Annual Report
2018Year ended March 31, 2018

Hokuhoku Financial Group, Inc.

Company outline (as of March 31, 2018)
Company name: Hokuhoku Financial Group, Inc.
Date of establishment: September 26, 2003
Location of head office: 1-2-26 Tsutsumicho-dori, Toyama City
Purpose of business: Management and control of subsidiaries and affiliates and ancillary and related business
Capital: ¥70,895 million
Shares issued and outstanding:Common stock…………………………

132,163,014

Preferred stock (Type 5)………………

107,432,000

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

CONTENTS

Profile………………………………………………………………………… 1
Message from the Management…………………………………………… 2
Medium-Term Management Plan………………………………………… 4
Performance Highlights…………………………………………………… 6
Corporate Governance……………………………………………………… 10
Measures for Compliance………………………………………………… 13
Measures for Risk Management…………………………………………… 15
Characteristics of Our Main Business Area……………………………… 20
Corporate Social Responsibility…………………………………………… 22
Topics………………………………………………………………………… 24
Consolidated Financial Statements
Consolidated Balance Sheet…………………………………………… 27
Consolidated Statement of Income…………………………………… 28
Consolidated Statement of Comprehensive Income………………… 28
Consolidated Statement of Changes in Equity………………………… 29
Consolidated Statement of Cash Flows……………………………… 31
Notes to Consolidated Financial Statements………………………… 32
Independent Auditor’s Report……………………………………………… 59
Non-consolidated Financial Statements
The Hokuriku Bank, Ltd.
Non-consolidated Balance Sheet (Unaudited)……………………… 60
Non-consolidated Statement of Income (Unaudited)……………… 61
The Hokkaido Bank, Ltd.
Non-consolidated Balance Sheet (Unaudited)……………………… 62
Non-consolidated Statement of Income (Unaudited)……………… 63
Corporate Information……………………………………………………… 64
Outline of Subsidiaries — Hokuriku Bank………………………………… 65
Outline of Subsidiaries — Hokkaido Bank………………………………… 66
Directors……………………………………………………………………… 67
简单的本集团中文简要…………………………………………………… 68

Profile
Since its establishment in 1877, Hokuriku Bank has

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

developed an extensive network of branches throughout

Our extensive network is outlined below.

the Hokuriku district. On account of trade through the

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

Kitamae-bune or “Northbound Ships,” branches extended
to the major cities of Hokkaido, enabling the bank tomeet customers’ needs. The Hokkaido Bank, which wasestablished in 1951, has developed a network of branches

Hokkaido……………………………………… 159 branches

throughout Hokkaido, and built a firm business structure

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

centered on individuals and small and medium-sizedenterprises.
The Hokuriku Bank, Ltd. and The Hokkaido Bank, Ltd.
underwent management integration in September 2004 toform the Hokuhoku Financial Group Inc., which today oper-

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

ates a super-regional financial network that encompasses

Overseas………………………………………
9 offices
New York Representative Office (Hokuriku Bank)
Yuzhno-Sakhalinsk Representative Office (Hokkaido Bank)
Vladivostok Representative Office (Hokkaido Bank)
London Representative Office (Hokuriku Bank)
Singapore Representative Office (Hokuriku Bank)
Bangkok Representative Office (Hokuriku Bank)
Dalian Representative Office (Hokuriku Bank)
Shanghai Representative Office (Hokuriku Bank)
Shenyang Representative Office (Hokkaido Bank)

the Hokuriku region, Hokkaido, and Japan’s three major
metropolitan areas (Tokyo, Osaka, and Nagoya areas).

May 2002

Comprehensive business alliance
between
Hokuriku Bank and Hokkaido BankMay 2003

Agreement on full integration ofmanagement of Hokuriku Bank andHokkaido Bank

(As of June 30, 2018)

LondonSeptember
2003

Vladivostok
YuzhnoSakhalinsk

Shenyang
DalianHokugin Financial Group, Inc.
established

New York

Shanghai

Hokuriku Bank Group comes undermanagement of Hokugin Financial
Group

Bangkok
Singapore

Management integration effected
through equity swap
September
2004

4 branches

Hokkaido

Hokuhoku Financial Group, Inc. wasborn.

Hokuriku district
Ishikawa

Toyama

Fukui

Tokyo
Osaka

NagoyaThree major metropolitan areas
Hokuhoku Financial Group, Inc. Annual Report 2018

1

MESSAGE FROM THE MANAGEMENT

2

Left: Eishin Ihori

Right: Masahiro Sasahara

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

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

Hokuhoku Financial Group, Inc. Annual Report 2018

We would like to express our sincere appreciation to all of you for your continued support of the Hokuhoku Financial Groupand its group companies. We are pleased to present this report for the Hokuhoku Financial Group for the fiscal year ended
March 31, 2018. The report covers our operating performance in the fiscal year ended March 31, 2018, and introduces thevarious initiatives that we are undertaking.
In the fiscal year ended March 31, 2018, amid a further increase in exports, the Japanese economy demonstrated clear
resilience in domestic demand centered on corporate sectors such as capital investment and inventory investment, andprivate consumption also followed a gradual track of recovery with improvement in the employment and income environment. The gradual recovery continued in the overseas economy as well, led by developed countries such as the UnitedStates, which continued its economic expansion, and helped by the firm economy in China.
In the Group’s primary operating regions, the three Hokuriku prefectures, in addition to maintaining high production levels for
categories such as electronic components and business machines, private consumption steadily recovered, and there wassignificant tightening of labor supply and demand. Moreover, in Hokkaido, in addition to the effect of the economic boost
from public-sector investment centered on disaster restoration, against the backdrop of increasing tourism-related capital
investment and firm private consumption, the entire economy of Hokkaido maintained a track of recovery.
In the economic environment surrounding the Group, while the global economy is expected to continue to recover,uncertainty remains mainly in the policy operations of the United States government, political conditions in Europe and thetrends in the Chinese economy, and the future is difficult to predict, including the effects of the uncertainty on the Japanese
economy.
In the financial field, in addition to ongoing unprecedented low interest rates, an expansion in financial services driven by
information technologies such as fintech is having a significant effect on the business models of financial institutions.
Aiming to build a new business model that can respond to these changes in the business environment, we formulated
the Medium-term Management Plan “BEST for the Region” for fiscal 2016 through fiscal 2018, and are promoting various
policies centered on “Strengthening Marketing Capabilities,” “Improving Management Efficiency” and “Strengthening Management Foundation.”(1) Strengthening Marketing Capabilities
With a customer-oriented approach as our top priority, we will continue to develop personnel, improve products and increase the convenience of various transactions using information technologies, accurately capturing the needs and challenges of our customers and working to provide appropriate recommendations.
(2) Improving Management Efficiency
In response to market conditions, we will open full-banking branches providing overall financial services and branches
specializing in counter services and individual sales, continually working to offer efficient branch operations. Moreover, withthe further automation of office operations and expansion of centralized back office operations, we are working to improve
efficiency and productivity.
Regarding system investment as well, we are further advancing the integration of the individual systems at Hokuriku Bankand Hokkaido Bank, working to balance control of investment amounts with service improvement and streamlining of operations.
(3) Strengthening Management Foundation
In this fiscal year as well, we are working to accumulate profit and aiming to maintain and improve our sound financial foundation in accordance with the Plan.
Furthermore, to strengthen the management control systems of Group companies, we are working to improve the deliberation of important items at the Board of Directors, and by utilizing the knowledge and experience of external Directors andexercising the oversight function of the Audit and Supervisory Committee, we are working to increase the effectiveness of
the Board of Directors’ function and to strengthen governance.
Every executive and employee of the Group will work together to sustainably increase corporate value by steadily accumulating results for each of these policies.
We ask for your continued support.
July 2018

Eishin Ihori
President

Masahiro Sasahara
Deputy President
Hokuhoku Financial Group, Inc. Annual Report 20183

MEDIUM-TERM MANAGEMENT PLAN
Hokuhoku Financial Group is treating the three years from April 2016 as the “period to develop an efficient and sustainablebusiness model and pursue group synergy effect to contribute to the growth of regional economy in the changing businessenvironment” and has launched its Medium-term Management Plan “BEST for the Region.” Using our widespread network
and improving management efficiency, we contribute to customers and local communities by providing No.1 financial service
and solution, and achieve growth and development together with them.

Overview of the Medium-Term Management Plan
Title

BEST for the Region

Period3 Years (April 2016 — March 2019)

Position

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

Target Corporate Profile

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

Hokuhoku
Financial Group

Basic Policies
in Management Plan

No.1 Service & Solution

Customers
Communities

Trust & Patronage

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

Targets of the Medium-term Management Plan (Total of 2 banks, consolidated)
FY2016 Result

FY2017 Result

FY2018 Plan

Ave.balance of deposits¥10,409.6 Bn¥10,768.7 Bn¥10,560.0 Bn

Ave.balance of loans¥7,684.8 Bn¥7,961.6 Bn¥7,760.0 Bn

Core gross business protits¥132.9 Bn¥126.7 Bn¥134.5 Bn

Expenses¥89.8 Bn

¥88.8 Bn

¥93.0 Bn

Core net business profits¥43.0 Bn

¥37.9 Bn

¥41.5 Bn

Credit costs¥(0.6) Bn¥0.5 Bn¥6.0 Bn

Net income attributable to owners of the parent¥28.1 Bn

¥21.1 Bn

¥23.0 Bn

OHR*

67.58%

70.05%

69.14%(Consolidated) Capital adequacy ratio

9.43%

9.49%

9.55%

*Core gross business profits basis

4

Hokuhoku Financial Group, Inc. Annual Report 2018

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

Hokuhoku Financial Group, Inc. Annual Report 2018

5

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

FY2017FY2016
Y-o-Y Change
(6.5)
(7.6)

Ordinary income
Ordinary profits
Net income attributable toowners of the parent

180.9
31.7

187.4
39.4

21.1

(6.9)

28.1

Capital adequacy ratio

9.49%

0.06%

9.43%

With regard to the Company’s operating performance in thefiscal year ended March 31, 2018, consolidated ordinary
income fell by ¥6.5 billion year-on-year to ¥180.9 billion,
while consolidated ordinary profits declined by ¥7.6 billion
to ¥31.7 billion and net income attributable to owners of theparent decreased by ¥6.9 billion to ¥21.1 billion.
The capital adequacy ratio was 9.49% on a consolidated basis at the end of the fiscal year.
With regard to the payment of dividends for the fiscal
year ended March 31, 2018, dividends for common stock
were ¥44.00 per share, paid once as the year-end dividends, and dividends for preferred stock (Type 5) were thedesignated ¥7.50 per share (¥15 annually) paid respectively
as the interim and year-end dividends.

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

(¥ billion)

FY2017
Ordinary income
Core gross business profits
Expenses (excluding
temporarily processed
portion)Core net business profits
Credit costs
Ordinary profits
Net income

164.7
126.7

FY2016
Y-o-Y Change
(6.3)
(6.1)

171.0
132.9

88.8

(1.0)

89.8

37.9
0.5
33.1
24.0

(5.1)
1.2
(7.0)
(5.6)

43.0
(0.6)
40.2
29.6

Total ordinary income for both banks was ¥164.7 billion,
down ¥6.3 billion year-on-year, while net income decreasedby ¥5.6 billion to ¥24.0 billion.
At Hokuriku Bank, ordinary income decreased by ¥1.8
billion to ¥91.9 billion and net income increased by ¥2.9
billion year-on-year to ¥15.7 billion.
At Hokkaido Bank, ordinary income decreased by ¥0.7
billion to ¥78.2 billion and net income decreased by ¥2.6
billion year-on-year to ¥8.2 billion.

(¥ billion)(¥ billion)

Hokuriku Bank
FY2017

Hokkaido Bank
FY2016FY2017FY2016

92.9
72.9

78.2
59.5

Y-o-Y Change
(0.7)
(1.3)

(0.7)

48.2

41.3

(0.2)

41.5

23.7
1.8
24.1
15.7

(0.9)
2.5
(0.6)
(2.9)

24.7
(0.6)
24.8
18.7

18.2
(1.2)
8.9
8.2

(1.0)
(1.2)
(6.3)
(2.6)

19.2
(0.0)
15.3
10.9

9.02%

0.28%

8.74%

9.28%

(0.06%)

9.34%

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

91.1
71.2
47.5

Capital adequacy ratio

Y-o-Y Change
(1.8)
(1.6)

78.9
60.8

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

Net fees and commissions

Other income

143.0
2.0
20.0

132.9
17.8

(0.2) Total 126.7
1.5
16.7

120.9

115.2

108.4

FY2015FY2016FY2017(¥ billion)

6

Hokuhoku Financial Group, Inc. Annual Report 2018

‌Net interest income……¥108.4 billion
Due to falls in interest on loans and interest and dividends
on securities, net interest income declined by ¥6.8 billion
year-on-year.
‌Net fees and commissions……¥16.7 billion
Due to a fall in commissions on sales of investment trusts
and insurance, net fees and commissions declined by¥1.1 billion year-on-year.
‌Other income……¥1.5 billion
Other income increased by ¥1.8 billion year-on-year due
to a decline in gain on foreign exchange transactions.
‌Core gross business profits……¥126.7 billion
As a result of the above, core gross business profits
decreased by ¥6.1 billion year-on-year.

Expenses <Total of both banks>
Hokuriku Bank

Hokkaido Bank

‌Expenses……¥88.8 billion
Expenses fell by ¥1.0 billion year-on-year due to a decline
in personnel expenses and non-personnel expenses.

OHR

67.58%
63.57%

70.05%

90.9

89.8

48.6

48.2

47.5

42.2

41.5

41.3

FY2015FY2016FY2017

Total

88.8

(¥ billion)

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

Hokkaido Bank‌Core net business profits……¥37.9 billion
Expenses declined but core gross business profits alsofell, causing core net business profits to decrease by ¥5.1
billion year-on-year.

ROA

0.45%
0.36%

0.31%

52.0
43.0

Total

37.9

26.6

25.3

24.7

23.7

19.2

18.2

FY2016FY2017(¥ billion)

FY2015Net Income <Total of both banks>
Hokuriku Bank

29.9

‌Net income……¥24.0 billion
Net income decreased by ¥5.6 billion year-on-year due
mainly to a decrease in net gains related to bonds andincrease in credit costs.

Hokkaido Bank

29.6
Total

16.5

24.0

18.7
15.7

13.4

10.9

8.2
(¥ billion)

FY2015FY2016FY2017

Hokuhoku Financial Group, Inc. Annual Report 2018

7

PERFORMANCE HIGHLIGHTS

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

‌Loans and bills discounted……¥8,189.4 billion
Due to rises in corporate loans and housing and consumer
loans, there was an increase of ¥401.1 billion comparedwith the end of the previous fiscal year.

Hokkaido Bank

Total

8,189.4

7,599.6

7,788.3

4,383.4

4,467.6

3,216.1

3,320.7

3,519.2

2016

2017

2018

4,670.1(¥ billion)
End of March

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

‌Loans to SMEs……¥5,153.9 billion
Due to actively working on initiatives related to regional
demand for financing, loans to SMEs increased by ¥181.7
billion compared with the end of the previous fiscal year.

Hokkaido Bank

Total

5,153.9

4,845.0

4,972.2

2,918.1

2,969.7

3,050.2

1,926.8

2,002.5

2,103.7

2016

2017

2018

(¥ billion)
End of March

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

10,502.6‌Deposits (including negotiable certificates ofdeposit)……¥11,180.7 billion
Deposits increased by ¥449.7 billion compared with theend of the previous fiscal year due to the steady increasein both individual deposits and corporate deposits.

Hokkaido Bank

10,731.0

Total 11,180.7

6,117.6

6,243.3

6,505.8

4,384.9

4,487.6

4,674.9

2016

2017

2018

(¥ billion)
End of March

8

Hokuhoku Financial Group, Inc. Annual Report 2018

Capital Adequacy Ratio <On a consolidated basis>
Capital‌Capital adequacy ratio……9.49%
Due mainly to an increase in capital from accumulated
retained earnings, the capital adequacy ratio rose 0.06
percentage points compared with the end of the previous
fiscal year, etc.

Capital adequacy ratio

10.30%
9.43%

9.49%

548.0

531.0

544.5

2016

2017

2018

(¥ billion)
End of March

Disclosed Claims under the Financial Reconstruction Law <Total of both banks>‌Disclosed claims under the Financial Reconstruction
Law……¥147.5 billion
Disclosed claims under the Financial Reconstruction Law
fell by ¥8.6 billion compared with the end of the previous
fiscal year.
‌NPL ratio……1.74%
The NPL ratio fell by 0.20 percentage points comparedwith the end of the previous fiscal year.
Substandard claims
Bankrupt and substantially bankrupt claims

Doubtful claims
NPL Ratio● ‌Disclosed Claims under the Financial Reconstruction Law: The bankclassifies both loans and other assets in line with the stipulations of the
Financial Reconstruction Law.
● ‌Claims subject to disclosure: loans, customers’ liabilities for acceptance and guarantees, foreign exchanges, accrued interest, suspense
payments, securities loaned, private bonds with the Bank’s own
guarantees (regarding claims on obligors requiring caution, loans andprivate bonds with the Bank’s own guarantees only).
Substandard
claimsDoubtful claims
2.15%
168.6
20.1

125.7

End of March

1.94%
156.2
18.6

119.8

1.74%
Total

Bankrupt andsubstantiallybankrupt claims

147.5
19.2

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

112.2

22.8

17.7

16.1

2016

2017

2018

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

(¥ billion)

Ratings
Rating and Investment
Information, Inc.

R&I

A

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

Hokuhoku Financial Group, Inc. Annual Report 2018

9

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

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

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

Hokuhoku Financial Group, Inc.
Shareholders’ Meeting
Business Promotion Committee
Members: Full-time Hokuhoku FG Directors
and subsidiary presidents
Purpose: To ensure sound management
policy implementation, ascertain
the status of business and provide
instructions

Planning Group

Board of Directors
Executionof
PDCA

Audit and Supervisory
Committee

Appointment of 4 external Directors

Corporate Governance Committee
Management Committee

Administration Group

Risk Management Group

Audit Group

Hokkaido Bank

Hokuriku Bank
Shareholders’ Meeting

Shareholders’ Meeting

Audit & Supervisory Board

Other
Subsidiaries

Board of Directors
Management Committee

Audit & Supervisory Board
Board of Directors
Management Committee

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

Overview of key bodies
1. Board of Directors
Responsible for decisions related to important policies for
management of the Group as a whole, and for overseeing thebusiness management, risk management and auditing carriedout by the holding company and its subsidiaries. Four Directors
are appointed and oversight is strengthened by incorporating
perspectives that are independent from management.
2. Audit and Supervisory Committee
Determines matters related to auditing policies, plans andmethods, and matters related to the execution of duties of theappointed Director serving as Audit and Supervisory
Committee Member. Also, monitors the performance of duties
by Directors, and carries out determinations of opinions related
to the nomination, compensation, etc., of Directors who are
not serving as Audit and Supervisory Committee Members.
3. Corporate Governance Committee
The Committee, which is composed of four external Directors
and one full-time Director serving as Audit and Supervisory
10

Hokuhoku Financial Group, Inc. Annual Report 2018

Committee Member, aims to secure sustainable growth andboost long-term corporate value of the Group through exchanging information and sharing perceptions among external Directors and by offering advice on the Company’s important issues.
4. Management Committee
Comprising full-time Directors of the Company, this bodymakes decisions — in accordance with the basic policies laid
down by the Board of Directors — on matters relating tobusiness execution policies for the entire Group and mattersrelated to the implementation of particularly important tasks by
specific divisions.
5. Business Promotion Committee
Comprising full-time Directors of the Company and presidents
of subsidiaries, this body is responsible for making sure thatimportant issues and management policies for the entire Groupare widely known and understood, as well as for keeping trackof business results at each company to ensure that business iscarried out appropriately.

Basic policy on internal controls
The Company shall, based on the Companies Act and theOrdinance for Enforcement of the Companies Act, put in place asystem to ensure the appropriateness of the Company's
operations, as follows.
1. ‌System to ensure that executives and employees of theCompany and group companies perform their duties inconformity with laws and regulations, as well as in conformity with our articles of incorporation‌In addition to setting matters pertaining to laws and regulations, or the articles of incorporation, the Board of Directors
decides on basic management policies and important issues
related to the execution of operations, establishes organizations and systems, and supervises performance of duties byDirectors.
‌The Board of Directors selects multiple external Directors inpositions independent from the Group in the selection ofcandidates for the Board of Directors, working to boost themutual checks and balances function.
‌The Board of Directors establishes the Corporate GovernanceCommittee, creating a system to provide the appropriate
advice and involvement in important items to the Company
through coordination with the external Directors.
‌The Board of Directors, positioning compliance as one of themost important management issues, draws up both basic
compliance policy and the compliance charter. It furthermore
establishes control departments to maintain and enhance thecompliance system of the Company and group companies.
‌The Board of Directors draws up a Compliance Program as
each fiscal year’s action plan, thoroughly implementing honest
and fair corporate activities, rejecting all relationships with
antisocial forces, and preventing money laundering, etc.
‌The Board of Directors establishes a whistleblower system
whereby an executive or an employee who discovers illegal orinappropriate actions can report to a whistleblower contact
point established in advance.
‌Every fiscal year the Board of Directors draws up an Audit
Policy and has the internal audit department, in accordancewith this, conduct audits of the state of compliance to laws
and regulations, etc. of the Company and group companies,
and report these results to the Board of Directors and the
Audit and Supervisory Committee, etc.
2. ‌System related to the storage and management of information related to the performance of duties by Directors‌Based on the Board of Directors rules as well as document
management rules and other regulations, the Board of Directors creates systems for the storage and management of information related to performance of duties by Directors. Directors
can access the documents at any time.
3. ‌Rules and other systems related to the management of riskof losses of the Company and group companies‌Recognizing the existence of various risks surrounding theCompany and group companies, and fully aware of the importance of controlling such risks, the Board of Directors formulates the basic risk management policies and risk management rules. It furthermore establishes control departments,
establishing a system to accurately recognize and gauge
individual risk associated with Group company management,
and to ensure the soundness of Group management throughappropriate management and operations.

