only supports more than 140
companies from Hokuriku developing business in Thailand,
but also supports its regional clients in Vietnam, Myanmar
and Cambodia by providing local business information,business matching opportunities, direct financing andfinancial support through its partner Kasikorn Bank PCL.

Hokuriku Bank was awarded the first Best Partner Award
from Nihon M&A Center, its business partner for M&A
work. This unique award was launched in April 2012 by
Nihon M&A Center, which has the top track record for M&A
contract conclusion support for small-and-medium-sizedenterprises. This award is made to the regional bank withthe best M&A track record among M&A Center’s 89 partnerbanks (as of March 31, 2012). Hokuriku Bank was the only
winner during this inaugural. Hokuriku Bank actively handles
M&A work for companies with business succession issues.
The Bank will continue to provide even better service in the
future in response to the diversifying needs of its clients.

K-Tower

Hokkaido Bank
1. Enhancement of the Russian Far East Market Entry
Support System
There is much potential for the expansion of Hokkaidobased businesses into the Russian Far East market,
especially in the fields of agriculture, cold area technologies,
and marine product processing. Since the establishment of
the Yuzhno-Sakhalinsk representative office in March 2009,
Hokkaido Bank has worked to strengthen its presence inthis region through alliances with external institutions inorder to assist the expansion of Hokkaido-based companies into the Russian Far East market.
In April 2011, Hokkaido Bank became the first regionalbank to launch a business alliance with Nippon Export andInvestment Insurance, making it the only financial institutionin Hokkaido that provides trade credit insurance services.

24

Hokuhoku Financial Group, Inc. Annual Report 2012

Hokkaido Bank has a history of providing ruble remittanceservices through a correspondent account opened with
VTB Bank. The Bank also concluded business contracts
with Gazprombank and Far East Branch of Sberbank
in August 2011 and May 2012, respectively, in order tofurther facilitate payments and settlements for Japanesecompanies.

Business contracts with Far East Branch of Sberbank

2. Agribusiness Forum 2011
The Agribusiness Forum 2011 was held in Sapporo on June
10, 2011.
Although Hokkaido Bank has been holding businessforums since 1998, this year the Bank decided to try shifting
the focus to “crop factories,” making this the first case ofits kind in the Tohoku and Hokkaido areas. Six agriculturalexperts were invited to hold talks on the topic, including
experts from the Embassy of Netherlands in Japan. The
Netherlands is very advanced in this field.
At the forum, 21 equipment manufactures andother companies exhibited and held business meetings.
Approximately 1,000 visitors attended the forum, including
people in the agricultural industry and representatives
from companies hoping to enter the industry, making it anextremely valuable forum for the exchange of information on
the most recent developments in agri-business.

4. P
 rovision of Bank Time ATM Service with the Cooperationof Circle K Sunkus Co., Ltd. Launched and 24-Hour Service
Provision at Convenience Store ATMs Commenced
With the cooperation of Circle K Sunkus, Hokkaido Bank
launched service at the Bank Time ATMs installed at
Sunkus convenient stores in Hokkaido in October 2011.
Through this development, Hokkaido Bank now supports all of the major convenience store ATM services in
Hokkaido, including the ATM services it already supports
such as E-net ATMs (installed at convenient stores suchas Seicomart), Lawson ATMs, and Seven Bank ATMs. In
addition, the ATM operation hours have been extended andservice provision over the New Year’s Holidays has beencommenced, making it possible to use the Hokkaido Bank
card at all partner
convenience store
ATMs 24 hours
a day, 365 daysa year, excluding
maintenanceperiods.

5. H
 okkaido Bank’s Kitaca Cash and Credit Card Launched3. Second Hokkaido Tourism Special Business Meet Upwith China Event
Travel agencies from China were invited to the Second
Hokkaido Tourism Special Business Meet Up with Chinathat was held in October, 2011.
Approximately 70 Hokkaido-based organizations,
including tourist associations from various regions, hotspring hoteliers, and outdoor tour operators participated.
They were joined by 25 companies from Beijing and
Shenyang, with which they had over 400 businessmeetings.
Hokkaido Bank places great importance on encouraging
foreign visitors to come to Hokkaido for sightseeing, andhopes to contribute to the revitalization of the region by
supporting the business of its clients in this sector.

Hokkaido Bank launched the
Kitaca cash and credit card in
March 2012.
In addition to serving as botha cash and credit card, Kitaca
also serves as an integrated circuit smart card that provides
customers with convenient features, allowing them to ride
Japan Railways lines and shop with digital money at major
convenience stores throughout Hokkaido.
6. O pening of an Office Day-Care Center:
Dosanko Kid’s Room
An office day-care center, Dosanko Kid’s Room, wasopened in April 2012 at the Hokkaido Bank Head Office(annex building).
Hokkaido Bank is taking active steps to support its
female employees by allowing them to leave their infants atthe center while they work. At a private viewing of the facilities
before the center was opened, Hokkaido Bank was given awritten commendation by Sapporo Mayor Fumio Ueda.

Hokuhoku Financial Group, Inc. Annual Report 201225

Consolidated Financial Statements

Consolidated Balance Sheet
Hokuhoku Financial Group, Inc. and Consolidated Subsidiaries

2012

2011

Thousands of
U.S. dollars (Note 1)
2012

AssetsCash and due from banks (Notes 23 and 28).....................................................
Call loans and bills bought..................................................................................
Monetary claims bought (Note 28)......................................................................
Trading assets (Note 4).......................................................................................
Money held in trust (Note 29)..............................................................................
Securities (Notes 5, 10, 28 and 29).....................................................................
Loans and bills discounted (Notes 6, 10 and 28)................................................
Foreign exchanges (Note 7)................................................................................
Other assets (Note 10)........................................................................................
Tangible fixed assets (Notes 8 and 14)...............................................................
Intangible fixed assets........................................................................................
Deferred tax assets (Note 21) ............................................................................
Customers’ liabilities for acceptances and guarantees (Note 9)...........................
Allowance for loan losses...................................................................................
Total assets......................................................................................................

¥   326,031
67,397112,7888,002
3,948
2,483,485
7,272,698
10,691
141,301
108,320
43,386
41,66789,049(79,452)¥10,629,316¥   406,848
87,056
111,451
9,303
3,994
2,326,508
7,224,636
13,234
168,565
112,167
36,42563,572102,240(80,950)¥10,585,054$   3,966,802
820,016
1,372,293
97,37048,04530,216,391
88,486,419
130,079
1,719,204
1,317,926
527,878
506,965
1,083,455(966,691)$129,326,152

Liabilities and net assets
Liabilities
Deposits (Notes 10, 11 and 28)..........................................................................
Call money and bills sold (Note 10).....................................................................
Trading liabilities (Note 4)....................................................................................
Borrowed money (Notes 10, 12 and 28).............................................................
Foreign exchanges (Note 7)................................................................................
Bonds payable (Note 13)....................................................................................
Other liabilities....................................................................................................
Reserve for employee retirement benefits (Note 27)............................................
Reserve for directors’ and corporate auditors’ retirement benefits.......................
Reserve for contingent loss................................................................................
Reserve for reimbursement of deposits...............................................................
Deferred tax liabilities for revaluation...................................................................
Acceptances and guarantees (Note 9)................................................................
Total liabilities...................................................................................................

¥ 9,670,262
64,273
2,190
187,28672
34,500109,343
9,211
673
2,974
1,403
7,513
89,04910,178,754¥ 9,491,744
20,0002,690
327,738
131
41,500150,519
7,779
529
2,771
1,850
8,901
102,240
10,158,395$117,657,411
782,016
26,6572,278,705
882
419,759
1,330,372
112,071
8,189
36,18817,07591,4201,083,455
123,844,200

Net assets
Capital stock (Note 15).......................................................................................
Capital surplus....................................................................................................
Retained earnings (Note 16)...............................................................................
Treasury stock....................................................................................................
Total shareholders’ equity...............................................................................
Valuation difference on available-for-sale securities (Note 29)..............................
Deferred gains (losses) on hedges......................................................................
Revaluation reserve for land (Note 14).................................................................
Total accumulated other comprehensive income..........................................
Minority interests................................................................................................
Total net assets................................................................................................
Total liabilities and net assets.........................................................................

70,895
153,188
189,845(605)
413,322
26,898(15)
9,351
36,234
1,003
450,561¥10,629,316

70,895
153,188
182,131(600)
405,614
11,4193
8,683
20,105938
426,658¥10,585,054

862,575
1,863,831
2,309,833(7,369)5,028,870
327,273(183)
113,778
440,868
12,214
5,481,952$129,326,152

Millions of yen
March 31

See notes to consolidated financial statements.

26

Hokuhoku Financial Group, Inc. Annual Report 2012

Consolidated Statement of INCOME
Hokuhoku Financial Group, Inc. and Consolidated Subsidiaries

2012

2011

Thousands of
U.S. dollars (Note 1)
2012

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

¥117,817
23,71917873
1,421
37,676614
23,1932,647
207,982¥123,043
22,96245
780
1,644
39,045
1,225
22,464
3,530
214,741$1,433,482
288,596
213
10,62817,298458,4027,479
282,198
32,2162,530,512

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

9,845
2
2,381
929
676
13,414
11,126
110,515
10,13312,752
171,777

13,417
—
2,261
1,279
553
12,414
14,962
109,580
13,349
11,624
179,443

119,785
26
28,98011,3088,225
163,218
135,381
1,344,639
123,291
155,157
2,090,010

36,20435,298440,502

7,184——
14,833
14,18656¥ 14,129

5,727
829
(51)
10,234
18,557152¥ 18,404

87,418——
180,478
172,606692$  171,914

Millions of yen
Year ended March 31

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

Consolidated Statement of COMPREHENSIVE INCOME
Hokuhoku Financial Group, Inc. and Consolidated Subsidiaries

2012

2011

Thousands of
U.S. dollars (Note 1)
2012¥14,186
16,13815,509(18)
668¥18,557
2,163
2,277
20
(101)

$172,606
196,353
188,705
(221)
8,132

(21)
¥30,324
30,25865(33)¥20,720
20,563157(263)$368,959
368,158
801

Millions of yen
Year ended March 31

Net income before minority interests...................................................................
Other comprehensive income (Note 22)..............................................................
Valuation difference on available-for-sale securities........................................
Deferred gains (losses) on hedges.................................................................
Revaluation reserve for land...........................................................................
Share of other comprehensive income of associates accounted forusing equity method....................................................................................
Total comprehensive income..............................................................................
Comprehensive income attributable to owners of the parent.........................
Comprehensive income attributable to minority interests...............................
See notes to consolidated financial statements.

Hokuhoku Financial Group, Inc. Annual Report 201227

CONSOLIDATED STATEMENT OF CHANGES IN NET ASSETS
Hokuhoku Financial Group, Inc. and Consolidated Subsidiaries
Thousands
IssuedIssuednumber of
number ofshares ofshares ofcommon stock preferred stock
Balance as of March 31, 2011................................. 1,391,630
107,432
Changes during the period
Cash dividends.....................................................
——Net income...........................................................
——
Purchase of treasury stock...................................
——
Disposal of treasury stock.....................................
——
Reversal of revaluation reserve for land.................
——Net changes of items
other than shareholders’ equity...........................
——
Total changes during the period...........................
——
Balance as of March 31, 2012................................. 1,391,630
107,432

Millions of yen
Capitalstock¥70,895

Capitalsurplus¥153,188

Retainedearnings¥182,131

Treasurystock¥(600)

Total
shareholders’equity¥405,614

—
—
—
—
—

—
—
—
(0)
—

(6,822)
14,129
—
—
406

—
—
(6)
0
—

(6,822)
14,129
(6)
0
406

—
—
¥70,895—(0)¥153,188—
7,713¥189,845—(5)¥(605)—
7,708¥413,322

Minority
interests¥  938Total
net assets¥426,658

—
—
—
—
—
65
65
¥1,003(6,822)
14,129(6)
0406
16,19423,902¥450,561

Millions of yen
Valuation
Total accumulateddifference on
otherDeferredavailable-for-sale gains (losses)
comprehensive
Revaluation
securities
incomeon hedges reserve for land
Balance as of March 31, 2011..........................................................
¥11,419¥ 3¥8,683¥20,105
Changes during the period
Cash dividends..............................................................................
————Net income....................................................................................
————
Purchase of treasury stock............................................................
————
Disposal of treasury stock..............................................................
————
Reversal of revaluation reserve for land..........................................
————Net changes of items other than shareholders’ equity....................
15,478(18)
668
16,129Total changes during the period....................................................
15,478(18)
668
16,129Balance as of March 31, 2012..........................................................
¥26,898¥(15)¥9,351¥36,234

Thousands
IssuedIssuednumber of
number ofshares ofshares ofcommon stock preferred stock
Balance as of March 31, 2010................................. 1,391,630
107,432
Changes during the period
Cash dividends.....................................................
——Net income...........................................................
——
Purchase of treasury stock...................................
——
Disposal of treasury stock.....................................
——
Reversal of revaluation reserve for land.................
——Net changes of items
other than shareholders’ equity...........................
——
Total changes during the period...........................
——
Balance as of March 31, 2011................................. 1,391,630
107,432

28

Hokuhoku Financial Group, Inc. Annual Report 2012

Millions of yen
Capitalstock¥70,895

Capitalsurplus¥153,189

Retainedearnings¥170,100

Treasurystock¥(589)

Total
shareholders’equity¥393,595

—
—
—
—
—

—
—
—
(0)
—

(6,475)
18,404
—
—
101

—
—
(13)
2
—

(6,475)
18,404
(13)
1
101

—
—
¥70,895—(0)¥153,188—
12,030¥182,131—(10)¥(600)—
12,018¥405,614

Millions of yen
Valuation
Total accumulateddifference on
otherDeferredavailable-for-sale gains (losses)
comprehensive
Revaluation
securities
incomeon hedges reserve for land
Balance as of March 31, 2010..........................................................
¥ 9,180¥(17)¥8,784¥17,947
Changes during the period
Cash dividends..............................................................................
————Net income....................................................................................
————
Purchase of treasury stock............................................................
————
Disposal of treasury stock..............................................................
————
Reversal of revaluation reserve for land..........................................
————Net changes of items other than shareholders’ equity....................
2,238
20
(101)
2,158
Total changes during the period....................................................
2,238
20
(101)
2,158
Balance as of March 31, 2011..........................................................
¥11,419¥ 3¥8,683¥20,105

Minority
interests
¥781

Total
net assets¥412,324

—
—
—
—
—
157
157
¥938

(6,475)
18,404
(13)
1
101
2,315
14,334¥426,658

Thousands of U.S. dollars (Note 1)

Balance as of March 31, 2011..........................................................
Changes during the period
Cash dividends..............................................................................
Net income....................................................................................
Purchase of treasury stock............................................................
Disposal of treasury stock..............................................................
Reversal of revaluation reserve for land..........................................
Net changes of items other than shareholders’ equity....................
Total changes during the period....................................................
Balance as of March 31, 2012..........................................................

Capitalstock$862,575

Capitalsurplus$1,863,836

Retainedearnings$2,215,980

Treasurystock$(7,305)

Total
shareholders’equity$4,935,086

—
—
—
—
—
—
—
$862,575

—
—
—
(5)
—
—
(5)
$1,863,831(83,008)
171,914——
4,947—
93,853$2,309,833

—
—
(75)
11
—
—
(64)
$(7,369)(83,008)
171,914
(75)
6
4,947
—
93,784$5,028,870

Thousands of U.S. dollars (Note 1)
Valuation
Total accumulateddifference on
otherDeferredavailable-for-sale gains (losses)
comprehensive
Revaluation
Minority
securities
incomeon hedges reserve for landinterests
Balance as of March 31, 2011.......................................................... $138,941$  38$105,646$244,625$11,418
Changes during the period
Cash dividends..............................................................................
—
—
—
—
—
Net income....................................................................................
—
—
—
—
—
Purchase of treasury stock............................................................
—
—
—
—
—
Disposal of treasury stock..............................................................
—
—
—
—
—
Reversal of revaluation reserve for land..........................................
—
—
—
—
—
Net changes of items other than shareholders’ equity....................
188,332(221)
8,132
196,243796
Total changes during the period....................................................
188,332(221)
8,132
196,243796
Balance as of March 31, 2012.......................................................... $327,273$(183)$113,778$440,868$12,214Total
net assets$5,191,129(83,008)
171,914
(75)
6
4,947
197,039
290,823$5,481,952

See notes to consolidated financial statements.

