2015

Annual ReportProfile
Higo Bank is a regional bank whose main business

Kumamoto Prefecture is also home to manybase is Kumamoto Prefecture in central Kyushu.

new industries. In an effort to develop these indus-

Possessing a varied sweep of natural beauty, includ-

tries, the Bank supports entrepreneurs and local

ing the volcano Mt. Aso which boasts the world’s

companies in new fields through the Kumamoto

largest caldera, and the scenic Amakusa area with its

Prefecture Business Promotion Support Center,

120 islands of widely varying sizes, the prefecture iswhich was established in 1996 in cooperation withhome to thriving agricultural, forestry, and fisheries

the Kumamoto prefectural government and otherindustries. In particular, the prefecture’s agriculturalorganizations.

industry boasts a level of output that is among the

The Bank’s consolidated subsidiary, Higin CapitalCo., Ltd., cooperates with this and other organiza-

highest in Japan.
Kumamoto Prefecture has become an attractive

tions to enable Higo Bank Group to provide compre-

location for numerous highly competitive, cutting-hensive support that matches the growth stages ofedge industries from throughout the world. Notably,

local companies.

Kumamoto Prefecture boasts leading production

In addition to our main business of banking

and research facilities in the field of semiconductors.

operations, we lend our support to such organiza-

The support Kumamoto is lending to these impor-tions as The District Economics Research Institutetant industries is expected to contribute greatly toof Kumamoto Area, which conducts surveys of andthe area’s development in the near future.

makes comprehensive proposals for revitalizing the

In March 2011, the Kyushu Shinkansen Line went

regional economy.

into full operation. In addition, Kumamoto City

The Bank has continued to be active in support-

became an ordinance-designated city in April 2012,

ing cultural events such as concerts and art exhibits

giving it greater authority and access to financial

as well as in promoting environmental conservation

resources. Against this backdrop, redevelopment

efforts centered on groundwater through its support

projects are currently being implemented in the areaof the public-interest incorporated Foundation forsurrounding Kumamoto Station and the center of

the Preservation of Green and Water Resources inKumamoto City in order to enhance the city’s func-

the Province of Higo. Looking ahead, the Bank will

tions. In addition, Kumamoto Prefecture’s rapid tran-

make every possible effort to participate in a wide

sit network, including expressways and high-grade

range of social contribution activities.

trunk highways, is being progressively upgraded.

Contents
Profile ........................................................................................ 1
Message from the President ................................................ 2
Management Policy .............................................................. 3
Results (Non-Consolidated) .................................................4
Excellent Financial Indicators ............................................. 5

Higo Bank’s Future ................................................................. 7
Corporate Data ...................................................................... 8
Service Network ..................................................................... 9
Financial Section ................................................................ 101
The Higo Bank, Ltd. Annual Report 2015

Message from the President

In the fiscal year ended March 31, 2015, the Japanese economy was influenced by a rush to purchase aheadof an increase in the consumption tax rate in April 2014. Nevertheless, corporate earnings moved toward
improvement and the domestic economy continued to show a moderate recovery, as evidenced by capital
investment maintaining a moderate increase. In addition, consumer spending solidly progressed, supported
by a steady improvement in the employment and income environment.
On the other hand, as with the nationwide economy, the economy in Kumamoto was also influenced by
the increase in the consumption tax rate and weakening trends were observed to a certain extent in consumer
spending and housing investment. Nonetheless, the economy in Kumamoto continued to show moderate
recovery, such as in the steady recovery of manufacturing production in Kumamoto, and also the improvement in both labor supply/demand and income with regard to employment.
In this economic environment, Higo Bank worked to expand and deepen its dealings with customers
through the two-way relationship between “The creation of value with customers” and “The provision of thebest financial services,” as called for in the final year of our Fifth Medium-Term Management Plan, Phase II.
In the current fiscal year, we are preparing for the upcoming 90th anniversary of our establishment, and wehave started our Sixth Medium-Term Management Plan based on the theme of the “Pursuit of possibilities—
Toward the creation of an enriched future.” All officers and employees of Higo Bank are united in making
further serious efforts to meet the expectations of everyone with whom we are involved.
Moreover, we have reached a final agreement with Kagoshima Bank in Kagoshima Prefecture concerning
the business integration of the two banks, and established a holding company in October 2015. We will further strengthen our relationships of trust with the local communities with the aim of creating a vibrant region,and strive to become a superior financial group that is truly loved by all its customers in Kyushu.
We look forward to the continued support and encouragement of all our stakeholders.
July 2015

