Annual Report
2007
Year ended March 31, 2007

Hokuhoku Financial Group, Inc.

Company Outline (as of March 31, 2007)
Company name: Hokuhoku Financial Group, Inc.
Date of establishment: September 26, 2003
Location of head office: 1-2-26 Tsutsumicho-dori, Toyama City
President: Shigeo Takagi (President, Hokuriku Bank)
Deputy President: Yoshihiro Sekihachi (President, Hokkaido Bank)
Purpose of business: Management and control of subsidiaries and affiliates and ancillary and related business
Capital: ¥70,895 million
Shares issued and outstanding:Shares of common stock.................................. 1,391,630,146
Type 1 preferred shares................................

150,000,000

Type 4 preferred shares................................

79,000,000

Type 5 preferred shares................................

107,432,000

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

CONTENTS

Profile ................................................................................................
Message from the Management.......................................................
Performance Highlights .....................................................................
Corporate Social Responsibility .........................................................
Topics ................................................................................................
Plan For Sound Management ............................................................
Corporate Governance.......................................................................
Compliance System...........................................................................
Risk Management System ................................................................
Consolidated Financial Statements
Consolidated Balance Sheets ........................................................
Consolidated Statements of Income .............................................
Consolidated Statement of Changes in Net Assets ......................
Consolidated Statement of Stockholders’ Equity ..........................
Consolidated Statements of Cash Flows ......................................
Notes to Consolidated Financial Statements.................................
Report of Independent Auditors ........................................................
Nonconsolidated Financial Statements
The Hokuriku Bank, Ltd.
Nonconsolidated Balance Sheets (Unaudited)...........................
Nonconsolidated Statements of Income (Unaudited)................
The Hokkaido Bank, Ltd.
Nonconsolidated Balance Sheets (Unaudited)...........................
Nonconsolidated Statements of Income (Unaudited)................
Corporate Information .......................................................................
Outline of Subsidiaries — Hokuriku Bank..........................................
Outline of Subsidiaries — Hokkaido Bank .........................................
Board of Directors and Corporate Auditors .......................................

1
2
4
8
11
14
16
17
18
20
21
22
23
24
26
41

42
43
44
45
46
47
48
49

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

May 2002

Comprehensive business alliance between
Hokuriku Bank and Hokkaido BankMay 2003

Agreement on full integration of management of
Hokuriku Bank and Hokkaido Bank
Hokugin Financial Group, Inc. established

September 2003

Hokuriku Bank Group comes under management of
Hokugin Financial GroupManagement integration effected through equity swap
September 2004

Hokuhoku Financial Group, Inc. is born.

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

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

90 branches

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

35 branches

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

22 branches

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

17 branches

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

10 branches

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

7 branches

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

4 branches

Overseas
Shanghai Representative Office (Hokuriku bank)
Singapore Representative Office (Hokuriku bank)
New York Representative Office (Hokuriku bank)
Shenyang Representative Office (Hokkaido bank)(As of June 30, 2007)

Hokuriku district
Ishikawa

Toyama

Fukui

Tokyo
Osaka

NagoyaThree major metropolitan areas

Hokuhoku Financial Group, Inc. Annual Report 2007

1

MESSAGE FROM THE MANAGEMENT(from left)

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

Yoshihiro Sekihachi
Deputy President(concurrently serving as presidentof the Hokkaido Bank, Ltd.)We would take this opportunity to thank our stakeholders sincerely for their support. We arepleased to deliver the Hokuhoku Financial Group’s annual report for the fiscal year ended
March 31, 2007.
This report sets out our management policies, our undertakings in the sphere of corporatesocial responsibility (CSR), and our business results for the 2006 fiscal year. We hope that it
will give you a better understanding of the Hokuhoku Financial Group.

Solid results in the first year of the revised Plan for Sound Management
The Group was born through the integration of Hokuriku Bank and Hokkaido Bank in September 2004, and since that time we have pursued improvements in efficiency and synergistic
effects in our management, with the aim of taking maximum advantage of the integration.
Amid this process, in November 2006 we revised the Plan for Sound Management after agap of two years since it was formulated at the time of the management integration in 2004.
As a result of progress made in cost-cutting from an early stage by both Hokuriku Bank andHokkaido Bank, the OHR has been reduced to around 50%, and profitability is at a high level.
In parallel with the ongoing pursuit of greater efficiency, we incorporated into the plan a provision for the investment necessary to enable us to take forward steps such as for multiplying
new earnings opportunities. Specifically, the plan now calls for a sustained scrap-and-build
approach to the branch network, under which three branches are to be added and the numberof personnel is to be increased.
In fiscal 2006, the first year of the revised plan, the Group achieved above-forecast net
income: ¥40.6 billion on a consolidated basis and ¥39.7 billion on a nonconsolidated basis by
the banks alone. As regards the ratio of nonperforming loans, we met the target set for March
31, 2007, which was the 4% level, demonstrating the steady improvement in our asset quality.
In addition to achieving a high level of net income, we have bolstered our capital by means of apublic share offering, raising our capital ratio to 10.44% and strengthening our financial base.

Our strategy
As a super-regional financial group, we will take advantage of our unparalleled characteristics
to implement measures that will enhance sales promotion, increase management efficiency,
and ensure the stability of the foundations of our business.

2

Hokuhoku Financial Group, Inc. Annual Report 2007

Specifically, we will endeavor to enhance sales promotion by making the best use of
our broad network encompassing the Hokuriku region, Hokkaido, and Japan’s three major
metropolitan areas; to increase management efficiency, primarily through the joint handling of
back-office business and other business activities; and to give stability to the foundations of ourbusiness by building an asset portfolio that is diversified in terms of region and type of industry.
For personal banking customers, we provide loan products designed to match their needs,
such as a mortgage loan that incorporates insurance cover for eight types of disease. We areenhancing our product lineup to include special products for investing retirement benefits
to meet the needs of people — particularly baby boomers — with a growing need for asset
management. In addition, measures to enhance customer convenience include the operationof Loan Plazas that are open even on days when the bank as a whole is closed for business(Saturdays, Sundays, and national holidays), and branch layouts that let our customers consult
with our staff amid relaxing surroundings.
For corporate customers, we provide solutions that harness the comprehensive strengthsof the Group, sharing the two banks’ know-how. Of particular note is that by taking advantage
of our ability to undertake business promotion over a wide area, which is one of the Group’s
hallmarks, we will give maximum possible support to local companies through businessmatching and assistance for overseas business.
Regarding joint development of core computer systems, we have already been using systems jointly with the Bank of Yokohama, and in March 2007 we concluded a basic agreementwith the regional banks’ shared system center — built and operated by NTT Data Corporation.
The center currently has 11 member banks, which will enable us to engage in joint development of core banking systems. We expect this to enhance the efficiency of back-office andother operations.
We implemented a capital increase totaling ¥41.5 billion by means of a public share offeringfrom October to November 2006, further strengthening our financial base. By enhancing ourequity capital we aim to repay public funds rapidly and to increase the flexibility of our capital
policy, including measures for strategic investment and the return of profits to shareholders.

In conclusion
The environment amid which financial institutions operate is entering a period of great change,
characterized by the stiffening of competition through the emergence of a new bank bornof the privatization of the postal savings system, the privatization of other governmental
financial institutions, and deregulation, as well as the obligation to strengthen internal controls
as a result of BIS regulations, the Corporation Law, and other regulations. At the Hokuhoku
Financial Group, we regard these issues as opportunities to enhance enterprise value, andare addressing them vigorously. At the same time, however, we are fully cognizant of ourpublic-service character as a financial institution and accordingly, we intend to live up to the
expectations of our shareholders and the community as a whole through CSR activities aimed
at ensuring that we develop hand in hand with our customers and the communities we serve.
We hope that you will continue to honor us with your support and goodwill.
September 2007

Shigeo Takagi

Yoshihiro Sekihachi

President

Deputy President

Hokuhoku Financial Group, Inc. Annual Report 2007

3

PERFORMANCE HIGHLIGHTS
Summary of operations (Hokuhoku Financial Group, Inc.; on a consolidated basis)
In the fiscal year ending March 31, 2007 the Hokuhoku Financial Group, Inc. recorded ordinary revenue of ¥242.2 billion, an
increase of ¥1.2 billion over the previous term; ordinary income of ¥70 billion (up ¥21.7 billion) and net income of ¥40.6 billion(up ¥13.8 billion). Our capital ratio stood at 10.44% as of the term-end, an improvement of 1.44 percentage points over theprevious term.
Business Indicators for the Hokuhoku Financial Group (consolidated)

Ordinary revenue (¥ million)
Ordinary income (¥ million)
Net income (¥ million)
Stockholders’ equity (¥ million)
Total assets (¥ million)
Net assets per share (¥)
Basic earnings per share (¥)
Diluted earnings per share (¥)
Capital ratio (%; standard for banks with domestic operations only)
ROE (%)
Price-earnings ratio (times)

FY2006

FY2005

FY2004

FY2003242,268
70,01740,642
492,348
9,638,142¥227.57¥27.93¥23.0510.44%
13.57%
14.53

240,986
48,285
26,837
406,0149,535,627¥179.37¥18.31¥14.32
9.00%
10.72%
28.23

203,200
27,226
11,248
380,750
9,398,673¥159.75
¥6.86
¥5.67
8.33%
4.88%
47.37

179,445
7,074
5,031
193,692
5,675,209¥119.86
¥3.94
¥3.55
8.20%
3.53%
43.15

Summary of Operations (Hokuriku Bank and Hokkaido Bank, in addition to Hokugin Corporate)

Deposits and Loans
The term-end balance of deposits increased by ¥218.2 billion
year-on-year, to ¥8,434.6 billion, mainly due to the growth ofindividuals’ deposits.
The term-end balance of loans rose ¥133.4 billion to ¥6,839.7
billion, as a result of steady growth in loans to individuals, particularly mortgage and other housing loans.
Earnings
Core business profit, which is the prime indicator of a bank’s true
earning capability, posted a year-on-year increase of ¥1.6 billion to¥93.8 billion, setting the second record high in a row. Following
an increase in the BOJ’s key policy interest rate, interest rates
accrued on deposits rose. A corresponding rise in the rates
charged on loans, however, took time to materialize, and thisresulted in a decline in the interest margin. This was more thanoffset by an increase in income from fees and commissions, centered on the handling of investment trust and insurance products,
as well as successful measures to reduce costs.
Thanks to the improving trend in corporate business performances, there were fewer cases of large-scale bankruptcies
among the two banks’ customers during the reporting period, andthe amount of newly-emergent nonperforming loans also registered a decrease. Moreover, considerable success was achievedin turning around the business performances of financiallytroubled customers through management advisory services, andthe borrower categories of many borrowers were upgraded. As
a result, the total credit cost for the reporting term was down by¥22.1 billion year-on-year, at ¥25.6 billion.
As a result of the foregoing, ordinary income rose ¥19.8 billion
year-on-year, to ¥70.4 billion, while net income was up ¥10.6 billion
at ¥39.7 billion.

4

Hokuhoku Financial Group, Inc. Annual Report 2007

Dividend Policy
In consideration of the public nature of the businesses engaged
in by the Group companies under the control of the Hokuhoku
Financial Group, in particular the two banking subsidiaries, theCompany follows a basic policy of paying a stable dividend to its
shareholders while at the same time ensuring that the Company
always has sufficient retained earnings to maintain a healthyfinancial position over the long term.
For the reporting period, the Company took into account boththe Group’s business results and the desirability of the early
repayment of the public funds the banks had previously borrowed,
as well as the need for a sufficient amount of retained earnings
to fund steps to improve the Group’s management structure. As
a result, we have decided to pay a term-end dividend for fiscal
2006, to holders of ordinary shares of common stock, of ¥2 pershare, an increase of ¥0.5 of a share over the previous businessterm. The dividend payments to holder of preferred shares,
which are stipulated in the terms and conditions for issuance, are:¥3.85/share for First Issue Type 1 preferred shares; ¥3.31/share
for First Issue Type 4 preferred shares; and ¥7.50/share for First
Issue Type 5 preferred shares.
With regard to the current term (ending March 2008) and after,
the Company will continue to implement appropriate returns to its
shareholders in line with the basic policy described above.

Business Indicators for Hokuriku Bank and Hokkaido Bank (total for the two banks and Hokugin Corporate combined)(¥ billion)

2007

2006

2005

2004

2003

181.8
93.8
70.4
39.7

180.8
92.2
50.5
29.0

175.0
85.8
34.1
15.2

176.5
87.8
17.3
15.7

170.5
78.5
(46.7)(52.3)

Years ended March 31

Core gross business profit
Core business profit
Ordinary income (loss)
Net income (loss)* Core gross business profit = Gross business profit – gains/losses on bonds* Core business profit = Core gross business profit – expenses

Core business profit(Billion ¥)
100
0.89
80

Expenses
1.00

0.98

87.8

85.8

1.02
92.2

1.03

(%)
1.0

(Billion ¥)
120
53.91

93.8

60

0.6

40

0.4

20

0.2

88.7

89.2

(%)
60
48.99

48.39

88.6

88.0

100

0.8

78.5

50.25

50.95

80

91.9

40

60

0
Years ended 2003
2004
March 31Core business profit

2005

2006

2007

0.0

ROA (core business profit basis)

40
20
0Years ended 2003
March 31
Expenses

ROA (core business profit basis) = Core business profit / (Average balance of total assets –Average balance of customers’ liabilities for acceptances and guarantees)

74.2
78.5
87.8
569.4
85.8
92.2
8.01

600

668.8

400

0.8
0.89
6.83
1
0.98
474.9
1.02

8

7.5
5.76
399.9

4.43

6

Balance of problem assets basedon the Financial Reconstruction Law

2007

0

OHR (core gross business profit basis)

2005

2006

2007

96.3
September 2004
91.9 8.00
Consolidation of Management
September 2003
Establishment

5.0
4
2.5

2004

2006

10.44

(%)
10

315.0

2003

2005

Capital ratio (FG consolidated)
(%)
10.0

200

0
End ofMarch

2004

OHR (core gross business profit basis) = Expenses / Core gross business profit

Current Status of Problem Assets(Billion ¥)
9.51
800

20

88.7
89.1
88.6

56.49
8.33
53.91
50.25
50.95
48.99

9.00

2

0.0

0
Capital ratio

Ratio of problem assets based on the
Financial Reconstruction Law

End of September End of March
2004
2005

End of March2006

End of March
2007

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

676.2
9.44
668.8
9.51
The Group has worked to streamline operations and raise efficiency by developing strategic partnerships, outsourcing work,
569.4
8.01
and effectively allocating management resources by reviewing the operation of branches, personnel, and organizations.
474.9
6.83
399.9
5.76
(¥ billion)

Progress in rationalization (total for the four companies: holding company, Hokuriku Bank, Hokkaido Bank, Hokugin Corporate)

Domestic branches (Note 1)
Employees (Note 2)
Personnel costs (Note 3)
Operating expenses
Personnel costs and operating expenses

End of FY2006(March 2007)

End of FY2005(March 2006)

End of FY2004(March 2005)

End of FY2003(March 2004)

End of FY2002(March 2003))

246
4,289
39.8
42.7
82.6

247
4,294
40.3
42.8
83.2

249
4,506
40.2
43.3
83.5

255
4,832
40.5
43.4
84.0

262
5,347
43.4
43.2
86.7

(Notes)(1) Excluding sub-branches, international operations center, loan direct centers, payment branches, and shared ATM branches.
(2) Includes branch staff, general affairs staff, and staff on loan. Excludes contract, part-time, and temporary staff.
(3) Includes expenses for staff dispatched to the holding company that the holding company pays to its subsidiaries.
Hokuhoku Financial Group, Inc. Annual Report 20075

Hokuriku Bank (including Hokugin Corporate)
Core business profit rose ¥1.3 billion year-on-year to a record ¥56.5 billion. Although the interest margin declined due to thetime lag between the rise in interest rates accrued on deposits and those charged on loans, this was more than offset by anincrease in income from fees and commissions, centered on the handling of investment trust and insurance products, whosemarketing we had stepped up in response to customer demand. Continued measures to reduce costs also made a contribution.
The amount of newly-emergent nonperforming loans declined from the previous period, and as a result of our active engagement in corporate rehabilitation services, total credit cost decreased by ¥12.7 billion to ¥22.0 billion.
As a result, ordinary income posted a ¥11.7 billion increase to reach ¥38.5 billion, while net income rose ¥3.3 billion year-onyear, to ¥18.9 billion.