Hokuhoku Financial Group, Inc. Annual Report 201229

Consolidated Statement of Cash Flows
Hokuhoku Financial Group, Inc. and Consolidated Subsidiaries

2012

2011

Thousands of
U.S. dollars (Note 1)2012¥    36,204
10,295
1,087
2,102
(0)
(1,498)202
1,431¥    35,298
9,042
358
2,405
(1)
(7,109)619(373)$   440,502
125,263
13,231
25,578(12)(18,234)
2,466
17,418143(447)(143,850)
13,834
1,681
49
2
366
1,300
(499)
(48,062)
220,519(42,000)(144,951)(7,109)

(744)
(270)
(148,475)
17,511
1,149
(10)
833
215
354
(29)
(243,434)
335,569
72,781
61,06235,721

1,747(5,442)(1,750,217)
168,325
20,456604
31
4,465
15,825(6,073)(584,773)
2,683,044(511,021)(1,763,611)(86,499)

18,322
44,273
2,543(58)
117,332(18,551)
1,894
66,559(5,081)
61,477

11,67520,000(2,056)(11)
125,462(12,614)
68,321
383,251(9,125)374,126

222,927
538,677
30,949(715)
1,427,571(225,712)
23,051
809,821(61,830)
747,991(1,735,224)
1,357,350
229,771(5)—
23,719(3,315)168(9,546)(137,081)(1,544,444)
983,386
234,826400
22,973(6,004)42(3,758)(312,577)(21,112,359)
16,514,794
2,795,609(69)—
288,596(40,344)
2,056(116,149)(1,667,866)

24,500(20,000)
8,000(15,000)(2,979)(6,822)(0)(6)
0(12,308)(13)(87,926)
314,107¥  226,181

31,000(12,500)
10,000(28,000)(3,159)(6,475)(0)(13)
1(9,147)(60)
52,340261,766¥  314,107

298,090(243,339)
97,335(182,504)(36,255)(83,008)(5)(75)
6(149,755)(167)(1,069,797)
3,821,726$ 2,751,929

Millions of yen
Year ended March 31
1. Cash flows from operating activities:
Income before income taxes and minority interests....................................................
Depreciation..............................................................................................................
Impairment losses......................................................................................................
Amortization of goodwill.............................................................................................
Equity in losses (gains) of affiliates..............................................................................
Increase (decrease) in allowance for loan losses........................................................
Increase (decrease) in reserve for contingent loss......................................................
Increase (decrease) in reserve for employee retirement benefits.................................
Increase (decrease) in reserve for directors’ andcorporate auditors’ retirement benefits ...................................................................
Increase (decrease) in reserve for reimbursement of deposits....................................
Interest income..........................................................................................................
Interest expenses......................................................................................................
Losses (gains) on securities.......................................................................................
Losses (gains) on money held in trust........................................................................
Losses (gains) on foreign exchange...........................................................................
Losses (gains) on sales of fixed assets.......................................................................
Net decrease (increase) in trading assets...................................................................
Net increase (decrease) in trading liabilities................................................................
Net decrease (increase) in loans and bills discounted.................................................
Net increase (decrease) in deposits............................................................................
Net increase (decrease) in negotiable certificates of deposit.......................................
Net increase (decrease) in borrowed money (excluding subordinated borrowed money)....
Net decrease (increase) in due from banks (excluding deposits with the Bank of Japan)....
Net decrease (increase) in call loans, bills bought, commercial paperand other debt purchased.......................................................................................
Net increase (decrease) in call money and bills sold...................................................
Net decrease (increase) in foreign exchanges (assets)................................................
Net increase (decrease) in foreign exchanges (liabilities).............................................
Interest income-cash basis........................................................................................
Interest expenses-cash basis.....................................................................................
Other, net..................................................................................................................
Subtotal..........................................................................................................................
Income taxes paid.....................................................................................................
Net cash provided by (used in) operating activities....................................................
2. Cash flows from investing activities:
Purchases of securities..............................................................................................
Proceeds from sales of securities...............................................................................
Proceeds from redemption of securities.....................................................................
Purchases of money held in trust...............................................................................
Proceeds from sales of money held in trust................................................................
Proceeds from fund management..............................................................................
Purchases of tangible fixed assets.............................................................................
Proceeds from sales of tangible fixed assets..............................................................
Purchases of intangible fixed assets...........................................................................
Net cash provided by (used in) investing activities.....................................................
3. Cash flows from financing activities:
Proceeds from issuance of subordinated borrowed money........................................
Repayment of subordinated borrowed money...........................................................
Proceeds from issuance of subordinated bonds........................................................
Repayment of subordinated bonds............................................................................
Expenditures for fund procurement............................................................................
Dividends paid...........................................................................................................
Dividends paid to minority shareholders.....................................................................
Purchases of treasury stock.......................................................................................
Proceeds from sales of treasury stock.......................................................................
Net cash provided by (used in) financing activities.....................................................
4. Effect of exchange rate changes on cash and cash equivalents...............................
5. Net increase (decrease) in cash and cash equivalents...............................................
6. Cash and cash equivalents at beginning of the period...............................................
7. Cash and cash equivalents at end of the period (Note 23)..........................................
See notes to consolidated financial statements.

30

Hokuhoku Financial Group, Inc. Annual Report 2012—

Notes to Consolidated Financial Statements
Hokuhoku Financial Group, Inc. and Subsidiaries

1. Basis of Presentation
The accompanying consolidated financial statements have been
prepared in accordance with the provisions set forth in the Japanese
Financial Instruments and Exchange Act and its related accounting
regulations, and in conformity with accounting principles generally accepted in Japan (“Japanese GAAP”), which are different incertain respects as to application and disclosure requirements ofInternational Financial Reporting Standards.
The accompanying consolidated financial statements havebeen restructured and translated into English (with some expanded
descriptions) from the consolidated financial statements of
Hokuhoku Financial Group, Inc. (the “Company”) prepared under
the Japanese Financial Instruments and Exchange Act and its
related accounting regulations.
Some supplementary information included in the statutory
Japanese language consolidated financial statements, but notrequired for fair presentation, is not presented in the accompanying
consolidated financial statements.
Amounts less than one million yen have been omitted. As
a result, the totals in Japanese yen shown in the consolidated
financial statements do not necessarily agree with the sum of theindividual amounts. The translation of the Japanese yen amounts
into U.S. dollars amounts is included solely for the convenience ofreaders outside Japan, using the prevailing exchange rate at March
31, 2012, which was ¥82.19 to US$1. The U.S. dollar amounts
are then rounded to thousands. Such translation should not be
construed as representations that the Japanese yen amounts havebeen, could have been, or could in the future be, converted into
U.S. dollars at that rate.

2. Scope of Consolidation
The consolidated financial statements as of March 31, 2012 include
the accounts of the Company and its 11 subsidiaries (together, the“Group”). The consolidated subsidiaries are listed below.
Under the control or influence concept, those companies inwhich the Company, directly or indirectly, is able to exercise control
over operations are fully consolidated, and those companies overwhich the Group has the ability to exercise significant influence areaccounted for by the equity method.
Investment in one associated company is accounted for by theequity method. The associated company is also listed below.
All significant intercompany balances and transactions have been
eliminated in consolidation. All material unrealized profit included in
assets resulting from transactions within the Group is eliminated.
Consolidated subsidiaries
Hokuriku Bank, Ltd.
Hokkaido Bank, Ltd.
Hokugin Lease Co., Ltd.
Hokuriku Card Co., Ltd.
Hokuriku Hosho Services Co., Ltd.
Hokugin Software Co., Ltd.
Hokuhoku Services Co., Ltd.
Hokugin Business Services Co., Ltd. (Note 1)
Hokuriku International Cayman Ltd. (Note 1)
Dogin Business Service, Ltd. (Note 1)
Dogin Card Co., Ltd. (Note 1)

Capital (¥mil)
140,40993,524
100
36
50
30
500
30
US$1,000
50
120

Ownership (%)
100.00100.0070.25
87.39
100.00100.00100.00100.00100.00100.00100.00Notes: 1. Ownership figures are inclusive of indirect ownership.
2. T he one subsidiary whose balance sheet date differs from the date of the Company
is consolidated using the financial statements based on the tentative settlement ofaccounts at the consolidated balance sheet date.

Associated company
Hokuhoku Capital Co., Ltd.

Capital (¥mil)
250

Ownership (%)
38.75

Note: Ownership figure is inclusive of indirect ownership.

Assets and liabilities of newly consolidated subsidiaries are valued
at fair value at the respective dates of acquisition, and goodwill isamortized using the straight-line method over either 20 years.

3. Significant Accounting Policies(1) Trading assets/liabilities and trading income/losses
Transactions for trading purposes (seeking gains arising fromshort-term changes in interest rates, currency exchange rates,or market prices of securities and other market related indices orfrom variation among markets) are included in “Trading assets” or“Trading liabilities” on the consolidated balance sheet on a tradedate basis. Income and losses on trading purpose transactions
are recognized on a trade date basis and recorded as “Trading
income” or “Trading losses.”
Securities and monetary claims purchased for trading purposes
are stated at the fiscal year-end market value and financial derivatives such as swaps, futures and options are stated at amounts
that would be settled if the transactions were terminated at theconsolidated balance sheet date.
“Trading income” and “Trading losses” include interest received
or paid during the fiscal year, the year-on-year valuation differencesof securities and monetary claims and the year-on-year valuationdifference of the derivatives assuming that the settlement will bemade in cash.
The Group presents foreign currency translation differences arising from currency swaps for trading purposes as “Trading assets”
or “Trading liabilities” on a gross basis, pursuant to the “Treatmentof Accounting and Auditing Concerning Accounting for Foreign
Currency Transactions in Banking Industry” (JICPA Industry Audit
Committee Report No. 25).
(2) Securities
As for securities other than trading purposes, debt securities that
consolidated subsidiaries have the positive intent and ability tohold to maturity are classified as held-to-maturity securities and are
carried at amortized cost (straight-line method) using the movingaverage method.
Securities other than trading purpose securities and held-tomaturity securities are classified as available-for-sale securities.
Stocks in available-for-sale securities that have market prices arecarried at their average market prices during the final month of the
fiscal year and bonds and other securities that have market prices
are carried at their fiscal year-end market prices (cost of securities
sold is calculated using primarily the moving-average method).
Available-for-sale securities for which quoted market prices are
difficult to obtain are carried at cost using the moving-averagemethod. Valuation difference on available-for-sale securities, net ofincome taxes, is included in “Net assets.”
Securities included in money held in trust are carried in the samemanner as for securities mentioned above.
(3) Derivative transactions
Derivative transactions, excluding those classified as trading derivatives, are carried at fair value.
Hokuhoku Financial Group, Inc. Annual Report 201231

(4) Depreciation method
a. Tangible fixed assets (excluding lease assets)
The Company and its consolidated banking subsidiaries (thesubsidiaries hereafter referred to as the “Banks”) depreciate theirequipment based on the declining-balance method and their premises principally based on the straight-line method.
The estimated useful lives of major assets are as follows:		
Buildings: 6 to 50 years		
Equipment: 3 to 20 years
Consolidated non-banking subsidiaries depreciate their equipment and premises principally based on the declining-balancemethod over their expected useful lives.
b. Intangible fixed assets (excluding lease assets)
Intangible fixed assets are depreciated based on the straight-line
method and capitalized software for internal use owned by consolidated subsidiaries is depreciated using the straight-line method
over its estimated useful life (mainly 5 years).
c. Lease assets
Lease assets under non-transfer ownership finance lease contracts (inwhich the ownership of leased assets is not transferred to the lessee;
included in tangible fixed assets and intangible fixed assets) are depreciated on a straight-line basis over the lease period with a residual valueof zero when contracted amounts for residual value are specified.
(5) Long-lived assets
The Group reviews its long-lived assets for impairment whenever
events or changes in circumstances indicate the carrying amountof an asset or asset group may not be recoverable. An impairment
loss would be recognized if the carrying amount of an asset or
asset group exceeds the sum of the undiscounted future cash
flows expected to result from the continued use and eventual
disposition of the asset or asset group. The impairment loss would
be measured as the amount by which the carrying amount of theasset exceeds its recoverable amount, which is the higher of the
discounted cash flows from the continued use and eventual disposition of the asset or the net selling price at disposition.
(6) Allowance for loan losses
Allowance for loan losses of the Banks is provided as detailed
below in accordance with the internal standards for write-offs andprovisions.
For claims on borrowers that have entered into bankruptcy, special liquidation proceedings or similar legal proceedings (“bankrupt
borrowers”) or borrowers that are not legally or formally insolvent
but are regarded as substantially in the same situation (“effectively
bankrupt borrowers”), a reserve is provided based on the amountof claims, after the write-off stated below, net of the expectedamount of recoveries from collateral and guarantees.
For claims on borrowers that are not currently bankrupt but areperceived to have a high risk of falling into bankruptcy, a reserve
is provided in the amount deemed necessary based on an overall
solvency assessment of the claims, net of the expected amount ofrecoveries from collateral and guarantees.
For other claims, after classification, an allowance is provided
based on the historical loan-loss ratio.
Branches and credit supervisory departments assess all claimsin accordance with the internal rules for self-assessment of assets,

32

Hokuhoku Financial Group, Inc. Annual Report 2012

and the credit review department, independent from these operating sections, audits their assessment. The allowance is provided
based on the results of these assessments.
The Company and its consolidated non-banking subsidiaries
also carry out asset self-assessment utilizing similar methods as
those employed by the consolidated subsidiaries engaged inbanking operations to make provisions for doubtful accounts in theamounts deemed necessary.
For collateralized or guaranteed claims on bankrupt borrowers
and effectively bankrupt borrowers, the amount exceeding the estimated value of collateral and guarantees is deemed to be uncollectible and written off against the total outstanding amount of theclaims. The amount of write-offs was ¥114,746 million ($1,396,114
thousand) and ¥120,936 million at March 31, 2012 and 2011,
respectively.
(7) Reserve for employee retirement benefits
Reserve for employee retirement benefits is provided for paymentof retirement benefits to employees in the amount deemed accruedat the fiscal year-end, based on the projected retirement benefit
obligation and the fair value of plan assets at the fiscal year-end.
Unrecognized prior service costs are amortized using thestraight-line method over eight years within the employees’ averageremaining service period at incurrence.
Unrecognized net actuarial gain (loss) is amortized using thestraight-line method over eight or nine years within the employees’
average remaining service period, commencing from the next fiscal
year of incurrence.
Unrecognized net transitional obligation from the initial application of the new accounting standard for employee retirement benefits of ¥28,196 million ($343,067 thousand) is amortized primarily
using the straight-line method over 15 years.
(8) Reserve for directors’ and corporate auditors’ retirement
benefits
Reserve for directors’ and corporate auditors’ retirement benefits isprovided for payment of retirement benefits to directors and corporate auditors in the amount deemed accrued at the fiscal year-end,
based on the estimated amount of benefit.
(9) Reserve for contingent loss
Reserve for contingent loss is provided for possible losses in accordance with the Joint Responsibility System of Credit Guarantee
Corporations and possible losses from contingencies not coveredby other specific reserves.
(10) Reserve for reimbursement of deposits
Reserve for reimbursement of deposits which were not previously
recognized as liabilities under certain conditions is provided forpossible losses on the future claims of withdrawal based on thehistorical reimbursement experience.
(11) Translation of foreign currency assets and liabilities
Assets and liabilities denominated in foreign currencies are translated into Japanese yen mainly at the exchange rate prevailing at
the consolidated balance sheet date.