‌The
Board of Directors have formulated contingency plans,
etc. and established a crisis management system to prepare
for unexpected events and risks such as natural disasters.
‌Each group company carries out appropriate risk management in close partnership with each group company’s risk
management department, following the Group’s basic policy.
‌Every fiscal year the Board of Directors draws up an Audit
Policy and has the internal audit department, in accordancewith this, conduct audits of the state of risk management of
the Company and group companies, and report these results
to the Board of Directors and the Audit and Supervisory
Committee, etc.
4. ‌System to ensure that Directors, etc. of the Company andgroup companies perform duties efficiently‌The Board of Directors draws up a management plan to clarify
the Group’s desired vision and its performance goals.
‌The Board of Directors sets overall organizational standards
for basic tasks, operational entities, and assignment of duties,
and establishes a system in which the Company and all groupcompanies perform well-organized and efficient business
operations.
‌The Management Committee executes business operations
promptly and efficiently, based on the delegation of authority
by the Board of Directors with regard to the execution ofbusiness operations, and on the predetermined assignment of
duties.
5. ‌System to ensure the appropriateness of financial reporting‌The Board of Directors draws up a basic policy related to theinternal control evaluation of financial reporting, establishing asystem to ensure the suitability of financial reporting and toprovide true and clear reporting on both financial conditions
and management results.
6. ‌System to ensure the appropriateness of operations within
the corporate group which consists of the Company andgroup companies‌The Board of Directors is responsible for overall group management. It establishes the group management rules, prepares frameworks for agenda-setting and reporting to theCompany for each group company with regard to importantmatters, and receives reports from internal audit departmentson the findings of audits into the state of compliance to laws
and regulations, etc., risk management, and the appropriateness and effectiveness of business operations.
‌The Board of Directors draws up Regulations for Intra-Group
Transactions with the aims of clarifying the control system for
intra-group transactions, etc. and of carefully maintaining thesoundness of management practices for the Group as awhole. The Board of Directors performs its duties of management and administration based on these regulations.
7. ‌Matters related to employees required to assist with dutiesof the Audit and Supervisory Committee‌In order to assist the Audit and Supervisory Committee in the
conduct of their duties, the Board of Directors shall place
employees who carry out this work only and to whom Audit
and Supervisory Committee Members may directly give
directions and orders based on their independence andeffectiveness etc.
‌The Board of Directors requires prior consent from the Audit
and Supervisory Committee for personnel transfers anddisciplinary measures regarding such employees.

Hokuhoku Financial Group, Inc. Annual Report 201811

CORPORATE GOVERNANCE

8. ‌System for Company and group company executives andemployees to report to the Audit and Supervisory Committee and other systems related to reporting to the Audit andSupervisory Committee‌If executives and employees of the Company or group companies discover matters that could cause significant losses to theCompany or group companies, they shall directly or indirectly
report such matters to the Audit and Supervisory Committee.
‌The Board of Director establishes a system to report to theappointed Directors serving as Audit and Supervisory Committee Members for reports carried out in accordance with rules,
including such reports within the Company and such reports
from group companies to the Company.
‌Either the Audit and Supervisory Committee or appointed
Director serving as Audit and Supervisory Committee Member
may request reports from executives and employees of theCompany or group companies as needed.
‌The Board of Directors shall establish a system to ensure that
executives and employees of the Company or group companies are not mistreated as a result of having reported to or
consulted with the Audit and Supervisory Committee.

9. ‌Other systems to ensure effective auditing by the Audit andSupervisory Committee‌The Board of Directors shall give due acknowledgement to theimportance and usefulness of auditing by the Audit and Supervisory Committee, and shall discuss and take responsive
action appropriately if the Audit and Supervisory Committee
request creation of a system for smoother and more effective
performance of auditing duties.
‌The appointed Director serving as Audit and Supervisory
Committee Member may attend important meetings such as
the Management Committee. Furthermore, either the Audit
and Supervisory Committee or appointed Director serving as
Audit and Supervisory Committee Member shall regularly meetwith the representative Directors and outside accounting
auditors, in addition to which it shall maintain close collaboration and cooperative relations with internal audit departments
and other departments with internal control functions, receiving reports both on a regular basis and as required, andrequesting explanations as and when necessary.
‌Directors serving as Audit and Supervisory Committee Members may invoice the Company for any expenses deemednecessary in order to perform duties of the Audit and Supervisory Committee.

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

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

12

Hokuhoku Financial Group, Inc. Annual Report 2018

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

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

Systems

3. Strict observance of laws, regulations and rules

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

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

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

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

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

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

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

Board of Directors
Audit and Supervisory
Committee

Management Committee

Compliance General Department

Subsidiaries, etc.

Management Committee

Risk Management Group

Board of Directors

President

Audit Group

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

Compliance Committee
Compliance Department

Compliance General Department

Compliance Department

Compliance officers, etc.

Compliance officers, etc.

Compliance manager

Hokuriku Bank

Other Subsidiaries, etc.

Hokkaido Bank

Hokuhoku Financial Group, Inc. Annual Report 2018

13

MEASURES FOR COMPLIANCE

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

Basic rules for management ofcustomer protection

Measures for protection of personal information
In the financial industry, ensuring the safety of information assets
is of utmost importance in terms of gaining customer trust. As
such, we are committed to rigorously protecting and using any
and all customer information in our custody and preventing its
leakage.
Especially in the area of personal information, the Group has
formulated a personal information protection declaration, which
is disclosed on our website, in order to comply with the
Personal Information Protection Act and other laws, and to gain
the full trust of our customers in acting as a financial institutionthat contributes to local communities.

Policies for management of customer protection

Explaining to the customer

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

Customer service support

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

Protection of customer data

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

Outsourcing
Conflict of interest

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

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

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

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

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

Hokuhoku Financial Group, Inc. Annual Report 2018

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

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

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

Board of Directors
Audit and Supervisory
Committee

Management Committee

Hokuriku Bank

Hokkaido Bank

Risk Management Group

Audit Group

Board of Directors

Audit & Supervisory Board Members,
Audit & Supervisory Board

Other
Subsidiaries

Management Committee
ALM Committee

Comprehensive Risk Management Committee
Operational Risk Subcommittee

Market risk

Liquidity risk

Credit risk

Operational risk

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

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

Deductions

ExcessCore
capitalMarket risk
Risk capital
allocation
at subsidiarybanks

Capital

Allocation
sourceMarket risk
Credit risk

Credit risk

Operational risk

Operational risk

Risk capital
allocation at
subsidiary banks

Risk amount at
subsidiary bank

Hokuhoku Financial Group, Inc. Annual Report 2018

15

MEASURES FOR RISK MANAGEMENT

Meanwhile, the Company ensures that excessively large

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

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

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

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

easily perceived.

toring actual levels of risk.

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

16

Credit risk management systems

Internal ratings systems

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

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

Hokuhoku Financial Group, Inc. Annual Report 2018

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

Borrower categorization by asset self-assessment—

Normal borrowers

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

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

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

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

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

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

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

Hokuhoku Financial Group, Inc. Annual Report 2018

17

MEASURES FOR RISK MANAGEMENT

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

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

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

18

Hokuhoku Financial Group, Inc. Annual Report 2018

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

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

System risk

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

Legal risk

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

Personnel risk

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

Tangible asset risk

Risk of losses due to natural disasters or other such events damaging tangible assets

Reputational risk

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

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

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

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

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

Hokuhoku Financial Group, Inc. Annual Report 201819

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

Number of businesses*1

ToyamaPrefecture aIshikawa
Prefecture b

Fukui
Prefecture c

Total
a+b+c

1.06Mn(37th)

1.15Mn(34th)

0.78Mn(43rd)

2.98Mn4,248(33rd)

4,186(35th)

4,191(34th)

Population(Ranking)
Square Measure(Ranking) km2

Hokkaido—

5.32Mn(8th)
83,424(1st)Gross Prefectural Product*1,2

Hokkaido

242

Hokuriku

161

Toyama54

Ishikawa

63

Fukui

43

(JPY Bn)

ToyamaaIshikawa
b

Fukui
c

Total
a+b+c

4,356.5(0.86%)(32nd)

4,544.8(0.89%)(28th)

3,127.0(0.61%)(42nd)

12,028.5(2.36%)

GPP(Proportion)(Ranking)(Thousand)

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

Industrial Structure*2
Primary
1.0%

Primary
4.0%
Secondary
29.6%

Primary
1.1%
Secondary
16.6%

Secondary
24.2%

Hokuriku

Hokkaido

All Japan

Tertiary
69.4%

Tertiary
79.4%

Tertiary
74.7%

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

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

Abundant Natural Resources
Hokkaido
25%

Agricultural
land

75%

Hokkaido
21%

Agricultural
products*On a calorie
supply basis

Hokkaido
26%

Fishery
products

79%74%

Wheat / Potato / Onion /Milk etc.

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

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

20

Hokuhoku Financial Group, Inc. Annual Report 2018

Increasing Numbers of Tourists Visiting Hokkaido

Renewable Energy
Hydroelectric power / Geothermal energy / Wind power / Solar power

Data source : ‌Bureau of Tourism, Department of Economic Affairs,
Hokkaido Government
Inbound tourists

Total tourists

(Mn)

8.2

7.8
7.2

6.8

1.1

2013

1.5

2014

2.0

2015

2.3

2016

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

Toyama Prefecture’s Pharmaceutical Product Production
Data source: Ministry of Health, Labour and Welfare, Statistics of Production by Pharmaceutical Industry(¥ billion)

732.5
608.3

608.9

No. 1
in Japan

616.2

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

Many Global Niche Top Companies in Ishikawa Prefecture

2012

2013

2014

2015

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

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

Hokuhoku Financial Group, Inc. Annual Report 201821

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

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

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

Introduction of interactive “Display for customer ” (Hokuriku Bank, Hokkaido Bank)
Hokuriku Bank and Hokkaido Bank introduced “Display forcustomer” that includes functions such as automatically
producing slips.
By entering the required items and confirming theirtransaction details, etc. on the “Display for customer” at thebranch, a slip or application, etc. reflecting the details
entered is created, reducing
the required procedures atthe bank counter.
We began introducing“Display for customer” inJune 2017 and will havethem available at all branches by June 2018.

Launched cash card magnetic strip restoration
using ATMs (Hokuriku Bank, Hokkaido Bank)In February, Hokuriku Bank and Hokkaido Bank launched acash card magnetic strip restoration using ATMs.
In recent years, cases of card reissuance have increased
due to lost cash card magnetism thought to be caused bycontact with cellular phones, smartphones, and tablets.
Magnetic strip restoration was introduced after numerous
requests for improvement from our customers.

Began providing robo-advisor service(Hokuriku Bank)
In July, Hokuriku Bank started robo-advisor service forinvestment trust fund “Hatenakun” on our website.

22

Hokuhoku Financial Group, Inc. Annual Report 2018

By answering a few simple
questions, the robo-advisor
determines the customer’sinvestment style and recommends portfolios (asset
allocation) and individual
products that reflect thecustomer’s preferences andneeds, as well as the management performance of individual issues.

Began handling Visa debit card transactions(Hokkaido Bank)
In October, Hokkaido Bank has started the Visa debit card,
which enables the holder to make a cashless purchase at
any Visa merchant store in more than 200 countries andregions worldwide through a real-time withdrawal within thelimit of the balance of theholder’s bank account.
Visa debit card includes
card benefits such as cash
back based on purchaseamounts and no annual fee
and allows a wide range ofcustomers to feel secure using
the card without worrying
about overdrafts.
Hokuriku Bank handles
both Visa debit card and JCB
debit card.

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

IR meetings for individual investors

November 2017: Fiscal 2017 interim results (Tokyo)
May 2018: Fiscal 2017 results (Tokyo)

June 2018: ‌Two cities in Hokuriku (Toyama and Kanazawa)
July 2018: ‌Two cities in Hokkaido (Sapporo and Asahikawa)

General meeting of shareholders
June 2018: ‌15th ordinary general meeting of shareholders(Sapporo, with live broadcast to Toyama)

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

Support for industry-academia cooperation

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

Support for arts and culture• ‌Arranging and supporting
concerts• ‌Establishment of art galleries

Lilac Concert

GALERIE MILLET

Entry in the YOSAKOI Soran Festival 2017 (Hokuriku
Bank, Hokkaido Bank)

June 7-11, Hokuriku Bank and Hokkaido
Bank combined with a citizen group toenter in the YOSAKOI Soran Festival 2017,
which livens up Sapporo at the beginningof summer, as the combined team “Hokkai
Ahondara-Kai & Hokuhoku Financial
Group.”
This time was the thirteenth year of participation and 56 bank
employees from Hokuriku Bank and Hokkaido Bank participated as
dancers and flag wavers, and performed energetically.

Cooperation in holding Toyama Marathon and Kanazawa Marathon (Hokuriku Bank)The Toyama Marathon 2017 and the
Kanazawa Marathon 2017, both following
routes of local scenic nature, famous
landmarks and town streets, were held in
October.
Employees of Hokuriku Bank cooperated in both these events by volunteering as event personnel, or byparticipating as runners, thereby raising the atmosphere of theevent.

Holding of Hokkaido Bank MATCH DAY (Hokkaido
Bank)

1In December, Hokkaido Bank held a futsal
match entitled “Hokkaido Bank Match Day.”
Espolada Hokkaido, which is officiallysponsored by Hokkaido Bank, competedagainst PESCADOLA MACHIDA. The matchdrew a crowd of 4,134, and the stadium was full of excitement.

Helping conserve the regional environment
Measures undertaken as a financial institution

Environmentally-friendly housing loans, intermediary role in carbonrights trading, lending based on environmental ratings.

Helping reduce greenhouse gases

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

Volunteer cleanup held at Sapporo Odori Park (Hokkaido Bank)

Hokkaido Bank conducted volunteer cleanups at Odori Park on June
16, July 7, and September 1.

Participating in Forest Building in Nanto (Hokuriku Bank)

In October, Hokuriku Bank participated in the “Forest Building in
Nanto” initiative promoted by the residents’ association of Asobu in
Nanto City, Toyama Prefecture.
The initiative began in November 2015 with the goal of replacing
missing thatch in the rooves ofGokayama’s traditional Gasshostyle houses (Historic Village ofGokayama). This is the third time
we have participated and cooperated, demonstrating our support
for the initiative’s goal of preserving
World Heritage sites.

Hokuhoku Financial Group, Inc. Annual Report 201823

TOPICS

Hokuhoku Financial Group“Inbound Products 2017” Held (Hokuriku Bank, Hokkaido Bank)“Liaoning China-Japan Business Meetings” Held
(Hokuriku Bank, Hokkaido Bank)In May, we held a trade show and individual business meetings to

In September, we held the first round of business meetings in

support the creation of a system to accept the increasing number

Shenyang in the Liaoning Province of China, where Hokkaido

of foreign tourists to Japan. 62 service supply vendors joined asBank’s Shenyang Representative Office is located.

exhibitors in the areas of marketing (SNS, information sending for

Companies expanding into China held business talks withindividual countries), multi-language support (interpretation, digital

Liaoning companies with which they previously had no contact,signage, foreign personnel recruitment), and systems (Wi-Fi, duty

including new materials suppliers, customers, and investment andfree, payments, reservations).

merger partners.

Around 1,000 people from around 500 tourism-related vendors
including Hokkaido hotels and Japanese inns attended the trade
show, holding business meetings with the exhibitor companies.

“Basic agreement for cooperative relationships concerning the capital market” with Tokyo Stock Exchange
Concluded (Hokuriku Bank, Hokkaido Bank)In February, the business meeting was held aiming to boost the

On July 25, we concluded the first “Basic agreement for coopera-

added value of Hokuriku, Tohoku, and Hokkaido regional special-tive relationships concerning the capital market” between Tokyo

ties and to support business matching that envisions the sixth

Stock Exchange as a domestic financial institution.

industrialization.

The aims of the agreement are to support the listing of compa-

Going forward, we will continue to utilize regional cooperation

nies and to increase financial literacy among investors. With theamong Hokuriku, Tohoku, and Hokkaido to support customers

development of the industries and companies at the core ofdevelopment of new products and their new business.

regional economies now called for, the agreement will support
growing companies in Hokuriku and Hokkaido through close
coordination between direct finance and indirect finance.

24“Hokkaido / Tohoku / Hokuriku Business Matching inTokyo” Held (Hokuriku Bank, Hokkaido Bank)

Hokuhoku Financial Group, Inc. Annual Report 2018

Hokuriku Bank
“Factory Network Business Expo FBC Hanoi” (Hokuriku
Bank)

Business Contest Held (Hokuriku Bank)
As part of the project to commemorate the 140th anniversary of our

In March, “Factory Network Business Expo FBC Hanoi 2018,” thefounding, we held the “Mirai Innovation Hokuriku —New Design &second year of the expo, was held in Hanoi, Vietnam, and weTechnology—” business contest.

participated for the first time as a co-sponsor.
We have been sending trainees to Vietcombank in Vietnam

Focused on the theme of challenges faced by major industries
and regional companies in Hokuriku, we collected ideas on new

since July 2017, and are also supporting business matching, etc.

businesses and solutions utilizing innovative and practical technolo-

for our customers in Vietnam, into which more Japanese compa-

gies and designs and received a total of 94 submissions. At thenies have been expanding in recent years.

final selection meeting in December following document andinterview selections, presentations were given for the ten chosen
ideas and the first prize, along with awards for excellence andspecial awards were awarded.
Going forward, we plan to contribute to the vitalization of thelocal economy by supporting the practical application and commercialization of these ideas and by matching companies and investors
considering partnerships.

Memorandum of Economic Cooperation with Bureau ofCommerce of Wuhan (Hokuriku Bank)
In September, we concluded an “Memorandum of Economic
Cooperation” with Bureau of Commerce of Wuhan, the capital cityof Hubei Province, China.
With the conclusion of the MOU, in addition to providing information on the local investment environment and expansion support
to our customers considering expanding into central China, we are

Joint Development of the “Hokugin Business Matching
System” with Linkers Corporation (Hokuriku Bank)

working to create new business opportunities for customers alreadyIn January, to further enhance our business matching operations

expanding into China by cosponsoring business meetings.

being conducted as part of core business support for our customers, we developed and began test operations of the “Hokugin
Business Matching System” jointly with Linkers Corporation.
This is the first cloud-based business matching system provided
by a domestic financial institution. By allowing customers to use thesystem to advertise their own products and service characteristics
on the system, information sharing with Hokuriku Bank members
becomes possible.

Hokuhoku Financial Group, Inc. Annual Report 201825

TOPICS

Hokkaido Bank
Appointed as “PPP Agreement” Partner with the Ministry of Land, Infrastructure, Transport and Tourism (Hokkaido Bank)In April 2017, we had been appointed as a “PPP Agreement II”
partner with the Ministry of Land, Infrastructure, Transport andTourism, and in April 2018, we were appointed as a “PPP Agreement” partner. The goal of the agreement is effective and efficient
policy promotion in the PPP/PFI*.
Through increased support from the Ministry of Land, Infrastructure, Transport and Tourism in holding PPP/PFI-related seminars
and other events, we will be providing even more helpful information to the local governments and vendors in Hokkaido.
*PPP/PFI: Approaches and methods to utilize private-sector
funds and knowhow to smoothly promote the renewal and man-

“X-Tech Innovation 2017” Held (Hokkaido Bank)
Focusing on the continual birth of a variety of unique and novel
services utilizing information and communication technology (ICT),
we held a business contest to collect a range of new service andbusiness ideas.
Last fiscal year, the contest was held jointly with Fukuoka
Financial Group, and this year, it was held jointly we three banks
including The Bank of Okinawa.
Going forward, we will contribute to the vitalization of local
economies by supporting the commercialization of business ideas
and exploring the possibility of applying business ideas to existing
businesses. This will be accomplished by providing matching
opportunities between major companies and startup companies.

agement operations of public facilities.

Three Hokkaido Municipalities Hold Joint Business
Seminar (Hokkaido Bank)“Coordination and Cooperation Agreement for Regional
Vitalization” Concluded with the Hokkaido Regional
Development Bureau (Hokkaido Bank)In March, with the goal of regional vitalization through the promotion

In August, we held a joint seminar with the three municipalities ofof coordination and cooperation with the Hokkaido Regional

Kamishihoro-cho, Nakashibetsu-cho and Niseko-cho for compa-

Development Bureau, we concluded a “Coordination and Coopera-

nies considering food product processing using Hokkaido raw

tion Agreement for Regional Vitalization.”materials, site selection for the tourism industry, and crop cultivation
matching cool climates.
We provided information for the utilization of the “Hokkaido

tion space responsible for the food and tourism being promoted by

Brand” at the seminar, which was attended by companies from a

the Hokkaido Regional Development Bureau, and the initiative forrange of industries starting with food product processing andregional revitalization being promoted by Hokkaido Bank.

including chemical pharmaceuticals, IT, and construction and realestate.

26

With the conclusion of the agreement, we will work to coordinate and cooperate to promote the initiative to support the produc-

Hokuhoku Financial Group, Inc. Annual Report 2018

2018/07/31 9:26:06 / 18419414_株式会社ほくほくフィナンシャルグループ_総会その他（Ｃ）

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

2018

2017

Thousands of
U.S. dollars (Note 1)2018¥ 2,388,907
52,75344,178
4,397
11,241
1,952,999
8,172,888
18,782
218,945
100,80724,449895
205
53,253(48,413)¥ 1,753,743
89,41562,585
4,646
10,001
2,449,455
7,771,338
16,260132,969
101,192
24,358―
4,632
60,551(51,725)$ 22,485,955
496,546
415,836
41,396
105,810
18,382,905
76,928,543
176,792
2,060,856
948,867
230,1388,431
1,937
501,254(455,702)¥12,996,292¥12,429,425$122,329,564¥11,151,213
45,312
18,528426,276683
567,512186
25,00065,704
6,218
189
1,354
1,921
1
17,302
5,487
53,253¥10,701,271
36,267―534,362861
325,331103
25,000123,335
15,026
204
1,492
1,590
0
13,102
5,686
60,551$104,962,472
426,506
174,400
4,012,396
6,430
5,341,799
1,754
235,316
618,453
58,532
1,785
12,74618,085
17
162,860
51,656501,254

12,386,145

11,844,188

116,586,461

70,895
144,590451
299,060(1,367)70,895
144,587367
284,896(1,398)667,310
1,360,975
4,253
2,814,953(12,872)

90,163(975)
8,642(3,977)

81,406(1,208)
8,993(5,773)

848,678(9,183)
81,348(37,438)

607,482
2,664
610,147¥12,996,292

582,764
2,472
585,237¥12,429,425

5,718,024
25,0795,743,103$122,329,564

Millions of yen
March 31

AssetsCash and due from banks (Notes 3 and 30)
Call loans and bills bought (Note 30)
Monetary claims bought (Note 30)
Trading assets (Note 4)
Money held in trust (Note 5)
Securities (Notes 6, 12, and 30)
Loans and bills discounted (Notes 7, 12, 13, and 30)
Foreign exchanges (Note 8)
Other assets (Note 12)
Tangible fixed assets (Note 9)
Intangible fixed assets (Note 10)
Assets for retirement benefits (Note 17)
Deferred tax assets (Note 27)
Customers’ liabilities for acceptances and guarantees (Note 11)
Allowance for loan losses
Total assets
Liabilities and equity
Liabilities
Deposits (Notes 12, 14, and 30)
Call money and bills sold (Note 12)
Payables under repurchase agreements
Payables under securities lending transactions (Note 12)
Trading liabilities (Note 4)
Borrowed money (Notes 12, 15, and 30)
Foreign exchanges (Note 8)
Bonds payable (Note 16)
Other liabilities
Liability for retirement benefits (Note 17)
Reserve for directors’ and audit & supervisory board members’ retirement benefits
Reserve for contingent losses
Reserve for reimbursement of deposits
Reserve under the special laws
Deferred tax liabilities (Note 27)
Deferred tax liabilities for revaluation
Acceptances and guarantees (Note 11)
Total liabilities
Equity (Notes 18, 19, and 21)
Capital stock
Capital surplus
Stock acquisition rights (Note 20)
Retained earnings
Treasury stock
Accumulated other comprehensive income
Valuation difference on available-for-sale securities (Note 6)
Deferred gains (losses) on hedges
Revaluation reserve for land (Note 9)
Defined retirement benefit plans (Note 17)
Total
Non-controlling interests
Total equity
Total liabilities and equity
See notes to consolidated financial statements.