Business Indicators(¥ billion)

2007

2006

2005

2004

2003

107.1
56.5
38.5
18.9

106.1
55.2
26.7
15.6

103.6
51.9
16.8
4.1

107.0
55.0
6.5
4.9

101.3
48.0
9.5
2.7

Years ended March 31

Core gross business profit
Core business profit
Ordinary income
Net income* Core gross business profit = Gross business profit – gains/losses on bonds* Core business profit = Core gross business profit – expenses

Core business profit(Billion ¥)60
0.90

Expenses
1.02
55.0

45

48.0

0.98

51.9

1.03
55.2

1.05

(%)
1.00

56.5

52.56

(%)
60
48.61

49.85

52.0

51.6

47.97

47.21

50.9

50.5

0.75

60

30

0.50

40

30

15

0.25

20

15

0
Years ended 2003
2004
March 31Core business profit

2005

2006

2007

0.00

ROA (core business profit basis)

ROA (core business profit basis) = Core business profit / (Average balance of total assets –Average balance of customers’ liabilities for acceptances and guarantees)(Billion ¥)
600
8.15

400

363.6

44.7
7.87 4855
354.251.9
55.2

0.79
0.9
7.46
1.02
326.50.98
1.03

7.5

6.03
260.2

4.65

2005

2006

2007

0

OHR (core gross business profit basis)

2005

Balance of problem assets basedon the Financial Reconstruction Law

420.9
9.15
363.6
8.15
354.2
7.87
326.5 Report 20077.46
Hokuhoku Financial Group, Inc. Annual
260.2
6.03

2006

2007

Ratio of problem assets based on the
Financial Reconstruction Law

8

57
7.50

6

8.0453.2

56.01
52.56
48.61
49.85
47.97

8.42

52
51.6
50.9

8.86

9.16

2006

2007

4
2.5

2004

2004

(%)
10

5.0

202.2

2003

0
Years ended 2003
March 31
Expenses45

Capital ratio
(%)
10.0

200

0
End ofMarch

53.2

OHR (core gross business profit basis) = Expenses / Core gross business profit

Current Status of Problem Assets

6(Billion ¥)
80

0.0

2
0
End of
March

2003

2004

2005

Capital ratio (non-consolidated)

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

Hokkaido Bank (on a non-consolidated basis)
Core business profit rose ¥0.2 billion over the previous term, to an all-time high of ¥37.2 billion. Although the interest margin
declined due to the time lag between rises in interest rates accrued on deposits and those charged on loans, this was morethan offset by an increase in income from fees and commissions, centered on the handling of investment trust and insurance
products, whose marketing we had stepped up in response to customer demand. Continued measures to reduce costs also
made a contribution.
The amount of newly-emergent nonperforming loans declined from the previous period, and as a result of our active engagement in corporate rehabilitation services, total credit cost decreased by ¥9.3 billion to ¥3.6 billion.
As a result, ordinary income rose ¥8.1 billion to ¥31.9 billion, while net income increased ¥7.2 billion to ¥20.7 billion.

Business Indicators(¥ billion)

Years ended March 31

Core gross business profit
Core business profit
Ordinary income (loss)
Net income (loss)

2007

2006

2005

2004

2003

74.7
37.2
31.9
20.7

74.7
37.0
23.8
13.4

71.3
33.8
17.3
11.1

69.4
32.8
10.7
10.8

69.1
30.5
(56.3)(55.0)* Core gross business profit = Gross business profit – gains/losses on bonds* Core business profit = Core gross business profit – expenses

Core business profit(Billion ¥)40

Expenses
0.97

0.98

1.00

0.88
37.0

30

30.5

32.8

1.00

(%)
1.00

(Billion ¥)
55.89
50

52.56

50.44

50.08

36.6

37.5

37.7

37.4

37.2

33.8

0.75

40

38.6

(%)
60

52.78

45

30
20

0.50

30
20

10

0.25

0
Years ended 2003
2004
March 31Core business profit

2005

2006

2007

0.00

ROA (core business profit basis)

ROA (core business profit basis) = Core business profit / (Average balance of total assets –Average balance of customers’ liabilities for acceptances and guarantees)

300

305.2

200

29.4
30.5
8.26
32.8
33.8
215.2 37

0.82
0.88
0.97
0.98
5.76
1
148.3

100

2003

2004

2005

Balance of problem assets basedon the Financial Reconstruction Law

255.3
305.2
215.2
148.3
139.7

2004

2005

2006

2007

0

OHR (core gross business profit basis)

Capital ratio
(%)
12

9
5.31
139.7

2006

39.3
38.6
6.4736.6
37.5
37.7

57.19
55.89
7.28
52.78
52.56
50.44

2004

2005

8
6.07

6

112.8

2007

Ratio of problem assets based on the
Financial Reconstruction Law

9.95
11.59
8.26
5.76
5.31

(%)
10

6
4.08

0
End ofMarch

0Years ended 2003
March 31
ExpensesOHR (core gross business profit basis) = Expenses / Core gross business profit

Current Status of Problem Assets(Billion ¥) 11.89
400

15

10

9.91
8.50

4
3

0

2
0
End of
March

2003

2006

2007

Capital ratio

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

Hokuhoku Financial Group, Inc. Annual Report 2007

7

CORPORATE SOCIAL RESPONSIBILITY

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

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

Providing attractive services conceived from the customer’s perspective
Increasing customer satisfaction

Branches designed to please our customers

Hokuriku Bank
The Hokuhoku Smile Declaration: We want to see more smilingfaces! We want to be a bank that’s more familiar and trusted!
We aim to be a bank that our customers truly like.

Hokuriku Bank
April 2007 Opening after remodeling of the Toyama Tonyamachi
Sub-Branch— Creating branches that are comfortable and put our customers at ease, while being kind to the environment —Hokkaido Bank
Biggest Smile campaign: We aim to greet customers with thebiggest smile, and be the bank that is genuinely trusted andliked.

8

Hokuhoku Financial Group, Inc. Annual Report 2007

Hokkaido Bank
September 2006 Opening after remodeling of the Shin Sapporo
Branch— Creating space for giving advice in a relaxing ambience —With Shareholders and Investors
Repaying trust and expectations through active disclosure and corporate communications
IR for investors and analysts

IR overseas

December 2006: Investors’ meeting for the fiscal 2006 interim
accounts; 121 participants (Tokyo)
May 2007: Investors’ meeting for the fiscal 2006 accounts; 154
participants (Tokyo)
Other ad hoc group and individual meetings also held

December 2006: U.S. (Boston, New York), Europe (London,
Glasgow, Edinburgh, Frankfurt)
July 2007: Europe (Frankfurt, Milan, Paris), U.S. (New York,
Boston, San Francisco)

IR for private investors
December 2006: IR meeting through tie-up with local companies; 243 participants (Sapporo)

General meeting of shareholders
June 2007: General meeting of shareholders for fiscal 2006
(Toyama)

With the Local Community
Aiming for shared prosperity with the local community
Financial education for students: the bearers of
responsibility for the next generation

Support for the rebuilding of Yubari City,
Hokkaido- Observation of banking business- Hands-on experience- Dispatch of lecturers to high schools, internship system- Dispatch of lecturers to local universities for finance-related
lectures
Joint publication with the University of Toyama of Kigyo zaimu
bunseki [Corporate financial analysis].

- Assignment of employees to Yubari City Hall, and support for
the rebuilding of Yubari (June 2007 — )- Initiation of special financing (Launching special loans tofinance businesses based in Yubari City or enterprises starting
business in the city)

Support for companies undertaking
environmental conservation

The Noto Peninsula earthquake on March 25, 2007 caused
considerable damage, particularly in the cities of Wajima andNanao, and our deepest sympathies are with the victims of thedisaster.
Hokuhoku Financial Group has collected donations from customers and bank employees and passed them on to the Officefor Disaster Countermeasures of the Ishikawa Prefectural
Government.
We also lent money actively, for example by providing assistance loans to disaster victims. As a local financial institution,
we will continue to support the rehabilitation of economic lifeand society in the Noto Peninsula.

- Conclusion, with Mizuho Corporate Bank, Ltd., of memorandum on business cooperation concerning financing to assist
regional communities- Conclusion of business cooperation agreement concerning
environment financing, etc., with The Bank of TokyoMitsubishi UFJ, Ltd.

Participation in local events
Owara Odori Machinagashi Festival (Toyama)
Yosakoi Soran Festival (Sapporo)

Support for rebuilding of Noto Peninsula
communities

Hokuhoku Financial Group, Inc. Annual Report 2007

9

With our Customers: Business Matching
Using our wide-ranging network for business matching
Business Summit 2006 in Takaoka
September 2006: Looking ahead to the full opening to traffic of
the Tokai-Hokuriku Expressway in fiscal 2007
Participating companies and bodies: 143 (including three
Hokkaido Bank corporate customers and 38 from the Tokai
region)Attendees: 3,200 people

Business Summit 2007 in Nagoya
May 2007: Tokai-Hokuriku food cultural exchange
Exhibiting companies: 113 (86 from Tokai region, 22 from
Hokuriku region)
Buyer companies: 46
Attendees: 2,000 people

Exhibiting companies: 33
200 managers and buyers from supermarkets, department
stores, mail-order companies, restaurant chains and others
throughout Japan

Hokkaido Business Forum 2006 in Sapporo
October 2006: Theme of Hokkaido business design andopening up the future
Companies exhibiting in business exchange meeting: 76(including 10 Hokuriku Bank customers)
Attendees: 1,200 people

Business matching via the Internet
January 2007: Conclusion of exclusive partnership agreementin the three Hokuriku prefectures with Info Mart Corporation

Hokkaido Food Special Business Conference in Sapporo
September 2006: Support for expansion of sales channels of
Hokkaido food and beverage manufacturers

With our Customers: Overseas Business Support
Supporting globalization as an intermediary for launching business overseas
Exhibition of Hokkaido food produce in Beijing
March 2007: Sponsored by the Sapporo economic exchanges
section of the Japan-China Economic Association’s Beijing
OfficeExhibiting companies from Japan: 12
Attendees: 126 people- Economic cooperation agreement with Shenyang(September 2006)- Business cooperation agreement with the government ofVietnam (November 2006)- Economic cooperation agreement with Changchun (March 2007)

Seminars
Combined regional bank confab in Shanghai
June 2007: Sponsored by 11 regional banks, and co-sponsoredby NC Network China
Exhibiting companies: 139 (including 17 Hokuhoku Financial
Group corporate customers)
Attendees: 1,500 companies

Collaboration with overseas institutions andgovernments- Business partnership with Standard Chartered Bank (July 2006)- Economic cooperation agreement with Liaoning Province(September 2006)10

Hokuhoku Financial Group, Inc. Annual Report 2007

- India seminar (November 2006)- Kasikorn Bank seminar (December 2006)- Three-bank joint seminar in Shanghai (December 2006)- Vietnam investment seminar (January 2007)

Formation of organizations for companies operating overseas, and provision of information
Hokuriku Chojokai
Hokkaido Chojokai
Shanghai Chojokai
Hokuhoku ASEAN kai

509 members (end-March 2007)
255 members (end-March 2007)
139 members (end-March 2007)
120 members (end-March 2007)

TOPICS

Hokuhoku Financial Group
1. Capital increase through public offering
We have made our first capital increase by public offering since
the establishment of the Group. Following a public announcement
on September 29, 2006, the issuance conditions of an issue priceof ¥413 and amount to be paid in of ¥396.04 were determined on
October 11, and the paying-in was completed on November 17.
The amount raised totaled ¥41.5 billion (net proceeds of ¥41.3
billion) for the issuance of 105 million shares, all of which wasallocated to general working capital, specifically in the form ofloans to Hokuriku Bank and Hokkaido Bank. At the same timethese funds are for the purpose of enhancing equity capital,
which will help the Company to repay public funds rapidly andincrease the flexibility of its capital policy, including measures forstrategic investment and the return of profits to shareholders.

2. Holding of three-bank joint seminar with Bank of Yokohama
As part of our support service for corporate customers launching
into other parts of the Asian region, since March 2006 we havecollaborated with the Bank of Yokohama to form a cooperative
structure for services such as the provision of information. As
part of this, on December 11, 2006, we held a joint three-bankseminar in Shanghai, China.
The purpose of the seminar was to provide up-to-date information about the local tax system and investment environment tocustomers conducting or launching business in China, and it was
attended by 90 representatives of 80 of the three banks’ corporate customers. The explanation of the latest investment climate
in China, and lectures on such topics as points to heed in thecollection of payments, were well received, and lively exchangesof opinions in the question-and-answer session were indicative of
the high level of interest of the participants.
The seminar has inspired us to channel even more effort intostrengthening support for the needs of customers launching business operations overseas. This will take such forms as further
three-bank cooperation in the exchange of local information forcompanies venturing overseas.

3.Joint system development with the shared systemcenter for regional banks
In March 2006 Hokuriku Bank, Hokkaido Bank, and the Bank of
Yokohama concluded a basic agreement on joint system use,and development has been proceeding with the aim of starting
operations (Hokuriku Bank, Hokkaido Bank) in May 2011.
This was followed in March 2007 by the conclusion of a basic
agreement with NTT Data for joint development with the regionalbanks’ shared system center, which was built and is operated
by NTT Data. Under this there will be joint development ofcapabilities that will form the basis for addressing legal changes
and system changes in external financial centers that affectthe banking industry as a whole, and for the enhancement of

products, services, and administrative operations. The arrangement will make it possible to engage in joint development notby just three banks but by 14, inclusive of the 11* banks alreadyparticipating in the center, and to pursue cost savings. In addition,
we plan to allocate the management resources released from thisto strategic investments.
This move has also prompted the 14 banks to actively study
the possibilities for collaboration in business activities other thanin the sphere of systems.
* Aichi Bank, Aomori Bank, Chiba Kogyo Bank, Fukui Bank, Hokuetsu Bank,
Bank of Ikeda, Bank of Iwate, Bank of Kyoto, Nishi-Nippon City Bank,
Shikoku Bank, Shonai Bank (in alphabetical order).

4. Holding of combined regional bank confab in Shanghai
On June 7, 2007 we held a combined regional bank confab in
Shanghai. This was the third such business confab, following
those held in December 2005 and July 2006. Participants
included not only the Hokuhoku Financial Group, but also Iyo
Bank, Ogaki Kyoritsu Bank, the Bank of Kyoto, the 77 Bank,
Joyo Bank, Chugoku Bank, the Fukuoka Financial Group(Bank of Fukuoka, Kumamoto Family Bank), and the Bank of
Yokohama. The meeting was hosted jointly by NC Network China(Shanghai), whose activities include acting as an intermediary
between companies in China, and providing information.
A total of 139 Japanese corporate customers exhibited,
including those seeking companies from which procure materials
or to handle outsourced processing, and sales channels. Some
1,500 Chinese and other companies visited the hall, and around3,000 business discussions were conducted. That made it one of
the largest such commercial gatherings ever held by a Japaneseregional bank in Shanghai. Taking advantage of our broad
network, we are committed to continuing to give such support tocorporate customers operating overseas.

5. Support for the rebuilding of Yubari City
We have dispatched employees to the city government of Yubari,in Hokkaido, to give assistance for rebuilding work there.
Since 12th Bank, one of Hokuriku Bank’s predecessors, opened
its Otaru branch in 1899, its first branch in Hokkaido, Hokuriku
Bank has positioned Hokkaido as one of its principal businessareas, and has contributed to the island’s economic development.
Hokkaido Bank opened its branch in Yubari in November 1951,
and after reorganizing it as the Yubari special sub-branch of its
Kuriyama Branch in November 1978, its business was transferredto the Kuriyama Branch in September 1993, though it continued
to handle business with Yubari City government and other business such as financing for bodies related to the city. However,given its business base in Yubari, and the desirability of serving
the needs of SMEs that had been setting up new operations in
the city, in March 2007 Hokkaido Bank began offering special
loans to provide a smooth supply of business funds.
Hokuhoku Financial Group, Inc. Annual Report 200711

Further assistance has been given by the assignment of one
employee by Hokkaido Bank in June 2007, and one by Hokuriku
Bank in July 2007, as full-time staff of the Yubari municipal
government. As a regional bank that is an integral part of the local
community, we will continue to give support to the rebuilding of
Yubari and to assisting its industrial resurgence.

6. Participation in the Yosakoi Soran Festival
We participated in the 16th Yosakoi Soran Festival, which washeld in Sapporo for a five-day period from June 6, 2007.
We joined forces with the Hokkai Ahondara group, one ofthe oldest groups, which was taking part in the festival for theeleventh time, to form a Hokkai Ahondara Group & Hokuhoku
FG team with a combined strength of 130 members. The team
had the pleasure of dancing amid the refreshing breezes of theearly Hokkaido summer. Bolstered by roars of support from theaudience, which also demanded encores, the team won the
newly instituted Kantosho (Fighting Spirit Prize) on only its thirdappearance at the festival.

The Yosakoi Soran Festival

Hokuriku Bank
1. Special services for hearing-impaired customers
To raise the standard of counter services for hearing-impaired
customers, in December 2006 we installed “Ear Mark” symbols in
the customer service areas of all our branches, above explanations
to the effect that customers with hearing difficulties should nothesitate to identify themselves as such, when we will make it very
easy for them to make inquiries and consult our staff in writing.

2. Launch of time deposit product for retirement
benefits to commemorate the 130th anniversary
In January 2007 we upgraded our existing time deposit productdedicated for retirement benefits with the launch of a new product to mark the 130th anniversary of the Bank’s establishment.
Designed for people, principally baby boomers, who are at an age
at which they want to give careful thought to the investment of
their retirement benefits, this time deposit offered special interest
rates for a limited period of three months.

3. Opening of the Toyama Tonyamachi Sub-Branch
after remodeling
The Toyama Tonyamachi Sub-Branch was reopened after being
remodeled in line with the concept of providing space that is comfortable and convenient, and puts customers at their ease, as well
as being kind to the environment. The first floor has a branch of the
Sunkus convenience store chain, offering the extra convenienceof a joint bank-convenience store outlet, and the building uses anenergy-saving electricity system based on solar-power generation,

12

Hokuhoku Financial Group, Inc. Annual Report 2007

the first of its kind at the Bank. Other facilities include a stair lift tohelp elderly people and a kids’ corner.
A dedicated zone for consultations on asset management has
also been added as part of the sub-branch’s array of advisory
services.

