Annual Report
2016
Year ended March 31, 2016

Hokuhoku Financial Group, Inc.

Company outline (as of March 31, 2016)
Company name: Hokuhoku Financial Group, Inc.
Date of establishment: September 26, 2003
Location of head office: 1-2-26 Tsutsumicho-dori, Toyama City
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………………………… 1,351,630,146
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
Medium-term Management Plan…………………………………………… 4
Performance Highlights…………………………………………………… 6
Corporate Governance……………………………………………………… 10
Measures for Compliance………………………………………………… 13
Measures for Risk Management…………………………………………… 15
Characteristics of Our Main Business Area……………………………… 20
Corporate Social Responsibility…………………………………………… 22
Topics………………………………………………………………………… 24
Consolidated Financial Statements
Consolidated Balance Sheet…………………………………………… 27
Consolidated Statement of Income…………………………………… 28
Consolidated Statement of Comprehensive Income………………… 28
Consolidated Statement of Changes in Equity………………………… 29
Consolidated Statement of Cash Flows……………………………… 31
Notes to Consolidated Financial Statements………………………… 32
Independent Auditor’s Report……………………………………………… 61
Non-consolidated Financial Statements
The Hokuriku Bank, Ltd.
Non-consolidated Balance Sheet (Unaudited)……………………… 62
Non-consolidated Statement of Income (Unaudited)……………… 63
The Hokkaido Bank, Ltd.
Non-consolidated Balance Sheet (Unaudited)……………………… 64
Non-consolidated Statement of Income (Unaudited)……………… 65
Corporate Information……………………………………………………… 66
Outline of Subsidiaries — Hokuriku Bank………………………………… 67
Outline of Subsidiaries — Hokkaido Bank………………………………… 68
Board of Directors and Audit & Supervisory Board Members…………… 69
简单的本集团中文简要…………………………………………………… 70

Profile
Since its establishment in 1877, Hokuriku Bank has

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

developed an extensive network of branches throughout

Our extensive network is outlined below.

the Hokuriku district. On account of trade through the

Hokuriku district……………………………… 150 branches
Toyama prefecture……………………………… 92 branches
Ishikawa prefecture…………………………… 36 branches
Fukui prefecture………………………………… 22 branches

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

Hokkaido……………………………………… 158 branches

throughout Hokkaido, and built a firm business structure

Three major metropolitan areas…………… 16 branches
9 branches
Tokyo and Yokohama…………………………
Nagoya…………………………………………
3 branches
Osaka and Kyoto………………………………
4 branches

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 oper-

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

ates a super-regional financial network that encompasses

Overseas………………………………………
9 offices
New York Representative Office (Hokuriku Bank)
Yuzhno-Sakhalinsk Representative Office (Hokkaido Bank)
Vladivostok 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)

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

(As of June 30, 2016)

LondonSeptember
2003

Vladivostok
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

4 branches

Hokkaido

Hokuhoku Financial Group, Inc. wasborn.

Hokuriku district
Ishikawa

Toyama

Fukui

Tokyo
Osaka

NagoyaThree major metropolitan areas
Hokuhoku Financial Group, Inc. Annual Report 2016

1

MESSAGE FROM THE MANAGEMENT

2

Left: Eishin Ihori

Right: Masahiro Sasahara

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 2016

We would like to express our sincere appreciation to all of you for your continued support of the Hokuhoku Financial Groupand its group companies.
In the Company’s primary operating regions, the Hokuriku Shinkansen was launched in March of last year, while the
Hokkaido Shinkansen was launched in March of this year. As both areas had previously been blessed with tourism resources,
the number of tourists from both outside and within Japan has been on a rising trend. With the launch of the Shinkansen, we
expect this momentum to accelerate and feel that the conditions are right for a virtuous cycle in both tourism and business.
On the other hand, due to the declining birthrate, the ageing of the population, the shift of the population to urban areas andthe increasing corporate focus on overseas regions, we forecast that the contraction in the market will continue. Moreover, in
addition to rivalry with other local banks, we expect a continuation of the severe operating environment due to competition
stemming from the expansion of business by the Japan Post Bank and by internet-only banks, due to the contraction in
profit margins in the loan business caused by the quantitative easing policy with negative interest rates and due to lower
yields on domestic bonds.
In such an operating environment, the Group began working on its new “BEST for the Region” medium-term management
plan in April of this year, focusing on the policies below in order to contribute to the development of regional economies
through the stable provision of financial services.
First, we will work on initiatives to develop proposal and service capabilities that exceed our customers’ expectations.
Through providing the No.1 regional financial services by strengthening efforts with regard to consulting that matches thecustomer’s stage of life and assessing business possibilities, and by reinforcing convenience and functionality throughbuilding out IT infrastructure, we aim to be a regional financial group that is trusted and chosen by, and that contributes to,both customers and local communities.
Second, in order to achieve sustainable growth for the Group, we will take up the challenge of building out functionaland efficient group structures for management and sales. As well as pursuing the benefits to group management ofconsolidating the administrative and back office operations, we will push ahead with developing retail and service channels
that match the changing needs of customers, while making efforts to realize a functional organization that can win out
against the competition and to maintain a stable financial base that earns trust from local community.
In addition to reforming itself to deal with the changing environment, by offering financial services rooted in the regions,
the Group plays a role in the “Vitalizing Local Economy” program and we strive to be “a financial group that achieves growthand development together with local communities.” We ask for your continued support and patronage.
July 2016

Eishin Ihori
President

Masahiro Sasahara
Deputy President

Hokuhoku Financial Group, Inc. Annual Report 2016

3

MEDIUM-TERM MANAGEMENT PLAN
Hokuhoku Financial Group has launched its Medium-term Management Plan “BEST for the Region” for the three year period
from April 2016 to March 2019.
We have achieved all financial targets set in the previous mid-term management plan. Although interest income on loans
decreased under the low interest rate environment, we achieved the target of net income by decreasing funding cost andincreasing income on securities through diversified investment, as well as reducing G&A expenses.
Due to the negative interest rate policy in Japan, we are faced with challenges such as difficulty in security investment anddeclining interest rate on loans. In a long-term perspective, we recognize that the shrinking population and the aging ofsociety in our prime area will be significant challenges.
Given the environment, under New Medium-term Management Plan “BEST for the Region”, we will develop an efficientand sustainable business model and pursue synergy effect to contribute to the growth of regional economy. Using ourwidespread network and improving management efficiency, we contribute to customers and local communities by providing
No.1 financial service and solution, and achieve growth and development together with them.

Overview of the Medium-Term Management Plan
Title

BEST for the Region

Period3 Years (April 2016 — March 2019)

Position

We will develop an efficient and sustainable business model and pursue group synergy effect tocontribute to the growth of regional economy in the changing business environment

Target Corporate Profile

We contribute to customers and local communities by providing No.1 financial service and solution,
and achieve growth and development together with them

Hokuhoku
Financial Group
Basic Policies
in Management Plan

No.1 Service & Solution
Trust & Patronage

Customers
Communities

1. Strengthening Marketing Capabilities ~Exceed customers’ expectations
2. Improving Management Efficiency ~Enhance competitiveness by establishing efficient operations
3. Strengthening Management Foundation ~Earn trust from local communities and customers

Review of the previous Medium-term Management Plan (Total of 2 banks, consolidated)
FY15 Plan

FY15 Result

Ave.balance of deposits & NCDs

¥10,110.0 Bn¥10,638.9 Bn

Ave.balance of loans¥7,480.0 Bn¥7,545.7 Bn

Core net business profits¥47.0 Bn

¥52.0 Bn

Net income attributable to owners of the parent¥18.5 Bn

¥28.8 Bn

67%

63.57%(Consolidated) Capital adequacy ratio

Above 10%10.30%NPL ratio

Below 3%

2.15%

OHR*

*Core gross business profits basis

Targets of the New Medium-term Management Plan (Total of 2 banks, consolidated)
FY18 Plan
Ave.balance of deposits¥10,560.0 Bn

Ave.balance of loans¥7,760.0 Bn

Core net business profits¥41.5 Bn

Net income attributable to owners of the parent¥23.0 Bn

OHR*

69.14%(Consolidated) Capital adequacy ratio

9.55%*Core gross business profits basis
4

Hokuhoku Financial Group, Inc. Annual Report 2016

Strategies based on basic policies of the Plan
Strengthening Marketing Capabilities ~Exceed customers’ expectations(1) Consumer
1. ‌Provide useful information and introduce related services such as consulting in accordance with the life stage ofeach customers and support for inheritance and succession.
2. ‌Improve loan products and user convenience to meet various needs of customers.
3. ‌Improve function of both face-to-face channels and non-counter channels to be familiar and reliable bank that
customers choose as their main bank.
(2) Corporate
1. ‌Contribute to the growth and development of the regional industry by improving ability to assess customers’
business potential, sharing their needs and problems and thus offering various solutions.
2. ‌Provide business-matching opportunities using our widespread domestic network in Hokkaido, Hokuriku and 3
metropolitan areas, and provide support for oversea businesses using our oversea offices and partnership
institutions.
(3) Investment in securities
Flexibly increase investment in investment trust and/or foreign bonds in accordance with changes in market
environment to improve gains on investment in securities, while basically maintaining our portfolio mainly consisted of
yen-bonds.
Improving management efficiency ~Enhance competitiveness by establishing efficient operations(1)	Improve productivity and efficiency by enhancing back-office functions and integrating business within our group in
addition to creating paperless environment and simplifying work process through information technologies.
(2)	Offer sufficient financial services and convenient access through reorganizing branch groups in which several
branches work together and relocating branches with functions suitable for each local environment as well as
enhancing non-counter channels.
Strengthening Management Foundation ~Earn trust from local community and customers
Put the first priority on maintaining sound financial position to provide stable financial services for the region, while making
effort to increase shareholder returns by improving profit.

Establishment of the “Hokuhoku Tokai Tokyo Securities Co. Ltd”
Our company agreed with Tokai Tokyo Financial Holdings, Inc. (TTFH) to establish a securities company in the form ofjoint investment, planning to start its operation sometime in the second half of the FY2016. The new securities company
aims to become a leading bank-affiliated securities house for the region by fully leveraging on both the closely-knit
operational network of our company and the experience and operational function of TTFH.

Hokuhoku Financial Group, Inc. Annual Report 2016

5

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

FY2015FY2014
Y-o-Y Change
(1.3)
(1.7)

Ordinary income
Ordinary profits
Net income attributable toowners of the parent

192.5
46.4

193.9
48.1

28.8

0.6

28.2

Capital adequacy ratio

10.30%(0.83)%

11.13%

With regard to the Company’s operating performance in thefiscal year ended March 31, 2016, net income attributableto owners of the parent increased by ¥0.6 billion to ¥28.8 billion.
The capital adequacy ratio was 10.30% on aconsolidated basis at the end of the fiscal year.
With regard to the payment of dividends for the fiscal
year ended March 31, 2016, dividends for common stock
were ¥4.25 per share, paid once as the year-end dividends,
and dividends for preferred stock (Type 5) were thedesignated ¥7.50 per share (¥15 annually) paid respectively
as the interim and year-end dividends.

Summary of Operations (Hokuriku Bank and Hokkaido Bank) <Total of both banks>
Total of both banks

(¥ billion)

FY2015
Ordinary income
Core gross business profits
Expenses (excluding
temporarily processed
portion)Core net business profits
Credit costs
Ordinary profits
Net income

178.9
143.0

FY2014
Y-o-Y Change
(0.5)
(1.8)

179.4
144.8

90.9

(2.6)

93.6

52.0
3.7
46.7
29.9

0.8
(2.3)
(0.3)
1.6

51.2
6.0
47.1
28.2

Total ordinary income for both banks was ¥178.9 billion,
down ¥0.5 billion year-on-year, while net income increasedby ¥1.6 billion to ¥29.9 billion.
At Hokuriku Bank, ordinary income fell by ¥0.6 billion to¥93.3 billion and net income increased by ¥1.8 billion
year-on-year to ¥16.5 billion.
At Hokkaido Bank, ordinary income increased by ¥0.1
billion to ¥85.5 billion and net income decreased by ¥0.1
billion year-on-year to ¥13.4 billion.

(¥ billion)(¥ billion)

Hokuriku Bank
FY2015
Ordinary income
Core gross business profits
Expenses (excluding
temporarily processed
portion)Core net business profits
Credit costs
Ordinary profits
Net income

93.3
75.3

Capital adequacy ratio

Hokkaido Bank
FY2014

Y-o-Y Change
(0.6)
(1.1)

FY2015FY2014

94.0
76.5

85.5
67.6

Y-o-Y Change
0.1
(0.6)

85.4
68.3

48.6

(1.8)

50.4

42.2

(0.8)

43.1

26.6
(1.1)
26.7
16.5

0.6
(2.8)
2.2
1.8

26.0
1.7
24.5
14.6

25.3
4.8
20.0
13.4

0.2
0.5
(2.6)
(0.1)

25.1
4.2
22.6
13.5

9.78%

(0.83)%

10.61%

10.23%(0.52)%

10.75%

Core Gross Business Profits <Total of both banks>
Net interest income

Net fees and commissions

Total

Other income

143.0
2.0
20.0

142.2
2.8
17.7

144.8
2.7
19.9

121.7

122.1

120.9

FY2013

FY2014FY2015(¥ billion)

6

Hokuhoku Financial Group, Inc. Annual Report 2016

‌Net interest income……¥120.9 billion
Interest and dividends on securities increased, but due toa fall in interest on loans, net interest income declined by¥1.1 billion year-on-year.
‌Net fees and commissions……¥20.0 billion
Although commissions on sales of investment trusts
declined, fees and commissions expenses also fell andnet fees and commissions were almost unchanged
year-on-year.
‌Other income……¥2.0 billion
Other income fell by ¥0.6 billion year-on-year due to a
decline in gain on foreign exchange transactions.
‌Core gross business profits……¥143.0 billion
As a result of the above, core gross business profits
decreased by ¥1.8 billion year-on-year.

Expenses <Total of both banks>
Hokuriku Bank

Hokkaido Bank

OHR

66.08%

64.64%

63.57%

94.0

93.6

50.5

50.4

48.6

43.4

43.1

42.2

FY2013

FY2014FY2015

Total‌Expenses……¥90.9 billion
There was a decline in non-personnel expenses, leading
to an overall fall of ¥2.6 billion year-on-year.

90.9(¥ billion)

Core Net Business Profits <Total of both banks>
Hokuriku Bank

Hokkaido Bank

ROA

0.44%

0.45%

0.45%

48.2

51.2

Total

‌Core net business profits……¥52.0 billion
Core gross business profits declined but expenses alsofell, causing core net business profits to increase by ¥0.8
billion year-on-year.

52.0

26.0

26.6

25.1

25.3

FY2014FY2015

26.4

21.7(¥ billion)

FY2013Net Income <Total of both banks>
Hokuriku Bank

Total
27.5

‌Net income……¥29.9 billion
Both net gains related to bonds and net gains related tostocks declined, but credit costs and income taxes alsofell, leading to an increase in net income of ¥1.6 billion
year-on-year.

Hokkaido Bank

29.9

28.2

14.6

16.5

13.5

13.4

FY2014FY201517.8

9.6(¥ billion)

FY2013

Hokuhoku Financial Group, Inc. Annual Report 2016

7

PERFORMANCE HIGHLIGHTS

Loans and Bills Discounted <Total of both banks>
Hokuriku Bank

7,336.3‌Loans and bills discounted……¥7,599.6 billion
Loans to regional public bodies contracted, but due to arise in corporate loans, there was an increase of ¥37.8
billion compared with the end of the previous fiscal year.

Hokkaido Bank

7,561.7

Total

7,599.6

4,383.4

4,227.6

4,365.3

3,108.6

3,196.4

3,216.1

2014

2015

2016

(¥ billion)
End of March

Loans to Small- and Medium-sized Enterprises (SMEs) <Total of both banks>
Hokuriku Bank

‌Loans to SMEs……¥4,845.0 billion
Due to actively working on initiatives related to regional
demand for financing, loans to SMEs increased by ¥77.2
billion year-on-year.

Hokkaido Bank

Total

4,845.0

4,639.6

4,767.8

2,765.1

2,858.3

1,874.4

1,909.5

1,926.8

2014

2015

2016

2,918.1(¥ billion)
End of March

Deposits (Including negotiable certificates of deposit) <Total of both banks>
Hokuriku Bank

10,651.3

Total 10,502.6

5,909.0

6,076.0

6,117.6

4,262.9

4,575.3

4,384.9

2014

2015

2016

10,172.0‌Deposits (including negotiable certificates ofdeposit)……¥10,502.6 billion
Deposits decreased by ¥148.7 billion compared with theend of the previous fiscal year due to a decrease innegotiable certificates of deposit despite the steadyincrease in corporate deposits.

Hokkaido Bank(¥ billion)
End of March

8

Hokuhoku Financial Group, Inc. Annual Report 2016

Capital Adequacy Ratio <On a consolidated basis>
Capital‌Capital adequacy ratio……10.30%
The capital adequacy ratio fell by 0.83 percentage points
compared with the end of March 2015, as theaccumulation of profits was offset by the repayment ofsubordinated loans, etc.

Capital adequacy ratio

12.31%
11.13%

10.30%

605.5

576.0

548.0

2014

2015

2016

(¥ billion)
End of March

Disposed Claims under the Financial Reconstruction Law <Total of both banks>‌Disclosed claims under the Financial Reconstruction
Law……¥168.6 billion
Disclosed claims under the Financial Reconstruction Law
fell by ¥20.6 billion compared with the end of March
2015.
‌NPL ratio……2.15%
The NPL ratio fell by 0.28 percentage points comparedwith the end of March 2015.
Substandard claims
Bankrupt and substantially bankrupt claims

2.67%
201.3
36.4

134.5

End of March

Doubtful claims
NPL Ratio

29.4

136.2

● ‌Claims subject to disclosure: loans, customers’ liabilities for acceptance 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
claimsDoubtful claims

2.43%
189.2

● ‌Disclosed Claims under the Financial Reconstruction Law: The bankclassifies both loans and other assets in line with the stipulations of the
Financial Reconstruction Law.

2.15%
Total

168.6
Bankrupt andsubstantiallybankrupt claims

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

125.7

30.5

23.6

22.8

2014

2015

2016

This category is defined as claims on borrowers
requiring caution under asset self-assessment.
This category comprises past due loans (threemonths or more) and restructured loans underthe Banking Law.
This category is defined as claims on potentiallybankrupt borrowers under asset self-assessment.
The execution of contracts on repayment of theprincipal and payments of interest is highly
doubtful.
This category is defined as the sum of claims onbankrupt borrowers and effectively bankrupt
borrowers.

(¥ billion)

Ratings
Rating and Investment
Information, Inc.

R&I

A

“Ratings” are determined by ratings agencies, third-party institutions with no vested
interest in the companies they rate, and indicate a company’s creditworthiness and ability
to fulfill obligations in concise signs.
Hokuhoku Financial Group Inc., Hokuriku Bank and Hokkaido Bank have obtained“A” ratings from Rating and Investment Information, Inc. (R&I), and are considered as
being highly creditworthy. Hokuriku Bank also has obtained “A-” rating from Standard &Poor’s Ratings Japan K. K. and Hokkaido Bank also has obtained “A” rating from Japan
Credit Rating Agency Ltd.

Hokuhoku Financial Group, Inc. Annual Report 2016

9

CORPORATE GOVERNANCE
We will increase management transparency and enhance our corporate
governance.
Basic approach
The Company and all group companies regard strengthening and enhancing corporate governance as one of the mostimportant management priorities. We have drawn up a basic policy — our management philosophy — covering all our
activities including the formulation of management strategies and making management decisions. We share basic values anda sense of ethics through the Hokuhoku Financial Group Code of Conduct, and endeavor to increase corporate value andrealize solid management aimed at contributing to the development of the Hokuriku and Hokkaido regions.

Corporate governance
We have established a framework that enables quick decision-making, with the Shareholders’ Meeting and Board of
Directors at the top of the framework, and day-to-day
operational authority delegated in accordance with internal
rules. Bodies such as the Management Committee are able
to respond quickly to specific and expert matters based on
basic policies established by the Board of Directors. Furthermore, separate from the Management Committee, wehave established a Business Promotion Committee which
ensures that business policies are correctly carried out
among group companies.

We use the Audit & Supervisory Board Member system
and also appoint external Director. Additionally, in order tobolster our group governance framework and, as a holding
company, to ensure that operations are managed appropriately, people from each of our principal subsidiaries, Hokuriku Bank and Hokkaido Bank, are appointed as Directors at
the other bank to promote mutual understanding andmutual checks and balances.
In this way, in addition to having established this framework to cyclically enable effective decision-making, implementation, evaluation, and improvements, the Board of
Directors decides the basic policy on internal controls, tocreate an effective internal control system.

Hokuhoku Financial Group, Inc.
Shareholders’ Meeting

Business Promotion Committee

Members: Full-time Hokuhoku FG Directors and subsidiary presidents
Purpose: To ensure sound management policy implementation,
ascertain the status of business and provide instructions

Internal Auditing
Execution

Board of Directors

of
PDCA

Planning Group

Appointment of 2 external Audit &Supervisory Board Members

Audit & Supervisory Board
Appointment of 2 external Directors

Corporate Governance Committee
Management Committee

Administration Group

Risk Management Group

Audit Group

Hokkaido Bank

Hokuriku Bank
Shareholders’ Meeting

Shareholders’ Meeting

Audit & Supervisory Board

Other
Subsidiaries

Board of Directors
Management Committee

Audit & Supervisory Board
Board of Directors
Management Committee

Each bank appoints a person from the other bank as its Director

Overview of key bodies
1. Board of Directors
Responsible for decisions related to important policies for
management of the Group as a whole, and for overseeing thebusiness management, risk management and auditing carriedout by the holding company and its subsidiaries. Two Directors
are appointed and oversight is strengthened by incorporating
perspectives that are independent from management.
2. Audit & Supervisory Board
Determines matters related to auditing policies and the performance of duties by Audit & Supervisory Board Members, andmonitors the performance of duties by Directors.
3. Corporate Governance Committee
The Committee, which is composed of four external Directors
and Audit & Supervisory Board Members, and one full-time
Audit & Supervisory Board Member, aims to secure sustainablegrowth and boost long-term corporate value of the Groupthrough exchanging information and sharing perceptions among
10

Hokuhoku Financial Group, Inc. Annual Report 2016

external Directors and Audit & Supervisory Board Members
and by offering advice on the Company’s important issues.
4. Management Committee
Comprising full-time Directors of the Company, this bodymakes decisions — in accordance with the basic policies laid
down by the Board of Directors — on matters relating tobusiness execution policies for the entire Group and mattersrelated to the implementation of particularly important tasks by
specific divisions.
5. Business Promotion Committee
Comprising full-time Directors of the Company and presidents
of subsidiaries, this body is responsible for making sure thatimportant issues and management policies for the entire Groupare widely known and understood, as well as for keeping trackof business results at each company to ensure that business iscarried out appropriately.

Basic policy on internal controls
The Company shall, based on the Companies Act and theOrdinance for Enforcement of the Companies Act, put in place asystem to ensure the appropriateness of the Company's
operations, as follows.
1. ‌System to ensure that executives and employees of theCompany and group companies perform their duties inconformity with laws and ordinances, as well as inconformity with our articles of incorporation‌In addition to setting matters pertaining to laws andordinances, or the articles of incorporation, the Board of
Directors decides on basic management policies andimportant issues related to the execution of operations,establishes organizations and systems, and supervises
performance of duties by Directors.
‌It also recommends external Directors for appointment at
Shareholders’ Meetings, to ensure a stronger system ofchecks and balances.
‌Corporate Governance Committee shall be established so thatexternal Directors and external Audit & Supervisory Board
Members are in a position to work in concert to engage inappropriate ways with the important issues facing the Company and to offer suitable advice on them.
‌Audit & Supervisory Board Members attend important
meetings including Board of Directors meetings, investigate
the Company’s operations and financial position, and audit theperformance of duties by Directors as an independent body.
‌The Board of Directors views compliance as one of the mostimportant management issues, and fully recognizes the factthat a lack of compliance can weaken the management base.
Based on this understanding, the Board of Directors
formulates the rules that form the foundation of compliance,such as the basic compliance policy and the compliancecharter. In addition, by establishing Compliance General
Departments, the Board of Directors works to maintain andfurther reinforce the compliance measures of the Company
and group companies.
‌Every fiscal year the Board of Directors draws up a Compliance
Program that acts as a detailed action plan and, in accordancewith the aforementioned basic rules and this Compliance
Program, executives and employees of the Company andgroup companies work together to ensure honest and faircorporate activities.
‌A whistleblower system is put in place whereby an executive
or an employee who discovers illegal or inappropriate actions
can report to a whistleblower contact point established inadvance.
‌The Company is determined to avoid relationships with antisocial forces which threaten order and safety in society, andworks to prevent doing business with such groups.
‌The Company is aware that money transacted throughfinancial institutions may be used for various crimes or acts ofterrorism, and is therefore committed to the prevention ofmoney laundering.
2. ‌System related to the storage and management of information related to the performance of duties by Directors‌Based on the Board of Directors rules as well as document
management rules and other regulations, the Board of
Directors creates systems for the storage and management of
information related to performance of duties by Directors.

3. ‌Rules and other systems related to the management of riskof losses‌Recognizing the existence of various risks surrounding theCompany and group companies, and fully aware of the importance of controlling such risks, the Board of Directors decides
the basic risk management policy and risk management
regulations. By accurately recognizing the various risks
accompanying group company management and by carryingout appropriate management and operations, the Board of
Directors establishes systems to ensure the soundness ofgroup management.
‌A contingency plan has been formulated, and a crisis management system has been established to prepare for unexpected
events and risks such as natural disasters.
‌Each group company carries out appropriate risk management in close partnership with each group company’s risk
management department, following the Group’s basic policy.
4. ‌System to ensure that Directors, etc. of the Company andgroup companies perform duties efficiently‌The Board of Directors sets overall organizational standards
for basic tasks, operational entities, and assignment of duties,
and ensures a system in which the Company and all groupcompanies perform well-organized and efficient business
operations.
‌The Management Committee executes business operations
promptly and efficiently, based on the delegation of authority
by the Board of Directors with regard to the execution ofbusiness operations, and on the predetermined assignment of
duties.
‌Teleconferencing systems and other IT tools are proactively
utilized.
5. ‌System to ensure the appropriateness of operations within
the corporate group‌The Board of Directors is responsible for overall groupmanagement. It establishes the group management regulations,prepares frameworks for agenda-setting and reporting foreach group company with regard to important matters, andreceives reports from internal audit departments on the findings of audits into the status of legal compliance, risk management, and the appropriateness and effectiveness of business
operations at the Company and all group companies.
‌We also have in place mechanisms to ensure the propriety offinancial reporting, ensuring honest and clear statements of
the Group’s financial position and business results.
‌The Board of Directors draws up Regulations for Intra-Group
Transactions with the aims of clarifying the control system for
intra-group transactions, etc. and of carefully maintaining thesoundness of management practices for the Group as awhole. The Board of Directors performs its duties of management and administration based on these regulations.
6. ‌Matters related to employees in the case that Audit &Supervisory Board Members request the assignment of
employees to assist with duties‌In order to assist Audit & Supervisory Board Members in the
conduct of their duties, the Board of Directors shall place
employees who carry out this work only and to whom Audit &Supervisory Board Members may directly give directions andorders based on their independence and effectiveness etc.
‌Prior consent from the Audit & Supervisory Board is required

Hokuhoku Financial Group, Inc. Annual Report 201611

CORPORATE GOVERNANCE

for personnel transfers and disciplinary measures regarding
such employees.
7. ‌System for Company and group company executives andemployees to report to Audit & Supervisory Board Members‌If executives and employees discover matters that could
cause significant losses to the Company or group companies,
they shall directly or indirectly report such matters to Audit &Supervisory Board Members.
‌The Audit & Supervisory Board Members and Directors shalldesignate matters which should be reported to the Audit &Supervisory Board by executives and employees in advanceand establish a reporting system to the Audit & Supervisory
Board Members.
‌The Audit & Supervisory Board Members may request reports
from executives and employees as needed.
‌A system shall be established to ensure that executives andemployees of the Company or group companies are not
mistreated as a result of having consulted with or reported to
Audit & Supervisory Board Members.