(12) Lease transactions
In March 2007, the Accounting Standards Board of Japan (the“ASBJ”) issued ASBJ Statement No.13, “Accounting Standard
for Lease Transactions,” which revised the previous accounting
standard for lease transactions issued in June 1993. The revised
accounting standard for lease transactions was effective for fiscal
years beginning on or after April 1, 2008.
(Lessee)
Under the previous accounting standard, finance leases that weredeemed to transfer ownership of the leased property to the lessee
were capitalized. However, other finance leases were permitted tobe accounted for as operating lease transactions if certain “as if
capitalized” information was disclosed in the note to the lessee’s
financial statements. The revised accounting standard requires that
all finance lease transactions should be capitalized to recognize
lease assets and lease obligations in the balance sheet. In addition,
the accounting standard permits leases which existed at the transition date and do not transfer ownership of the leased property
to the lessee to continue to be accounted for as operating leasetransactions.
The Group applied the revised accounting standard effective
April 1, 2008. In addition, the Group continues to account for leases
which existed at the transition date and do not transfer ownershipof the leased property to the lessee as operating lease transactions.
The effect of this change was not material.
(13) Accounting for significant hedges
a. Interest risk hedges
The Banks hedge interest rate risks arising from their financial
assets and liabilities by employing the technique known as “individual hedging” that establishes a specific position to directly hedge aparticular item. Such hedges, limited to certain assets and liabilities,
are accounted for by the deferred method or, where appropriate
interest rate swaps are involved, by the special rule method.
The effectiveness of hedges is assessed as follows: the subsidiaries specify hedged items according to their risk management
regulations, with the aim of centralizing of hedging instruments, andverify the extent to which exposure of interest rate risks on hedged
items is mitigated.
b. Foreign currency risk hedges
The Banks hedge currency exchange fluctuation risks arising fromtheir foreign currency denominated financial assets and liabilities.
Such hedges are accounted for by the deferred method specified
in the “Accounting and Auditing Treatments in Banking Businessin Accounting for Foreign Currency Denominated Transactions andOthers” (JICPA Industry Audit Committee Report No. 25).
The effectiveness of hedges is assessed as follows: where currency swap transactions and exchange swap transactions are usedas hedging instruments to offset exchange fluctuation risks arisingfrom foreign currency denominated financial assets and liabilities, it
is assessed by verifying the agreement of the amounts of the designated hedging instruments corresponding to the hedged foreign
currency financial assets and liabilities.

c. The Company and consolidated non-banking subsidiaries are
not engaged in hedging operations using derivative transactions.
(14) Per share information
Basic earnings per share are computed by dividing net income
available to common shareholders by the weighted-average number of shares of common stock outstanding for the period.
Diluted earnings per share reflect the potential dilution that could
occur if preferred stock were converted into common stock.
(15) Accounting for consumption taxes
National and local consumption taxes are accounted for by the tax
exclusion method.
However, a part of consumption taxes on equipment and premises that no longer qualifying for exclusion is expensed as incurred.
(16) Accounting for income taxes
The provision for income taxes is computed based on pretax
income included in the consolidated statement of income. The
asset and liability approach is used to recognize deferred tax assets
and liabilities for the expected future tax consequences of temporary differences between the carrying amounts and the tax basesof assets and liabilities. Deferred taxes are measured by applying
currently enacted tax laws to the temporary differences.
(17) Cash and cash equivalents in consolidated statement ofcash flows
Cash and cash equivalents consist of cash on hand and demand
deposits with the Bank of Japan.
(18) Additional information
For changes in accounting policies and corrections of figures onafter April 1, 2011, the Group has adopted “Accounting Standard
for Accounting Changes and Error Corrections” (ASBJ Statement
No. 24) and “Guidance on Accounting Standard for Accounting
Changes and Error Corrections” (ASBJ Guidance No. 24) bothissued on December 4, 2009.

4. Trading Accounts
Trading accounts as of March 31, 2012 and 2011 are as follows:

AssetsMillions of yen
2012
2011

Thousands of
U.S. dollars
2012

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

¥3,723
4,279¥8,002¥3,7445,559¥9,303$45,298
52,072$97,370

Liabilities

Millions of yen
2012
2011

Thousands of
U.S. dollars
2012

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

¥2,190¥2,190$26,657$26,657¥2,690¥2,690

Hokuhoku Financial Group, Inc. Annual Report 201233

5. Securities

8. Tangible Fixed Assets

Securities as of March 31, 2012 and 2011 are as follows:
Millions of yen
2012
2011

Japanese government bonds.......... ¥1,435,521 ¥1,234,236
Japanese local government bonds....
462,450
463,044
Japanese corporate bonds.............
347,436
397,141
Japanese stocks............................
131,180
137,478
Other securities.............................
106,895
94,607
Total............................................. ¥2,483,485 ¥2,326,508

Thousands of
U.S. dollars
2012$17,465,890
5,626,608
4,227,236
1,596,062
1,300,595$30,216,391

Accumulated depreciation amounted to ¥99,632 million ($1,212,228
thousand) and ¥100,270 million as of March 31, 2012 and 2011,
respectively.
The book value of tangible fixed assets adjusted for gains onsales of replaced assets amounted to ¥3,886 million ($47,282
thousand) and ¥3,896 million as of March 31, 2012 and 2011,
respectively.
Tangible fixed assets as of March 31, 2012 and 2011 are as
follows:
Millions of yen
2012
2011

6. Loans and Bills Discounted
Loans and bills discounted as of March 31, 2012 and 2011 are as
follows:
Millions of yen
2012
2011

Bills discounted............................. ¥    67,623 ¥    64,990
Loans on bills................................
393,293421,681Loans on deeds............................. 5,928,681 5,783,554
Overdrafts.....................................
883,099
954,410
Total............................................. ¥7,272,698 ¥7,224,636

Thousands of
U.S. dollars
2012$   822,774
4,785,180
72,133,853
10,744,612$88,486,419

Loans and bills discounted include loans to borrowers underbankruptcy proceedings, overdue loans, loans overdue for at least
three months and restructured loans.
The amounts of these loans are as follows:
Millions of yen
2012
2011

Loans to borrowers
under bankruptcy proceedings...... ¥   9,886
Overdue loans............................... 179,590
Loans overdue
for at least three months..............
706
Restructured loans.........................
49,818
Total............................................. ¥240,001

Thousands of
U.S. dollars
2012¥ 13,246
172,668$  120,287
2,185,066

719
37,235¥223,869

8,590
606,138$ 2,920,081

These amounts represent the gross amounts before deductionof the allowance for loan losses.

7. Foreign Exchanges
Foreign exchanges as of March 31, 2012 and 2011 are as follows:
Millions of yen
2012
2011

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

Thousands of
U.S. dollars
2012¥ 6,092
2,123
2,474¥10,691¥10,134
1,584
1,515¥13,234$ 74,125
25,842
30,112$130,079¥     30
29
12¥     72¥     2981
19¥   131$    371
356
155$    882

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

¥ 35,466
64,385
903
464
7,100
¥108,320¥ 37,001
65,282
1,059
441
8,382
¥112,167

Thousands of
U.S. dollars
2012$  431,523
783,371
10,9895,651
86,392$1,317,926

9. Customers’ Liabilities for Acceptances and Guarantees
All contingent liabilities arising from acceptances and guarantees
are reflected in acceptances and guarantees in liability on the consolidated balance sheet. As a contra account, customers’ liabilities
for acceptances and guarantees are also shown in asset, which
represent the Bank’s right of indemnity from the applicants.
Guarantee obligations on securities issued by private placement (pursuant to Article 2, Clause 3 of the Japanese Financial
Instruments and Exchange Act) amounted to ¥94,327 million($1,147,671 thousand) and ¥100,028 million as of March 31, 2012
and 2011, respectively.

10. Pledged Assets
Assets that are pledged as collateral as of March 31, 2012 and2011 are as follows:
Millions of yen
2012
2011

Assets that are pledged as collateral:
Securities.................................. ¥444,777
Loans and bills discounted......... 311,147
Obligations corresponding
to collateral assets:
Deposits................................... ¥ 26,709
Call money and bills sold............
60,000Borrowed money.......................
67,840Thousands of
U.S. dollars
2012¥410,794
311,962$5,411,578
3,785,704¥ 60,334
20,000212,600$  324,970
730,016
825,405

In addition to the assets presented above, the following assets
were pledged as collateral relating to transactions on exchange
settlements or as substitutes for futures transaction margins as ofMarch 31, 2012 and 2011:
Millions of yen
2012
2011

Securities...................................... ¥187,744
Other assets..................................
210¥298,481
210

Thousands of
U.S. dollars
2012$ 2,284,278
2,559

Other assets included guarantee deposits of ¥3,937 million($47,904 thousand) and ¥4,266 million as of March 31, 2012 and2011, respectively.

34

Hokuhoku Financial Group, Inc. Annual Report 2012

11. Deposits

16. Shareholders’ Equity

Deposits as of March 31, 2012 and 2011 are as follows:
Millions of yen
2012
2011

Thousands of
U.S. dollars
2012

Current deposits, ordinary deposits,
saving deposits
and deposits at notice.................. ¥4,946,290 ¥4,651,502 $ 60,181,173
Time deposits
and installment savings................... 4,505,638 4,521,653
54,819,788
Other deposits....................................
115,647
173,900
1,407,077
Subtotal............................................... ¥9,567,576 ¥9,347,057 $116,408,038
NCDs....................................................
102,685
144,686
1,249,373
Total..................................................... ¥9,670,262 ¥9,491,744 $117,657,411

12. Borrowed Money
Borrowed money includes ¥118,000 million ($1,435,698 thousand)and ¥113,500 million of subordinated borrowed money as of March
31, 2012 and 2011, respectively.

13. Bonds Payable
Bonds payable includes ¥34,500 million ($419,759 thousand) and¥41,500 million of subordinated bonds as of March 31, 2012 and2011, respectively.

14. Revaluation Reserve for Land
Under the “Act Concerning Land Revaluation,” Hokuriku Bank,
Ltd. revaluated its own land for business operation as of March 31,
1998. The revalued gain is included in net assets as “Revaluation
reserve for land.” The carrying amount of the land after the above
one-time revaluation exceeded the market value by ¥23,281 million($283,269 thousand) and ¥23,800 million as of March 31, 2012
and 2011, respectively.

15. Capital Stock
Information with respect to capital stock of the Company as ofMarch 31, 2012 and 2011 are as follows:
2012

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

2011

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

Preferred stock ( Type 5)
Preferred stock ( Type 5) is noncumulative and nonparticipating for
dividend payments. Shareholders of the preferred stock ( Type 5)
are not entitled to vote at a general meeting of shareholders except
when the proposal to pay the prescribed dividends to shareholders is not submitted to the general meeting of shareholders or isrejected at the general meeting of shareholders.
Annual dividends per share of preferred stock ( Type 5) are paid
to shareholders by ¥15.00.

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

Hokuhoku Financial Group, Inc. Annual Report 201235

17. Per Share Information

21. Income Taxes
Yen

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

2012

2011

¥284.32¥   9.00¥267.15¥ 12.08

18. Fees and Commissions
Fees and commissions for the years ended March 31, 2012 and2011 are as follows:
Millions of yen
2012
2011

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

¥11,062
11,2994,410
10,903¥37,676¥11,128
11,4605,241
11,214¥39,045

Millions of yen
2012
2011

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

¥ 1,917
11,497¥13,414¥ 1,943
10,471¥12,414

Thousands of
U.S. dollars
2012$134,601
137,474
53,660132,667$458,402
Thousands of
U.S. dollars
2012$ 23,325
139,893$163,218

19. Trading Income and Losses(a) Trading income

Millions of yen
2012
2011

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

¥175
439
¥614

(b) Trading losses

Millions of yen
2012
2011

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

——¥  161
1,064¥1,225——

Thousands of
U.S. dollars
2012$2,134
5,345$7,479Thousands of
U.S. dollars
2012

—
—

20. Other Expenses
Included in other expenses for the fiscal years ended March 31,
2012 and 2011 were write-offs of loans and bills discounted of¥797 million ($9,704 thousand) and ¥1,038 million, impairment
losses on stocks and other securities of ¥4,685 million ($57,002
thousand) and ¥2,762 million, and losses on sales of loans of ¥692
million ($8,423 thousand) and ¥1,341 million, respectively.

36

Hokuhoku Financial Group, Inc. Annual Report 2012

The Company and its domestic subsidiaries are subject to Japanesenational and local income taxes which, in the aggregate, resulted ina normal effective statutory tax rate of approximately 40.43% for
the years ended March 31, 2012 and 2011, respectively.
The tax effects of significant temporary differences and tax loss
carryforwards which generated deferred tax assets and liabilities at
March 31, 2012 and 2011 are as follows:
Millions of yen
2012
2011

Deferred tax assets:
Allowance for loan losses........... ¥ 57,421
Depreciation..............................
1,405
Reserve for employee
retirement benefits..................
15,940Loss on valuation of securities....
13,647
Other........................................
5,392
Operating loss carryforwards......
11,772
Subtotal................................ 105,579
Less: Valuation allowance..........
39,715
Total deferred tax assets................
65,863
Deferred tax liabilities:
Valuation difference on
available-for-sale securities...... ¥ 12,686
Book-value correction
for securities...........................
4,694
Land transfer through merger.....
3,212
Other........................................
3,602
Total deferred tax liabilities.............
24,196
Net deferred tax assets.................. ¥ 41,667

Thousands of
U.S. dollars
2012¥ 64,484
1,885$  698,639
17,103

17,422
14,545
6,410
20,641
125,389
43,302
82,086

193,941
166,045
65,613
143,238
1,284,579
483,218
801,361¥   5,916$  154,360

5,061
3,672
3,864
18,514¥ 63,572

57,11639,08843,832
294,396$  506,965

Changes in tax rates used to determine deferred tax assets and liabilities“Act for Partial Amendment to the Income Tax Act, etc. in order
to Create a Tax System Responding to Structural Changes of
Economy and Society” (Act No. 114 of 2011) and “Act on Special
Measures Concerning Securing Financial Resources Necessary for
the Implementation of Measures to recover from the Great East
Japan Earthquake” (Act No. 117 of 2011) were promulgated on
December 2, 2011, and accordingly, the corporate income tax rate
has been lowered and the special corporation tax for restoration
has been imposed from the consolidated fiscal year beginning on
or after April 1, 2012.
In line with these changes, the effective statutory tax rate used
for the calculation of deferred tax assets and liabilities has beenrevised from the previous rate of 40.43%. The rate of 37.75% has
been applied to the temporary differences, expected to be either
deductible, taxable or expired from the fiscal year beginning on
April 1, 2012 through the fiscal year beginning on April 1, 2014,
while the rate of 35.37% has been applied to the temporary differences, expected to be either deductible, taxable or expired on orafter the fiscal year beginning April 1, 2015.
As a result of this change, deferred tax assets decreased by¥3,191 million ($38,835 thousand), valuation difference on availablefor-sale securities increased by ¥1,812 million ($22,049 thousand),and deferred income taxes increased by ¥5,006 million ($60,911
thousand). Deferred tax liabilities for revaluation decreased by¥1,075 million ($13,080 thousand) and revaluation reserve for land
increased by the same amount.

22. Comprehensive Income

23. Cash and Cash Equivalents

Reclassification adjustment and tax effect of other comprehensive
income at March 31, 2012 is as follows:

The reconciliation of “Cash and cash equivalents” in the consolidated statement of cash flows and “Cash and due from banks” inthe consolidated balance sheet as of March 31, 2012 and 2011 are
as follows:

Valuation difference on
available-for-sale securities:
Amount incurred during the fiscal year...........
Reclassification adjustment...........................
Prior to deducting tax effect........................
Tax effect..................................................
Valuation difference on
available-for-sale securities......................

Millions of yen

Thousands of
U.S. dollars

2012

2012

¥19,618
2,661
22,279(6,770)$238,696
32,381
271,077(82,372)

15,509188,705

Deferred gains (losses) on hedges:
Amount incurred during the fiscal year...........
Reclassification adjustment...........................
Prior to deducting tax effect........................
Tax effect..................................................
Deferred gains (losses) on hedges...............

(601)
572
(29)
11
(18)

(7,321)
6,963
(358)
137
(221)

Revaluation reserve for land:
Amount incurred during the fiscal year...........
Reclassification adjustment...........................
Prior to deducting tax effect........................
Tax effect..................................................
Revaluation reserve for land........................

(718)
—
(718)
1,387
668

(8,748)—(8,748)16,880
8,132

(22)
(12)
(34)
13

(270)
(155)
(425)
162

(21)
¥16,138(263)$196,353

Share of other comprehensive income ofassociates accounted for using equity method:Amount incurred during the fiscal year...........
Reclassification adjustment...........................
Prior to deducting tax effect........................
Tax effect..................................................
Share of other comprehensive income ofassociates accounted forusing equity method.................................
Total other comprehensive income.......................