4. Courses to nurture next-generation managers
Hokuriku Bank has conducted the first round of the Hokugin Management School courses for nurturing next-generation managers.
Held in Toyama and Ishikawa Prefectures, the course tutors wereBank officers and staff who are MBAs or hold similar specialist
qualifications. This was the first management school arranged by
the Bank, and was structured to provide the students — management personnel destined to become the next generation ofmanagers in local companies — with insights into dealing with the
bewildering changes now occurring in the business environment,such as the macro-economy and market movements. It also
discussed how companies are viewed by financial institutions.

5. Visit by the CEO of Kasikorn Bank, Thailand
Since entering a business alliance with Kasikorn Bank in Thailand
in December 2005, we have been providing corporate customers
with a financial service finely tuned to their needs, including theraising of funds in the local currency. Mr. Banthoon Lamsam,
CEO of Kasikorn Bank, visited our head office to host a ceremonymarking the first anniversary of the business alliance, at which
both banks reaffirmed their desire to step up their cooperation.

6. Conclusion of economic exchange agreement withgovernment of Suzhou CityOn June 8, 2007 we concluded an economic exchange agreement with the government of the city of Suzhou in China. There
are already 33 companies from the Hokuriku region operating in
Suzhou and the number is projected to rise, presenting Hokuriku
Bank with the opportunity to act as a conduit to the Suzhou
authorities to give support to companies launching and operatingin the city.
Another fact to note is that the conclusion of this agreementwith Suzhou, which has a sister-city relationship with Kanazawa,
also ranks as one of the events to mark the Hokuriku Bank’s
130th anniversary, given that Kanazawa is its birthplace.

Economic exchange agreement with Suzhou

Hokkaido Bank
1. Opening of a branch after remodeling
In September 2006, substantial changes were made to the layoutof the Shin Sapporo Branch. In view of a growing need amongcustomers for advisory services within Bank premises, we
implemented very clear zoning to demarcate consulting activities
from business that is conducted quickly, creating space in whichcustomers can feel completely at ease when consulting our staff.

The Shin Sapporo Branch

participated in by eight staff of four manufacturing companies in thefields of sheet steel, steel structures, concrete products, and rubber products. Mutual visits were made twice to the manufacturing
sites of each participating company, lasting a total of six days,
advice was given by the Bank’s consultants, and methods of remedying any deficiencies discovered were collated by the group andannounced and subjected to a question-and-answer session. To
round off the course, managers from each company were invited
to come and present details of the results of their activities.
The second stage will be held on the premises of food manufacturers in the Sapporo district, and the third stage is planned
to be held with a focus on food manufacturers in the Tokachi
district.

4. Improvements to security measures

2. Hosting of Hokkaido Food Special Business Conference
Hokkaido Bank and the Hokkaido Small and Medium Corporation
Human Resource Development Fund hosted the third Hokkaido
Food Special Business Conference on September 11, 2006. Thisbrought together in Sapporo a gathering of some 200 managers
and buyers from supermarkets, department stores, mail-ordercompanies, restaurant chains, and similar enterprises throughout
Japan, and the event was also attended by representatives of 33
food and beverage manufacturers based in Hokkaido. The conference led to the arrangement of 240 individual business meetings
at which lively discussions were held.

3. Start of short manufacturing training courses
To back up efforts to improve the production facilities of manufacturing industry in Hokkaido, the Bank has inaugurated collective,
practical short training courses to be taken in stages.
The fi rst stage was from November 2006 to March 2007,

Hokkaido Bank has introduced PHISHCUT to counter phishing, a
type of fraud that targets Internet transactions. The introductionof PHISHCUT is a simple means of ensuring more secure use of
the Bank’s Internet banking, and the service is free. In ways suchas this, Hokkaido Bank will continue to make improvements to its
security measures.

5. Establishment of new support system for business start-ups
In April 2007 we inaugurated a support system for business startups in conjunction with the Hokkaido Small Business Support
Center. This system is directed at facilitating the start-up ofcompanies making use of highly novel technologies, and for thatreason takes advantage of the center’s capability to make soundjudgments on such matters. The start of this system means that,together with Hokkaido Bank’s comprehensive support menu insuch areas as business matching and consulting, we have createda system that will be able to meet customer needs in this sphere.
Hokuhoku Financial Group, Inc. Annual Report 2007

13

PLAN FOR SOUND MANAGEMENT

Working to achieve stable earnings, with the goal of repaying public funds
Based on the Law on Emergency Measures to Revitalize the Functions of the Financial System, the Company issued
a total of ¥120.03 billion in preferred stock, which was placed to specified banks. To facilitate the repayment of thesepublic funds, we revised our Plan for Sound Management in November 2006, two years after the initial announcement.
Because of this, we revised our earnings targets, setting new targets for achievement by March 2010.
According to the plan, the Group will strive to ensure stable profitability by utilizing its unique and extensive regional
network to realize the goals of integration, which include strengthening marketing capabilities, increasing management
efficiency, and cementing customer loyalty.
Summary of the Preferred Shares issued by the Company
Class
Number of sharesissuedTotal value
Dividends
Acquisition price

1st series Class 1 Preferred shares

1st series Class 4 Preferred shares

150 million shares

79 million shares¥75 billion¥7.70 per share¥402.10 (on and after July 31, 2007; subject to change
according to the market price* of ordinary shares ofcommon stock of the Company)
From September 26, 2003 to July 29, 2010

¥45.03 billion¥6.62 per share¥402.10 (on and after August 1, 2007; subject tochange according to the market price* of ordinary
shares of common stock of the Company)
From September 1, 2004 to July 31, 2010

Acquisition period
Dates for mandatory
July 30, 2010acquisition

August 1, 2010

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

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

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

3. Cementing Customer Loyalty
The Group is working to create a stable asset portfolio by utilizing an operating base that extends over two geographical areas with different economic environments to become a regional financial group supported by customers andenjoying the firm trust of the financial markets.
• Building an asset portfolio diversified across a wide area and a wide range of industries by utilizing extensive regional operations• Implementing stable capital and dividend policies through the absorption by the holding company of fluctuations in the profits of its subsidiary banks and companies
We set the following five items as targets in the plan for restoring management soundness to further improve profitability,
efficiency, and soundness. The plan will be implemented through March 2010.
In fiscal 2006, the first year under the revised plan, core business profits surpassed the original targets, reaching ¥93.4 billion,
due to the steady implementation of restructuring measures and measures to strengthen earnings included in the plan. In
addition, progress in the disposal of non-performing loans and improved business performance by borrower corporations helped
reduce total credit cost significantly. As a result, ordinary income and net income both exceeded the targeted figures.

14

Hokuhoku Financial Group, Inc. Annual Report 2007

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

Targets under Plan for Sound Management
Further improving our top-class earning power among the regional banks
Target for March 2010
Net business profit (excluding provision for general reserve for possible loan losses): ¥96.0 billion
Net income: ¥42.6 billion

Investments and measures to raise efficiency, aimed at strengthening marketing capabilities, and improving
service convenience and financial soundness
Target for March 2010
OHR 49.16%

Decline in total amount of nonperforming loans to a level acceptable under the Financial Reconstruction Law
Target for March 2009
Bad debt ratio: 3-4%

Early repayment of public funds, building up sufficient retained earnings
Target for March 2010
Balance of retained earnings of ¥192.8 billion

Stabilization of financial base
Capital ratio target after repayment of public funds: approximately 9% (20% or below for proportion ofdeferred tax assets to Tier 1 capital)
Income (Hokuriku Bank + Hokkaido Bank)(¥ billion)

Gross business profit
Expenses(OHR)
Net business profit
Core business profit
Total credit cost
Ordinary income
Net income

March 2006

March 2007
(Target)March 2007

March 2008
(Target)March 2009
(Target)March 2010
(Target)

180.0
88.5
(49.16%)
105.1
91.7
46.6
50.6
29.1

175.6
89.5
(50.99%)
86.0
88.0
26.5
60.3
34.4

179.7
87.9
(48.94%)
97.8
93.4
26.2
70.1
39.3

182.2
91.3
(50.13%)
90.8
90.8
25.5
64.8
37.6

186.2
92.4
(49.66%)
93.7
93.7
24.5
68.2
40.8

188.8
92.8
(49.16%)
96.0
96.0
24.5
70.5
42.6

Balance of retained earnings (Hokuhoku Financial Group + Hokuriku Bank + Hokkaido Bank)
March 2006

March 2007
(Target)March 2007

March 2008
(Target)March 2009
(Target)March 2010
(Target)

68.1

97.4

102.4

127.2

159.4

192.8

March 2006

March 2007
(Target)March 2007

March 2008
(Target)March 2009
(Target)March 2010
(Target)

9.00%
6.47%

10.14%
7.72%

10.44%
7.74%

10.64%
8.26%

11.12%
8.78%

11.57%
9.32%

Balance of retained earnings

Consolidated capital ratio (Hokuhoku Financial Group)

Consolidated capital ratio*
Tier I capital ratio*

OHR = Expenses/Gross business profit
Core business profit = Net business profit + Provision for general reserve for possible loan losses – Gains (losses) on bonds
Credit cost includes transfer to general reserve for possible loan losses
Balance of retained earnings = Retained earnings – Legal reserve* Calculated using the old standard, which was effective at the time of planning

Hokuhoku Financial Group, Inc. Annual Report 200715

CORPORATE GOVERNANCE

We will strengthen our system of corporate governance and increase
management transparency.
Basic Approach
The holding company and all its member companies regard strengthening and upgrading corporate governance as a management priority. We have drawn up a basic policy — our management philosophy — covering all our activities from management
strategy-setting and decision-making down. Through the Hokuhoku Financial Group Code of Conduct, we are creating a soundermanagement paradigm to ensure that basic values and philosophies are shared across the Group, enterprise value is increased,
and the further development of the Hokkaido and Hokuriku regions is enabled.

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

Shareholders’ Meeting

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

Market Strategy Committee(Coordication: some members takemore than one position at a time)

of
PDCA

Board of Directors

Administration Group

Risk Management Group

Shareholders’ Meeting

Other
subsidiaries

Internal audit

Shareholders’ Meeting
Internal audit

Board of Directors

Board of Directors

Management Committee

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

16

Audit Group

Hokkaido Bank

8 external members
Advises to theManagement

1 external director

Management Committee

Hokuriku BankManagement Advisory
Committee

Board of Auditors

Internal audit
Execution

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

Planning Group

3 external auditors

Hokuhoku Financial Group, Inc. Annual Report 2007

Management Advisory
Committee
4 external members
2 advisers
Advises to theManagement

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

Hokuhoku Financial Group

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

Hokuriku Bank

Hokkaido Bank

Subsidiaries, etc.

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

Hokuhoku Financial Group, Inc. Annual Report 2007

17

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

Credit Risk Management
Hokuhoku Financial Group• Report on risks,
problems, andresponses toproblems

Board of Directors
Management Committee• Set basic policies• Offers guidanceon matters related
to establishing thesystemRisk Management Group

Creditrisk

Marketrisk

Liquidity
risk• Report on the state ofrisk management

Operationalrisk• Determine basic policy andinstructing on items such assystem creation

Group members
Hokuriku Bank

Hokkaido Bank

Subsidiary Bank
Board of Directors
Management Committee
Risk management department

18

Hokuhoku Financial Group, Inc. Annual Report 2007

Subsidiaries, etc.

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

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

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

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

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

Integrated risk management
As set out above, the Group faces a diversity of risks, and soto ensure that risk is not excessive relative to equity capital
it is incumbent on it to assess each risk by using a common
yardstick and then to grasp and manage the risk that it bears.
To achieve this we have formulated our management rules
for integrated risk, under which we quantify credit risk, market
risk, operational risk, and other risks belonging to various
categories and we estimate maximum loss and identify it in an
integrated form. Based on that, to make effective use of ourlimited capital we make allocations of risk capital funded fromTier 1 capital, thereby managing risk by limiting it to within
permissible management limits.

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

Hokuhoku Financial Group, Inc. Annual Report 2007

19

CONSOLIDATED FINANCIAL STATEMENTSCONSOLIDATED BALANCE SHEETS
Hokuhoku Financial Group, Inc. and Consolidated Subsidiaries
Thousands of
U.S. dollars (Note 1)

Millions of yen

2007

2006

2007

AssetsCash and due from banks (Note 24) .....................................................................
Call loans and bills bought ....................................................................................
Receivables under securities borrowing transactions ...........................................
Commercial paper and other debt purchased ......................................................
Trading assets (Note 6) .........................................................................................
Money held in trust (Note 29) ................................................................................
Securities (Notes 7, 12 and 29) .............................................................................
Loans and bills discounted (Notes 8 and 12) .......................................................
Foreign exchanges (Note 9) ..................................................................................
Other assets (Note 12) ..........................................................................................
Premises and equipment .......................................................................................
Tangible fixed assets (Notes 10 and 16)................................................................
Intangible fixed assets ...........................................................................................
Deferred tax assets (Note 23) ...............................................................................
Goodwill ................................................................................................................
Customers’ liabilities for acceptances and guarantees (Note 11) ........................
Reserve for possible loan losses ..........................................................................
Total assets ..........................................................................................................

¥ 251,379
230,000
21,785
199,938
9,290
14,941
1,649,859
6,813,479
15,657
121,217—
133,324
44,53672,086—
180,190(119,544)¥9,638,142¥ 346,805——
215,361
9,467
25,422
1,749,069
6,678,269
14,816
126,901
116,291——
101,880
39,968271,390(160,015)¥9,535,627$ 2,129,433
1,948,327
184,543
1,693,675
78,696
126,566
13,975,938
57,716,896
132,638
1,026,828—
1,129,389
377,271
610,646—
1,526,391(1,012,662)$81,644,575

Liabilities, minority interests and stockholders’ equity
Liabilities
Deposits (Notes 12 and 13) ..................................................................................
Call money and bills sold (Note 12) ......................................................................
Payables under securities lending transactions (Note 12) ....................................
Trading liabilities (Note 6) ......................................................................................
Borrowed money (Notes 12 and 14) .....................................................................
Foreign exchanges (Note 9) ..................................................................................
Bonds (Note 15) ....................................................................................................
Other liabilities ......................................................................................................
Reserve for employee bonuses ............................................................................
Reserve for employee retirement benefits (Note 28) ............................................
Deferred tax liabilities for land revaluation ............................................................
Acceptances and guarantees (Note 11) ...............................................................
Total liabilities .....................................................................................................

¥8,458,269
31,57342,777718
223,445411
71,210116,75830
11,323
9,087
180,190
9,145,793¥8,203,885
317,500
107,877755
34,754345
71,220100,418
24
11,831
9,159
271,390
9,129,162$71,649,887
267,454362,364
6,087
1,892,800
3,482
603,219
989,057
254
95,921
76,983
1,526,391
77,473,899

Minority interests ................................................................................................

—

451

—

Stockholders’ equity
Capital stock (Note 17) .........................................................................................
Capital surplus ......................................................................................................
Retained earnings (Note 18) .................................................................................
Land revaluation excess (Note 16) ........................................................................
Net unrealized gain on available-for-sale securities (Note 29) .............................
Treasury stock ......................................................................................................
Total stockholders’ equity ..................................................................................
Total liabilities, minority interests and stockholders’ equity ..........................

—
—
—
—
—
—
—
—

50,000272,576
57,542
9,063
17,136(303)
406,014¥9,535,627

—
—
—
—
—
—
—
—

Net assets
Capital stock (Note 17) .........................................................................................
Capital surplus ......................................................................................................
Retained earnings (Note 18) .................................................................................
Treasury stock .......................................................................................................
Total stockholders’ equity ..................................................................................
Net unrealized gain on available-for-sale securities (Note 29) ..............................
Net deferred hedge losses ....................................................................................
Land revaluation excess (Note 16) ........................................................................
Total valuation and translation adjustments ....................................................
Minority interests ..................................................................................................
Total net assets....................................................................................................
Total liabilities and net assets ...........................................................................

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

—
—
—
—
—
—
—
—
—
—
—
—

600,550
2,484,273
788,413(3,791)
3,869,445
220,911(170)
75,882
296,623
4,608
4,170,676$81,644,575

March 31

See notes to consolidated financial statements.

20

Hokuhoku Financial Group, Inc. Annual Report 2007

CONSOLIDATED STATEMENTS OF INCOME
Hokuhoku Financial Group, Inc. and Consolidated Subsidiaries
Thousands of
U.S. dollars (Note 1)

Millions of yen

2007

2006

2007

IncomeInterest income:Interest on loans and discounts ......................................................................
Interest and dividends on securities ................................................................
Interest on receivables under resale agreements ............................................
Interest on receivables under securities borrowing transaction ......................
Interest on deposits with other banks .............................................................
Other interest income ......................................................................................
Fees and commissions (Note 20) .........................................................................
Trading income (Note 21) .....................................................................................
Other operating income ........................................................................................
Other income ........................................................................................................
Total income .........................................................................................................