Hokuhoku Financial Group, Inc. Annual Report 2018

CONSOLIDATED BALANCE SHEET

27

2018/07/31 9:26:06 / 18419414_株式会社ほくほくフィナンシャルグループ_総会その他（Ｃ）

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

Millions of yen

Thousands of
U.S. dollars (Note 1)
2018

Year ended March 31

2018

2017

IncomeInterest income:Interest on loans and discounts
Interest and dividends on securities
Interest on receivables under resale agreements
Interest on deposits with other banks
Other interest income
Fees and commissions
Trading income
Other ordinary income (Note 23)
Other income (Note 25)
Total income¥90,825
21,516(10)923
404
38,956
1,054
15,533
13,203
182,408¥94,033
25,174(1)914
666
38,221319
15,192
13,005
187,525$ 854,907
202,526
(97)
8,693
3,809
366,684
9,922
146,214124,285
1,716,943

Expenses
Interest expense:
Interest on deposits
Interest on payables under repurchase agreements
Interest on payables under securities lending transactions
Interest on borrowings and rediscounts
Interest on bonds payable
Other interest expense
Fees and commissions
Other ordinary expenses (Note 24)
General and administrative expenses
Provision of allowance for loan losses
Other expenses (Note 26)
Total expenses

1,507
148
2,018
458
187
1,996
15,396
21,67598,758645
8,576
151,370

1,839
―
1,483
686
276
1,956
14,194
17,271
101,411—9,850
148,972

14,191
1,398
19,004
4,319
1,765
18,796
144,919
204,020929,576
6,079
80,7301,424,797

31,03738,552

292,146

6,888
2,792
21,356
165¥21,191

7,312
3,047
28,192
34¥28,157

64,83726,288201,0211,557$ 199,464

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

Yen

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

¥149.40149.1044.00

U.S. dollars¥201.36201.04
44.00

$1.41
1.40
0.41

Per share figures have been restated, as appropriate, to reflect a one-for-ten stock consolidation effected October 1, 2016.
See notes to consolidated financial statements.

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

Year ended March 31

2018

2017

Thousands of
U.S. dollars (Note 1)
2018

Net income
Other comprehensive income (Note 28)
Valuation difference on available-for-sale securities
Deferred gains (losses) on hedges
Defined retirement benefit plans
Share of other comprehensive income of associates accounted forusing equity method
Total comprehensive income
Comprehensive income attributable to owners of the parent
Comprehensive income attributable to non-controlling interests¥21,356
10,813
8,751
233
1,795

¥28,192547(2,466)387
2,567$201,021
101,780
82,3702,195
16,90433¥32,169
31,977
191

58¥28,739
28,68455

311$302,801
300,994
1,807

Millions of yen

See notes to consolidated financial statements.

28

Hokuhoku Financial Group, Inc. Annual Report 2018

CONSOLIDATED STATEMENT OF INCOME、CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

2018/07/31 9:26:06 / 18419414_株式会社ほくほくフィナンシャルグループ_総会その他（Ｃ）

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
Hokuhoku Financial Group, Inc. and Consolidated Subsidiaries
Thousands
IssuedIssuednumber of
number ofshares ofshares ofcommon stock preferred stock
BALANCE, APRIL 1, 2016

135,163

107,432

Millions of yen

Capitalstock

Capitalsurplus¥70,895¥148,211

StockacquisitionrightsRetainedearnings¥319¥263,959

Cash dividends(7,307)

Net income attributable to owners of the parent

28,157Purchases of treasury stock(3,000)22

52(3,647)

3,647

Reversal of revaluation reserve for land86
47

Net changes in the year
BALANCE, MARCH 31, 2017

132,163

107,432¥70,895¥144,587¥367¥284,896

Cash dividends(7,377)

Net income attributable to owners of the parent

21,191

Purchases of treasury stock¥(1,398)(24)

Disposals of treasury stock2

55

Reversal of revaluation reserve for land

350
84

Net changes in the year
BALANCE, MARCH 31, 2018¥(1,489)(3,608)

Disposals of treasury stock
Retirement of treasury stock

Treasurystock

132,163

107,432¥70,895¥144,590¥451¥299,060¥(1,367)

Noncontrollinginterests

Total
equityMillions of yen
Accumulated other comprehensive income
Valuationdifference on
Deferredavailable-for-sale gains (losses)
securities
on hedges
BALANCE, APRIL 1, 2016

¥83,834¥(1,596)

Revaluation
reserve forland

Definedretirement
benefit plans¥9,079¥(8,340)

Total¥564,873¥1,378¥566,251

Cash dividends(7,307)(7,307)

Net income attributable to owners of the parent

28,15728,157Purchases of treasury stock(3,608)(3,608)

Disposals of treasury stock75

75

Retirement of treasury stock――Reversal of revaluation reserve for land

86

86

Net changes in the year

(2,428)

387

(86)

2,567

488

1,094

1,582

BALANCE, MARCH 31, 2017¥81,406¥(1,208)¥8,993¥(5,773)¥582,764¥2,472¥585,237

Cash dividends(7,377)(7,377)

Net income attributable to owners of the parent

21,191

21,191

Purchases of treasury stock

(24)

(24)

Disposals of treasury stock

58

58

Reversal of revaluation reserve for land

350

350

Net changes in the year

8,757

233

(350)

1,795

10,519191

10,711BALANCE, MARCH 31, 2018

¥90,163¥(975)¥8,642¥(3,977)¥607,482¥2,664¥610,147

Shares of common stock have been restated, as appropriate, to reflect a one-for-ten stock consolidation effected October 1, 2016.

Hokuhoku Financial Group, Inc. Annual Report 2018

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

29

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Capitalstock
BALANCE, MARCH 31, 2017

$667,310

Thousands of U.S. dollars (Note 1)
Stock
Capitalacquisition
Retained
surplusrightsearnings$1,360,948$3,462$2,681,629

Cash dividends(69,442)

Net income attributable to owners of the parent

199,464

Purchases of treasury stock$(13,163)(235)

Disposals of treasury stock

27

526

Reversal of revaluation reserve for land

3,302
791

Net changes in the year
BALANCE, MARCH 31, 2018

Treasurystock$667,310$1,360,975$4,253$2,814,953$(12,872)

Thousands of U.S. dollars (Note 1)
Accumulated other comprehensive income
Valuationdifference on
Deferredavailable-for-sale gains (losses)
securities
on hedges
BALANCE, MARCH 31, 2017

$766,246$(11,378)

Revaluation
reserve forland

Definedretirement
benefit plans$84,650$(54,342)

Total
equity$5,485,362$23,277$5,508,639

Cash dividends(69,442)(69,442)

Net income attributable to owners of the parent

199,464

199,464

Purchases of treasury stock

(235)

(235)

Disposals of treasury stock

553

553

3,302

3,302

Reversal of revaluation reserve for land
Net changes in the year

82,432

2,195(3,302)

16,904

99,0201,802

100,822BALANCE, MARCH 31, 2018

$848,678$(9,183)$81,348$(37,438)$5,718,024$25,079$5,743,103

See notes to consolidated financial statements.

30

Total

Noncontrollinginterests

Hokuhoku Financial Group, Inc. Annual Report 2018

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

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

Millions of yen
Year ended March 31
1. Cash flows from operating activities:
Income before income taxes
Depreciation
Impairment losses
Amortization of goodwill
Equity in losses (gains) of affiliates
Increase (decrease) in allowance for loan losses
Increase (decrease) in reserve for contingent losses
Decrease (increase) in asset for retirement benefits
Increase (decrease) in liability for retirement benefits
Increase (decrease) in reserve for directors’ andaudit & supervisory board members’ retirement benefits
Increase (decrease) in reserve for reimbursement of deposits
Interest income
Interest expense
Losses (gains) on securities
Losses (gains) on money held in trust
Losses (gains) on foreign exchange
Losses (gains) on sales of fixed assets
Net decrease (increase) in trading assets
Net increase (decrease) in trading liabilities
Net decrease (increase) in loans and bills discounted
Net increase (decrease) in deposits
Net increase (decrease) in negotiable certificates of deposit
Net increase (decrease) in borrowed money (excluding subordinated borrowed money)
Net decrease (increase) in due from banks (excluding deposits with the Bank of Japan)
Net decrease (increase) in call loans, bills bought, commercial paper,and other debt purchased
Net increase (decrease) in call money and bills soldNet increase (decrease) in payables under securities lending transactions
Net decrease (increase) in foreign exchanges (assets)
Net increase (decrease) in foreign exchanges (liabilities)
Interest income—cash basis
Interest expense—cash basis
Other, net
Subtotal
Income taxes paid
Net cash provided by (used in) operating activities
2. Cash flows from investing activities:
Purchases of securities
Proceeds from sales of securities
Proceeds from redemption of securities
Purchases of money held in trust
Proceeds from sales of money held in trust
Proceeds from fund management
Purchases of tangible fixed assets
Proceeds from sales of tangible fixed assets
Purchases of intangible fixed assets
Purchases of shares of subsidiaries resulting in change in scope of consolidation
Net cash provided by (used in) investing activities
3. Cash flows from financing activities:
Repayment of subordinated borrowed money
Repayment of subordinated bonds
Expenditures for fund procurement
Dividends paid
Dividends paid to non-controlling shareholders
Purchases of treasury stock
Proceeds from disposals of treasury stock
Net cash provided by (used in) financing activities
4. Effect of exchange rate changes on cash and cash equivalents
5. Net increase (decrease) in cash and cash equivalents
6. Cash and cash equivalents at beginning of the period
7. Cash and cash equivalents at end of the period (Note 3)

2018

2017

Thousands of
U.S. dollars (Note 1)
2018¥ 31,037
6,776
1,995
2,102
(13)
(3,311)(138)(895)(8,807)¥ 38,552
5,881
610
2,943
(6)
(3,199)(464)—(5,433)$ 292,146
63,783
18,783
19,788(125)(31,173)(1,300)(8,431)(82,905)(14)
331(113,659)
6,318
3,980
(0)
5,836
156
248
(178)
(401,550)
467,749(17,807)242,180
4,290

(26)
170
(120,786)
6,243
879
(10)
(891)
314
(15)
(267)
(187,716)
329,363(103,508)
141,91222,858(141)
3,119(1,069,838)
59,472
37,466(1)
54,9401,477
2,339(1,681)(3,779,652)
4,402,759(167,620)
2,279,564
40,38255,06927,572(108,085)(2,522)
82
90,917(6,314)(129,917)
153,429(4,040)149,389(24,950)
15,421
441,407(1,488)(123)
95,954(6,111)(28,835)
618,678(9,808)608,869

518,354259,532(1,017,373)(23,742)779
855,778(59,433)(1,222,864)
1,444,182(38,031)
1,406,151(468,588)
695,593259,314(21,380)
21,13521,516(5,826)
197(4,186)―
497,774(971,447)
700,130
235,058(20,476)
19,56725,185(5,630)703(4,365)(2,399)(23,676)(4,410,663)
6,547,383
2,440,836(201,250)
198,938
202,527(54,846)
1,860(39,408)―
4,685,377

―
―
(307)
(7,377)(0)(12)
0(7,697)(11)
639,454
1,734,901¥2,374,356(24,500)(8,000)(662)(7,307)(0)(3,608)0(44,078)(12)
541,102
1,193,798¥1,734,901――(2,894)(69,442)
(4)
(113)
2
(72,451)(112)
6,018,965
16,330,021$22,348,986

See notes to consolidated financial statements.

Hokuhoku Financial Group, Inc. Annual Report 2018

CONSOLIDATED STATEMENT OF CASH FLOWS

31

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

1. Basis of Presentation
The accompanying consolidated financial statements have been
prepared in accordance with the provisions set forth in theJapanese Financial Instruments and Exchange Act and its
related accounting regulations, the Enforcement Regulation for
the Banking Act, and in conformity with accounting principles
generally accepted in Japan (“Japanese GAAP”), which are
different in certain respects as to the application and disclosure
requirements of International Financial Reporting Standards.
In preparing these consolidated financial statements, certain
reclassifications and rearrangements have been made to theconsolidated financial statements issued domestically in orderto present them in a form which is more familiar to readers
outside Japan. In addition, certain reclassifications have been
made in the 2017 consolidated financial statements to conformto the classifications used in 2018.
All Japanese yen figures in the consolidated financial
statements have been rounded down to the nearest million yen.
Accordingly, the total of each account may not be equal to the
combined total of the individual items. The U.S. dollar amounts
are then rounded to thousand dollars.
The consolidated financial statements are stated in Japaneseyen, the currency of the country in which Hokuhoku Financial
Group, Inc. (the “Company”) is incorporated and operates. The
translations of Japanese yen amounts into U.S. dollar amounts
are included solely for the convenience of readers outside Japanand have been made at the rate of ¥106.24 to U.S. $1, the rateof exchange at March 31, 2018. Such translations should not be
construed as representations that the Japanese yen amounts
could be converted into U.S. dollars at that or any other rate.

included in “Trading assets” and “Trading liabilities” on a tradedate basis.
Trading securities and monetary claims bought for trading
purposes are stated at fair value at the balance sheet date.
Trading-related financial derivatives, such as swaps, futures,and options are stated at amounts that would be received or
paid for settlement if such transactions were terminated at thebalance sheet date. Income and losses on trading purposetransactions are recognized on a trade-date basis and recorded
as “Trading income” or “Trading losses.”
Trading income and losses include interest received andpaid during the fiscal year and unrealized gains and losses
resulting from the change in the value of securities, monetaryclaims bought, and derivatives between the balance sheet dates.
d. Securities
Securities are classified and accounted for, based principally on
the Group’s intent, as follows: (a) held-to-maturity debt
securities, which are expected to be held to maturity with thepositive intent and ability to hold to maturity, are stated atamortized cost computed by the straight-line method and (b)available-for-sale securities, which are not classified as trading
purpose securities or held-to-maturity securities, are stated atfair value with unrealized gains and losses, net of applicabletaxes, reported in a separate component of equity. Available-forsale securities for which fair value is not reliably determined arestated at cost determined by the moving-average method.
For other-than-temporary declines in fair value, securities
are reduced to net realizable value by a charge to income.
Securities included in money held in trust are recorded in thesame manner as securities mentioned above.

2. Summary of Significant Accounting Policies
a. Consolidation
The consolidated financial statements as of March 31, 2018
include the accounts of the Company and its 12 subsidiaries(together, the “Group”).
Under the control and influence concepts, those companies
in which 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.
All significant intercompany balances and transactions havebeen eliminated in consolidation. All material unrealized profit
included in assets resulting from transactions within the Groupis also eliminated.
An investment in one associated company is accounted forby the equity method.
Assets and liabilities of newly consolidated subsidiaries arevalued at fair value at the respective dates of acquisition, andgoodwill is amortized using the straight-line method over 20
years.
b. Cash and Cash Equivalents
For the purpose of reporting cash flows, “Cash and cash
equivalents” consists of “Cash” and “Due from the Bank ofJapan.”
c. Trading Purpose Transactions“Transactions for trading purposes” (for purposes of seeking tocapture gains arising from short-term changes in interest rates,
currency exchange rates, or market prices of securities andother market-related indices or from gaps among markets) are32

Hokuhoku Financial Group, Inc. Annual Report 2018

Basis of Presentatione. Tangible Fixed Assets (excluding Lease Assets)
Tangible fixed assets are stated at cost less accumulated
depreciation. The Company and its consolidated banking
subsidiaries (the subsidiaries hereafter referred to as the“Banks”) depreciate their equipment based on the decliningbalance method and their premises principally based on thestraight-line method. The estimated useful lives of major assets
are as follows: (1) buildings: 6 to 50 years and (2) equipment: 3
to 20 years.
Consolidated non-banking subsidiaries depreciate theirequipment and premises principally based on the decliningbalance method over their expected useful lives.
f. Intangible Fixed Assets (excluding Lease Assets)
Intangible fixed assets are depreciated based on the straightline method. Capitalized software for internal use owned byconsolidated subsidiaries is depreciated using the straight-line
method over its estimated useful life (mainly five years).
g. Lease Assets
Lease assets under non-transfer ownership finance lease
contracts (in which the ownership of leased assets is nottransferred to the lessee; included in tangible fixed assets andintangible fixed assets) are depreciated on a straight-line basis
over the lease period with a residual value of zero, excepting
when contracted amounts for residual value are specified.

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h. Long-Lived Assets
The Group reviews its long-lived assets for impairment
whenever events or changes in circumstances 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 sum of
the undiscounted future cash flows expected to result from thecontinued use and eventual disposition of the asset or asset
group. The impairment loss would be measured as the amountby 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 theasset or the net selling price at disposition.
i. Allowance for Loan Losses
The Banks provide an allowance for loan losses which isdetermined based on management’s judgment and anassessment of future losses based on their self-assessment
systems. These systems reflect past experience of credit losses,
possible credit losses, business and economic conditions, thecharacter, quality, and performance of the portfolio, the value ofcollateral or guarantees, and other pertinent indicators.
The Banks have implemented a self-assessment system todetermine the quality of their assets. The quality of all loans is
assessed by branches and the credit supervisory division with asubsequent audit by the asset review and inspection division inaccordance with the Banks’ policy and guidelines for the selfassessment of asset quality.
The Banks have established a credit rating system underwhich customers are classified into five categories. The credit
rating system is used in the self-assessment of asset quality. Allloans are classified into five categories for self-assessment
purposes: “normal,” “in need of caution,” “possible bankruptcy,”“virtual bankruptcy,” and “legal bankruptcy.”
For loans to borrowers classified as legal bankruptcy or
virtual bankruptcy, the Banks fully provide the net amount ofloans and estimated collectible amounts by collateral or
guarantees. Regarding loans to borrowers classified as possible
bankruptcy, a specific reserve is provided as necessary for the
net amount of loans and estimated collectible amounts bycollateral or guarantees.
For borrowers classified as possible bankruptcy or holding
restructured loans with which the unsecured portion of claims or
credit exceeds a certain amount, if cash flows from collection ofprincipal and interest can be reasonably estimated, the Banks
provide the difference between the present values of these cash
flows discounted at the initial contractual interest rate and thebook values of the loans (the “DCF” method).
For other loans, a general allowance is provided based on
the historical loan loss ratio.
The Company and its consolidated non-banking subsidiaries
determine the allowance for loan losses by a similar selfassessment system as that of the Banks.
For collateralized or guaranteed claims to borrowers who arein “virtual bankruptcy” or “legal bankruptcy,” the amountexceeding the estimated value of collateral or guarantees has
been deducted as deemed uncollectible directly from thoseclaims. The deducted amounts were ¥43,033 million ($405,063
thousand) and ¥49,739 million at March 31, 2018 and 2017,
respectively.

j. Accounting Method for Retirement Benefits
In calculating retirement benefit obligations, the benefit formulabasis is used as a method of attributing expected retirement
benefits to the period up to the end of this fiscal year.
The unrecognized prior service cost is amortized using thestraight-line method over eight years within the employees’
average remaining service period at incurrence.
The unrecognized actuarial (gains) losses are amortizedusing the straight-line method over eight or nine years within theemployees’ average remaining service period, commencing
from the next fiscal year of incurrence.
k. Reserve for Directors’ and Audit & Supervisory Board
Members’ Retirement Benefits
A reserve for directors’ and audit & supervisory board members’
retirement benefits is provided for payment of retirement
benefits to directors and audit & supervisory board members in
the amount deemed accrued at the fiscal year end, based on
the estimated amount of benefits.
The Company and the Banks abolished their directors’ andaudit & supervisory board members’ retirement benefits systemat the Board of Directors’ meeting on May 11, 2012, andresolved to provide a lump-sum payment of retirement benefitsof directors and audit & supervisory board members at thegeneral meeting of shareholders on June 26, 2012. According
to these resolutions, the lump-sum payment of retirement
benefits of directors and audit & supervisory board members
shall be effectuated upon the retirement of each individual
director and audit & supervisory board member. Reserve fordirectors’ and audit & supervisory board members’ retirement
benefits was ended in June 2012, and the entire remaining
amount is included in “reserve for directors’ and audit &supervisory board members’ retirement benefits.”
l. Reserve for Contingent Losses
A reserve for contingent losses is provided for possible losses inaccordance with the Joint Responsibility System of Credit
Guarantee Corporations and possible losses from contingencies
not covered by other specific reserves.
m. Reserve for Reimbursement of Deposits
A reserve for reimbursement of deposits which were notpreviously recognized as liabilities under certain conditions isprovided for possible losses on the future claims of withdrawal
based on historical reimbursement experience.
n. Reserve under the Special Laws
A reserve under the special laws is a reserve for contingent
liabilities and provided for compensation for losses fromsecurities related transactions or derivative transactions inaccordance with Article 46-5 of the Japanese Financial
Instruments and Exchange Act.
o. Stock Options
The companies are required to recognize compensation
expense for employee stock options based on the fair value ofthe stock options at the date of grant and over the vesting period
as consideration for receiving goods or services. The companies
are also required to account for stock options granted to nonemployees based on the fair value of either the stock option or
the goods or services received. In the consolidated balance
sheet, the stock options are presented as stock acquisition rights
as a separate component of equity until exercised.
Hokuhoku Financial Group, Inc. Annual Report 2018

Basis of Presentation33

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p. Income Taxes
The provision for income taxes is computed based on the pretax
income included in the consolidated statement of income. The
asset and liability approach is used to recognize deferred tax
assets and liabilities for the expected future tax consequencesof temporary differences between the carrying amounts and thetax bases of assets and liabilities. Deferred taxes are measured
by applying currently enacted income tax rates to the temporary
differences.
q. Translation of Foreign Currencies
Assets and liabilities denominated in foreign currencies aretranslated into Japanese yen mainly at the exchange rate
prevailing as of the balance sheet date.
r. Derivatives and Hedging Activities
Derivatives are stated at fair value. Derivative transactions thatmeet hedge accounting criteria are primarily accounted forunder the deferral method whereby unrealized gains and losses
are deferred until maturity as deferred gains (losses) on hedge
accounting in a separate component of equity.
The Banks hedge interest rate risks arising from theirfinancial assets and liabilities by employing the techniqueknown as “individual hedging” that establishes a specificposition to directly hedge a particular item. Such hedges, limited
to certain assets and liabilities, are accounted for by thedeferred method or, where appropriate interest rate swaps are
involved, by the special rule method.
The effectiveness of hedges is assessed as follows: theBanks specify the hedged items according to their risk
management regulations, with the aim of centralizing hedging
instruments, and verify the extent to which the exposure ofinterest rate risks on hedged items is mitigated.
The Banks hedge currency exchange fluctuation risks
arising from their foreign currency denominated financial assets
and liabilities. Such hedges are accounted for by the deferred
method specified in the “Accounting and Auditing Treatments in
Banking Business in Accounting for Foreign Currency
Denominated Transactions and Others” (The Japanese Instituteof Certified Public Accountants (“JICPA”) Industry Audit
Committee Report No. 25).
The effectiveness of these hedges is assessed as follows:
where currency swap transactions and exchange swap
transactions are used as hedging instruments to offset
exchange fluctuation risks arising from foreign currency
denominated financial assets and liabilities, hedge effectivenessis assessed by verifying the agreement of the amounts of thedesignated hedging instruments corresponding to the hedged
foreign currency financial assets and liabilities.
The Company and consolidated non-banking subsidiaries are
not engaged in hedging operations using derivative transactions.
s. Consumption Taxes
The Company and its domestic consolidated subsidiaries
account for consumption tax and local consumption tax by thetax exclusion method, whereby receipts and payments ofconsumption taxes are not included in the transaction amounts
and, accordingly, consumption tax amounts do not affect themeasurement of profit or loss transactions. However,consumption taxes on tangible fixed assets that are not taxdeductible are expensed in the fiscal year under review.