Takahiro Kai, President
2
The Higo Bank, Ltd. Annual Report 2015

Management Policy
Sixth Medium-Term Management Plan
When viewing the regional economy from a long-term perspective, the Bank expects that the scaleof the economy will be reduced due to the shrinking population and that economic structures will
be changed due to the advancement of Japan’s aging society coupled with the decrease in the birthrate. Under such circumstances, the Bank recognizes that it is its mission as a local bank to make proactive efforts to reinvigorate local communities by way of further deepening the provision of local
support and creating local industries and employment.
The Bank has developed the Sixth Medium-Term Management Plan for the commencement ofconstruction measures for the maintenance and development of the local economy that has continued to show a tendency toward structural contraction.
Higo Bank Group is both working to further strengthen its corporate governance and implement
its corporate philosophy of customer first through its Sixth Medium-Term Management Plan. In thismanner, the Group will strengthen marketing and create value together with its customers throughstrict management.
Plan Period

The three years from April 1, 2015 to March 31, 2018

Objective	
To become a “Bank that provides the best financial services and is truly loved
by its customers”
As a long-term objective, the Bank will continuously conduct corporate-climate and structural reform and constructstrong corporate structures that can respond to environmental changes in a flexible manner, while at the same time
promoting local support and contributing to the reinvigoration of the local economy, thereby striving to realize theBank’s corporate philosophy.

Theme	“Pursuit of possibilities—
Toward the creation of an enriched future”
In the midst of the large shift in the environment surrounding financial
institutions and as the Bank embarks on a new stage, namely, businessintegration, the Bank has designated the “Pursuit of possibilities—
Toward the creation of an enriched future” as a theme, encapsulating its
aim to achieve perpetual growth without being bound by conventional
policies and approaches. The three items on the right are the fields inwhich the Bank will pursue its potential possibilities:

1

Possibilities for expansion of closetransactions with customers

2

Possibilities for growth of humanresources3

Possibilities for expansion of earning opportunities

Basic Strategies

Financial Targets (Fiscal 2017)

1. Practice and management of
the corporate philosophy ofcustomer first
2. Maximize the synergistic
effects of business integration
3. Marketing strategy
4. Management strategy
5. Manpower strategy

Core targets
Gross
Net income
Nonincome fromfromconsolidated
businessbusiness
income¥55.6 billion ¥15.9 billion ¥12.4 billion

Capitaladequacy
ratio
12.5%

ROA

OHR

0.25%

70.4%

Sub-targets
Shareholders’ equity ROE
4.0% level

Total deposits + NCD daily
average balance+¥260.0 billion

3
The Higo Bank, Ltd. Annual Report 2015

Total loans daily
average balance+¥280.0 billion

Results (Non-Consolidated)
Deposits and Loans
Deposits
The balance of deposits at the end of fiscal 2014 stood at¥3,875.0 billion, a ¥42.0 billion increase from the end of
fiscal 2013. This was due mainly to an increase in corporate deposits in addition to steady growth of individual
deposits. The year-end balance of negotiable certificatesof deposits was ¥326.0 billion. As a result, the total balanceof deposits and negotiable certificates of deposits at theend of fiscal 2014 stood at ¥4,196.5 billion, a ¥90.4 billion
increase from the end of fiscal 2013.
Deposits

Balance at term end (Unit: ¥ billions)

4,000
3,500

3,507

3,729

3,590

3,832

3,875

Loans
The balance of loans at the end of fiscal 2014 stood at¥2,689.0 billion, a ¥115.6 billion increase from the end of
fiscal 2013. This was mainly due to an increase in housing loans and other lending to individuals in addition to
growth of corporate and public institution loans.

Loans

Balance at term end (Unit: ¥ billions)

2,689

2,700
2,573

2,600
2,493

2,500
2,400

3,000

2,300

2,326

2,383

2,200

2,500

2,100
2,000
2010
Fiscal

2011

2012

2013

2014

2,000
2010
Fiscal

2011

2012

2013

2014

Earnings
Net business profit
Net business profit decreased ¥1.6 billion year on year to¥16.9 billion, due mainly to an increase in expenses andprovision of general reserve for possible loan losses in
addition to a decrease in gross business profit.
Net business profit

Balance at term end (Unit: ¥ billions)

25
21.3

23.3

24.9

20

Net income
Net income increased ¥0.7 billion to ¥12.2 billion, a record
high.

Net income

14
18.6

12
16.9

10.8

10.7

0
2010
Fiscal

2011

11.3

11.4

2012

2013

12.2

10

15

8

10

6
4

5
0
2010
FiscalBalance at term end (Unit: ¥ billions)

2
2011

2012

2013

2014

4
The Higo Bank, Ltd. Annual Report 2015

2014

Excellent Financial Indicators
Higo Bank Has an Excellent Reputation as a Financially Sound Bank Carrying Few
Non-Performing Loans
Disclosure of claims under the Financial Reconstruction Law (non-consolidated)
As of March 31, 2015 (Unit: ¥ billions)

Loans to borrowers under bankruptcy
proceedings and equivalent loans
Loans at risk
Loans requiring caution
Subtotal
Normal loans
Total

Loan
balance

Coverage by collateraland guarantees

Reserve forpossible loan losses

Coverageratio¥    3.9
41.2
15.9
61.1
2,646.1¥2,707.3

¥ 2.5
27.3
6.4
36.3

¥ 1.3
9.9
3.7
15.0

100.00%90.21%
63.95%
83.97%

Note: Figures have been rounded down to the nearest ¥100 million.
Fractions in the coverage ratios up to 0.04 have been rounded
down, and from 0.05 upward have been rounded up.