Millions of yen
2012
2011

Cash and due from banks
in consolidated balance sheet....... ¥326,031
Due from banks except for
deposits with the Bank of Japan.... (99,850)
Cash and cash equivalentsin the consolidated statementof cash flows............................... ¥226,181

Thousands of
U.S. dollars
2012¥406,848$3,966,802(92,741)(1,214,873)¥314,107$2,751,929

24. Commitment Lines
Loan agreements and commitment line agreements relating toloans are agreements which oblige the Group to lend funds up to acertain limit agreed in advance. The Group makes the loans upon
the request of an obligor to draw down funds under such loan
agreements as long as there is no breach of the various terms andconditions stipulated in the relevant loan agreement. The unused
commitment balance relating to these loan agreements amounted
to ¥2,318,844 million ($28,213,221 thousand) and ¥2,248,883
million as of March 31, 2012 and 2011, respectively, out of which,¥2,288,023 million ($27,838,222 thousand) and ¥2,200,298 million
related to loans where the term of the agreement is one year or lessor unconditional cancellation of the agreement is allowed at any
time, as of March 31, 2012 and 2011, respectively.
In many cases, the term of the agreement runs its course
without the loan ever being drawn down. Therefore, the unusedloan commitment will not necessarily affect future cash flows.
Conditions are included in certain loan agreements which allow
the Group either to decline the request for a loan draw down or
to reduce the agreed limit amount where there is due cause to doso, such as when there is a change in financial condition or when
it is necessary to do so in order to protect the Group’s credit. The
Group takes various measures to protect its credit. Such measures
include having the obligor pledge collateral to the Group in the formof real estate, securities, etc. on signing the loan agreement or,in accordance with the Group’s established internal procedures,confirming the obligor’s financial condition, etc. at regular intervals.

Hokuhoku Financial Group, Inc. Annual Report 201237

25. Segment Information
In March 2008, the ASBJ revised ASBJ Statement No. 17, “Accounting Standard for Segment Information Disclosures” and issued ASBJ
Guidance No. 20, “Guidance on Accounting Standard for Segment Information Disclosures.” Under the standard and guidance, an entity
is required to report financial and descriptive information about its reportable segments. Reportable segments are operating segments oraggregations of operating segments that meet 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 is required to be reported on the same basis as is used internally forevaluating operating segment performance and deciding how to allocate resources to operating segments. This accounting standard and theguidance are applicable to segment information disclosures for the fiscal years beginning on or after April 1, 2010.
(1) Outline of reportable segments
The Group’s reportable segment is defined as an operating segment for which discrete financial information is available and examined by the
Board of Directors and Management Committees regularly in order to make decisions about resources to be allocated to the segment andassess its performance.
The Group comprehensively conducts banking business as a core and other financial services under the control of the Company.
The Company recognized each of consolidated subsidiaries as an operating segment. Therefore, Hokuriku Bank and Hokkaido Bank arereportable segments.
(2) Method of calculating ordinary income, profit (loss), assets, liabilities and others amounts by reportable segments
Method of calculation applied to the reported operating segments is the same as described in “Significant Accounting Policies.” Profits
of operating segments are the same as the net income. Ordinary income from intersegment transactions is based on transaction pricedetermined in the same manner as ordinary income from outside customers.
(3) Information on ordinary income, profit (loss), assets, liabilities and others amounts by reportable segments
Segment results for the years ended March 31, 2012 and 2011 are as follows:
Millions of yen
2012
Reportable segments
Hokuriku Bank Hokkaido Bank

Ordinary income
Ordinary income from outside customers...........................
Ordinary income from intersegment transactions................
Total...................................................................................
Segment profit.....................................................................
Segment assets...................................................................
Segment liabilities................................................................
OthersDepreciation....................................................................
Amortization of goodwill....................................................
Unamortized balance of goodwill.......................................
Increase in tangible fixed assets and intangible
fixed assets...................................................................

Subtotal

Othersegment

Total

Reconciliation

Consolidated¥  104,333
1,126
105,460
11,407
6,067,357¥5,823,337¥    86,263
1,318
87,582
5,284
4,498,409¥4,336,320¥   190,596
2,445
193,042
16,692
10,565,766¥10,159,658¥17,435
6,321
23,757864
78,401¥68,034¥   208,032
8,766
216,799
17,556
10,644,168¥10,227,693¥     (54)(8,766)(8,821)(3,427)(14,851)¥(48,938)¥   207,977—
207,977
14,12910,629,316¥10,178,754¥     5,131——¥     4,480——¥      9,612——¥   340——¥      9,952——¥    342
2,102
26,103¥     10,295
2,102
26,103¥     6,505¥     6,908¥     13,414¥   180¥     13,594¥      (7)¥     13,586

Millions of yen
2011
Reportable segments
Hokuriku Bank Hokkaido Bank

Ordinary income
Ordinary income from outside customers...........................
Ordinary income from intersegment transactions................
Total...................................................................................
Segment profit.....................................................................
Segment assets...................................................................
Segment liabilities................................................................
OthersDepreciation....................................................................
Amortization of goodwill....................................................
Unamortized balance of goodwill.......................................
Increase in tangible fixed assets and intangible
fixed assets...................................................................

38

Hokuhoku Financial Group, Inc. Annual Report 2012

Subtotal

Othersegment

Total

Reconciliation

Consolidated¥  107,996
890
108,887
11,9186,079,002¥5,852,392¥    86,896
106
87,002
7,767
4,448,519¥4,294,977¥   194,892
997
195,889
19,686
10,527,522¥10,147,369¥19,829
6,809
26,6391,417
96,937¥86,341¥   214,722
7,806
222,529
21,103
10,624,459¥10,233,711¥     (49)
(7,806)(7,856)(2,698)(39,405)¥(75,315)¥   214,672—
214,672
18,404
10,585,054¥10,158,395¥     4,360——¥     3,808——¥      8,168——¥   419——¥      8,588——¥    454
2,405
28,205¥      9,042
2,405
28,205¥     7,925¥     2,258¥     10,184¥   279¥     10,463¥   (193)¥     10,270

Thousands of U.S. dollars
2012
Reportable segments
Hokuriku Bank Hokkaido Bank

Subtotal

Ordinary income
Ordinary income from outside customers........................... $1,269,417 $ 1,049,563 $   2,318,980
Ordinary income from intersegment transactions................
13,711
16,04129,752
Total................................................................................... 1,283,128
1,065,604
2,348,732
Segment profit.....................................................................
138,792
64,301203,093
Segment assets................................................................... 73,821,113 54,731,835 128,552,948
Segment liabilities................................................................ $70,852,142 $52,759,714 $123,611,856
OthersDepreciation.................................................................... $     62,430 $     54,518 $    116,948
Amortization of goodwill....................................................
———
Unamortized balance of goodwill......................................
———
Increase in tangible fixed assets and intangible
fixed assets................................................................... $     79,153 $     84,055 $    163,208

Other
segment

Total

Reconciliation

Consolidated$212,140
76,913
289,053
10,519953,905$827,777$   2,531,120 $    (669) $   2,530,451
106,665 (106,665)—
2,637,785 (107,334)
2,530,451
213,612(41,698)
171,914
129,506,853 (180,701) 129,326,152$124,439,633 $(595,433) $123,844,200$   4,143——$    121,091 $   4,172—
25,578—317,595$   2,198$    165,406 $      (95) $    165,311$    125,263
25,578317,595(4) Geographic segment information
There is no geographic segment accounting for 10% or more of ordinary income.
(5) Information by major customer
There are no major customers individually accounting for 10% or more of ordinary income.

26. Lease Transactions(1) Finance lease transactions(Lessee)
The Group leases ATMs, computer equipment, software and otherassets.
As discussed in Note 3 (12), the Group accounts for leases
which existed at the transition date and do not transfer ownershipof the leased property to the lessee as operating lease transactions.
Pro forma information for such leases existing at the transition
date for the years ended March 31, 2012 and 2011 are described
below.
Pro forma information with respect to the leased property, suchas acquisition cost, accumulated depreciation and net book value
at March 31, 2012 and 2011 are as follows:

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

Millions of yen
2012
2011

Thousands of
U.S. dollars
2012¥1,515
1,406¥  108$18,435
17,117$ 1,318¥3,0262,497¥  529Pro forma amounts of obligations under finance leases at March
31, 2012 and 2011 are as follows:
Millions of yen
2012
2011

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

¥102
5
¥108

¥420
108
¥529

Thousands of
U.S. dollars
2012$1,25068$1,318Pro forma information concerning lease payments and depreciation expenses for the years ended March 31, 2012 and 2011
are as follows:
Millions of yen
2012
2011

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

¥420
420

¥516
516

Thousands of
U.S. dollars
2012$5,1185,118

The method of calculating the pro forma amounts of depreciation expenses for the years ended March 31, 2012 and 2011 are
as follows:
Depreciation is computed based on the straight-line method
over the period of lease, with no residual value.
(2) Operating lease transactions(Lessee)
The minimum rental commitments under noncancelable operatingleases as of March 31, 2012 and 2011 are as follows:
Millions of yen
2012
2011

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

¥108
10
¥118

¥213
118
¥332

Thousands of
U.S. dollars
2012$1,317125$1,442

Hokuhoku Financial Group, Inc. Annual Report 201239

27. Retirement Benefits(a) Overview of the Group’s retirement benefit plans
The Hokuriku Bank, Ltd. which had provided three defined benefit retirement programs, corporate pension, tax qualified pension and retirement bonus, terminated tax qualified pension and migrated with a portion of retirement bonus to defined contribution pension in March 2011.
At the time of retirement, employees may be issued a premium retirement grant that is not subject to inclusion in the actuarial computationof projected benefit obligations in conformity with the standards for accounting for retirement benefits. The Minister of Health, Labour andWelfare approved on February 17, 2003 that Hokuriku Bank Ltd. would be relieved of the obligation to administer the future payment serviceof the government mandated portion of its employees pension fund. The Hokuriku Bank, Ltd. was further approved on March 1, 2005 to
switch from the employees pension fund to a corporate pension fund.
The Hokkaido Bank, Ltd. provides defined benefit arrangements that combine a retirement lump sum grant and an employees pension
fund plan. The Hokkaido Bank, Ltd. was approved by the Minister of Health, Labour and Welfare on March 26, 2004 to be relieved of theobligation to administer the future payment service of the government mandated portion of the employees pension fund.
The consolidated domestic subsidiaries other than the two noted above provide retirement lump sum grants.
The Company’s employees are all on loan from its subsidiaries and are covered by the retirement benefit program of the subsidiaries fromwhich they each come.
The Banks have established benefit trust arrangements as a part of their plan assets.
(b) Retirement benefit
Thousands of
U.S. dollars
2012

Millions of yen
2012
2011

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

¥(90,981)
59,711(31,269)
5,573
24,554(744)(1,886)
7,324¥ (9,211)¥(87,912)
54,663(33,248)
7,513
22,014(1,208)(4,929)2,850¥ (7,779)$(1,106,969)
726,511(380,458)
67,812
298,757(9,061)(22,950)
89,121$  (112,071)(c) Retirement benefit expenses

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

Millions of yen
2012
2011

Thousands of
U.S. dollars
2012¥1,862
1,961(1,923)
(463)
2,215
1,939
444
¥6,038—¥6,038$22,660
23,871(23,399)(5,645)26,962
23,602
5,413$73,464—$73,464¥1,882
2,069(1,989)
(417)
2,665
1,899
144
¥6,254
1,248¥7,503(d) Assumptions for calculation of projected benefit obligations
2012(1) Discount rate......................................................................................................................................................
2.0%(2) Expected rate of return on pension assets............................................................................................................
3.5% – 4.0%
(3) Method of benefit attribution................................................................................................................................ Straight-line method(4) Period of amortization of unrecognized prior service costs.....................................................................................
8 years(5) Period of amortization of unrecognized actuarial differences..................................................................................
8 or 9 years(6) Period of amortization of transitional obligation.....................................................................................................
Mainly 15 years

40

Hokuhoku Financial Group, Inc. Annual Report 20122011

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

28. Financial Instruments and Related Disclosures(1) Group policy on financial instruments
The Group provides a wide variety of financial services, centered on banking services such as deposit-taking and lending.
Our lending activities are aimed at achieving co-prosperity with the regional economy and we endeavor to manage our lending in a soundand appropriate manner, while simultaneously working to strengthen credit risk management.
Investments in securities are strictly managed based on the Group’s risk management policies and regulations. Regarding deposit-taking
operations, the Group aims to ensure stable fund raising the expansion and upgrading of financial services for all customers in the region.
Borrowed money and corporate bonds are considered a means of medium-to long-term fundraising.
Given the different term structures of the Group’s financial assets such as loans and financial liabilities such as deposits, it is exposed tointerest-rate fluctuation risk in the financial markets. For this reason, the Group conducts comprehensive asset liability management (“ALM”)
to appropriately control such market risk and ensure stable earnings.
(2) Nature and extent of risks arising from financial instruments
The financial assets held by the Group consist primarily of securities and loans to domestic customers. Loans are subject to credit risks which
could cause financial loss to the Group, such as declines or losses in asset value resulting from a possible deterioration in the financial condition of borrowers. With regard to securities, the Group is exposed to the credit risk of issuers, interest-rate risk, and market price volatility risk.
However, the Group takes adequate steps to diversify these risks.
Financial liabilities, including deposits and borrowed money, are exposed to liquidity risk arising from the possibility that the Group may be
obliged to procure funds at interest rates significantly higher than normal owing to a sudden change in the market environment or a deterioration in the Group’s financial position.
The Banks make use of currency-related derivatives such as currency swaps, forward exchange contracts, and currency options, aswell as interest-related derivatives such as interest-rate swaps, interest-rate futures, and interest-rate caps, to meet the ALM needs of the
Banks themselves as well as the various needs of the Bank’s customers. These derivatives are exposed to the following risks among others:interest-rate risk, the risk of exchange rate fluctuations, price volatility risk, and credit risk.
However, none of the Group’s financial assets and liabilities are attended by notably high risk levels, nor do they include any particularderivatives with high market price volatility.
The Hokuriku Bank, Ltd. applies hedge accounting to hedge the value of some of its assets and liabilities against interest-rate fluctuations.
When applying hedge accounting, the Hokuriku Bank, Ltd. adopts integrated management in both hedging instruments and hedged items aslong as hedging is installed and evaluates the effectiveness of the hedges.
(3) Risk management for financial instruments
The Banks have established risk management departments and have stipulated basic regulations for risk management and other regulations
pertaining to risk. In addition, the Banks have established an ALM Committee and a Comprehensive Risk Management Committee, where
qualified risks and administration matters are discussed regularly to ensure that all categories of risk are managed effectively. Changes inregulations and organizational structures of the Banks are under review or supervision of the Company to conform to the Group’s policy andthe results of above committees are reported to the Company.
(a) Credit Risk Management
The Group’s fundamental policy is to strive for improved earnings and ensure sound business operations through the appropriate management of credit risk. In line with this policy, the Company and the Banks collaborated in establishing various regulations, including Credit
Risk Management Regulations, and also ensuring the effective operation of internal checking functions by separating business promotion
departments from credit risk management departments. Rigorous screening is also conducted and credit ratings are granted based on theirCredit Policy. Additionally the setting of credit limits is managed on an individual customer basis to avoid the risk of an overconcentrationof loans in particular sectors. Finally, the Banks carry out self-assessment procedures and credit risk quantification and the risk situation isregularly reported to the Banks’ Board of Directors.
As for loan screening process of the Banks, the branches concerned carefully analyze each separate loan application and screen eachcustomer involved. In the event that the decision exceeds the limits of authority of the branch manager, the appropriate loan screening
departments at the headquarters of the Banks carry out its own analysis and screening. Specialized staff members in place within thescreening departments are responsible for particular industries and geographical areas. These specialists provide the appropriate advice andguidance to the branches based on the particular features of the customer.
Concerning the creditworthiness of security issuers and counterparty risk in derivatives transactions, credit information and the state oftransactions are regularly monitored and managed in the risk management departments of the Banks.
(b) Market Risk Management
Having stipulated regulations such as Market Risk Management Regulations and an arranged organizational structure including ALM andother committees, the Banks appropriately control market risk associated with lending and deposit-taking in order to ensure stable earnings.
Interest Rate Risk Management
The risk management departments of the Banks regularly and comprehensively grasp the interest rates and time-frames involved in the
Bank’s financial assets and liabilities and monitor interest risk levels through methods such as gap analysis and sensitivity analysis of interest