34

Hokuhoku Financial Group, Inc. Annual Report 2018

Basis of Presentationt. Finance Lease
Sales and cost of sales are accounted for when lease payments
are paid.
u. Per Share Information
Basic net income per share is computed by dividing net income
attributable to common shareholders by the weighted-average
number of shares of common stock outstanding for the period,
retroactively adjusted for stock splits.
Diluted net income per share reflects the potential dilutionthat could occur if securities were exercised or converted into
common stock. Diluted net income per share of common stock
assumes full conversion of the outstanding convertible notes
and bonds at the beginning of the year (or at time of issuance)with an applicable adjustment for interest expense, net of tax,
and full exercise of outstanding warrants.
Cash dividends per share presented in the accompanying
consolidated statement of income are dividends applicable to
the respective fiscal years, including dividends to be paid after
the end of the fiscal year.
The Company implemented a common stock consolidation
at a ratio of ten stocks to one stock on October 1, 2016. All prioryear share and per share figures have been restated to reflect
the impact of the stock consolidation, and to provide data on abasis comparable to the year ended March 31, 2018. Such
restatements include calculations regarding the Company’s
weighted-average number of common shares, basic net income
per share, diluted net income per share, net assets per share,
cash dividends per share, and stock option data of shares.
v. New Accounting Pronouncements
On March 30, 2018, the ASBJ issued ASBJ Statement No. 29,"Accounting Standard for Revenue Recognition," and ASBJ
Guidance No. 30, "Implementation Guidance on AccountingStandard for Revenue Recognition." The core principle of thestandard and guidance is that an entity should recognize
revenue to depict the transfer of promised goods or services tocustomers in an amount that reflects the consideration to which
the entity expects to be entitled in exchange for those goods orservices. An entity should recognize revenue in accordance withthat core principle by applying the following steps:
Step 1: Identify the contract(s) with a customer
Step 2: Identify the performance obligations in the contract
Step 3: Determine the transaction price
Step 4: Allocate the transaction price to the performanceobligations in the contract
Step 5: Recognize revenue when (or as) the entity
satisfies a performance obligation
The accounting standard and guidance are effective forannual periods beginning on or after April 1, 2021. Earlier
application is permitted for annual periods beginning on or after
April 1, 2018.
The Company expects to apply the accounting standard andguidance for annual periods beginning on or after April 1, 2021,
and is in the process of measuring the effects of applying theaccounting standard and guidance in future applicable periods.

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3. Cash and Cash Equivalents
The reconciliation of “Cash and cash equivalents” in the consolidated statement of cash flows and “Cash and due from banks” in the
consolidated balance sheet as of March 31, 2018 and 2017 consisted of the following:
Millions of yen
2018
2017

Cash and due from banks
Due from banks except for deposits with the Bank of Japan
Cash and cash equivalents¥2,388,907(14,551)¥2,374,356¥1,753,743(18,841)¥1,734,901

Thousands of
U.S. dollars
2018$22,485,955(136,969)$22,348,986

4. Trading Assets and Liabilities
Trading assets and liabilities as of March 31, 2018 and 2017 consisted of the following:

Trading Assets

Millions of yen
2018
2017

Trading securities
Trading-related financial derivatives
Total¥3,565832¥4,397

Trading Liabilities

Millions of yen
2018
2017

¥683
¥683

Trading-related financial derivatives
Total¥3,572
1,073¥4,646¥861¥861

Thousands of
U.S. dollars
2018$33,559
7,837$41,396
Thousands of
U.S. dollars
2018$6,430$6,4305. Money Held in Trust
Money held in trust for trading purposes as of March 31, 2018 and 2017 consisted of the following:
Millions of yen
2018
2017

Amounts recorded in the consolidated balance sheet
Valuation gain (loss) included in consolidated statement of income¥9,491
11¥9,251
18

Thousands of
U.S. dollars
2018$89,338
110

Money held in trust for other purposes as of March 31, 2018 and 2017 consisted of the following:
Millions of yen
2018
2017

Amounts recorded in the consolidated balance sheet
Valuation gain (loss) included in consolidated statement of income¥1,750―¥750—

Thousands of
U.S. dollars
2018$16,472―

6. Securities
Securities as of March 31, 2018 and 2017 consisted of the following:
Millions of yen
2018
2017

Japanese national government bonds
Japanese local government bonds
Japanese corporate bonds
Japanese corporate stocks
Other securities
Total¥ 727,648
317,286
301,653
255,353
351,057¥1,952,999¥ 905,920
329,301
308,378
244,460
661,394¥2,449,455

Thousands of
U.S. dollars
2018$6,849,099
2,986,506
2,839,363
2,403,555
3,304,382$18,382,905

Hokuhoku Financial Group, Inc. Annual Report 2018

Cash and Cash Equivalents、Trading Assets and Liabilities、Money Held in Trust、Securities35

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As of March 31, 2018 and 2017, securities included equity investments in non-consolidated subsidiaries that amounted to ¥940 million($8,853 thousand) and ¥855 million, respectively.
In the following description, in addition to “Securities,” also presented are trading account securities which are classified as “Trading
assets” in the consolidated balance sheet and beneficiary claims on loan trusts which are classified as “Monetary claims bought” in the
consolidated balance sheet.
Valuation gain or loss on trading account securities included in income before income taxes was ¥(17) million ($(166) thousand) and¥(1) million as of March 31, 2018 and 2017, respectively.
The amounts on the consolidated balance sheet, aggregate fair value, and unrealized gains (losses) on held-to-maturity debt
securities as of March 31, 2018 and 2017 were as follows:
Millions of yen
March 31, 2018

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

Amount on
consolidatedbalance sheet

Estimated
fair value

Net unrealized
gains (losses)¥ 67,047
1,500
116,783¥185,331¥ 78,049
1,510
117,701¥197,262¥11,00210
917¥11,930

¥

¥

¥

―
―
21,41821,418¥206,749――
21,361
21,361¥218,623

―
―
(56)
(56)
¥11,874

Millions of yen
March 31, 2017

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

March 31, 2018

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

36

Hokuhoku Financial Group, Inc. Annual Report 2018

Securities

Amount on
consolidatedbalance sheet

Estimated
fair value

Net unrealized
gains (losses)¥ 68,059
1,500
107,137¥176,696¥ 78,929
1,506
108,054¥188,489¥ 10,869
6
916¥11,792

¥

¥

¥

—
—
21,397
21,397¥198,094——
21,32821,328¥209,818

—
—
(68)
(68)
¥11,723

Thousands of U.S. dollars
Amount on
Estimated
Net unrealized
consolidated
fair value
gains (losses)balance sheet$ 631,097
14,1191,099,244$1,744,460$ 734,656
14,222
1,107,883$1,856,761$103,559
103
8,639$112,301

$

$

$

―
―
201,601
201,601$1,946,061――
201,068
201,068$2,057,829

―
―
(533)
(533)
$111,768

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The amounts on the consolidated balance sheet, acquisition or amortized cost, and unrealized gains (losses) on available-for-salesecurities as of March 31, 2018 and 2017 were as follows:

March 31, 2018

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

March 31, 2017

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

Millions of yen
Amount on
Acquisition/
Net unrealized
consolidatedbalance sheet amortized cost gains (losses)¥183,322¥75,825¥107,496

660,600
252,575
137,633
1,050,809

647,183
249,200
134,736
1,031,119

13,417
3,375
2,897
19,68946,01381,384
127,398¥1,361,530

43,23276,457
119,689¥1,226,635

2,780
4,927
7,708
¥134,895¥44,902¥50,617¥(5,715)

063,21025,81889,029063,31625,96989,286

(0)
(105)
(151)
(257)

180,546
87,287
267,833
401,765¥1,763,296

184,092
91,047275,139
415,044¥1,641,679(3,546)(3,759)(7,306)(13,278)¥121,616

Millions of yen
Amount on
consolidated
Acquisition/
Net unrealizedbalance sheet amortized cost gains (losses)¥184,247¥91,727¥92,519

813,790
295,442
147,387
1,256,619

794,335
290,368
143,940
1,228,645

19,454
5,073
3,446
27,97479,08598,184
177,269¥1,618,136

76,83891,332
168,171¥1,488,545

2,246
6,851
9,097
¥129,591¥32,262¥34,397¥(2,134)

24,07132,35832,456
88,88624,09032,47732,75389,322

(19)
(119)
(297)
(435)

318,186
220,733
538,920
660,069¥2,278,206

326,466
231,356
557,823
681,543¥2,170,088(8,280)(10,623)(18,903)(21,473)¥108,118

Hokuhoku Financial Group, Inc. Annual Report 2018

Securities37

2018/07/31 9:26:06 / 18419414_株式会社ほくほくフィナンシャルグループ_総会その他（Ｃ）

March 31, 2018

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

Thousands of U.S. dollars
Amount on
consolidated
Acquisition/
Net unrealizedbalance sheet amortized cost gains (losses)$ 1,725,554 $

713,724$1,011,830

6,217,999
2,377,406
1,295,498
9,890,903

6,091,708
2,345,637
1,268,226
9,705,571

126,291
31,76927,272
185,332

433,109406,933
766,048
719,663
1,199,157
1,126,596$12,815,614 $11,545,891

26,176
46,38572,561$1,269,723$

422,649 $476,444$ (53,795)

3594,981
243,020
838,004

3
595,976
244,445
840,424(0)(995)(1,425)(2,420)1,699,419
1,732,799
821,607856,997
2,521,026
2,589,796
3,781,679
3,906,664$16,597,293 $15,452,555(33,380)(35,390)(68,770)(124,985)$ 1,144,738

Information on available-for-sale securities, which were sold during the years ended March 31, 2018 and 2017 is as follows:

38

Proceeds

Japanese corporate stocks
Bonds:
Japanese government bonds
Japanese local government bonds
Japanese corporate bonds
Total bonds
Other securities:
Foreign securities
Other
Total other securities
Total¥117,143¥7,813¥2,08439,044
4,153
381
43,579

1
23
2
27

147
―
―
147

271,849
91,297363,147¥523,869

986
524
1,511
¥9,352

6,579
398
6,978
¥9,211March 31, 2017

Proceeds

Japanese corporate stocks
Bonds:
Japanese government bonds
Japanese local government bonds
Japanese corporate bonds
Total bonds
Other securities:
Foreign securities
Other
Total other securities
Total¥121,469¥ 7,835¥ 4,734

163,329—168
163,498

172
—
1
173

393
—
—
393

158,390
80,123
238,514¥523,482

321
2,161
2,483
¥10,492

5,986
91
6,077
¥11,206

Hokuhoku Financial Group, Inc. Annual Report 2018

Securities

Millions of yen
Realized gains Realized losses

March 31, 2018

Millions of yen
Realized gains Realized losses

2018/07/31 9:26:06 / 18419414_株式会社ほくほくフィナンシャルグループ_総会その他（Ｃ）

March 31, 2018

Japanese corporate stocks
Bonds:
Japanese government bonds
Japanese local government bonds
Japanese corporate bonds
Total bonds
Other securities:
Foreign securities
Other
Total other securities
Total

Thousands of U.S. dollars
Proceeds
Realized gains Realized losses$1,102,631$73,547$19,623

367,515
39,094
3,586
410,195

13
223
21
257

1,392
―
―
1,392

2,558,827
859,352
3,418,179$4,931,005

9,287
4,937
14,224$88,028

61,935
3,753
65,688$86,703

Impairment losses on available-for-sale securities amounted to ¥197 million ($1,858 thousand) and ¥96 million as of March 31, 2018and 2017, respectively.
An impairment of securities is recognized if the decline in fair value is substantial and the decline is determined to be other-thantemporary. The assessment of whether or not a decline in fair value is other-than-temporary by classification of the security issuer which
is used in the self-assessment of asset quality is as follows:(1) For issuers who are classified as borrowers under “in need of caution,” “possible bankruptcy,” “virtual bankruptcy,” “legal bankruptcy.”
Stocks: where the fair value is lower than the acquisition cost.
Bonds: where the fair value declines by over 30% compared to the amortized cost or acquisition cost.
(2) For issuers who are classified as borrowers under “normal.”
Stocks and bonds: where the fair value declines by 50% or more compared to the amortized cost or acquisition cost, or the fairvalue declines by over 30% but less than 50% compared to the amortized cost or acquisition cost and market prices remaining
below a certain level.
Reconciliation of valuation difference on available-for-sale securities to the amounts included in “valuation difference on available-forsale securities,” presented as a separate component of net assets as of March 31, 2018 and 2017, in the consolidated balance sheet,
was as follows:

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

Millions of yen
2018
2017

Thousands of
U.S. dollars
2018¥121,616(31,492)
90,124(140)
180¥ 90,163$1,144,738(296,430)
848,308(1,327)
1,697$ 848,678¥108,118(26,744)
81,373(114)
147¥ 81,406

Hokuhoku Financial Group, Inc. Annual Report 2018

Securities39

2018/07/31 9:26:06 / 18419414_株式会社ほくほくフィナンシャルグループ_総会その他（Ｃ）

7. Loans and Bills Discounted

8. Foreign Exchanges

Loans and bills discounted as of March 31, 2018 and 2017consisted of the following:

Foreign exchanges as of March 31, 2018 and 2017 consisted ofMillions of yen
2018
2017

¥40,279¥36,656$379,133
Bills discounted
Loans on bills
273,531
283,7432,574,652
Loans on deeds
6,795,267 6,486,652
63,961,479
1,063,810
964,285
10,013,279
Overdrafts¥8,172,888 ¥7,771,338 $76,928,543
Total
Loans and bills discounted include loans to borrowers inbankruptcy, past due loans, past due loans (three months ormore), and restructured loans. The amounts of these loans
were as follows:
Millions of yen
2018
2017

Thousands of
U.S. dollars
2018

Loans to borrowers in bankruptcy¥3,746¥4,099$35,264
Past due loans
125,692 134,625
1,183,104
Past due loans(three months or more)
261
295
2,462
18,96718,316
178,530
Restructured loans¥148,667 ¥157,336 $1,399,360
Total
Loans to borrowers in bankruptcy represent nonaccrualloans to debtors who are legally bankrupt, as defined in theOrder for Enforcement of the Corporation Tax Act.
Past due loans are nonaccrual loans which include loansclassified as “possible bankruptcy” and “virtual bankruptcy.”
Nonaccrual loans are defined as loans (after the partial
charge-off of claims deemed uncollectible) on which the Banks
have stopped accruing interest income due to substantial doubt
existing about the ultimate collection of principal and/or interest.
Such loans are classified either as “possible bankruptcy” or“virtual bankruptcy” under the Banks’ self-assessment guidelines.
In addition to past due loans as defined above, certain otherloans classified as “in need of caution” under the Banks’ selfassessment guidelines include past due loans (three months ormore) which consist of loans for which the principal and/orinterest is three months or more past due, but exclude loans toborrowers in bankruptcy and past due loans.
Restructured loans are loans where the Group relaxes
lending conditions by reducing the original interest rate or byforbearing interest payments or principal repayments to support
the borrower’s reorganization. Restructured loans exclude loans
to borrowers in bankruptcy, past due loans or past due loans(three months or more).
These amounts represent the gross amounts before
deduction of the allowance for loan losses.
Bills discounted are accounted for as financial transactionsin accordance with “Accounting and Auditing treatment of
Accounting Standards for Financial Instruments in Banking
Industry” (JICPA Industry Audit Committee Report No. 24). The
Banks have a right to sell or repledge as collateral suchdiscounted bills at their discretion. The total face value of bankacceptance bills, commercial bills, documentary bills and foreign
currency bills bought, which were obtained at a discount, were
¥43,655 million ($410,915 thousand) and ¥39,025 million as ofMarch 31, 2018 and 2017, respectively.

40

Hokuhoku Financial Group, Inc. Annual Report 2018

Loans and Bills Discounted

the following:Thousands of
U.S. dollars
2018

Millions of yen
2018
2017

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

Thousands of
U.S. dollars
2018¥14,5653,376
840¥18,782¥12,298
2,369
1,592¥16,260$137,102
31,782
7,908$176,792

¥113
58
14
¥186

¥25
26
52
¥103

$1,069549
136$1,7549. Tangible Fixed Assets
Tangible fixed assets as of March 31, 2018 and 2017 were as
follows:
Millions of yen
2018
2017

Thousands of
U.S. dollars
2018

Buildings¥33,536 ¥33,046$315,664
Land
58,78160,499553,289
Lease assets
796
526
7,500
Construction in progress
534
197
5,027
7,159
6,922
67,387
Other tangible fixed assets¥100,807 ¥101,192$948,867
Total
Accumulated depreciation amounted to ¥105,180 million($990,024 thousand) and ¥103,976 million as of March 31, 2018and 2017, respectively.
The book value of tangible fixed assets adjusted for gains onsales of replaced assets amounted to ¥3,683 million ($34,674
thousand) and ¥3,871 million as of March 31, 2018 and 2017,
respectively.
Under the “Act Concerning Land Revaluation,” Hokuriku
Bank, Ltd. revalued its own land for business operations as ofMarch 31, 1998. The revaluation gain is included in net assets
as “Revaluation reserve for land.” The carrying amount of theland after the above one-time revaluation exceeded the market
value by ¥18,098 million ($170,352 thousand) and ¥19,641
million as of March 31, 2018 and 2017, respectively.

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10. Intangible Fixed Assets

13. Loan Commitments

Intangible fixed assets as of March 31, 2018 and 2017 were as

Overdraft facility and loan commitment contracts with customers
to lend up to the prescribed limits in response to customers’applications for a loan, as long as there is no violation of any
condition within the contracts. The unused amount of suchcontracts totaled ¥2,445,473 million ($23,018,388 thousand)and ¥2,412,551 million as of March 31, 2018 and 2017,
respectively, of which amounts with original agreement terms ofless than one year are ¥2,353,715 million ($22,154,705
thousand) and ¥2,328,971 million as of March 31, 2018 and2017, respectively.
Since many of the commitments expire without being drawn
upon, the unused amount does not necessarily represent a
future cash requirement. Most of these contracts haveconditions allowing the Group to refuse customers’ applications
for a loan or decrease the contract limits with proper reasons(e.g., changes in financial situation, deterioration in customers’
creditworthiness). At the inception of the contracts, the Groupobtains collateral including real estate, securities, etc., if
considered necessary. Subsequently, the Group performs aperiodic review of the customers’ business results based oninternal rules and takes necessary measures to reconsider
conditions in contracts and require additional collateral andguarantees.

follows:
Thousands of
U.S. dollars
2018

Millions of yen
2018
2017

Software
Goodwill
Lease assets
Other intangible fixed assets
Total¥9,834
13,489482
642¥24,449¥7,77015,591
56
939¥24,358$92,569
126,972
4,545
6,052$230,138

11. Customers’ Liabilities for Acceptances and Guarantees
All contingent liabilities arising from acceptances andguarantees are reflected in acceptances and guarantees inliabilities on the consolidated balance sheet. As a contra
account, customers’ liabilities for acceptances and guarantees
are also shown in assets, which represent the Banks’ right ofindemnity from the applicants.
Guarantee obligations on securities issued by private
placement (pursuant to Article 2, Clause 3 of the Japanese
Financial Instruments and Exchange Act) amounted to¥162,731 million ($1,531,735 thousand) and ¥151,947 million
as of March 31, 2018 and 2017, respectively.

12. Assets Pledged
Assets pledged as collateral and their relevant liabilities as ofMarch 31, 2018 and 2017 were as follows:
Thousands of
U.S. dollars
2018

Millions of yen
2018
2017

Assets pledged as collateral:
Securities¥793,713 ¥949,935 $7,470,945
Loans and bills discounted
373,390
170,435
3,514,590
Relevant liabilities to the above assets:
Deposits¥23,120¥28,863$217,629
Call money and bills sold
40,00034,584
376,506
Payables under securities
lending transactions
534,362426,276
4,012,396
546,611306,350
5,145,065
Borrowed money
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, 2018 and 2017:
Thousands of
U.S. dollars
2018

Millions of yen
2018
2017

Securities¥ 22,867 ¥106,168$215,240
102,796
25,313
967,590
Other assets
In addition to the above, initial margins for futurestransactions, cash collateral paid for financial instruments, andguarantee deposits are included in “Other assets” in the
consolidated balance sheet.
Thousands of
U.S. dollars
2018

Millions of yen
2018
2017

Initial margins for futurestransactions
Cash collateral paid forfinancial instruments
Guarantee deposits

¥

―

3,744
5,181

¥

8

5,857
4,004

$

―
35,245
48,76914. Deposits
Deposits as of March 31, 2018 and 2017 consisted of thefollowing:
Millions of yen
2018
2017

Thousands of
U.S. dollars
2018

Current deposits, ordinary
deposits, saving deposits ¥7,211,707 ¥ 6,612,279 $67,881,278
and deposits at noticeTime deposits and3,693,430 3,816,965
34,764,974
installment savings
Negotiable certificates of deposit
122,691
140,499
1,154,856
123,383
131,526
1,161,364
Other deposits¥11,151,213¥10,701,271 $104,962,472
Total

15. Borrowed Money
As of March 31, 2018 and 2017, the weighted-average annualinterest rates applicable to borrowed money were 0.06% and0.11%, respectively.
Borrowed money includes borrowings from the Bank ofJapan and other financial institutions. In addition, borrowed
money includes ¥15,000 million ($141,190 thousand) and¥15,000 million of subordinated borrowed money as of March
31, 2018 and 2017, respectively.
Annual maturities of borrowed money as of March 31, 2018
were as follows:Year ending March 31

2019
2020
2021
2022
2023
2024 and thereafter
Total

Millions of yen

Thousands of
U.S. dollars¥11,666
150,863
131,809257,118403
15,650¥567,512$109,809
1,420,026
1,240,676
2,420,170
3,802
147,316$5,341,799

Hokuhoku Financial Group, Inc. Annual Report 2018

Loans and Bills Discounted

41

2018/07/31 9:26:06 / 18419414_株式会社ほくほくフィナンシャルグループ_総会その他（Ｃ）

16. Bonds Payable
Bonds payable as of March 31, 2018 and 2017 consisted of the following:Thousands of
U.S. dollars
2018

Millions of yen
2018
2017

Issued by the Company:
Unsecured fixed and floating subordinated bonds, payable in Japanese yen,
due October 2023, 0.75% interest
Total¥25,000¥25,000$235,316¥25,000¥25,000$235,316

Annual maturities of bonds payable as of March 31, 2018 were as follows:Year ending March 312024 and thereafter

17. Retirement Benefits
Overview of the Group’s retirement benefit plans
The Hokuriku Bank, Ltd. which previously provided threedefined benefit retirement programs, corporate pensions, andtax qualified pension and retirement bonuses, terminated thetax qualified pension and migrated a portion of the retirement
bonus to a defined contribution pension in March 2011. At thetime of retirement, employees may be issued a premium
retirement grant that is not subject to inclusion in the actuarial
computation of projected benefit obligations in conformity withthe standards for accounting for retirement benefits. The
Minister of Health, Labour and Welfare approved on February
17, 2003 that Hokuriku Bank Ltd. would be relieved of theobligation to administer the future payment service of thegovernment mandated portion of its employee pension fund.
The Hokuriku Bank, Ltd. was further approved on March 1,
2005 to switch from an employee pension fund to a corporate
pension fund.
The Hokkaido Bank, Ltd. provides defined benefit
arrangements that combine a retirement lump sum grant and an
employee pension fund plan, and also provides a defined
contribution pension since fiscal year 2016. The Hokkaido Bank,
Ltd. was approved by the Minister of Health, Labour andWelfare on March 26, 2004 to be relieved of the obligation toadminister the future payment service of the government
mandated portion of the employee pension fund. The HokkaidoBank, Ltd. was further approved on March 31, 2006 to switchfrom an employee pension fund to a corporate pension fund.
The consolidated domestic subsidiaries, other than the two
noted above, provide retirement lump-sum grants.
The Company’s employees are all on loan from its
subsidiaries and are covered by the retirement benefit programof the subsidiaries from which they each come.
The Banks have established retirement benefit trusts.