¥130,641
19,422
132
6
652
4,407
47,6701,411
31,141
10,302245,788¥126,161
18,671
7
—
208
5,812
43,085
1,159
33,136
13,366
241,611$1,106,664
164,530
1,124
58
5,525
37,336
403,813
11,956
263,796
87,2702,082,072

Expenses
Interest expenses:
Interest on deposits .........................................................................................
Interest on payables under securities lending transactions ............................
Interest on borrowings and rediscounts ..........................................................
Interest on bonds .............................................................................................
Other interest expenses ...................................................................................
Fees and commissions (Note 20) .........................................................................
Other operating expenses ....................................................................................
General and administrative expenses ...................................................................
Provision for reserve for possible loan losses ......................................................
Other expenses (Note 22) .....................................................................................
Total expenses ......................................................................................................

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

7,952
637
1,096
1,523
2,407
10,99916,60994,08343,477
16,252
195,040

96,247
7,428
10,48915,44819,66990,289153,227
792,278
217,034
64,982
1,467,091

72,59846,571

614,981

2,094
29,748113¥ 40,642

695
18,98949¥ 26,837

17,738252,000
958$ 344,285

Year ended March 31

Income before income taxes and minority interests .............................................
Income taxes (Note 23):
Current .............................................................................................................
Deferred ...........................................................................................................
Minority interests in net income ............................................................................
Net income ..........................................................................................................
See notes to consolidated financial statements.

Hokuhoku Financial Group, Inc. Annual Report 2007

21

CONSOLIDATED STATEMENT OF CHANGES IN NET ASSETS
Hokuhoku Financial Group, Inc. and Consolidated Subsidiaries
Thousands

Millions of yen

IssuedIssuednumber of
number ofshares ofshares ofcommon stock preferred stock

Balance as of March 31, 2006 ........................... 1,286,630
Changes during the period
Issuance of new shares ..................................
105,000
Cash dividends ...............................................
—Net income......................................................
—
Purchase of treasury stock .............................
—
Disposition of treasury stock ..........................
—
Transfer from land revaluation excess ............
—
Increase due to the changeof the interest of associated company..........
—Net changes in item other than stockholders’ equity ...
—Total changes during the period .....................
105,000
Balance as of March 31, 2007 ........................... 1,391,630

Capitalstock

CapitalsurplusRetainedearnings

Treasury
stock

Total
stockholders’equity336,432¥50,000¥272,576¥57,542¥(303)¥379,814

—
—
—
—
—
—

20,895—————

20,689———2——(5,218)40,642
—
—
105

—
—
—
(157)
10
—

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

—
—
—
336,432——
20,895¥70,895——
20,691¥293,268——
35,529¥93,0723—(143)¥(447)

3—
76,973¥456,788

Millions of yen
Net unrealized
gain onavailable-for-sale Net deferred
securities
hedge losses

Balance as of March 31, 2006 ...........................
Changes during the period
Issuance of new shares ..................................
Cash dividends ...............................................
Net income......................................................
Purchase of treasury stock .............................
Disposition of treasury stock ..........................
Transfer from land revaluation excess ............
Increase due to the changeof the interest of associated company..........
Net changes in item other than stockholders’ equity ...
Total changes during the period .....................
Balance as of March 31, 2007 ...........................

Total valuation
Land revaluation and translation
excessadjustments

Minority
interests

Total
net assets¥17,136¥—¥9,063¥26,199¥451¥406,465

—
—
—
—
—
—

—
—
—
—
—
—

—
—
—
—
—
—

—
—
—
—
—
—

—
—
—
—
—
—

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

—
8,942
8,942
¥26,078

—
(20)
(20)
¥(20)

—
(105)
(105)
¥8,957

—
8,817
8,817
¥35,016

—
92
92
¥543

3
8,909
85,882¥492,348

Thousands of U.S. dollars (Note 1)

Balance as of March 31, 2006 ...........................
Changes during the period
Issuance of new shares ..................................
Cash dividends ...............................................
Net income......................................................
Purchase of treasury stock .............................
Disposition of treasury stock ..........................
Transfer from land revaluation excess ............
Increase due to the changeof the interest of associated company..........
Net changes in item other than stockholders’ equity ...
Total changes during the period .....................
Balance as of March 31, 2007 ...........................

Capitalstock

CapitalsurplusRetainedearnings

Treasury
stock

Total
stockholders’equity$423,549$2,308,993$487,440$(2,574)$3,217,408

177,001—————

175,258
—
—
—
22
—

—
(44,204)
344,285
—
—
892

—
—
—
(1,331)
87—352,259(44,204)
344,285(1,331)
109
892

—
—
177,001$600,551——
175,280$2,484,273——
300,973$788,413

28—(1,216)$(3,791)28—
652,038$3,869,445

Thousands of U.S. dollars (Note 1)
Net unrealized
gain onavailable-for-sale Net deferred
securities
hedge losses

Balance as of March 31, 2006 ...........................
Changes during the period
Issuance of new shares ..................................
Cash dividends ...............................................
Net income......................................................
Purchase of treasury stock .............................
Disposition of treasury stock ..........................
Transfer from land revaluation excess ............
Increase due to the changeof the interest of associated company..........
Net changes in item other than stockholders’ equity ...
Total changes during the period .....................
Balance as of March 31, 2007 ...........................
See notes to consolidated financial statements.

22

Hokuhoku Financial Group, Inc. Annual Report 2007

$145,160$

Total valuation
Land revaluation and translation
excessadjustments

Minority
interests

Total
net assets—$76,774$221,934$3,823$3,443,164

—
—
—
—
—
—

—
—
—
—
—
—

—
—
—
—
—
—

—
—
—
—
—
—

—
—
—
—
—
—

352,259(44,204)
344,285(1,331)
109
892—
75,75175,751$220,911

—
(170)
(170)
$(170)

—
(892)
(892)
$75,882—
74,69074,690$296,623—
784
784$4,60728
75,474
727,512$4,170,676

CONSOLIDATED STATEMENT OF STOCKHOLDERS’ EQUITY
Hokuhoku Financial Group, Inc. and Consolidated Subsidiaries
Thousands

Millions of yen

Issuednumber ofshares ofcommon stock

Issuednumber ofshares ofpreferred stock

Net unrealized
gain onLand revaluation available-for-sale
excesssecurities

Capitalstock

CapitalsurplusRetainedearnings

Balance at March 31, 2005 ............... 1,286,630
Net income...................................
—Cash dividends ............................
—
Treasury stock transactions.........
—
Transfer from land
revaluation excess .....................
—
Changes during the year..............
—
Balance at March 31, 2006 ............... 1,286,630

336,432———¥50,000———¥272,412——
164¥35,586
26,837(5,218)—¥11,192———¥11,825———¥(264)
—
—
(39)

—
—
336,432——¥50,000——¥272,576

336—¥57,542(336)(1,791)¥ 9,063—5,310¥17,136——¥(303)

Treasurystock

See notes to consolidated financial statements.

Hokuhoku Financial Group, Inc. Annual Report 2007

23

CONSOLIDATED STATEMENTS OF CASH FLOWS
Hokuhoku Financial Group, Inc. and Consolidated Subsidiaries
Thousands of
U.S. dollars (Note 1)

Millions of yen
Year ended March 31

1.Cash flows from operating activities:
Income before income taxes and minority interests ..................................
Depreciation ...............................................................................................
Losses on impairment of fixed assets ........................................................
Amortization of goodwill .............................................................................
Equity in earnings of affiliates .....................................................................
Increase (decrease) in reserve for possible loan losses .............................
Increase (decrease) in reserve for employee bonuses ................................
Increase (decrease) in reserve for employee retirement benefits................
Interest income ............................................................................................
Interest expenses ........................................................................................
Losses (gains) on securities.........................................................................
Losses (gains) on money held in trust .........................................................
Losses (gains) on foreign exchange ............................................................
Losses (gains) on sales of premises and equipment...................................
Losses on sales of fixed assets...................................................................
Decrease (increase) in trading assets..........................................................
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 paper and other debt purchased ...........................................
Net decrease (increase) in guarantee deposits paid
under securities borrowing transactions ..................................................
Net increase (decrease) in call money and bills sold...................................
Net increase (decrease) in payables
under securities lending transactions........................................................
Net decrease (increase) in foreign exchanges (assets) ...............................
Net increase (decrease) in foreign exchanges (liabilities) ............................
Issuance and redemption of bonds (excluding subordinated bonds) .........
Interest received ..........................................................................................
Interest paid.................................................................................................
Other, net.....................................................................................................
Subtotal ...........................................................................................................
Income taxes paid ......................................................................................
Net cash provided by (used in) operating activities ...................................

24

Hokuhoku Financial Group, Inc. Annual Report 2007

2007

2006

2007

¥ 72,598
16,111
48
2,265
(13)
(40,470)6(508)(155,263)
17,622
1,949
(78)
(51)
—
799
177
(37)
(135,210)
211,915
42,468¥ 46,571
15,197
1,020
1,961
133
(10,222)0553(150,862)
13,617(7,591)(232)(1,485)
316
—
144
(254)
10,964(113,791)
18,687

173,690(4,893)

1,471,329(12,325)507(104,412)(214,577)(112,973)(1,817,680)(21,785)(285,927)—
192,600(184,543)(2,422,084)(65,100)
(841)
65
(10)
132,274(12,478)
1,007(271,677)(872)(272,550)(1,271)
5,018
116
(10)
132,992(15,658)(17,215)
3,940
(704)
3,236

(551,461)(7,125)556(85)
1,120,494(105,701)
8,535(2,301,378)(7,394)(2,308,772)$

614,981
136,479413
19,190(114)(342,829)51(4,304)(1,315,237)
149,282
16,514
(666)
(435)
—
6,772
1,500
(315)
(1,145,364)
1,795,134
359,747

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

Millions of yen
Year ended March 31

2007

2006

2007

2.Cash flows from investing activities:
Purchases of securities ...............................................................................
Proceeds from sales of securities ...............................................................
Proceeds from maturity of securities...........................................................
Purchases of money held in trust ................................................................
Proceeds from sales of money held in trust ................................................
Proceeds from fund management...............................................................
Purchases of premises and equipment .......................................................
Purchases of tangible fixed assets..............................................................
Proceeds from sales of premises and equipment.......................................
Proceeds from sales of tangible fixed assets..............................................
Purchases of intangible fixed assets ...........................................................
Purchases of stocks of subsidiaries ............................................................
Net cash provided by (used in) investing activities ....................................

(271,486)
198,875
173,594—
10,50019,504—(13,091)—686(2,667)—
115,914(616,429)
302,422
149,320(1,608)—18,947(3,309)—1,095——(2,384)(151,946)(2,299,758)
1,684,670
1,470,520—
88,945
165,221—(110,902)—
5,816(22,599)—
981,913

3.Cash flows from financing activities:
Proceeds from issuance of subordinated borrowed money .......................
Repayment of subordinated borrowed money............................................
Proceeds from issuance of subordinated bonds ........................................
Repayment of subordinated bonds .............................................................
Expenditures for fund procurement.............................................................
Proceeds from issuance of new shares ......................................................
Dividends paid .............................................................................................
Dividends paid to minority stockholders .....................................................
Purchases of treasury stock ........................................................................
Proceeds from sales of treasury stock ........................................................
Net cash provided by (used in) financing activities ....................................
4.Effect of exchange rate changes on cash and cash equivalents...............
5.Net increase (decrease) in cash and cash equivalents...............................
6.Cash and cash equivalents at beginning of year .........................................
7.Cash and cash equivalents at end of year (Note 24) ...................................

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

9,000(22,000)
20,000(1,500)(2,687)—(5,218)
(57)
(248)
300
(2,412)62(151,059)
489,969¥338,909

169,420(42,355)——(19,965)
352,259(44,204)—(1,331)
109413,933
163(912,763)
2,870,900$1,958,137

See notes to consolidated financial statements.

Hokuhoku Financial Group, Inc. Annual Report 2007

25

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

1. Basis of Presentation
The accompanying consolidated financial statements havebeen prepared in accordance with the provisions set forth in
the Japanese Securities and Exchange Law and its related
accounting regulations, and in conformity with accounting
principles generally accepted in Japan, which are different incertain respects as to application and disclosure requirements of International Financial Reporting Standards.
On December 27, 2005, the Accounting Standards Boardof Japan (the “ASBJ”) published a new accounting standard
for the statement of changes in net assets, which is effective
for fiscal year ending on or after May 1, 2006. The consolidated statement of stockholders’ equity, which was previously voluntarily prepared in line with the international
accounting practices, is now required under generally
accepted accounting principles in Japan and has beenrenamed “the consolidated statement of changes in net
assets” from the year ended March 31, 2007.
The accompanying consolidated financial statements havebeen restructured and translated into English (with some
expanded descriptions) from the consolidated financial statements of Hokuhoku Financial Group, Inc. (the “Company”)
prepared under Japanese Securities and Exchange Law andrelated accounting regulations.
Some supplementary information included in the statutory
Japanese language consolidated financial statements, but
not required for fair presentation, is not presented in theaccompanying consolidated financial statements.
Amounts less than one million yen have been omitted. As aresult, the totals in Japanese yen shown in the consolidated
financial statements do not necessarily agree with the sum of
the individual amounts. The translation of the Japanese yenamounts into U.S. dollars is included solely for the convenienceof readers outside Japan, using the prevailing exchange rate at
March 31, 2007, which was ¥118.05 to US$1. The U.S. dollar
amounts are then rounded to thousands. The conveniencetranslations should not be construed as representations that
the Japanese yen amounts have been, could have been, or
could in the future be, converted into U.S. dollars at that rate.
2. Scope of Consolidation
On September 26, 2003, the Company was formed as a holding company for the Hokuriku Bank Ltd. by way of stocktransfers (“kabushiki-iten”), and on September 29, 2003,
Hokugin Lease Co., Ltd., Hokuriku Card Co., Ltd., Hokuriku
Hosho Services Co., Ltd. and Hokugin Software Co., Ltd.
came under the control of the Company. Nihonkai Services
Co., Ltd. was formed as a wholly-owned subsidiary of theCompany on December 25, 2003.
On September 1, 2004, Hokkaido Bank, Ltd. and Dogin
Business Service, Ltd., its consolidated subsidiary, became
the Company’s consolidated subsidiaries by a way of stockto-stock exchange (“kabushiki-kokan”).
On March 1, 2006, Dogin Card Co., Ltd., formerly an equitymethod affiliate of the Company, was included in the scopeof consolidation after the Company’s subsidiary, HokkaidoBank, acquired additional shares of Dogin Card. The performance of Dogin Card for year ended March 31, 2006 was

26

Hokuhoku Financial Group, Inc. Annual Report 2007

accounted for using the equity method.
The consolidated financial statements as of March 31, 2007
include the accounts of the Company and its 15 subsidiaries(together, the “Group”). The consolidated subsidiaries arelisted below.
Under the control or influence concept, those companies inwhich the Company, directly or indirectly, is able to exercise
control over operations are fully consolidated, and thosecompanies over which the Group has the ability to exercise
significant influence are accounted for by the equity method.
Investment in one associated company is accounted for by
the equity method. The associated company is also listed
below.
All significant intercompany balances and transactions
have been eliminated in consolidation. All material unrealized
profits included in assets resulting from transactions within
the Group are eliminated.
Consolidated subsidiaries
Capital (¥mil) Ownership (%)
Hokuriku Bank, Ltd.
140,409100.00
Hokkaido Bank, Ltd.
93,524100.00
Hokugin Lease Co., Ltd.
100
70.25
Hokuriku Card Co., Ltd.
36
87.39
Hokuriku Hosho Services Co., Ltd.
50
100.00
Hokugin Software Co., Ltd.
30
100.00Nihonkai Services Co., Ltd.
500
100.00
Hokugin Business Services Co., Ltd.
30
(100.00)
Hokugin Office Services Co., Ltd.
20
(100.00)
Hokugin Real Estate Services Co., Ltd.
100
(100.00)
Hokugin Shisankanri Co., Ltd.
100
(100.00)
Hokuriku International Cayman Ltd.
US$1,000(100.00)
Hokugin Corporate Co., Ltd.
100
(100.00)
Dogin Business Service, Ltd.
50
(100.00)
Dogin Card Co., Ltd.
1,226
(100.00)
Notes: 1. Ownership figures in parentheses are inclusive of cross-shareholdings.
2. The two subsidiaries whose balance sheet date differs from that of
the Company are consolidated using their financial statements
based on their tentative settlement of accounts at the consolidatedbalance sheet date.
Associated company
Capital (¥mil) Ownership (%)
Hokuriku Capital Co., Ltd.
250
(38.75)
Note: Ownership figure in parentheses is inclusive of cross-shareholdings.

Assets and liabilities of consolidated subsidiaries are valued at fair value at the respective dates of acquisition, andgoodwill and negative goodwill are amortized using thestraight-line method over 20 years and 5 years, respectively.
3. Significant Accounting Policies(1) Trading assets/liabilities and trading profits/losses
Transactions for trading purposes (seeking gains arising fromshort-term changes in interest rates, currency exchange rates,or market prices of securities and other market related indicesor from variation among markets) are included in “Trading
assets” or “Trading liabilities” on the consolidated balance
sheets on a trade date basis. Profits and losses on trading
purpose transactions are recognized on a trade date basis,and recorded as “Trading profits” and “Trading losses.”
Securities and monetary claims purchased for trading purposes are stated at the fiscal year-end market value, andfinancial derivatives such as swaps, futures and options arestated at amounts that would be settled if the transactions
were terminated at the consolidated balance sheet date.