Higo Bank carries a total of ¥61.1 billion in non-performing
loans for which disclosure is mandatory under the Financial
Reconstruction Law, accounting for 2.26% of its total loans andclaims—a low level for a Japanese regional bank. Of these nonperforming loans, 83.97% are covered by collateral, guarantees,
and the reserve for possible loan losses, providing a sufficient buffer for the Bank. On a consolidated basis, the Bank carries a total of¥62.9 billion in non-performing loans, accounting for 2.30% of thecredit portfolio.

Explanation of terms
Loans to borrowers under bankruptcy proceedings andequivalent loans
This category indicates loans to borrowers undergoing bankruptcy proceedings or corporate rehabilitation or loans to borrowers in a state of virtual bankruptcy.
Loans at riskThis category indicates loans to borrowers who, while not yet ina state of bankruptcy, are suffering from a severe deteriorationin financial conditions and are very likely to be unable to repay
outstanding loans.
Loans requiring caution
This category indicates loans for which no repayments, including payments of interest, have been made for 3 months or
more, or whose repayment conditions have been eased.

5
The Higo Bank, Ltd. Annual Report 2015

Loans requiring caution: 0.14%
Loans at risk: 1.53%
Loans to borrowers underbankruptcy proceedings
and equivalent loans: 0.59%
Total 2.26%
Normal assets: 97.74%

Excellent Financial Indicators

One of the Highest Capital Ratios among Japan’s Regional Banks
The capital ratio is the ratio of a bank’s regulatory capital (capitalstock, retained earnings and others) to total risk-weighted
assets, including loans, marketable securities and others. This
figure is important for banks as an indicator of their financial
soundness.
As of March 31, 2015, Higo Bank’s capital ratio was 12.55%
based on domestic standards. This is one of the highest ratiosof any regional bank in Japan, and is far above the 4.00% standard for capital adequacy under the Prompt Corrective Action
measures.
Notes: 1. With effect from the term ended March 2007, capital adequacy calculations have been made in line with the new Basel II standards relating
to banks’ regulatory capital. The new standards allow banks to adopt
more sophisticated methods for calculating capital adequacy. The
Bank has employed the standardized approach for the calculation of
the credit risk amount and the basic indication approach for the calculation of the operational risk amount.

Capital ratio
14

13.07%(Unit: %)12.83%

12.55%

1210
8
6

Domestic
standards
4.00%

4
2
0
Fiscal 2012
Basel II

2013

2014
Basel III

2. 
Risk-weighted assets are calculated by multiplying assets and thecredit equivalents of off-balance-sheet transactions by a risk factor thatvaries depending on the credit quality of each asset.

Higo Bank Wins “A”-Level Rankings
Higo Bank, recognized for its sound management andstable financial position, has received official ratings fromthree credit rating agencies. These evaluations havebeen high—a “A”-level rankings—for each of its longterm credit ratings.

(Long-term credit rating: as of March 31, 2015)❖ Moody’s Japan ............................................................... A1❖ Standard & Poor’s Ratings Japan ............................. A❖ Rating and Investment Information, Inc. .......... A+
Note: A top-class regional bank in Kyushu, with high standards among
domestic banks.

Moody’s Japan Credit Rating
Aaa

Aa1

Aa2

Aa3

Higo Bank
A1

A2

A3

Baa1 Baa2 Baa3

Ba1

Ba2

Ba3

B1

B2

—

C

BBB–

BB+

BB

BB–

B+

—

C

S&P Credit Rating
AAA

AA+

AA

AA–

A+

Higo BankA

A–

BBB+ BBB

6The Higo Bank, Ltd. Annual Report 2015

Higo Bank’s Future
Higo Bank and Kagoshima Bank, Ltd. established Kyushu Financial Group, Inc. as a joint holding company
on October 1, 2015.

Group Management Philosophy

Overview of the GroupKyushu Financial Group will aim to become acomprehensive financial group which will be truly
favored by customers based on the following threephilosophical pillars, targeting the realization ofsustainable growth.

Head office location:(1) The group will respond to the trust and expectations of customers and will provide optimal,
high-level comprehensive financial services to
its customers.
(2) The group will develop alongside local regions
and actively contribute in the realization of avigorous regional society and economy.
(3) The group will nurture an abundance of creativity and a free-spirited organizational culture,continuing to challenge itself to move toward abetter future.