8. ‌Other systems to ensure effective auditing by Audit &Supervisory Board Members‌The Board of Directors shall give due acknowledgement to theimportance and usefulness of auditing by the Audit &Supervisory Board Members, and shall give due consideration
if the Audit & Supervisory Board Members request creation ofa system for smoother and more effective performance ofauditing duties.
‌The Audit & Supervisory Board shall regularly meet with therepresentative Directors and outside accounting auditors, inaddition to which it shall maintain close cooperation withinternal audit departments and other departments with internal
control functions, receiving reports both on a regular basis andas required, and requesting explanations as and whennecessary.
‌The Audit & Supervisory Board may invoice the Company forany expenses deemed necessary in order to perform its
duties.

We are strengthening internal auditing mechanisms to ensure soundmanagement of the Group
Basic approach
The Group believes that establishment of internal auditing mechanisms that effectively meet requirements according to thescale and nature of operations, laws and regulations applied to the Group’s businesses and categories of risk, is
indispensable for enabling due legal and regulatory compliance by the Group, customer protection and risk management.
Based on this conviction, the Company and its subsidiary banks, Hokuriku Bank and Hokkaido Bank have establishedinternal auditing departments.
The internal auditing departments of each Group company develop mechanisms of checks and balances, which thereby
ensure that those departments function independently of other departments.

Group-wide measures
The Company verifies the appropriateness andeffectiveness of Group company internal management
mechanisms, and has accordingly established the Audit &Supervisory Group, tasked with overseeing the internal audit
function of those companies. In line with basic policy andrules on internal audits compiled by the Board of Directors,
the Audit & Supervisory Group carries out internal audits on
the Company and its non-banking subsidiaries and affiliates,
and also receives reports from Hokuriku Bank andHokkaido Bank that include results of internal audits andprogress made on matters requiring improvement.
Furthermore, when necessary, the Audit & Supervisory
Group centrally assesses and manages the implementationof internal audits within Group companies through on-sitebank investigations, guidance and reports.
Results of internal audits at Group companies are
periodically reported to the Board of Directors promptly

12

Hokuhoku Financial Group, Inc. Annual Report 2016

when needed. In particular, mechanisms have been put inplace for prompt reporting to the Board of Directors withrespect to events that could significantly impact management of the Group.
Also at Hokuriku Bank and Hokkaido Bank, operational
and asset audits are performed involving head offices,branches and subsidiaries of each bank, based on thepolicy and rules for internal audits of the respective banks.
Conducting these audits involves assessing legal andregulatory compliance, customer protection, and risk
management at each entity subject to audit, and thenmaking efficient and effective internal audit plans taking into
account factors such as the frequency and extent of suchaudits.
When necessary, the audit departments of both banks
and the Audit & Supervisory Group of the Company
conduct joint audits in order to strengthen and streamline
overall Group auditing.

MEASURES FOR COMPLIANCE
The Group rigorously ensures compliance with laws, regulations and social norms.
Basic policy
At Hokuhoku Financial Group, we regard compliance as one of our most important management priorities, thereby fullyrecognizing that shortfalls with respect to compliance could weaken our business foundations. Therefore, the Board of
Directors has established basic compliance policies which underpin our efforts to engage in business activities in a fair andhonest manner.

Systems

3. Strict observance of laws, regulations and rules

To establish compliance systems, the Group has established acompliance charter, put in place organizational structures andarranged joint measures by involving the Company and eachGroup company.
The Risk Management Group acts as the Compliance
General Department responsible for overseeing compliancewithin the Group, and the head of the Risk Management Group
acts as the officer in charge of compliance.
Compliance officers and other such managers are deployed
to each branch of subsidiary banks and each Group company inorder to aggressively implement training and awareness-raising
initiatives regarding compliance in the workplace. Subsidiarybanks have established Compliance General Departments andCompliance Committees, which work to assess progress incompliance measures and make improvements.

Basic compliance policy
1. ‌Recognition of the Group’s basic mission and social
responsibilities	‌As a regional financial institution, the Group recognizes its
public duties and social responsibilities, and accordingly
strives to gain greater trust through the conduct of soundbusiness operations.

2. Providing quality financial services
	‌By providing high-quality, integrated financial services, theGroup will contribute to enabling stable economic and social
development of its operating regions, while facilitating better
lives for its customers.

Hokuhoku Financial Group, Inc.

	‌The Group strictly observes all relevant laws, regulations andrules, and conducts business in a fair and prudent manner, in
adherence with its own standards of corporate ethics andsocial norms.

4. Rejection of all ties with anti-social elements	‌The Group contributes to a healthy society by resolutely
refusing to associate or work with anti-social elements thatthreaten social peace and security.

5. Ensuring management transparency	‌The Group aims to achieve a highly transparent management
and organizational culture through accurate and swift
disclosure and decision making.

Compliance manual and compliance programs
To ensure rigorous compliance, we have formulated acompliance manual (code of conduct) compiling all fundamental
considerations which executive officers and employees need toobserve. The manual is distributed to all executive officers andemployees, and in-house seminars and training sessions are
conducted to ensure thorough familiarity with its content.
In addition, every year the Board of Directors decides on the
Compliance Program which acts as a detailed action plan
implemented to maintain the compliance structure. The Board
also receives regular reports on the state of the Program’s
execution, and ensures that compliance procedures are put into
practice.

Board of Directors
Management Committee

Compliance General Department

Subsidiaries, etc.

Management Committee

Risk Management Group

Board of Directors

President

Audit & Supervisory Board Members,
Audit & Supervisory Board
Audit Group

Audit & Supervisory Board Members,
Audit & Supervisory Board
Management Committee
Compliance Committee

Compliance Committee
Compliance Department

Compliance General Department

Compliance Department

Compliance officers, etc.

Compliance officers, etc.

Compliance manager

Hokuriku Bank

Other Subsidiaries, etc.

Hokkaido Bank

Hokuhoku Financial Group, Inc. Annual Report 2016

13

MEASURES FOR COMPLIANCE

Measures for better customer protection andgreater customer convenience
To protect customer assets, information and other interests, theGroup has established policies for management of customer
protection within its basic rules for management of customer
protection.
Furthermore, we have formulated protocols and appropriate
response structures based on five separate considerations, inorder to provide pertinent explanations to our customers inaccordance with the Japanese Financial Instruments andExchange Act and other laws, and to properly handle customer
grievances and inquiries through a customer consultation office
set up to serve as a point of customer contact.
Moreover, the Compliance General Departments of respective Group companies act as offices responsible for overallcustomer protection management, and in partnership with eachdepartment in charge, they operate through a framework that

Basic rules for management ofcustomer protection

Measures for protection of personal information
In the financial industry, ensuring the safety of information assets
is of utmost importance in terms of gaining customer trust. As
such, we are committed to rigorously protecting and using any
and all customer information in our custody and preventing its
leakage.
Especially in the area of personal information, the Group has
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, and to gain
the full trust of our customers in acting as a financial institutionthat contributes to local communities.

Policies for management of customer protection

Explaining to the customer

In line with laws and regulations, we will adequately and sufficiently explain financial products
and provide information when carrying out transactions with our customers.

Customer service support

We will listen carefully to customer grievances and give advice in an appropriate manner.

Protection of customer data

We will lawfully acquire and securely manage all information concerning our customers.

Outsourcing
Conflict of interest

When outsourcing operations relating to transactions with customers, we will duly supervise
service providers to protect customer information and interests.
We will appropriately manage transactions involving customers where conflict of interest could
be an issue so as to prevent customer interests from becoming unduly impaired.

Measures for dealing with anti-social elements
The Group has established basic policies for dealing with
anti-social elements, with the aim of earning the public’s trust
and maintaining appropriate and sound financial services.
Our initiatives in this regard also involve deploying officers to
respective Group companies in order to address issues
regarding organized crime syndicates, coordinating with law
enforcement, implementing firm measures for dealing with
anti-social elements, and severing all relations with anti-social
elements that threaten the peace and security of social order.

Whistleblower protection systems
The Group has set up a whistleblower and consultation hot line
and developed a framework for strengthening the compliancesystem by incorporating checks and balances in order topromptly detect and counteract any unlawful and wrongful
behavior.

Anti-money laundering and measures to deal
with financial crime
In recent years, bank card theft and “Furikome” fraud (banktransfer scams) have been on the rise. As such, our subsidiarybanks have bolstered security measures to prevent such occurrences, while taking proper action with respect to victims ofsuch scams, such that includes reimbursing them in accordancewith Japan’s Furikome Fraud Relief Act.
14

enables them to draft and implement various improvement
measures through efforts that involve ongoing review geared
toward ensuring proper functioning of management systems,
problem resolution and data analysis.

Hokuhoku Financial Group, Inc. Annual Report 2016

The Group regards its pursuit of measures for preventing
money laundering and other financial crimes as an importantmanagement challenge. Accordingly, we have been working toclarify divisions of internal roles on the basis of our anti-money
laundering policy, while building a control system that enables us
to implement effective measures at the right time with regard toverifying transactions, reporting suspicious transactions andmanaging correspondent relationships. Moreover, we have been
educating our executive officers and employees through training, and striving to improve relevant mechanisms throughinitiatives that include performing audits to evaluate complianceof our anti-money laundering policies.

Measures for financial alternative dispute
resolution (ADR) system
In order to promptly and properly respond to customer feedback
and grievances, our subsidiary banks have concluded agreements with the Japanese Bankers Association, which is a
designated dispute resolution organization that works to resolve
disputes from a fair and impartial position.
Name of designated dispute resolution organization:
Japanese Bankers Association
Inquiries:
Japanese Bankers Association Customer Relations Center

MEASURES FOR RISK MANAGEMENT
We are upgrading our risk management systems to ensure that they
properly address the type and scale of risk to which we are exposed.
General risk management system
Financial services are becoming increasingly diversified and complex, as financial institutions remain exposed to a wide rangeof risk. As such, the Group recognizes that risk management — ensuring proper resource allocation and risk taking inbalance with earnings targets while keeping overall levels of risk within the Group’s managerial capacity to address such risk
— is one of our most important management tasks. As such, the Group is working to upgrade risk management systems inorder to protect customer deposits and earn the trust of our shareholders and creditors.
The Company and companies of the Group have each taken steps that include creating basic risk management policies
that address various risks, establishing risk management departments, and preparing regulations. The companies are also
working closely together to ensure integrated risk management within the Group.
At our subsidiary banks, which have the highest risk exposure within the Group, we categorize risk for management
purposes as: credit risk, market risk, liquidity risk and operational risk, which we manage through our Asset Liability Management (ALM) Committees and Comprehensive Risk Management Committees. Meanwhile we further divide operational risk
into administrative and system risk, and engage in fine-tuned management of such risk through our Operational Risk
Subcommittees. Additionally, the audit departments conduct inspections to verify the appropriateness and effectiveness of
the risk management systems.
The Company’s Risk Management Group handles risk management oversight for the entire Hokuhoku Financial Group,
and accordingly ensures sound operations. To that end, the Risk Management Group aims to manage risk in line with thetype and scale of risk encountered by each Group company, through operations that involve receiving risk management
status reports, then issuing Group companies appropriate instructions such as for improvement of regulations and systems,
and also discussing and reporting to the Board of Directors and other senior management with respect to details on risk
facing the Group and points of concern in that regard, along with policies for addressing such risk.
Hokuhoku Financial Group, Inc.

Board of Directors
Management Committee

Audit & Supervisory Board Members,
Audit & Supervisory Board

Risk Management Group

Hokuriku Bank

Hokkaido Bank

Board of Directors

Audit Group

Audit & Supervisory Board Members,
Audit & Supervisory Board

Other
Subsidiaries

Management Committee
ALM Committee

Comprehensive Risk Management Committee
Operational Risk Subcommittee

Market risk

Liquidity risk

Credit risk

Operational risk

Allocation of risk capital
The Group’s risk management practices involve taking aunified approach to the extent possible in terms of quantifying
the various risks that emerge with respect to its operations,and then taking steps to ensure that overall levels of risk are
kept within the Group’s capacity to take on such risk.
The subsidiary banks control and manage risk with theaim of ensuring that levels of risk remain within a range
permissible for banking operations. To that end, they
estimate maximum potential loss through a process thatinvolves quantifying credit risk, market risk and operationalrisk. They then allocate risk capital by using core capital as
allocation source, with the aim of making effective use ofcapital resources.

Deductions: Adjustments to included amounts
due to transitional provisions
Excess: Provisions for other risk at subsidiaries
other than subsidiary banks

Deductions

ExcessCore
capitalMarket risk
Risk capital
allocation
at subsidiarybanks

Capital

Allocation
sourceMarket risk
Credit risk

Credit risk

Operational risk

Operational risk

Risk capital
allocation at
subsidiary banks

Risk amount at
subsidiary bank

Hokuhoku Financial Group, Inc. Annual Report 2016

15

MEASURES FOR RISK MANAGEMENT

Meanwhile, the Company ensures that excessively large

In addition, we perform stress tests to calculate therisks are not taken relative to capital on a Group-wide basis,

extent of potential losses that would be anticipated in thethrough initiatives that include checking risk allocation planscase of normally inconceivable deterioration of businessof subsidiary banks, verifying that amounts in excess of risk

conditions, excessive market fluctuations and other suchcapital allocations are sufficient to cover risk conceivably

scenarios. In this way, we periodically examine the substan-affecting subsidiaries other than the subsidiary banks astiality of our capital position against risk that cannot bewell as risk not included in the risk assumptions, and moni-

easily perceived.

toring actual levels of risk.

Credit risk management
Basic approach
Credit risk involves, for instance, the threat that deterioration of a customer’s financial health might make it impossible torecover principal or receive interest of loans and bills discounted, etc. as initially contracted. Although this is an unavoidable
risk when it comes to banks whose role is to act as financial intermediaries, the Group endeavors to maintain and enhance
asset soundness by developing and strengthening its credit risk management systems.

16

Credit risk management systems

Internal ratings systems

To maintain and enhance asset integrity, the Group applies
a unified system of internal ratings and asset self-assessment, promptly and accurately appraises credit risk, andperforms write-offs and provisions to reserves for possible
loan losses as appropriate.
Subsidiary banks each have their own credit risk
management systems, while the Company manages suchrisk on a Group-wide basis.
Subsidiary banks divide duties such that executive
officers and organizational units that handle credit screening
are not involved in business promotion, thereby helping toensure that credit decisions and management are made on
an individual basis, with credit screening and management
carried out rigorously and in a manner not influenced bybusiness promotion.
When making individual judgements on granting credit,
rigorous screening is carried out in accordance withstandards and principles stated in our credit policy. For thispurpose, we actively work to upgrade screening systems,
such as through efforts to fortify our screening capabilities
by enhancing system support and providing training in thatregard.
More specifically, we perform detailed analysis andscreening of individual loan applications at each bankbranch, and in cases where a manager lacks the authority
for approvals, further analysis and screening is conductedby the head office credit screening department. Officers
specializing in particular industries and regions are deployedin the credit screening departments, thereby ensuring asystem of consultation and guidance tailored to the needsof individual branches, based on borrower characteristics.

To enable objective appraisal of credit risk of loans and bills
discounted, etc., our subsidiary banks have introduced
internal ratings systems. Using 15 credit ratings based on
financial data and qualitative information regarding borrower
creditworthiness, the system enables ongoing monitoring ofchanges in ratings.
Based on the ratings generated by the internal ratingssystems at the subsidiary banks, we compute credit risk
and forecast loss rates for each individual borrower category, and then ensure that interest rates duly match risk. In
conformity to Group-wide management rules for credit
limits, we seek to enhance credit risk management by suchmeans as curbing risk on a Group-wide basis of credit
concentration in terms of the aggregate of marketable andoff-balance-sheet credits.

Hokuhoku Financial Group, Inc. Annual Report 2016

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
The Group has established asset self-assessment standards bywhich it performs assessments of loans and bills discounted,
and other assets.
The self-assessments are performed in order to gain a true
picture of the assets and to enhance asset integrity. Self-assessment is a prerequisite for appropriate write-offs and provisions toreserves for possible loan losses, as required by corporate
accounting principles in Japan.
Under unified Group standards established for write-offs andprovisions to reserves for possible loan losses, provisions are
made to the general reserve for possible loan losses withrespect to loans to normal borrowers and borrowers requiringcaution, based on the historical loan-loss ratio over a particular
past period. For loans to borrowers threatened with bankruptcy,
a provision is made to specific reserves for possible loan losses,

in the amount deemed necessary, excluding amounts that may
be recoverable through collateral and guarantees. For loans tosubstantially bankrupt and bankrupt borrowers, we either
amortize amounts in full or recognize a provision of the fullamount in the specific reserve for possible loan losses,
excluding amounts that may be recoverable through collateraland guarantees.

Corporate rehabilitation
After making a loan to a corporate customer, we endeavor toprevent such loans from becoming designated as bad debt byassessing business conditions faced by our borrowers andperforming follow-up reviews of the borrower’s business plans.
Meanwhile, we strive to ensure asset integrity through creationof a framework for dedicated management of bad debt andenhanced support for corporate rehabilitation.

Market risk management
Basic approach
Market risk involves the threat of incurring losses due to fluctuations in the value of assets and liabilities held by the Group, orin the earnings generated by the Group, such that may be caused by fluctuations in various market risk factors, such as
interest rates, stock prices, and foreign exchange rates.
The Group endeavors to properly control market risk and manage operations in a manner that ensures stable earnings.
To that end, at the subsidiary banks that mainly handle transactions involving market risk, we have created regulations formarket risk management and comprehensively manage assets and liabilities by employing asset-liability management (ALM)
practices.

Main types of risk and management systems(1) Interest-rate risk
Bonds, other securities, deposits and loans and bills discounted are exposed to the risk of declining profits orlosses due to interest rate fluctuations amid situations
involving interest rate asset-liability mismatch or duration
mismatch. Our subsidiary banks have established regulations on interest rate management to diversify risk, and their
ALM Committees appropriately control interest-rate risk.
The risk management departments assess risk level
daily, using such indicators as value-at-risk (VaR), whichmeasures the largest conceivable loss possible given fixedprobabilities, and also periodically run gap analysis andinterest rate sensitivity analysis to monitor interest-rate risk.
The results are reported and reviewed at ALM Committees
for implementation of necessary measures.
To ensure that the subsidiary banks are not exposed toexcessive interest-rate risk, we set various investment ceilings
for bonds and other securities under risk capital allocation
based on VaR, etc., and manage both balances and risk
levels of securities. We have also set rules for taking action
when faced with mounting losses (unrealized and realized).

For market transactions, we have established a system
of mutual checks and balances on the departments carryingout transactions (front office), the processing departments(back office) and the risk management departments (middle
office). The front office conducts operations in strict observance of policies and ceiling amounts stipulated by theManagement Committee. The middle office continuously
monitors risk levels and the status of compliance withvarious rules. It also sets “alarm points” to enable early
diffusion of risk issues, discusses measures to respond tothese issues at ALM Committees, and regularly reports
such matters to the Management Committee.
Furthermore, we periodically perform stress testing todetermine the extent of conceivable losses under certain
scenarios in cases where it is not possible to accurately
measure levels of risk due to substantial market fluctuations,and given the threat that an unforeseen risk may materialize.
(2) Price fluctuation risk
Among marketable securities, stocks are exposed to therisk of declining asset prices arising from fluctuations inmarket prices. However, as with interest-rate risk
management, we stringently manage risk of stock price

Hokuhoku Financial Group, Inc. Annual Report 2016

17

MEASURES FOR RISK MANAGEMENT

fluctuations through efforts that include setting ceilings,
monitoring at-risk amounts, and regularly reporting suchmatters to the Management Committee and other relevantbodies.
We also perform pre-acquisition screening with respect
to shareholdings, monitor market conditions and financial
positions of individual corporations after acquiring stocks,
and hold regular discussions regarding our shareholdings.
(3) Foreign exchange rate risk
Foreign currency assets and liabilities are exposed to risk
involving the threat of losses incurred due to a foreignexchange price being different to that initially planned for. To
reduce such risk, we regularly monitor the international
affairs and major indicators in Europe and the US, conduct
risk management with due consideration to the maturity of

individual assets and liabilities, and mitigate forex risk
through currency swaps and other such transactions.
(4) Derivative transactions risk
To meet the various needs of customers, as well as those of
our respective banks for ALM and risk hedging, our subsidiary banks engage in currency swaps and options, currency
forward contracts and other currency-related derivativetransactions, as well as interest rate swaps, caps, forward
interest-rate-related derivatives and other interest-rated
based derivatives.
Meanwhile, because derivatives are exposed to various
kinds of market risk, we manage such risk on a daily basis
to ensure that losses remain within certain thresholds, byperforming fair value assessments of our positions andmeasuring risk levels.

Liquidity risk management
Liquidity risk refers to fund procurement risk involving the threat of losses that may be incurred due to a fall in creditworthiness or the like diminishing an entity’s financing availability and forcing it to procure funds at significantly higher interest rates
than normal. Liquidity risk also refers to market liquidity risk involving the threat of losses that may be incurred due to market
disruptions or the like preventing an entity from engaging in transactions and forcing it to engage in transactions on considerably less favorable terms than normal.
The subsidiary banks, which account for a majority of the Group’s liquidity risk, stipulate regulations on liquidity risk
management and maintain adequate levels of government bonds and other payment reserve assets that are readily convertible into cash. They also set various control indices pertaining to liquidity risk and monitor those on a daily basis. Developments regarding liquidity risk are regularly reported in meetings of the ALM Committees and other such bodies, and discussions are held in that regard, to ensure that we will be able to take action to address any crisis, should one emerge,
appropriate to the stage of the particular situation.
By precisely assessing management and procurement levels at subsidiary banks, we ensure that fund procurement canproceed smoothly.

18

Hokuhoku Financial Group, Inc. Annual Report 2016

Operational risk management
Basic approach
Operational risk refers to the threat of losses arising from inappropriate operational processes, improper conduct of executive
officers and employees, unsuitable computer systems, or adverse external events.
The Group categorizes operational risk as follows. We take ongoing measures to correctly recognize, appraise andmanage each type of risk, while avoiding or reducing losses that could significantly affect business operations.
Administrative risk

Risk of losses due to executive officers and employees failing to carry out administrative work
correctly, causing an accident, or committing an illegal act

System risk

Risk of losses due to computer system downtime, malfunction or other system deficiencies, or illicit
computer use

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 or other such events damaging tangible assets

Reputational risk

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

Management structure
The Company has established rules for management ofoperational risk stipulating categories of risk and setting
forth basic processes for the management of such risk.
Upon compiling instances of various operational risks
having materialized in the form of administrative errors,grievances, leaked information, system failures and“Furikome” fraud, operating risk panels at our subsidiarybanks meet on a monthly basis to analyze the causes ofsuch incidents and to review measures for preventing
recurrence. They also anticipate potential risk, identify
preventative measures and otherwise review means of
reducing risk.
Whereas management teams of our subsidiary banks
and the Company are provided with reports on the status ofoperational risk and outcomes of reviews in that regard, theCompany also maintains a framework for enabling properrisk management by comparing actual losses incurred as aconsequence of operational risk and allocated risk capital.
In performing internal audits, we ensure mutual checks
and balances, establish measures to prevent administrative
errors from reoccurring and verify the effectiveness of suchmeasures, and also report results of audits to management
and relevant departments. In that way, we strive to establish
Plan, Do, Check and Act (PDCA) cycle frameworks that will
help improve operations.

Risk management systems by major category• Administrative risk management
The Group painstakingly analyzes causes of administrative
errors and other incidents, and discusses measures toprevent recurrence, with the aims of preventing accidents,

grievances and other issues involving administrative operations and maintaining swift and accurate office operations.
At the same time, we endeavor to raise administrative
standards by developing sets of rules, improving administrative processing systems, dispatching advisory staff from thehead office, centralizing clerical work at branches andintroducing equipment to automate procedures.
• System risk management
Increasingly sophisticated financial business operations andthe growth in transaction volumes mean that it is becoming
ever more crucial that computer systems which are essential to business operate reliably.
As such, the Group has formulated rules for system risk
management, established a robust management andoperating structure, and implements a variety of security
management measures that include backup systems.

Crisis management
To minimize the impact of any large-scale disaster or otheremergency, should one occur, the Group has compiled acrisis management manual with contingency plans andother such content, and has also established a contingency
framework that includes mechanisms for information-gathering as well as centralized crisis instruction and command.
In particular, at our subsidiary banks, we have drawn up
a Business Continuity Plan (BCP), which enables us tocontinue to perform our settlement functions and otheroperations required of financial institutions in the event of anearthquake, outbreak of a new strain of influenza or othersuch crisis, and have otherwise established a frameworkthat enables a full-scale response to crisis situations.

Hokuhoku Financial Group, Inc. Annual Report 201619

CHARACTERISTICS OF OUR MAIN BUSINESS AREA
Population and Square Measure*1

Number of businesses*1

ToyamaPrefecture aIshikawa
Prefecture b

Fukui
Prefecture c

Total
a+b+c

1.07Mn(37th)

1.16Mn(34th)

0.79Mn(43rd)

3.02Mn4,248(33rd)

4,186(35th)

4,190(34th)

Population(Ranking)
Square Measure(Ranking) km2

Hokkaido—

5.40Mn(8th)
83,424(1st)Gross Prefectural Product*1,2

Hokkaido

242

Hokuriku

161

Toyama54

Ishikawa

63

Fukui

43

(JPY Bn)

ToyamaaIshikawa
b

Fukui
c

Total
a+b+c

4,356.5(0.86%)(32nd)

4,544.8(0.89%)(28th)

3,127.0(0.61%)(42nd)

12,028.5(2.36%)

GPP(Proportion)(Ranking)(Thousand)

Hokkaido
18,268.7(3.59%)(8th)

Industrial Structure*2
Primary
1.0%

Primary
4.0%
Secondary
29.6%

Primary
1.1%
Secondary
16.6%

Secondary
24.2%

Hokuriku

Hokkaido

All Japan

Tertiary
69.4%

Tertiary
79.4%

Tertiary
74.7%

Data source : *1 Ministry of Internal Affairs and Communications,*2 Cabinet Office

Hokkaido• ‌With vast expanses of land and ample fishing areas in the ocean surrounded on all sides, Hokkaido has thriving  primary industries such as
agriculture and fisheries compared to the rest of Japan. As a result, Hokkaido is called the largest food supply base of Japan.
• It is also popular as a tourist destination, and receives many visitors both from Japan and overseas.