“Trading profits” and “Trading losses” include interest
received or paid during the fiscal year, the year-on-year valuation differences of securities and monetary claims and theyear-on-year valuation difference of the derivatives assumingthat the settlement will be made in cash.
Hokuhoku Financial Group accounts for foreign currencytranslation differences arising from currency swaps for trading purposes as “Trading assets” or “Trading liabilities” on agross basis, pursuant to the “Treatment of Accounting and
Auditing Concerning Accounting for Foreign Currency
Transactions in Banking Industry” (JICPA Industry Audit
Committee Report No. 25).
(2) Securities
As for securities other than trading purposes, debt securities
that consolidated subsidiaries have the positive intent andability to hold to maturity are classified as held-to-maturity
securities and are carried at amortized cost (straight-line
method) using the moving-average method.
Securities other than trading purpose securities and heldto-maturity securities are classified as available-for-salesecurities. Stocks in available-for-sale securities that havemarket prices are carried at their average market prices during the final month of the fiscal year, and bonds and others
that have market prices are carried at their fiscal year-end
market prices (cost of securities sold is calculated using primarily the moving-average method). Available-for-sale securities with no available market prices are carried at cost or
amortized cost using the moving-average method. Net unrealized gains (losses) on available-for-sale securities, net ofincome taxes, are included in “Net assets.”
Securities included in money held in trust are carried in thesame method as for securities mentioned above.
(3) Derivative transactions
Derivative transactions, excluding those classified as trading
derivatives, are carried at fair value.
(4) Depreciation method
a. Tangible fixed assets
The Company and the consolidated banking subsidiaries
depreciate their equipment on the declining-balance method
and their premises principally on the straight-line method.
The estimated useful lives of major items are as follows:
Buildings: 6 to 50 years
Equipment: 3 to 20 years
Consolidated non-banking subsidiaries depreciate theirequipment and premises principally on the declining-balancemethod over their expected useful life.
Lease assets are depreciated on the straight-line method
over the number of years until their lease expires, and their estimated disposal value at that time serves as their residual value.
An additional depreciation is recorded in order to provide
for any possible contingency involving customers, and such
expense in the year ended March 31, 2007 is ¥52 million andcomes to ¥151 million on an accumulated basis.

b. Intangible fixed assets
Intangible fixed assets are depreciated on the straight-line
method, and capitalized software for internal use owned byconsolidated subsidiaries is depreciated using the straightline method over its estimated useful life (mainly six years).
(5) Long-lived assets
The Group reviews its long-lived assets for impairment
whenever events or changes in circumstance indicate thecarrying amount of an asset or asset group may not berecoverable. An impairment loss would be recognized if thecarrying amount of an asset or asset group exceeds the sumof 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.
(6) Reserve for possible loan losses
Reserve for possible loan losses of consolidated banking
subsidiaries is provided as detailed below in accordancewith the internal standards for write-offs and provisions.
For claims on borrowers that have entered into bankruptcy,
special liquidation proceedings or similar legal proceedings(“bankrupt borrowers”) or borrowers that are not legally orformally insolvent but are regarded as substantially in thesame situation (“effectively bankrupt borrowers”), a reserve
is provided based on the amount of claims, after the write-off
stated below, net of the expected amount of recoveries fromcollateral and guarantees.
For claims on borrowers that are not currently bankrupt but
are perceived to have a high risk of falling into bankruptcy,
a reserve is provided in the amount deemed necessary
based on an overall solvency assessment of the claims, netof the expected amount of recoveries from collateral andguarantees.
For other claims, after classification, a reserve is provided
based on the historical loan-loss ratio.
Branches and credit supervisory department assess all claimsin accordance with the internal rules for self-assessmentof assets, and the credit review department, independent
from these operating sections, audits their assessment.
The reserves are provided based on the results of theseassessments.
The Company and its non-banking consolidated subsidiaries also carry out asset self-assessment utilizing thesimilar methods to those employed by the consolidated
subsidiaries engaging in banking operations to make provisions for doubtful accounts in the amount deemed necessary.
For collateralized or guaranteed claims on bankrupt borrowers and effectively bankrupt borrowers, the amountexceeding the estimated value of collateral and guarantees isdeemed to be uncollectible and written off against the total
outstanding amount of the claims. The amount of write-off
was ¥163,826 million at March 31, 2007.

Hokuhoku Financial Group, Inc. Annual Report 200727

(7) Reserve for employee bonuses
Reserve for employee bonuses is provided for payment ofbonuses to employees, in the amount of estimated bonuses,
which are attributable to the respective fiscal year.
(8) Reserve for employee retirement benefits
Reserve for employee retirement benefits is provided for
payment of retirement benefits to employees, in the amountdeemed accrued at the fiscal-year end, based on the projected retirement benefit obligation and the fair value of plan
assets at the fiscal year-end.
Unrecognized prior service cost is amortized using thestraight-line method, over eight or nine years within theemployees’ average remaining service period at incurrence.
Unrecognized net actuarial gain (loss) is amortized using
the straight-line method, over eight or nine years within theemployees’ average remaining service period, commencing
from the next fiscal year of incurrence.
Unrecognized net transitional obligation from the initial
application of the new accounting standard for employee
retirement benefits (¥28,464 million) is amortized primarily
using straight-line method over 15 years.
(9) Translation of foreign currency assets and liabilities
Assets and liabilities denominated in foreign currencies aretranslated into Japanese yen mainly at the exchange rate
prevailing at the consolidated balance sheet date.
(10) Lease transactions
Financing leases excluding those in which the ownership of
the property is transferred to the lessee, are accounted for in
the same method as operating leases.
(11) Accounting for significant hedges
a. Interest risk hedges
The consolidated banking subsidiaries hedge interest raterisks 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, areaccounted for by the deferred method or, where appropriate
interest rate swaps are involved, by the special rule method.
“Macro hedges” employed for holistic management of interest rate risks arising from varied portfolios of financial assets
and liabilities, including loans and deposits, through derivatives arrangements, ceased to benefit from the hedge
accounting standards in April 2002. The appraisal differenceor unrealized gain/loss on the hedging positions (a net loss of¥5,088 million) whose recognition had been deferred under
the standards until the discontinuation of hedge accounting
is scheduled to be prorated and credited/charged to income
over the remaining life (4.5 years) of the hedging instruments.
This step is taken in accordance with the “Accounting and
Auditing Treatments in Application to Banking Business ofStandards for Accounting for Financial Instruments” (JICPA
Industry Audit Committee Report No. 24).

28

Hokuhoku Financial Group, Inc. Annual Report 2007

b. Foreign currency hedges
The consolidated banking subsidiaries hedge their foreign
currency denominated financial assets and liabilities against
currency exchange fluctuation risks. Such hedges areaccounted for by the deferred method specified in the“Accounting and Auditing Treatments in Banking Business inAccounting for Foreign Currency Denominated Transactions
and Others” (JICPA Industry Audit Committee Report No. 25).
The effectiveness of hedges is assessed as follows: where
currency swap transactions and exchange swap transactions
are used as hedges to offset exchange fluctuation risks arising from foreign currency denominated financial assets andliabilities, by verifying the agreement of the amounts of thehedging foreign currency positions outstanding and thehedged foreign currency financial assets and liabilities.
Consolidated non-banking subsidiaries are not engaged in
hedging operations using derivative transactions.
(12) Per share information
Basic earnings per share is computed by dividing net income
available to common stockholders by the weighted-average
number of common shares outstanding for the period.
Diluted earnings per share reflects the potential dilution that
could occur if preferred stocks were exercised into common
stock.
(13) Accounting for consumption tax
National and local consumption taxes are accounted for by
the tax exclusion method.
However, a range of consumption taxes on equipment andpremises that cease qualifying for exclusion is included in
expenses in the accounting year it is incurred.
(14) Accounting for income taxes
The provision for income taxes is computed based on thepretax income included in the consolidated statements ofincome. The asset and liability approach is used to recognize
deferred tax assets and liabilities for the expected future tax
consequences of temporary differences between the carrying amounts and the tax bases of assets and liabilities.
Deferred taxes are measured by applying currently enacted
tax laws to the temporary differences.
(15) Accounting for surplus appropriations
The Consolidated Statement of Changes in Net Assets andConsolidated Statement of Stockholders’ Equity areprepared on the basis of surplus appropriations finalized during the fiscal year it covers.
(16) Cash and cash equivalents in consolidated statements of cash
flows
Cash and cash equivalents consist of cash on hand anddemand deposits with the Bank of Japan.
4. Application of new accounting standards“Accounting Standard for Presentation of Net Assets in the
Balance Sheet” (ASBJ Statement No. 5, issued on December

9, 2005) and “Guidance on Accounting Standard for
Presentation of Net Assets in the Balance Sheet” (ASBJ
Guidance No. 8, issued on December 9, 2005) were applicable from this fiscal year and the Company changed its consolidated balance sheet presentation. The amountcorresponding to former stockholders’ equity at March 31,
2007 is ¥491,824 million.
5. Changes in Presentation
The Enforcement Ordinance of Banking Law was revised on
April 28, 2006 and applicable from the fiscal year beginningon and after April 1, 2006. Effective April 1, 2006, theCompany changed its consolidated financial statement presentation as follows:(1) Balance sheet(a) “Premises and equipment” are separately presented as“Tangible fixed assets,” “Intangible fixed assets” and“Other assets.”(b) Software which had been included in “Other assets” isincluded in “Intangible fixed assets.”(c) “Goodwill” which had been separately presented in
assets section is included in “Intangible fixed assets.”(2) Statement of income
Amortization of goodwill which had been accounted for as“Other expenses” in “Expenses” is accounted for as amortization of intangible fixed assets and included in “General andadministrative expenses.”(3) Statement of cash flows(a) In accordance with the change in presentation of“Premises and equipment” in the consolidated balance
sheet, “Depreciation of premises and equipment andothers” is presented as “Depreciation of fixed assets.”“Net (gains) losses from disposal of premises andequipment” is also renamed as “Net (gains) losses from
disposal of fixed assets.” In addition, “Purchases ofpremises and equipment” and “Proceeds from sale ofpremises and equipment” are presented as “Purchasesof tangible fixed assets” and “Proceeds from sale oftangible fixed assets,” respectively.
(b) In accordance with the change in presentation of consolidated balance sheet, software which had been
included in “Other assets” is included in “Intangible
fixed assets.” Therefore, payments or proceeds frompurchase or sale of software which had been included
in “Other” in “Net cash (used in) provided by operating
activities” are included in “Purchases of intangible
fixed assets” and “Proceeds from sale of intangible
fixed assets.”
6. Trading Accounts
Trading accounts as of March 31, 2007 and 2006 are as
follows:
Millions of yen

Thousands of
U.S. dollars

Assets

2007

2006

2007

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

¥6,349¥6,422$53,789

2,940¥9,2903,044¥9,467

24,907$78,696

Millions of yen

Thousands of
U.S. dollars

Liabilities

2007

2006

2007

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

¥718
¥718

¥755
¥755

$6,087$6,087

7. Securities
Securities as of March 31, 2007 and 2006 are as follows:
Millions of yen
2007

2006

Japanese government bonds ........ ¥ 706,877 ¥ 749,340
Japanese local
government bonds ......................
161,707
149,857
Japanese corporate bonds ............
421,966
423,202
Japanese stocks ...........................
225,348
228,375
Other securities ............................
133,960
198,292
Total ............................................. ¥1,649,859 ¥1,749,069

Thousands of
U.S. dollars
2007$ 5,987,947
1,369,822
3,574,469
1,908,924
1,134,776$13,975,938

8. Loans and Bills Discounted
Loans and bills discounted as of March 31, 2007 and 2006
are as follows:
Millions of yen
2007

2006

Bills discounted ............................ ¥ 141,093 ¥ 137,825
Loans on bills................................
687,112847,288
Loans on deeds ............................ 4,961,956 4,697,558
Overdrafts..................................... 1,023,316
995,596
Total ............................................. ¥6,813,479 ¥6,678,269

Thousands of
U.S. dollars
2007$ 1,195,202
5,820,524
42,032,670
8,668,500$57,716,896

Loans and Bills Discounted include loans to borrowers underbankruptcy proceedings, overdue loans, loans overdue for atleast three months and restructured loans.
The amounts of these loans are as follows:
Millions of yen

Loans to borrowers underbankruptcy proceedings..............
Overdue loans...............................
Loans overdue for atleast three months......................
Restructured loans........................
Total .............................................

Thousands of
U.S. dollars

2007

2006

2007

¥ 23,526
233,667¥ 28,706
285,988$ 199,293
1,979,395

232
61,809¥319,23592
84,809¥399,597

1,969
523,587$2,704,244

These amounts represent the amount before deduction of
the reserve for possible loan losses.
9. Foreign Exchanges
Foreign exchanges as of March 31, 2007 and 2006 are as
follows:
Millions of yen

Thousands of
U.S. dollars

2007

2006

2007

¥ 7,150
2,478
6,029¥15,657¥ 6,3322,298
6,185¥14,816$ 60,570
20,99551,073$132,638

¥216
158
35
¥411

¥200
90
54
¥345

$1,8381,346
298$3,482

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

Hokuhoku Financial Group, Inc. Annual Report 200729

10. Tangible fixed assets
The accumulated depreciation as of March 31, 2007 amounted
to ¥164,884 million ($1,396,733 thousand). The book value oftangible fixed assets adjusted for gains on sales of replaced
assets as of March 31, 2007 amounted to ¥3,835 million($32,491 thousand).
11. Customers’ Liabilities for Acceptances and Guarantees
All contingent liabilities arising from acceptances and guarantees are reflected in acceptances and guarantees. As a contra account, customers’ liabilities for acceptances andguarantees is also shown on the assets side, which represents the Bank’s right of indemnity from the applicants.
Guarantee obligations on securities issued by private placement (pursuant to Article 2, Clause 3 of the Securities andExchange Law) amounted to ¥112,115 million.
In accordance with changes in Enforcement Regulations to
the Banking Law, the Bank has adopted new accounting
standards for acceptance and guarantees on the said guarantee obligations and customers’ liabilities for acceptances andguarantees. Under the new system, acceptances and guarantees, and customers’ liabilities for acceptances and guarantees offset each other. As a result, acceptances andguarantees, and customers’ liabilities for acceptances andguarantees, decreased ¥79,138 million from the relevant figures calculated using the previous method.
12. Pledged Assets
Assets that are pledged as collateral as of March 31, 2007 and2006 are as follows:
Millions of yen

Assets that arepledged as collateral:
Securities................................
Loans and bills discounted......
Obligations corresponding tocollateral assets:
Deposits .................................
Payables under securities
lending transactions..............
Call money and bills sold.........
Borrowed money.....................

2006

2007

¥186,049
253,347¥365,791
223,749$1,576,021
2,146,099¥ 48,089¥ 63,007$ 407,367

42,77730,000177,200

107,877
287,500—

362,364
254,130
1,501,059

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 of March 31, 2007 and 2006.

Securities .....................................
Other assets .................................

Thousands of
U.S. dollars

2007

2006

2007

¥186,590
58¥170,789
43$1,580,604
492

Other assets included guarantee deposits of ¥4,730 million($40,075 thousand) as of March 31, 2007. Premises andequipment included guarantee deposits of ¥5,961 million as ofMarch 31, 2006.

30

Hokuhoku Financial Group, Inc. Annual Report 2007

Thousands of
U.S. dollars

Millions of yen
2007

2006

Current deposits, ordinary deposits,
saving deposits and deposits at notice .... ¥4,260,437 ¥4,101,016
Time deposits and installment savings...... 3,980,785 3,861,185
Other deposits ..............................
134,100
201,206
Subtotal ........................................ ¥8,375,324 ¥8,163,408
NCDs ............................................
82,94540,477
Total ............................................. ¥8,458,269 ¥8,203,885

2007$36,090,107
33,721,186
1,135,967$70,947,260
702,627$71,649,887

14. Borrowed Money
Borrowed money includes ¥43,000 million ($364,252 thousand) and ¥28,000 million in subordinated borrowed money
as of March 31, 2007 and 2006, respectively.
15. Bonds
Bonds include ¥70,400 million ($596,357 thousand) and¥70,400 million of subordinated bonds as of March 31, 2007
and 2006, respectively.
16. Land Revaluation Excess
Under the “Law Concerning Land Revaluation,” Hokuriku
Bank, Ltd. revaluated its own land for business operation as ofMarch 31, 1998. The revaluation gain is included in stockholders’ equity as “Land revaluation excess,” net of taxes. The carrying amount of the land after the above one-time revaluation
exceeded the market value by ¥22,124 million ($187,417 thousand) and ¥21,905 million as of March 31, 2007 and 2006,
respectively.

Thousands of
U.S. dollars

2007

Millions of yen

13. Deposits
Deposits as of March 31, 2007 and 2006 are as follows:

17. Capital Stock
Information with respect to capital stock of the Company asof March 31, 2007 and 2006 are as follows:
Number of shares:
Authorized:
Common ..................................
Preferred (Type 1).....................
Preferred (Type 2).....................
Preferred (Type 3).....................
Preferred (Type 4).....................
Preferred (Type 5).....................
Issued and outstanding:Common ..................................
Preferred (Type 1).....................
Preferred (Type 4).....................
Preferred (Type 5).....................

2007

2006

2,800,000,000
400,000,000
200,000,000
200,000,000
90,000,000
110,000,000

2,800,000,000
400,000,000
200,000,000
200,000,000
90,000,000
110,000,000

1,391,630,146
150,000,000
79,000,000
107,432,000

1,286,630,146
150,000,000
79,000,000
107,432,000

1. Common StockMillions of yen

Date

2006/10/19 ...........................
2006/11/17 ...........................