6-6, Kinsei, Kagoshima, Kagoshima
Prefecture

Headquarters location: 1, Rempeicho, Chuo-ku, Kumamoto,Kumamoto Prefecture
Representatives:

Takahiro Kai
Chairman and Representative Director(President of Higo Bank)
Motohiro Kamimura
President and Representative Director(President of Kagoshima Bank)

Capital stock:¥36,000 million

Established:

October 1, 2015

Listing exchange:

First Section of the Tokyo Stock Exchange
Fukuoka Stock Exchange

Kyushu Financial Group Sales Base (Both banks combined as of March 31, 2015)
Total assets¥8,781.0 billion

Net assets¥601.8 billion

Number of branches

Number of ATMs

273

1,533

Deposit balance

Loan balance¥7,756.0 billion¥5,371.5 billion

Number of personnel working at banking offices

3,284

Branches covering all of Kyushu

Regional bank total asset ranking

As of September 30, 2015

As of March 31, 2015

Fukuoka
Higo Bank: 5 locations
Kagoshima Bank: 1 location

Tokyo/Osaka
Higo Bank: 2 locations
Kagoshima Bank: 2 locations

Nagasaki
Higo Bank:
1 location

Kumamoto
Higo Bank: 111 locations
Kagoshima Bank: 1 location
Okinawa
Kagoshima Bank:
1 location

MiyazakiKagoshima Bank:
8 locations
Higo Bank:
1 location
Kagoshima
Kagoshima Bank: 137 locations(includes online branches)
Higo Bank: 1 location

Name of bankTotal assets (¥ trillions)

1

The Bank of Yokohama /The Higashi-Nippon Bank

¥17.4

2

Fukuoka Financial Group

15.6

3

The Chiba Bank

12.9

4

Hokuhoku Financial Group

11.6

5

The Shizuoka Bank

11.2

6

Yamaguchi Financial Group

10.1

7

Joyo Bank

9.0

8

Kyushu Financial Group8.7

9The Nishi-Nippon City Bank

8.5

10

The 77 Bank

8.5

26

Higo Bank

4.7

33

Kagoshima Bank

4.0

...

Shanghai
Higo Bank: 1 location
Kagoshima Bank: 1 location

Oita
Higo Bank:
1 location

Position

7
The Higo Bank, Ltd. Annual Report 2015

Corporate Data
Established: July 25, 1925
Total Assets: ¥4,724.6 billion
Deposits: ¥3,875.0 billion
Loans and Bills Discounted: ¥2,689.0 billion
Capital Stock: ¥18.1 billion

Organization

Capital Ratio: 12.55% (domestic standards)
Number of Employees: 2,234
Number of Offices: 122(1 overseas representative office)(As of March 31, 2015)(As of July 1, 2015)

GENERAL MEETING OF SHAREHOLDERS
SECRETARIAT
PREPARATION FOR BUSINESSINTEGRATION OFFICE
GENERAL PLANNING DIVISIONFINANCIAL MARKETS DIVISIONSALES DIVISIONSBOARD OF DIRECTORSMANAGEMENT COMMITTEELOAN MANAGEMENT DIVISION
BRANCHESOPERATIONS ADMINISTRATION DIVISION
IT MANAGEMENT DIVISIONPERSONNEL DIVISIONGENERAL ADMINISTRATION DIVISIONCOMPLIANCE AND RISK MANAGEMENT DIVISIONINTERNAL AUDIT DIVISION
AUDITORS’ OFFICEAUDIT &
SUPERVISORY BOARD

BUSINESS PROMOTION DIVISIONRETAIL BUSINESS DIVISIONCORPORATE BUSINESS DIVISIONREGIONAL DEVELOPMENT DIVISION
BRANCHSUPPORT CENTER
CENTRALIZEDAFFAIRS CENTER

Directors, Audit & Supervisory Board Members & Executive Officers(As of June 23, 2015)

Representative Director and President
Takahiro Kai
Representative Director andShiichiro Shimoyama
Senior Managing Executive Officer
Director and Senior Managing Executive Officer
Tsuyoshi Mogami
Directors and Managing Executive Officers	Junichi Nishimoto
Yoshihisa Kasahara
Tsutomu Tajima
Directors and Executive Officers
	
Hitoshi Yamaki
Tooru Hayashida
Kenji Tokunaga
Outside Directors
Toshio Manabe
Masaki Masudo
Permanent Audit & Supervisory Board Member
Toyonori Ueno
Standing Audit & Supervisory Board Member
Yoshihiro Iwamoto
Outside Audit & Supervisory Board Members
Terunobu Maeda
Yoshihiro Kataoka
Senior Executive Officer
Masaaki Kimura
Executive Officers
Hiroaki Ishihara
Shigeru Motoyama
Masaaki Ookushi

Principal Shareholders(As of March 31, 2015)