Abundant Natural Resources
Hokkaido
25%

Agricultural
land

75%

Hokkaido
21%

Agricultural
products*On a calorie
supply basis

Hokkaido
26%

Fishery
products

79%74%

Wheat / Potato / Onion /Milk etc.

Atka mackerel / Tangle /Salmon / Cod / Scallops etc.

Data source : ‌Ministry of Agriculture, Forestry and Fisheries / Ministry of Land, Infrastructure, Transport and Tourism Hokkaido Regional Development Bureau /Department of Agriculture, Hokkaido Government

20

Hokuhoku Financial Group, Inc. Annual Report 2016

Increasing Numbers of Tourists Visiting Hokkaido

Renewable Energy

Data source : ‌Bureau of Tourism, Department of Economic Affairs,
Hokkaido GovernmentNo.1 presence of resources

Inbound tourists

Total tourists

Hydroelectric power / Geothermal energy / Wind power / Solar power

(Mn)
7.2

6.8
6.2
5.4

0.5

0.7

2011

2012

1.1

2013

1.5

2014

Hokuriku• ‌The Hokuriku region is bordered by the Japan Sea to its front, and flanked by steep mountains, such as the Tateyama mountain range, toits back. This creates a topography in which massive amounts of meltwater from snow flow into rivers, and this water is used for hydroelectric power generation, and also plays a role in attracting manufacturing companies to the region. ( The Hokuriku region has a higher ratio of
secondary industries compared to Japan as a whole.)• ‌The 3 prefectures of Hokuriku have each developed industries that match their distinctive characteristics.

Toyama Prefecture’s Pharmaceutical Product Production

Fukui Prefecture’s Eyeglasses Production

Data source: Ministry of Health, Labour and Welfare, Statistics of Production by Pharmaceutical Industry

Data source: Ministry of Economy, Trade and Industry, Census of Manufactures(¥ billion)(¥ billion)

575.4

608.3

608.9

Fukui Prefecture

51.4

2012

2013

90.5

57.3%

61.2%

2014

Toyama Prefecture, which forms the medicine capital known as
Medicine city Toyama, is home to a diverse range of pharmaceutical companies, from the allocated drug sales industry of the past,
to new drug developers, generic drug manufacturers, and over-thecounter drug manufacturers. In addition, peripheral industries, suchas plastic container packaging and printing, are well developed in
the prefecture. Toyama Prefecture is home to highly-distinctive
pharmaceuticals companies, such as a pioneer company in thefield of transdermal absorption-type medications, and the firstcompany in the world to develop intraoral film-type medications.

Ratio

87.1

70.3%
73.1

2011

89.6

616.2
No. 2
in JapanNationwide

2011

51.4

2012

55.5

2013

65.4%
57.0

2014

Fukui Prefecture (Sabae City in particular) has more than a 100-year
history as a manufacturing base for eyeglasses, and boasts the top
share in the eyeglasses manufacturing industry (including frames) inJapan. The prefecture is a global hub for frame manufacturing inparticular, on par with Italy and China. Leveraging its excellent
technological capabilities, the prefecture is working to increasevalue-added, including enhancing its brand power, with an eye
towards capturing demand in the growing Asian market.

Many Global Niche Top Companies in Ishikawa Prefecture
Ishikawa Prefecture has a developed industrial sector, centered on the textile and machinery industries. In 2014, the Ministry of Economy,
Trade and Industry’s Manufacturing Industries Bureau selected 4 machinery and processing-related companies, and 2 textiles-related companies from Ishikawa Prefecture to be included in the “Global Niche Top Companies.” Companies were selected based on a determinationthat they were strong in such areas as: [i] Compatibly achieving both global share and profits; [ii] Having unique and independent characteristics; [iii] Addressing approaches to risk of losing out to competitors; and [iv] Maintaining sustainability of their global share.

Hokuhoku Financial Group, Inc. Annual Report 201621

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.

Launch of service for withdrawing cash from
deposit accounts at “VIEW ALTTE” (HokkaidoBank)
Viewcard Co., Ltd. has made it possible to withdraw moneyfrom deposit accounts using a cash card at the “VIEW
ALTTE” ATM corners that operate in the main JR Eaststations and other facilities. Timed to coincide with thelaunch of the Hokkaido Shinkansen, this initiative is aimed ateven more convenience for customers in the Tokyo metropolitan area and also visitors from the Hokkaido area, tofurther promote exchange between the regions.

Launch of “Hokkaido Bank Home Demolishing
and Repurposing Loan” (Hokkaido Bank)
We have begun offering a loan to be used when demolishingan empty house or when seeking to make productive use of
the land after a house has been demolished. Throughstructural collapse, fire or crime, etc., empty houses canhave a negative influence on the living environment andhave come to be seen as a social problem. This loan can beused for all kinds of costs related to empty houses, such as(1) demolition expenses, (2) expenses related to reuse suchas extension or renovation and (3) expenses related to
productive use after demolition, such as conversion toparking lots or installation of solar panels.

Opening of inheritance and asset management consulting corner “Hokugin Plaza”(Hokuriku Bank)“Hokugin Plaza” has opened in the Ichibanmachi Square
Building in Toyama City, primarily as a consulting operation.

22

Hokuhoku Financial Group, Inc. Annual Report 2016

The Plaza, which is staffed by three specialist personnel,
provides a relaxed space where employees can offer advice
to customers. The Plaza addresses various customer needs
by arranging meetings on a reservation basis in privaterooms, where customers can consult on issues related toinheritance, donations, asset management and so on, as
well as offering a number of seminars.

Robot “Pepper” installed to greet customers(Hokuriku Bank, Hokkaido Bank)
In last December the Hokkaido Bank began using thehumanoid robot “Pepper” developed and provided by
SoftBank Robotics Corp., as the first financial institution in
Hokkaido to do so. The Hokuriku Bank followed in May
2016 and is using the robot in “Hokugin Plaza,” while
Hokkaido Bank is using it in the sales department of its
head office to show hospitality by greeting customers to theoffice, introducing products and campaigns and offering
games for children.

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 2015: Fiscal 2015 interim results (Tokyo)
May 2016: Fiscal 2015 results (Tokyo)

July 2016: ‌Two cities in Hokuriku (Toyama and Kanazawa) andthree cities in Hokkaido (Sapporo, Asahikawa and
Hakodate)

IR overseas roadshow
June 2016: ‌Europe (London, Edinburgh)
North America (New York, Boston, San Francisco)

General meeting of shareholders
June 2016: ‌13th ordinary general meeting of shareholders(Toyama, with live broadcast to Sapporo)

Advancing with regional communities
We take part in social contribution activities.
Financial education• ‌All-Japan high-school quiz in finance and economy “EconomicsKoshien,” 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• ‌Establishment of art galleries“Parents and Children Bank Experience During Summer
Vacation” program (Hokkaido Bank)
In nine cities within Hokkaido the bank held
events for children, who do not visit banks
often, such as the “100 Million Yen Experience” in which the children have a chance
to lift up and feel for themselves the weightof 100 million yen in bank notes, as well as “Bank Note Counting”
and “Safety Deposit Box Room Tour.” The aim was to provide themwith an opportunity to learn about banks and 242 parents andchildren participated during the period of the program.

Hanging flower baskets set up (Hokuriku Bank)
In Toyama City, “Hanging Baskets” full of
seasonal flowers are being set up by theroadside as part of the “Creating a Pleasant
City Full of Flowers and Greenery” program.
Hokuriku Bank supports this initiative andhas installed hanging baskets on the wallsof the head office.

“HOKKAIDO BANK CURLING CLASSIC” held for the
first time (Hokkaido Bank)
Lilac Concert

GALERIE MILLETIn response to the voices of residents requesting an annualinternational curling competition in Sapporo, the bank hosted the“HOKKAIDO BANK CURLING CLASSIC” atthe Hokkaido Bank Curling Stadium. We
will continue to host this event with the aimof establishing it as an international
competition.

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.

Participating in “Forest Building in Nanto” (Hokuriku Bank)
The bank jointly participated in the “Forest Building in Nanto”
initiative that the residents’ association of Asobu in Nanto City,
Toyama Prefecture started on the occasionof the 20th anniversary of Gokayama’s
traditional Gassho-style houses (Historic
Village of Gokayama) becoming a World
Heritage site, and took part in sedgeplanting activities.

Clean-up activities implemented in Odori Park andother places (Hokkaido Bank)
In addition to employees working at the head
office building of Hokkaido Bank helping
clean up Odori Park in Sapporo City, allbranches throughout Hokkaido carried out
cleaning programs, primarily around theirown branches but also along shopping
streets and the like.

Hokuhoku Financial Group, Inc. Annual Report 2016

23

TOPICS

Hokuhoku Financial Group“Hokkaido / Tohoku / Hokuriku Business Matching inTokyo” (Hokuriku Bank, Hokkaido Bank)“Business Meeting in Otaru and Shiribeshi for Hokkaido‘Food’” (Hokuriku Bank, Hokkaido Bank)

Hokuriku Bank and Hokkaido Bank, together with 10 regional

We invited buyers from Hokkaido and beyond to this businessbanks in Tohoku with which Hokkaido Bank collaborates tomeeting with the aim of expanding sales channels for high-value

encourage regional exchange between Hokkaido and Tohoku, used

added processed foods and local specialties, etc. that taketheir relationships to hold business meetings with client companies

advantage of the region’s abundant agricultural and livestockand buyers primarily from the Tokyo metropolitan area. The goal

products and fishery resources, etc.

was to raise value added of the regional specialties of each of theCompanies attending made comments such as “It was significant

prefectures of the Hokuriku and Tohoku regions, as well as those ofthat we received valuable opinions related to our future product

Hokkaido, and with the further aim of supporting business matchingdevelopment” and “A fruitful experience; we received advice thatthat gives a view over sixth industrialization.

we can implement right away.”

Buyers showed a high level of interest in the Hokuriku, Hokkaido
and Tohoku regions, which have become more familiar due to thelaunch of the Shinkansen, and this led to some positive discussions.

Business Alliance with “Japan Trans-housing Institute(JTI)” (Hokuriku Bank, Hokkaido Bank)“Ningbo Business Meeting” (Hokuriku Bank, Hokkaido
Bank)Trans-housing Institute (JTI) to vitalizing local economies by promoting moving or relocating to the three Hokuriku prefectures andIn Ningbo City in China’s Zhejian province, the banks and the City’s

Hokkaido and encouraging the productive use of empty houses

commerce committee, with which the banks have concluded an

and so on.

economic cooperation agreement, co-sponsored business meetings

Making good use of this alliance, Hokkaido Bank held 16

held for the specific purpose of opening sales channels for exports

seminars in every region of Hokkaido aimed at local authorities onof Japanese products. In order to improve the ratio of discussions

subjects such as “Moving, Relocating and Dealing with Empty

ending in contracts, matching activities were conducted beforehandHouses.”and Chinese companies matching the needs of the banks’ clientcompanies were invited to meetings.

24

An alliance was concluded between the banks and the Japan

Hokuhoku Financial Group, Inc. Annual Report 2016

Hokuriku Bank
“Business Summit 2015” - Business Meeting for ‘Food’and ‘Tourism’Signing of MOU of Economic Exchange with Jiangyin
City in China

A business meeting was co-hosted with the Ogaki Kyoritsu Bank,

A memorandum of understanding related to the promotion ofLtd. in Toyama City under the twin themes of opening sales chan-economic exchange was concluded between the bank andnels for “Food” and highlighting the appeal of “Tourism.”

Jiangyin Economic Development Zone in Jiangyin City, Jiangsu

Food processing companies and tourism organizations fromprovince. This is the sixth such economic cooperation agreement

cities along the route of the Hokuriku Shinkansen, the Chukyo

concluded with Chinese cities and provinces. In anticipation ofregion and Hokkaido exhibited at the event and buyers participatedclient companies establishing facilities in this zone, we will team up

in meetings including some from trading companies, which havewith the zone to offer a wide range of support services such as

strong relationships with retailers and overseas.

investment information, cooperation in the setup of facilities,
introductions to business matching companies and so on.

“Hokuriku Region Product Discovery Business Meetingwith ITOCHU-SHOKUHIN”
In collaboration with ITOCHU-SHOKUHIN Co., Ltd’s “Regional

Business Networking Event for Japanese Companies in
Bangkok

Products Project” (an initiative that aims to encourage local

In Bangkok, Thailand, seven regional banks held the first ever suchconsumption of locally produced regional goods), along withbusiness networking event sponsored jointly by regional banks.

Toyama Prefecture, we introduced delicious local foodstuffs, andCompanies such as those with a presence in Thailand and those

held business meetings in Tokyo to support the expansion of salesconsidering developing a business there attended the event.

channels for local companies using ITOCHU-SHOKUHIN’s sales
network.
On the day, companies from Toyama, Ishikawa, Nagano andNiigata prefectures made presentations on their own products to

As well as seminars from companies offering consulting services
locally, during the networking event the companies exchanged
information on their own businesses and exchanged information
regarding business expansion.

ITOCHU-SHOKUHIN’s sales and purchasing representatives,
leading to some lively discussions.

Hokuhoku Financial Group, Inc. Annual Report 201625

TOPICS

Hokkaido Bank
Supporting Business Expansion into Russia

Business Alliance with PT Bank Central Asia Tbk

We held a Russia Business Seminar in Hakodate City in conjunction

We concluded a business alliance with Indonesia’s largest privatewith JETRO Hokkaido and the Consulate-General of the Russianbank, PT Bank Central Asia Tbk, which has a network of 1,160

Federation in Sapporo. The head of Hokkaido Bank’s Vladivostok

outlets across the country. We will provide a wide range of support,

Representative Office gave a report on the latest business environment

such as local information, support for establishing local facilities,

and activities of Hokkaido companies in far eastern Russia.

and business matching.

Furthermore, we concluded a business tie-up with the communitybased Hokkaido Corporation, a general trading company, which
was established to support Hokkaido companies that aim to

Signing of Partnership Agreement with Snow Peak, Inc.

expand into overseas markets, including far eastern Russia.

We have concluded a partnership agreement with Snow Peak, Inc.,

Through this, we are further enhancing support for the overseas

which manufactures and sells outdoor products with superior

expansion of small- and medium-sized enterprises in Hokkaido,

design and quality, establishing itself as one of the top brands in thesuch as business in Russia.

industry.

“Buyer and Chef Challenge in Tokyo Metropolitan Area”

will make proposals to local authorities in every region of Hokkaido.

Nine regional banks, including Hokkaido Bank, have established agiving a polish to outdoor facilities at tourism resources in all areas.

network for the regeneration and revitalization of the regions. Using

By also creating opportunities for a diverse range of accommodation,

this network, an initiative to expand sales channels has started,

we will contribute to the revitalization of the regions and to increased

whereby the choicest foods from each region are introduced to theemployment.

Based on the company’s know-how in outdoor businesses, webuyers of department stores, etc., hotel and restaurant chefs in theTokyo metropolitan area. As well as taste and price, advice wasgiven on various aspects such as how to differentiate from existingproducts through the careful use of packaging.

26

Hokuhoku Financial Group, Inc. Annual Report 2016

In addition we will provide support for strengthening the use of andCONSOLIDATED FINANCIAL STATEMENTSCONSOLIDATED BALANCE SHEET
Hokuhoku Financial Group, Inc. and Consolidated Subsidiaries

2016

2015

Thousands of
U.S. dollars (Note 1)
2016

Millions of yen
March 31

AssetsCash and due from banks (Notes 3 and 30)........................................................

¥ 1,235,499¥ 1,210,607$ 10,964,672

Call loans and bills bought (Note 30)...................................................................

65,016

94,599577,000

Monetary claims bought (Note 30)......................................................................

62,034

72,524

550,541

Trading assets (Note 4).......................................................................................

4,631

4,508

41,100

Money held in trust (Note 5)................................................................................

8,344

7,947

74,058

Securities (Notes 6, 12 and 30)...........................................................................

2,406,589

2,493,601

21,357,735

Loans and bills discounted (Notes 7, 12, 13 and 30)..........................................

7,582,954

7,546,819

67,296,368

Foreign exchanges (Note 8)................................................................................

14,771

14,533131,092

Other assets (Note 12)........................................................................................

108,066

91,952

959,057

Tangible fixed assets (Note 9).............................................................................

101,080

101,878

897,055

Intangible fixed assets (Note 10).........................................................................

23,97428,076

212,770

Asset for retirement benefits (Note 17)................................................................

—

2,069

—

Deferred tax assets (Note 27).............................................................................

7,244

462

64,296

Customers’ liabilities for acceptances and guarantees (Note 11).........................

65,04468,711

577,252

Allowance for loan losses...................................................................................

(54,925)¥11,630,328(55,290)¥11,683,001(487,443)$103,215,553

Total assets.......................................................................................................
Liabilities and equity
Liabilities
Deposits (Notes 12, 14 and 30)..........................................................................

¥10,475,416¥10,627,748$ 92,966,072

Call money and bills sold (Note 12).....................................................................

20,84558,454

185,000

Payables under securities lending transactions (Note 12)....................................

92,95427,809824,946

Trading liabilities (Note 4)....................................................................................

1,129

1,184

10,021

Borrowed money (Notes 12, 15 and 30).............................................................

207,252

125,680

1,839,304

Foreign exchanges (Note 8)................................................................................

226

179

2,014

Bonds payable (Note 16)....................................................................................

33,00043,000292,865

Other liabilities....................................................................................................

126,529

126,322

1,122,912

Liability for retirement benefits (Note 17).............................................................

20,4598,930

181,576

Reserve for directors’ and audit & supervisory board members’ retirement benefits.....

230

277

2,048

Reserve for contingent losses.............................................................................

1,957

1,970

17,369Reserve for reimbursement of deposits...............................................................

1,419

1,366

12,599Deferred tax liabilities (Note 27)...........................................................................

11,883

12,313

105,465

Deferred tax liabilities for revaluation...................................................................

5,724

6,064

50,801

Acceptances and guarantees (Note 11)..............................................................

65,044
11,064,076

68,711
11,110,014

577,252
98,190,244

Total liabilities...................................................................................................
Equity (Notes 18, 19 and 21)
Capital stock......................................................................................................

70,89570,895629,171

Capital surplus....................................................................................................

148,211148,197

1,315,332

Stock acquisition rights (Note 20).......................................................................

319

266

2,838

Retained earnings...............................................................................................

263,959

242,701

2,342,557

Treasury stock....................................................................................................

(1,489)(1,514)(13,219)

Valuation difference on available-for-sale securities (Note 6)...........................

83,834

101,033

744,009

Deferred gains (losses) on hedges.................................................................

(1,596)(845)(14,171)

Revaluation reserve for land (Note 9)..............................................................

9,079

8,502

80,579Defined retirement benefit plans (Note 17).....................................................

(8,340)564,873

2,473
571,710(74,022)
5,013,074

Accumulated other comprehensive income........................................................

Total...................................................................................................................
Non-controlling interests.....................................................................................

1,378

1,276

12,235

Total equity.......................................................................................................

566,251

572,987

5,025,309

Total liabilities and equity.................................................................................

¥11,630,328¥11,683,001$103,215,553

See notes to consolidated financial statements.

Hokuhoku Financial Group, Inc. Annual Report 201627

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

2016

2015

Thousands of
U.S. dollars (Note 1)
2016

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.......................................................................................
Trading income...................................................................................................
Other ordinary income (Note 23).........................................................................
Other income (Note 25)......................................................................................
Total income.......................................................................................................

¥ 98,693
26,339—1,138
897
39,486279
14,30812,199193,343¥102,254
24,322
6
1,017
867
39,505388
17,273
8,422
194,059$  875,877
233,755—
10,105
7,963
350,433
2,483
126,983108,263
1,715,862

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.......................................................................................
Other ordinary expenses (Note 24).....................................................................
General and administrative expenses..................................................................
Provision of allowance for loan losses.................................................................
Other expenses (Note 26)...................................................................................
Total expenses....................................................................................................

3,648
468
1,214
412
1,083
13,754
9,536
100,883
3,125
13,299147,425

4,250
42
1,484
586
800
14,3929,203
106,048
4,202
6,140
147,152

32,376
4,155
10,7793,658
9,612
122,066
84,629895,308
27,740118,031
1,308,354

45,91846,906

407,508

10,543
6,437
28,93699¥ 28,837

9,360
9,231
28,31479¥ 28,235

93,56857,134
256,806879$  255,927

Millions of yen
Year ended March 31

Income before income taxes...............................................................................
Income taxes (Note 27):
Current..........................................................................................................
Deferred........................................................................................................
Net income.........................................................................................................
Net income attributable to non-controlling interests............................................
Net income attributable to owners of the parent............................................

Yen

Per share of common stock (Notes 2-t and 22)
Basic net income...........................................................................................
Diluted net income.........................................................................................
Cash dividends applicable to the year............................................................

U.S. dollars¥19.87
19.84
4.25¥20.31
20.29
4.25

$0.18
0.18
0.04

See notes to consolidated financial statements.

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

Year ended March 31

2016

2015

Thousands of
U.S. dollars (Note 1)
2016

Net income.........................................................................................................
Other comprehensive income (Note 28)..............................................................
Valuation difference on available-for-sale securities........................................
Deferred gains (losses) on hedges.................................................................
Revaluation reserve for land...........................................................................
Defined retirement benefit plans.....................................................................
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 non-controlling interests.....................

¥28,936(28,458)(17,175)(751)
302(10,814)¥28,314
48,28839,726
(650)
626
8,551

$256,806(252,560)(152,429)(6,669)2,686(95,977)(19)¥   478376
102

34¥76,60376,493109(171)$  4,246
3,338
908

Millions of yen

See notes to consolidated financial statements.

28

Hokuhoku Financial Group, Inc. Annual Report 2016

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
Hokuhoku Financial Group, Inc. and Consolidated Subsidiaries

BALANCE, APRIL 1, 2014(as previously reported)............................................

Thousands
IssuedIssuednumber of
number ofshares ofshares ofcommon stock preferred stock

Capitalstock

CapitalsurplusStockacquisitionrightsRetainedearnings

Treasurystock

1,351,630¥70,895¥148,193¥191¥222,995¥(1,529)

107,432

Millions of yen

Cumulative effect of accounting change...............
BALANCE, APRIL 1, 2014 (as restated)...................

(1,864)
1,351,630

107,432

70,895

148,193

191

221,130

Cash dividends.....................................................

(6,970)Net income attributable to owners of the parent....

28,235Purchases of treasury stock..................................

(17)

Disposals of treasury stock...................................

3

32
305

Reversal of revaluation reserve for land.................
Net changes in the year........................................
BALANCE, MARCH 31, 2015...................................

75
1,351,630

107,432¥70,895¥148,197¥266¥242,701

Cash dividends.....................................................

(7,305)

Net income attributable to owners of the parent....

28,837Purchases of treasury stock..................................

¥(1,514)(18)

Disposals of treasury stock...................................

14

43

Reversal of revaluation reserve for land.................

(274)

Net changes in the year........................................
BALANCE, MARCH 31, 2016...................................

(1,529)53
1,351,630

107,432¥70,895¥148,211¥319¥263,959¥(1,489)

Total

Noncontrollinginterests

Total
equity¥503,957¥1,168¥505,125

1,168

503,261

Millions of yen
Accumulated other comprehensive income
Valuation
Deferred
Revaluation
Defineddifference on
reserve forretirement
available-for-sale gains (losses)on hedges
landbenefit planssecurities
BALANCE, APRIL 1, 2014(as previously reported)............................................

¥ 61,301¥  (194)¥8,182¥ (6,077)(1,864)

Cumulative effect of accounting change...............
BALANCE, APRIL 1, 2014 (as restated)...................

61,301

(194)

8,182

(6,077)502,093(1,864)

Cash dividends.....................................................

(6,970)(6,970)Net income attributable to owners of the parent....

28,23528,235(17)

Purchases of treasury stock..................................

(17)

Disposals of treasury stock...................................

36

36

Reversal of revaluation reserve for land.................

305

305

Net changes in the year........................................

39,731

(650)

320

8,551

48,027

108

48,136BALANCE, MARCH 31, 2015...................................

¥101,033¥  (845)¥8,502¥  2,473¥571,710¥1,276¥572,987

Cash dividends.....................................................

(7,305)(7,305)

Net income attributable to owners of the parent....

28,837

28,837Purchases of treasury stock..................................

(18)

(18)

Disposals of treasury stock...................................

58

58

Reversal of revaluation reserve for land.................

(274)

(274)

Net changes in the year........................................

(17,198)

(751)

577

(10,814)(28,133)101(28,031)

BALANCE, MARCH 31, 2016...................................

¥ 83,834¥(1,596)¥9,079¥ (8,340)¥564,873¥1,378¥566,251

Hokuhoku Financial Group, Inc. Annual Report 201629

Capital
stock
BALANCE, MARCH 31, 2015...................................

$629,171

Thousands of U.S. dollars (Note 1)
Stock
Capitalacquisition
Retained
surplusrightsearnings$1,315,205$2,365$2,153,904

Cash dividends.......................................................

(64,838)

Net income attributable to owners of the parent.....

255,927

Purchases of treasury stock....................................

$(13,441)(167)

Disposals of treasury stock.....................................

127

389

Reversal of revaluation reserve for land...................

(2,436)

Net changes in the year..........................................
BALANCE, MARCH 31, 2016...................................

Treasurystock

473$629,171$1,315,332$2,838$2,342,557$(13,219)

Thousands of U.S. dollars (Note 1)
Accumulated other comprehensive income
Valuation
Deferred
Revaluation
Defineddifference on
reserve forretirement
available-for-sale gains (losses)on hedges
landbenefit planssecurities
BALANCE, MARCH 31, 2015...................................

$ (7,502)$75,457$21,955

Total
equity$5,073,751$11,331$5,085,082

Cash dividends.......................................................

(64,838)(64,838)

Net income attributable to owners of the parent.....

255,927

255,927

Purchases of treasury stock....................................

(167)

(167)

Disposals of treasury stock.....................................

516

516

Reversal of revaluation reserve for land...................

(2,436)(2,436)

Net changes in the year..........................................

(152,628)(6,669)5,122(95,977)(249,679)

904(248,775)

BALANCE, MARCH 31, 2016...................................

$744,009$(14,171)$80,579$(74,022)$5,013,074$12,235$5,025,309

See notes to consolidated financial statements.