42

Hokuhoku Financial Group, Inc. Annual Report 2018

Bonds Payable、Retirement Benefits

Millions of yen

Thousands of
U.S. dollars¥25,000$235,316(a) Defined benefit plan
(1) The changes in defined benefit obligations for the years
ended March 31, 2018 and 2017 were as follows:
Thousands of
U.S. dollars
2018

Millions of yen
2018
2017

Balance at beginning of year ¥101,540 ¥102,615
Service cost
2,427
2,448
Interest cost624
631
Actuarial (gains) losses
436
1,062
Benefits paid
(5,122)(5,308)89
90
Others¥99,996 ¥101,540
Balance at end of year

$955,762
22,852
5,881
4,108(48,214)842$941,231(2) The changes in plan assets for the years ended March 31,2018 and 2017 were as follows:

Balance at beginning of year
Expected return on plan assets
Actuarial (gains) losses
Contributions from the employer
Establishment of retirement
benefit trust
Benefits paid
OthersBalance at end of year

Millions of yen
2018
2017

Thousands of
U.S. dollars
2018¥86,513
2,569
1,516
2,628

$814,324
24,187
14,272
24,738¥82,156
2,474
1,457
4,310

5,199

―

48,940(3,843)
89¥94,673(3,973)
90¥86,513(36,174)
842$891,1292018/07/31 9:26:06 / 18419414_株式会社ほくほくフィナンシャルグループ_総会その他（Ｃ）(3) Reconciliation between the liability recorded in the
consolidated balance sheet and the balances of defined
benefit obligation and plan assets was as follows:

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

Millions of yen
2018
2017

Thousands of
U.S. dollars
2018¥84,025(82,997)
1,027
15,970(11,675)
4,294¥85,348(79,944)
5,403
16,191(6,569)9,622$790,904(781,229)
9,675
150,327(109,901)
40,426¥5,322¥15,026

Millions of yen
2018
2017

Liability for retirement benefits
Asset for retirement benefits
Net liability (asset) arising fromdefined benefit obligation$50,101
Thousands of
U.S. dollars
2018¥6,218(895)¥15,026—$58,532(8,431)¥5,322¥15,026$50,101(4) The components of net periodic benefit costs for the years
ended March 31, 2018 and 2017 were as follows:
Millions of yen
2018
2017

Service cost
Interest cost
Expected return on plan assets
Recognized actuarial (gains) losses
Amortization of prior service costs
OthersNet periodic benefit costs¥2,427624(2,569)
1,547
(46)
61
¥2,045¥2,448631(2,474)
3,342
(46)
52
¥3,953Thousands of
U.S. dollars
2018$22,852
5,881(24,187)
14,570(440)
576$19,252(7) Plan assets• Components of plan assets

Plan assets as of March 31, 2108 and 2017 consisted of thefollowing:
Bonds
StocksCash and deposits
General accounts
Other
Total

2018

2017

35.11%
43.82
3.28
7.21
10.58
100.00%33.26%
43.99
4.00
3.80
14.95
100.00%Note: Plan assets include retirement benefit trusts of 24.88% and 21.72%
as of March 31, 2018 and 2017, respectively.

• Method of determining the expected rate of return on plan assets
The expected rate of return on plan assets is determinedconsidering the long-term rates of return which are expectedcurrently and in the future from the various components of theplan assets.
(8) Assumptions used for the years ended March 31, 2018 and2017 were set forth as follows:
2018

Discount rate
Expected rate of return on plan assets

2017

0.61%–0.63% 0.61%–0.63%
3.0% 3.0%–3.5%(b) Defined contribution pension plan
Millions of yen
2018
2017

Contribution

¥369

¥369

Thousands of
U.S. dollars
2018$3,479(5) Amounts recognized in other comprehensive income (before
income tax effect) in respect of defined retirement benefit
plans for the years ended March 31, 2018 and 2017 were as
follows:
Millions of yen
2018
2017

Prior service cost
Actuarial gains (losses)
Total

¥(46)
2,627
¥2,580¥(46)
3,736¥3,690Thousands of
U.S. dollars
2018$(440)
24,734$24,294(6) Amounts recognized in accumulated other comprehensive
income (before income tax effect) in respect of defined
retirement benefit plans as of March 31, 2018 and 2017
were as follows:
Millions of yen
2018
2017

Unrecognized prior service cost
Unrecognized actuarial (gains) losses
Total

¥(46)
5,764
¥5,717¥(93)
8,392¥8,298

Thousands of
U.S. dollars
2018$(440)
54,261$53,821

Hokuhoku Financial Group, Inc. Annual Report 2018

Retirement Benefits43

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18. Equity
Japanese banks are subject to the Banking Act and theCompanies Act of Japan (the “Companies Act”). The significant
provisions in the Companies Act and the Banking Act that affectfinancial and accounting matters are summarized below:(a) Dividends
Under the Companies Act, companies can pay dividends at
any time during the fiscal year in addition to the year-end
dividend upon resolution at the shareholders’ meeting.
Additionally, for companies that meet certain criteria including(1) having a Board of Directors, (2) having independent
auditors, (3) having an Audit & Supervisory Board, and (4) theterm of service of the directors being prescribed as one year
rather than the normal two-year term by its articles ofincorporation, the Board of Directors may declare dividends(except for dividends-in-kind) at any time during the fiscal year
if the company has prescribed so in its articles ofincorporation. With respect to the third condition above, theBoard of Directors of companies with an audit and supervisorycommittee (as implemented under the Companies Act
effective May 1, 2015) may also declare dividends at any time
because such companies, by nature, meet the criteria under
the Companies Act. The Company is organized as a company
with an audit and supervisory committee, effective June 27,
2017. The Company meets all the above criteria, andaccordingly, the Board of Directors may declare dividends(except for dividends-in-kind) at any time during the fiscal year.
Semiannual interim dividends may also be paid once a
year upon resolution by the Board of Directors if the articles
of incorporation of the company so stipulate. The
Companies Act provides certain limitations on the amounts
available for dividends or the purchase of treasury stock.
The limitation is defined as the amount available for
distribution to the shareholders, but the amount of net assets
after dividends must be maintained at no less than ¥3 million.
(b) Increases / decreases and transfer of common stock,reserve, and surplus
The Banking Act requires that an amount equal to 20% of
dividends must be appropriated as a legal reserve (acomponent of retained earnings) or as additional paid-in
capital (a component of capital surplus), depending on theequity account charged upon the payment of such dividends,
until the aggregate amount of the legal reserve and additional
paid-in capital equals 100% of common stock. Under theCompanies Act, the total amount of additional paid-in capitaland legal reserve may be reversed without limitation. The
Companies Act also provides that common stock, legal
reserve, additional paid-in capital, other capital surplus, andretained earnings can be transferred among the accounts
within equity under certain conditions upon resolution of theshareholders.
(c) Treasury stock and treasury stock acquisition rights
The Companies Act also provides for companies topurchase treasury stock and dispose of such treasury stockby resolution of the Board of Directors. The amount oftreasury stock purchased cannot exceed the amountavailable for distribution to the shareholders, which isdetermined by a specific formula.
Under the Companies Act, stock acquisition rights arepresented as a separate component of equity.
44

Hokuhoku Financial Group, Inc. Annual Report 2018

Retirement Benefits

The Companies Act also provides that companies canpurchase both treasury stock acquisition rights and treasury
stock. Such treasury stock acquisition rights are presented
as a separate component of equity or deducted directly fromstock acquisition rights.
On October 1, 2016, the Company implemented a common
stock consolidation at a ratio of ten stocks to one stock basedon the resolution of the General Shareholders’ meeting held on
June 24, 2016.

19. Capital Stock
Information with respect to capital stock of the Company as ofMarch 31, 2018 and 2017 is as follows:
Number of shares:
Authorized:
CommonPreferred (Type 5)
Issued and outstanding:CommonPreferred (Type 5)
Treasury stock:
CommonPreferred (Type 5)

2018

2017

280,000,000
110,000,000

280,000,000
110,000,000

132,163,014
107,432,000

132,163,014
107,432,000

1,109,893
2,160

1,131,632
2,160

Preferred stock (Type 5)
Preferred stock (Type 5) is noncumulative and nonparticipating.
Shareholders of the preferred stock (Type 5) are not entitled tovote at the general meeting of shareholders, except when the
proposal to pay the prescribed dividends to shareholders is not
submitted to the general meeting of shareholders or is rejected
at the general meeting of shareholders.
Annual dividends per share of preferred stock (Type 5) are
paid to shareholders at ¥15.00.
The changes in the number of treasury stock for the fiscal
years ended March 31, 2018 and 2017 were as follows:
As of April Changes during the fiscal year As of March
1, 20172018
Increase*1 Decrease*2 31, 2018
Common1,131,632
15,79937,538 1,109,893
Preferred (Type 5)
2,160
―
―
2,160
*1 The increase of common represents primarily the acquisition of odd-lot
shares.
*2 The decrease of common represents primarily the exercise of stock
options.

As of April Changes during the fiscal year As of March
1, 20162017
Increase*1 Decrease*2 31, 2017
Common11,607,137 30,036,137 40,511,642 1,131,632
Preferred (Type 5)
2,160
—
—
2,160
*1 The increase of common represents the acquisition of 30,000,000
shares of treasury stock and 36,137 shares of odd-lot shares.
*2 The decrease of common represents the retirement of 30,000,000
shares of treasury stock, 10,181,446 shares of stock consolidation, thedisposal of 2,966 shares of odd-lot shares, and 327,230 shares
exercised of stock options.

20. Stock Acquisition Rights
Stock acquisition rights as of March 31, 2018 and 2017consisted of stock options.

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21. Stock Options
The stock option plans grant options to the Company’s directors
and the Banks’ directors and executive officers to purchasecertain shares of the Company’s common stock in therespective exercise periods. The exercise prices are subject toadjustments for stock issuances below fair value and stock
splits.
Stock option expenses in the amount of ¥130 million ($1,228
thousand) and ¥124 million were recorded under general andadministrative expenses for the years ended March 31, 2018and 2017, respectively.
The stock options outstanding as of March 31, 2018 were as
follows:

Stock options

Persons
grantedNumberof options
granted(Shares)

Date of Exercise
grantprice Exercise period

19 directors
2012 Stock 23 executive
November
Optionofficers
105,850 28, 201219 directors
August 13,
2013 Stock 22 executive
62,9502013
Optionofficers
19 directors
2014 Stock 21 executive
July 11,
Optionofficers
55,4002014
18 directors
2015 Stock 24 executive
July 14,
Optionofficers
41,7302015
19 directors
2016 Stock 25 executive
August 12,
106,200
Optionofficers
2016
20 directors
July 14,2017 Stock 25 executive
75,9602017
Optionofficers

¥1
¥1
¥1
¥1
¥1
¥1

From November
29, 2012 toNovember 28,
2042
From August 14,
2013 to August
13, 2043
From July 12,2014 to July 11,
2044
From July 15,
2015 to July 14,
2045
From August 13,
2016 to August
12, 2046
From July 15,2017 to July 14,
2047

The stock option activity was as follows:Year ended
March 31, 2018

Non-vested:
March 31, 2017
–outstanding
GrantedCanceled
VestedMarch 31, 2018
–outstanding
Vested:March 31, 2017
–outstanding
VestedExercised
Canceled
March 31, 2018
–outstanding
Exercise price
Average stock
price at exercise
Fair value priceat grant date2012 stock option 2013 stock option 2014 stock option 2015 stock option(Shares)(Shares)(Shares)(Shares)

―
―
―
―

―
―
―
―

―
―
―
―

―
―
―
―

―

―

―

―

32,800―3,470―

32,090―4,180―

32,860―3,800―

32,740―4,020―

29,330¥1$0.01

27,910¥1$0.01

29,060¥1$0.01

28,720¥1$0.01¥1,755$16.52¥1,755$16.52¥1,755$16.52¥1,755$16.52¥1,080$10.17¥1,820$17.13¥2,010$18.92¥2,650$24.94

Year ended
March 31, 2018

Non-vested:
March 31, 2017
–outstanding
GrantedCanceled
VestedMarch 31, 2018
–outstanding
Vested:March 31, 2017
–outstanding
VestedExercised
Canceled
March 31, 2018
–outstanding
Exercise price
Average stock
price at exercise
Fair value priceat grant date2016 stock option 2017 stock option(Shares)(Shares)

―
―
―
―

―
75,960―75,960――103,570―
12,610――75,960490
680

90,960¥1$0.01

74,790¥1$0.01¥1,755$16.52¥1,450$13.65¥1,170$11.01¥1,717$16.16

Shares and per share figures have been restated, as appropriate,
to reflect a one-for-ten stock consolidation effected October 1,
2016.
The Assumptions Used to Measure the Fair Value of the 2017
Stock Options
Estimate method
Black-Scholes option-pricing model
Volatility of stock price35.866%
Estimated remaining outstanding period Two years and two months
Estimate dividend¥44.00 per share
Risk-free interest rate
(0.099)%In estimating the vested number of stock options, the Company
basically reflects only the actual forfeited number, since it isdifficult to make a reasonable estimate on the future forfeited
number.

Hokuhoku Financial Group, Inc. Annual Report 2018

Retirement Benefits45

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22. Per Share Information

23. Other Ordinary Income(1) Net income per share of common stock

Other ordinary income for the years ended March 31, 2018 and2017 is as follows:

Reconciliation of the difference between basic and diluted net
income per share (“EPS”) for the years ended March 31, 2018and 2017 was as follows:Year ended
March 31, 2018

Basic EPS – Net
income available tocommon shareholders
Effect of dilutive securities
Diluted EPS – Net
income for computation

Year ended
March 31, 2017

Basic EPS – Net
income available tocommon shareholders
Effect of dilutive securities
Diluted EPS – Net
income for computation

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

Yen

U.S. dollars

EPS¥19,579

131,049 ¥149.40
266

$1.41

¥19,579

131,316 ¥149.10$1.40

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

132,042 ¥201.04(2) Net assets per share of common stock
Net assets per share of common stock as of March 31, 2018and 2017 were as follows:
2017¥4,215.92 ¥4,028.62

U.S. dollars
2018$39.68

Net assets per share of common stock as of March 31, 2018and 2017 were calculated based on the following:
Millions of yen
2018
2017

Total equity¥610,147 ¥585,237
Deductions from total equity:
Stock acquisition rights
451
367
Non-controlling interests
2,664
2,472
Preferred stock
53,71453,714805
805
Preferred dividends
Net assets attributable tocommon stock at the endof the fiscal year
552,510 527,876
Number of shares of common
stock at the end of the fiscal
year used for the calculation of
net assets per share of common
stock (shares in thousands)

131,053

Thousands of
U.S. dollars
2018$5,743,103
4,253
25,079505,599
7,584
5,200,588

131,031

Shares and per share figures have been restated, as appropriate,
to reflect a one-for-ten stock consolidation effected October 1,
2016.

46

Hokuhoku Financial Group, Inc. Annual Report 2018

Retirement Benefits¥—$2,872

1,224
2
10,956
3,045¥15,533

2,468—
10,4792,244¥15,192

11,522
27
103,131
28,662$146,214

Millions of yen
2018
2017

¥26,546

Yen¥305

24. Other Ordinary Expenses

EPS

131,831 ¥201.36
211

Net assets per shareof common stock

Gain on foreign exchangetransactions – net
Gains on sales and redemptionof bonds and other securities
Gains on derivatives
Lease receipts
Other
Total

Thousands of
U.S. dollars
2018

Other ordinary expenses for the years ended March 31, 2018and 2017 are as follows:Yen¥26,546

2018

Millions of yen
2018
2017

Losses on foreign exchangetransactions – net
Losses on sales, redemption
and devaluation of bonds
and other securities
Losses on derivatives
Lease costs
Other
Total

Thousands of
U.S. dollars
2018

¥―

¥259

$―

11,076―
10,021576¥21,675

6,403
15
9,558
1,034
¥17,271

104,263―
94,3285,429$204,020

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25. Other Income

A reconciliation between the normal effective statutory tax rate

Other income for the years ended March 31, 2018 and 2017 isand the actual effective tax rate reflected in the accompanying
consolidated statement of income for the year ended March 31,2017 is as follows:

as follows:
Millions of yen
2018
2017

Gains on sales of stocks
Reversal of allowance forloan losses
Gains on sales of tangible
fixed assets
Other
Total

Thousands of
U.S. dollars
2018¥8,170¥8,065$76,902

―

511

―

92
4,941
¥13,203

104
4,323¥13,005871
46,512$124,285

2017

Normal effective statutory tax rate
Change in valuation allowance
Permanently non-taxable income
Per capita portion of inhabitants’ taxes
Permanently non-deductible expenses
Decrease in deferred tax assets due to changes in tax rate
Other
Actual effective tax rate

30.69%(3.63)(1.41)
0.41
0.32
—
0.49
26.87%

26. Other Expenses

A reconciliation between the normal effective statutory tax rate

Other expenses for the years ended March 31, 2018 and 2017

for the year ended March 31, 2018 and the actual effective tax
rate reflected in the accompanying consolidated statement ofincome is not required under Japanese accounting standards
due to the immaterial difference.

are as follows:
Millions of yen
2018
2017

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

Thousands of
U.S. dollars
2018

¥460
2,224

¥529
4,807

$4,33520,935

73
190

202
213

692
1,797

2,244
3,382
¥8,576

1,030
3,068¥9,85021,13031,841$80,730

27. Income Taxes
The Company and its domestic subsidiaries are subject toJapanese national and local income taxes which, in theaggregate, resulted in the normal effective statutory tax rate of
approximately 30.69% for each of the years ended March 31,2018 and 2017.
The tax effects of significant temporary differences and tax
loss carryforwards which resulted in deferred tax assets andliabilities at March 31, 2018 and 2017 are as follows:

Deferred tax assets:
Allowance for loan losses
Depreciation
Liability for retirement benefits
Loss on valuation of securities
Other
Operating loss carryforwards
Subtotal
Less: Valuation allowance
Total deferred tax assets

Millions of yen
2018
2017

Thousands of
U.S. dollars
2018¥23,914850
11,953
12,461
6,180
69
55,43026,401
29,029$225,096
8,009
112,514
117,300
58,176655
521,750
248,505
273,245

Deferred tax liabilities:
Valuation difference on
available-for-sale securities
40,428Land transfer through merger
2,765
2,931
Other
Total deferred tax liabilities
46,125¥(17,096)
Net deferred tax assets¥26,268
898
14,124
12,5585,637
59
59,546
26,25933,287

36,834
2,765
2,157
41,757¥(8,470)

380,538
26,033
27,597434,168$(160,923)

28. Other Comprehensive Income
The components of other comprehensive income for the years
ended March 31, 2018 and 2017 are as follows:
Millions of yen
2018
2017

Thousands of
U.S. dollars
2018

Valuation difference on
available-for-sale securities:
Amount incurred
during the fiscal year
Reclassification adjustment
Prior to deducting tax effectTax effectTotal¥7,7705,728
13,498(4,747)
8,751¥(5,512)2,498(3,013)546(2,466)$73,140
53,919127,059(44,689)
82,370

Deferred gains (losses) on hedges:
Amount incurred during
the fiscal year
Reclassification adjustment
Prior to deducting tax effectTax effectTotal(1,101)
1,437
335
(102)
233

(1,386)
1,944
557
(169)
387

(10,370)
13,527
3,157
(962)
2,195

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

1,079
1,501
2,580
(785)
1,795

394
3,295
3,690
(1,122)
2,567

10,164
14,13024,294(7,390)16,904

60
(17)
42
(9)
33

84
(1)
83
(25)
58

569
(165)
404
(93)
311

¥10,813¥547$101,780

Share of other comprehensive
income of associates accounted
for using the equity method:Amount incurred during
the fiscal year
Reclassification adjustment
Prior to deducting tax effectTax effectTotal
Total othercomprehensive income

Hokuhoku Financial Group, Inc. Annual Report 2018

Other Income

47

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29. Leases(1) Finance lease transactions(Lessee)
The Group leases ATMs, computer equipment, software, andother assets.
(2) Operating lease transactions(Lessee)
The minimum rental commitments under noncancelable
operating leases as of March 31, 2018 and 2017 are as follows:
Thousands of
U.S. dollars
2018

Millions of yen
2018
2017

Within one year
Over one year
Total

¥3
21
¥25

¥1
6
¥8

$37
204
$241

30. Financial Instruments and Related Disclosures(1) Group policy on financial instruments
The Group provides a wide variety of financial services, centeredon banking services such as deposit-taking and lending.
Our lending activities are aimed at achieving co-prosperity
with the regional economy and we endeavor to manage ourlending in a sound and appropriate manner, while simultaneously
working to strengthen credit risk management.
Investments in securities are strictly managed based on theGroup’s risk management policies and regulations. Regarding
deposit-taking operations, the Group aims to ensure stable
fundraising by the expansion and upgrading of financial services
for all customers in the region. Borrowed money and corporate
bonds are used mainly for medium- to long-term fundraising.
Given the different term structures of the Group’s financial
assets such as loans and financial liabilities such as deposits, theGroup is exposed to interest-rate fluctuation risk in the financial
markets. For this reason, the Group conducts comprehensive
asset liability management (“ALM”) to appropriately control suchmarket risk and ensure stable earnings.
(2) Nature and extent of risks arising from financial instruments
The financial assets held by the Group consist primarily of
securities and loans to domestic customers. Loans are subject
to credit risks that could cause financial loss to the Group, suchas declines or losses in asset value resulting from a possible
deterioration in the financial condition of borrowers. With regard
to securities, the Group is exposed to the credit risk of issuers,interest-rate risk, and market price volatility risk. However, theGroup takes adequate steps to mitigate these risks.
Financial liabilities, including deposits and borrowed money, areexposed to liquidity risk arising from the possibility that the Groupmay be obliged to procure funds at interest rates significantly
higher than normal owing to a sudden change in the market
environment or a deterioration in the Group’s financial position.
The Banks make use of currency-related derivatives such as
currency swaps, forward exchange contracts, and currency
options, as well as interest-related derivatives such as interestrate swaps, interest-rate futures, and interest-rate caps, to meet
the ALM needs of the Banks as well as the various needs of the48