Name
Meiji Yasuda Life Insurance Co.
Takara Kogyo Co., Ltd.
Higo Bank Employees’ Shareholding Association
Mizuho Bank, Ltd.
Japan Trustee & Services Bank, Ltd. (Trust account)
The Bank of Fukuoka, Ltd.
The Dai-ichi Mutual Life Insurance Company
Sompo Japan Nipponkoa Insurance Inc.
The Eighteenth Bank, Limited
Kagoshima Bank, Limited
Total

Number of shares(thousands)
11,621
8,258
7,553
6,869
6,370
5,864
5,371
3,854
3,433
3,372
62,568Equity stake
(%)
5.03
3.57
3.27
2.97
2.76
2.54
2.32
1.67
1.48
1.46
27.11

8
The Higo Bank, Ltd. Annual Report 2015

Satoshi Tsuchiyama
Eiichi Eto

Hideshi Takeuchi
Yoshinori Oono

Service Network
Head OfficeForeign Exchange Offices

1, Rempeicho, Chuo-ku,
Kumamoto 860-8615
Phone: (096) 325-2111

Corporate Banking Division
1, Rempeicho, Chuo-ku,
Kumamoto 860-8615
Phone: (096) 325-2111

Operations Administration
Division
1 Rempeicho, Chuo-ku,
Kumamoto 860-8615
Phone: (096) 326-8646
Facsimile: (096) 326-8027

Tokyo Branch
Muromachi Higashi Mitsui Bldg 17F,
2-1, Nihombashi Muromachi 2-chome,
Chuo-ku, Tokyo 103-0022
Phone: (03) 3277-1589

Suidocho Branch
3-31, Kamitoricho,
Chuo-ku, Kumamoto 860-0845
Phone: (096) 352-3111
Tamana Branch
548, Takase, Tamana 865-0025
Phone: (0968) 73-2151
Ozu Branch213-1, Muro, Ozumachi 869-1235
Phone: (096) 293-3131

Osaka Branch
NM Plaza Midosuji 6F,
6-3, Awaji-cho 3-chome,
Chuo-ku, Osaka 541-0047
Phone: (06) 6208-6551

Matsubase Branch920-1, Matsubase Matsubasemachi,
Uki 869-0502
Phone: (0964) 32-1121

Fukuoka Branch
8-1, Daimyo 2-chome,
Chuo-ku, Fukuoka 810-0041
Phone: (092) 741-7935

Yatsushiro Branch
3-25, Honmachi 2-chome,
Yatsushiro 866-0861
Phone: (0965) 32-3171

Kagoshima Branch
1-3, Yamanokuchicho,
Kagoshima 892-0844
Phone: (099) 223-7221

Amakusa Branch
6-1, Minamishinmachi,
Amakusa 863-0031
Phone: (0969) 22-2151

9
The Higo Bank, Ltd. Annual Report 2015

The Higo Bank, Ltd. and its Consolidated Subsidiaries

Consolidated Balance Sheet
March 31, 2015

2015

2014

Thousands of
U.S. dollars (Note 1)
2015

ASSETS:Cash and due from banks (Notes 3 and 14)�������������������������������������������������������������
Call loans and bills bought��������������������������������������������������������������������������������������������������
Monetary claims purchased�����������������������������������������������������������������������������������������������
Trading assets (Notes 4, 14 and 15)�������������������������������������������������������������������������������
Money held in trust (Note 5)����������������������������������������������������������������������������������������������
Securities (Notes 4, 8 and 14)���������������������������������������������������������������������������������������������
Loans and bills discounted (Notes 6, 9 and 14)������������������������������������������������������
Foreign exchange assets������������������������������������������������������������������������������������������������������
Lease receivables and investment assets (Note 8)�����������������������������������������������
Other assets����������������������������������������������������������������������������������������������������������������������������������
Fixed assets (Note 7)����������������������������������������������������������������������������������������������������������������
Intangible assets (Note 7)����������������������������������������������������������������������������������������������������
Asset for retirement benefits (Note 10)�����������������������������������������������������������������������
Deferred tax assets (Note 13)���������������������������������������������������������������������������������������������
Customers’ liabilities for acceptances and guarantees�������������������������������������
Reserve for possible loan losses (Note 14)����������������������������������������������������������������
Total assets..............................................................................................................................

¥  294,806
147
806
1,830
4,942
1,629,695
2,669,577
4,479
23,87362,672
54,219
6,517
1,578
372
9,634
(20,804)¥4,744,349¥ 248,161
14,225
860
1,066
4,943
1,571,717
2,556,401
5,200
23,621
26,64347,252
6,728
333
420
11,122(20,349)¥4,498,349$ 2,453,248
1,226
6,709
15,233
41,12813,561,582
22,215,008
37,274
198,663521,536
451,187
54,233
13,134
3,100
80,172(173,126)$39,480,314