Hokuhoku Financial Group, Inc. Annual Report 201241

rate, based on the Banks’ Interest Rate Risk Management Regulations and other related regulations where the methods and procedures tobe employed for risk management are described in detail.
The Banks set ceiling amounts for each type of interest rate risk to control it appropriately. Derivatives such as interest-rate swaps andinterest-rate caps are employed from ALM perspective, so that the Banks reduce interest rate risk by hedging against interest rate fluctuations.
Foreign Exchange Risk Management
Using measures like currency swaps to reduce foreign exchange risk, the Banks manage exchange risk arising from fluctuations in foreignexchange rates that affect the values of assets and liabilities denominated in foreign currencies.
Price Volatility Risk Management
In investment in instruments such as securities, the Banks carry out prior screening, and set investment ceilings, and then constantly monitor
the investment status to minimize price volatility risk. Every process above has to be strictly managed under the supervision of the Banks’
Board of Directors and to be in line with policies laid down by Management Committees. A high percentage of the stocks held by the Banks
are acquired and held for long-term strategic purposes. The Banks monitor the market conditions and financial positions of the securities
issuers. Value at Risk (“VaR”) and other methods are used to determine the amount of market risk for each securities held. The staffs of the
responsible departments make regular reports to the Banks’ Board of Directors and Management Committees so that they confirm the pricerisk is controllable and all rules pertaining to market risk management are being followed correctly.
Derivatives
The Banks arrange organizational structure securing separation and internal check-and-balance mechanism among front sections (specializing in market transactions), middle sections (engaging in risk management) and back sections (responsible for book entries and settlements).
Management sections confirm the validity of transactions, value the Banks’ daily derivatives positions, and measure gains and losses as wellas risk levels. Derivative transactions are carefully managed in such a way that losses never exceed a predetermined maximum.
Quantitative Information Related to Market Risk
Hokuriku Bank and Hokkaido Bank respectively measure quantitative information related to market risk.
• Financial instruments in the trading accountIn calculating VaR for trading securities and a portion of currency-related and interest-related derivatives transactions held in trading
account, Hokuriku Bank adopts the historical simulation method (a holding period of 1 business day, a confidence interval of 99%, andmain observation period of 1,250 business days).
As of March 31, 2012, the market risk amount (VaR) of the trading business of Hokuriku Bank was ¥63 million ($766 thousand).
Hokkaido Bank has no financial instruments in the trading accounts.
• Financial instruments in the banking account
The main financial instruments in the Banks which are affected by interest rate risk are “Monetary claims bought,” “Loans and bills discounted,” “Bonds,” “Deposits,” “Borrowed money,” and transactions of interest rate swaps, interest swaptions and interest rate caps heldin derivatives transactions and which are affected by market value are listed stocks and investment trust. The Banks use VaR for integrated
management on these financial instruments.
For calculating VaR, the Banks adopt the historical simulation method (a holding period of 120 business days, a confidence interval of
99%, and main observation period of 1,250 business days) and consider the correlations between interest and the fluctuation of prices ofthe listed stocks. In addition, Hokkaido Bank has set holding period of 10 business days for trading account securities (including publicbonds traded over the counter) and for specified fund trust as investment securities, respectively. Hokkaido Bank also considers the correlation between interest and the fluctuation of prices of the listed stocks in calculating VaR of specified fund trust as investment securities.
As of March 31, 2012, Hokuriku Bank’s VaR of the financial instruments in the banking account was ¥23,969 million ($291,629 thousand), and Hokkaido Bank’s VaR of the financial instruments in the banking account was ¥12,181 million ($148,205 thousand) and of
trading account securities was ¥9 million ($109 thousand) and of specified fund trust was ¥9 million ($109 thousand).
The Banks perform back testing of the VaR measurement model at fixed interval. VaR measures the amount of market risk by certain
occurrence probabilities which are statistically calculated based on past market movements. Therefore, there are cases in which VaRcannot capture risk under sudden and dramatic changes in market beyond normal circumstances.
VaR shows maximum loss on holding period of the financial instruments under the confidence interval (99%) which is statistically calculated based on past market movements. Especially, the Banks calculate 100BPV (100 Bases Points Value), as supplements, of the assets
and liabilities and change in their present value on the assumption that index interest rate rises by 1.00%.
As of March 31, 2012, Hokuriku Bank’s 100BPV was ¥33,423 million ($406,655 thousand) decrease, and Hokkaido Bank’s 100BPV
was ¥19,560 million ($237,985 thousand) decrease.
For calculating 100BPV, the correlations between interest and the other parameters are not considered, because the 100BPV is measured on the assumption that risk parameters except interest rate remain unchanged. Actual risk can exceed the calculated 100BPV incase that the drastic change in interest rate beyond reasonable prior expectation occurs.
(Additional information)
In order to integrate the method of measuring risk, the Group changed calculation for VaR from the variance-covariance method to thehistorical simulation method and the observation period from 250 business days to 1,250 business days.
(c) Liquidity Risk Management
In accordance with the Banks’ rules for management of liquidity risk, the Banks form an accurate appraisal of fund operations and procurement,

42

Hokuhoku Financial Group, Inc. Annual Report 2012

and take measures to ensure smooth cash flows. Specifically, the Banks set benchmarks in various different categories to check liquidity risk
on a daily basis, and maintain adequate levels of high-liquidity assets that are readily convertible into cash, such as government bonds.
We have in place mechanisms for periodically assessing and managing liquidity risk through ALM committees, to prepare for every
category of concerned situations.
(4) Supplementary explanation relating to fair values of financial instruments
The fair values of financial instruments include, in addition to values determined based on market prices, valuations calculated on a reasonable basis if no market price is available. Certain assumptions are used for the calculation of such amounts. Accordingly, the result of suchcalculation may vary if different assumptions are used.
(5) Fair values of financial instruments
The fair value of the main financial instruments at March 31, 2012 and 2011 are as follows. These amounts do not include unlisted stocks
whose fair values are extremely difficult to determine (see (b) Financial instruments whose fair values are deemed to be extremely difficult todetermine).
(a) Fair value of financial instruments
Millions of yen
Consolidatedbalance sheet
amountFair value

Unrealized gains(losses)Cash and due from banks............................................................................................................................. ¥   326,031
Monetary claims bought (*1).........................................................................................................................
87,824
Securities
Bonds classified as held-to-maturity.........................................................................................................
70,320Available-for-sale securities.....................................................................................................................
2,382,929
Loans and bills discounted...........................................................................................................................
7,272,698
Allowance for loan losses (*1)...................................................................................................................
(73,847)
7,198,851
Total assets................................................................................................................................................. ¥10,065,957¥   326,031
87,824¥    ——

71,2432,382,929

922—

7,282,405¥10,150,434

83,553¥84,476

Deposits................................................................................................................................................. ¥ 9,567,576
NCDs......................................................................................................................................................
102,685
Borrowed money.....................................................................................................................................
187,286
Total liabilities.............................................................................................................................................. ¥ 9,857,549¥ 9,571,026
102,728
188,163¥ 9,861,919¥ 3,45042876¥ 4,369

Derivative transactions (*2)
Derivative transactions not qualifying for hedge accounting........................................................................ ¥      7,304
Derivative transactions qualifying for hedge accounting..............................................................................
(3,990)Total derivative transactions......................................................................................................................... ¥      3,314¥      7,304(3,990)¥      3,314¥    —(*3) —¥    —March 31, 2012

Millions of yen
Consolidatedbalance sheet
amountFair value

Unrealized gains(losses)¥  406,848
85,657¥   406,848
85,657¥     ——

79,3942,217,467

698—

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

78,6952,217,467
7,224,636(75,639)
7,148,996¥9,937,666

7,230,015¥10,019,384

81,018¥81,717

Deposits.................................................................................................................................................
NCDs......................................................................................................................................................
Borrowed money.....................................................................................................................................
Total liabilities..............................................................................................................................................

¥9,347,057
144,686
327,738¥9,819,482¥ 9,356,660
144,708
328,577¥ 9,829,946¥ 9,603
22
839¥10,464

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

¥     6,959(931)¥     6,028¥      6,959(931)¥      6,028¥     —(*3) —¥     —March 31, 2011

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

Hokuhoku Financial Group, Inc. Annual Report 201243

Thousands of U.S. dollars
Consolidatedbalance sheet
amountFair value

Unrealized gains(losses)Cash and due from banks............................................................................................................................. $   3,966,802
Monetary claims bought (*1).........................................................................................................................
1,068,560
Securities
Bonds classified as held-to-maturity.........................................................................................................
855,588
Available-for-sale securities.....................................................................................................................
28,992,934
Loans and bills discounted...........................................................................................................................
88,486,419
Allowance for loan losses (*1)...................................................................................................................
(898,494)
87,587,925
Total assets................................................................................................................................................. $122,471,809$   3,966,802
1,068,560$       —
—866,81328,992,934

11,225—88,604,515$123,499,624

1,016,590$1,027,815

Deposits................................................................................................................................................. $116,408,038
NCDs......................................................................................................................................................
1,249,373
Borrowed money.....................................................................................................................................
2,278,705
Total liabilities.............................................................................................................................................. $119,936,116$116,450,018
1,249,893
2,289,372$119,989,283$    41,980
520
10,667$    53,167

Derivative transactions (*2)
Derivative transactions not qualifying for hedge accounting........................................................................ $      88,879
Derivative transactions qualifying for hedge accounting..............................................................................
(48,550)
Total derivative transactions......................................................................................................................... $      40,329$      88,879(48,550)$      40,329$       —
(*3) —$       —March 31, 2012		 *1.	Allowance for loan losses shown on this table represents the general allowance and specific allowance for loan losses. Figures for allowance for loan
losses on monetary claims bought are directly deducted from the balance of monetary claims bought as the amount concerned is insignificant.
		 *2.	Derivative transactions included in trading assets and liabilities and other assets and liabilities are shown together. Assets and liabilities arising fromderivative transactions are shown within parentheses with respect to net liabilities.
		 *3.	As interest-rate swaps subject to exceptional treatment are accounted for together with the loans being hedged by the swaps, their fair value isincluded in the loans in question on the consolidated balance sheet.

Cash and due from banks
The book values of cash and due from banks approximate their fair values.
Monetary claims bought
The fair values of trust beneficiary rights relating to mortgage loans purchased by the Banks and relating to loan claims are determined basedon the quoted prices obtained from the counterparty financial institutions. The fair value of small-lot monetary claims resulting from asset
liquidation is determined by discounting the cash flows at the market interest rate.
Securities
The fair values of stocks are calculated on the basis of the average price of the stocks on the stock market for the one-month period immediately preceding the last day of the accounting term. The fair values of bonds are calculated using the price indicated on the securities markets
or other officially announced price. In the event that neither of these fair values are available, the price is based on a reasonable estimate. For
investment trusts, the fair value is calculated on the basis of a publicly available benchmark price.
For privately-placed bonds guaranteed by one of the Banks, the present value is separately calculated using the present value discounted
by the market interest rate where the credit risk of each bond issuer and the remaining period of bonds are considered.
Regarding variable rate Japanese Government Bonds (the “JGBs”) that are included in the amount presented under the line item
“Securities” in the table above, prices calculated from reasonable estimates are continuously used as the Group’s own criteria for those issues
whose market price cannot be treated as fair value, according to Practical Issues Task Force No. 25, Practical Solution on Measurement ofFair Value for Financial Assets (October 28, 2008, Accounting Standard Board of Japan). In this way, compared with the statement on the
consolidated balance sheet amount of the market prices, the values have been increased for the reporting term by ¥2,429 million ($29,554
thousand) for securities and by ¥1,570 million ($19,110 thousand) for valuation difference on available-for-sale securities, and the value has
decreased by ¥858 million ($10,444 thousand) for deferred tax assets.
The reasonably estimated value of the JGBs is calculated using the future cash flows estimated from the bond yield rate, which is thendiscounted at a discount rate based on the same yield rate. The yield rate of the JGBs and the volatility of that yield rate are the principal
variables employed in determining the fair value of the bond.
For more detailed information regarding the different types of securities, classified according to holding purpose, see “29. Fair Value ofSecurities and Money Held in Trust (1) Securities.”
Loans and bills discounted
As loans with variable interest rates reflect short-term market interest rates, the fair value will approximate the book value unless the creditworthiness of the borrower changes subsequent to the grating of the loan. Because of this, the book value is employed as the fair value.
For loans with fixed interest rates, the fair value is calculated using the total future cash flows from principal and interest discounted bycurrent market interest rates, taking account the credit risk involved. This calculation is performed separately for each different category ofloans, classified by type of loan, internal credit ratings and maturity length. For loans whose repayment period is one year or less, the book44

Hokuhoku Financial Group, Inc. Annual Report 2012

value is a close approximation to the fair value and is therefore employed as such.
Regarding the fair value of claims on bankrupt borrowers, substantially bankrupt borrowers, and potentially bankrupt borrowers, credit
losses are estimated based on the present value of estimated future cash flows or the estimated value recoverable from collateral andguarantees. Since the fair value is approximate to the value stated on the consolidated balance sheet amount as of the settlement date,minus the present value of estimated bad debt, this figure is therefore treated as the fair value.
For the category of loans whose maturity is not fixed because of the loan ceiling set within the estimated value recoverable from thecollateral, the book value is regarded as approximate to the fair value because of the expected period for repayment and the interest rates
applied. The book value is therefore employed as the fair value.
Deposits
For demand deposits, the amount payable on demand as of the consolidated balance sheet date (i.e., the carrying amount) is considered
to be the fair value. In addition, the fair value of time deposits is calculated by discounting the estimated future cash flows for each of thespecified periods. This calculation is performed separately as per the remaining maturity of time deposits. The discount rate employed is
the interest rate that would be applied to newly accepted deposits. In the event that the deposit term is one year or less, the book value isregarded as approximate to the fair value and is therefore treated as such.
Borrowed money
Borrowed money with floating interest rates reflects market interest rates and because the credit standing of the Company and its consolidated subsidiaries has changed little since the taking out of those loans, the book value is regarded as approximate to the fair value and istherefore treated as such.
For money borrowed through loans carrying fixed rates, the current value of these loans is determined by discounting the total of theirprincipal plus interest (separately for each specific period) at the rate currency applied to other loans of the same duration and terms. For
loans whose repayment period is one year or less, the book value is regarded as being approximate to the fair value and is therefore treatedas such.
Derivative transactions
Derivative transactions include interest rate-related transactions (futures, options, swaps and others), foreign exchange-related transactions(futures, options, swaps and others) and commodity-related transactions and are based on the prices on securities exchanges, discounted
value of future cash flows, option pricing models and others.
(b) Financial instruments whose fair values are deemed to be extremely difficult to determine
Financial instruments whose fair values are deemed to be extremely difficult to determine are indicated below, and are not included in“Monetary claims bought” and “Available-for-sale securities” in the fair value information of financial instruments.
Consolidated balance sheet amountMarch 31
Monetary claims bought (subordinated beneficiary right in securitization of mortgage loans) (*1)...................................
Unlisted stocks (*1) (*2)............................................................................................................................................
Unlisted foreign securities (*1)..................................................................................................................................
Total........................................................................................................................................................................

Millions of yen
2012
2011

¥24,962
30,2340¥55,197¥25,792
30,344
0¥56,137

Thousands of
U.S. dollars
2012$303,717
367,8618$671,586

		 *1.	These items are excluded from “fair value information of financial instruments” on the basis that no market price is available and a determination of thefair value would be extremely difficult.
		 *2. Unlisted stocks were written down by ¥149 million ($1,818 thousand) and ¥500 million as of March 31, 2012 and 2011, respectively.