Hokuhoku Financial Group, Inc. Annual Report 2018

Other Income

Banks’ customers. These derivatives are exposed to thefollowing risks among others: interest-rate risk, the risk of
exchange rate fluctuations, price volatility risk, and credit risk.
However, none of the Group’s financial assets and liabilities
are attended by notably high risk levels, nor do they include any
particular derivatives with high market price volatility.
The Hokuriku Bank, Ltd. applies hedge accounting to hedge
the value of some of its assets and liabilities against interestrate fluctuations. When applying hedge accounting, theHokuriku Bank, Ltd. adopts integrated management in both
hedging instruments and hedged items as long as hedging ismanaged and evaluates the effectiveness of the hedges.
(3) Risk management for financial instruments
The Banks have established risk management departments andhave stipulated basic regulations for risk management and otherregulations pertaining to risk. In addition, the Banks haveestablished an ALM Committee and a Comprehensive Risk
Management Committee, where qualified risks andadministration matters are discussed regularly to ensure that all
categories of risk are managed effectively. Changes inregulations and organizational structures of the Banks arerevised or supervised by the Company to ensure conformance to
the Group’s policies and the results of the above committees arereported to the Company.
(a) Credit Risk Management
The Group’s fundamental policy is to strive for improved
earnings and ensure sound business operations through theappropriate management of credit risk. In line with this policy,
the Company and the Banks collaborated in establishingvarious regulations, including Credit Risk Management
Regulations, and ensuring the effective operation of internal
checking functions by separating business promotion
departments from credit risk management departments.
Rigorous screening is also conducted and credit ratings are
granted based on Credit Policy. Additionally, the setting of credit
limits is managed on an individual customer basis to avoid therisk of an overconcentration of loans in particular sectors.
Finally, the Banks carry out self-assessment and credit risk
quantification procedures and the risk situation is regularly
reported to the Banks’ board of directors.
As for the loan screening process of the Banks, the branches
concerned carefully analyze each separate loan application andscreen each customer involved. In the event that the decision
exceeds the limits of authority of the branch manager, theappropriate loan screening departments at the headquarters of
the Banks carry out their own analysis and screening. Specialized
staff members in place within the screening departments are
responsible for particular industries and geographical areas.
These specialists provide the appropriate advice and guidance tothe branches based on the particular features of the customer.
Concerning the creditworthiness of security issuers andcounterparty risk in derivative transactions, credit informationand the state of transactions are regularly monitored andmanaged by the risk management departments of the Banks.
(b) Market Risk Management
Having stipulated regulations such as Market Risk Management

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Regulations and an arranged organizational structure including
ALM and other committees, the Banks appropriately control
market risk associated with lending and deposit-taking in orderto ensure stable earnings.
Interest Rate Risk Management
The risk management departments of the Banks regularly andcomprehensively monitor the interest rates and time-frames
involved in the Banks’ financial assets and liabilities and monitor
interest rate risk levels through methods such as gap analysis
and sensitivity analysis of interest rates, based on the Banks’
Interest Rate Risk Management Regulations and other related
regulations where the methods and procedures to be employed
for risk management are described in detail.
The Banks set ceiling amounts for each type of interest raterisk to control such risk appropriately. Derivatives such as
interest-rate swaps and interest-rate caps are employed from an
ALM perspective so that the Banks reduce interest rate risk byhedging against interest rate fluctuations.
Foreign Exchange Risk Management
Using measures such as currency swaps to reduce foreignexchange risk, the Banks manage exchange risk arising fromfluctuations in foreign exchange rates that affect the values ofassets and liabilities denominated in foreign currencies.
Price Volatility Risk Management
Regarding investments in instruments such as securities, theBanks carry out prior screening and set investment ceilings, andthen constantly monitor the investment status to minimize pricevolatility risk. Every process above has to be strictly managed
under the supervision of the Banks’ Board of Directors and to bein line with policies laid down by Management Committees. A
high percentage of the stocks held by the Banks are acquiredand held for long-term strategic purposes. The Banks monitor themarket conditions and financial positions of the securities issuers.
Value at Risk (“VaR”) and other methods are used to determine
the amount of market risk for each security held. The staff
members of the responsible departments provide regular reports
to the Banks’ Board of Directors and Management Committees toconfirm that price risk is controllable and all rules pertaining tomarket risk management are being followed correctly.
Derivatives
The Banks arrange their organizational structures securing theseparation and internal check-and-balance mechanisms among
front sections (specializing in market transactions), middle
sections (engaging in risk management), and back sections(responsible for book entries and settlements). Management
sections confirm the validity of transactions, value the Banks’daily derivative positions, and measure gains and losses as wellas risk levels. Derivative transactions are carefully managed insuch a way that losses never exceed a predetermined maximum.
Quantitative Information Related to Market Risk
Hokuriku Bank and Hokkaido Bank measure quantitative
information related to market risk.
• Financial instruments in the trading accountIn calculating VaR for trading securities and a portion ofcurrency-related and interest-related derivative transactions
held in the trading account, Hokuriku Bank adopts thehistorical simulation method (a holding period of 1 businessday, a confidence interval of 99%, and a main observation
period of 1,250 business days).
The market risk amounts (VaR) of the trading business of
Hokuriku Bank were ¥179 million ($1,685 thousand) and ¥166
million as of March 31, 2018 and 2017, respectively.
Hokkaido Bank has no financial instruments in the trading
accounts.
• Financial instruments in the banking accountIn the Banks, the main financial instruments affected byinterest rate risk are “Monetary claims bought,” “Loans andbills discounted,” “Bonds,” “Deposits,” “Borrowed money,” andtransactions of interest rate swaps, interest swaptions, andinterest rate caps held in derivative transactions. The main
financial instruments affected by market value are listed stocks
and investment trust. The Banks use VaR for integrated
management of these financial instruments.
For calculating VaR, the Banks adopted the historicalsimulation method (a holding period of 120 business days, aconfidence interval of 99% and main observation period of 1,250
business days) and consider the correlations between interestand the fluctuation of prices of the listed stocks. In addition,
Hokkaido Bank has set a holding period of 10 business days for
trading account securities (including public bonds traded overthe counter) and for specified fund trust as investment securities.
Hokkaido Bank also considers the correlation between interest
rates and the fluctuation of prices of the listed stocks incalculating VaR of specified fund trust as investment securities.
Hokuriku Bank’s VaR of the financial instruments in thebanking account was ¥54,250 million ($510,636 thousand)and ¥38,002 million as of March 31, 2018 and 2017,
respectively. Hokkaido Bank’s VaR of the financial instrumentsin the banking account was ¥21,414 million ($201,563
thousand) and ¥16,314 million as of March 31, 2018 and2017, respectively. Hokkaido Bank’s trading account securities
totaled ¥16 million ($151 thousand) and ¥6 million as of March
31, 2018 and 2017, respectively. Hokkaido Bank’s specified
fund trust totaled ¥4 million ($38 thousand) and ¥19 million asof March 31, 2018 and 2017, respectively.
The Banks perform back testing of the VaR measurement
model at fixed intervals. VaR measures the amount of market
risk by certain occurrence probabilities that are statisticallycalculated based on past market movements. Therefore, there
are cases in which VaR cannot capture risk under sudden anddramatic changes in markets beyond normal circumstances.
VaR shows the maximum loss during the holding period of
the financial instruments under a confidence interval (99%)
that is statistically calculated based on past market
movements. In particular, the Banks calculate 100BPV (100Basis Point Value) as supplements of the assets and liabilities
and change in their present value on the assumption thatindex interest rate rises by 1.00%.
Hokuriku Bank’s 100BPV was a ¥46,750 million increase($440,041 thousand increase) and a ¥5,574 million decrease
as of March 31, 2018 and 2017, respectively. Hokkaido Bank’s
100BPV was a ¥17,413 million increase ($163,902 thousand
increase) and a ¥33,352 million decrease as of March 31,2018 and 2017, respectively.
Hokuhoku Financial Group, Inc. Annual Report 2018

Other Income49

2018/07/31 9:26:06 / 18419414_株式会社ほくほくフィナンシャルグループ_総会その他（Ｃ）

For calculating 100BPV, the correlations between interest
rates and the other parameters are not considered because the
100BPV is measured on the assumption that risk parameters
other than interest rate remain unchanged. Actual risk canexceed the calculated 100BPV in the case of a drastic change
in interest rates beyond reasonable prior expectations.
(c) Liquidity Risk Management
In accordance with the Banks’ rules for management of liquidity
risk, the Banks form an accurate appraisal of fund operations
and procurement, and take measures to ensure smooth cash
flows. Specifically, the Banks set benchmarks in various
different categories to check liquidity risk on a daily basis, andmaintain adequate levels of high-liquidity assets that are readily
convertible into cash, such as government bonds.
We have in place mechanisms for periodically assessing
and managing liquidity risk through ALM committees, to prepare
for every possible scenario.
(4) Supplementary explanation relating to fair values offinancial instruments
The fair values of financial instruments include, in addition tovalues determined based on market prices, valuations
calculated on a reasonable basis if no market prices areavailable. Certain assumptions are used in the calculations ofsuch amounts. Accordingly, the results of such calculations mayvary if different assumptions are used.
(5) Fair value of financial instruments
The fair values of the main financial instruments at March 31,2018 and 2017 are as follows. These amounts do not include
unlisted stocks whose fair values are extremely difficult todetermine (see (b) Financial instruments whose fair values are
deemed to be extremely difficult to determine).
(a) Fair value of financial instruments
Millions of yen
March 31, 2018

Carrying
amountFair value

Cash and due from banks¥2,388,907 ¥2,388,907
Call loans and bills bought
52,75352,753
Monetary claims bought *1
44,17744,177
Securities
Bonds classified as
held-to-maturity
206,749
218,623
Available-for-sale securities
1,719,118
1,719,118
Loans and bills discounted
8,172,888(46,515)
Allowance for loan losses *1
8,126,372
8,203,364
Total assets¥12,538,079 ¥12,626,945
Deposits
Payables under securities
lending transactions
Borrowed money
Total liabilities
Derivative transactions *2
Derivative transactions not
qualifying for hedge accounting
Derivative transactions
qualifying for hedge accounting
Total derivative transactions
50

¥―
―
―

11,874―76,991¥88,866¥11,151,213 ¥11,151,561¥348

426,276
426,276
567,512566,257¥12,145,002 ¥12,144,095―(1,255)¥(907)¥2,791¥2,791¥―

2,708¥5,4992,708¥5,499—*3¥―

Hokuhoku Financial Group, Inc. Annual Report 2018

Other Income

Unrealized
gain (loss)

Millions of yen
March 31, 2017

Carrying
amountFair value

Cash and due from banks¥1,753,743 ¥1,753,743
Call loans and bills bought
89,41589,415
Monetary claims bought *1
54,79754,797
Securities
Bonds classified as
held-to-maturity
198,094
209,818
Available-for-sale securities
2,223,408
2,223,408
Loans and bills discounted
7,771,338(49,755)
Allowance for loan losses *1
7,721,582
7,808,998
Total assets¥12,041,041 ¥12,140,181
Deposits
Payables under securities
lending transactions
Borrowed money
Total liabilities
Derivative transactions *2
Derivative transactions not
qualifying for hedge accounting
Derivative transactions
qualifying for hedge accounting
Total derivative transactions

March 31, 2018

Derivative transactions *2
Derivative transactions not
qualifying for hedge accounting
Derivative transactions
qualifying for hedge accounting
Total derivative transactions¥———

11,723—87,416¥99,140¥10,701,271 ¥10,701,687¥415

534,362
534,362
325,331
325,073¥11,560,966 ¥11,561,123

—
(258)
¥157

¥(2,901)¥(2,901)¥—

1,341¥(1,559)

1,341¥(1,559)—*3¥—

Thousands of U.S. dollars
Carrying
Unrealized
amountFair value gain (loss)$22,485,955 $22,485,955
Cash and due from banks
Call loans and bills bought
496,546496,546
Monetary claims bought *1
415,830
415,830
Securities
Bonds classified as
held-to-maturity
1,946,061
2,057,829
Available-for-sale securities
16,181,464 16,181,464
Loans and bills discounted
76,928,543(437,834)
Allowance for loan losses *1
76,490,709 77,215,406
Total assets$118,016,565 $118,853,030
Deposits
Payables under securities
lending transactions
Borrowed money
Total liabilities

Unrealized
gain (loss)$104,962,472 $104,965,749
4,012,396$―――

111,768―

724,697$836,465$3,277

4,012,396―

5,341,799
5,329,981$114,316,667 $114,308,126(11,818)$(8,541)$26,275$26,275$―

25,493$51,768

25,493$51,768—*3$―*1. Allowance for loan losses shown in this table represents the generalallowance and specific allowance for loan losses. Figures forallowance for loan losses on monetary claims bought are directlydeducted from the balance of monetary claims bought as the amountconcerned is insignificant.
*2. Derivative transactions included in trading assets and liabilities andother assets and liabilities are shown together. Assets and liabilities
arising from derivative transactions are shown within parentheseswith respect to net liabilities.
*3. As interest-rate swaps subject to exceptional treatment are accounted
for together with the loans being hedged by the swaps, their fair value
is included in the loans in question on the consolidated balance sheet.

2018/07/31 9:26:06 / 18419414_株式会社ほくほくフィナンシャルグループ_総会その他（Ｃ）

Cash and due from banks
The fair values of due from banks with no maturity are
considered to be equal to the book value since the fair values ofthese items approximate their book values. The fair values ofdue from banks with maturity are calculated using the total cash
flows from principal and interest discounted by current market
interest rates, taking into account the credit risk involved. This
calculation is performed separately for each maturity length. In
the event that the terms of due from banks are one year or less,the book values are regarded as approximate to the fair values
and are therefore treated as such.
Call loans and bills bought
The fair values of call loans and bills bought are considered tobe equal to the book value since the contractual terms are one
year or less and fair values of these items approximate theirbook values.
Monetary claims bought
The fair values of trust beneficiary rights relating to mortgage
loans purchased by the Banks and relating to loan claims are
determined based on the quoted prices obtained fromcounterparty financial institutions. The fair values of small-lot
monetary claims resulting from asset liquidations are
determined by discounting the cash flows at the market interest
rates, taking into account the credit risk involved.
Securities
The fair values of stocks are calculated on the basis of theaverage price of the stocks on the stock market for the onemonth period immediately preceding the last day of theaccounting term. The fair values of bonds are calculated using
the price indicated on the securities market or other officiallyannounced prices. In the event that neither of these fair values
are available, the price is based on a reasonable estimate. For
investment trusts, the fair value is calculated on the basis of apublicly available benchmark price.
For privately-placed bonds guaranteed by one of the Banks,
the present value is separately calculated using the present
value discounted by a market interest rate where the credit riskof each bond issuer and the remaining period of the bonds are
considered.
For more detailed information regarding the different types of
securities classified according to holding purpose, see “6.
Securities.”
Loans and bills discounted
As loans with variable interest rates reflect short-term market
interest rates, the fair value will approximate the book value
unless the creditworthiness of the borrower changes
subsequent to the grading of the loan. Because of this, the bookvalue is employed as the fair value.
For loans with fixed interest rates, the fair value is calculatedusing the total future cash flows from principal and interest
discounted by current market interest rates, taking into accountthe credit risk involved. This calculation is performed separately
for each different category of loans, classified by type of loan,internal credit ratings, and maturity length. For loans whose
repayment period is one year or less, the book value is a close
approximation of the fair value and is therefore employed as
such.

Regarding the fair value of claims on bankrupt borrowers,
substantially bankrupt borrowers, and potentially bankrupt
borrowers, credit losses are estimated based on the present
value of estimated future cash flows or the estimated value
recoverable from collateral and guarantees. Since the fair value
approximates the value stated on the consolidated balance
sheet as of the settlement date, minus the present value of
estimated bad debt, this figure is treated as the fair value.
For the category of loans whose maturity is not fixed
because of the loan ceiling set within the estimated value
recoverable from the collateral, the book value is deemed toapproximate the fair value because of the expected period for
repayment and the interest rates applied. The book value istherefore employed as the fair value.
Deposits
For demand deposits, the amount payable on demand as of theconsolidated balance sheet date (i.e., the carrying amount) is
considered to be the fair value. In addition, the fair value of time
deposits is calculated by discounting the estimated future cash
flows for each of the specified periods. This calculation is
performed separately as per the remaining maturity of time
deposits. The discount rate employed is the interest rate thatwould be applied to newly accepted deposits. In the event thatthe deposit term is one year or less, the book value is deemed
to approximate the fair value and is therefore treated as such.
Payables under securities lending transactions
The fair values of Payables under securities lendingtransactions are considered to be equal to the book value since
the contractual terms are one year or less and fair values ofthese items approximate their book values.
Borrowed money
Borrowed money with floating interest rates reflects market
interest rates and because the credit standing of the Company
and its consolidated subsidiaries has changed little since taking
out such loans, the book value is deemed to approximate thefair value and is therefore treated as such.
For money borrowed through loans carrying fixed rates, thecurrent value of such loans is determined by discounting thetotal of their principal plus interest (separately for each specificperiod) at the rate currently applied to other loans of the same
duration and terms. For loans whose repayment period is one
year or less, the book value is deemed to approximate the fairvalue and is therefore treated as such.
Derivative transactions
Derivative transactions include interest rate-related transactions(futures, options, swaps, and others), foreign exchange-relatedtransactions (futures, options, swaps, and others), andcommodity-related transactions and are based on the prices on
securities exchanges, discounted value of future cash flows,
option pricing models, and others.
(b) Financial instruments whose fair values are deemed
to be extremely difficult to determine
Financial instruments whose fair values are deemed to be
extremely difficult to determine are indicated below, and are notincluded in “Monetary claims bought” and “Available-for-salesecurities” in the fair value information of financial instruments.

Hokuhoku Financial Group, Inc. Annual Report 2018

Other Income51

2018/07/31 9:26:06 / 18419414_株式会社ほくほくフィナンシャルグループ_総会その他（Ｃ）

Consolidated balance sheet amounts

March 31

Millions of yen
2018
2017

Thousands of
U.S. dollars
2018

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

¥―
27,131
0¥27,131$―255,376
4$255,380¥ 7,787
27,952
0¥35,740*1. These items are excluded from “fair value information of financial
instruments” on the basis that no market price is available and adetermination of the fair value would be extremely difficult.
*2. Unlisted stocks were written down by ¥73 million ($692 thousand) and¥106 million as of March 31, 2018 and 2017, respectively.

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

52

March 31, 2018

Due in 1 year
or less

Due after 1 year
through 3 years

Due from banks
Call loans and bills bought
Monetary claims bought
Securities
Bonds classified as held-to-maturity
Japanese government bonds
Japanese local government bonds
Japanese corporate bonds
Available-for-sale securities with maturities
Japanese government bonds
Japanese local government bonds
Japanese corporate bonds
Other
Loans and bills discounted
Total¥2,267,774
52,753
1,147
219,970
32,9652,500―
30,465
187,005
123,000
34,877
12,22816,8992,571,967¥5,113,613

¥―
―
884
657,355
61,471
3,020―
58,451595,884
367,800
146,117
38,61243,354
1,387,575¥2,045,815

March 31, 2017

Due in 1 year
or less

Due after 1 year
through 3 years

Due from banks
Call loans and bills bought
Monetary claims bought
Securities
Bonds classified as held-to-maturity
Japanese government bonds
Japanese local government bonds
Japanese corporate bonds
Available-for-sale securities with maturities
Japanese government bonds
Japanese local government bonds
Japanese corporate bonds
Other
Loans and bills discounted
Total¥1,630,534
89,415
1,314
276,478
29,4881,000—
28,488
246,990
170,600
49,82024,8581,711
2,227,413¥4,225,156¥———
632,836
55,7703,000—
52,770577,066
330,400
136,367
36,156
74,143
1,394,576¥2,027,413

Millions of yen
Due after 3 years Due after 5 years
through 5 years through 7 years

¥―
―
5,000
317,504
44,8931,000―
43,893
272,611
155,500
66,571
26,68823,851
1,038,584¥1,361,089¥――
147,558
5,495
500
―
4,995
142,062―
20,198
11,217
110,647
758,906¥906,465

Millions of yen
Due after 3 years Due after 5 years
through 5 years through 7 years

¥—
—
6,326
465,564
43,2282,520—
40,708422,336
263,900
77,79331,39549,2481,025,589¥1,497,480

Hokuhoku Financial Group, Inc. Annual Report 2018

Other Income、Maturity analysis for financial assets and securities with contractual maturities¥———
163,243
7,541
1,500
—
6,041
155,70252,00014,46812,52676,707
740,834¥904,077

Due after
7 years¥――
36,816262,119
62,30560,0001,500
805
199,814―44,70571,948
83,1602,255,087¥2,554,022

Due after
7 years¥——
46,683532,244
62,28060,0001,500
780
469,964—
44,316
71,738353,908
2,216,375¥2,795,304

2018/07/31 9:26:06 / 18419414_株式会社ほくほくフィナンシャルグループ_総会その他（Ｃ）

March 31, 2018

Due in 1 year
or less

Thousands of U.S. dollars
Due after 1 year Due after 3 years Due after 5 years
through 3 years
through 5 years through 7 years

Due from banks
Call loans and bills bought
Monetary claims bought
Securities
Bonds classified as held-to-maturity
Japanese government bonds
Japanese local government bonds
Japanese corporate bonds
Available-for-sale securities with maturities
Japanese government bonds
Japanese local government bonds
Japanese corporate bonds
Other
Loans and bills discounted
Total$21,345,767
496,546
10,8042,070,509
310,288
23,532―286,756
1,760,221
1,157,759
328,294
115,098
159,070
24,209,029$48,132,655

$―
―
8,321
6,187,460
578,60928,426―550,183
5,608,851
3,461,973
1,375,355
363,441
408,082
13,060,762$19,256,543$――
47,063
2,988,563
422,562
9,413―
413,149
2,566,001
1,463,667
626,611251,212
224,511
9,775,837$12,811,463$―――
1,388,918
51,731
4,706―
47,025
1,337,187―
190,117
105,587
1,041,483
7,143,321$8,532,239

Due after
7 years$――
346,537
2,467,241
586,455
564,759
14,1197,577
1,880,786―
420,799
677,226
782,761
21,226,348$24,040,126

Loans and bills discounted
Claims on bankrupt borrowers, substantially bankrupt borrowers, and potentially bankrupt borrowers amounted to ¥129,439 million($1,218,368 thousand) and ¥138,724 million as of March 31, 2018 and 2017, respectively, and loans with no contractual maturities
amounted to ¥31,327 million ($294,877 thousand) and ¥27,823 million as of March 31, 2018 and 2017, respectively. They are notincluded in the table above.
(7) Maturity analysis for financial liabilities with contractual maturities

March 31, 2018

Due in 1 year
or less

Due after 1 year
through 3 years

Deposits
Payables under securities lending transactions
Borrowed money
Total¥10,119,199
426,276
11,666¥10,557,142¥779,762―
282,672¥1,062,435

March 31, 2017

Due in 1 year
or less

Due after 1 year
through 3 years

Deposits
Payables under securities lending transactions
Borrowed money
Total¥9,652,479
534,362
136,804¥10,323,646¥799,765—
153,463¥953,229

March 31, 2018

Due in 1 year
or less

Due after 1 year
through 3 years

Deposits
Payables under securities lending transactions
Borrowed money
Total$95,248,488
4,012,396
109,809$99,370,693$7,339,630―
2,660,702$10,000,332

Millions of yen
Due after 3 years Due after 5 years
through 5 years through 7 years¥241,982―
257,522¥499,505¥4,188―15,440¥19,629

Millions of yen
Due after 3 years Due after 5 years
through 5 years through 7 years¥240,192—
19,628¥259,821¥3,607—
15,340¥18,947

Due after
7 years¥6,080―210¥6,290Due after
7 years¥5,226—95¥5,321Thousands of U.S. dollars
Due after 3 years Due after 5 years
through 5 years through 7 years$2,277,698―
2,423,972$4,701,670$39,424―
145,339$184,763

Due after
7 years$57,232―
1,977$59,209

Deposits
Demand deposits are included in “Due in 1 year or less.”