LIABILITIES AND EQUITY:
Liabilities:
Deposits (Notes 8 and 14)����������������������������������������������������������������������������������������������������
Borrowing under securities lending transactions (Notes 8 and 14)����������
Trading liabilities (Notes 14 and 15)������������������������������������������������������������������������������
Borrowed money (Notes 8 and 14)��������������������������������������������������������������������������������
Other liabilities����������������������������������������������������������������������������������������������������������������������������
Liability for retirement benefits (Note 10)������������������������������������������������������������������
Reserve for contingent losses��������������������������������������������������������������������������������������������
Reserve for repayments for dormant deposits�������������������������������������������������������
Deferred tax liabilities (Note 13)���������������������������������������������������������������������������������������
Deferred tax liabilities related to land revaluation�����������������������������������������������
Acceptances and guarantees��������������������������������������������������������������������������������������������
Total liabilities�����������������������������������������������������������������������������������������������������������������������

¥4,196,538
74,894591
56,06077,603
8,823
395
852
11,835
4,886
9,634
4,442,115¥4,106,069
33,797361
14,07833,900
8,250
423
801
6,285
5,451
11,1224,220,541$34,921,683
623,240
4,918
466,510645,777
73,426
3,288
7,092
98,48940,66580,17236,965,264

18,1288,133
219,635

18,1288,133
209,304

150,860
67,684
1,827,707

(141)

(119)

(1,178)55,519(5,614)
6,058(1,512)54,4502,026
302,233¥4,744,349

38,849(3,390)5,639(2,110)38,9883,372
277,808¥4,498,349

462,008(46,717)50,412(12,589)
453,114
16,861
2,515,049$39,480,314

Millions of yen

Equity (Note 11):
Common stock
authorized, 482,858,000 shares;
issued, 230,755,291 shares in 2015 and 2014.................................................
Capital surplus..............................................................................................................................
Retained earnings (Note 17)................................................................................................
Treasury stock at cost, 264,888 shares in 2015 and228,794 shares in 2014.........................................................................................................
Accumulated other comprehensive income:Unrealized gains (losses) on available-for-sale securities (Note 4)������
Deferred gains (losses) on derivatives under hedge accounting��������
Excess of land revaluation��������������������������������������������������������������������������������������������
Defined retirement benefit plans (Note 10).......................................................
Total accumulated other comprehensive income��������������������������������
Minority interests in consolidated subsidiaries������������������������������������������������������
Total equity����������������������������������������������������������������������������������������������������������������������������
Total liabilities and equity���������������������������������������������������������������������������������������������
See notes to consolidated financial statements.

10
The Higo Bank, Ltd. Annual Report 2015

The Higo Bank, Ltd. and its Consolidated Subsidiaries

Consolidated Statement of Income
Year ended March 31, 2015

Millions of yen

Income:Interest on loans and discounts���������������������������������������������������������������������������������������
Interest and dividends on securities�����������������������������������������������������������������������������
Other interest income������������������������������������������������������������������������������������������������������������
Fees and commissions income����������������������������������������������������������������������������������������
Trading income��������������������������������������������������������������������������������������������������������������������������
Other operating income�������������������������������������������������������������������������������������������������������
Gain on negative goodwill��������������������������������������������������������������������������������������������������
Other income (Note 12)��������������������������������������������������������������������������������������������������������
Total income�������������������������������������������������������������������������������������������������������������������������

Thousands of
U.S. dollars (Note 1)
2015

2015

2014

¥35,674
17,048677
11,73032
17,299101
4,712
87,276¥36,523
15,757449
11,13943
18,803

1,846
3,903
3,802

114,282
333,954
1,843
16,690546,261

3,291
86,008$296,868
141,866
5,639
97,614
270
143,956
844
39,218726,278

Expenses:
Interest on deposits�����������������������������������������������������������������������������������������������������������������
Other interest expenses��������������������������������������������������������������������������������������������������������
Fees and commissions expenses������������������������������������������������������������������������������������
Trading expenses����������������������������������������������������������������������������������������������������������������������
Other operating expenses���������������������������������������������������������������������������������������������������
General and administrative expenses��������������������������������������������������������������������������
Losses on impairment of long-lived assets���������������������������������������������������������������
Other expenses��������������������������������������������������������������������������������������������������������������������������
Total expenses���������������������������������������������������������������������������������������������������������������������

13,73340,131
221
2,005
65,644

1,637
3,264
3,682
0
14,14540,050141
3,319
66,243

Income before income taxes and minority interests.........................................

21,632

19,764

180,017

Income taxes (Note 13):
Current���������������������������������������������������������������������������������������������������������������������������������������������
Deferred������������������������������������������������������������������������������������������������������������������������������������������
Net income before minority interests��������������������������������������������������������������������������
Minority interests in net income���������������������������������������������������������������������������������������
Net income�����������������������������������������������������������������������������������������������������������������������������������������

7,238
1,347
13,047
159¥12,887

8,169
(550)
12,145319¥11,826

60,231
11,211
108,573
1,326$107,247

Yen

Per share of common stock (Note 2 (o)):
Basic net income�����������������������������������������������������������������������������������������������������������������������Cash dividends applicable to the year �����������������������������������������������������������������������

¥55.91
11.00

See notes to consolidated financial statements.