Issuednumber ofsharesIncreased
CapitalStock

Increased
CapitalSurplus Reserve

95,000,000
10,000,000¥18,905
1,990¥18,718
1,970

2. Preferred Stock (Type 1 and Type 4)
Preferred stocks (Type 1 and Type 4) are noncumulative and nonparticipating
for dividend payments, and stockholders of the preferred stock are not entitledto vote at a general meeting of stockholders except when the proposal to pay
the prescribed dividends to stockholders is not submitted to the general meeting of stockholders or is rejected at the general meeting of stockholders.

Annual dividends per share of preferred stock (Type 1 and Type 4) are paid
to stockholders by ¥7.70 and ¥6.62, respectively.
In cases of liquidation distribution, stockholders of preferred stock (Type 1
and Type 4) will receive ¥500 and ¥570 per share, respectively, and will nothave the right to participate in any further liquidation distribution.
The Company may, at any time, purchase and retire preferred stocks out of
earnings available for distribution to the stockholders.
Stockholders of preferred stock (Type 1 and Type 4) may request the Company
to convert their preferred stocks into common stocks. The period during which
the conversion may be requested (the “conversion period”) and the terms andconditions of conversion with respect to preferred stock (Type 1 and Type 4) were
determined by the resolution made in accordance with the provisions of Article
365 of the Commercial Code, of a stockholders meeting of the Company. The
conditions of conversion of preferred stock (Type 1 and Type 4) were determinedby the resolution of the board of directors relating to the issuance of the relevant
preferred stocks. The conversion period and conversion price* of each type ofpreferred stock are as follows:
Preferred stock (Type 1): September 1, 2004 to July 29, 2010
¥455.70
Preferred stock (Type 4): September 1, 2004 to July 31, 2010
¥457.50* Conversion prices are reset and adjusted pursuant to the appointed rules
governing conversion of the preferred stocks.
Any preferred stock (Type 1 and Type 4) with respect to which conversion
has not been requested during the conversion period shall be mandatorily
converted, as of the date immediately following the last day of the conversion
period (the “mandatory conversion date”), into such number of common
stocks as is obtained by dividing the corresponding amount set forth below by
the average of the daily closing prices per share of common stock in regulartransactions at the Tokyo Stock Exchange on each of the 30 consecutive trading days (excluding any day on which the closing price is not available) commencing on the 45th trading day preceding the mandatory conversion date. Ifsuch average price is less than ¥150 and ¥137.50, in the case of preferredstock (Type 1 and Type 4), respectively, then the preferred stock shall be converted into such number of common stocks as is obtained by dividing the corresponding amount set forth below by the relevant amount described above:
Preferred stock (Type 1): ¥500 per share
Preferred stock (Type 4): ¥570 per share
3. Preferred stock (Type 5)
Preferred stock (Type 5) is noncumulative and nonparticipating for dividend
payments, and stockholders of the preferred stock (Type 5) are not entitled tovote at a general meeting of stockholders except when the proposal to pay theprescribed dividends to stockholders is not submitted to the general meetingof stockholders or is rejected at the general meeting of stockholders.
Annual dividends per share of preferred stock (Type 5) are paid to stockholders by ¥15.00.

18. Stockholders’ Equity
Through May 1, 2006, Japanese banks were subject to theJapanese Commercial Code (the “Code”) and the Banking
Law.
The Code required that all shares of common stock wererecorded with no par value and at least 50% of the issue priceof new shares was required to be recorded as common stockand the remaining net proceeds as additional paid-in capital,
which was included in capital surplus. The Code permitted
Japanese companies, upon approval of the Board of Directors,
to issue shares to existing stockholders without consideration
as a stock split. Such issuance of shares generally did not giverise to changes within the stockholders’ accounts.
The Banking Law also provided that an amount at least
equal to 20% of the aggregate amount of cash dividends andcertain other appropriations of retained earnings associatedwith cash outlays applicable to each period should be appropriated as a legal reserve (a component of retained earnings)
until such reserve and additional paid-in capital equals 100%of stated capital. The amount of total additional paid-in capital and legal reserve that exceeded 100% of the stated capital might be available for dividends by resolution of thestockholders. In addition, the Code permitted the transfer of a
portion of additional paid-in capital and legal reserve to thestated capital by resolution of the Board of Directors.
The Code allowed Japanese companies to repurchasetreasury stock and dispose of such treasury stock by resolution of the Board of Directors. The repurchased amount oftreasury stock could not exceed the amount available for
future dividend plus amount of stated capital, additional
paid-in capital or legal reserve to be reduced in the casewhere such reduction was resolved at the stockholders
meeting.
In addition to the provision that requires an appropriation fora legal reserve in connection with the cash payment, the Codeimposed certain limitations on the amount of capital surplus
and retained earnings available for dividends.
Dividends were approved by the stockholders at a meeting
held subsequent to the fiscal year to which the dividends
were applicable. Semiannual interim dividends might also be
paid upon resolution of the Board of Directors, subject tocertain limitations imposed by the Code.
On May 1, 2006, a new corporate law (the “Corporate Law”)
became effective, which reformed and replaced the Codewith various revisions that would, for the most part, be applicable to events or transactions which occur on or after May 1,
2006 and for the fiscal years ending on or after May 1, 2006.
The significant changes in the Corporate Law that affectfinancial and accounting matters are summarized below;
a. Dividends
Under the Corporate Law, companies can pay dividends at
any time during the fiscal year in addition to the year-end dividend upon resolution at the stockholders meeting. For companies that meet certain criteria such as; (1) having the Board of
Directors, (2) having independent auditors, (3) having the Boardof Corporate Auditors, and (4) the term of service of the directors is prescribed as one year rather than two years of normal
term by its articles of incorporation, the Board of Directors may
declare dividends (except for dividends in kind) at any time
during the fiscal year if the company has prescribed so in its
articles of incorporation.
The Corporate Law permits companies to distributedividends-in-kind (non-cash assets) to stockholders subject
to a certain limitation and additional requirements.
Semiannual interim dividends may also be paid once a year
upon resolution by the Board of Directors if the articles ofincorporation of the company so stipulate. Under the Code,certain limitations were imposed on the amount of capitalsurplus and retained earnings available for dividends. The
Corporate Law also provides certain limitations on theamounts available for dividends or the purchase of treasury
stock. The limitation is defined as the amount available for
distribution to the stockholders, but the amount of net assets
after dividends must be maintained at no less than ¥3 million.

Hokuhoku Financial Group, Inc. Annual Report 200731

b. Increases/decreases and transfer of common stock,reserve and surplus
The Banking Law requires that an amount equal to 20% of
dividends must be appropriated as a legal reserve (a component of retained earnings) or as additional paid-in capital (acomponent of capital surplus) depending on the equity
account charged upon the payment of such dividends until
the total of aggregate amount of legal reserve and additional
paid-in capital equals 100% of stated capital. Under theCode, the aggregate amount of additional paid-in capital andlegal reserve that exceeds 100% of stated capital might bemade available for dividends by resolution of the stockholders. Under the Corporate Law, the total amount of additional
paid-in capital and legal reserve may be reversed without
limitation of such threshold. The Corporate Law also provides that stated capital, legal reserve, additional paid-in
capital, other capital surplus and retained earnings can betransferred among the accounts under certain conditions
upon resolution of the stockholders.
c. Treasury stock and treasury stock acquisition rights
The Corporate Law also provides for companies to purchasetreasury stock and dispose of such treasury stock by resolution of the Board of Directors. The amount of treasury stock
purchased cannot exceed the amount available for distribution
to the stockholders which is determined by specific formula.
Under the Corporate Law, stock acquisition rights, whichwere previously presented as a liability, are now presented
as a separate component of stockholders’ equity.
The Corporate Law also provides that companies can purchase both treasury stock acquisition rights and treasury
stock. Such treasury stock acquisition rights are presented asa separate component of stockholders’ equity or deducted
directly from stock acquisition rights.
On December 9, 2005, the Accounting Standards Board ofJapan (ASBJ) published a new accounting standard forpresentation of stockholders’ equity. Under this accounting
standard, certain items which were previously presented asliabilities are now presented as components of stockholders’equity. Such items include stock acquisition rights, minority
interest, and any deferred gain or loss on derivatives
accounted for under hedge accounting. This standard iseffective for fiscal years ending on or after May 1, 2006.
The consolidated balance sheet as of March 31, 2007 ispresented in line with this new accounting standard.

Millions ofyen

Thousands ofshares

Net income

Earnings per
average shares
share

Yen

Weighted

For the year ended March 31, 2007:
Basic earnings per share
Net income available tocommon stockholders...........
¥37,353
Effect of dilutive securities
Preferred stocks......................
1,677
Diluted earnings per share
Net income for computation ....
¥39,031
For the year ended March 31, 2006:
Basic earnings per share
Net income available tocommon stockholders...........
Effect of dilutive securities
Preferred stocks......................
Diluted earnings per share
Net income for computation ....

1,337,204¥27.93355,749
1,692,954¥23.05¥23,547

1,285,380¥18.31

1,677

475,859¥25,225

1,761,239¥14.32

20. Fees and Commissions
Fees and commissions for the years ended March 31, 2007
and 2006 are as follows:
Millions of yen

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

2007

2006

2007

¥11,097
13,661
9,553
13,358¥47,670¥ 7,584
13,973
2,623
18,903¥43,085$ 94,006
115,723
80,924
113,160$403,813

Millions of yen

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

Thousands of
U.S. dollars

Thousands of
U.S. dollars

2007

2006

2007

¥ 2,2128,446¥10,658¥ 2,292
8,707¥10,999$18,740
71,549$90,289

21. Trading Income and Losses
Millions of yen

Thousands of
U.S. dollars(a) Trading income

2007

2006

2007

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

¥ 350
1,060
¥1,411¥ 185
974¥1,159$ 2,9708,986$11,956

Millions of yen

Thousands of
U.S. dollars(b) Trading losses

2007

2006

2007

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

—
—

—
—

—
—

19. Per Share Information
Net assets per share...........................
Basic earnings per share ....................
Diluted earnings per share ..................

2007

2006

¥227.57¥ 27.93¥ 23.05¥179.37¥ 18.31¥ 14.32

Reconciliation of the differences between basic and diluted
earnings per share for the years ended March 31, 2007 and2006 are as follows:32

Hokuhoku Financial Group, Inc. Annual Report 2007

22. Other Expenses
Included in other expenses for the fiscal years ended March
31, 2007 and 2006 were write off of loans and bills discountedof ¥1,035 million ($8,775 thousand) and ¥837 million, valuation
losses on sales of stocks and other securities of ¥595 million($5,045 thousand) and ¥572 million, respectively.

23. Income Taxes
The Company and its domestic subsidiaries are subject toJapanese national and local income taxes which, in theaggregate, resulted in normal effective statutory tax rates ofapproximately 40.43% for the years ended March 31, 2007
and 2006.
The tax effects of significant temporary differences and tax
loss carryforwards which resulted in deferred tax assets andliabilities at March 31, 2007 and 2006 are as follows:
Millions of yen
2007

2006

Deferred tax assets:
Reserve for possible loan losses.................
Depreciation...............................................
Reserve for employee retirement benefit ....
Loss on valuation of securities ...................
Other..........................................................
Operating loss carryforwards......................
Subtotal ...............................................
Less: Valuation allowance ..........................
Total deferred tax assets..................................

¥ 92,043
2,127
14,231
11,072
3,404
43,252
166,132
75,984
90,148¥108,448
2,191
14,837
11,163
4,873
52,839194,353
74,413
119,939

Deferred tax liabilities:
Net unrealized gains onavailable-for-sale securities .....................
Other..........................................................
Total deferred tax liabilities ..............................
Net of deferred tax assets ................................

¥17,218842
18,061¥72,086¥ 17,352
706
18,058¥101,880

Thousands of
U.S. dollars
2007

Deferred tax assets:
Reserve for possible loan losses................. $ 779,700
Depreciation...............................................
18,019Reserve for employee retirement benefit .... 120,555
Loss on valuation of securities ...................
93,797
Other..........................................................
28,841
Operating loss carryforwards...................... 366,391
Subtotal ............................................... 1,407,303
Less: Valuation allowance .......................... 643,660
Total deferred tax assets.................................. 763,643
Deferred tax liabilities:
Net unrealized gains onavailable-for-sale securities .....................
Other..........................................................
Total deferred tax liabilities ..............................
Net of deferred tax assets ................................

$145,862
7,135
152,997$610,646

24. Cash and Cash Equivalents
The reconciliations of “Cash and cash equivalents” in the
consolidated statements of cash flows and “Cash and duefrom banks” in consolidated balance sheets as of March 31,
2007 and 2006, are as follows:
Millions of yen

Cash and due from banks inbalance sheet .............................
Due from banks except for
deposits with the Bank of Japan....
Cash and cash equivalents inthe statements of cash flows ......

Thousands of
U.S. dollars

2007

2006

2007

¥251,379¥346,805$2,129,433(20,221)(7,895)(171,296)¥231,158¥338,909$1,958,137

25. Commitment Lines
Loan agreements and commitment line agreements relating toloans are agreements, which oblige the Group to lend funds up
to a certain limit agreed in advance. The Group makes theloans upon the request of an obligor to draw down funds undersuch loan agreements, as long as there is no breach of thevarious terms and conditions stipulated in the relevant loan
agreement. The unused commitment balance relating to theseloan agreements amounted to ¥2,275,536 million ($19,276,036
thousand) and ¥2,217,529 million as of March 31, 2007 and2006, respectively. Of this amount, ¥2,225,144 million($18,849,173 thousand) and ¥2,202,243 million as of March 31,
2007 and 2006, respectively, relates to loans where the term of
the agreement is one year or less, or unconditional cancellationof the agreement is allowed at any time.
In many cases the term of the agreement runs its course
without the loan ever being drawn down. Therefore, theunused loan commitment will not necessarily affect future
cash flows. Conditions are included in certain loan
agreements which allow the Group either to decline therequest for a loan draw down or to reduce the agreed limit
amount where there is due cause to do so, such as when
there is a change in financial condition, or when it is necessary
to do so in order to protect the Group’s credit. The Grouptakes various measures to protect its credit. Such measures
include having the obligor pledge collateral to the Bank and its
consolidated subsidiaries in the form of real estate, securities
etc. on signing the loan agreement, or in accordance with theGroup’s established internal procedures confirming theobligor’s financial condition etc. at regular intervals.

26. Segment Information(a) Segment information by business
For the fiscal years ended March 31, 2007 and 2006 on consolidated results are as follows:
Millions of yen
2007

Banking

Lease

Other
business

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

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

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

¥9,602,495
5,594
48
4,985

¥46,366
10,123—
10,558¥176,393
393
0
215¥9,825,255
16,11148
15,759¥(187,113)———¥9,638,142
16,11148
15,759Total

Eliminationor corporate

Consolidated

Hokuhoku Financial Group, Inc. Annual Report 200733

Millions of yen
2006

Banking

Lease

Other
business

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

¥ 216,866
1,856
218,723
169,749¥ 48,974¥16,874
1,362
18,236
17,207¥ 1,029¥ 7,245
5,053
12,29914,131¥ (1,831)¥ 240,986
8,273
249,259
201,087¥ 48,171¥—(8,273)(8,273)(8,387)¥113¥ 240,986—
240,986
192,700¥ 48,285

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

¥9,489,732
4,094
816
3,084

¥44,988
10,777—
12,818¥192,126
325
204
219

¥9,726,847
15,197
1,020
16,122¥(191,219)———¥9,535,627
15,197
1,020
16,122Eliminationor corporate

Consolidated

Total

Eliminationor corporate

Consolidated

Thousands of U.S. dollars
2007

Other
business

Total

Banking

Lease

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

$ 1,840,900
12,7891,853,689
1,277,603$ 576,086$141,894
11,736
153,630
149,943$ 3,687$

69,46055,512
124,972
104,911$ 20,061$ 2,052,254
80,0372,132,291
1,532,457$ 599,834$—(80,037)(80,037)(73,320)(6,717)$2,052,254—
2,052,254
1,459,137$ 593,117

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

$81,342,617
47,393412
42,230$392,767
85,757—89,443$1,494,227
3,329
1
1,828

$83,229,611
136,479413
133,501$(1,585,036)———$81,644,575
136,479413
133,501$(b) Segment information by location
As operations in Japan, in terms of all segments and total assets for all segments, accounted for more than 90% of total ordinary income, information by location has been omitted.
(c) Segment information about the ordinary income from international operations
As ordinary income from international operations accounted for less than 10% of total ordinary income, information about theordinary income from international operations has been omitted.