Hokuhoku Financial Group, Inc. Annual Report 2018

Maturity analysis for financial assets and securities with contractual maturities、Maturity analysis for financial liabilities with
contractual maturities53

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

March 31, 2018

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

March 31, 2017

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

March 31, 2018

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

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

¥128,851
129,035/¥116,740
116,776/¥3,513(2,382)¥1,131Millions of yen
Notional principal or contract amount
Fair value
Total
Due after 1 year

¥224,449
224,700/¥218,883
219,512/¥4,915(3,271)¥1,643Thousands of U.S. dollars
Notional principal or contract amount
Fair value
Total
Due after 1 year

$1,212,834
1,214,570/$1,098,837
1,099,173/$33,075(22,428)$10,647

Unrealized gain (loss)¥3,531(2,382)¥1,148

Unrealized gain (loss)¥5,041(3,271)¥1,769Unrealized gain (loss)$33,242(22,428)$10,814

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

• Foreign Exchange-Related Transactions

March 31, 2018

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

March 31, 2017

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

March 31, 2018

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

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

¥3,784
72,40054,651
52,95952,959/¥3,784235
159
19,47919,479
/

¥3
1,793
(162)
(1,246)
1,246¥1,633

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

¥21
149,424
43,76680,91680,916
/

¥—
258
168
38,91738,917/¥0(4,794)208(2,649)2,650¥(4,584)

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

$35,618
681,477
514,418
498,492
498,492/$35,6182,217
1,500
183,351
183,351/$29
16,880(1,530)(11,736)
11,730$15,373

Unrealized gain (loss)

¥3
1,793
(162)
4,194
(3,863)¥1,965

Unrealized gain (loss)¥0(4,794)208
6,243(5,570)¥(3,911)

Unrealized gain (loss)$29
16,880(1,530)39,485(36,365)$18,499

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

54

Hokuhoku Financial Group, Inc. Annual Report 2018

Derivative transactions to which hedge accounting is not applied

2018/07/31 9:26:06 / 18419414_株式会社ほくほくフィナンシャルグループ_総会その他（Ｃ）• Commodity-Related Transactions
Millions of yen
Notional principal or contract amount
Fair value
Total
Due after 1 year

March 31, 2018

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

¥556
556
/

¥555
555
/

¥(69)
96
¥27

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

March 31, 2017

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

¥708
708
/

¥691
691
/

¥(26)
65
¥38

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

March 31, 2018

Over-the-counter transactions
Swaps
Receive/fixed and pay/floating
Receive/floating and pay/fixed
Total$5,242
5,242/$5,2315,231/$(652)
907$255

Unrealized gain (loss)

¥(69)
96
¥27

Unrealized gain (loss)

¥(26)
65
¥38

Unrealized gain (loss)$(652)
907$255

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

(2) Derivative transactions to which hedge accounting is appliedWith respect to derivatives to which hedge accounting is applied, notional principal or contract amount and fair value at the balance
sheet date by transaction type and hedge accounting method and computation method of the fair value are as follows. Note that
contract amounts do not represent the market risk exposure of derivative transactions.
• Interest Rate-Related Transactions
March 31, 2018
Hedge accounting method

Type

Hedged item

Accounting method
employed in principle

Swaps
Receive/floating and pay/fixed
Swaps
Receive/floating and pay/fixed

Yen-based bondExceptional treatment forinterest swaps

March 31, 2017
Hedge accounting method

Type

Hedged item

Accounting method
employed in principle

Swaps
Receive/floating and pay/fixed
Swaps
Receive/floating and pay/fixed

Yen-based bondMarch 31, 2018
Hedge accounting method

Type

Hedged item

Accounting method
employed in principle

Swaps
Receive/floating and pay/fixed
Swaps
Receive/floating and pay/fixed

Yen-based bond

Total

¥55,000¥55,000¥(1,475)

18,033/18,013/(Note)¥(1,475)

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

Fair value¥55,000¥55,000¥(1,748)

6,250
/

6,239
/

(Note)¥(1,748)

Loans and bills discounted

Total

Exceptional treatment forinterest swaps

Fair value

Loans and bills discounted

Total

Exceptional treatment forinterest swaps

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

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

$517,696$517,696$(13,891)

169,741/

169,553/(Note)$(13,891)

Loans and bills discounted

Notes: 1. Deferred hedge accounting is mainly applied in accordance with JICPA Industry Audit Committee Report No. 24.
2. The fair value is determined using the discounted value of future cash flows, option pricing models, etc.
3. Amounts resulting from interest swaps with exceptional treatment are accounted for together with the financial instruments hedged. As a result,the fair value is included in the fair value of the loans stated in “30. Financial Instruments and Related Disclosures.”Hokuhoku Financial Group, Inc. Annual Report 2018

Derivative transactions to which hedge accounting is not applied、Derivative transactions to which hedge accounting is applied55

2018/07/31 9:26:06 / 18419414_株式会社ほくほくフィナンシャルグループ_総会その他（Ｃ）• Foreign Exchange-Related Transactions
March 31, 2018
Hedge accounting method

Accounting method
employed in principle

Type

Swaps
Forward contracts

Hedged item

Foreign loans and foreign
securities
Call loans and due frombanks (foreign currencies)

Total
March 31, 2017
Hedge accounting method

Accounting method
employed in principle

Type

Swaps
Forward contracts

Hedged item

Foreign loans and foreign
securities
Call loans and due frombanks (foreign currencies)

Total
March 31, 2018
Hedge accounting method

Accounting method
employed in principle

Type

Swaps
Forward contracts

Hedged item

Foreign loans and foreign
securities
Call loans and due frombanks (foreign currencies)

Total

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

Fair value¥42,416¥146¥3,752

29,739/―/432¥4,184

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

Fair value¥50,598¥22,452¥2,362

63,189/—/728¥3,090Thousands of U.S. dollars
Notional principal or contract amount
Fair value
Total
Due after 1 year

$399,251$1,375$35,316

279,930
/

―
/

4,068
$39,384

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

32. Segment Information
An entity is required to report financial and descriptive information about its reportable segments. Reportable segments are operating
segments or aggregations of operating segments that meet specified criteria. Operating segments are components of an entity about
which separate financial information is available and such information is evaluated regularly by the chief operating decision maker in
deciding how to allocate resources and in assessing performance. Generally, segment information is required to be reported on thesame basis as is used internally for evaluating operating segment performance and deciding how to allocate resources to operating
segments.
(1) Outline of reportable segments
A reportable segment is defined as an operating segment for which discrete financial information is available and examined by the
Board of Directors and Management Committees regularly in order to make decisions about resources to be allocated to the segment
and assess its performance.
The Group comprehensively conducts banking business as its core business and other financial services under the control of theCompany.
The Company recognized each of its consolidated subsidiaries as an operating segment. Therefore, Hokuriku Bank and Hokkaido
Bank are reportable segments.
(2) Method of calculating ordinary income, profit (loss), assets, liabilities, and other amounts by reportable segments
The method of calculation applied to the reportable segments is the same as that described in “Significant Accounting Policies.” Profits
of reportable segments are the same as net income. Ordinary income from intersegment transactions is based on transaction prices
determined in the same manner as ordinary income from outside customers.

56

Hokuhoku Financial Group, Inc. Annual Report 2018

Derivative transactions to which hedge accounting is applied、Segment Information

2018/07/31 9:26:06 / 18419414_株式会社ほくほくフィナンシャルグループ_総会その他（Ｃ）(3) Information on ordinary income, profit (loss), assets, liabilities, and other amounts by reportable segments
Segment results for the years ended March 31, 2018 and 2017 are as follows:

Reportable segments
Hokuriku Bank Hokkaido Bank
Subtotal

Ordinary income
Ordinary income from outside customers
Ordinary income from intersegment transactions
Total
Segment profit
Segment assets
Segment liabilities
OthersDepreciation
Amortization of goodwill
Unamortized balance of goodwill
Increase in tangible fixed assets and intangible
fixed assets¥90,102
1,037
91,13915,772
7,732,938¥7,377,520¥77,012¥167,115
1,209
2,246
78,222
169,361
8,265
24,0375,220,060 12,952,999¥5,000,588 ¥12,378,109

Total¥20,359¥187,475
4,512
6,759
24,872
194,234
1,816
25,854
93,102 13,046,101¥70,016 ¥12,448,125¥(6,558)¥180,916(6,759)―(13,317)
180,916(4,663)
21,191(49,808) 12,996,292¥(61,980) ¥12,386,145¥2,599――¥6,452
―
―

¥324
―
―

¥6,776
―
―

¥(0)
2,102
13,489¥6,776
2,102
13,489¥6,741¥3,927¥10,668¥273¥10,942¥12¥10,955¥92,072923
92,99518,732
7,329,338¥6,991,212¥78,220¥170,292
754
1,678
78,974
171,970
10,94329,6755,051,619 12,380,957¥4,841,517 ¥11,832,730

Millions of yen
2017
Other
segment

Total¥18,849¥189,141
4,485
6,163
23,334
195,304
2,193
31,86888,167 12,469,124¥66,359 ¥11,899,089

Reconciliation Consolidated¥(1,721)¥187,420(6,163)—(7,884)
187,420(3,711)
28,157(39,698) 12,429,425¥(54,901) ¥11,844,188¥3,357——¥2,273——¥5,631
—
—

¥261
—
—

¥5,893
—
—

¥(11)
2,943
15,591¥5,881
2,943
15,591¥6,405¥3,184¥9,590¥408¥9,999¥15¥10,015

Thousands of U.S. dollars
2018
Reportable segments
Other
segment
Total
Hokuriku Bank Hokkaido Bank
Subtotal

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

Reconciliation Consolidated¥3,853――

Reportable segments
Hokuriku Bank Hokkaido Bank
Subtotal

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

Millions of yen
2018
Other
segment$848,105
9,764
857,869
148,457
72,787,449$69,442,027$724,895 $1,573,000
11,381
21,145736,276
1,594,145
77,797226,254
49,134,608 121,922,057$47,068,795 $116,510,822$191,640 $1,764,640
42,47563,620234,115
1,828,260
17,102
243,356
876,339 122,798,396$659,038 $117,169,860

Reconciliation Consolidated$(61,735) $1,702,905(63,620)―(125,355)
1,702,905(43,892)
199,464(468,832) 122,329,564$(583,399) $116,586,461$36,273――$24,466――$60,739――$3,050――$63,789――$(6)
19,788
126,972$63,783
19,788
126,972$63,454$36,965$100,419$2,577$102,996$120$103,116

Hokuhoku Financial Group, Inc. Annual Report 2018

Segment Information57

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Millions of yen
Investment
operations
Other

Deposit andloan operations

Year ended March 31, 2018

Ordinary income from outside customers¥102,547¥37,241

Year ended March 31, 2017

¥105,420¥40,630

Year ended March 31, 2018

Total

¥41,369¥187,420

Thousands of U.S. dollars
Investment
operations
Other

Deposit andloan operations

Ordinary income from outside customers¥180,916

Millions of yen
Investment
Other
operations

Deposit andloan operations

Ordinary income from outside customers

Total¥41,127$965,246$350,538

Total$387,121$1,702,905(5) Geographic segment information
There is no geographic segment outside Japan accounting for 10% or more of ordinary income and tangible fixed assets.
(6) Information by major customer
There are no major customers individually accounting for 10% or more of ordinary income.

33. Related Party Transactions
Related party transactions as of March 31, 2018 and 2017 were as follows:• Officers and principal individual shareholders of the company submitting consolidated financial statements
March 31, 2018
Transaction amount *5
Related party

Account Classification

Balance at end of year

Millions of yen

Thousands of
U.S. dollars

Millions of yen

Thousands of
U.S. dollars¥950$8,942¥950$8,942

¥783
¥355
¥15

$7,370$3,341
$141

¥783
¥332
¥14

$7,370$3,125$132

Nakamura-Tome Precision Industry Co., Ltd.
Loans and bills discounted*2
NAKAMURA-TOME HOLDING CO., LTD. *2 Loans and bills discounted
YUGEYA Inc.*3
Loans and bills discounted *6
Kimito Tsurui *4Loans and bills discounted *6
March 31, 2017
Related party

Account Classification

Nakamura-Tome Precision Industry Co., Ltd.
Loans and bills discounted*2
NAKAMURA-TOME HOLDING CO., LTD. *2 Loans and bills discounted
YUGEYA Inc.*3
Loans and bills discounted *6
Kimito Tsurui *4Loans and bills discounted *6

Transaction amount *5

Balance at end of year

Millions of yen

Millions of yen

¥950

¥950

¥783
¥400
¥18

¥783
¥377
¥16

Notes:1. Terms and conditions of the transactions are similar to those with unrelated parties.
2. A member of the Hokuriku Bank’s audit & supervisory board and his close relatives own the majority of the voting rights, and he is the president ofthese companies.
3. A close relative of a member of the Group’s directors owns the majority of this company’s voting rights.
4. Mr. Tsurui is a close relative of a member of the Group’s directors.
5. Transaction amount was reported at the average balance for the period.
6. Land and buildings were pledged as collateral for the loans.

34. Subsequent Events
Appropriations of retained earnings
The following appropriations of retained earnings at March 31, 2018 were approved at the Company’s general shareholders’ meeting
held on June 22, 2018:

Cash dividends, ¥44.00 ($0.41) per share of common stock
Cash dividends, ¥7.50 ($0.07) per share of preferred stock (Type 5)58

Hokuhoku Financial Group, Inc. Annual Report 2018

Segment Information、Related Party Transactions、Subsequent Events

Millions of yen

Thousands of
U.S. dollars¥5,766805$54,2837,584

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INDEPENDENT AUDITOR’S REPORT

Hokuhoku Financial Group, Inc. Annual Report 2018

INDEPENDENT AUDITOR’S REPORT59

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NON-CONSOLIDATED FINANCIAL STATEMENTS

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

2018

2017

Thousands of
U.S. dollars
2018

Cash and due from banks¥1,465,060¥1,108,739$13,790,103

Call loans and bills bought

52,75389,415496,546

Monetary claims bought

44,17762,585415,830

Millions of yen
March 31

AssetsTrading assets

1,491

1,804

14,038

Securities

1,317,103

1,457,677

12,397,439

Loans and bills discounted

4,670,149

4,467,623

43,958,482

Foreign exchanges

12,087

9,496

113,775

Other assets

77,44136,436

728,932

Tangible fixed assets

76,791

77,159722,810Intangible fixed assets

5,963

4,920

56,135

Customers’ liabilities for acceptances and guarantees

28,59331,547269,141

Allowance for loan losses
Total assets(18,675)(18,066)(175,782)¥7,732,938¥7,329,338$72,787,449

Liabilities and equity
Liabilities¥6,505,825¥6,243,398$61,237,065

Call money and bills sold

Deposits

45,31236,267426,506

Payables under repurchase agreements

18,528―

174,400

Payables under securities lending transactions

392,551394,220

3,694,949

Trading liabilities

683

861

6,430

Borrowed money

338,167

207,747

3,183,048

Foreign exchanges

47

57

443

Other liabilities

21,18153,501

199,369

Reserve for employee retirement benefits

10,660

1,132

1,608

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

43

43

409

Reserve for contingent losses

876

925

8,249

Reserve for reimbursement of deposits

1,331

1,075

12,533

Deferred tax liabilities

17,76014,272

167,169

Deferred tax liabilities for land revaluation

5,487

5,686

51,656

Acceptances and guarantees

28,59331,547269,141

7,377,520

6,991,212

69,442,027

Capital stock

140,409140,409

1,321,626

Capital surplus

14,99814,998141,179

Retained earnings

122,717

108,584

1,155,093
655,358

Total liabilities
EquityValuation and translation adjustments
69,62566,348Deferred gains (losses) on hedges

Valuation difference on available-for-sale securities(975)(1,208)(9,183)

Revaluation reserve for land

8,642

8,993

81,349Total equity
Total liabilities and equity

60

Hokuhoku Financial Group, Inc. Annual Report 2018

NON-CONSOLIDATED BALANCE SHEET (UNAUDITED)_Hokuriku

355,417

338,125

3,345,422¥7,732,938¥7,329,338$72,787,449

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NON-CONSOLIDATED STATEMENT OF INCOME (UNAUDITED)The Hokuriku Bank, Ltd.
Thousands of
U.S. dollars
2018

Millions of yen
2018

2017

IncomeInterest income:Interest on loans and discounts¥47,486¥49,944$446,974

Interest and dividends on securities

18,106

17,033

170,427

Interest on deposits with other banks

646

627

6,089

Other interest income

226

509

2,128

16,262

15,934

153,073

Fees and commissions
Trading income
Other ordinary income

45

71

423

2,013

1,879

18,953

Other income

6,444

7,099

60,663

Total income

91,231

93,100858,730

1,047

1,308

9,859

148

―

1,398

1,713

1,421

16,132

Expenses
Interest expenses:
Interest on deposits
Interest on payables under repurchase agreements
Interest on payables under securities lending transactions
Interest on borrowings and rediscounts

412

628

3,885

1,986

1,951

18,702Fees and commissions

7,154

6,905

67,338Other ordinary expenses

3,385

4,075

31,864General and administrative expenses

48,15450,096453,263

Provision of allowance for loan losses

1,671

―

15,735

Other expenses

3,293

2,575

31,003

Total expenses

68,96868,965649,179

Income before income taxes

22,262

24,135

209,551

Other interest expenses

Income taxes:
Current

5,502

3,947

51,796

Deferred

987

1,455

9,298

Net income¥15,772¥18,732$148,457

Hokuhoku Financial Group, Inc. Annual Report 2018

NON-CONSOLIDATED STATEMENT OF INCOME (UNAUDITED)_Hokuriku

61

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NON-CONSOLIDATED FINANCIAL STATEMENTS

NON-CONSOLIDATED BALANCE SHEET (UNAUDITED)The Hokkaido Bank, Ltd.
Thousands of
U.S. dollars
2018

Millions of yen
March 31

2018

2017

Cash and due from banks¥923,208¥644,373$8,689,835

Trading account securities

2,906

2,842

27,359

Money held in trust

9,491

9,251

89,338AssetsSecurities
Loans and bills discounted

626,231981,696

5,894,497

3,519,283

3,320,734

33,125,787

Foreign exchanges

6,694

6,763

63,017

Other assets

94,94949,722

893,728

Tangible fixed assets

29,151

29,235274,391

Intangible fixed assets

4,563

3,407

42,952

Deferred tax assets

1,110

5,326

10,449Customers’ liabilities for acceptances and guarantees

24,64624,181

231,987

Allowance for loan losses
Total assets(22,175)(25,916)(208,731)¥5,220,060¥5,051,619$49,134,609$44,003,608

Liabilities and equity
Liabilities¥4,674,943¥4,487,666

Payables under securities lending transactions

Deposits

33,725140,142

317,446

Borrowed money

249,400

139,792

2,347,515

139

45

1,310

Other liabilities

14,51340,996

136,609

Reserve for employee retirement benefits
Reserve for directors’ and audit & supervisory board members’ retirement
benefits
Reserve for contingent losses

2,048

7,504

19,284

104

104

985

477

567

4,498

589

514

5,553

24,64624,181

231,987

5,000,588

4,841,517

47,068,795

Foreign exchanges

Reserve for reimbursement of deposits
Acceptances and guarantees
Total liabilities
EquityCapital stock

93,524

93,524880,309

Capital surplus

16,795

16,795

158,086

Retained earnings

86,931

81,250818,253

Valuation and translation adjustments
Valuation difference on available-for-sale securities
Total equity
Total liabilities and equity

62

Hokuhoku Financial Group, Inc. Annual Report 2018

NON-CONSOLIDATED BALANCE SHEET (UNAUDITED)_Hokkaido

22,221

18,531

209,166

219,472

210,101

2,065,814¥5,220,060¥5,051,619$49,134,609

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NON-CONSOLIDATED STATEMENT OF INCOME (UNAUDITED)The Hokkaido Bank, Ltd.
Thousands of
U.S. dollars
2018

Millions of yen
2018

2017

¥43,438¥44,214$408,873
79,428

IncomeInterest income:Interest on loans and discounts
Interest and dividends on securities

8,438

9,637

Interest on receivables under resale agreements

(10)

(1)

(98)

Interest on deposits with other banks

275

285

2,597

177

157

1,667

Fees and commissions

Other interest income

17,19917,341

161,893

Other ordinary income

1,382

1,738

13,017

Other income

9,838

5,601

92,606

Total income

80,74078,974759,983

Interest on deposits

462

533

4,356

Interest on payables under securities lending transactions

305

61

2,872

Interest on borrowings and rediscounts

187

311

1,768

7

2

73

Fees and commissions

9,591

8,543

90,280

Other ordinary expenses

12,3694,549

116,429

General and administrative expenses

42,31743,177398,317

Other expenses

4,267

6,621

40,173

Total expenses

69,50963,801

654,268

Income before income taxes

11,231

15,173

105,715

Current

498

2,605

4,690

Deferred

2,467

1,623

23,228Net income¥8,265¥10,943$77,797

Expenses
Interest expenses:

Other interest expenses

Income taxes:

Hokuhoku Financial Group, Inc. Annual Report 2018

NON-CONSOLIDATED STATEMENT OF INCOME (UNAUDITED)_Hokkaido

63

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CORPORATE INFORMATION(as of March 31, 2018)

Business activities
The Hokuhoku Financial Group is composed of the holding company and 12 consolidated subsidiaries and one affiliate. Our corebusiness is banking, and we also provide a wider range of financial services including leases, credit cards, loan guarantees and venture
capital. The following is a diagram of our business.

Business diagram

Hokuhoku Financial Group, Inc.
The Hokuriku Bank, Ltd.
Hokugin Business Services Co., Ltd.
(Document management,
concentrated business processing)

Hokuhoku Tokai Tokyo Securities Co., Ltd.
(Financial instruments business)

The Hokkaido Bank, Ltd.

Hokugin Lease Co., Ltd.
(Leasing)

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

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

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

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

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

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

Hokuhoku Capital Co., Ltd.*(Venture capital)

Major subsidiaries
Address

Company nameMain business activities

Capital(units: millions of yen, %)FG’s share of Dividend
voting rights

The Hokuriku Bank, Ltd.

1-2-26 Tsutsumicho-dori, Toyama City Banking

July 31, 1943

140,409100.001,990

The Hokkaido Bank, Ltd.

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

March 5, 1951

93,524100.002,584

Hokuhoku Tokai Tokyo
Securities Co., Ltd.