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

March 31, 2012

Within 1 year

After 1 year
through 3 years

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

¥  208,747
2,199
229,527
11,540
2,000
9,540
—
217,987
71,00051,49381,097
14,3972,326,497¥2,766,972¥       —250363,242
23,31810,01013,308—339,924
108,100
117,571
88,98025,272
1,451,635¥1,815,127

Millions of yen
After 3 years
through 5 years

After 5 years
through 7 years

After 7 years¥       —
—515,299
17,4483,020
14,428—497,851
336,100
85,94944,97030,831
1,069,815¥1,585,114¥      —
—270,924
5,281
—
3,281
2,000
265,643
192,100
54,91013,783
4,849
546,312¥817,236¥       —85,089909,309
12,89012,520370—
896,419
667,600
140,72174,652
13,4451,650,008¥2,644,408

Millions of yen

Hokuhoku Financial Group, Inc. Annual Report 201245

March 31, 2011

Within 1 year

After 1 year
through 3 years

After 3 years
through 5 years

After 5 years
through 7 years

After 7 years

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

¥  289,107
1,872
238,077
8,384
1,500
6,884
—
229,693
149,600
12,50863,256
4,328
2,263,824¥2,792,882¥        —1,050413,185
18,772
5,000
13,772—
394,413
114,100
110,069
146,144
24,0991,403,014¥1,817,249¥        ——431,460
23,5638,500
15,063—407,897
180,800
148,047
63,39815,651
1,070,864¥1,502,324¥      —
—190,736
15,362—
11,162
4,200
175,374
130,800
20,143
11,78812,641
530,622¥721,358¥        —82,479879,332
12,745
12,500245—
866,587
618,600
164,730
63,056
20,2001,729,407¥2,691,219

March 31, 2012

Within 1 year

After 1 year
through 3 years

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

$ 2,539,814
26,7652,792,651
140,406
24,334116,072—
2,652,245
863,855
626,514986,702
175,174
28,306,330$33,665,560$        —3,0424,419,547
283,708
121,791
161,917—
4,135,839
1,315,245
1,430,485
1,082,617
307,492
17,661,944$22,084,533

Thousands of U.S. dollars
After 3 years
After 5 years
through 5 years
through 7 years$        ——6,269,610
212,289
36,744
175,545—
6,057,321
4,089,305
1,045,742
547,155
375,119
13,016,367$19,285,977$       —
—3,296,314
64,254—39,92024,334
3,232,060
2,337,271
668,087
167,699
59,0036,646,945$9,943,259

After 7 years$        —1,035,280
11,063,509
156,832
152,330
4,502—
10,906,677
8,122,643
1,712,153
908,296
163,585
20,075,544$32,174,333

Loans and bills discounted
Claims on bankrupt borrowers, substantially bankrupt borrowers, and potentially bankrupt borrowers amounted to ¥189,476 million ($2,305,353
thousand) and ¥185,914 million as of March 31, 2012 and 2011, respectively, and loans with no contractual maturities amounted to ¥38,952
million ($473,935 thousand) and ¥40,988 million as of March 31, 2012 and 2011, respectively. They are not included in the table above.
(7) Maturity analysis for financial liabilities with contractual maturities
After 5 years
through 7 years

After 7 years

March 31, 2012

Within 1 year

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

¥8,065,385
97,68568,345¥8,231,416¥1,123,446
5,000
804
¥1,129,250¥373,746—
137¥373,884¥ 1,868—
32,500¥34,368¥ 3,129—85,500¥88,629

March 31, 2011

Within 1 year

After 1 year
through 3 years

Millions of yen
After 3 years
through 5 years

After 5 years
through 7 years

After 7 years

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

¥7,980,165
144,686
213,144¥8,337,996¥1,133,881—
533¥1,134,415¥229,264—260¥229,524¥ 1,417—32,500¥33,917¥ 2,328—
81,000¥83,328

Within 1 year

After 1 year
through 3 years

Deposits........................................................................................... $ 98,130,983
NCDs...............................................................................................
1,188,538
Borrowed money...............................................................................
831,549
Total................................................................................................ $100,151,070$13,668,897
60,834
9,782$13,739,513

March 31, 2012

46

Millions of yen
After 3 years
through 5 years

After 1 year
through 3 years

Hokuhoku Financial Group, Inc. Annual Report 2012

Thousands of U.S. dollars
After 3 years
After 5 years
through 5 years
through 7 years$4,547,352—
1,676$4,549,028$ 22,731—
395,425$418,156

After 7 years$    38,076—
1,040,272$1,078,348

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

29. Fair Value of Securities and Money Held in Trust(1) Securities
The fair value of securities at March 31, 2012 and 2011 were as follows:
1. The amounts shown in the following tables include trading securities classified as “Trading assets,” negotiable certificates of deposit
bought classified as “Cash and due from banks,” and commercial paper and beneficiary claims on loan trusts classified as “Commercial
paper and other debt purchased,” in addition to “Securities” stated in the consolidated balance sheet.
2. Investments in subsidiaries and affiliates have no market quotations.
(a) Securities classified as trading purposes

March 31
Valuation gains included in earnings for the fiscal year................................................................................................

Millions of yen
2012
2011

¥8

¥4

Thousands of
U.S. dollars
2012

$106

(b) Bonds classified as held-to-maturity
Millions of yen
TypeConsolidatedbalance sheet
amountFair value

Unrealized gains(losses)

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

¥25,749
19,6571,000
46,406¥26,654
19,8441,000
47,499¥  905187
0
1,093

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

2,000
20,913
1,000
23,914¥70,320

2,000
20,745997
23,743¥71,243

(0)
(168)
(2)
(170)
¥  922

March 31, 2012

Bonds whose fair values exceed
the consolidated balance
sheet amount

Bonds whose fair values do not
exceed the consolidatedbalance sheet amountMillions of yen
TypeConsolidatedbalance sheet
amountFair value

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

¥19,656
30,551
1,197
51,405¥20,106
30,9201,199
52,227

¥449
369
2
821

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

8,062
16,2273,000
27,290¥78,695

8,025
16,153
2,988
27,167¥79,394

(36)
(74)
(11)
(122)
¥698

March 31, 2011

Bonds whose fair values exceed
the consolidated balance
sheet amount

Bonds whose fair values do not
exceed the consolidatedbalance sheet amount

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

Consolidatedbalance sheet
amountFair value

Unrealized gains(losses)

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

$313,292
239,165
12,167564,624$324,304
241,450
12,168577,922$11,0122,285
1
13,298Japanese government bonds....................................................................
Japanese corporate bonds.......................................................................
Other......................................................................................................
Subtotal..................................................................................................
Total...........................................................................................................................................................

24,342
254,455
12,167
290,964$855,588

24,341
252,408
12,142
288,891$866,813(1)(2,047)(25)(2,073)$11,225

March 31, 2012

Bonds whose fair values exceed
the consolidated balance
sheet amount

Bonds whose fair values do not
exceed the consolidatedbalance sheet amount

Hokuhoku Financial Group, Inc. Annual Report 201247

(c) Available-for-sale securities
Millions of yen
TypeConsolidatedbalance sheet
amountAcquisition
cost

Unrealized gains(losses)

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

¥    51,117
2,069,800
1,341,380
449,888278,531
107,395
2,228,313¥    35,368
2,030,943
1,317,820
438,438
274,683
105,291
2,171,603¥15,748
38,85723,55911,4493,847
2,104
56,710Stocks.....................................................................................................
Bonds.....................................................................................................
Japanese government bonds................................................................
Japanese local government bonds........................................................
Japanese corporate bonds...................................................................
Other......................................................................................................
Subtotal..................................................................................................
Total...........................................................................................................................................................

49,831
107,287
66,391
12,56228,33485,311
242,430¥2,470,743

62,872
108,018
66,77012,57328,67488,657
259,548¥2,431,152(13,041)
(730)
(379)
(11)
(339)
(3,346)(17,118)¥39,591

March 31, 2011

Type

Consolidatedbalance sheet
amountAcquisition
cost

Unrealized gains(losses)

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

¥    60,515
1,562,481
915,711375,984
270,785
95,776
1,718,773¥    48,265
1,538,105
902,383
368,291
267,430
94,147
1,680,519¥12,249
24,375
13,328
7,692
3,354
1,628
38,253

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

46,621
457,443
290,805
87,06079,57780,269584,333¥2,303,107

59,337461,219
293,206
87,72880,28484,718605,275¥2,285,794(12,715)(3,776)(2,401)(667)(707)(4,449)(20,941)¥17,312

March 31, 2012

Type

Consolidatedbalance sheet
amountAcquisition
cost

Unrealized gains(losses)

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

$   621,937
25,183,117
16,320,482
5,473,766
3,388,869
1,306,678
27,111,732$   430,327
24,710,344
16,033,836
5,334,455
3,342,053
1,281,073
26,421,744$191,610
472,773286,646
139,31146,81625,605689,988

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

606,294
1,305,363
807,774
152,842
344,747
1,037,980
2,949,637$30,061,369

764,966
1,314,251
812,389
152,981
348,881
1,078,696
3,157,913$29,579,657(158,672)(8,888)(4,615)(139)(4,134)(40,716)(208,276)$481,712

March 31, 2012

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

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

Millions of yen

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

Available-for-sale securities
whose consolidated balance
sheet amount does notexceed acquisition costThousands of U.S. dollars

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

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

48

Hokuhoku Financial Group, Inc. Annual Report 2012

(d) Available-for-sale securities sold during the years ended March 31, 2012 and 2011
Millions of yen
2012

Proceeds fromsales

Gains on sales

Losses on sales

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

¥     2,777
1,344,016
1,292,124
27,03524,856
2,718¥1,349,512¥  210
5,120
4,758
175
187
169
¥5,500¥  785
975
974
1
0
115
¥1,876

2011

Proceeds fromsales

Gains on sales

Losses on sales

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

¥   1,818
970,704
868,196
62,69439,813
3,921¥976,445¥  522
5,156
3,678
439
1,038
46
¥5,725¥  118
2,618
2,617
0
—
1,069
¥3,806

2012

Proceeds fromsales

Gains on sales

Losses on sales

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

$     33,793
16,352,558
15,721,193
328,942
302,423
33,072$16,419,423$ 2,562
62,302
57,890
2,135
2,277
2,064
$66,928$ 9,552
11,873
11,85314
6
1,405$22,830

Millions of yen

Thousands of U.S. dollars(e) Impairment (“Devaluation”) of securities

March 31
Stocks......................................................................................................................................................................
Japanese corporate bonds........................................................................................................................................
Total........................................................................................................................................................................

Millions of yen
2012
2011

¥4,53548¥4,583Thousands of
U.S. dollars
2012¥2,261308¥2,569$55,184587$55,771

Millions of yen
2012
2011

Thousands of
U.S. dollars
2012¥3,94824$48,045295(2) Money held in trust(a) Money held in trust classified as trading purposes

March 31
Consolidated balance sheet amount...........................................................................................................................
Valuation gains (losses) included in profit/loss during the year.....................................................................................

¥3,99432(b) Money held in trust classified as held-to-maturity
Not applicable(c) Other money held in trust
Not applicable

Hokuhoku Financial Group, Inc. Annual Report 201249

(3) Net unrealized gains on available-for-sale securities and other money held in trust

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

Millions of yen
2012
2011

Thousands of
U.S. dollars
2012¥39,591
39,591—(12,686)
26,90527¥17,312
17,312—(5,916)
11,39518$481,712
481,712—(154,360)
327,352330

20¥26,898

42¥11,419251$327,273

March 31, 2012

Contract
value

Millions of yen
Fair
value

Recognizedgain (loss)

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

¥774,917
772,456
393,154
396,905
7,578
2,612
/

¥10,787(3,950)(2,542)2,543(3)
0¥ 6,834¥10,787(3,950)
764
2,543
319
(46)
¥10,418

March 31, 2011

Contract
value

Millions of yen
Fair
value

Recognizedgain (loss)

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

¥644,852
640,313258,297
259,061
13,237
5,911/¥10,588(4,688)(2,423)
2,443
(10)
1
¥ 5,911¥10,588(4,688)
352
2,443
576
(125)
¥ 9,147

March 31, 2012

Contract
value

Thousands of U.S. dollars
Fair
value

Recognizedgain (loss)$9,428,362
9,398,429
4,783,477
4,829,126
92,21331,786/$131,255(48,064)(30,940)
30,945(40)
3$ 83,159$131,255(48,064)
9,302
30,945
3,887(566)$126,759

30. Derivatives(1) Derivative transactions to which hedge accounting is not applied· Interest Rate-Related Transactions

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

50

Hokuhoku Financial Group, Inc. Annual Report 2012

· Foreign Exchange-Related Transactions

March 31, 2012

Contract
value

Millions of yen
Fair
value

Recognizedgain (loss)

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

¥ 30,946
13,961
13,851
353,635
353,635/¥     45215
96
(34,366)
34,366¥   356¥    45
215
96
8,440
(1,587)¥7,210March 31, 2011

Contract
value

Millions of yen
Fair
value

Recognizedgain (loss)

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

¥ 49,020
14,82918,054473,214473,214/¥     94660
164
(61,586)
61,586¥   919¥     94660
164
(8,905)
19,460¥11,474

March 31, 2012

Contract
value

Thousands of U.S. dollars
Fair
value

Recognizedgain (loss)$  376,528
169,866
168,534
4,302,656
4,302,656/$    548
2,620
1,177
(418,135)
418,132$   4,342$    548
2,620
1,177
102,692(19,310)$ 87,727

March 31, 2012

Contract
value

Millions of yen
Fair
value

Recognizedgain (loss)

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

¥1,9531,953/¥ (22)
135¥113¥ (22)
135¥113

March 31, 2011

Contract
value

Millions of yen
Fair
value

Recognizedgain (loss)

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

¥2,6012,601/¥(277)
407¥ 129¥(277)
407¥ 129

March 31, 2012

Contract
value

Thousands of U.S. dollars
Fair
value

Recognizedgain (loss)

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

$23,773
23,773/$  (273)
1,651$1,378$  (273)
1,651$1,378Over-the-counter transactions
Swaps....................................................................................................................................................
Forward contracts/sell.............................................................................................................................
Forward contracts/buy.............................................................................................................................
Options/sell.............................................................................................................................................
Options/buy............................................................................................................................................
Total...........................................................................................................................................................
· Commodity Related Transactions

At March 31, 2012 and 2011, the Group had no outstanding derivative contracts in stock-related transactions, bond-related transactions
and credit derivative transactions.

Hokuhoku Financial Group, Inc. Annual Report 201251

(2) Derivative transactions to which hedge accounting is applied· Interest Rate-Related Transactions
March 31, 2012
Hedge accounting method

Millions of yen
TypeMain financial instrument hedged

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

March 31, 2011
Hedge accounting method

Fair value¥34,012/(Note)

Millions of yen
TypeMain financial instrument hedged

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

March 31, 2012
Hedge accounting method

Contract value

Contract value

Fair value¥39,300/(Note)

Thousands of U.S. dollars
Type

Main financial instrument hedged

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

Contract value

Fair value$413,828/(Note)

Note: Amounts resulting from interest swaps with exceptional treatment are accounted for together with the financial instruments thus hedged. As a result, thefair value is included in the fair value of the loans stated in “28. Financial Instruments and Related Disclosures.”· Foreign Exchange-Related Transactions
March 31, 2012
Hedge accounting method

Millions of yen
TypeMain financial instrument hedged

Accounting method employed in principle Forward contracts
Call loans and foreign due from banks
Total......................................................................................................................................................................................
March 31, 2011
Hedge accounting method

Fair value¥62,283/¥(3,990)¥(3,990)

Millions of yen
TypeMain financial instrument hedged

Swaps
Foreign securities
Accounting method employed in principle
Forward contracts
Call loans and foreign due from banks
Total......................................................................................................................................................................................
March 31, 2012
Hedge accounting method

Contract value

Contract value

Fair value¥ 4,989
66,798/¥1,293(2,225)¥ (931)Thousands of U.S. dollars
Type

Main financial instrument hedged

Accounting method employed in principle Forward contracts
Call loans and foreign due from banks
Total......................................................................................................................................................................................

Contract value

Fair value$ 757,798/$(48,550)$(48,550)

At March 31, 2012 and 2011, the Group had no outstanding derivatives contracts in stock-related transactions, bond-related transactions, commodity-related transactions and credit derivative transactions.

31. Subsequent Events(1) Appropriations of retained earnings
The following appropriations of retained earnings at March 31, 2012were approved at the Company’s general shareholders meeting
held on June 26, 2012:
Millions of yen

Thousands of
U.S. dollars

Cash dividends, ¥3.75 per shareon common stock.........................................