27. Lease Transactions
Finance lease transactions that do not transfer ownership ofthe leased property to the lessee for the years ended March
31, 2007 and 2006 are as follows:

Pro forma information concerning lease payment and depreciation expenses for the years ended March 31, 2007 and2006 are as follows:
Millions of yen(Lessee)
Pro forma information with respect to the leased property,
such as acquisition cost, accumulated depreciation and net
book value at March 31, 2007 and 2006 are as follows:
Millions of yen

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

2007

2006

¥3,736
1,191¥2,544¥2,504761¥1,742Thousands of
U.S. dollars
2007$31,648
10,097$21,551

Pro forma amounts of obligations under finance lease at
March 31, 2007 and 2006 are as follows:
Millions of yen

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

34

2007

2006

¥ 595
1,948
¥2,544¥ 358
1,384¥1,742

Hokuhoku Financial Group, Inc. Annual Report 2007

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

2007

2006

2007

¥435
435

¥299
299

$3,6903,690

The method of calculating the pro forma amounts of depreciation expenses for the years ended March 31, 2007 and2006 are as follows:
Depreciation is computed based on the straight-line
method over the period of lease, with no residual value.
(Lessor)
Acquisition cost, accumulated depreciation and balance at
March 31, 2007 and 2006 are as follows:

Thousands of
U.S. dollars

Millions of yen

2007$ 5,045
16,506$21,551

Thousands of
U.S. dollars

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

Thousands of
U.S. dollars

2007

2006

2007

¥48,60922,927¥25,681¥51,923
25,648¥26,275$411,767
194,218$217,549

The pro forma amounts of lease receivable under financelease at March 31, 2007 and 2006 are as follows:
Millions of yen

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

Lease payment received and depreciation expenses for theyears ended March 31, 2007 and 2006 are as follows:

Thousands of
U.S. dollars

2007

2006

2007

¥ 9,491
17,683¥27,175¥12,896
15,014¥27,911$ 80,405
149,800$230,205

Thousands of
U.S. dollars

Millions of yen

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

2007

2006

2007

¥11,508
10,104¥12,434
10,775$97,485
85,59828. Retirement Benefits(a) Overview of retirement benefit system
The Hokuriku Bank, Ltd., provides the defined benefit programs that are a corporate pension plan, a qualified retirement pension plan and a retirement lump sum grant. At the time of retirement, employees may be issued a premium retirement grantthat is not subject to inclusion in the actuarial computation of projected benefit obligations in conformity to the standards foraccounting for retirement benefits. The Hokuriku Bank, Ltd., was approved by the Minister of Health, Labor and Welfare on
February 17, 2003, to be relieved of the obligation to administer the future payment service of the government mandated portion of its employees pension fund. The Bank was further approved on March 1, 2005, to switch from the employees pension
fund to a corporate pension fund.
The Hokkaido Bank, Ltd., provides defined benefit arrangements that combine a retirement lump sum grant and an employees pension fund plan. The Hokkaido Bank, Ltd., was approved by the Minister of Health, Labor and Welfare on March 26,
2004, to be relieved of the obligation to administer the future payment service of the government mandated portion of theemployees pension fund.
The consolidate 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 thesubsidiary from which they each come.
The Hokuriku Bank, Ltd., has established benefit trust arrangements.
(b) Retirement benefit
Thousands of
U.S. dollars

Millions of yen

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

2007

2006

2007

¥(92,942)
82,140(10,801)
15,165(7,765)(6,500)(9,902)
1,421¥(11,323)¥(92,655)
87,886(4,768)17,061(15,625)(8,498)(11,831)—¥(11,831)$(787,316)
695,815(91,501)
128,470(65,785)(55,065)(83,881)
12,040$(95,921)(c) Retirement benefit expenses
Thousands of
U.S. dollars

Millions of yen

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

2007

2006

2007

¥1,9602,092(1,946)(1,997)
(959)
1,895
341
¥1,386¥1,8882,195(1,352)(1,997)
1,588
1,895
1,260
¥5,477$16,610
17,728(16,492)(16,925)(8,130)16,0592,897$11,747(d) Basis for calculation of projected benefit obligations(1) Discount rate .........................................................................................................
(2) Expected rate of return on pension assets ..............................................................
(3) Method of benefit attribution ..................................................................................
(4) Period of amortization of unrecognized prior service costs .....................................
(5) Period of amortization of unrecognized actuarial differences ..................................
(6) Period of amortization of transitional obligation ......................................................

2007

2006

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

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

Hokuhoku Financial Group, Inc. Annual Report 200735

29. Market Value of Securities and Money Held in Trust(1) Securities
The market value of securities at March 31, 2007 and 2006 was as follows:
1. The amounts shown in the following tables include trading securities classified as “Trading assets,” negotiable certificates ofdeposit bought classified as “Cash and due from banks,” and commercial papers and beneficiary claims on loan trusts classified as “Commercial paper and other debt purchased,” in addition to “Securities” stated in the consolidated balance
sheets.
2. Investments in subsidiaries and affiliates have no market quotations.
(a) Securities classified as trading purposes
Thousands of
U.S. dollars

Millions of yen
March 31

2007

2006

2007

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

¥6,3494¥6,422(66)$53,78939(b) Bonds classified as held-to-maturity with market value
Millions of yen

March 31, 2007

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

Consolidatedbalance sheet
amountMarket value

Net unrealized
gains (losses)

Unrealized
gains

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

¥ 129
3
(17)
(347)
¥(233)

¥142
6
70
17
¥237

¥ 13
3
88
365
¥470

Millions of yen

March 31, 2006

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

Consolidatedbalance sheet
amountMarket value

Net unrealized
gains (losses)

Unrealized
gains

Unrealized
losses¥11,822
6,429
28,965¥47,217¥11,874
6,266
28,404¥46,545

¥ 51
(162)
(561)
¥(672)

¥ 54
0
178
¥233

¥ 3
162
739
¥905

Thousands of U.S. dollars

March 31, 2007

Consolidatedbalance sheet
amountMarket value

Net unrealized
gains (losses)

Unrealized
gains

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

$100,278
92,872
489,168
160,727$843,045$101,371
92,899489,018
157,780$841,068$ 1,09327(150)(2,947)$(1,977)$1,20654599
148$2,007

$ 113
27
749
3,095
$3,984

March 31, 2007

Acquisition
cost

Consolidatedbalance sheet
amountNet unrealized
gains (losses)

Unrealized
gains

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

¥ 128,673
1,117,355
715,076
152,558
249,720
115,857¥1,361,886¥ 189,891
1,092,252
695,039
150,743
246,468
116,850¥1,398,994¥ 61,218(25,103)(20,037)(1,814)(3,251)992¥ 37,107¥64,006
602
97
308
195
2,946
¥67,555¥ 2,788
25,705
20,134
2,123
3,447
1,953
¥30,447

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

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

36

Hokuhoku Financial Group, Inc. Annual Report 2007

Millions of yen

March 31, 2006

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

Acquisition
cost

Consolidatedbalance sheet
amountNet unrealized
gains (losses)

Unrealized
gains

Unrealized
losses¥ 125,718
1,235,281
766,765
153,169
315,346
176,859¥1,537,860¥ 192,879
1,196,553
737,517
149,857
309,177
176,518¥1,565,951¥67,161(38,728)(29,247)(3,312)(6,168)(341)¥28,091¥67,702
645
36
349
259
2,827
¥71,175¥

Acquisition
cost

Consolidatedbalance sheet
amountNet unrealized
gains (losses)

Unrealized
gains

Unrealized
losses$ 1,089,992
9,465,104
6,057,402
1,292,320
2,115,382
981,424$11,536,520$ 1,608,570
9,252,454
5,887,669
1,276,950
2,087,835
989,836$11,850,860$ 518,578(212,650)(169,733)(15,370)(27,547)
8,412$ 314,340$542,202
5,102
826
2,617
1,659
24,956$572,260$ 23,624
217,752
170,559
17,987
29,206
16,544$257,920

541
39,37329,284
3,661
6,427
3,169
¥43,084

Thousands of U.S. dollars

March 31, 2007

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

Note: Consolidated balance sheet amount is calculated as follows:
StocksAverage market prices during one month before the fiscal year-end
Bonds and otherMarket prices at the fiscal year-end(d) Available-for-sale securities sold during the years ended March 31, 2007 and 2006
Thousands of
U.S. dollars

Millions of yen
Year ended March 31

Sales amount .....................................................................................................................
Gains on sales ....................................................................................................................
Losses on sales ..................................................................................................................

2007

2006

2007

¥190,377
1,504
2,884

¥276,149
9,089
954$1,612,682
12,74324,431(e) Securities with no available market value
Thousands of
U.S. dollars

Millions of yen
Consolidated balance sheet amountMarch 31

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

2007

2006

2007

¥ 33,977
33,977
286,00935,0291
250,979¥ 30,922
30,922282,859
34,947
1
247,910$ 287,823
287,823
2,422,786
296,733
10
2,126,043(f) Change of classification of securities
Not applicable.
(g) Redemption schedule of available-for-sale securities with maturities and held-to-maturity bonds
Millions of yen
March 31, 2007

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

Within 1 year

After 1 year
through 5 years

After 5 years
through 10 years

After 10 years¥120,063
52,5689,438
58,056
6,625¥126,689¥550,937
204,479
82,198264,259
49,416¥600,354¥418,312
250,93170,07097,31039,909¥458,222¥201,236
198,897—
2,339
15,083¥216,320

Within 1 year

After 1 year
through 5 years

After 5 years
through 10 years

After 10 years¥ 97,585
22,327
12,55562,702
48,400¥145,985¥495,263
197,225
57,488240,549
42,155¥537,419¥442,800
245,52179,814
117,464
57,970¥500,770¥286,751
284,266—
2,485
22,988¥309,740

Millions of yen
March 31, 2006

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

Hokuhoku Financial Group, Inc. Annual Report 2007

37

Thousands of U.S. dollars
March 31, 2007

Within 1 year

After 1 year
through 5 years

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

$1,017,055
445,307
79,951
491,797
56,128$1,073,183$4,666,984
1,732,141
696,305
2,238,538
418,607$5,085,591

After 5 years
through 10 years

After 10 years$3,543,524
2,125,641
593,567
824,316
338,072$3,881,596$1,704,676
1,684,859—
19,817
127,776$1,832,452(2) Money Held in Trust(a) Money held in trust classified as trading purposes
Thousands of
U.S. dollars

Millions of yen
March 31

2007

2006

2007

Consolidated balance sheet amount ...................................................................................
Valuation gains included in profit/loss during the year.........................................................

¥7,42356¥7,425
109$62,887480(b) Money held in trust classified as held-to-maturity
Not applicable(c) Other money held in trustThousands of
U.S. dollars

Millions of yen
March 31

2007

2006

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

¥7,500
7,517
17
29
11

¥18,000
17,996
(3)
29
33

2007

$63,532
63,679147
246
99

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

(3) Net Unrealized Gains on Available-for-Sale Securities and Other Money Held in Trust
Thousands of
U.S. dollars

Millions of yen
March 31

Net unrealized gains...........................................................................................................
Available-for-sale securities .........................................................................................
Other money held in trust .............................................................................................
Net deferred tax liabilities ...................................................................................................
Net unrealized gains (before following adjustment) .............................................................
(–) Minority interests...........................................................................................................
(+) Hokuhoku’s interest in net unrealized gains on
valuation of available-for-sale securities
held by affiliates accounted for by the equity method ..................................................
Net unrealized gains...........................................................................................................

38

Hokuhoku Financial Group, Inc. Annual Report 2007

2007

2006

2007

¥37,125
37,10717(11,352)
25,772
16¥28,087
28,091(3)(11,364)
16,72237$314,487
314,340
147(96,165)
218,322141

322¥26,078450¥17,136

2,730$220,91130. Derivatives
The Hokuriku Bank, Ltd. and the Hokkaido Bank, Ltd. (together, the “Banks”) use swaps, futures, forward and option contracts, and other similar types of contracts based on either interest rates, foreign exchange rates or securities prices.
The purpose for using derivative finance products are 1) to respond to the hedging needs of customers, 2) to reduce market
risks related to the assets and liabilities and 3) for trading purposes under the strict risk management structure.
Derivative transactions are accompanied by losses arising from credit risk and losses resulting from market risk.
Derivatives transactions entered into by the Banks have been made in accordance with its risk management policies and procedures, and positions, gain- and-loss amounts, risk amounts and other information regarding the status of trading transactions are reported to the management board.
· Interest Rate-Related Transactions
Millions of yen
2007

March 31

Contract
Value

MarketValue

RecognizedGain (Loss)

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

¥573,425
602,067
362,062352,339
87,63256,456/¥(3,840)
7,232
(867)
866
(359)
397
¥ 3,428¥ (3,840)
7,232
7,244
866
2,782
(397)
¥13,887

Millions of yen
2006

March 31

Contract
Value

MarketValue

RecognizedGain (Loss)

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

¥384,504
373,973
214,810
207,798
89,01455,043/¥(11,214)
13,687
(319)
319
(470)
627
¥ 2,629¥(11,214)
13,687
6,469
303
2,619
(95)
¥ 11,770

Thousands of U.S. dollars
2007

March 31Over-the-counter transactions
Swaps
Receive/fixed and pay/floating.....................................................................................................
Receive/floating and pay/fixed.....................................................................................................
Options/sell .......................................................................................................................................
Options/buy.......................................................................................................................................
Others/sell.........................................................................................................................................
Others/buy ........................................................................................................................................
Total .......................................................................................................................................................

Contract
Value

MarketValue

RecognizedGain (Loss)$4,857,483
5,100,104
3,067,030
2,984,665
742,333
478,243/$(32,535)
61,267(7,351)
7,340(3,045)
3,368$ 29,044$ (32,535)
61,26761,3697,340
23,571(3,371)$117,641· Foreign Exchange-Related Transactions
Millions of yen
2007

March 31

Contract
Value

MarketValue

RecognizedGain (Loss)

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

¥ 66,074
20,50125,012
662,654662,654
/

¥

¥

300
(576)
292
(27,230)
27,229
¥
15

300
(576)
292
18,315(8,063)¥10,267

Hokuhoku Financial Group, Inc. Annual Report 2007

39

Millions of yen
2006

March 31

Contract
Value

MarketValue

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

¥ 78,218
41,302
24,931
376,810
376,740
/

¥

225
(578)
110
(15,381)
15,381¥ (242)

RecognizedGain (Loss)

¥ 225
(578)
110
7,848
(2,830)¥4,775

Thousands of U.S. dollars
2007

Contract
Value

March 31Over-the-counter transactions
Swaps...............................................................................................................................................
Forward contracts/sell.......................................................................................................................
Forward contracts/buy ......................................................................................................................
Options/sell .......................................................................................................................................
Options/buy.......................................................................................................................................
Total .......................................................................................................................................................

$ 559,720
173,666
211,879
5,613,334
5,613,334/

MarketValue

RecognizedGain (Loss)

2,545(4,887)2,474(230,666)
230,664$130$ 2,545(4,887)2,474
155,154(68,309)$ 86,977$

At March 31, 2007 and 2006, the Group had no outstanding contracts in stock related transactions, bond related transactions,commodity related transactions and credit derivative transactions.
31. Subsequent Events
Appropriations of Retained Earnings
The following appropriations of retained earnings at March 31, 2007 were approved at the Company’s general stockholders
meeting held on June 27, 2007:

Cash dividends, ¥2.00 per share on common stock.....................................................
¥3.85 per share on preferred stock (Type1) .......................................
¥3.31 per share on preferred stock (Type4) .......................................
¥7.50 per share on preferred stock (Type5) .......................................

40

Hokuhoku Financial Group, Inc. Annual Report 2007

Millions of yen

Thousands of
U.S. dollars¥2,781
577
261
805$23,558
4,891
2,215
6,825

REPORT OF INDEPENDENT AUDITORSThe Board of Directors
Hokuhoku Financial Group, Inc.
We have audited the accompanying consolidated balance sheets of Hokuhoku Financial Group, Inc. (the “Company”)
and consolidated subsidiaries as of March 31, 2007 and 2006, and the related consolidated statements of income andcash flows for the years then ended, changes in net assets for the year ended March 31, 2007 and stockholders’ equity
for the year ended March 31, 2006, all expressed in yen. These consolidated financial statements are the responsibilityof the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements
based on our audits.
We conducted our audits in accordance with auditing standards generally accepted in Japan. Those standards requirethat we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free ofmaterial misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosuresin the financial statements. An audit also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of Hokuhoku Financial Group, Inc. and consolidated subsidiaries at March 31, 2007 and 2006,
and the consolidated results of their operations and their cash flows for the years then ended in conformity withaccounting principles generally accepted in Japan.
The U.S. dollar amounts in the accompanying consolidated financial statements with respect to the year ended March
31, 2007 are presented solely for convenience. Our audit also included the translation of yen amounts into U.S. dollar
amounts and, in our opinion, such translation has been made on the basis described in Note 1.

June 27, 2007

June 27, 2007

Member of Ernst & Young Global

Member of Deloitte Touche Tohmatsu

Hokuhoku Financial Group, Inc. Annual Report 2007

41

NONCONSOLIDATED FINANCIAL STATEMENTSNONCONSOLIDATED BALANCE SHEETS (UNAUDITED)The Hokuriku Bank, Ltd.
Thousands of
U.S. dollars

Millions of yen

2007

2006

2007

AssetsCash and due from banks .....................................................................................
Call loans and bills bought.....................................................................................
Commercial paper and other debt purchased.......................................................
Trading assets .......................................................................................................
Money held in trust ................................................................................................
Securities ...............................................................................................................
Loans and bills discounted ....................................................................................
Foreign exchanges ................................................................................................
Other assets...........................................................................................................
Premises and equipment .......................................................................................
Tangible fixed assets ............................................................................................
Intangible fixed assets ...........................................................................................
Deferred tax assets................................................................................................
Customers’ liabilities for acceptances and guarantees.........................................
Reserve for possible loan losses ...........................................................................
Reserve for possible investment losses ................................................................
Total assets ..........................................................................................................