1-8-10 Marunouchi, Toyama City Financial instruments business April 21, 2016

1,250

60.00

—

July 21, 1983

100

70.25

—

March 2, 1983

36

87.39

3

Hokuriku Hosho Services Co., Ltd. 1-2-26 Tsutsumicho-dori, Toyama City Loan guarantees

December 12, 1978

50

100.00—

Hokugin Software Co., Ltd.

1-5-25 Higashidenjigata, Toyama City

Software development

May 1, 198630

100.00—

Hokuhoku Services Co., Ltd.

1-6-8 Chuo-dori, Toyama City

Servicer

December 5, 2003

500

100.00—March 25, 195330

(100.00)—

June 8, 1979

50

(100.00)—

June 13, 1977

120

(100.00)—

August 8, 2002

100

(100.00)—

January 11, 1985

250

5.00
(38.75)—

Hokugin Lease Co., Ltd.

2-21 Aramachi, Toyama City

Hokuriku Card Co., Ltd.

1-2-1 Shintomi-cho, Toyama City Credit card operations

Hokugin Business Services Co., Ltd. 1883 Hiyodorijima, Toyama City

LeasingDocument management,
concentrated business processing
Dogin Business Service, Ltd.
4-1 Odori Nishi, Chuo-ku, Sapporo City Document management, cash
management, concentrated
business processing
Dogin Card Co., Ltd.
2-2-14 Chuo-ku Minami, Sapporo City Credit card operations, loan
guarantees
Dogin Regional Research Institute Dogin Annex Building, 4-1
Research on regional economy,
Co., Ltd.
Odori Nishi, Chuo-ku, Sapporo City survey research services,
consulting
Hokuhoku Capital Co., Ltd.
1-6-8 Chuo-dori, Toyama City
Venture capital( ) Indicates voting rights involving shares held by subsidiaries

64

Established

Hokuhoku Financial Group, Inc. Annual Report 2018

CORPORATE INFORMATION

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

Establishment

History

The Hokuriku Bank has its origins as the Kanazawa 12th
National Bank, which was established on August 26, 1877, with

August 1877
February 1879
January 1884

the House of Kaga-Maeda providing 70% of the capital. The
bank was the creation of the family established by Maeda
Toshiie, the founder of the Kaga clan.
Since its founding, the bank has worked hand-in-hand withcustomers in the region, and grown into a bank with a wide
branch network covering Hokuriku, Hokkaido, as well asJapan’s three major metropolitan areas. Based on the bank’s
management philosophy of “Prospering Together with theRegion,” “Fair & Steady Management”, and “Progressive &Innovative Services,” Hokuriku Bank draws fully on its
management resources to provide high-quality comprehensive
financial services, aiming to become the bank preferred andrelied on by local communities.

July 1897
July 1943
January 1950
September 1961
November 1961
January 1971
November 1973
March 1974
July 1978

Company outline (as of March 31, 2018)
Company name:Business:
Incorporation:
Location of headquarters:

The Hokuriku Bank, Ltd.
Banking
July 31, 1943 (founded in 1877)

1-2-26 Tsutsumicho-dori, Toyama City, Toyama
Total assets:¥7,732.9 billion
Deposits (including NCDs): ¥6,505.8 billion
Loans and bills discounted: ¥4,670.1 billion
Issued shares:
Common stock:
1,047,542,335
Capital adequacy ratio(non-consolidated):
9.02%
Employees:
2,732
Branches (as of June 30, 2018)
Domestic:
187 (145 branches, 42 sub-branches)
Overseas:
6 representative offices

October 1979
November 1981
January 1984
May 1987
August 1990
November 1993
December 1998
June 2000
July 2000
January 2001
April 2001
February 2002
February 2002
October 2002
March 2003
September 2003

September 2004

December 2004
March 2006
May 2011
December 2013
October 2015

Kanazawa 12th National Bank foundedToyama 123rd National Bank founded
Kanazawa 12th National Bank and Toyama 123rd
National Bank merged to form Toyama 12th
National Bank with headquarters in Toyama City
Toyama 12th National Bank changed nameto 12th Bank
Four banks, 12th, Takaoka, Chuetsu, andToyama Bank, merged to form Hokuriku Bank
Launched foreign exchange operations (firstregional bank to do so)
Listed on the Tokyo Stock Exchange
Completed present head office
Received blanket approval to engage incorrespondent banking services
Launched first online system
Received blanket approval to engage in
foreign exchange business
Received blanket approval to handle yendenominated and foreign-denominatedsyndicated loans
Launched second online system
Launched online foreign exchange system
Launched firm banking service
Introduced VI (visual identity)
Launched third online system
Launched investment trust agent operations
Launched over-the-counter sales of
securities investment trusts
Launched Internet and mobile banking services
Completed new computer center (Alps building)Launched new computer system
Launched over-the-counter sales of casualty
insurance
Third-party allocation worth ¥39.1 billion,
brought new capital to ¥140.4 billion
Launched convenience store ATM service
Launched over-the-counter sales of life insurance
Took over part of the Ishikawa Bank’s operations
Established Hokugin Financial Group, Inc.
through share transfer, then became a subsidiaryof the Hokugin Financial Group, Inc.
Integrated management with HokkaidoBank, name of parent company changed to
Hokuhoku Financial Group, Inc.
Launched securities agency operations
Entered into a contract on joint system use with
Hokkaido Bank and the Bank of Yokohama
Commenced use of joint IT system with
Hokkaido Bank and the Bank of Yokohama
The head office building was registered as aTangible Cultural Property (structures)
Opened an individual consulting base“Hokugin Plaza”

Hokuhoku Financial Group, Inc. Annual Report 2018

The Hokuriku Bank, Ltd.

65

2018/07/31 9:26:06 / 18419414_株式会社ほくほくフィナンシャルグループ_総会その他（Ｃ）

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

Establishment

History

Hokkaido Bank was established on March 5, 1951, in response

March 1951
April 1961
May 1962
August 1964
June 1971
July 1976
December 1980

to the strong demand for financing from small and mediumsized corporations in Hokkaido 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 it its mission to contributeto regional economic growth by smoothly providing financing
and quality financial services to its customers in Hokkaido.
Going forward, Hokkaido Bank will never abandon the spirit withwhich it was created, and will continue to move forward together
with its customers in Hokkaido.

Company outline (as of March 31, 2018)
Company name:Business:
Incorporation:
Location of headquarters:

The Hokkaido Bank, Ltd.
Banking
March 5, 1951

4-1 Odori Nishi, Chuo-ku, Sapporo City
Total assets:¥5,220.0 billion
Deposits (including NCDs): ¥4,674.9 billion
Loans and bills discounted: ¥3,519.2 billion
Issued shares:
Common stock:486,634,512
Preferred stock (Type 2): 107,432,000
Capital adequacy ratio(non-consolidated):
9.28%
Employees:
2,309
Branches (as of June 30, 2018)
Domestic:
142 (136 branches, 6 sub-branches)
Overseas:
3 representative offices

April 1981
June 1986
September 1987
October 1990
March 1991
October 1991
November 1991
January 1993
April 1994
December 1998
July 1999
November 1999
June 2000
April 2001
October 2002
December 2003
April 2004
September 2004

April 2005
March 2006

August 2006
March 2009
January 2010
May 2011
March 2014

66

Hokuhoku Financial Group, Inc. Annual Report 2018

The Hokkaido Bank, Ltd.

Hokkaido Bank establishedLaunched foreign exchange operations
Listed on the Sapporo Stock Exchange
Completed present head office
Launched first online system
Launched second online system
Received blanket approval to engage incorrespondent banking services
Hokkaido Small and Medium Corporation Human
Resource Development Fund establishedLaunched online foreign exchange system
Listed on the first section of the Tokyo Stock
Exchange
Completed the Higashi Sapporo Dogin Building
Established Dogin Cultural Foundation
Launched a new foreign exchange online system
Completed Dogin Building Annex
Launched third online system
Launched investment trust agent operations
Launched over-the-counter sales of
securities investment trusts
Issued preferred stock (Type 2) (issuanceamount was ¥53.716 billion)
Launched telephone banking service
Launched Internet mobile banking
Launched over-the-counter sales of casualty
insurance
Launched over-the-counter sales of life insurance
Opened Business Loan Plaza
Launched convenience store ATM service
Came under management of Hokugin Financial
Group, Inc., parent of Hokuriku Bank; Hokuhoku
Financial Group, Inc. launched
Launched securities agency operations
Entered into a contract on joint system use
with Hokuriku Bank and the Bank of
Yokohama
Opened representative office in Shenyang, China
Opened representative office in YuzhnoSakhalinsk, Russia
Taiwan ATM/SmartPay Debit Service started
Commenced use of joint IT system with
Hokuriku Bank and the Bank of Yokohama
Opened representative office in Vladivostok,
Russia2018/07/31 9:26:06 / 18419414_株式会社ほくほくフィナンシャルグループ_総会その他（Ｃ）

DIRECTORS
Hokuhoku Financial Group, Inc.

Addresses

President:
Eishin Ihori

Hokuhoku Financial Group, Inc.

The Hokkaido Bank, Ltd.

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

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

Deputy President:
Masahiro Sasahara

Directors:
Hidenori Mugino
Yuji Kanema
Takeshi Yoshida
Takashi Asabayashi
Takayuki Kaji
Directors serving as
Audit and Supervisory
Committee Members:
Satoshi Kikushima
Tatsuo Kawada
Ryoji Nakagawa
Masaaki Manabe
Nobuya Suzuki

The Hokuriku Bank, Ltd.
Chairman:
Hidenori Mugino

Directors:
Takayuki Kaji

President:
Eishin Ihori

Audit & Supervisory
Board Members:
Keiichi Akai
Kenichi Nakamura
Isao Nagahara
Katsusuke Watanuki

Senior Managing
Director:Takeshi Yoshida
Managing Directors:
Takashi Asabayashi
Hiroaki Ishida
Hiroshi Nakazawa

The Hokkaido Bank, Ltd.
Chairman:
Yoshihiro Sekihachi

Director:
Tsuneaki Yoshida

President:
Masahiro Sasahara

Audit & Supervisory
Board Members:
Akira Sakai
Ken Ebina
Shuji Iwamura
Satoshi Chiba

Deputy President:
Takashi Ohki
Managing Directors:
Yuji Kanema
Atsushi Uchiyama
Takashi Ogura

The Hokuriku Bank, Ltd.
International Department
1-2-26, Tsutsumicho-dori Toyama
City, Toyama 930-8637, Japan
Telephone: +81-76-423-7815
Facsimile: +81-76-423-7561
E-mail: kokusaibu@hokugin.co.jp
International Operations Center
2-1-1, Nihonbashi-muromachi,
Chuo-ku, Tokyo 103-0022, Japan
Telephone: +81-3-3231-7329
Facsimile: +81-3-3270-5028
E-mail: b.office@hokugin.co.jp
SWIFT Address: RIKBJPJTTreasury and Securities Department
2-1-1, Nihonbashi-muromachi,
Chuo-ku, Tokyo 103-0022, Japan
Telephone: +81-3-3231-7360
Facsimile: +81-3-3246-1255
E-mail: shikintky@hokugin.co.jp
Overseas Offices (Hokuriku Bank)• New York Representative Office
780 Third Avenue, 28th Floor,
New York, NY 10017, U.S.A.
Telephone: +1-212-355-3883
Facsimile: +1-212-355-3204
E-mail: newyork@hokugin.com• Shanghai Representative Office
Shanghai International Trade
Center, 602, Yan’an West Road
2201,
Changning, Shanghai 200336,
P.R. of China
Telephone: +86-21-6270-8108
Facsimile: +86-21-6270-8338
E-mail: shanghai@hokugin.net• Dalian Representative Office
7F Senmao Building, 147 Zhongshan
Road, Xigang District, Dalian,
Liaoning, 116011 P.R. of China
Telephone: +86-411-3960-8018
Facsimile: +86-411-3960-8019
E-mail: dalian@hokugin-zg.com

Markets and International
Administration Center
2-33, Higashisapporo 3-jo
1-chome, Shiroishi-ku,
Sapporo City, Hokkaido 003-0003,
Japan
Telephone: +81-11-815-1315
Facsimile: +81-11-815-2237
SWIFT Address: HKDBJPJTTreasury and Securities Division
2-1-1, Nihonbashi-muromachi,
Chuo-ku, Tokyo 103-0022, Japan
Telephone: +81-3-3241-3457
Facsimile: +81-3-3242-3588
Overseas Offices (Hokkaido Bank)• Shenyang Representative Office
Room 1118, Office Tower 1,
Forum 66, No. 1-1 Qingnian
Da jie, Shenhe District,
Shenyang 110063, China
Telephone: +86-24-3185-7008
Facsimile: +86-24-3185-7018
E-mail: dogin_shenyang@yahoo.co.jp• Yuzhno-Sakhalinsk
Representative Office
18 Kommunisticheskiy Av.,
Office 44, Yuzhno-Sakhalinsk,
693000, Russia
Telephone: +7-4242-45-7523
Facsimile: +7-4242-45-7524
E-mail: tatsuta@hbkys.ru• Vladivostok Representative OfficeFresh Plaza, Room 613 17
Okeanskiy Pr., Vladivostok,
690091, Russia
Telephone: +7-4232-65-8851
Facsimile: +7-4232-65-8852
E-mail: nakagawa@hbvl.ru• Singapore Representative Office
6 Battery Road # 15-02 Singapore
049909
Telephone: +65-6534-0010
Facsimile: +65-6534-0070
E-mail: hokuriku@singnet.com.sg• London Representative Office
7th Floor, 52-54
Gracechurch Street, London EC3V
0EH, UK
Telephone: +44-20-7283-1212
Facsimile: +44-20-7929-7222
E-mail: london@hokugin.co.uk• Bangkok Representative Office
23rd Floor Unit 2314, Bhiraj Tower
at EmQuartier, 689 Sukhumvit
Road, North Klongton, Wattana
Bangkok 10110, Thailand
Telephone: +66-2-261-8495
Facsimile: +66-2-261-8497
E-mail: bangkok@hokugin.asia

Hokuhoku Financial Group, Inc. Annual Report 2018

DIRECTORS

67

北北金融控股集团简要设立日期∶2003年9月26日

北北金融集团的经营活动范围不是限于一个地域，而是在广泛的地域内展开着。

总行地址∶富山县富山市堤町通1丁目2番26号

我们广泛的营业网点分布在下面所写的地区范围里 ：经营目的∶集团伞下的子公司的经营管理，以及连带的相关业务

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

富山县 ....................................................... 92分行（或支行）企业名称∶北北金融控股集团股份有限公司发行股份∶ 普通股 ...........................

132,163,014股

石川县 ....................................................... 36分行（或支行）第一次第5种优先股 ........

107,432,000股福井县 ....................................................... 22分行（或支行）

上市交易所∶ 东京证券交易所（第一部）札幌证券交易所简历自从1877年北陆银行成立以来已经在北陆地区设立了广域性的经营网点。

三大都市圈 ................................................ 16分行（或支行）东京、横滨 ................................................

9分行（或支行）

名古屋 .......................................................

3分行（或支行）

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

4分行（或支行）其他地区（仙台、新泻、长野、高山）..........

4分行（或支行）

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

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

2002年5月

北海道地区 ................................................ 159分行（或支行）（北海道银行）南萨哈林斯克代表处符拉迪沃斯托克代表处 （北海道银行）伦敦代表处 （北陆银行）新加坡代表处（北陆银行）
曼谷代表处 （北陆银行）大连代表处 （北陆银行）
上海代表处 （北陆银行）沈阳代表处 （北海道银行）（2018年6月30日）
伦敦

北陆银行和北海道银行缔结了全面业务协助协议符拉迪沃斯托克南萨哈林斯克沈阳大连

2003年5月

纽约北陆银行和北海道银行对经营统合取得一致意见

上海
曼谷
新加坡

2003年9月

设立北银金融控股集团股份有限公司
北陆银行成为北银金融控股集团伞下的银行
北海道

通过股份交换实现经营统合

2004年9月

北北金融控股集团股份有限公司诞生

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

富山

福井

东京
大阪

名古屋

三大都市圈

68

Hokuhoku Financial Group, Inc. Annual Report 2018

北北金融控股集团 董事致辞

（相片左边）董事长

庵

荣伸（北陆银行 总行长）

（右边）
董事副社长

笹原晶博（北海道银行 总行长）大家好！
衷心感谢各位一直以来对北北金融控股集团的关怀与厚爱。在此我们为各位送上本集团《年度报告
2018》。报告中介绍了2017年度的业绩和各种经营措施，敬请各位过目予以理解。

2017年度我国的经济，正处于出口增长阶段，进行设备投资和库存投资的企业内需恢复非常明显，随着雇用，收入环境的改善，个人消费也在缓慢恢复。另一方面，在以美国为首的其他发达国家的经济景气在
不断扩大，中国经济也在稳定地发展，所以海外经济复苏放缓。
在本集团的主要营业地区北陆三县，除了电子零部件和业务用机器等行业的生产水平增长，个人消费也稳步好转，劳动力市场的紧缩也变得显著。另外，在北海道，以灾后重建为中心的公共项目投资促进了经济增长，加上以旅游行业的设备投资的增势和稳健的个人消费为背景，北海道经济整体形势处于复苏状态。
有关围绕本集团的经济环境，一方面我们期待着世界经济的恢复，另一方面，美国政权的政策运营、欧洲的
政治形势、
中国经济的动向等也存在着不确定性，加上这些因素对国内经济的影响，
目前很难预测未来的经济状况。
在金融领域，继续执行超低利率的金融环境，拓展利用金融科技等IT技术的金融服务业务，对金融机构的传统业务模式带来了巨大的影响。
为了构建适应这种环境变化的新商业模式，本集团将2016年度～2018年度定为计划期间，制定了中期
经营计划“BEST for the Region”，我们以“营业力的强化”“经营的效率化”和“经营基础的坚韧化”为支
柱，正在采取各种措施。
① 营业力的强化将顾客本位的想法放在首位，继续致力于人才培养、商品性的改善、提高利用IT进行各种交易的简捷化，正确掌握顾客需求和课题，为了能够提供适当的建议而努力。
② 经营的效率化根据市场情况，设置提供整体金融服务的完整银行业务（Full banking）店铺和以个人营业为主的店铺，实现营业店铺效率化运营。另外，通过扩大事务处理的机械化和总部集中化，努力提高效率和生产率。
关于系统投资，将进一步推进北陆银行、北海道银行的各种系统的统一化，致力于抑制投资额、提高服务和业务合理化。
③ 经营基础的坚韧化
今年也将按照计划积累收益，以维持并提高健全的财务基础为目标。
另外，为了强化本集团企业的经营管理体制，努力充实董事会上的重要议案的审议，活用公司外董事的知识见解和经验、发挥审计等委员会的监督功能，提高董事会机能的实效性来加强治理。
通过切实地积累各种措施的成果，为了提高企业价值，集团全体人员将团结一心共同努力。
希望大家一如既往地支我公司集团。
董事长

庵

荣伸

2018年7月
Hokuhoku Financial Group, Inc. Annual Report 201869

中期经营计划
本公司集团将从2016年4月开始的未来3年定位为“为了在预期的环境变化中支援地域经济，进一步追求商业模式的变
革和集团的协同效果的期间”，并且开始了中期经营计划“BEST for the Region”。
在发挥广域网优势的同时，通过构建高效的集团经营体制，努力为地区提供No.1的金融服务，通过为客户和地域社会作贡献来担负“地方再生”的任务，努力成为与地域共同成长和发展的金融集团。

■ 计划的概要
名称

中期经营计划 “BEST for the Region”期间

3年（2016年4月～2019年3月）

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

目标姿态

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

基本方针

北北FG

No.1服务和解决方案北陆银行 北海道银行
其他相关公司信赖和选择

①营业力的强化～超出顾客期望的建议能力、服务能力的实现②

经营的效率化～在竞争中胜出的功能性组织的追求③

经营基础的坚韧化～为地域信赖的稳定的财务基础的构建

客户
地域社会

■ 中期经营计划中作为目标的计数（2家银行合算·联结）
2017年3月期（业绩）

2018年3月期（业绩）

2019年3月期（目标）存款平均余额

10兆4,096亿日元

10兆7,687亿日元

10兆5,600亿日元贷款平均余额

7兆6,848亿日元

7兆9,616亿日元

7兆7,600亿日元

1,329亿日元

1,267亿日元

1,345亿日元

经费

898亿日元888亿日元930亿日元主营业务净利润

430亿日元379亿日元415亿日元信贷相关成本

−6亿日元

5亿日元

60亿日元

归属于母公司股东的净利润

281亿日元211亿日元230亿日元联结资本充足率

9.43%

9.49%

9.55%

OHR
（以主营业务毛利润为基础）

67.58%

70.05%

69.14%

主营业务毛利润

70

Hokuhoku Financial Group, Inc. Annual Report 2018

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

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

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

Hokuhoku Financial Group, Inc. Annual Report 2018

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业绩精粹
营业概况（北北金融控股集团联结）（单位：亿日元）

2017年度

2016年度
变动

经常收益

1,809

－65

1,874

经常利润

317

－76

394

211

－69

281

9.49％

0.06%

9.43％

归属于母公司股东的净利润资本充足率我集团本期联结会计年度的业绩 ：本期联结
经常收益与上年度相比减少了65亿日元，为1,809
亿日元。联结经常利润与上年度相比减少了76亿
日元，为317亿日元。归属于母公司股东的净利润
减少了69亿日元，为211亿日元。
联结资本充足率达到了9.49%。
2017年度的股息 ：普通股于期末每股支付了44.00日元股息，对第一次第5种优先股按照原定计划分别于期中和期末每股支付了7.50日元 (即年度股息为15日元)。

营业概况（北陆银行，北海道银行）（单位：亿日元）

2行合算
2017年度

2016年度
变动

经常收益

1,647

－63

1,710

主营业务毛利润

1,267

－61

1,329

经费（临时处理部分除外）

888

－10

898

主营业务净利润

379

－51

430

信贷相关成本

5

12

－6

经常利润

331

－70

402

本期净利润

240

－56

296

2行合算的经常收益与上年度相比减少63亿日
元，为1,647亿日元。本期净利润与上年度相比减
少56亿日元，为240亿日元。
北陆银行的经常收益与上年度相比减少18亿
日元，为911亿日元。本期净利润与上年度相比减
少29亿日元，为157亿日元。
北海道银行经常收益与上年度相比减少7亿日
元，为782亿日元。本期净利润与上年度相比减少
26亿日元，为82亿日元。

（单位：亿日元）（单位：亿日元）北陆银行

2017年度北海道银行

2016年度

2017年度变动72

2016年度
变动

经常收益

911

－18

929

782

－7

789

主营业务毛利润

712

－16

729

595

－13

608

经费（临时处理部分除外）

475

－7

482

413

－2

415

主营业务净利润

237

－9

247

182

－10

192

信贷相关成本

18

25

－6

－12

－12

－0

经常利润

241

－6

248

89

－63

153

本期净利润

157

－29

187

82

－26

109

资本充足率

9.02％

0.28%

8.74％

9.28％

－0.06%

9.34％

Hokuhoku Financial Group, Inc. Annual Report 2018

Hokuhoku Financial Group, Inc.

Hokuhoku Financial Group, Inc.

Annual Report 2018

Printed in Japan