30$896,637

Total

Noncontrollinginterests

Hokuhoku Financial Group, Inc. Annual Report 2016

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

2016

2015

Thousands of
U.S. dollars (Note 1)
2016¥   45,918
8,330
782
2,102
(1)
(365)
(13)
2,069
11,529¥   46,906
8,290
1,013
2,102
(27)
(3,927)(528)(2,069)(6,030)$   407,508
73,934
6,948
18,657(14)(3,246)(119)
18,363102,322(46)
52(127,069)
6,826
(230)
2
5,330
479
(123)
(55)
(36,135)
91,008(243,339)
112,572
19,837(50)
113(128,468)
7,164(6,914)(72)(5,443)
258
498
(249)
(223,529)
228,035
251,907
33,882
38,669(415)
470(1,127,700)
60,580(2,043)25
47,304
4,257(1,092)(490)(320,691)
807,668(2,159,561)
999,048
176,054

40,072(37,608)
65,145(238)
47
100,776(6,354)(14,875)
46,427(8,338)38,088(1,227)1,180
27,809(26)
28
104,365(6,248)
5,580
372,992(5,671)
367,321355,630(333,765)
578,145(2,116)420
894,361(56,397)(132,017)
412,028(74,003)
338,025(836,287)
577,480
295,603(16,128)
15,72026,339(4,321)36(2,219)56,223(457,336)
305,749
224,051(15,362)
15,17524,394(3,756)113(1,426)
91,602(7,421,794)
5,124,960
2,623,391(143,134)
139,512
233,755(38,353)322(19,695)
498,964(31,000)(10,000)(1,215)(7,305)(0)(18)
0(49,540)(42)
44,7291,149,068¥1,193,798(30,000)(15,000)(1,908)(6,970)(0)(17)
0(53,896)67
405,094
743,974¥1,149,068(275,115)(88,747)(10,789)(64,838)
(4)
(167)
8
(439,652)(375)
396,962
10,197,630$10,594,592

Millions of yen
Year ended March 31
1. Cash flows from operating activities:
Income before income taxes.......................................................................................
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 losses....................................................
Decrease (increase) in asset for retirement benefits.....................................................
Increase (decrease) in liability for retirement benefits...................................................
Increase (decrease) in reserve for directors’ andaudit & supervisory board members’ retirement benefits...........................................
Increase (decrease) in reserve for reimbursement of deposits.....................................
Interest income...........................................................................................................
Interest expense.........................................................................................................
Losses (gains) on securities........................................................................................
Losses (gains) on money held in trust.........................................................................
Losses (gains) on foreign exchange............................................................................
Losses (gains) on sales of fixed assets........................................................................
Net decrease (increase) in trading assets....................................................................
Net increase (decrease) in trading liabilities.................................................................
Net decrease (increase) in loans and bills discounted..................................................
Net increase (decrease) in deposits............................................................................
Net increase (decrease) in negotiable certificates of deposit........................................
Net increase (decrease) in borrowed money (excluding subordinated borrowed money)....
Net decrease (increase) in due from banks (excluding deposits with the Bank of Japan)....
Net decrease (increase) in call loans, bills bought, commercial paperand other debt purchased........................................................................................
Net increase (decrease) in call money and bills sold....................................................
Net increase (decrease) in payables under securities lending transactions..................
Net decrease (increase) in foreign exchanges (assets).................................................
Net increase (decrease) in foreign exchanges (liabilities)..............................................
Interest income-cash basis.........................................................................................
Interest expense-cash basis.......................................................................................
Other, net...................................................................................................................
Subtotal..........................................................................................................................
Income taxes paid.....................................................................................................
Net cash provided by (used in) operating activities....................................................
2. Cash flows from investing activities:
Purchases of securities...............................................................................................
Proceeds from sales of securities...............................................................................
Proceeds from redemption of securities......................................................................
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:
Repayment of subordinated borrowed money............................................................
Repayment of subordinated bonds.............................................................................
Expenditures for fund procurement.............................................................................
Dividends paid............................................................................................................
Dividends paid to non-controlling shareholders...........................................................
Purchases of treasury stock........................................................................................
Proceeds from disposals 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 3)............................................
See notes to consolidated financial statements.

Hokuhoku Financial Group, Inc. Annual Report 201631

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Hokuhoku Financial Group, Inc. and Consolidated 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, the Enforcement Regulation for the Banking Act and in
conformity with accounting principles generally accepted in Japan(“Japanese GAAP”), which are different in certain respects as to theapplication and disclosure requirements of International Financial
Reporting Standards.
In preparing these consolidated financial statements, certain reclassifications and rearrangements have been made to the consolidated financial statements issued domestically in order to present
them in a form which is more familiar to readers outside Japan. In
addition, certain reclassifications have been made in the 2015 consolidated financial statements to conform to the classifications usedin 2016.
All Japanese yen figures in the consolidated financial statements
have been rounded down to the nearest million yen. Accordingly,
the total of each account may not be equal to the combined total of
the individual items. The U.S. dollar amounts are then rounded tothousand dollars.
The consolidated financial statements are stated in Japaneseyen, the currency of the country in which Hokuhoku Financial
Group, Inc. (the “Company”) is incorporated and operates. The
translations of Japanese yen amounts into U.S. dollar amounts areincluded solely for the convenience of readers outside Japan andhave been made at the rate of ¥112.68 to U.S. $1, the rate of exchange at March 31, 2016. Such translations should not be construed as representations that the Japanese yen amounts could be
converted into U.S. dollars at that or any other rate.

2. Summary of Significant Accounting Policies
a. Consolidation
The consolidated financial statements as of March 31, 2016 include
the accounts of the Company and its 11 subsidiaries (together, the“Group”).
Under the control and influence concepts, 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.
All significant intercompany balances and transactions havebeen eliminated in consolidation. All material unrealized profit included in assets resulting from transactions within the Group is also
eliminated.
An investment in one associated company is accounted for by
the equity method.
Assets and liabilities of newly consolidated subsidiaries are valued at fair value at the respective dates of acquisition, and goodwill
is amortized using the straight-line method over 20 years.
b. Cash and Cash Equivalents
For the purpose of reporting cash flows, “Cash and cash equivalents” consists of “Cash” and “Due from the Bank of Japan.”c. Trading Purpose Transactions“Transactions for trading purposes” (for purposes of seeking to cap32

Hokuhoku Financial Group, Inc. Annual Report 2016

ture gains arising from short-term changes in interest rates, currency exchange rates or market prices of securities and other marketrelated indices or from gaps among markets) are included in“Trading assets” and “Trading liabilities” on a trade-date basis.
Trading securities and monetary claims bought for trading purposes are stated at fair value at the balance sheet date. Tradingrelated financial derivatives, such as swaps, futures, and options arestated at amounts that would be received or paid for settlement if
such transactions were terminated at the balance sheet date.
Income and losses on trading purpose transactions are recognizedon a trade-date basis and recorded as “Trading income” or “Trading
losses.”Trading income and losses include interest received and paid
during the fiscal year and unrealized gains and losses resulting fromthe change in the value of securities, monetary claims bought, andderivatives between the balance sheet dates.
d. Securities
Securities are classified and accounted for, based principally on theGroups’ intent, as follows: (a) held-to-maturity debt securities,
which are expected to be held to maturity with the positive intent
and ability to hold to maturity, are stated at amortized cost computed by the straight-line method and (b) available-for-sale securities, which are not classified as trading purpose securities or heldto-maturity securities, are stated at fair value with unrealized gains
and losses, net of applicable taxes, reported in a separate component of equity. Available-for-sale securities for which fair value is notreliably determined are stated at cost determined by the movingaverage method.
For other-than-temporary declines in fair value, securities are reduced to net realizable value by a charge to income.
Securities included in money held in trust are recorded in thesame manner as securities mentioned above.
e. Tangible Fixed Assets (excluding Lease Assets)
Tangible fixed assets are stated at cost less accumulated depreciation. 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 estimateduseful lives of major assets are as follows: (1) buildings: 6 to 50
years and (2) 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.
f. Intangible Fixed Assets (excluding Lease Assets)
Intangible fixed assets are depreciated based on the straight-line
method. Capitalized software for internal use owned by consolidated subsidiaries is depreciated using the straight-line method
over its estimated useful life (mainly 5 years).
g. Lease Assets
Lease assets under non-transfer ownership finance lease contracts(in which the ownership of leased assets is not transferred to thelessee; included in tangible fixed assets and intangible fixed assets)are depreciated on a straight-line basis over the lease period with aresidual value of zero when contracted amounts for residual value
are specified.
h. Long-Lived Assets
The Group reviews its long-lived assets for impairment whenever
events or changes in circumstances indicate the carrying amount ofan 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 the asset exceeds
its recoverable amount, which is the higher of the discounted cash
flows from the continued use and eventual disposition of the asset
or the net selling price at disposition.
i. Allowance for Loan Losses
The Banks provide an allowance for loan losses which is determined based on management’s judgment and an assessment of
future losses based on their self-assessment systems. These systems reflect past experience of credit losses, possible credit losses,
business and economic conditions, the character, quality and performance of the portfolio, the value of collateral or guarantees, andother pertinent indicators.
The Banks have implemented a self-assessment system to determine the quality of their assets. The quality of all loans is assessed by branches and the credit supervisory division with a subsequent audit by the asset review and inspection division inaccordance with the Banks’ policy and guidelines for the self-assessment of asset quality.
The Banks have established a credit rating system under whichcustomers are classified into five categories. The credit rating system is used in the self-assessment of asset quality. All loans areclassified into five categories for self-assessment purposes: “normal,” “in need of caution,” “possible bankruptcy,” “virtual bankruptcy,” and “legal bankruptcy.”
For loans to borrowers classified as legal bankruptcy or virtual
bankruptcy, the Banks fully provide the net amount of loans andestimated collectible amounts by collateral or guarantees. Regarding
loans to borrowers classified as possible bankruptcy, a specific reserve is provided as necessary for the net amount of loans and estimated collectible amounts by collateral or guarantees.
For borrowers classified as possible bankruptcy or holding restructured loans with which the unsecured portion of claims or
credit exceeds a certain amount, if cash flows from collection ofprincipal and interest can be reasonably estimated, the Banks provide the difference between the present values of these cash flows
discounted at the initial contractual interest rate and the book values of the loans (the “DCF” method).
For other loans, a general allowance is provided based on thehistorical loan loss ratio.
The Company and its consolidated non-banking subsidiaries
determine the allowance for loan losses by a similar self-assessment system as that of the Banks.
For collateralized or guaranteed claims to borrowers who are in“virtual bankruptcy” or “legal bankruptcy,” the amount exceeding
the estimated value of collateral or guarantees has been deducted

as deemed uncollectible directly from those claims. The deductedamounts were ¥61,483 million ($545,645 thousand) and ¥79,071
million at March 31, 2016 and 2015, respectively.
j. Accounting Method for Retirement Benefits
In calculating retirement benefit obligations, the benefit formula basis is used as a method of attributing expected retirement benefits
to the period up to the end of this fiscal year.
The unrecognized prior service cost is amortized using thestraight-line method over eight years within the employees’ averageremaining service period at incurrence.
The unrecognized actuarial (gains) losses are amortized using
the straight-line method over eight or nine years within the employees’ average remaining service period, commencing from the next
fiscal year of incurrence.
k. ‌Reserve for Directors’ and Audit & Supervisory Board
Members’ Retirement Benefits
A reserve for directors’ and audit & supervisory board members’
retirement benefits is provided for payment of retirement benefits todirectors and audit & supervisory board members in the amountdeemed accrued at the fiscal year end, based on the estimatedamount of benefits.
The Company and the Banks abolished their directors’ and audit& supervisory board members’ retirement benefits system at theboard of directors’ meeting on May 11, 2012, and resolved to provide a lump-sum payment of retirement benefits of directors andaudit & supervisory board members at the general meeting ofshareholders on June 26, 2012. According to these resolutions, thelump-sum payment of retirement benefits of directors and audit &supervisory board members shall be effectuated upon the retirement of each individual director and audit & supervisory board
member. Reserve for directors’ and audit & supervisory board
members’ retirement benefits was ended in June 2012, and theentire remaining amount is included in “reserve for directors’ andaudit & supervisory board members’ retirement benefits.”
l. Reserve for Contingent Losses
A reserve for contingent losses is provided for possible losses inaccordance with the Joint Responsibility System of Credit Guarantee
Corporations and possible losses from contingencies not coveredby other specific reserves.
m. Reserve for Reimbursement of Deposits
A reserve for reimbursement of deposits which were not previously
recognized as liabilities under certain conditions is provided for possible losses on the future claims of withdrawal based on historicalreimbursement experience.
n. Stock Options
The companies are required to recognize compensation expensefor employee stock options based on the fair value of the stock options at the date of grant and over the vesting period as consideration for receiving goods or services. The companies are also required to account for stock options granted to non-employees
based on the fair value of either the stock option or the goods orservices received. In the balance sheet, the stock options are pre-Hokuhoku Financial Group, Inc. Annual Report 201633

sented as stock acquisition rights as a separate component of equity until exercised.
o. 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 andliabilities for the expected future tax consequences of temporary
differences between the carrying amounts and the tax bases of assets and liabilities. Deferred taxes are measured by applying currently enacted income tax rates to the temporary differences.
p. Translation of Foreign Currencies
Assets and liabilities denominated in foreign currencies are translated into Japanese yen mainly at the exchange rate prevailing as of
the balance sheet date.
q. Derivatives and Hedging Activities
Derivatives are stated at fair value. Derivative transactions that meethedge accounting criteria are primarily accounted for under the deferral method whereby unrealized gains and losses are deferred until maturity as deferred gains (losses) on hedge accounting in a
separate component of equity.
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
a particular item. Such hedges, limited to certain assets and liabilities, are accounted for by the deferred method or, where appropriate interest rate swaps are involved, by the special rule method.
The effectiveness of hedges is assessed as follows: the Banks
specify the hedged items according to their risk management regulations, with the aim of centralizing hedging instruments, and verify
the extent to which the exposure of interest rate risks on hedged
items is mitigated.
The Banks hedge currency exchange fluctuation risks arisingfrom their 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
Business in Accounting for Foreign Currency DenominatedTransactions and Others” (The Japanese Institute of Certified Public
Accountants (“JICPA”) Industry Audit Committee Report No. 25).
The effectiveness of these hedges is assessed as follows: where
currency swap transactions and exchange swap transactions areused as hedging instruments to offset exchange fluctuation risks
arising from foreign currency denominated financial assets and liabilities, hedge effectiveness is assessed by verifying the agreementof the amounts of the designated hedging instruments corresponding to the hedged foreign currency financial assets and liabilities.
The Company and consolidated non-banking subsidiaries are
not engaged in hedging operations using derivative transactions.
r. Consumption Taxes
The Company and its domestic consolidated subsidiaries accountfor consumption tax and local consumption tax by the tax exclusion
method, whereby receipts and payments of consumption taxes are
not included in the transaction amounts and, accordingly, consumption tax amounts do not affect the measurement of profit or34

Hokuhoku Financial Group, Inc. Annual Report 2016

loss transactions. However, consumption taxes on tangible fixed
assets that are not tax-deductible are expensed in the fiscal year
under review.
s. Finance Lease
Sales and cost of sales are accounted for when lease payments are
paid.
t. Per Share Information
Basic net income per share is computed by dividing net income attributable to common shareholders by the weighted-average number of shares of common stock outstanding for the period, retroactively adjusted for stock splits.
Diluted net income per share reflects the potential dilution that
could occur if securities were exercised or converted into common
stock. Diluted net income per share of common stock assumes fullconversion of the outstanding convertible notes and bonds at the
beginning of the year (or at time of issuance) with an applicableadjustment for interest expense, net of tax, and full exercise of outstanding warrants.
Cash dividends per share presented in the accompanying consolidated statement of income are dividends applicable to the respective fiscal years including dividends to be paid after the end of
the fiscal year.
u. Changes in Accounting Policies
Business Combination — In September 2013, the ASBJ issued
revised ASBJ Statement No. 21, “Accounting Standard for Business
Combinations,” revised ASBJ Guidance No. 10, “Guidance on
Accounting Standards for Business Combinations and Business
Divestitures,” and revised ASBJ Statement No. 22, “AccountingStandard for Consolidated Financial Statements.”
Major accounting changes are as follows:(a)	‌Transactions with noncontrolling interest—A parent’s ownershipinterest in a subsidiary might change if the parent purchases orsells ownership interests in its subsidiary. The carrying amount of
noncontrolling interest is adjusted to reflect the change in theparent’s ownership interest in its subsidiary while the parent retains its controlling interest in its subsidiary. Under the previous
accounting standard, any difference between the fair value of theconsideration received or paid and the amount by which thenoncontrolling interest is adjusted is accounted for as an adjustment of goodwill or as profit or loss in the consolidated statement of income. Under the revised accounting standard, suchdifference is accounted for as capital surplus as long as the parent retains control over its subsidiary.
(b)	‌Presentation of the consolidated balance sheet—In the consolidated balance sheet, “minority interest” under the previous accounting standard is changed to “noncontrolling interest” under
the revised accounting standard.
(c)	‌Presentation of the consolidated statement of income—In the
consolidated statement of income, “income before minority interest” under the previous accounting standard is changed to“net income” under the revised accounting standard, and “netincome” under the previous accounting standard is changed to“net income attributable to owners of the parent” under the re-vised accounting standard.
(d)	‌Provisional accounting treatments for a business combination—
If the initial accounting for a business combination is incompleteby the end of the reporting period in which the business combination occurs, an acquirer shall report in its financial statements
provisional amounts for the items for which the accounting is
incomplete. Under the previous accounting standard guidance,
the impact of adjustments to provisional amounts recorded in abusiness combination on profit or loss is recognized as profit orloss in the year in which the measurement is completed. Underthe revised accounting standard guidance, during the measurement period, which shall not exceed one year from the acquisition, the acquirer shall retrospectively adjust the provisionalamounts recognized at the acquisition date to reflect new information obtained about facts and circumstances that existed asof the acquisition date and that would have affected the measurement of the amounts recognized as of that date. Such ad-

ing treatments for a business combination are effective for a business combination which occurs on or after the beginning of annual
periods beginning on or after April 1, 2015. Earlier application ispermitted for a business combination which occurs on or after the
beginning of annual periods beginning on or after April 1, 2014.
The Company applied the revised accounting standards andguidance for (a) transactions with noncontrolling interest, (b) presentation of the consolidated balance sheet, (c) presentation of theconsolidated statement of income, and (e) acquisition-related costs
above, effective April 1, 2015, and (d) provisional accounting treatments for a business combination above for a business combination which occurred on or after April 1, 2015. The revised accounting standards and guidance for (a) transactions with noncontrollinginterest and (e) acquisition-related costs were applied prospectively.
With respect to (b) presentation of the consolidated balance
sheet and (c) presentation of the consolidated statement of income,the applicable line items in the 2015 consolidated financial state-

justments shall be recognized as if the accounting for the business combination had been completed at the acquisition date.
(e)	‌Acquisition-related costs—Acquisition-related costs are costs,
such as advisory fees or professional fees, which an acquirer
incurs to effect a business combination. Under the previous accounting standard, the acquirer accounts for acquisition-related
costs by including them in the acquisition costs of the investment. Under the revised accounting standard, acquisition-related costs shall be accounted for as expenses in the periods inwhich the costs are incurred.

ments have been accordingly reclassified and presented in line withthose in 2016.
There was no impact from these accounting changes.

The above accounting standards and guidance for (a) transactions
with noncontrolling interest, (b) presentation of the consolidated balance sheet, (c) presentation of the consolidated statement of income, and (e) acquisition-related costs are effective for the beginning of annual periods beginning on or after April 1, 2015. Earlier
application is permitted from the beginning of annual periods beginning on or after April 1, 2014, except for (b) presentation of theconsolidated balance sheet and (c) presentation of the consolidated
statement of income. In case of earlier application, all accounting
standards and guidance above, except for (b) presentation of theconsolidated balance sheet and (c) presentation of the consolidated
statement of income, should be applied simultaneously.
Either retrospective or prospective application of the revised accounting standards and guidance for (a) transactions with noncontrolling interest and (e) acquisition-related costs is permitted. In retrospective application of the revised standards and guidance, theaccumulated effects of retrospective adjustments for all (a) transactions with noncontrolling interest and (e) acquisition-related costs
which occurred in the past shall be reflected as adjustments to thebeginning balance of capital surplus and retained earnings for theyear of the first-time application. In prospective application, the newstandards and guidance shall be applied prospectively from the beginning of the year of the first-time application.
The revised accounting standards and guidance for (b) presentation of the consolidated balance sheet and (c) presentation of theconsolidated statement of income shall be applied to all periods
presented in financial statements containing the first-time application of the revised standards and guidance.
The revised standards and guidance for (d) provisional account-

v. New Accounting Pronouncements
Tax Effect Accounting— “Guidance on Recoverability of Deferred
Tax Assets” (ASBJ Guidance on Corporate Accounting Standard
No. 26, March 28, 2016) includes certain revisions of the previous
accounting and auditing guidance issued by the Japanese Instituteof Certified Public Accountants. While the new guidance continues
to follow the basic framework of the previous guidance, it provides
new guidance for the application of judgment in assessing the recoverability of deferred tax assets.
The previous guidance provided a basic framework which included certain specific restrictions on recognizing deferred tax assets depending on the company’s classification in respect of its
profitability, taxable profit and temporary differences, etc.
The new guidance does not change such basic framework but,in limited cases, allows companies to recognize deferred tax assets
even for a deductible temporary difference for which it was specifically prohibited to recognize a deferred tax asset under the previous
guidance, if the company can justify, with reasonable grounds, that
it is probable that the deductible temporary difference will be utilizedagainst future taxable profit in some future period.
The new guidance is effective for the beginning of annual periods beginning on or after April 1, 2016. Earlier application is permitted for annual periods ending on or after March 31, 2016. The new
guidance shall not be applied retrospectively and any adjustmentsfrom the application of the new guidance at the beginning of thereporting period shall be reflected within retained earnings or accumulated other comprehensive income at the beginning of the reporting period.
The Company expects to apply the new guidance on recoverability of deferred tax assets effective April 1, 2016, and is in theprocess of measuring the effects of applying the new guidance infuture applicable periods.

Hokuhoku Financial Group, Inc. Annual Report 201635

3. Cash and Cash Equivalents
The reconciliation of “Cash and cash equivalents” in the consolidated statement of cash flows and “Cash and due from banks” in the
consolidated balance sheet as of March 31, 2016 and 2015 consisted of the following:

2016

2015

Thousands of
U.S. dollars
2016¥1,235,499(41,700)¥1,193,798¥1,210,607(61,538)¥1,149,068$10,964,672(370,080)$10,594,592

Millions of yen

Cash and due from banks...................................................................................................................................
Due from banks except for deposits with the Bank of Japan.................................................................................
Cash and cash equivalents.................................................................................................................................

4. Trading Assets and Liabilities
Trading assets and liabilities as of March 31, 2016 and 2015 consisted of the following:

Trading Assets

2016

2015

Thousands of
U.S. dollars
2016

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

¥3,2001,430¥4,631¥2,898
1,609¥4,508$28,406
12,694$41,100

Millions of yen

Trading Liabilities

2016

2015

Thousands of
U.S. dollars
2016

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

¥1,129¥1,129¥1,184¥1,184$10,021$10,021

Millions of yen

5. Money Held in Trust
Money held in trust for trading purposes as of March 31, 2016 and 2015 consisted of the following:

2016

2015

Thousands of
U.S. dollars
2016¥8,34434¥7,94741$74,058
303

Millions of yen

Amounts recorded in the consolidated balance sheet...........................................................................................
Valuation gain (loss) included in consolidated statement of income.......................................................................
There was no money held in trust for other purposes as of March 31, 2016 and 2015.

6. Securities
Securities as of March 31, 2016 and 2015 consisted of the following:

2016

2015

Thousands of
U.S. dollars
2016¥1,184,635
331,114297,379
235,500
357,959¥2,406,589¥1,280,622
397,008
330,217
237,508248,245¥2,493,601$10,513,270
2,938,541
2,639,147
2,089,995
3,176,782$21,357,735

Millions of yen

Japanese national government bonds.................................................................................................................
Japanese local government bonds......................................................................................................................
Japanese corporate bonds.................................................................................................................................
Japanese corporate stocks.................................................................................................................................
Other securities.................................................................................................................................................
Total..................................................................................................................................................................

36

Hokuhoku Financial Group, Inc. Annual Report 2016

As of March 31, 2016 and 2015, securities included equity investments in non-consolidated subsidiaries that amounted to ¥763 million($6,772 thousand) and ¥593 million, respectively.
In the following description, in addition to “Securities,” also presented are trading account securities which are classified as “Trading assets”
in the consolidated balance sheet and beneficiary claims on loan trusts which are classified as “Monetary claims bought” in the consolidatedbalance sheet.
Valuation gain or loss on trading account securities included in income before income taxes was ¥24 million ($222 thousand) and ¥6 million
as of March 31, 2016 and 2015, respectively.
The amounts on the consolidated balance sheet, aggregate fair value and unrealized gains (losses) on held-to-maturity debt securities asof March 31, 2016 and 2015 were as follows:
Millions of yen
March 31, 2016

Amount on
consolidatedbalance sheet

Estimated
fair value

Net unrealized
gains (losses)

Fair value exceeding amount on consolidated balance sheet:
Held-to-maturity debt securities:
Japanese government bonds.....................................................................................................................
Japanese corporate bonds........................................................................................................................
Total...................................................................................................................................................
Fair value below amount on consolidated balance sheet:
Held-to-maturity debt securities:
Japanese government bonds.....................................................................................................................
Japanese corporate bonds........................................................................................................................
Total...................................................................................................................................................
Grand total...........................................................................................................................................................

¥ 70,572
96,420¥166,993¥ 83,391
97,631¥181,023¥12,818
1,211¥14,030¥     —
10,393
10,393¥177,386¥     —
10,32910,329¥191,352¥    —(64)(64)¥13,966

March 31, 2015

Amount on
consolidatedbalance sheet

Estimated
fair value

Net unrealized
gains (losses)¥ 71,608
71,746¥143,354¥ 78,509
72,475¥150,985¥6,901729¥7,630¥    500
14,344
14,845¥158,199¥    499
14,29014,790¥165,775¥   (0)(54)(55)¥7,575

Millions of yen

Fair value exceeding amount on consolidated balance sheet:
Held-to-maturity debt securities:
Japanese government bonds.....................................................................................................................
Japanese corporate bonds........................................................................................................................
Total...................................................................................................................................................
Fair value below amount on consolidated balance sheet:
Held-to-maturity debt securities:
Japanese government bonds.....................................................................................................................
Japanese corporate bonds........................................................................................................................
Total...................................................................................................................................................
Grand total...........................................................................................................................................................

Thousands of U.S. dollars
March 31, 2016

Fair value exceeding amount on consolidated balance sheet:
Held-to-maturity debt securities:
Japanese government bonds.....................................................................................................................
Japanese corporate bonds........................................................................................................................
Total...................................................................................................................................................
Fair value below amount on consolidated balance sheet:
Held-to-maturity debt securities:
Japanese government bonds.....................................................................................................................
Japanese corporate bonds........................................................................................................................
Total...................................................................................................................................................
Grand total...........................................................................................................................................................

Amount on
consolidatedbalance sheet

Estimated
fair value

Net unrealized
gains (losses)$  626,313
855,701$1,482,014$  740,076
866,452$1,606,528$113,763
10,751$124,514$       —92,237
92,237$1,574,251$       —91,66891,668$1,698,196$     —
(569)
(569)
$123,945

Hokuhoku Financial Group, Inc. Annual Report 201637

The amounts on the consolidated balance sheet, acquisition or amortized cost and unrealized gains (losses) on available-for-sale securities asof March 31, 2016 and 2015 were as follows:
Millions of yen
March 31, 2016

Amount on consolidated balance sheet exceeding acquisition or amortized cost:
Japanese corporate stocks..............................................................................................................................
Bonds:
Japanese government bonds.....................................................................................................................
Japanese local government bonds.............................................................................................................
Japanese corporate bonds........................................................................................................................
Total bonds.....................................................................................................................................................
Other securities..............................................................................................................................................
Total...................................................................................................................................................
Amount on consolidated balance sheet below acquisition or amortized cost:
Japanese corporate stocks..............................................................................................................................
Bonds:
Japanese government bonds.....................................................................................................................
Japanese local government bonds.............................................................................................................
Japanese corporate bonds........................................................................................................................
Total bonds.....................................................................................................................................................
Other securities..............................................................................................................................................
Total.........................................................................................................................................................
Grand total...........................................................................................................................................................