¥ 140,378
120,000
199,8856,078
2,426
853,235
4,124,931
9,970
55,032—64,931
3,880
46,053
101,676(57,759)(58)¥5,670,665¥ 147,834—
215,3536,129
2,425
892,726
4,085,728
11,12043,98570,125——63,078186,234(86,309)(687)¥5,637,748$ 1,189,144
1,016,518
1,693,224
51,491
20,556
7,227,750
34,942,243
84,463
466,182—
550,034
32,874
390,121861,301(489,277)(491)$48,036,133

Liabilities and stockholders’ equity
Liabilities
Deposits.................................................................................................................
Call money and bills sold.......................................................................................
Payables under securities lending transactions ....................................................
Trading liabilities ....................................................................................................
Borrowed money ...................................................................................................
Foreign exchanges ................................................................................................
Other liabilities .......................................................................................................
Reserve for employee retirement benefits.............................................................
Deferred tax liabilities for land revaluation.............................................................
Acceptances and guarantees ................................................................................
Total liabilities ......................................................................................................

¥4,976,321
31,573
13,880718
246,256373
51,171
209
9,087
101,676
5,431,268¥4,864,851
222,300
23,816755
72,453282
40,674273
9,159
186,234
5,420,802$42,154,355
267,454
117,579
6,085
2,086,031
3,162
433,473
1,777
76,983
861,301
46,008,200

Stockholders’ equity
Capital stock ..........................................................................................................
Capital surplus .......................................................................................................
Retained earnings ..................................................................................................
Land revaluation excess ........................................................................................
Net unrealized gain on available-for-sale securities ..............................................
Total stockholders’ equity...................................................................................
Total liabilities and stockholders’ equity ...........................................................

—
—
—
—
—
—
—

140,409
14,99835,667
9,063
16,806
216,945¥5,637,748

—
—
—
—
—
—
—

Net assets
Capital stock ..........................................................................................................
Capital surplus .......................................................................................................
Retained earnings .................................................................................................
Total stockholders’ equity...................................................................................
Net unrealized gain on available-for-sale securities ..............................................
Net deferred hedge losses.....................................................................................
Land revaluation excess .......................................................................................
Total valuation and translation adjustments.....................................................
Total net assets....................................................................................................
Total liabilities and net assets ............................................................................

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

—
—
—
—
—
—
—
—
—
—

1,189,407
127,055
460,924
1,777,386
174,860(195)
75,882
250,547
2,027,933$48,036,133

March 3142

Hokuhoku Financial Group, Inc. Annual Report 2007

NONCONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)The Hokuriku Bank, Ltd.
Thousands of
U.S. dollars

Millions of yen

2007

2006

2007

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

¥ 76,148
9,953
640
3,279
25,597
1,265
8,879
4,748
130,512¥ 73,686
10,008207
3,840
22,991
1,129
9,821
10,703132,391$ 645,052
84,314
5,427
27,777
216,833
10,721
75,21840,227
1,105,569

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

6,972
851
2,394
2,315
6,368
1
49,332
21,666
2,625
92,528

4,809
626
2,015
2,402
6,016
8
52,941
28,5209,077
106,418

59,064
7,216
20,283
19,61453,947
10
417,894
183,538
22,241
783,807

37,98325,972

321,76288
19,256¥ 18,638

92
10,193¥ 15,687

745
163,126$ 157,891

Year ended March 31

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

Hokuhoku Financial Group, Inc. Annual Report 2007

43

NONCONSOLIDATED BALANCE SHEETS (UNAUDITED)The Hokkaido Bank, Ltd.
Thousands of
U.S. dollars

Millions of yen

2007

2006

AssetsCash and due from banks .....................................................................................
Call loans and bills bought.....................................................................................
Receivables under securities borrowing transactions ...........................................
Commercial paper and other debt purchased.......................................................
Trading account securities.....................................................................................
Money held in trust ................................................................................................
Securities ...............................................................................................................
Loans and bills discounted ....................................................................................
Foreign exchanges ................................................................................................
Other assets...........................................................................................................
Premises and equipment .......................................................................................
Tangible fixed assets .............................................................................................
Intangible fixed assets ...........................................................................................
Deferred tax assets................................................................................................
Customers’ liabilities for acceptances and guarantees.........................................
Reserve for possible loan losses ...........................................................................
Total assets ..........................................................................................................

¥ 110,593
110,000
21,78503,203
12,514
850,659
2,692,922
5,687
46,883—25,747
2,791
27,14430,269(44,074)¥3,896,127¥ 198,384
—
—
2
3,329
22,996910,066
2,595,733
3,696
33,771
28,737——
39,631
29,663(55,502)¥3,810,512$

Liabilities and stockholders’ equity
Liabilities
Deposits.................................................................................................................
Call money and bills sold.......................................................................................
Payables under securities lending transactions ....................................................
Borrowed money ...................................................................................................
Foreign exchanges ................................................................................................
Other liabilities .......................................................................................................
Reserve for employee retirement benefits.............................................................
Acceptances and guarantees ................................................................................
Total liabilities ......................................................................................................

¥3,541,316—
28,89685,90037
34,923
10,78530,2693,732,130¥3,397,340
95,20084,06026,00063
29,293
11,28429,6633,672,906$29,998,449—
244,784
727,658320
295,840
91,365
256,41131,614,827

Stockholders’ equity
Capital stock ..........................................................................................................
Capital surplus .......................................................................................................
Retained earnings ..................................................................................................
Net unrealized gain on available-for-sale securities ..............................................
Total stockholders’ equity...................................................................................
Total liabilities and stockholders’ equity ...........................................................

—
—
—
—
—
—

93,524
16,79522,225
5,061
137,606¥3,810,512

—
—
—
—
—
—

Net assets
Capital stock ..........................................................................................................
Capital surplus .......................................................................................................
Retained earnings .................................................................................................
Total stockholders’ equity...................................................................................
Net unrealized gain on available-for-sale securities ..............................................
Net deferred hedge losses.....................................................................................
Total valuation and translation adjustments.....................................................
Total net assets....................................................................................................
Total liabilities and net assets ............................................................................

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

—
—
—
—
—
—
—
—
—

792,240
142,271363,769
1,298,280
90,91526
90,941
1,389,221$33,004,048

March 3144

Hokuhoku Financial Group, Inc. Annual Report 2007

2007
936,832
931,808
184,543
7
27,138106,011
7,205,922
22,811,709
48,175397,153—
218,106
23,647229,941
256,411(373,355)$33,004,048

NONCONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)The Hokkaido Bank, Ltd.
Thousands of
U.S. dollars

Millions of yen
Year ended March 31

2007

2006

2007

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

¥53,783
9,404
132
0
1,135
18,4783,082
2,443
88,461¥51,874
9,642
7
0
1,971
17,814
4,131
3,053
88,495$455,596
79,665
1,123
1
9,617
156,534
26,116
20,701
749,353

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

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

3,145
10
435
4
5,562
2,031
38,345
12,9852,860
65,38238,002
212
5,188
55
49,21819,096321,170
30,686
17,380481,007

31,678

23,113

268,34664
10,896¥20,71762
9,606¥13,444546
92,303$175,497

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

Hokuhoku Financial Group, Inc. Annual Report 200745

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

The Hokkaido Bank, Ltd.

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

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

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

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

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

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

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

Hokugin Software Co., Ltd.
(Software development)

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

Nihonkai Services Co., Ltd.
(Servicer)

Hokuriku International Cayman Limited(Finance)

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

Hokugin Corporate Co., Ltd.
(Corporate rehabilitation)

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

Address

Main business activities

Established

Capital

FG’s share of
voting rights

Dividend

The Hokuriku Bank, Ltd.

1-2-26 Tsutsumicho-dori, Toyama City

Banking

July 31, 1943

140,409100.00–

The Hokkaido Bank, Ltd.

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

Banking

March 5, 1951

93,524100.00–

Hokugin Lease Co., Ltd.

2-21 Aramachi, Toyama City

Leasing

July 21, 1983

100

70.25

–

Hokuriku Card Co., Ltd.

1-2-1 Shintomi-cho, Toyama City

Credit card operations,loan guarantees

March 2, 1983

36

87.39

–

Hokuriku Hosho Services Co., Ltd.

1-2-26 Tsutsumicho-dori, Toyama City

Credit guarantees

December 12, 1978

50

100.00–

Hokugin Software Co., Ltd.

1-5-25 Higashidenjigata, Toyama City

Software development

May 1, 198630

100.00–Nihonkai Services Co., Ltd.

2-1-14 Chuo-dori, Toyama City

Servicer

December 5, 2003

500

100.00–

Hokugin Business Services Co., Ltd.

1883 Hiyodorijima, Toyama City

Document management,
cash management, ATM/CD
maintenance/operation,
concentrated businessprocessing

March 25, 195330

(100.00)–

Hokugin Office Services Co., Ltd.

1-2-26 Tsutsumicho-dori, Toyama City

Human resource solutions

March 3, 1986

20

(100.00)–

Hokugin Real Estate Services Co., Ltd.

1-2-26 Tsutsumicho-dori, Toyama City

Property Management

September 26, 1988

100

(100.00)–

Hokugin Shisankanri Co., Ltd.

1-2-26 Tsutsumicho-dori, Toyama City

Auctioning pledged properties

March 7, 2000

100

(100.00)–

Hokuriku International Cayman Limited

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

Finance

April 27, 1993

US$1,000(100.00)–

Hokugin Corporate Co., Ltd.

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

Corporate rehabilitation

December 1, 2004

100

(100.00)–

Dogin Business Service, Ltd.

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

Document management,
cash management, ATM/CD
maintenance/operation,
concentrated businessprocessing

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

1,226

(100.00)–

Hokuriku Capital Co., Ltd.*

1-8-10 Marunouchi, Toyama City

Venture Capital

January 11, 1985

250

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

46

Hokuhoku Financial Group, Inc. Annual Report 2007

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

History

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

August 1877

Company outline (as of March 31, 2007)
Business:
Incorporation:
Location of headquarters:
President:
Total assets:
Deposits (including NCDs):
Loans:
Issued shares:

The Hokuriku Bank, Ltd.
Banking
July 31, 1943 (founded in 1877)
1-2-26 Tsutsumicho-dori,
Toyama City Toyama
Shigeo Takagi¥5,670.6 billion¥4,976.3 billion¥4,124.9 billion
Common stock
Class 1 preferred shares

987,147,185
150,000,000

Capital ratio(non-consolidated):
9.16%
Employees:
2,546
Branches (as of June 30, 2007)
Domestic:
186 (130 branches, 56 sub-branches)
Overseas:
3 representative offices
Non-branch ATMs
205

Kanazawa 12th National Bank founded

February 1879

Toyama 123th National Bank founded

January 1884

Kanazawa 12th National Bank and Toyama 123th 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

New head office built

January 1971

Received blanket approval to engage in correspondent banking services

November 1973

Completed first integrated online system linking all offices

March 1974

Received blanket approval to engage in foreign exchange
business

July 1978

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

October 1979

Launched second online system

November 1981

Launched online foreign exchange system

January 1984

Launched firm banking service

May 1987

Introduced VI (visual identification)

August 1990

Completed third online system

November 1993

Launched investment trust agent operations

December 1998

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

Launched Internet and mobile banking services

July 2000

Completed new computer center (Alps building)January 2001

Launched new computer system

April 2001

Launched over-the-counter sales of casualty insurance

February 2002

Third-party allocation worth ¥39.1 billion, brought new capital to ¥140.4 billion.

February 2002

Launched convenience store ATM service (E-net)

October 2002

Launched over-the-counter sales of life insurance

March 2003

Took over part of the Ishikawa Bank’s operations

September 2003

Established Hokugin Financial Group through stock swap,
then became subsidiary of the Hokugin Financial Group

September 2004

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

December 2004

Launched securities agency operations
Established corporate rehabilitation company Hokugin
Corporate

March 2006

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

Hokuhoku Financial Group, Inc. Annual Report 2007

47

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

History

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

March 1951

Hokkaido Bank established

April 1961

Launched foreign exchange operations

Company outline (as of March 31, 2007)
Business:
Incorporation:
Location of headquarters:
President:
Total assets:
Deposits (including NCDs):
Loans:
Issued shares:

The Hokkaido Bank. Ltd.
Banking
March 5, 1951
4-1 Odori Nishi, Chuo-ku,
Sapporo City
Yoshihiro Sekihachi¥3,896.1 billion¥3,541.3 billion¥2,692.9 billion
Common shares:
Class 1 preferred shares:
Class 2 preferred shares:

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

Capital ratio(non-consolidated):
9.91%
Employees:
1,743
Branches (as of June 30, 2007)
Domestic:
134 (125 branches, 9 sub-branches)
Overseas:
1 representative officeNon-branch ATMs
341

48

Hokuhoku Financial Group, Inc. Annual Report 2007

May 1962

Listed on the Sapporo Stock Exchange

August 1964

Present head office built

June 1971

Online system (first) launched

July 1976

Online system (second) launched

December 1980

Received blanket approval to engage in correspondent banking services

April 1981

Hokkaido Small and Medium Corporation Human Resource
Development Fund established

June 1986

Launched online foreign exchange system

September 1987

Debuted on the first section of the Tokyo Stock Exchange

October 1990

Constructed the Higashi Sapporo Dogin Building

March 1991

Established Dogin Cultural Foundation

October 1991

Launched a new foreign exchange online system

November 1991

Constructed Dogin Building Annex

January 1993

Online system (third) launched

April 1994

Launched investment trust agent operations

December 1998

Started sales of investment trust accounts

July 1999

Issued No. 1 class 2 preferred shares (issuance amount was¥53.716 billion)

November 1999

Launched telephone banking service

June 2000

Launched Internet mobile banking

April 2001

Started sales of casualty insurance accounts

October 2002

Started sales of life insurance accounts

December 2003

Opened Business Loan Plaza

April 2004

Launched convenience store ATM service

September 2004

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

April 2005

Launched securities agency operations

March 2006

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

August 2006

Opened representative office in Shenyang, China

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

Deputy President:
Yoshihiro Sekihachi

Directors:
Satoshi Kawai
Mitsuhiro Tokuno

Masamichi Kondo
Akihiko Soma

Hideaki Haoka
Yuji Oshima

Yoshihiro Minami

Yasuhiro Ishiguro

Corporate Auditors:
Toshitsugu Kawakami
Norikiyo Hayashi

The Hokuriku Bank
President:
Shigeo Takagi

Deputy President:
Satoshi Kawai

Senior Managing Directors:
Hideaki Haoka

Mitsuhiro Tokuno

Managing Directors:
Taminori Iwasaki

Masato Matsumoto

Kumakichi Yagi

Akihiko Furuta

Kenichi Nakamura

Director:
Akihiko Soma
Corporate Auditors:
Tatsuo Asai

The Hokkaido Bank
President:
Yoshihiro Sekihachi
Directors:
Masamichi Kondo

Masahiro Sasahara

Hiroshi Sagayama

Satoshi Kawai

Corporate Auditors:
Hisae Goto

Tatsuhiro Ishikawa

Yutaka Hayakawa

Akira Ibayashi

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

The Hokuriku Bank, Ltd.
International Department
1-2-26, Tsutsumicho-doriToyama City,
Toyama 930-8637, Japan
Telephone: +81-76-423-7815
Facsimile: +81-76-423-7561
E-mail: kokusaibu@hokugin.co.jp
International Operations Center
2-10, Nihonbashi-muromachi 3-chome,
Chuo-ku,
Tokyo 103-0022, Japan
Telephone: +81-3-3231-7329
Facsimile: +81-3-3270-5028
E-mail: b.office@hokugin.co.jp
SWIFT Address: RIKBJPJTTreasury and Securities Department
2-10, Nihonbashi-muromachi 3-chome,
Chuo-ku
Tokyo 103-0022, Japan
Telephone: +81-3-3231-7360
Facsimile: +81-3-3246-1255
E-mail: shikintky@hokugin.co.jp

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

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: nyrep@hokugin.com

Market and International Administration Center
4-1, Odori Nishi, Chuo-ku,
Sapporo 060-8676, Japan
Telephone: +81-11-233-1104
Facsimile: +81-11-231-9248
SWIFT Address: HKDBJPJTShanghai Representative Office
Shanghai International Trade Center, 602,
Yan’an west Toad 2201,
Changning, Shanghai 200336
Telephone: +86-21-6270-8108
Facsimile: +86-21-6270-8338
E-mail: hokugin@online.sh.cn
Singapore Representative Office
6 Battery Road # 17-04 Shigapore 049909
Telephone: +65-6534-0010
Facsimile: +65-6534-0070
E-mail: hokuriku@singnet.com.sg

Treasury and Securities Department
2-10, Nihonbashi- muromachi 3-chome,
Chuo-ku,
Tokyo 103-0022, Japan
Telephone: +81-3-3241-3457
Facsimile: +81-3-3245-1779
Overseas Offices (Hokkaido Bank)
Shenyang Representative Office
Fangyuan Mansion, No. 1106
Yuebin Street No. 1, Shenhe District,
Shenyang City 110013, P.R. CHINA
Telephone: +86-24-2250-5350
Facsimile: +86-24-2250-5351
E-mail: dogin_shenyang@yahoo.co.jp
Hokuhoku Financial Group, Inc. Annual Report 200749

Hokuhoku Financial Group, Inc.

Hokuhoku Financial Group, Inc.

Annual Report 20 07

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