¥5,210$63,400

Cash dividends, ¥7.50 per shareon preferred stock (Type 5)............................

805

9,803

(2) Repurchase of treasury stock
The Company announced that its Board of Directors at its meetingon May 18, 2012 approved the repurchase of treasury stock, basedon Paragraph 3, Article 165, of the Companies Act, as interpreted
in light of Article 156 of said Act.

52

Hokuhoku Financial Group, Inc. Annual Report 2012(a) Resolution
Reason for the repurchase
The repurchase was approved to increase returns to shareholders and to give the Company greater flexibility in capital policy going
forward, in light of a changed business environment.
Type of shares to be purchased
Common stock
Numbers of shares to be purchased
30,000,000 (maximum)
Total value of shares to be purchased¥4,000 million ($48,667 thousand) (maximum)
Repurchase period
From May 24, 2012 to July 23, 2012(b) Outcome of repurchase
On June 7, 2012, the repurchase came to an end.
Numbers of shares purchased
30,000,000
Total value of shares purchased¥3,607 million ($43,889 thousand)Independent Auditors’ report
Deloitte Touche Tohmatsu LLC
MS Shibaura Building
4-13-23, Shibaura
Minato-ku, Tokyo 108-8530
Japan
Tel:+81(3)3457 7321
Fax:+81(3)3457 1694
www.deloitte.com/jp

INDEPENDENT AUDITORS’ REPORTTo the Board of Directors of
Hokuhoku Financial Group, Inc.:
We have audited the accompanying consolidated balance sheet of Hokuhoku Financial Group, Inc. (the “Company”) and consolidated subsidiaries as of March 31, 2012, and the related consolidated statements of income, comprehensive income, changes in net
assets, and cash flows for the year then ended, and a summary of significant accounting policies and other explanatory information,
all expressed in Japanese yen.
Management’s Responsibility for the Consolidated Financial Statements
Management is responsible for the preparation and fair presentation of these consolidated financial statements in conformity withaccounting principles generally accepted in Japan, and for such internal control as management determines is necessary to enable
the preparation of consolidated financial statements that are free from material misstatements, whether due to fraud or error.
Auditor’s Responsibility
Our responsibility is to express an opinion on these consolidated financial statements based on our audit. We conducted our audit
in conformity with auditing standards generally accepted in Japan. Those standards require that we plan and perform the audit toobtain reasonable assurance about whether the consolidated financial statements are free from material misstatement.
An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the consolidated financial
statements. The procedures selected depend on the auditor’s judgment, including the assessment of the risks of material misstatement of the consolidated financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers
internal control relevant to the entity’s preparation and fair presentation of the consolidated financial statements in order to design
audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness ofthe entity’s internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by management, as well as evaluating the overall presentation of the consolidated financial
statements.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.
OpinionIn our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial
position of the Company and consolidated subsidiaries as of March 31, 2012, and the consolidated results of their operations andtheir cash flows for the year then ended in conformity with accounting principles generally accepted in Japan.
Convenience Translation
Our audit also comprehended the translation of Japanese yen amounts into U.S. dollar amounts and, in our opinion, such translation
has been made in conformity with the basis stated in Note 1. Such U.S. dollar amounts are presented solely for the convenience ofreaders outside Japan.

June 13, 2012

Member of
Deloitte Touche Tohmatsu Limited

Hokuhoku Financial Group, Inc. Annual Report 201253

NONConsolidated Financial Statements

Nonconsolidated Balance Sheet (Unaudited)
The Hokuriku Bank, Ltd.

2012

2011

Thousands of
U.S. dollars
2012

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

¥  224,048
5,753
112,777
5,659
1,315,428
4,233,960
6,415
46,27881,817
8,768
24,34040,987(38,878)¥6,067,357¥  250,493
24,562
111,4316,966
1,217,508
4,252,329
6,149
60,33384,405
6,057
41,95559,288(42,478)¥6,079,002$ 2,725,984
70,0001,372,152
68,86316,004,730
51,514,307
78,053563,069
995,467
106,682
296,147498,691(473,032)$73,821,113

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

¥5,545,102
64,1092,190
119,23631
40,620
143
304
2,294
803
7,513
40,987
5,823,337¥5,439,922
20,0002,690
252,53877
65,300
90
231
2,145
1,207
8,901
59,2885,852,392$67,466,878
780,016
26,6571,450,746
377
494,228
1,742
3,700
27,911
9,776
91,420498,691
70,852,142

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

140,409
14,99858,277
213,685
20,997(15)
9,351
30,333244,019¥6,067,357

140,409
14,99850,758206,166
11,7573
8,683
20,443
226,609¥6,079,002

1,708,353
182,490709,057
2,599,900
255,475(183)
113,779
369,0712,968,971$73,821,113

Millions of yen
March 31

54

Hokuhoku Financial Group, Inc. Annual Report 2012

Nonconsolidated Statement of Income (Unaudited)
The Hokuriku Bank, Ltd.

2012

2011

Thousands of
U.S. dollars
2012

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

¥ 65,662
14,349855
1,234
18,758
516
2,920
1,162
105,460¥ 69,333
12,505779
1,461
19,959
1,143
1,480
2,252
108,914$  798,905
174,588
10,41415,021
228,238
6,290
35,533
14,1391,283,128

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

5,923
1,919
668
7,069
—
55,9083,274
5,680
80,443

8,311
2,155
546
7,060
646
56,1005,320
7,574
87,71572,06723,351
8,138
86,008—680,229
39,842
69,110978,745

25,017

21,198304,38345——
13,563¥ 11,407

87
381
(51)
8,862
¥ 11,918

560——
165,031$  138,792

Millions of yen
Year ended March 31

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

Hokuhoku Financial Group, Inc. Annual Report 201255

Nonconsolidated Balance Sheet (Unaudited)
The Hokkaido Bank, Ltd.

2012

2011

Thousands of
U.S. dollars
2012

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

¥  101,656
61,6432,342
3,948
1,156,403
3,053,067
4,276
57,95031,187
8,200
18,236
26,110(26,615)¥4,498,409¥  156,060
62,494
2,336
3,994
1,097,665
2,988,825
7,085
70,73032,054
1,842
21,896
27,581(24,047)¥4,448,519$ 1,236,847
750,016
28,50748,045
14,069,886
37,146,453
52,026705,086
379,458
99,778221,876
317,684(323,827)$54,731,835

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

¥4,155,748
164
86,13041
15,00042,984
8,692
169
680
599
26,1104,336,320¥4,083,927—
100,100
53
15,00059,575
7,346
123
626
643
27,581
4,294,977$50,562,698
2,000
1,047,938
505
182,504
522,987
105,760
2,063
8,276
7,299
317,684
52,759,714

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

93,524
16,79541,341
151,660
10,427
10,427
162,088¥4,498,409

93,524
16,79539,079149,398
4,144
4,144
153,542¥4,448,519

1,137,900
204,345
502,999
1,845,244
126,877
126,877
1,972,121$54,731,835

Millions of yen
March 31

56

Hokuhoku Financial Group, Inc. Annual Report 2012

NONCONSOLIDATED STATEMENT OF INCOME (Unaudited)
The Hokkaido Bank, Ltd.

2012

2011

Thousands of
U.S. dollars
2012

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

¥51,985
10,69917
17
187
14,885
8,199
1,596
87,589¥53,403
10,54345
0183
15,0346,420
1,383
87,013$  632,508
130,184
213
212
2,277
181,10999,76819,4191,065,690

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

3,929
2
1,045
327
1
7,648
1,743
48,7905,821
5,351
74,661

5,135
—
1,037
327
1
7,096
2,856
47,025
6,933
2,709
73,12347,81526
12,7223,979
17
93,05521,210593,630
70,833
65,113
908,400

12,927

13,890157,290

6,410
—
1,232
¥ 5,284

4,753
—
1,369
¥ 7,767

77,994—
14,995$    64,301

Millions of yen
Year ended March 31

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

Hokuhoku Financial Group, Inc. Annual Report 201257

Corporate information(as of March 31, 2012)

The Hokuhoku Financial Group is composed of the holding company and 11 consolidated subsidiaries and one affiliate. Our core businessis banking, and we also provide a wider range of services including leases, credit cards, financing, and venture capital. The following is adiagram of our business.

Business diagram
Hokuhoku Financial Group, Inc.
The Hokuriku Bank, Ltd.

The Hokkaido Bank, Ltd.

Hokugin Lease Co., Ltd.
(Leasing)

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

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

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

Hokuriku International Cayman Limited(Finance)

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

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

Hokugin Software Co., Ltd.
(Software development)* Equity method-affiliated company

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

Address

Established

Capital

FG’s share of
voting rights

Dividend

The Hokuriku Bank, Ltd.

1-2-26 Tsutsumicho-dori, Toyama City

Banking

July 31, 1943

140,409100.004,294

The Hokkaido Bank, Ltd.

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

Banking

March 5, 1951

93,524100.003,022

Hokugin Lease Co., Ltd.

2-21 Aramachi, Toyama City

Leasing

July 21, 1983

100

70.25

—

Hokuriku Card Co., Ltd.

1-2-1 Shintomi-cho, Toyama City

Credit card operations,loan guarantees

March 2, 1983

36

87.39

3

Hokuriku Hosho Services Co., Ltd.

1-2-26 Tsutsumicho-dori, Toyama City

Credit guarantees

December 12, 1978

50

100.00—

Hokugin Software Co., Ltd.

1-5-25 Higashidenjigata, Toyama City

Software development

May 1, 198630

100.00—December 5, 2003

500

100.00—30(100.00)—

Hokuhoku Services Co., Ltd.

1-6-8 Chuo-dori, Toyama City

Servicer

Hokugin Business Services Co., Ltd.

1883 Hiyodorijima, Toyama City

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

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

Finance

April 27, 1993

US$1,000(100.00)—

Dogin Business Service, Ltd.

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

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

50(100.00)—

Dogin Card Co., Ltd.

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

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

120(100.00)—

Hokuhoku Capital Co., Ltd.

1-6-8 Chuo-dori, Toyama City

Venture Capital

250

5.00
(38.75)—( ) Indicates voting rights involving shares held by subsidiaries

58

Main business activities

Hokuhoku Financial Group, Inc. Annual Report 2012

January 11, 1985

Outline of Subsidiaries - Hokuriku Bank
The Hokuriku Bank, Ltd..
http://www.hokugin.co.jp/

Establishment

History

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

August 1877

Kanazawa 12th National Bank founded

February 1879

Toyama 123rd National Bank founded

July 1943	Four banks, 12th, Takaoka, Chuetsu, and Toyama Bank,
merged to form Hokuriku Bank
January 1950	Launched foreign exchange operations (first regional bank to
do so)
September 1961

Listed on the Tokyo Stock Exchange

November 1961

Present head office built

November 1973	Completed first integrated online system linking all offices

The Hokuriku Bank, Ltd.
Banking
July 31, 1943 (founded in 1877)
1-2-26 Tsutsumicho-dori, Toyama City, Toyama
Shigeo Takagi¥6,067.3 billion¥5,545.1 billion¥4,233.9 billion
Common stock

July 1897	Toyama 12th National Bank changed name to 12th Bank

January 1971	Received blanket approval to engage in correspondentbanking services

Company outline (as of March 31, 2012)
Company name:Business:
Incorporation:
Location of headquarters:
President:
Total assets:
Deposits (including NCDs):
Loans:
Issued shares:

January 1884 	Kanazawa 12th National Bank and Toyama 123rd National
Bank merged to form Toyama 12th National Bank with
headquarters in Toyama City

1,047,542,335

Capital adequacy ratio(non-consolidated):
11.85%
Employees:
2,917
Branches (as of June 30, 2012)
Domestic:
188 (140 branches, 48 sub-branches)
Overseas:
6 representative offices

March 1974	Received blanket approval to engage in foreign exchange
business
July 1978	Received blanket approval to handle yen-denominated andforeign-denominated syndicated loans
October 1979

Launched second online system

November 1981

Launched online foreign exchange system

January 1984

Launched firm banking service

May 1987

Introduced VI (visual identification)

August 1990

Completed third online system

November 1993

Launched investment trust agent operations

December 1998	Launched over-the-counter sale of securities investment
trustsJune 2000	Launched Internet and mobile banking services
July 2000

Completed new computer center (Alps building)January 2001

Launched new computer system

April 2001	Launched over-the-counter sales of casualty insurance
February 2002	Third-party allocation worth ¥39.1 billion, brought newcapital to ¥140.4 billion
February 2002

Launched convenience store ATM service

October 2002

Launched over-the-counter sales of life insurance

March 2003

Took over part of the Ishikawa Bank’s operations

September 2003	Established Hokugin Financial Group, Inc. through sharetransfer, then became subsidiary of the Hokugin Financial
Group, Inc.
September 2004	Integrated management with Hokkaido Bank, name of parent
company changed to Hokuhoku Financial Group, Inc.
December 2004

Launched securities agency operations

March 2006	Entered into a contract on joint system use with Hokkaido
Bank and the Bank of Yokohama
May 2011	Commenced use of joint IT system with Hokkaido Bank andthe Bank of Yokohama

Hokuhoku Financial Group, Inc. Annual Report 201259

Outline of Subsidiaries - Hokkaido Bank
The Hokkaido Bank, Ltd..
http://www.hokkaidobank.co.jp/

Establishment

History

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

March 1951

Hokkaido Bank established

April 1961

Launched foreign exchange operations

May 1962

Listed on the Sapporo Stock Exchange

August 1964

Present head office built

June 1971

Online system (first) launched

July 1976

Online system (second) launched

December 1980	Received blanket approval to engage in correspondentbanking services
April 1981	Hokkaido Small and Medium Corporation Human Resource
Development Fund established
June 1986

Launched online foreign exchange system

September 1987	Debuted on the first section of the Tokyo Stock Exchange
October 1990

Constructed the Higashi Sapporo Dogin Building

March 1991

Established Dogin Cultural Foundation

The Hokkaido Bank. Ltd.
Banking
March 5, 1951
4-1 Odori Nishi, Chuo-ku, Sapporo City
Yoshihiro Sekihachi¥4,498.4 billion¥4,155.7 billion¥3,053.0 billion

October 1991

Launched a new foreign exchange online system

November 1991

Constructed Dogin Building Annex

January 1993

Online system (third) launched

April 1994

Launched investment trust agent operations

December 1998

Started sales of investment trust accounts

November 1999

Launched telephone banking service

Common stock:
Preferred stock ( Type 2):

June 2000

Launched Internet mobile banking

April 2001

Started sales of casualty insurance accounts

October 2002

Started sales of life insurance accounts

December 2003

Opened Business Loan Plaza

April 2004

Launched convenience store ATM service

Company outline (as of March 31, 2012)
Company name:Business:
Incorporation:
Location of headquarters:
President:
Total assets:
Deposits (including NCDs):
Loans:
Issued shares:

486,634,512
107,432,000

Capital adequacy ratio(non-consolidated):
10.80%
Employees:
2,331
Branches (as of June 30, 2012)
Domestic:
139 (132 branches, 7 sub-branches)
Overseas:
2 representative offices

July 1999	Issued preferred stock ( Type 2) (issuance amount was¥53.716 billion)

September 2004	Came under management of Hokugin Financial Group, Inc.
parent of Hokuriku Bank; Hokuhoku Financial Group, Inc.
launched
April 2005

Launched securities agency operations

March 2006	Entered into a contract on joint system use with Hokuriku
Bank and the Bank of Yokohama
August 2006	Opened representative office in Shenyang, China
March 2009	Opened representative office in Yuzhno-Sakhalinsk, Russia
January 2010

Taiwan ATM/SmartPay Debit Service Started

May 2011	Commenced use of joint IT system with Hokuriku Bank andthe Bank of Yokohama

60

Hokuhoku Financial Group, Inc. Annual Report 2012

Board of Directors and Corporate Auditors
Hokuhoku Financial Group, Inc.
President:
Shigeo Takagi
Deputy President:
Yoshihiro Sekihachi

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

Corporate Auditors:
Koichi Sugawa
Yoshihiro Minami
Norikiyo Hayashi
Yozo Maeizumi