11
The Higo Bank, Ltd. Annual Report 2015

15,362
32,48331,643

U.S. dollars¥51.08
9.50

$0.46
0.09

The Higo Bank, Ltd. and its Consolidated Subsidiaries

Consolidated Statement of Comprehensive Income
Year ended March 31, 2015

2015

2014

Thousands of
U.S. dollars (Note 1)
2015¥13,047¥12,145$108,573

16,683(2,223)503
598
15,561¥28,608(5,301)
1,036(4,264)¥ 7,880

138,829(18,504)
4,193
4,976
129,495$238,068¥28,436172¥ 7,559321$236,631
1,437

Millions of yen

Net income before minority interests...........................................................................
Other comprehensive income (Note 16)
Unrealized gains (losses) on available-for-sale securities..................................
Deferred gains (losses) on derivatives under hedge accounting................
Excess of land revaluation....................................................................................................
Defined retirement benefit plans....................................................................................
Total other comprehensive income.......................................................................
Comprehensive income............................................................................................................
Total comprehensive income attributable to
Owners of the parent�������������������������������������������������������������������������������������������������������������
Minority interests�����������������������������������������������������������������������������������������������������������������������
See notes to consolidated financial statements.

12
The Higo Bank, Ltd. Annual Report 2015

The Higo Bank, Ltd. and its Consolidated Subsidiaries

Consolidated Statement of Changes in Equity
Year ended March 31, 2015

Thousands

Balance at March 31, 2013........................................................
Net income............................................................................................
Cash dividends, ¥9.00 per share...............................................
Purchase of treasury stock����������������������������������������������������������
Disposal of treasury stock������������������������������������������������������������
Cancellation of treasury stock��������������������������������������������������
Reversal of excess of land revaluation���������������������������������
Net change in the year�����������������������������������������������������������������
Balance at March 31, 2014
(April 1, 2014, as previously reported)...........................
Cumulative effect of accounting change�������������������������
Balance at April 1, 2014 (as restated)������������������������������������
Net income............................................................................................
Cash dividends, ¥10.00 per share............................................
Purchase of treasury stock����������������������������������������������������������
Disposal of treasury stock������������������������������������������������������������
Reversal of excess of land revaluation���������������������������������
Net change in the year�����������������������������������������������������������������
Balance at March 31, 2015........................................................

Millions of yen

Outstanding
number ofshares ofcommon stock

Commonstock

CapitalsurplusRetainedearnings

Treasurystock

231,550¥18,128¥8,133¥199,981
11,826(2,083)¥(111)(1,025)
(0)
(523)
103

230,526

18,128

8,133

18,1288,133

209,304(337)
208,967
12,887(2,305)

(36)

(532)
0
523

(119)
(119)

(22)
0

0
85
230,491¥18,128¥8,133¥219,635¥(141)

Millions of yen
Accumulated other comprehensive income
Unrealized
Deferred
gains (losses) on gain (losses) on
available-for-sale derivatives underhedge accounting
securities

Balance at March 31, 2013........................................................
Net income............................................................................................
Cash dividends, ¥9.00 per share...............................................
Purchase of treasury stock����������������������������������������������������������
Disposal of treasury stock������������������������������������������������������������
Cancellation of treasury stock��������������������������������������������������
Reversal of excess of land revaluation���������������������������������
Net change in the year�����������������������������������������������������������������
Balance at March 31, 2014
(April 1, 2014, as previously reported)...........................
Cumulative effect of accounting change�������������������������
Balance at April 1, 2014 (as restated)������������������������������������
Net income............................................................................................
Cash dividends, ¥10.00 per share............................................
Purchase of treasury stock����������������������������������������������������������
Disposal of treasury stock������������������������������������������������������������
Reversal of excess of land revaluation���������������������������������
Net change in the year�����������������������������������������������������������������
Balance at March 31, 2015........................................................

Excess oflandrevaluation

Total
Minority
Definedaccumulated other interests inretirement
comprehensive consolidated
benefit plansincomesubsidiaries¥45,470¥ 3,051¥44,153¥(4,426)¥5,743(5,303)

1,036

(103)

(2,110)(6,481)

320

38,849(3,390)5,639(2,110)38,988

3,372

38,849(3,390)5,639(2,110)38,988

3,372

16,669¥55,519(2,223)¥(5,614)418¥6,058598¥(1,512)

15,462¥54,450(1,346)¥ 2,026

See notes to consolidated financial statements.