Amount on
consolidatedbalance sheet

Acquisition/amortized cost

Net unrealized
gains (losses)¥  153,077¥   79,285¥ 73,792

1,100,025
319,818
186,502
1,606,346
308,753¥2,068,177

1,072,904
312,160
181,562
1,566,627
295,152¥1,941,066

27,121
7,657
4,940
39,71813,600¥127,111¥   54,575¥   61,558¥   (6,983)

14,036
11,296
4,063
29,396103,270
187,241¥2,255,419

14,13011,2994,083
29,513112,149
203,221¥2,144,287

(94)
(3)
(20)
(117)
(8,879)(15,979)¥111,131

Millions of yen
March 31, 2015

Amount on consolidated balance sheet exceeding acquisition or amortized cost:
Japanese corporate stocks..............................................................................................................................
Bonds:
Japanese government bonds.....................................................................................................................
Japanese local government bonds.............................................................................................................
Japanese corporate bonds........................................................................................................................
Total bonds.....................................................................................................................................................
Other securities..............................................................................................................................................
Total...................................................................................................................................................
Amount on consolidated balance sheet below acquisition or amortized cost:
Japanese corporate stocks..............................................................................................................................
Bonds:
Japanese government bonds.....................................................................................................................
Japanese local government bonds.............................................................................................................
Japanese corporate bonds........................................................................................................................
Total bonds.....................................................................................................................................................
Other securities..............................................................................................................................................
Total.........................................................................................................................................................
Grand total...........................................................................................................................................................

38

Hokuhoku Financial Group, Inc. Annual Report 2016

Amount on
consolidatedbalance sheet

Acquisition/amortized cost

Net unrealized
gains (losses)¥  203,028¥  113,621¥ 89,407

1,114,750
370,844
218,486
1,704,080
264,349¥2,171,459

1,088,608
363,372
214,429
1,666,410
252,243¥2,032,275

26,142
7,472
4,056
37,67012,105¥139,183¥    4,288¥    5,267¥   (978)93,762
26,16425,640145,566
48,282
198,138¥2,369,598

93,981
26,21925,712
145,91249,261
200,441¥2,232,717

(218)
(55)
(72)
(345)
(978)
(2,302)¥136,881

Thousands of U.S. dollars
March 31, 2016

Amount on consolidated balance sheet exceeding acquisition or amortized cost:
Japanese corporate stocks..............................................................................................................................
Bonds:
Japanese government bonds.....................................................................................................................
Japanese local government bonds.............................................................................................................
Japanese corporate bonds........................................................................................................................
Total bonds.....................................................................................................................................................
Other securities..............................................................................................................................................
Total...................................................................................................................................................
Amount on consolidated balance sheet below acquisition or amortized cost:
Japanese corporate stocks..............................................................................................................................
Bonds:
Japanese government bonds.....................................................................................................................
Japanese local government bonds.............................................................................................................
Japanese corporate bonds........................................................................................................................
Total bonds.....................................................................................................................................................
Other securities..............................................................................................................................................
Total.........................................................................................................................................................
Grand total...........................................................................................................................................................

Amount on
consolidatedbalance sheet

Acquisition/amortized cost

Net unrealized
gains (losses)$ 1,358,517$   703,636$  654,881

9,762,387
2,838,289
1,655,150
14,255,826
2,740,091$18,354,434

9,521,697
2,770,329
1,611,307
13,903,333
2,619,389$17,226,358

240,690
67,96043,843352,493
120,702$1,128,076$   484,343$   546,315$  (61,972)

124,569
100,252
36,059260,880
916,490
1,661,713$20,016,147

125,404
100,282
36,241
261,927995,288
1,803,530$19,029,888

(835)
(30)
(182)
(1,047)(78,798)(141,817)$  986,259

Information on available-for-sale securities, which were sold during the years ended March 31, 2016 and 2015 is as follows:

March 31, 2016

Proceeds

Millions of yen
Realized gains

Realized losses

Japanese corporate stocks....................................................................................................................................
Bonds:
Japanese government bonds.....................................................................................................................
Japanese local government bonds.............................................................................................................
Japanese corporate bonds........................................................................................................................
Total bonds.....................................................................................................................................................
Other securities..............................................................................................................................................
Total.....................................................................................................................................................................

¥142,735¥7,371¥6,514

16,522
4,051
4,976
25,551
252,088¥420,375

77
1
28
106
823
¥8,302——2
2
273¥6,789March 31, 2015

Proceeds

Millions of yen
Realized gains

Realized losses

Japanese corporate stocks....................................................................................................................................
Bonds:
Japanese government bonds.....................................................................................................................
Japanese local government bonds.............................................................................................................
Japanese corporate bonds........................................................................................................................
Total bonds.....................................................................................................................................................
Other securities..............................................................................................................................................
Total.....................................................................................................................................................................

¥ 72,238¥3,948¥  933

119,782
4,307
9,180
133,269
44,911¥250,419

2,662
7
87
2,757
1,566
¥8,272

14
—
—
14
198
¥1,146

March 31, 2016

Proceeds

Japanese corporate stocks....................................................................................................................................
Bonds:
Japanese government bonds.....................................................................................................................
Japanese local government bonds.............................................................................................................
Japanese corporate bonds........................................................................................................................
Total bonds.....................................................................................................................................................
Other securities..............................................................................................................................................
Total.....................................................................................................................................................................

Thousands of U.S. dollars
Realized gains
Realized losses$1,266,735$65,420$57,812

146,634
35,95544,169226,758
2,237,205$3,730,698

684
15
249
948
7,310
$73,678

—
—
18
18
2,428
$60,258

Hokuhoku Financial Group, Inc. Annual Report 201639

Impairment losses on available-for-sale securities amounted to ¥642 million ($5,706 thousand) and ¥244 million as of March 31, 2016 and2015, respectively.
An impairment of securities is recognized if the decline in fair value is substantial and the decline is determined to be other-than-temporary.
The assessment of whether or not a decline in fair value is other-than-temporary by classification of the security issuer which is used in the
self-assessment of asset quality is as follows:(1) ‌For issuers who are classified as borrowers under “in need of caution,” “possible bankruptcy,” “virtual bankruptcy,” “legal bankruptcy.”
Stocks: where the fair value is lower than the acquisition cost.
Bonds: where the fair value declines by over 30% compared to the amortized cost or acquisition cost.
(2) For issuers who are classified as borrowers under “normal.”	‌Stocks and bonds: where the fair value declines by 50% or more compared to the amortized cost or acquisition cost, or the fair value
declines by over 30% but less than 50% compared to the amortized cost or acquisition cost and market prices remaining below acertain level.
Reconciliation of valuation difference on available-for-sale securities to the amounts included in “valuation difference on available-for-salesecurities,” presented as a separate component of net assets as of March 31, 2016 and 2015, in the consolidated balance sheet, was asfollows:

2016

2015

Thousands of
U.S. dollars
2016¥111,131(27,291)
83,839(93)
88¥ 83,834¥136,881(35,865)
101,015(90)
108¥101,033$986,259(242,206)
744,053(833)
789$744,009

Millions of yen

Valuation difference before taxes on available-for-sale securities..........................................................................
Deferred tax liabilities.........................................................................................................................................
Valuation difference on available-for-sale securities (before adjustment)................................................................
Amounts attributable to non-controlling interests.................................................................................................
The Company’s portion of valuation difference on available-for-sale securities of equity method investees...............
Amounts recorded in the consolidated balance sheet...........................................................................................

40

Hokuhoku Financial Group, Inc. Annual Report 2016

7. Loans and Bills Discounted
Loans and bills discounted as of March 31, 2016 and 2015 consisted of the following:
Millions of yen
2016
2015

Bills discounted............................. ¥   43,584 ¥   49,555
307,425
330,670
Loans on bills................................
Loans on deeds............................. 6,288,875 6,242,549
943,068
924,043
Overdrafts.....................................
Total.............................................. ¥7,582,954 ¥7,546,819

Thousands of
U.S. dollars
2016$   386,803
2,728,306
55,811,816
8,369,443$67,296,368

Loans and bills discounted include loans to borrowers in bankruptcy, past due loans, past due loans (three months or more) and
restructured loans. The amounts of these loans were as follows:
Millions of yen
2016
2015

Loans to borrowers in bankruptcy..... ¥  4,774
Past due loans............................... 144,418
Past due loans
376(three months or more).................
19,731
Restructured loans.........................
Total.............................................. ¥169,300

Thousands of
U.S. dollars
2016¥  5,269
154,483$   42,368
1,281,666

1,217
28,185¥189,155

3,345
175,114$1,502,493

Loans to borrowers in bankruptcy represent nonaccrual loans to
debtors who are legally bankrupt, as defined in the Order for
Enforcement of the Corporation Tax Act.
Past due loans are nonaccrual loans which include loans classified as “possible bankruptcy” and “virtual bankruptcy.”
Nonaccrual loans are defined as loans (after the partial chargeoff of claims deemed uncollectible) on which the Banks havestopped accruing interest income due to substantial doubt existing
about the ultimate collection of principal and/or interest. Such loans
are classified either as “possible bankruptcy” or “virtual bankruptcy”
under the Banks’ self-assessment guidelines.
In addition to past due loans as defined above, certain otherloans classified as “in need of caution” under the Banks’ self-assessment guidelines include past due loans (three months or more)which consist of loans for which the principal and/or interest is threemonths or more past due, but exclude loans to borrowers in bankruptcy and past due loans.
Restructured loans are loans where the Group relaxes lending
conditions by reducing the original interest rate or by forbearing interest payments or principal repayments to support the borrower’s
reorganization. Restructured loans exclude loans to borrowers inbankruptcy, past due loans or past due loans (three months ormore).
These amounts represent the gross amounts before deductionof the allowance for loan losses.
Bills discounted are accounted for as financial transactions inaccordance with “Accounting and Auditing treatment of AccountingStandards for Financial Instruments in Banking Industry” (JICPA
Industry Audit Committee Report No. 24). The Banks have a right tosell or repledge as collateral such discounted bills at their discretion.
The total face value of bank acceptance bills, commercial bills, documentary bills and foreign currency bills bought, which were obtained at a discount, were ¥45,905 million ($407,400 thousand) and¥53,025 million as of March 31, 2016 and 2015, respectively.

As of March 31, 2016 and 2015, loans and bills discounted included the portion of loans extended to original borrowers based onloan participation agreements, as permitted by the JICPA
Accounting Committee Report No. 3, in the amount of ¥- million($- thousand) and ¥1,500 million, respectively.

8. Foreign Exchanges
Foreign exchanges as of March 31, 2016 and 2015 consisted of thefollowing:

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

Millions of yen
2016
2015

Thousands of
U.S. dollars
2016¥11,096
2,320
1,353¥14,771¥ 9,9643,469
1,099¥14,533$ 98,480
20,597
12,015$131,092¥    25
48
153¥   226¥    3299
47¥   179$    227427
1,360$  2,014

9. Tangible Fixed Assets
Tangible fixed assets as of March 31, 2016 and 2015 were as­follows:
Millions of yen
2016
2015

Buildings....................................... ¥ 32,999
61,293Land.............................................
657
Lease assets..................................
Construction in progress..................
241
5,887
Other tangible fixed assets...............
Total.............................................. ¥101,080¥ 33,505
61,645
651
187
5,888
¥101,878

Thousands of
U.S. dollars
2016$292,864
543,963
5,834
2,146
52,248$897,055

Accumulated depreciation amounted to ¥104,871 million($930,700 thousand) and ¥104,849 million as of March 31, 2016
and 2015, respectively.
The book value of tangible fixed assets adjusted for gains onsales of replaced assets amounted to ¥3,885 million ($34,479­thousand) and ¥3,895 million as of March 31, 2016 and 2015,­respectively.
Under the “Act Concerning Land Revaluation,” Hokuriku Bank,
Ltd. revalued its own land for business operations as of March 31,
1998. The revaluation gain is included in net assets as “Revaluation
reserve for land.” The carrying amount of the land after the above
one-time revaluation exceeded the market value by ¥19,978 million($177,299 thousand) and ¥20,505 million as of March 31, 2016 and2015, respectively.

Hokuhoku Financial Group, Inc. Annual Report 201641

10. Intangible Fixed Assets

13. Loan Commitments

Intangible fixed assets as of March 31, 2016 and 2015 were as­follows:

All contingent liabilities arising from acceptances and guarantees
are reflected in acceptances and guarantees in liabilities on the consolidated balance sheet. As a contra account, customers’ liabilities
for acceptances and guarantees are also shown in assets, which
represent the Banks’ 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 ¥131,164 million($1,164,041 thousand) and ¥114,428 million as of March 31, 2016
and 2015, respectively.

Overdraft facility and loan commitment contracts with customers tolend up to the prescribed limits in response to customers’ applications for a loan, as long as there is no violation of any condition
within the contracts. The unused amount of such contracts totaled¥2,336,084 million ($20,732,023 thousand) and ¥2,321,927 million
as of March 31, 2016 and 2015, respectively, of which amounts
with original agreement terms of less than one year are ¥2,284,348
million ($20,272,886 thousand) and ¥2,275,702 million as of March
31, 2016 and 2015, respectively.
Since many of the commitments expire without being drawn
upon, the unused amount does not necessarily represent a future
cash requirement. Most of these contracts have conditions allowing
the Group to refuse customers’ applications for a loan or decrease
the contract limits with proper reasons (e.g., changes in financial
situation, deterioration in customers’ creditworthiness). At the inception of the contracts, the Group obtains collateral including realestate, securities, etc., if considered to be necessary. Subsequently,
the Group performs a periodic review of the customers’ businessresults based on internal rules and takes necessary measures toreconsider conditions in contracts and require additional collateraland guarantees.

12. Assets Pledged

14. Deposits

Assets pledged as collateral and their relevant liabilities as of March
31, 2016 and 2015 were as follows:

Deposits as of March 31, 2016 and 2015 consisted of the following:

Software........................................
Goodwill........................................
Lease assets..................................
Other intangible fixed assets............
Total..............................................

Millions of yen
2016
2015

Thousands of
U.S. dollars
2016¥ 5,413
17,694
94772¥23,974$ 48,046
157,029839
6,856$212,770¥ 7,291
19,796190
798¥28,076

11. Customers’ Liabilities for Acceptances and Guarantees

Millions of yen
2016
2015

Assets pledged as collateral:
Securities................................... ¥444,040
Loans and bills discounted........... 111,032
Relevant liabilities to the above assets:
Deposits.................................... ¥ 27,848
Call money and bills sold.............
—
Payables under securities lending
92,954transactions.............................
Borrowed money........................ 161,990

Thousands of
U.S. dollars
2016¥399,850
123,512$3,940,723
985,379¥ 28,713
20,000$  247,143—

27,80953,532824,946
1,437,615

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, 2016 and 2015:
Millions of yen
2016
2015

Securities........................................ ¥140,922
219
Other assets....................................

¥146,095
219

Thousands of
U.S. dollars
2016$1,250,646
1,947

In addition to the above, initial margins for futures transactions,cash collateral paid for financial instruments and guarantee deposits
are included in “Other assets” in the consolidated balance sheet.
Millions of yen
2016
2015

Initial margins for futurestransactions.................................
Cash collateral paid forfinancial instruments....................
Guarantee deposits........................

42

Thousands of
U.S. dollars
2016¥    8¥   10$    77

1,277
3,986

200
4,014

11,34135,375

Hokuhoku Financial Group, Inc. Annual Report 2016

Millions of yen
2016
2015

Current deposits, ordinary deposits,
saving deposits anddeposits at notice.......................... ¥ 6,167,421 ¥ 5,867,009
Time deposits and installment
savings......................................... 3,929,382 4,142,065
Negotiable certificates of deposit......
244,008
487,347
Other deposits................................
134,604
131,324
Total.............................................. ¥10,475,416 ¥10,627,748

Thousands of
U.S. dollars
2016$54,733,953
34,872,045
2,165,498
1,194,576$92,966,072

15. Borrowed Money
As of March 31, 2016 and 2015, the weighted-average annualinterest rates applicable to borrowed money were 0.27% and­0.86%, respectively.
Borrowed money includes borrowings from the Bank of Japanand other financial institutions. In addition, borrowed money­includes ¥39,500 million ($350,550 thousand) and ¥70,500 millionof subordinated borrowed money as of March 31, 2016 and 2015,
respectively.
Annual maturities of borrowed money as of March 31, 2016
were as follows:
Millions of yen

Thousands of
U.S. dollars

2017.................................................................. ¥ 13,145886
2018..................................................................
532
2019..................................................................
2020.................................................................. 152,690
2272021..................................................................
39,7692022 and thereafter.............................................
Total................................................................... ¥207,252$  116,660
7,870
4,729
1,355,082
2,017
352,946$1,839,304

Year ending March 31

16. Bonds Payable
Bonds payable as of March 31, 2016 and 2015 consisted of the following:

2016

2015

Thousands of
U.S. dollars
2016¥    —¥10,000$     —

8,000

8,000

70,99825,000¥33,000

25,000¥43,000

221,867$292,865

Millions of yen

Thousands of
U.S. dollars¥33,000$292,865

Millions of yen

Issued by the Company:
Unsecured fixed and floating subordinated bonds, payable in Japanese yen,
due January 2021, 1.27% interest.............................................................................................................
Unsecured fixed and floating subordinated bonds, payable in Japanese yen,
due December 2021, 1.50% interest..........................................................................................................
Unsecured fixed and floating subordinated bonds, payable in Japanese yen,
due October 2023, 0.75% interest..............................................................................................................
Total..................................................................................................................................................................
Annual maturities of bonds payable as of March 31, 2016 were as follows:Year ending March 312022 and thereafter...........................................................................................................................................

17. Retirement Benefits(a) Defined benefit plan

Overview of the Group’s retirement benefit plans
The Hokuriku Bank, Ltd. which previously provided three defined
benefit retirement programs, corporate pensions, and tax qualified
pension and retirement bonuses, terminated the tax qualified pension and migrated a portion of the retirement bonus to a 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 computation of projected benefit
obligations in conformity with the standards for accounting for retirement benefits. The Minister of Health, Labour and Welfare approved on February 17, 2003 that Hokuriku Bank Ltd. would be
relieved of the obligation to administer the future payment service ofthe government mandated portion of its employee pension fund.
The Hokuriku Bank, Ltd. was further approved on March 1, 2005 to
switch from an employee pension fund to a corporate pension fund.
The Hokkaido Bank, Ltd. provides defined benefit arrangementsthat combine a retirement lump sum grant and an employee pension fund plan. The Hokkaido Bank, Ltd. was approved by the
Minister of Health, Labour and Welfare on March 26, 2004 to berelieved of the obligation to administer the future payment service ofthe government mandated portion of the employee pension fund.
The Hokkaido Bank, Ltd. was further approved on March 31, 2006
to switch from an employee pension fund to an employee 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 from which they each come.
The Banks have established benefit trust arrangements as a partof their plan assets.

(1) ‌The changes in defined benefit obligations for the years ended
March 31, 2016 and 2015 were as follows:
Millions of yen
2016
2015

Balance at beginning of year
(as previously reported).................. ¥ 92,378
Cumulative effects of—accounting change....................
Balance at beginning of year
92,378(as restated)..................................
2,037
Service cost................................
1,378
Interest cost................................
Actuarial (gains) losses................ 12,035(5,287)
Benefits paid...............................
73
Others.........................................
Balance at end of year..................... ¥102,615

Thousands of
U.S. dollars
2016¥88,836$819,830

2,885—

91,721
2,105
1,368
2,101
(5,008)90¥92,378

819,830
18,084
12,232
106,813(46,927)653$910,685(2) The changes in plan assets for the years ended March 31, 2016
and 2015 were as follows:
Millions of yen
2016
2015

Balance at beginning of year............ ¥85,517
2,478
Expected return on plan assets....
(6,619)Actuarial (gains) losses................
4,562
Contributions from the employer....
(3,869)Benefits paid...............................
87
Others.........................................
Balance at end of year..................... ¥82,156¥73,875
2,307
8,964
4,026
(3,746)
90¥85,517

Thousands of
U.S. dollars
2016$758,939
21,999(58,746)
40,489(34,344)772$729,109

Hokuhoku Financial Group, Inc. Annual Report 201643

(3) ‌Reconciliation between the liability recorded in the consolidatedbalance sheet and the balances of defined benefit obligation andplan assets
Millions of yen
2016
2015

Funded defined benefit obligation.....
Plan assets....................................
Unfunded defined benefit obligation....
Plan assets....................................
Net liability (asset) arising fromdefined benefit obligation...............

¥86,086(74,957)
11,12916,529(7,198)9,330¥76,491(77,839)(1,348)15,887(7,677)
8,210$763,995(665,226)
98,769146,690(63,883)
82,807¥20,459¥ 6,861$181,576

Millions of yen
2016
2015

Liability for retirement benefits.........
Asset for retirement benefits............
Net liability (asset) arising fromdefined benefit obligation...............

Thousands of
U.S. dollars
2016

Thousands of
U.S. dollars
2016¥20,459—¥8,930(2,069)$181,576—¥20,459¥6,861$181,576(4) ‌
The components of net periodic benefit costs for the years­ended March 31, 2016 and 2015 were as follows:
Millions of yen
2016
2015

Service cost....................................
Interest cost....................................
Expected return on plan assets........
Recognized actuarial (gains) losses....
Amortization of prior service costs....
Amortization of transitional
obligation......................................
Others.............................................
Net periodic benefit costs.................

Thousands of
U.S. dollars
2016¥2,0371,378(2,478)3,073(46)¥2,1051,368(2,307)4,530(46)$18,084
12,232(21,999)
27,277(415)—
66¥4,0301,693
102¥7,446—593$35,772(5) ‌Amounts recognized in other comprehensive income (before income tax effect) in respect of defined retirement benefit plans forthe years ended March 31, 2016 and 2015
Millions of yen
2016
2015

Prior service cost............................. ¥    (46)
Actuarial gains (losses).................... (15,581)—
Transitional obligation......................
Total................................................ ¥(15,628)¥   (46)
11,394
1,693¥13,041

Thousands of
U.S. dollars
2016$    (415)(138,282)—$(138,697)(6) ‌Amounts recognized in accumulated other comprehensive income (before income tax effect) in respect of defined retirement
benefit plans as of March 31, 2016 and 2015
Millions of yen
2016
2015

Unrecognized prior service cost..........
Unrecognized actuarial (gains) losses...
Total................................................

44¥  (140)
12,129¥11,989

Hokuhoku Financial Group, Inc. Annual Report 2016¥  (187)(3,452)¥(3,639)

Thousands of
U.S. dollars
2016$   (1,245)
107,644$106,399(7) Plan assets• Components of plan assets
Bonds...................................................................
Stocks..................................................................
Cash and deposits.................................................
General accounts...................................................
Other....................................................................
Total.....................................................................

2016

2015

34.20%
45.40%
3.13%
3.95%
13.32%
100.00%28.61%
50.06%
4.23%
4.87%
12.23%
100.00%Note: ‌Plan assets include retirement benefit trusts of 22.34% and 23.70%
as of March 31,2016 and 2015, respectively.

• ‌Method of determining the expected rate of return on plan assets
The expected rate of return on plan assets is determined considering the long-term rates of return which are expected currently and in
the future from the various components of the plan assets.
(8) ‌Assumptions used for the years ended March 31, 2016 and2015 were set forth as follows:
2016

2015

Discount rate......................................................... 0.61%-0.63% 1.4%-1.6%
3.5%
Expected rate of return on plan assets..................... 3.0%-3.5%(b) Defined contribution pension plan
Millions of yen
2016
2015

Contribution....................................

¥273

¥274

Thousands of
U.S. dollars
2016$2,424

18. Equity

19. Capital StockJapanese banks are subject to the Banking Act and the Companies
Act of Japan (the “Companies Act”). The significant provisions in the
Companies Act that affect financial and accounting matters are
summarized below:(a) Dividends	‌Under the Companies Act, companies can pay dividends at any
time during the fiscal year in addition to the year-end dividend
upon resolution at the shareholders’ meeting. Additionally, forcompanies that meet certain criteria including (1) having a Boardof Directors, (2) having independent auditors, (3) having an Audit& Supervisory Board and (4) the term of service of the directors
being prescribed as one year rather than the normal two-year
term by its articles of incorporation, the Board of Directors may
declare dividends (except for dividends in kind) at any time during the fiscal year if the company has prescribed so in its articles
of incorporation. The Company meets all the above criteria, andaccordingly, the Board of Directors may declare dividends (except for dividends-in-kind) at any time during the fiscal year.

Information with respect to capital stock of the Company as ofMarch 31, 2016 and 2015 is as follows:	‌   Semiannual interim dividends may also be paid once a year
upon resolution by the Board of Directors if the articles of incorporation of the Company so stipulate. The Companies Act provides a certain limitation on the amounts available for dividends
or the purchase of treasury stock. The limitation is defined as theamount available for distribution to the shareholders, but theamount of net assets after dividends must be maintained at noless than ¥3 million.
(b)	‌Increases / decreases and transfer of common stock, reserveand surplus
	‌The Banking Act requires that an amount equal to 20% of dividends must be appropriated as a legal reserve (a component ofretained earnings) or as additional paid-in capital (a componentof capital surplus) depending on the equity account charged
upon the payment of such dividends until 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 capitalsurplus and retained earnings can be transferred among the accounts under certain conditions upon resolution of the shareholders.
(c) Treasury stock and treasury stock acquisition rights	‌The Companies Act also provides for companies to purchasetreasury stock and dispose of such treasury stock by resolutionof the Board of Directors. The amount of treasury stock purchased cannot exceed the amount available for distribution to
the shareholders which is determined by a specific formula.
	‌   Under the Companies Act, stock acquisition rights are presented as a separate component of equity.
	‌   The Companies Act also provides that companies can 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 acquisition rights.

2016

Number of shares:
Authorized:
Common........................................ 2,800,000,000
400,000,000
Preferred (Type 1).........................
200,000,000
Preferred (Type 2).........................
200,000,000
Preferred (Type 3).........................
90,000,000
Preferred (Type 4).........................
110,000,000
Preferred (Type 5).........................
Issued and outstanding:Common...................................... 1,351,630,146
107,432,000
Preferred (Type 5).........................
Treasury stock:
11,607,137
Common........................................
2,160
Preferred (Type 5)...........................

2015

2,800,000,000
400,000,000
200,000,000
200,000,000
90,000,000
110,000,000
1,351,630,146
107,432,000
11,887,214
1,420

Preferred stock (Type 5)
Preferred stock (Type 5) is noncumulative and nonparticipating for
dividend payments. Shareholders of the preferred stock (Type 5) arenot entitled to vote at the 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 is rejected at the general meeting of shareholders.
   Annual dividends per share of preferred stock (Type 5) are paid
to shareholders at ¥15.00.
   The changes in the number of treasury stock for the fiscal years
ended March 31, 2016 and 2015 were as follows:
As of April Changes during the fiscal year As of March
1, 201531, 2016
Decrease*2
Increase*1
2016
Common................... 11,887,214
67,494
347,571
11,607,137
Preferred (Type 5)......
1,420
740
—
2,160
*1 ‌The increase of common and preferred (Type 5) represents the acquisitionof odd-lot shares.
*2 ‌The decrease of common represents the disposal of 2,171 shares of
odd-lot shares and 345,400 shares exercised of stock options.