Managing Directors:
Takashi Nakano
Hidenori Mugino

Corporate Auditors:
Masaru Nanbu
Kenichi Nakamura
Isao Nagahara
Tatsuo Kawada

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

Director:
Tetsuya Kitani

Senior Managing Directors:
Taminori Iwasaki
Tatsuya Kaseda

The Hokkaido Bank, Ltd.
President:
Yoshihiro Sekihachi
Deputy President:
Masahiro Sasahara
Senior Managing Director:
Hiroshi Sagayama

Managing Directors:
Akihiko Soma
Ikuo Takada
Toshihiro Katayama
Director:
Satoshi Kawai

Addresses
Hokuhoku Financial Group, Inc.
1-2-26, Tsutsumicho-dori Toyama City,
Toyama 930-8637, Japan
Telephone: +81-76-423-7331
http://www.hokuhoku-fg.co.jp/
E-mail: honsha2@hokuhoku-fg.co.jp
The Hokuriku Bank, Ltd.
International Department
1-2-26, Tsutsumicho-dori Toyama City,
Toyama 930-8637, Japan
Telephone: +81-76-423-7815
Facsimile: +81-76-423-7561
E-mail: kokusaibu@hokugin.co.jp
International Operations Center
3-2-10, Nihonbashi-muromachi,
Chuo-ku, Tokyo 103-0022, Japan
Telephone: +81-3-3231-7329
Facsimile: +81-3-3270-5028
E-mail: b.office@hokugin.co.jp
SWIFT Address: RIKBJPJTTreasury and Securities Department
3-2-10, Nihonbashi-muromachi,
Chuo-ku, Tokyo 103-0022, Japan
Telephone: +81-3-3231-7360
Facsimile: +81-3-3246-1255
E-mail: shikintky@hokugin.co.jp
Overseas Offices (Hokuriku Bank)New York Representative Office
780 Third Avenue, 28th Floor,
New York, NY 10017, U.S.A.
Telephone: +1-212-355-3883
Facsimile: +1-212-355-3204
E-mail: newyork@hokugin.com

Corporate Auditors:
Keiji Okuda
Tatsuhiro Ishikawa
Ken Ebina
Masao Hoshi

Shanghai Representative Office
Shanghai International Trade Center,
602, Yan’an West Road 2201,
Changning, Shanghai 200336, P.R. of
China
Telephone: +86-21-6270-8108
Facsimile: +86-21-6270-8338
E-mail: shanghai@hokugin.net
Dalian Representative OfficeMori Building 7F, 147 Zhongshan,
Xigang District, Dalian, Liaoning, P.R.
of China
Telephone: +86-411-3960-8018
Facsimile: +86-411-3960-8019
E-mail: dalian@hokugin-zg.com
Singapore Representative Office
6 Battery Road # 17-04 Singapore
049909
Telephone: +65-6534-0010
Facsimile: +65-6534-0070
E-mail: hokuriku@singnet.com.sg
London Representative Office
Level 12, City Tower, 40 Basinghall
Street, London EC2V 5DE UK
Telephone: +44-20-7374-6028
Facsimile: +44-20-7374-6055
E-mail: london@hokugin.co.uk
Bangkok Representative Office
No.209, K-Tower A, 9th Floor, Unit 2/1,
Sukhumvit 21 Road (Asoke), Klongtoey
Nua, Wattana Bangkok 10110, Thailand
Telephone: +66-2-261-8495
Facsimile: +66-2-261-8497
E-mail: bangkok@hokugin.asia

The Hokkaido Bank, Ltd.
International Division
4-1, Odori Nishi, Chuo-ku,
Sapporo City 060-8676, Japan
Telephone: +81-11-233-1093
Facsimile: +81-11-231-3133
E-mail: sckikaku@cello.ocn.ne.jp
Market and International Administration Center
2-33, Higashi Sapporo 3-jyo 1-chome,
Shiroishi-ku, Sapporo City, 003-0003,
Japan
Telephone: +81-11-815-1315
Facsimile: +81-11-815-2237
SWIFT Address: HKDBJPJTTreasury and Securities Department
3-2-10, Nihonbashi-muromachi,
Chuo-ku, Tokyo 103-0022, Japan
Telephone: +81-3-3241-3457
Facsimile: +81-3-3245-1779
Overseas Offices (Hokkaido Bank)
Shenyang Representative Office
Fangyuan Mansion, No. 1106
Yuebin Street No. 1, Shenhe District,
Shenyang City 110013, P.R. of China
Telephone: +86-24-2250-5350
Facsimile: +86-24-2250-5351
E-mail: dogin_shenyang@yahoo.co.jp
Yuzhno-Sakhalinsk Representative Office
Diplomat Office No.404 Chekhova street
1A, Yuzhno-Sakhalinsk 693020, Russia
Telephone: 7-4242-46-1774
Facsimile: 7-4242-46-1775
E-mail: mikami@hbkys.ru

Hokuhoku Financial Group, Inc. Annual Report 201261

北北金融控股集团简要（截至 2012 年 3 月 31 日）

设立日期∶ 2003 年 9 月 26 日

北北金融集团的经营活动范围不是限于一个地域，而
是在广泛的地域内展开着。

总行地址∶富山县富山市堤町通 1 丁目 2 番 26 号

我们广泛的营业网点分布在下面所写的地区范围里 ：集团董事长∶高木繁雄（北陆银行 总行长）北陆地区 ..................................................... 149 分行（或支行）副董事长∶堰八义博（北海道银行 总行长）富山县 ......................................................... 91 分行（或支行）经营目的∶集团伞下的子公司的经营管理，以及连带的相关业务

石川县 ......................................................... 36 分行（或支行）企业名称∶北北金融控股集团股份有限公司资本金∶ 708 亿 9,500 万日元发行股份∶ 普通股 ............................ 1,391,630,146 股
第一次第 5 种优先股.......... 107,432,000 股
上市交易所∶ 东京证券交易所（第一部）札幌证券交易所简历

福井县 ......................................................... 22 分行（或支行）北海道地区.................................................. 157 分行（或支行）三大都市圈.................................................. 17 分行（或支行）东京、横滨.................................................. 10 分行（或支行）名古屋 .........................................................

3 分行（或支行）

大阪、京都..................................................

4 分行（或支行）

其他地区 ( 仙台、新泻、长野、高山 ) ...........

4 分行（或支行）

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

8 代表处

纽约代表处
自从 1877 年北陆银行成立以来已经在北陆地区设立了广（北陆银行）

南萨哈林斯克代表处 （北海道银行）伦敦代表处域性的经营网点。
从“北前船”或者说“北航船（北上的经济圈）”的交易关（北陆银行）

新加坡代表处 （北陆银行）系和客户的需要出发还在北海道各个主要城市内设立了自己的

曼谷代表处（北陆银行）

经营网点。

大连代表处

（北陆银行）

上海代表处

（北陆银行）

沈阳代表处

（北海道银行）

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

北陆银行和北海道银行于 2004 年 9 月进行了经营统合， （2012 年 6 月 30 日）
成立了（控股公司）北北金融控股集团股份有限公司。现在，北北金融控股集团已经形成了覆盖日本北陆地区北海道以及日ఘ‫ޱ‬

本三大都市圈（东京，名古屋，大阪）的巨大的地方金融网络。

ೌ๭ࣱஹ཈૲

໅ᆷ‫ܐ‬ஏ

2002 年 5 月 北陆银行和北海道银行缔结了全面业务协助协议

ഁኙ
ຢࣴ
ఽࢻ

ᄧৠൻ

2003 年 5 月 北陆银行和北海道银行对经营统合取得一致意见
2003 年 9 月

设立北银金融控股集团股份有限公司
北陆银行成为北银金融控股集团伞下的银行ҽ߽‫ل‬通过股份交换实现经营统合
2004 年 9 月

北北金融控股集团股份有限公司诞生

注 ：北银金融控股集团股份有限公司改名为北北金融控股集团
股份有限公司。
ҽଇٜഘ
෩‫׎‬

‫ݙ‬඙

݁ঀ

‫ॻڍ‬
‫ؙ‬᐀

ண߁ྏ

ൻ‫ڞؙ‬ชത

62

Hokuhoku Financial Group, Inc. Annual Report 2012

北北金融控股集团 董事致辞

（相片左边）集团董事长

高木繁雄（北陆银行 总行长）
（右边）

副董事长

堰八义博（北海道银行 总行长）董事致词首先，对各位一直以来对我行以及我集团的特殊关照，表示衷心的感谢。
2011 年度的日本经济，经历东日本大地震后经济渐渐恢复活力，对灾后重建的需求一
直保持着稳定的趋势。一方面，企业业绩因为电力供给问题，日元升值的长期化问题，面临资源成本上升的问题，更因为财政问题和贸易收支恶化等问题，企业的将来变得
越来越不透明。
我集团以“成为地方可值得亲近和信赖的金融集团 ”为目标，通过为在困难的经营环
境下努力经营事业的企业客户，以及在各自的生活舞台上有着各种各样金融需求的个
人客户提供贴心的金融服务，以此来为振兴地方经济作出努力。
2011 年 5 月，承蒙关照我集团旗下的北陆银行、北海道银行和横滨银行开始稳定地使用
同一系统开展业务。2012 年 5 月，通过协议决定七十七银行也加入到共同使用这一新系
统的行列，这样以来更加提高了我们的效率。事务处理的共通化，后台操作的共同化，加快了集团的协同相乘效应。我们将努力改善对客户的服务。
2012 年 3 月，旗下的北陆银行为了满足客户在海外投资的多样化需求，自去年在大连
成立代表处以来，在泰国曼谷也成立了代表处。北海道银行把农业、旅游等有地域特点的商务活动作为重点发展领域，举办旅游为主题的商务洽谈会，进一步推动着重点发展领域业务的扩大。
我集团的中期经营计划“Road to 10 ”到 2012 年是最后一个年度。“强化营业力”“经、营效率化”、“经营基础的稳定化”依然是本计划的三大支柱。我们会朝着成为存款额
10 兆日元的金融集团这一目标努力。以“地域共荣”的精神与地方客户一起发展壮大。
请各位今后也一如既往地关照和支持我们。
董事长

高木繁雄
2012 年 7 月
Hokuhoku Financial Group, Inc. Annual Report 201263

中期经营计划
本集团将自2010年4月份起的3年期间，定位为[面向未来挑战持续性增长的新时期]，已开始了为实现中期经营计划[Road to 10]的工作。
经过2年时间，存款，贷款，联结资本充足率已超过了目标水准。另外，由于长期持续低利率和与其他银行的竞争，收益环境愈加严峻。但是，我们将加强[强化营业力]，[经营效率化]，[经营基础的稳定化]三个经营支柱，努力确保稳定的收
益。

计划的概要
名称
期间
定位
集团目标形象中期经营计划 [Road to 10]
3年间（2010年4月~2013年3月）
面向未来挑战持续性增长的新时期 ~向存款额10兆日元的金融集团稳步迈进~成为有地方亲和力，可以被依靠的金融集团
1．在经济前景不明朗的环境中再造有稳定收益的基盘

解决课题

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

计划的基本方针I. 强化营业力

II. 经营效率化

III. 经营基础的稳定化n 扩充强化收益基盘

n 3行共同利用系统稳定运作和灵n 提高资本的质量

中期经营计划
[Road to 10]n 以顾客的立场提供咨询业务面向未来挑战持续性增长的新时期n 扩大有价证券的运用活运用战略n 阶段性地增发普通股股息n 进一步追求协同作用（Synergy）
n 增强营业人员

2013年3月目标数（2行合算，联结）2011/3实际成绩

2013/3目标

存款平均余额

9兆2,776亿日元

9兆5,794亿日元

9兆5,500亿日元贷款平均余额

7兆1,133亿日元

7兆2,673亿日元

7兆2,000亿日元

主营业务净利润

567亿日元557亿日元700亿日元联结本期净利润

184亿日元141亿日元255亿日元11.29%（7.45%）

11.72%（7.82%）

11.5%以上（7.5%以上）

63.47%

64.37%

58%

联结资本充足率（联结 Tier1 比率）
OHR64

2012/3实际成绩

ROA（主营业务净利润为基础）

0.56%

0.53%

0.68%

ROE（联结本期净利润为基础）

4.60%

3.26%

6%以上

不良债权比率

2.96%

3.17%

3%程度

Hokuhoku Financial Group, Inc. Annual Report 2012

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

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

战略性的人员配置

加强联盟

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

II. 经营效率化
3行共同利用系统稳定运作和灵活运用战略2011年5月开始运作协同作用（Synergy）的加速横滨银行于2010年1月先行运作压缩经费

3行系统共同利用(MEJAR)
2个品牌的营业

北陆银行

北海道银行
调整人员提高对外营业服务开发成本的降低事务手续共通化

共同筹备系统机器和票据事务处理要领和管理报表的共通化

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

经营管理治理强化

北海道事业总部（2010年3月）
富山事业总部（2010年9月）

III. 经营基础的稳定化
积累收益提高资本的质量资本充足率･Tier1 比率（北北金融控股集团联结）资本充足率Tier1 比率10.83%

7.05%

11.29%

7.45%

11.72%

11.5%以上

7.82%

资本充足率12％Tier1 比率 8 ％（预期）7.5%以上提高资本充足质量收益增加
Tier1也提高递延税项资产
对Tier1比率

21.03%

17.14%

10.93%

阶段性增发普通股份股息10.0%以下

2010/3实际成绩

2011/3实际成绩

2012/3实际成绩

2013/3计划

Hokuhoku Financial Group, Inc. Annual Report 2012

65

业绩精粹
营业概况（北北金融控股集团联结）（货币单位 ：亿日元）

2011 年度

2010 年度

我集团今年的联结会计年度的业绩 ：联结经常收益
与上年度相比减少了 66 亿日元，为 2,079 亿日元。联结
经常利润与上年度相比增加了 16 亿日元，为 388 亿日元。

前年比
经常收益

2,079

－ 66

2,146

经常利润

388

＋ 16

372

本期净利润

141

－ 42

184

资本充足率

11.72%＋ 0.43%11.29%

联结本期净利润与上年度相比减少了 42 亿日元，为 141
亿日元。
联结资本充足率与上年度相比提高了 0.43 个百分点，达到 11. 72％。

营业概况（北陆银行、北海道银行）（货币单位 ：亿日元）

利息收入及金融衍生商品利润的增加，与上年度相比增

2 行合算
2011 年度

主营业务毛利润 ：手续费收入虽然减少了，由于净2010 年度

加了 9 亿日元，为 1,563 亿日元。2011 年 5 月由于系统更新，经费与上年度相比增加了 20 亿日元。由于这些原

前年比
经常收益

1,930

－ 28

1,958

因，主营业务净利润与上年度相比减少了 10 亿日元，为主营业务毛利润

1,563

＋9

1,554

557 亿日元。

经费 ( 临时处理部分除外 )

1,006

＋ 20

986

经常利润：信贷成本与上年度相比减少了 41 亿日元，主营业务净利润

557

－ 10

567

因此，经常利润与上年度相比增加了 35 亿日元，为 405

信贷相关成本

104

－ 41

145

亿日元。

有价证券等相关盈亏

－ 14

－3

－ 10

本期净利润 ：随着法人税率下调，法人税等调整额

经常利润

405

＋ 35

370

的增加（影响额为 51 亿日元），本期净利润与上年度相

本期净利润

166

－ 29

196

比减少了 29 亿日元，为 166 亿日元。

（货币单位 ：亿日元）（货币单位 ：亿日元）

北陆银行
2011 年度

北海道银行
2010 年度

2011 年度

前年比

前年比

1,054

－ 34

1,088

875

＋5

870

主营业务毛利润

885

－0

885

678

＋ 10

668

经费 ( 临时处理部分除外 )

542

＋3

538

464

＋ 16

447

主营业务净利润

343

－3

346

214

－6

221

经常收益

66

2010 年度

信贷相关成本

44

－ 26

71

59

－ 14

74

经常利润

274

＋ 45

229

131

－ 10

141

本期净利润

114

－5

119

52

－ 24

77

资本充足率

11.85%＋ 0.53%11.32%

10.80%＋ 0.21%

10.59%

Hokuhoku Financial Group, Inc. Annual Report 2012

Hokuhoku Financial Group, Inc.

Printed in Japan