As of April Changes during the fiscal year As of March
1, 201431, 2015
Decrease*2
Increase*1
2015
Common................... 12,067,668
79,487259,941
11,887,214
Preferred (Type 5)......
1,420
—
—
1,420
*1 ‌The increase of common represents the acquisition of odd-lot shares.
*2 ‌The decrease of common represents the disposal of 1,341 shares of
odd-lot shares and 258,600 shares exercised of stock options.

20. Stock Acquisition Rights
Stock acquisition rights as of March 31, 2016 and 2015 consistedof stock options.

21. Stock Options
The stock option plans grant options to the Company’s directors
and the Banks’ directors and executive officers to purchase certain
shares of the Company’s common stock in the respective exercise
periods. The exercise prices are subject to adjustments for stock
issuances below fair value and stock splits.

Hokuhoku Financial Group, Inc. Annual Report 201645

  Stock option expenses in the amount of ¥110 million ($981
thousand) and ¥111 million were recorded under general and­administrative expenses for the years ended March 31, 2016 and2015, respectively.
   The stock options outstanding as of March 31, 2016 were as
follows:

Stock option

Persons
grantedNumberof options
granted(Shares)

Date of
grant

19 directors
2012 Stock 23 executive
November
Optionofficers
1,058,500 28, 201219 directors
2013 Stock 22 executive
August 13,
Optionofficers  629,500
2013
19 directors
2014 Stock 21 executive
July 11,
Optionofficers  554,000
2014
18 directors
2015 Stock 24 executive
July 14,
Optionofficers  417,300
2015

Exercise
price

Exercise period

From November
29, 2012 toNovember 28,
2042
From August 14,
2013 to August
13, 2043
From July 12,2014 to July 11,
2044
From July 15,
2015 to July 14,
2045

¥1
¥1
¥1
¥1

The stock option activity was as follows:Year ended
March 31, 2016

Non-vested:
March 31, 2015
–outstanding.....
Granted...........
Canceled.........
Vested.............
March 31, 2016
–outstanding.....
Vested:March 31, 2015
–outstanding.....
Vested.............
Exercised........
Canceled.........
March 31, 2016
–outstanding.....
Exercise price...........
Average stock priceat exercise..............
Fair value priceat grant date...........

2012 stock2013 stock2014 stock2015 stock
option (Shares) option (Shares) option (Shares) option (Shares)(1) Net income per share of common stock
Reconciliation of the difference between basic and diluted net income per share (“EPS”) for the years ended March 31, 2016 and2015 was as follows:Year ended
March 31, 2016

Basic EPS – Net income
available to commonshareholders
Effect of dilutive securities
Diluted EPS – Net income
for computation

Year ended
March 31, 2015

Basic EPS – Net income
available to commonshareholders
Effect of dilutive securities
Diluted EPS – Net income
for computation

Thousands ofMillions of yen
shares
Net income
attributable to
Weightedowners of parent average shares

Yen

U.S. dollars
EPS¥27,226

1,339,935
1,667¥20.31$0.18¥27,226

1,341,602¥20.29$0.18

Thousands ofMillions of yen
shares
Net income
attributable to
Weightedowners of parent average shares

Yen
EPS

¥26,623

1,339,706
1,555¥19.87¥26,623

1,341,261¥19.84(2) Net assets per share of common stock
Net assets per share of common stock as of March 31, 2016 and2015 were as follows:

—
—
—
—

—
—
—
—

—
—
—
—

—
417,300—
417,300

—

—

—

—

560,900—
105,500—

529,500—
123,800—

545,100—
116,100——
417,300——

Net assets per share of common stock as of March 31, 2016 and2015 were calculated based on the following:

455,400¥1$0.01

405,700¥1$0.01

429,000¥1$0.01

417,300
¥1
$0.01

¥289
$2.56

¥289
$2.56

¥289
$2.56

—
—

¥108
$0.96

¥182
$1.62

¥201
$1.78

¥265
$2.35

Total equity.................................... ¥  566,251 ¥  572,987
Deductions from total equity:
Stock acquisition rights..............
319
266
Non-controlling interests............
1,378
1,276
53,71453,715Preferred stock..........................
Preferred dividends....................
805
805
Net assets attributable tocommon stock at the end of
the fiscal year.............................. 510,032
516,922
Number of shares of common
stock at the end of the fiscal year
used for the calculation of net
assets per share of common
stock (shares in thousands).......... 1,340,023 1,339,742

The Assumptions Used to Measure the Fair Value of the 2015 Stock
Options
Estimate method.......................................... Black-Scholes option-pricing model
Volatility of stock price.............................. 30.014%
Estimated remaining outstanding period.... Two years and three months
Estimate dividend..................................... ¥4.25 per share
Interest rate with risk free......................... 0.010%
In estimating the vested number of stock options, the Company
basically reflects only the actual forfeited number, since it is difficult
to make a reasonable estimate on the future forfeited number.

46

22. Per Share Information

Hokuhoku Financial Group, Inc. Annual Report 2016

Yen

Net assets per shareof common stock..........................

2016

2015

U.S. dollars
2016¥380.61¥385.83$3.38

Millions of yen
2016
2015

Thousands of
U.S. dollars
2016$5,025,309
2,838
12,235
476,703
7,151
4,526,382

23. Other Ordinary Income

27. Income Taxes

Other ordinary income for the years ended March 31, 2016 and2015 is as follows:

The Company and its domestic subsidiaries are subject to Japanesenational and local income taxes which, in the aggregate, resulted in
the normal effective statutory tax rates of approximately 32.82%
and 35.37% for the years ended March 31, 2016 and 2015, respectively.
The tax effects of significant temporary differences and tax loss
carryforwards which resulted in deferred tax assets and liabilities at
March 31, 2016 and 2015 are as follows:

Millions of yen
2016
2015

Gain on foreign exchangetransactions – net.........................
Gains on sales and redemption ofbonds and other securities.............
Gains on derivatives........................
Lease receipts................................
Other.............................................
Total..............................................

Thousands of
U.S. dollars
2016¥ 1,045¥ 1,437$  9,277

1,037
808
6,511
4,904
¥14,308

3,739
1,034
6,496
4,565
¥17,273

9,210
7,177
57,791
43,528$126,983

24. Other Ordinary Expenses
Other ordinary expenses for the years ended March 31, 2016 and2015 are as follows:
Millions of yen
2016
2015

Losses on sales, redemption anddevaluation of bonds andother securities.............................
Lease costs....................................
Other.............................................
Total..............................................

¥  213
5,795
3,526¥9,536¥  257
5,742
3,203¥9,203Thousands of
U.S. dollars
2016$ 1,893
51,437
31,299$84,629

25. Other Income
Other income for the years ended March 31, 2016 and 2015 is asfollows:
Millions of yen
2016
2015

Gains on sales of stocks..................
Gains on sales oftangible fixed assets.....................
Other.............................................
Total..............................................

Thousands of
U.S. dollars
2016¥ 7,373¥4,598$ 65,434

4
4,821¥12,19938
3,786¥8,422

39
42,790$108,263

26. Other Expenses
Other expenses for the years ended March 31, 2016 and 2015 are
as follows:
Millions of yen
2016
2015

Losses on write-offs of loans andbills discounted............................
Losses on sales of stocks................
Losses on impairments of stocks
and other securities......................
Losses on sales of loans.................
Losses on impairments anddisposals of fixed assets................
Other.............................................
Total..............................................

Thousands of
U.S. dollars
2016¥   5176,576¥  5901,131$  4,589
58,366

1,390
267

33
297

12,343
2,377

1,266
3,280
¥13,299

1,310
2,777
¥6,140

11,244
29,112$118,031

Thousands of
U.S. dollars
2016

Millions of yen
2016
2015

Deferred tax assets:
Allowance for loan losses............ ¥28,447
Depreciation...............................
973
Liability for retirement benefits..... 17,288
Loss on valuation of securities..... 12,981
Other.........................................
5,910
66
Operating loss carryforwards.......
Subtotal................................
65,668Less: Valuation allowance............ 27,659
Total deferred tax assets.............. 38,008
Deferred tax liabilities:
Valuation difference on
available-for-sale securities....... 33,357
Book-value correction
for securities............................
4,305
2,765
Land transfer through merger......
Other.........................................
2,219
Total deferred tax liabilities........... 42,647
Net deferred tax assets............... ¥ (4,638)¥ 34,052
1,066
13,755
13,7185,698
240
68,53227,50741,024$252,462
8,641
153,434
115,20752,452594
582,790
245,472
337,318

42,969296,034

4,779
2,911
2,214
52,875¥(11,850)

38,20824,545
19,700378,487$ (41,169)

A reconciliation between the normal effective statutory tax rates andthe actual effective tax rates reflected in the accompanying consolidated statement of income for the years ended March 31, 2016 and2015 is as follows:
2016

Normal effective statutory tax rate.................................... 32.82%
Change in valuation allowance.................................... 1.39
Permanently non-taxable income................................ (0.71)
Per capita portion of inhabitants’ taxes......................... 0.35
Permanently non-deductible expenses......................... 0.30
Decrease in deferred tax assets due to changes in tax rate.... 2.24
Other........................................................................ 0.59
Actual effective tax rate................................................... 36.98%

2015

35.37%(0.44)(2.21)
0.34
0.35
5.60
0.62
39.63%New tax reform laws enacted in 2016 in Japan changed the normal
effective statutory tax rate for the fiscal year beginning on or after
April 1, 2016 and 2017, to approximately 30.69% and for the fiscal
year beginning on or after April 1, 2018, to approximately 30.45%.
The effect of these changes on the consolidated balance sheet andthe consolidated statement of income as of March 31, 2016 is asfollows:
Millions of Thousands ofyen

Decrease deferred tax assets........................................... ¥  499Decrease deferred tax liabilities........................................
672
Increase valuation difference on available-for-sale securities....... 1,433
Increase income taxes—deferred......................................... 1,030
302
Decrease deferred tax liabilities for revaluation..................
302
Increase revaluation reserve for land.................................

U.S. dollars$ 4,437
5,966
12,723
9,146
2,686
2,686

Hokuhoku Financial Group, Inc. Annual Report 201647

28. Other Comprehensive Income
The components of other comprehensive income for the years ended March 31, 2016 and 2015 are as follows:
Millions of yen
2016
2015

Thousands of
U.S. dollars
2016

Valuation difference on
available-for-sale securities:
Amount incurred
during the fiscal year................. ¥(25,646)
Reclassification adjustment..........
(102)
Prior to deducting tax effect.... (25,749)
8,573
Tax effect...............................
Total....................................... (17,175)¥55,464(5,099)50,364(10,637)
39,726$(227,604)(914)(228,518)
76,089(152,429)

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

(2,067)1,015(1,051)300(751)(1,668)
725
(942)
291
(650)

(18,348)
9,014(9,334)
2,665(6,669)

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

—
—
—
302
302

—
—
—
626
626

—
—
—
2,686
2,686

Defined retirement benefit plans:
Amount incurred during
the fiscal year............................
Reclassification adjustment..........
Prior to deducting tax effect....
Tax effect...............................
Total.......................................

(18,655)
3,026(15,628)
4,813(10,814)

6,863
6,177
13,041(4,489)8,551(165,559)
26,862(138,697)
42,720(95,977)

87
(23)
64
(29)
34

(243)
(62)
(305)
134
(171)

¥48,288$(252,560)

Share of other comprehensive
income of associates accounted
for using the equity method:Amount incurred during(27)
the fiscal year............................
Reclassification adjustment..........
(7)
Prior to deducting tax effect....
(34)
Tax effect...............................
15(19)
Total.......................................
Total othercomprehensive income.................. ¥(28,458)(1) Finance lease transactions(Lessee)
The Group leases ATMs, computer equipment, software and otherassets.
(2) Operating lease transactions(Lessee)
The minimum rental commitments under noncancelable operatingleases as of March 31, 2016 and 2015 are as follows:

Hokuhoku Financial Group, Inc. Annual Report 2016

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

¥2
0
¥2

¥2
2
¥5

Thousands of
U.S. dollars
2016

$20
4
$24

30. Financial Instruments and Related Disclosures

29. Leases

48

Millions of yen
2016
2015

(1) Group policy on financial instruments
The Group provides a wide variety of financial services, centered onbanking services such as deposit-taking and lending.
Our lending activities are aimed at achieving co-prosperity withthe regional economy and we endeavor to manage our lending in asound and appropriate manner, while simultaneously working tostrengthen credit risk management.
Investments in securities are strictly managed based on theGroup’s risk management policies and regulations. Regarding deposit-taking operations, the Group aims to ensure stable fundraising by the expansion and upgrading of financial services for all customers in the region. Borrowed money and corporate bonds areused mainly for medium- to long-term fundraising.
Given the different term structures of the Group’s financial assets suchas loans and financial liabilities such as deposits, the Group is exposed tointerest-rate fluctuation risk in the financial markets. For this reason, theGroup conducts comprehensive asset liability management (“ALM”) toappropriately control such market risk and ensure stable earnings.
(2) Nature and extent of risks arising from financial instruments
The financial assets held by the Group consist primary of securities
and loans to domestic customers. Loans are subject to credit risks
that could cause financial loss to the Group, such as declines orlosses in asset value resulting from a possible deterioration in thefinancial condition of borrowers. With regard to securities, theGroup is exposed to the credit risk of issuers, interest-rate risk, andmarket price volatility risk. However, the Group takes adequate
steps to mitigate these risks.
Financial liabilities, including deposits and borrowed money, areexposed to liquidity risk arising from the possibility that the Groupmay 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, as well as interest-related derivatives such as interest-rate
swaps, interest-rate futures, and interest-rate caps, to meet the
ALM needs of the Banks as well as the various needs of the Banks’customers. These derivatives are exposed to the following risks
among others: interest-rate risk, the risk of exchange rate fluctuations, price volatility risk, and credit risk.
However, none of the Group’s financial assets and liabilities areattended by notably high risk levels, nor do they include any particular derivatives with high market price volatility.
The Hokuriku Bank, Ltd. applies hedge accounting to hedge thevalue 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 andhedged items as long as hedging is managed and evaluates theeffectiveness of the hedges.

(3) Risk management for financial instruments
The Banks have established risk management departments andhave stipulated basic regulations for risk management and otherregulations 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 in regulations and organizational structures of
the Banks are revised or supervised by the Company to ensure
conformance to the Group’s policies and the results of the 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 andthe Banks collaborated in establishing various regulations, including
Credit Risk Management Regulations, and also ensuring the effec-

swaps and interest-rate caps are employed from an ALM perspective so that the Banks reduce interest rate risk by hedging againstinterest rate fluctuations.
Foreign Exchange Risk Management
Using measures such as currency swaps to reduce foreign exchange risk, the Banks manage exchange risk arising from fluctuations in foreign exchange rates that affect the values of assets andliabilities denominated in foreign currencies.
Price Volatility Risk Management
Regarding investments 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 thestocks held by the Banks are acquired and held for long-term strategic purposes. The Banks monitor the market conditions and fi-tive operation of internal checking functions by separating businesspromotion departments from credit risk management departments.
Rigorous screening is also conducted and credit ratings are granted
based on their Credit Policy. Additionally, the setting of credit limits
is managed on an individual customer basis to avoid the risk of an
overconcentration of loans in particular sectors. Finally, the Banks
carry out self-assessment and credit risk quantification procedures
and the risk situation is regularly reported to the Banks’ Board of
Directors.
As for the loan screening process of the Banks, the branches
concerned carefully analyze each separate loan application andscreen each customer 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 carryout their own analysis and screening. Specialized staff members inplace within the screening departments are responsible for particular industries and geographical areas. These specialists provide theappropriate advice and guidance to the branches based on the particular features of the customer.
Concerning the creditworthiness of security issuers and counterparty risk in derivative transactions, credit information and thestate of transactions are regularly monitored and managed by therisk 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
and other committees, the Banks appropriately control market risk
associated with lending and deposit-taking in order to ensure stableearnings.
Interest Rate Risk Management
The risk management departments of the Banks regularly and comprehensively monitor the interest rates and time-frames involved in
the Banks’ financial assets and liabilities and monitor interest risk
levels through methods such as gap analysis and sensitivity analysis
of interest rates, based on the Banks’ Interest Rate Risk
Management Regulations and other related regulations where themethods and procedures to be employed for risk management aredescribed in detail.
The Banks set ceiling amounts for each type of interest rate risk
to control such risk appropriately. Derivatives such as interest-ratenancial positions of the securities issuers. Value at Risk (“VaR”) andother methods are used to determine the amount of market risk foreach security held. The staff members of the responsible departments provide regular reports to the Banks’ Board of Directors andManagement Committees to confirm that price risk is controllable
and all rules pertaining to market risk management are being followed correctly.
Derivatives
The Banks arrange their organizational structures securing the separation and internal check-and-balance mechanisms among front
sections (specializing in market transactions), middle sections (engaging in risk management) and back sections (responsible forbook entries and settlements). Management sections confirm thevalidity of transactions, value the Banks’ daily derivative positions,and measure gains and losses as well as risk levels. Derivativetransactions are carefully managed in such a way that losses neverexceed a predetermined maximum.
Quantitative Information Related to Market Risk
Hokuriku Bank and Hokkaido Bank measure quantitative information related to market risk.
• Financial instruments in the trading accountIn calculating VaR for trading securities and a portion of currencyrelated and interest-related derivative transactions held in the
trading account, Hokuriku Bank adopts the historical simulation
method (a holding period of 1 business day, a confidence intervalof 99% and main observation period of 1,250 business days).
The market risk amounts (VaR) of the trading business of
Hokuriku Bank were ¥177 million ($1,571 thousand) and ¥54 million as of March 31, 2016 and 2015, respectively.
Hokkaido Bank has no financial instruments in the trading­accounts.
• Financial instruments in the banking accountIn the Banks, the main financial instruments 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 held in derivative transactions. The main financial instruments affected by market value are listed stocks and investment
trust. The Banks use VaR for integrated management of these­financial instruments.

Hokuhoku Financial Group, Inc. Annual Report 201649

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 businessdays) and consider the correlations between interest and the fluctuation of prices of the listed stocks. In addition, Hokkaido Bank
has set a holding period of 10 business days for trading accountsecurities (including public bonds traded over the counter) and forspecified fund trust as investment securities. Hokkaido Bank also
considers the correlation between interest rates and the fluctuation of prices of the listed stocks in calculating VaR of specified
fund trust as investment securities.
Hokuriku Bank’s VaR of the financial instruments in the banking account was ¥41,464 million ($367,980 thousand) and¥30,894 million as of March 31, 2016 and 2015, respectively.
Hokkaido Bank’s VaR of the financial instruments in the banking
account was ¥20,182 million ($179,109 thousand) and ¥16,081
million as of March 31, 2016 and 2015, respectively. Hokkaido
Bank’s trading account securities totaled ¥11 million ($98 thousand) and ¥10 million as of March 31, 2016 and 2015, respectively. Hokkaido Bank’s specified fund trust totaled ¥28 million($248 thousand) and ¥9 million as of March 31, 2016 and 2015,
respectively.
The Banks perform back testing of the VaR measurement
model at fixed intervals. VaR measures the amount of market risk
by certain occurrence probabilities that are statistically calculated
based on past markets movements. Therefore, there are cases inwhich VaR cannot capture risk under sudden and dramaticchanges in markets beyond normal circumstances.
VaR shows the maximum loss during the holding period of thefinancial instruments under the confidence interval (99%) that is
statistically calculated based on past market movements. In particular, the Banks calculate 100BPV (100 Basis Point 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%.
Hokuriku Bank’s 100BPV was a ¥5,517 million decrease($48,962 thousand decrease) and a ¥14,039 million decrease asof March 31, 2016 and 2015, respectively. Hokkaido Bank’s
100BPV was a ¥15,656 million decrease ($138,942 thousand decrease) and a ¥22,724 million decrease as of March 31, 2016 and2015, respectively.
For calculating 100BPV, the correlations between interest
rates 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 thecalculated 100BPV in the case of a drastic change in interest rates
beyond reasonable prior expectations occur.
(c) Liquidity Risk Management
In accordance with the Banks’ rules for management of liquidity
risk, the Banks form an accurate appraisal of fund operations andprocurement, 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 adequatelevels of high-liquidity assets that are readily convertible into cash,
such as government bonds.
We have in place mechanisms for periodically assessing andmanaging liquidity risk through ALM committees, to prepare for ev50

Hokuhoku Financial Group, Inc. Annual Report 2016

ery possible scenario.
(4) ‌Supplementary explanation relating to fair values of­financial instruments
The fair values of financial instruments include, in addition to values
determined based on market prices, valuations calculated on a­reasonable basis if no market prices are available. Certain assumptions are used in the calculations of such amounts. Accordingly, theresult of such calculations may vary if different assumptions areused.
(5) Fair value of financial instruments
The fair values of the main financial instruments at March 31, 2016
and 2015 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 be­extremely difficult to determine).
(a) Fair value of financial instruments
Millions of yen
March 31, 2016

Carrying
amountFair value

Unrealized
gain (loss)

Cash and due from banks................ ¥ 1,235,499 ¥ 1,235,499 ¥     —65,01665,016—
Call loans and bills bought...............
Monetary claims bought *1..............
54,06654,066—
Securities
Bonds classified as
held-to-maturity......................
177,386
191,352
13,9662,201,352—
Available-for-sale securities........ 2,201,352
Loans and bills discounted............... 7,582,954
Allowance for loan losses *1........
(52,705)
7,530,249
7,658,038 127,788
Total assets.................................... ¥11,263,571 ¥11,405,325 ¥141,754
Deposits........................................ ¥10,475,416 ¥10,476,167 ¥    751207,252
208,812
1,559
Borrowed money............................
Total liabilities................................. ¥10,682,669 ¥10,684,980 ¥  2,310
Derivative transactions *2
Derivative transactions not
qualifying for hedge accounting.... ¥     6,639 ¥     6,639 ¥     —Derivative transactions qualifying
1,784
1,784
—*3
for hedge accounting...............
Total derivative transactions............. ¥     8,424 ¥     8,424 ¥     —Millions of yen
March 31, 2015

Carrying
amountFair value

Unrealized
gain (loss)

Cash and due from banks............... ¥ 1,210,607 ¥ 1,210,605
Call loans and bills bought..............
94,59994,599
Monetary claims bought *1.............
64,39064,390
Securities
Bonds classified as
held-to-maturity......................
158,199
165,775
Available-for-sale securities....... 2,305,207
2,305,207
Loans and bills discounted............. 7,546,819
Allowance for loan losses *1.......
(52,601)
7,494,217
7,581,622
Total assets................................... ¥11,327,222 ¥11,422,201¥    (2)——Deposits........................................ ¥10,627,748 ¥10,628,638
Borrowed money............................
125,680
126,923
Total liabilities................................ ¥10,753,428 ¥10,755,562¥   890
1,243¥ 2,134

7,575—

87,405¥94,978

Derivative transactions *2
Derivative transactions not
qualifying for hedge accounting.... ¥     1,714 ¥     1,714 ¥    —Derivative transactions qualifying(4,549)(4,549)—*3
for hedge accounting...............
¥    (2,834)¥    (2,834)¥    —
Total derivative transactions............

March 31, 2016

Carrying
amountThousands of U.S. dollars
Unrealized
Fair value
gain (loss)

Cash and due from banks................ $10,964,672 $ 10,964,672 $       —Call loans and bills bought...............
577,000
577,000—
Monetary claims bought *1.............
479,825
479,825—
Securities
Bonds classified as
held-to-maturity...................... 1,574,252
1,698,196
123,944
Available-for-sale securities........ 19,536,322 19,536,322—
Loans and bills discounted............... 67,296,368
Allowance for loan losses *1........
(467,744)
66,828,624 67,962,710 1,134,086
Total assets.................................... $99,960,695 $101,218,725 $1,258,030
Deposits........................................ $92,966,072 $ 92,972,737 $    6,665
Borrowed money............................ 1,839,304
1,853,145
13,841
Total liabilities................................. $94,805,376 $ 94,825,882 $   20,506
Derivative transactions *2
Derivative transactions not
qualifying for hedge accounting.... $    58,927 $     58,927 $       —Derivative transactions qualifying
15,834
15,834—*3
for hedge accounting...............
$    74,761$     74,761$       —Total derivative transactions.............
*1. ‌Allowance for loan losses shown in this table represents the general­allowance and specific allowance for loan losses. Figures for allowance
for loan losses on monetary claims bought are directly deducted fromthe balance of monetary claims bought as the amount concerned is­insignificant.
*2. ‌Derivative transactions included in trading assets and liabilities and otherassets 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 fair values of due from banks with no maturity are considered tobe equal to the book value since the fair values of these items approximate their book values. The fair values of due from banks withmaturity are calculated using the total cash flows from principal andinterest discounted by current market interest rates, taking into account the credit risk involved. This calculation is performed separately for each maturity length. In the event that the terms of duefrom banks are one year or less, the book values are regarded as
approximate to the fair values and are therefore treated as such.
Call loans and bills bought
The fair values of call loans and bills bought are considered to beequal to the book value since the contractual terms are one year orless and fair values of these items approximate their book 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 determinedbased on the quoted prices obtained from counterparty financial
institutions. The fair values of small-lot monetary claims resulting
from asset liquidations are determined by discounting the cash
flows at the market interest rates, taking into account the credit risk
involved.
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 fairvalues of bonds are calculated using the price indicated on the securities market or other officially announced prices. In the event thatneither of these fair values are available, the price is based on areasonable 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, thepresent value is separately calculated using the present value discounted by the market interest rate where the credit risk of eachbond issuer and the remaining period of the bonds are considered.
For more detailed information regarding the different types of
securities classified according to holding purpose, see “6.
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 thecreditworthiness of the borrower changes subsequent to the grading of the loan. Because of this, the book value is employed as thefair value.
For loans with fixed interest rates, the fair value is calculated using the total future cash flows from principal and interest discounted
by current market interest rates, taking into account the credit risk
involved. This calculation is performed separately for each different
category of loans, classified by type of loan, internal credit ratingsand maturity length. For loans whose repayment period is one year
or less, the book value is a close approximation of the fair value andis 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 estimatedfuture cash flows or the estimated value recoverable from collateraland guarantees. Since the fair value approximates the value stated

Hokuhoku Financial Group, Inc. Annual Report 201651

on the consolidated balance sheet as of the settlement date, minus
the present value of estimated bad debt, this figure is treated as thefair 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 deemed to approximate 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 theconsolidated 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 foreach of the specified periods. This calculation is performed separately as per the remaining maturity of time deposits. The discountrate employed is the interest rate that would be applied to newly

terms. For loans whose repayment period is one year or less, thebook value is deemed to approximate the fair value and is therefore
treated as 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-relatedtransactions and are based on the prices on securities exchanges,
discounted value of future cash flows, option pricing models andothers.
(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 thefair value information of financial instruments.

accepted deposits. In the event that the deposit term is one year or
less, the book value is deemed to approximate the fair value and istherefore 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 taking out suchloans, the book value is deemed to approximate the fair value andis therefore treated as such.
For money borrowed through loans carrying fixed rates, the current value of such loans is determined by discounting the total of
their principal plus interest (separately for each specific period) at
the rate currently applied to other loans of the same duration andConsolidated balance sheet amounts
Millions of yen
2016
2015

March 31

Monetary claims bought(subordinated beneficiaryrights in securitization ofmortgage loans) *1.......................
Unlisted stocks *1, 2........................
Unlisted foreign securities *1...........
Total..............................................

¥ 7,967
27,8490¥35,817¥ 8,132
30,193
0¥38,326

Thousands of
U.S. dollars
2016$ 70,708
247,1583$317,869*1. ‌These items are excluded from “fair value information of financial instruments” on the basis that no market price is available and a determinationof the fair value would be extremely difficult.
*2. ‌Unlisted stocks were written down by ¥747 million ($6,637 thousand) and¥32 million as of March 31, 2016 and 2015, respectively.

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

52

March 31, 2016

Due in 1 year
or less

Due after 1 year
through 3 years

Millions of yen
Due after 3 years
through 5 years

Due after 5 years
through 7 years

Due after
7 years

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

¥1,114,007
65,016
1,805
322,507
20,5162,500
18,016
301,991
205,300
35,60938,706
22,3762,221,245¥3,724,582¥       ——
—523,656
47,8683,000
44,868475,788
293,600
88,90340,06753,217
1,408,001¥1,931,657¥       —
—2,168756,168
41,8703,520
38,350714,298
425,800
153,767
37,482
97,2481,016,797¥1,775,133¥     ——
5,000
205,169
6,403
1,000
5,403
198,766
156,500
12,722
11,14818,394
666,858¥877,028¥       —
—44,697
240,868
60,97060,500470
179,898
3,000
32,18758,22386,4872,090,621¥2,376,187

Hokuhoku Financial Group, Inc. Annual Report 2016

March 31, 2015

Due in 1 year
or less

Due after 1 year
through 3 years

Millions of yen
Due after 3 years
through 5 years

Due after 5 years
through 7 years

Due after
7 years

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

¥1,083,655
94,5991,778
289,325
17,396
1,520
15,876
271,929
93,600100,258
60,83017,2392,210,851¥3,680,210¥       ——
—619,632
37,7003,500
34,200581,932
375,900
87,45066,856
51,725
1,473,159¥2,092,792¥       —
—400682,734
35,8233,000
32,823646,911364,900
145,177
36,630100,202
973,098¥1,656,233¥       —
—7,210351,873
5,784
2,520
3,264
346,089
288,400
36,83910,882
9,966
649,796¥1,008,879¥       —
—54,788226,172
61,81561,500315
164,357
55,00019,33564,852
25,1692,047,566¥2,328,526

March 31, 2016

Due in 1 year
or less

Due after 1 year
through 3 years

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

$ 9,886,469
577,000
16,0242,862,157
182,074
22,187
159,887
2,680,083
1,821,974
316,019
343,507
198,583
19,712,861$33,054,511$        —
——4,647,289
424,814
26,624
398,190
4,222,475
2,605,612
788,991
355,583
472,289
12,495,572$17,142,861

Thousands of U.S. dollars
Due after 3 years
Due after 5 years
through 5 years
through 7 years$        ——19,2416,710,761
371,583
31,239340,344
6,339,178
3,778,843
1,364,642
332,641
863,052
9,023,760$15,753,762$       —
—44,373
1,820,815
56,825
8,875
47,9501,763,990
1,388,889
112,912
98,943
163,246
5,918,166$7,783,354

Due after
7 years$        ——396,680
2,137,633
541,090536,919
4,171
1,596,543
26,624
285,650
516,717
767,552
18,553,615$21,087,928

Loans and bills discounted
Claims on bankrupt borrowers, substantially bankrupt borrowers, and potentially bankrupt borrowers amounted to ¥149,192 million($1,324,034 thousand) and ¥159,752 million as of March 31, 2016 and 2015, respectively, and loans with no contractual maturities amounted
to ¥30,238 million ($268,359 thousand) and ¥32,594 million as of March 31, 2016 and 2015, respectively. They are not included in the table
above.
(7) Maturity analysis for financial liabilities with contractual maturities

March 31, 2016

Due in 1 year
or less

Due after 1 year
through 3 years

Millions of yen
Due after 3 years
through 5 years

Due after 5 years
through 7 years

Due after
7 years

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

¥9,281,807
13,145¥9,294,952¥990,188
1,419¥991,608¥194,798
152,917¥347,716¥ 3,491
24,769¥28,261¥ 5,131
15,000¥20,131

March 31, 2015

Due in 1 year
or less

Due after 1 year
through 3 years

Millions of yen
Due after 3 years
through 5 years

Due after 5 years
through 7 years

Due after
7 years

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

¥9,363,586
24,156¥9,387,743¥1,064,416
703¥1,065,119¥191,418
30,320¥221,738¥ 3,124
55,500¥58,624¥ 5,202
15,000¥20,202

March 31, 2016

Due in 1 year
or less

Due after 1 year
through 3 years

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

$82,373,155
116,661$82,489,816$8,787,618
12,599$8,800,217

Thousands of U.S. dollars
Due after 3 years
Due after 5 years
through 5 years
through 7 years$1,728,774
1,357,099$3,085,873$ 30,989
219,825$250,814

Due after
7 years$ 45,537
133,120$178,657

Deposits
Demand deposits are included in “Due in 1 year or less.”
Hokuhoku Financial Group, Inc. Annual Report 201653

31. Derivatives(1) Derivative transactions to which hedge accounting is not appliedWith respect to derivatives to which hedge accounting is not applied, notional principal or contract amount, fair value at the balance sheet dateby transaction type and related unrealized gain or loss and computation method of fair value are as follows. Note that contract amounts do
not represent the market risk exposure of derivative transactions.
• Interest Rate-Related Transactions

March 31, 2016

Millions of yen
Notional principal or contract amountTotal
Due after 1 year
Fair value

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

¥285,172
284,072
106,409106,579
70—/

March 31, 2015

Millions of yen
Notional principal or contract amountTotal
Due after 1 year
Fair value

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

¥367,101
370,082
194,848
198,575427
2/March 31, 2016

Thousands of U.S. dollars
Notional principal or contract amountTotal
Due after 1 year
Fair value

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

$2,530,818
2,521,057
944,347
945,856622—/¥262,613
262,014
67,30067,831——/¥339,965
339,563
91,382
91,95190—/$2,330,610
2,325,300
597,267
601,980——/¥8,882(6,429)(1,516)1,513(0)—¥2,450¥6,609(3,830)(1,239)1,258(0)
0¥2,798$78,833(57,059)(13,461)
13,433(0)—$21,746

Unrealized gain (loss)¥8,882(6,429)
(705)
1,513
4
—
¥3,265

Unrealized gain (loss)¥6,609(3,830)
336
1,258
45
(4)
¥4,414

Unrealized gain (loss)$78,833(57,059)(6,264)
13,43337—$28,980

Notes: ‌1. The above transactions are stated at fair value and unrealized gain or loss is charged to income or expenses in the consolidated statement of income.
2. The fair value is determined using the discounted value of future cash flows, option pricing models, etc.

• Foreign Exchange-Related Transactions

54

March 31, 2016

Millions of yen
Notional principal or contract amountTotal
Due after 1 year
Fair value

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

¥     42
116,275
58,960134,150
134,150/

Hokuhoku Financial Group, Inc. Annual Report 2016¥    21221
18
71,252
71,252/¥    04,404(257)(4,725)
4,725¥4,147

Unrealized gain (loss)¥    0
4,404
(257)
8,429
(7,209)¥5,366

March 31, 2015

Millions of yen
Notional principal or contract amountTotal
Due after 1 year
Fair value

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

¥  1,074
68,22812,738
175,151
175,151/

March 31, 2016

Thousands of U.S. dollars
Notional principal or contract amountTotal
Due after 1 year
Fair value

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

$      3761,031,912
523,257
1,190,544
1,190,544/¥     43—
28
109,574
109,574/$    188
1,970
166
632,346
632,346/¥     2
(1,221)
117(6,898)
6,898¥(1,101)$     839,086(2,290)(41,936)
41,936$36,804

Unrealized gain (loss)¥    2(1,221)
117
9,620(7,997)¥  521

Unrealized gain (loss)$     839,086(2,290)74,809(63,985)$47,628

Notes: ‌1. The above transactions are stated at fair value and unrealized gain or loss is charged to income or expenses in the consolidated statement of income.
2. The fair value is determined using the discounted value of future cash flows.

• Commodity Related Transactions

March 31, 2016

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

March 31, 2015

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

March 31, 2016

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

Millions of yen
Notional principal or contract amountTotal
Due after 1 year
Fair value

¥652
652
/

¥615
615
/

¥82
(40)
¥42

Millions of yen
Notional principal or contract amountTotal
Due after 1 year
Fair value

¥340
340
/

¥295
295
/

¥(13)
30
¥17

Thousands of U.S. dollars
Notional principal or contract amountTotal
Due after 1 year
Fair value$5,791
5,791/$5,465
5,465
/

$735
(358)
$377

Unrealized gain (loss)

¥82
(40)
¥42

Unrealized gain (loss)

¥(13)
30
¥17

Unrealized gain (loss)

$735
(358)
$377

Notes: ‌1. The above transactions are stated at fair value and unrealized gain or loss is charged to income or expenses in the consolidated statement of income.
2. The fair value is determined using the price of the underlying asset, terms of contract and other factors which structure the contract.
3. The above derivative transactions consist of those for oil, copper, aluminum, etc.

Hokuhoku Financial Group, Inc. Annual Report 201655

(2) Derivative transactions to which hedge accounting is appliedWith respect to derivatives to which hedge accounting is applied, notional principal or contract amount and fair value at the balance sheet dateby transaction type and hedge accounting method and computation method of the fair value are as follows. Note that contract amounts do
not represent the market risk exposure of derivative transactions.
• Interest Rate-Related Transactions
March 31, 2016
Hedge accounting method

Type

Hedged item

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

Accounting method
employed in principle

March 31, 2015
Hedge accounting method

Type

Hedged item

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

Accounting method
employed in principle

March 31, 2016
Hedge accounting method

Type

Hedged item

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

Accounting method
employed in principle

Millions of yen
Notional principal or contract amountTotal
Due after 1 year

Fair value¥55,000¥55,000¥(2,445)

716
/

716
/

(Note)¥(2,445)

Millions of yen
Notional principal or contract amountTotal
Due after 1 year

Fair value¥55,000¥55,000¥(1,200)

5,061
/

773
/

(Note)¥(1,200)

Thousands of U.S. dollars
Notional principal or contract amountTotal
Due after 1 year

Fair value$488,108$488,108$(21,701)

6,362
/

6,362
/

(Note)$(21,701)

Notes: 1. Deferred hedge accounting is mainly applied in accordance with JICPA Industry Audit Committee Report No. 24.
2. The fair value is determined using the discounted value of future cash flows, option pricing models, etc.
3. ‌Amounts resulting from interest swaps with exceptional treatment are accounted for together with the financial instruments hedged. As a result, the fairvalue is included in the fair value of the loans stated in “30. Financial Instruments and Related Disclosures.”• Foreign Exchange-Related Transactions
March 31, 2016
Hedge accounting method

Type

Hedged item

Foreign loans and foreignSwaps
securities
Accounting method
employed in principle
Call loans and due from banks
Forward contracts(foreign currencies)
Total.........................................................................................................................................................
March 31, 2015
Hedge accounting method

Type

Hedged item

Foreign loans and foreignSwaps
securities
Accounting method
employed in principle
Call loans and due from banks
Forward contracts(foreign currencies)
Total.........................................................................................................................................................
March 31, 2016
Hedge accounting method

Type

Hedged item

Foreign loans and foreignSwaps
securities
Accounting method
employed in principle
Call loans and due from banks
Forward contracts(foreign currencies)
Total.........................................................................................................................................................

Millions of yen
Notional principal or contract amountTotal
Due after 1 year

¥36,241¥32,701¥1,73249,898
/

—
/

2,497
¥4,229Millions of yen
Notional principal or contract amountTotal
Due after 1 year

Hokuhoku Financial Group, Inc. Annual Report 2016

Fair value¥14,781¥14,652¥(1,296)

76,601/—/(2,052)¥(3,348)

Thousands of U.S. dollars
Notional principal or contract amountTotal
Due after 1 year

Fair value$321,632$290,217$15,374

442,830/—/

22,162$37,536

Notes: 1. Deferred hedge accounting is mainly applied in accordance with JICPA Industry Audit Committee Report No. 25.
2. The fair value is determined using the discounted value of future cash flows.

56

Fair value32. Segment Information
An entity is required to report financial and descriptive information about its reportable segments. Reportable segments are operating ­segments
or aggregations 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.
(1) Outline of reportable segments
A 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 and assess its
performance.
The Group comprehensively conducts banking business as its core business and other financial services under the control of the Company.
The Company recognized each of its consolidated subsidiaries as an operating segment. Therefore, Hokuriku Bank and Hokkaido Bank
are reportable segments.
(2) Method of calculating ordinary income, profit (loss), assets, liabilities and other amounts by reportable segments
The method of calculation applied to the reportable segments is the same as that described in “Significant Accounting Policies.” Profits ofreportable segments are the same as net income. Ordinary income from intersegment transactions is based on transaction prices determinedin the same manner as ordinary income from outside customers.
(3) Information on ordinary income, profit (loss), assets, liabilities and other amounts by reportable segments
Segment results for the years ended March 31, 2016 and 2015 are as follows:
Millions of yen
2016
Reportable segments
Hokuriku Bank Hokkaido Bank

Ordinary income
Ordinary income from outside customers.......................... ¥   92,357
Ordinary income from intersegment transactions...............
1,029
Total....................................................................................
93,387
Segment profit.....................................................................
16,503
Segment assets................................................................... 6,880,493
Segment liabilities................................................................ ¥6,547,563
OthersDepreciation.................................................................... ¥    4,587
Amortization of goodwill...................................................
—
Unamortized balance of goodwill.......................................
—
Increase in tangible fixed assets and intangible
fixed assets................................................................... ¥    3,600

Othersegment

Total¥   84,791 ¥   177,149
738
1,768
85,530178,917
13,442
29,9454,701,456 11,581,950¥4,497,657 ¥11,045,220¥17,045
4,578
21,624
1,715
82,335¥64,943¥   194,194
6,347
200,542
31,66011,664,285¥11,110,163¥ (1,610) ¥   192,584(6,347)—(7,957)
192,584(2,822)
28,837(33,957) 11,630,328¥(46,087) ¥11,064,076¥    3,479 ¥     8,066————¥   263——¥     8,330——¥      02,10217,694¥     8,330
2,102
17,694¥    3,018 ¥     6,619¥   158¥     6,777¥      0¥     6,778

Othersegment

Total

Reconciliation

Consolidated¥   84,477 ¥   177,452
932
2,005
85,410179,458
13,57328,253
4,915,851 11,628,561¥4,709,393 ¥11,096,238¥16,479
4,993
21,472
2,858
79,609¥63,447¥   193,932
6,998
200,930
31,111
11,708,171¥11,159,685¥      4 ¥   193,936(6,998)—(6,993)
193,936(2,876)28,235(25,170) 11,683,001¥(49,671) ¥11,110,014¥    3,480 ¥     7,995————¥   274——¥     8,269——¥     20
2,102
19,796¥     8,290
2,102
19,796¥    1,493 ¥     5,061¥   212¥     5,273¥      4¥     5,278

Subtotal

Reconciliation

Consolidated

Millions of yen
2015
Reportable segments
Hokuriku Bank Hokkaido Bank

Ordinary income
Ordinary income from outside customers.......................... ¥   92,974
Ordinary income from intersegment transactions...............
1,073
Total....................................................................................
94,047
Segment profit.....................................................................
14,680
Segment assets................................................................... 6,712,709
Segment liabilities................................................................ ¥6,386,844
OthersDepreciation.................................................................... ¥    4,515
Amortization of goodwill...................................................
——
Unamortized balance of goodwill.......................................
Increase in tangible fixed assets and intangible
fixed assets................................................................... ¥    3,567

Subtotal

Hokuhoku Financial Group, Inc. Annual Report 201657

Thousands of U.S. dollars
2016
Reportable segments
Hokuriku Bank Hokkaido Bank

Other
segment

Subtotal

Ordinary income
Ordinary income from outside customers.......................... $   819,647 $   752,499 $  1,572,146 $151,273
Ordinary income from intersegment transactions...............
9,140
6,554
15,694
40,635
Total....................................................................................
828,787
759,053
1,587,840 191,908
Segment profit.....................................................................
146,461
119,296
265,757
15,221
Segment assets................................................................... 61,062,245 41,723,967 102,786,212 730,702
Segment liabilities................................................................ $58,107,588 $39,915,311 $ 98,022,899 $576,354
OthersDepreciation.................................................................... $    40,713 $    30,878 $     71,591 $  2,340
Amortization of goodwill...................................................
————
Unamortized balance of goodwill.......................................
————
Increase in tangible fixed assets and intangible
fixed assets................................................................... $    31,955 $    26,789 $     58,744 $  1,405

Total

Reconciliation

Consolidated$  1,723,419
56,3291,779,748
280,978
103,516,914$ 98,599,253$ (14,294) $  1,709,125(56,329)—(70,623)
1,709,125(25,051)
255,927(301,361) 103,215,553$(409,009) $ 98,190,244$     73,931——$       3 $     73,934
18,657
18,657
157,029
157,029$     60,149$       4 $     60,153(4) Information about services

Year ended March 31, 2016

Deposit andloan operations

Millions of yen
Investment
operations
Other

Ordinary income from outside customers........................................................................

¥109,881¥40,133

Year ended March 31, 2015

Deposit andloan operations

Millions of yen
Investment
operations
Other

Ordinary income from outside customers........................................................................

¥113,558¥38,777

Year ended March 31, 2016

Deposit andloan operations

Thousands of U.S. dollars
Investment
operations
Other

Ordinary income from outside customers........................................................................

$975,168$356,174

Total¥42,568¥192,584

Total¥41,601¥193,936

Total$377,783$1,709,125(5) Geographic segment information
There is no geographic segment accounting for 10% or more of ordinary income and tangible fixed assets.
(6) Information by major customer
There are no major customers individually accounting for 10% or more of ordinary income.

33. Related Party Transactions
Related party transactions as of March 31, 2016 and 2015 were as follows:• Officers and principal individual shareholders of the company submitting consolidated financial statements
March 31, 2016

Related party

Account Classification

Nakamura-tome Precision Industry co., ltd. *2
NAKAMURA-TOME HOLDING CO., LTD. *2

Loans and bills discounted
Loans and bills discounted

Transaction amount *3
Thousands ofMillions of yen
U.S. dollars

¥950
¥783

$8,431$6,949Balance at end of year
Thousands ofMillions of yen
U.S. dollars

¥950
¥783

$8,431$6,949March 31, 2015
Related party

Account Classification

Nakamura-tome Precision Industry co., ltd. *2
NAKAMURA-TOME HOLDING CO., LTD. *2

Loans and bills discounted
Loans and bills discounted

Transaction amount *3
Millions of yen

Balance at end of year
Millions of yen

¥950
¥783

¥950
¥783

Notes: 1. Terms and conditions of the transactions are similar to those with unrelated parties.
2. ‌A member of the Hokuriku Bank’s audit & supervisory board and his close relatives own the majority of the voting rights, and he is the president ofthese companies.
3. Transaction amount was reported at the average balance for the period.

58

Hokuhoku Financial Group, Inc. Annual Report 2016

34. Subsequent Events(1) Appropriations of retained earnings
The following appropriations of retained earnings at March 31, 2016 were approved at the Company’s general shareholders’ meeting held on
June 24, 2016:

Cash dividends, ¥4.25 ($0.04) per share of common stock.......................................................................................................
Cash dividends, ¥7.50 ($0.07) per share of preferred stock (Type 5)..........................................................................................

Millions of yen

Thousands of
U.S. dollars¥5,695805$50,5487,151(2) ‌Consolidation of shares, change in the number of shares constituting one unit of stock and partial amendments to the articles
of incorporation
The Company resolved at the Board of Directors’ meeting held on May 11, 2016 to submit a proposal of partial amendment to the articles ofincorporation for the consolidation of shares and revision of the number of shares per trading unit, and the proposal will be approved by resolution at the 13th Ordinary General Meeting of Shareholders held on June 24, 2016.
(a) Consolidation of shares and change the number of shares
Reason for consolidation of shares and change the number of shares constituting one unit of stock
The Japanese stock exchanges announced the “Action Plan for Consolidating Trading Units” and are pursuing the goal of consolidation of the
trading units of listed companies at 100 shares. Keeping this action plan in mind, the Company proposes to change the number of shares per
trading unit from 1,000 to 100 shares and consolidate its shares by a factor of 10 to 1 in order to fit the standard of the investment unit(¥50,000 or more and less than ¥500,000) that would be considered desirable by the Japanese stock exchanges.
Details of the consolidation of shares
Type of shares to be consolidated: Common stocks
Method and rate of the consolidation of shares
The Company shall consolidate the shares on October 1, 2016 by a factor of 10 to 1 based on the shareholders registered on September 30,
2016.
Decrease in the number of common stocks due to the consolidation of shares
Number of common stocks issued before the consolidation of shares (As of March 31, 2016)
Number of common stocks to be decreased by the consolidation of shares
Number of common stocks issued after the consolidation of shares

1,351,630,146
1,216,467,132
135,163,014

Note: ‌Number of common stocks to be decreased by the consolidation of shares and number of common stocks issued after the consolidation of shares are
the theoretical values calculated from the rate of the consolidation of shares.

Processing for a fraction of less than 1 share
If a fraction of less than one share is created due to the consolidation of shares, such fractional shares will be sold together pursuant to theprovisions of the Companies Act, and the proceeds will be distributed to shareholders who held the fractional shares in proportion to thenumber of fractional shares they held.
Details of the change in the number of sharesWith the effectuation of the consolidation of shares, the Company will change the number of shares per trading unit of common stock from
1,000 shares to 100 shares with respect to ordinary shares.
(b) Partial amendments to the articles of incorporation
Change in the number of shares
The Company will change the number of shares per trading unit of common stock from 1,000 shares to 100 shares with respect to ordinary
shares on October 1, 2016.
Deletion of statements related to preferred stocks
Since there are no outstanding shares and the Company has no plan to newly issue shares for Type 1, Type 2, Type 3 and Type 4 preferredstocks, the Company proposes to delete statements related to Type 1, Type 2, Type 3 and Type 4 preferred stocks. The Company also proposes to delete other unnecessary statements and modify article numbers as required.
Change in the number of shares of authorized common stocks and preferred stocks
The number of shares of authorized common stocks and preferred stocks after the consolidation of shares and the deleted statements related
to preferred stocks on October 1, 2016 is as follows:
As of March 31, 2016

CommonPreferred (Type 1)
Preferred (Type 2)
Preferred (Type 3)
Preferred (Type 4)
Preferred (Type 5)2,800,000,000
400,000,000
200,000,000
200,000,000
90,000,000
110,000,000

As of October 1, 2016

280,000,000————
110,000,000

Hokuhoku Financial Group, Inc. Annual Report 201659

(c) Schedule
Resolution of the Board of Directors' meeting
Resolution of the Ordinary General Meeting of Shareholders
Effective date of the consolidation of shares
Effective date of the change the number of shares per trading unit
Effective date of the partial amendments to the articles of incorporation

May 11, 2016
June 24, 2016
October 1, 2016
October 1, 2016
October 1, 2016(d) Impact on per share information
Per share information for the fiscal years ended March 31, 2016 and 2015 is as follows, assuming that the shares were consolidated as suchat the beginning of the fiscal year ended March 31, 2015.

Net assets per share of common stock.................................................................................................
Net income per share of common stock (Basic).....................................................................................
Net income per share of common stock (Diluted)..................................................................................

60

Hokuhoku Financial Group, Inc. Annual Report 2016

Year ended
March 31, 2016

Year ended
March 31, 2015

¥3,806.14¥  203.19¥  202.93¥3,858.37¥  198.72¥  198.49

INDEPENDENT AUDITOR’S REPORT

Hokuhoku Financial Group, Inc. Annual Report 2016

61

NON-CONSOLIDATED FINANCIAL STATEMENTS

NON-CONSOLIDATED BALANCE SHEET (UNAUDITED)The Hokuriku Bank, Ltd.

2016

2015

Thousands of
U.S. dollars
2016

Millions of yen
March 31

AssetsCash and due from banks..................................................................................

¥  892,747¥  790,579$ 7,922,855

Call loans and bills bought..................................................................................

65,016

84,599577,000

Monetary claims bought.....................................................................................

62,034

72,522550,533

Trading assets....................................................................................................

2,206

2,475

19,583

Securities...........................................................................................................

1,343,914

1,275,498

11,926,819

Loans and bills discounted.................................................................................

4,383,442

4,365,302

38,901,695

Foreign exchanges.............................................................................................

8,850

9,133

78,548Other assets.......................................................................................................

25,652

17,690227,656

Tangible fixed assets...........................................................................................

77,21978,109685,302

Intangible fixed assets........................................................................................

3,278

4,340

29,098Customers’ liabilities for acceptances and guarantees........................................

35,07435,080311,280

Allowance for loan losses...................................................................................

(18,944)¥6,880,493(22,622)¥6,712,709(168,124)$61,062,245

Total assets.......................................................................................................
Liabilities and equity
Liabilities
Deposits.............................................................................................................

¥6,117,671¥6,076,043$54,292,432

Call money and bills sold....................................................................................

20,84558,454

185,000

Payables under securities lending transactions...................................................

92,95427,809824,946

Trading liabilities..................................................................................................

1,129

1,184

10,021

Borrowed money................................................................................................

200,758

114,185

1,781,669

Foreign exchanges.............................................................................................

175

111

1,555

Other liabilities....................................................................................................

55,431

52,981

491,933

Reserve for employee retirement benefits...........................................................

1,924

1,616

17,076

Reserve for directors’ and audit & supervisory board members’ retirement benefits.....

57

57

513

Reserve for contingent losses.............................................................................

1,393

1,344

12,370Reserve for reimbursement of deposits...............................................................

965

909

8,567

Deferred tax liabilities..........................................................................................

13,456

11,000

119,425

Deferred tax liabilities for land revaluation............................................................

5,724

6,064

50,801

Acceptances and guarantees.............................................................................

35,074
6,547,563

35,0806,386,844

311,280
58,107,588

Total liabilities...................................................................................................
EquityCapital stock......................................................................................................

140,409140,409

1,246,091

Capital surplus....................................................................................................

14,99814,998133,110Retained earnings...............................................................................................

100,974

89,459896,119

Valuation difference on available-for-sale securities........................................

69,06473,340612,928

Deferred gains (losses) on hedges.................................................................

(1,596)(845)(14,170)

Revaluation reserve for land...........................................................................
Total equity.......................................................................................................

9,079
332,930

8,502
325,865

80,5792,954,657

Total liabilities and equity.................................................................................

¥6,880,493¥6,712,709$61,062,245

Valuation and translation adjustments.................................................................

62

Hokuhoku Financial Group, Inc. Annual Report 2016

NON-CONSOLIDATED STATEMENT OF INCOME (UNAUDITED)The Hokuriku Bank, Ltd.

2016

2015

Thousands of
U.S. dollars
2016

Millions of yen

IncomeInterest income:Interest on loans and discounts.....................................................................

¥52,717¥54,858$467,851

Interest and dividends on securities...............................................................

13,827

12,327

122,712Interest on deposits with other banks............................................................

824

842

7,317

Other interest income....................................................................................

732

674

6,504

Fees and commissions.......................................................................................

17,493

17,695

155,253

Trading income...................................................................................................

166

230

1,480

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

1,516

5,209

13,463

Other income......................................................................................................

6,108
93,3882,236
94,07354,210828,790

Total income.......................................................................................................
Expenses
Interest expenses:
Interest on deposits.......................................................................................

2,094

2,509

18,587

Interest on payables under securities lending transactions.............................

342

42

3,044

Interest on borrowings and rediscounts.........................................................

1,110

1,285

9,855

Other interest expenses.................................................................................

1,079

797

9,578

Fees and commissions.......................................................................................

6,868

7,124

60,954

Other ordinary expenses.....................................................................................

15

—

139

General and administrative expenses..................................................................

51,34255,251455,648

Provision of allowance for loan losses.................................................................

—

1,350

—

Other expenses..................................................................................................
Total expenses...................................................................................................

4,631
67,484

2,287
70,64841,099598,904

Income before income taxes...............................................................................

25,90323,425229,886

Current..........................................................................................................

4,601

1,747

40,835

Deferred........................................................................................................

4,799¥16,503

6,997¥14,680

42,590$146,461

Income taxes:

Net income........................................................................................................

Hokuhoku Financial Group, Inc. Annual Report 2016

63

NON-CONSOLIDATED FINANCIAL STATEMENTS

NON-CONSOLIDATED BALANCE SHEET (UNAUDITED)The Hokkaido Bank, Ltd.

2015

Thousands of
U.S. dollars
2016$ 3,038,169

Millions of yen
March 31

2016

AssetsCash and due from banks..................................................................................

¥  342,340¥  418,619

Call loans and bills bought..................................................................................

—

10,000—

Trading account securities..................................................................................

2,424

2,032

21,517

Money held in trust.............................................................................................

8,344

7,947

74,058

Securities...........................................................................................................

1,051,981

1,205,913

9,336,010
28,542,643

Loans and bills discounted.................................................................................

3,216,184

3,196,487

Foreign exchanges.............................................................................................

5,920

5,400

52,544

Other assets.......................................................................................................

39,63033,537351,709

Tangible fixed assets...........................................................................................

29,14428,948258,652

Intangible fixed assets........................................................................................

2,742

3,696

24,340

Deferred tax assets.............................................................................................

7,084

2,214

62,871

Customers’ liabilities for acceptances and guarantees........................................

22,955

24,611

203,721

Allowance for loan losses...................................................................................

(27,298)¥4,701,456(23,557)¥4,915,851(242,267)$41,723,967

Total assets.......................................................................................................
Liabilities and equity
Liabilities
Deposits.............................................................................................................

¥4,384,929¥4,575,314$38,914,886

Borrowed money................................................................................................

37,70452,884

334,614

Foreign exchanges.............................................................................................

51

67

459

Other liabilities....................................................................................................

42,80145,512379,851

Reserve for employee retirement benefits...........................................................

8,092

9,810

71,819Reserve for directors’ and audit & supervisory board members’ retirement benefits.....

104

108

929

Reserve for contingent losses.............................................................................

563

626

5,000

Reserve for reimbursement of deposits...............................................................

454

457

4,032

Acceptances and guarantees.............................................................................

22,955
4,497,657

24,611
4,709,393

203,72139,915,311

Total liabilities...................................................................................................
EquityCapital stock......................................................................................................

93,524

93,524

829,997

Capital surplus....................................................................................................

16,795

16,795

149,051

Retained earnings...............................................................................................

74,83864,613

664,167

Total equity.......................................................................................................

18,641
203,799

31,525
206,457

165,441
1,808,656

Total liabilities and equity.................................................................................

¥4,701,456¥4,915,851$41,723,967

Valuation and translation adjustments.................................................................
Valuation difference on available-for-sale securities........................................

64

Hokuhoku Financial Group, Inc. Annual Report 2016

NON-CONSOLIDATED STATEMENT OF INCOME (UNAUDITED)The Hokkaido Bank, Ltd.

2016

2015

Thousands of
U.S. dollars
2016

Millions of yen

IncomeInterest income:Interest on loans and discounts.....................................................................

¥46,077¥47,422$408,925

Interest and dividends on securities...............................................................

13,115

12,811

116,398

Interest on receivables under resale agreements............................................

—

6

—

Interest on deposits with other banks............................................................

313

174

2,784

Other interest income....................................................................................

164

193

1,460

Fees and commissions.......................................................................................

17,496

17,622

155,274

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

1,389

1,016

12,334

Other income......................................................................................................

7,731
86,2886,261
85,50868,612765,787

13,833

Total income.......................................................................................................
Expenses
Interest expenses:
Interest on deposits.......................................................................................

1,558

1,746

Interest on payables under securities lending transactions.............................

125

—

1,111

Interest on borrowings and rediscounts.........................................................

490

608

4,351

Interest on bonds payable.............................................................................

—

151

—

Other interest expenses.................................................................................

1

1

18

Fees and commissions.......................................................................................

8,121

8,259

72,078Other ordinary expenses.....................................................................................

197

257

1,753

General and administrative expenses..................................................................

42,78544,746

379,710

Provision of allowance for loan losses.................................................................

4,531

4,150

40,218Other expenses..................................................................................................
Total expenses....................................................................................................

8,075
65,8883,054
62,977

71,669584,741

Income before income taxes...............................................................................

20,40022,530

181,046

Current..........................................................................................................

5,197

6,748

46,128Deferred........................................................................................................

1,760¥13,4422,209¥13,573

15,622$119,296

Income taxes:

Net income........................................................................................................

Hokuhoku Financial Group, Inc. Annual Report 2016

65

CORPORATE INFORMATION(as of March 31, 2016)

Business activities
The Hokuhoku Financial Group is composed of the holding company and 11 consolidated subsidiaries and one affiliate. Our core business isbanking, and we also provide a wider range of financial services including leases, credit cards, loan guarantees and venture capital. The following is a diagram of our business.

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

Hokugin Lease Co., Ltd.
(Leasing)

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

The Hokkaido Bank, Ltd.

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

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

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

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

Hokugin Software Co., Ltd.
(Software development)

Dogin Regional Research Institute Co., Ltd.
(Research on regional economy,
survey research services, consulting)

Hokuhoku Services Co., Ltd.
(Servicer)
Hokuhoku Capital Co., Ltd.*(Venture capital)* Equity method-affiliated company

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

140,409100.004,713

The Hokkaido Bank, Ltd.

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

Banking

March 5, 1951

93,524100.003,217

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

March 2, 1983

36

87.39

3

Hokuriku Hosho Services Co., Ltd.

1-2-26 Tsutsumicho-dori, Toyama City

Loan guarantees

December 12, 1978

50

100.00—

Hokugin Software Co., Ltd.

1-5-25 Higashidenjigata, Toyama City

Software development

May 1, 198630

100.00—

Hokuhoku Services Co., Ltd.

1-6-8 Chuo-dori, Toyama City

Servicer

December 5, 2003

500

100.00—

Hokugin Business Services Co., Ltd.

1883 Hiyodorijima, Toyama City

Document management,
March 25, 1953
concentrated business processing

30(100.00)—

Dogin Business Service, Ltd.

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

Document management, cash
management, concentrated
business processing

June 8, 1979

50

(100.00)—

Dogin Card Co., Ltd.

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

Credit card operations, loan
guarantees

June 13, 1977

120

(100.00)—

Dogin Regional Research InstituteCo., Ltd.

Dogin Annex Building, 4-1
Odori Nishi, Chuo-ku, Sapporo City

Research on regional economy,
survey research services,
consulting

August 8, 2002

100

(100.00)—

Hokuhoku Capital Co., Ltd.

1-6-8 Chuo-dori, Toyama City

Venture capital

January 11, 1985

250

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

66

Main business activities

Hokuhoku Financial Group, Inc. Annual Report 2016

OUTLINE OF SUBSIDIARIES - THE HOKURIKU BANK, LTD.
The Hokuriku Bank, Ltd.
http://www.hokugin.co.jp/

Establishment

History

The Hokuriku Bank has its origins as the Kanazawa 12th National
Bank, which was established on August 26, 1877, with the Houseof Kaga-Maeda providing 70% of the capital. The bank was thecreation of the family established by Maeda Toshiie, the founder ofthe Kaga clan. The bank celebrated its 139th anniversary this year.
Since its founding, the bank has worked hand-in-hand withcustomers in the region, and grown into a bank with a wide branch
network covering Hokuriku, Hokkaido, as well as Japan’s threemajor metropolitan areas. Based on the bank’s management
philosophy of “Prospering Together with the Region,” “Fair &Steady Management” and “Progressive & Innovative Services,”
Hokuriku Bank draws fully on its management resources toprovide high-quality comprehensive financial services, aiming tobecome the bank preferred and relied on by local communities.

August 1877

Kanazawa 12th National Bank founded

February 1879

Toyama 123rd National Bank founded

January 1884 	‌Kanazawa 12th National Bank and Toyama 123rd National
Bank merged to form Toyama 12th National Bank with
headquarters in Toyama City
July 1897

Toyama 12th National Bank changed name to 12th Bank

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

Listed on the Tokyo Stock Exchange

November 1961

Completed present head office

January 1971 	‌Received blanket approval to engage in correspondentbanking services
November 1973

Launched first online system

March 1974	‌Received blanket approval to engage in foreign exchange
business

Company outline (as of March 31, 2016)
Company name:
The Hokuriku Bank, Ltd.
Business:
Banking
Incorporation:
July 31, 1943 (founded in 1877)
Location of headquarters:
1-2-26 Tsutsumicho-dori, Toyama City, Toyama
Total assets:¥6,880.4 billion
Deposits (including NCDs):¥6,117.6 billion
Loans and bills discounted:¥4,383.4 billion
Issued shares:
Common stock:
1,047,542,335
Capital adequacy ratio(non-consolidated):
9.78%
Employees:
2,798
Branches (as of June 30, 2016)
Domestic:
187 (145 branches, 42 sub-branches)
Overseas:
6 representative offices

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 identity)

August 1990

Launched third online system

November 1993

Launched investment trust agent operations

December 1998	‌Launched over-the-counter sales 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 a 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
December 2013 	‌The head office building was registered as a Tangible
Cultural Property (structures)
October 2015

Opened an individual consulting base “Hokugin Plaza”

Hokuhoku Financial Group, Inc. Annual Report 2016

67

OUTLINE OF SUBSIDIARIES - THE HOKKAIDO BANK, LTD.
The Hokkaido Bank, Ltd.
http://www.hokkaidobank.co.jp/

Establishment

History

Hokkaido Bank was established on March 5, 1951, in response to
the strong demand for financing from small and medium-sized corporations in Hokkaido 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 it its mission to contribute toregional economic growth by smoothly providing financing andquality financial services to its customers in Hokkaido. Going forward, Hokkaido Bank will never abandon the spirit with which it was
created, and will continue to move forward together 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

Completed present head office

June 1971

Launched first online system

July 1976

Launched second online system

Company outline (as of March 31, 2016)
Company name:
The Hokkaido Bank, Ltd.
Business:
Banking
Incorporation:
March 5, 1951
Location of headquarters:
4-1 Odori Nishi, Chuo-ku, Sapporo City
Total assets:¥4,701.4 billion
Deposits (including NCDs):¥4,384.9 billion
Loans and bills discounted:¥3,216.1 billion
Issued shares:
Common stock:486,634,512
Preferred stock (Type 2): 107,432,000
Capital adequacy ratio(non-consolidated):
10.23%
Employees:
2,226
Branches (as of June 30, 2016)
Domestic:
141 (135 branches, 6 sub-branches)
Overseas:
3 representative offices

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

Listed on the first section of the Tokyo Stock Exchange

October 1990

Completed the Higashi Sapporo Dogin Building

March 1991

Established Dogin Cultural Foundation

October 1991

Launched a new foreign exchange online system

November 1991

Completed Dogin Building Annex

January 1993

Launched third online system

April 1994

Launched investment trust agent operations

December 1998 	‌Launched over-the-counter sales of securities investment
trustsJuly 1999 	‌Issued preferred stock ( Type 2) (issuance amount was¥53.716 billion)
November 1999

Launched telephone banking service

June 2000

Launched Internet mobile banking

April 2001

Launched over-the-counter sales of casualty insurance

October 2002

Launched over-the-counter sales of life insurance

December 2003

Opened Business Loan Plaza

April 2004

Launched convenience store ATM service

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

Launched securities agency operations

March 2006 	‌Entered into a contract on joint system use with Hokuriku
Bank and the Bank of Yokohama
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
March 2014

68

Hokuhoku Financial Group, Inc. Annual Report 2016

Opened representative office in Vladivostok, Russia

BOARD OF DIRECTORS AND AUDIT & SUPERVISORY BOARD MEMBERS
Hokuhoku Financial Group, Inc.
President:
Eishin Ihori
Deputy President:
Masahiro Sasahara

Directors:
Hidenori Mugino
Hiroyuki Yamakawa
Takashi Nakano
Takashi Asabayashi
Takashi Ogura
Yuji Oshima
Ryoji Nakagawa
Audit & Supervisory
Board Members:
Junichi Inaba
Yozo Maeizumi
Tatsuo Kawada

The Hokuriku Bank, Ltd.
Chairman:
Hidenori Mugino

Director:
Takashi Ogura

President:
Eishin Ihori

Audit & Supervisory
Board Members:
Satoshi Kikushima
Kenichi Nakamura
Isao Nagahara
Katsusuke Watanuki

Managing Directors:
Yoichi Shima
Takeshi Yoshida
Takashi Asabayashi

The Hokkaido Bank, Ltd.
Chairman:
Yoshihiro Sekihachi

Director:
Yoichi Shima

President:
Masahiro Sasahara

Audit & Supervisory
Board Members:
Hiroshi Sagayama
Ken Ebina
Shuji Iwamura
Atsuhito Mito

Deputy President:
Hiroyuki Yamakawa
Senior Managing
Director:
Toshihiro Katayama
Managing Directors:
Makoto Uesugi
Yuji Kanema

Addresses
Hokuhoku Financial Group, Inc.

The Hokkaido Bank, Ltd.

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

International Division
4-1, Odori Nishi, Chuo-ku,
Sapporo City, Hokkaido 060-8676,
Japan
Telephone: +81-11-233-1093
Facsimile: +81-11-231-3133
E-mail: sckikaku@cello.ocn.ne.jp

The Hokuriku Bank, Ltd.
International Department
1-2-26, Tsutsumicho-dori Toyama
City, Toyama 930-8637, Japan
Telephone: +81-76-423-7815
Facsimile: +81-76-423-7561
E-mail: kokusaibu@hokugin.co.jp
International Operations Center
2-1-1, 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
2-1-1, 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• 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 Office
7F Senmao Building, 147 Zhongshan
Road, Xigang District, Dalian,
Liaoning, 116011 P.R. of China
Telephone: +86-411-3960-8018
Facsimile: +86-411-3960-8019
E-mail: dalian@hokugin-zg.com

Markets and International
Administration Center
2-33, Higashisapporo 3-jo
1-chome, Shiroishi-ku,
Sapporo City, Hokkaido 003-0003,
Japan
Telephone: +81-11-815-1315
Facsimile: +81-11-815-2237
SWIFT Address: HKDBJPJTTreasury and Securities Division
2-1-1, Nihonbashi-muromachi,
Chuo-ku, Tokyo 103-0022, Japan
Telephone: +81-3-3241-3457
Facsimile: +81-3-3242-3588
Overseas Offices (Hokkaido Bank)• Shenyang Representative Office
Room 1118, Office Tower 1,
Forum 66, No. 1-1 Qingnian
Da jie, Shenhe District,
Shenyang 110063, China
Telephone: +86-24-3185-7008
Facsimile: +86-24-3185-7018
E-mail: dogin_shenyang@yahoo.co.jp• Yuzhno-Sakhalinsk
Representative Office
18 Kommunisticheskiy Av.,
Office 44, Yuzhno-Sakhalinsk,
693000, Russia
Telephone: +7-4242-45-7523
Facsimile: +7-4242-45-7524
E-mail: tatsuta@hbkys.ru• Vladivostok Representative OfficeFresh Plaza, Room 613 17
Okeanskiy Pr., Vladivostok,
690091, Russia
Telephone: +7-4232-65-8851
Facsimile: +7-4232-65-8852
E-mail: nakagawa@hbvl.ru• Singapore Representative Office
6 Battery Road # 15-02 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, KKP 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
Hokuhoku Financial Group, Inc. Annual Report 2016

69

北北金融控股集团简要设立日期∶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 ：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

北陆地区.................................................... 150分行（或支行）资本金∶708亿9,500万日元

富山县 ....................................................... 92分行（或支行）发行股份∶ 普通股 ........................... 1,351,630,146股

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

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自从1877年北陆银行成立以来已经在北陆地区设立了广域性的经营网点。

福井县 ....................................................... 22分行（或支行）北海道地区 ................................................ 158分行（或支行）三大都市圈 ................................................ 16分行（或支行）东京、横滨 ................................................

9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............................................................

9代表处纽约代表处 （北陆银行）从“北前船”或者说“北航船（北上的经济圈）”的交易关
系和客户的需要出发还在北海道各个主要城市内设立了自己的经营网点。
北海道银行成立于1951年，以支援中小企业和个人业务为中心在北海道道内的各个地区都设有营业网点。
北陆银行和北海道银行于2004年9月进行了经营统合，成立了（控股公司）北北金融控股集团股份有限公司。现在，北北金融控股集团已经形成了覆盖日本北陆地区北海道以及日本三大都市圈（东京，名古屋，大阪）的巨大的地方金融网络。

（北海道银行）南萨哈林斯克代表处符拉迪沃斯托克代表处 （北海道银行）伦敦代表处 （北陆银行）新加坡代表处（北陆银行）
曼谷代表处 （北陆银行）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）（2016年6月30日）
伦敦

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符拉迪沃斯托克南萨哈林斯克沈阳大连

2003年5月

纽约北陆银行和北海道银行对经营统合取得一致意见

上海
曼谷
新加坡

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
北海道

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。
北陆地区
石川

富山

福井

东京
大阪

名古屋

三大都市圈

70

Hokuhoku Financial Group, Inc. Annual Report 2016

北北金融控股集团 董事致辞

（相片左边）董事长

庵

荣伸（北陆银行 总行长）

（右边）
董事副社长

笹原晶博（北海道银行 总行长）大家好！深深感谢各位平日里对北北金融集团的特别惠顾。
在本行的主要营业区域，去年3月份开通了北陆新干线，今年3月开通了北海道新干线。
两地区观光资源丰富，国内外的观光客本来就有增加趋势，加上开通新干线以后，观光客
人数增长加快，让我们确信并加以期待给观光业和商业发展形成良好的循环。一方面，日
本国内少子老龄化和向大城市的人口流出以及企业的海外活动意愿的增强，已经可以预见市场的继续萎缩。另一方面，与当地其他银行的竞争，加上邮政储蓄银行和网络专业银行等的业务扩大引起的竞争，负利息政策和量的缓和政策导致借贷款业务的利差缩小，以及国内债券的低利息，可以预见严峻的经营环境。
在如此经营环境下，本集团公司要对区域经济的发展提供稳定的金融服务，今年4月起，
制订了以下的方针，称为新中期经营计划“BEST for the Region”。
第一． 致力于实现超出顾客所期待的建议能力和服务能力 ；强化应客户生命阶段提供相
适应的各种咨询和事业性的评价，完善IT基础设施提高便捷性和功能，提供地区最强的金融服务，做到贡献于客户和区域社会，客户所信赖而且喜欢选用的地区金融集团。
第二． 为了本集团的持续成长，将会挑战构建兼备功能性和效率性的集团经营体制和营业体制。把管理部门和后台办公业务汇总起来追求集团经营的优越性，还力求推进满足客户需求的店铺和营业渠道，实现竞争中取胜的功能性组织，努力去保持值得信赖的稳定的财务基础。
本集团在变化的环境中自发追求变革，通过提供扎根于地域的金融服务，担当起“地方再生”的一部分重任。努力实现“和区域共同成长，共同发展的金融集团”的目标。今后请继续予以支持和惠顾。

董事长

庵

荣伸

2016年7月

Hokuhoku Financial Group, Inc. Annual Report 2016

71

中期经营计划
本公司集团从2016年度开始制定了为期3年的中期经营计划。
前中期经营计划中，由于持续的低利率，虽然贷款利息低于了计划，不过，由于筹措成本的减少以及有价证券运用的多样化，另外由于有经费削减成效，以本期净利润为主的所有计数目标都得以达成。
当前，由于2月份开始了史上第一次的负利率政策，因此，正在面临着以国债为中心的有价证券的操作艰难以及贷款收
益率的降低等问题。从长期观点来看，所在营业区域的人口减少和老龄化进展问题，依然是一个巨大的课题。
新中期经营计划“BEST for the Region”里，在这样的环境下，为了支援地方经济，我们将进一步追求商业模式的变
革和集团的协同效应。在发挥广域网优势的同时，通过构建高效的集团经营体制，努力为地域提供最强的金融服务，通过为客户和地域社会作贡献来担负“地方再生”的任务，目标做到与地域共同发展和成长的金融集团。

■ 计划的概要
名称

中期经营计划 “BEST for the Region”期间

3年（2016年4月～2019年3月）

定位为了在预期的环境变化中支援地域经济，进一步追求商业模式的变革和集团的协同效果的期间

目标姿态

通过向地域提供最强的金融服务，为客户和地域社会作贡献来担负“地方再生”的任务，成为与地域共同发展和成长的金融集团。

基本方针

①
②
③

北北FG

No.1服务和解决方案北陆银行 北海道银行
其他相关公司

信赖和选择

客户
地域社会

营业力的强化～超出顾客期望的建议能力、服务能力的实现经营的效率化～在竞争中胜出的功能性组织的追求经营基础的坚韧化～为地域信赖的稳定的财务基础的构建■ 前中期经营计划的达成状况（2家银行合算·联结）
2016年3月期（目标）

2016年3月期（业绩）总存款平均余额

10兆1,100亿日元

10兆6,389亿日元贷款平均余额

7兆4,800亿日元

7兆5,457亿日元

主营业务净利润

470亿日元520亿日元归属于母公司股东的净利润

185亿日元288亿日元67%

63.57%

10%以上

10.30%

约2%

2.15%

OHR
（以主营业务毛利润为基础）联结资本充足率不良债权比率■ 新中期经营计划中作为目标的计数（2家银行合算·联结）
2019年3月期（目标）72

存款平均余额

10兆5,600亿日元贷款平均余额

7兆7,600亿日元

主营业务净利润415亿日元归属于母公司股东的净利润

230亿日元OHR（以主营业务毛利润为基础）

69.14%

联结资本充足率9.55%

Hokuhoku Financial Group, Inc. Annual Report 2016

根据计划基本方针对策的展开营业力的强化～超出顾客期望的建议能力、服务能力的实现

(1) 致力于个人市场
① 通过致力于针对资产形成层和资产运用层的生命阶段的建议和以遗产为首的针对资产继承支援，为地域客户提供
有用的信息和相关商品以及服务的向导。
② 为了让更多的客户选择，通过提高贷款的商品性和便利性以及强化宣传来对应各种各样的借款需求。
③ 通过提高面对面、非面对面渠道的功能，目标成为身边值得信赖的主要交易银行。
(2) 致力于法人市场
① 磨砺事业性评价和鉴定力，通过与企业之间的密切关系，共享经营课题和需求，并且提供本集团所拥有的各种解决方案，贡献于地域产业的成长和发展。
② 发挥本公司集团的强项即北海道，北陆，3大城市圈的广区域国内网络，支援商务对接，并且利用丰富的海外网
点来支援海外商务活动。
(3) 强化有价证券的运用
以日元债券为中心的证券投资组合作为基本，根据市场环境机动地通过强化投资信托和外债的运用来提高收益力。
经营的效率化～在竞争中胜出的功能性组织的追求(1) 投资于通讯技术促使了无纸化和业务处理简捷化，再加上通过强化后勤办公室在集团内的共同化和集中化，提高生产性和构建高效的业务营运体制。
(2) 通过现有店铺的区域运营体制的改变以及引进各种营业方式的店铺、重新配置适合地域和市场的店铺，强化非面对
面渠道，致力提供能够满足地域的客户需求的金融功能和方便使用的环境。
经营基础的坚韧化

～为地域信赖的稳定的财务基础的构建为了向地域提供稳定的金融服务，将必要而健全的财务基础的维持放在首位，根据经济环境和收益情况，尽可能地回馈股东。

关于「北北TT证券株式会社」的设立
本公司与东海东京金融控股株式会社（以下，东海东京FH）就关于共同出资设立证券公司一事基本达成一致，正在开始研究计划于2016年下半年开业。
将本公司集团拥有丰富的客户基础、店铺网络，扎根于地域构建起来的品牌力，同时将东海东京FH拥有的证券业技术融
合起来、努力成为能够满足地域客户资产运用的多样化和高度化需求的，由银行创办的为地域作贡献的证券公司。

Hokuhoku Financial Group, Inc. Annual Report 2016

73

业绩精粹
营业概况（北北金融控股集团联结）（单位：亿日元）

2015年度

2014年度
变动

经常收益

1,925

－13

1,939

经常利润

464

－17

481

288

＋6

282

10.30％－0.83%

11.13％

归属于母公司股东的净利润资本充足率我集团本期联结会计年度的业绩 ：本期经常收
益与上年度相比减少了13亿日元，为1,925亿日元。
联结经常利润与上年度相比减少了17亿日元，为
464亿日元。归属于母公司股东的净利润增加了6亿日元，为288亿日元。
联结资本充足率达到了10.30%。
2015年度的股息 ：普通股于期末每股支付了
4.25日元股息，对第1回第5种优先股按照原定计划分别于期中和期末每股支付了7.50日元（即年度股息为15日元）。

营业概况（北陆银行，北海道银行）（单位：亿日元）

2行合算
2015年度

2014年度
变动

经常收益

1,789

－5

1,794

主营业务毛利润

1,430

－18

1,448

经费（临时处理部分除外）

909

－26

936

主营业务净利润

520

＋8

512

信贷相关成本

37

－23

60

经常利润

467

－3

471

本期净利润

299

＋16

282

2行合算的经常收益与上年度相比减少5亿日
元，为1,789亿日元。本期净利润与上年度相比增
加16亿日元，为299亿日元。
北陆银行的经常收益与上年度相比减少6亿日
元，为933亿日元。本期净利润与上年度相比增加18亿日元，为165亿日元。
北海道银行的经常收益与上年度相比增加1亿
日元，为855亿日元。本期净利润与上年度相比减
少1亿日元，为134亿日元。

（单位：亿日元）（单位：亿日元）

北陆银行

2015年度

北海道银行

2014年度

2015年度变动74

2014年度
变动

经常收益

933

－6

940

855

＋1

854

主营业务毛利润

753

－11

765

676

－6

683

经费（临时处理部分除外）

504

422

－8

431
251

486

－18

主营业务净利润

266

＋6

260

253

＋2

信贷相关成本

－11

－28

17

48

＋5

42

经常利润

267

＋22

245

200

－26

226

本期净利润

165

＋18

146

134

－1

135

资本充足率

9.78％

－0.83%

10.61％

10.23％－0.52%

10.75％

Hokuhoku Financial Group, Inc. Annual Report 2016

Hokuhoku Financial Group, Inc.

Hokuhoku Financial Group, Inc.

Annual Report 2016

Printed in Japan