13
The Higo Bank, Ltd. Annual Report 2015

Total
equity¥274,655
11,826(2,083)(532)
0
103(6,161)
277,808(337)
277,470
12,887(2,305)(22)
085
14,116¥302,233

The Higo Bank, Ltd. and its Consolidated Subsidiaries

Consolidated Statement of Changes in Equity
Year ended March 31, 2015

Thousands of U.S. dollars (Note 1)

Balance at March 31, 2014
(April 1, 2014, as previously reported)...........................
Cumulative effect of accounting change..........................
Balance at April 1, 2014 (as restated).....................................
Net income............................................................................................
Cash dividends, $0.08 per share...............................................
Purchase of treasury stock����������������������������������������������������������
Disposal of treasury stock������������������������������������������������������������
Reversal of excess of land revaluation���������������������������������
Net change in the year�����������������������������������������������������������������
Balance at March 31, 2015........................................................

Commonstock

CapitalsurplusRetainedearnings

Treasurystock$150,860$67,683$  (996)

150,860

67,683$1,741,736(2,807)
1,738,929
107,247(19,182)

(996)

(186)
3

0
713
$150,860$67,684$1,827,707$(1,178)

Thousands of U.S. dollars (Note 1)
Accumulated other comprehensive income

Balance at March 31, 2014
(April 1, 2014, as previously reported)...........................
Cumulative effect of accounting change..........................
Balance at April 1, 2014 (as restated).....................................
Net income............................................................................................
Cash dividends, $0.08 per share...............................................
Purchase of treasury stock����������������������������������������������������������
Disposal of treasury stock������������������������������������������������������������
Reversal of excess of land revaluation���������������������������������
Net change in the year�����������������������������������������������������������������
Balance at March 31, 2015........................................................

Unrealized
Deferred
gains (losses) on gain (losses) on
available-for-sale derivatives underhedge accounting
securities

Excess oflandrevaluation

Total
Minority
Definedaccumulated other interests inretirement
comprehensive consolidated
benefit plansincomesubsidiaries$323,290$(28,213)$46,932$(17,566)$324,443$ 28,064

323,290(28,213)46,932(17,566)

324,443

28,064

138,718$462,008(18,504)$(46,717)

3,479$50,412

4,976$(12,589)

128,670$453,114(11,203)$ 16,861

See notes to consolidated financial statements.

14
The Higo Bank, Ltd. Annual Report 2015

Total
equity$2,311,792(2,807)2,308,985
107,247(19,182)
(186)
4
713
117,467$2,515,049

The Higo Bank, Ltd. and its Consolidated Subsidiaries

Consolidated Statement of Cash Flows
Year ended March 31, 2015

2015

2014

Thousands of
U.S. dollars (Note 1)2015¥ 21,632¥ 19,764$   180,017(8,631)
4,152
221
(101)
455
173
(328)
(28)
51

(4,961)
3,976
141(71,826)
34,553
1,843
(844)
3,790
1,442
(2,735)(237)
425

Millions of yen

Operating activities:
Income before income taxes and minority interests���������������������������������������������
Adjustments for:
Income taxes paid.....................................................................................................................
Depreciation and amortization.........................................................................................
Losses on impairment of long-lived assets................................................................
Gain on negative goodwill...................................................................................................
Increase (decrease) in reserve for possible loan losses.......................................
Decrease in asset for retirement benefits...................................................................
(Decrease) increase in liability for retirement benefits.......................................
Decrease in reserve for contingent losses..................................................................
Increase in reserve for repayments for dormant deposits................................
Decrease in reserve for loss of head office rebuilding........................................
Interest and dividend income............................................................................................
Interest expenses.......................................................................................................................
Gains on securities.....................................................................................................................
Gains on money held in trust.............................................................................................
Net (increase) decrease in trading assets....................................................................
Net increase in loans and bills discounted.................................................................
Net increase in deposits.........................................................................................................
Net increase in borrowed money(excluding subordinated borrowings).......................................................................
Net decrease in due from banks(excluding deposits paid to the Bank of Japan)...................................................
Net decrease (increase) in call loans and others....................................................
Net increase in borrowing under securities lending transactions..............
Increase in lease receivables and investment assets...........................................
Interest received.........................................................................................................................
Interest paid...................................................................................................................................
Other
Total adjustments...............................................................................................................
Net cash provided by operating activities..........................................................

(53,400)
5,749(3,675)(212)(540)(113,272)
90,469

(10)
544
27
(73)
88
(281)
(52,731)
4,902(3,765)(1)
400(80,307)
161,148(444,374)
47,846(30,586)(1,765)(4,499)(942,603)
752,843

41,982

2,971

349,357

4,568
14,132
41,097(251)
56,301(5,936)(8,260)64,714
86,347

8,627(6,167)4,670(2,724)56,558(4,966)(9,608)78,45898,22338,015
117,604
341,994(2,093)
468,514(49,403)(68,737)
538,526
718,543

Investing activities:
Payments for purchases of securities............................................................................
Proceeds from sales of securities.....................................................................................
Proceeds from redemption of securities.....................................................................
Proceeds from decrease in money held in trust.....................................................
Payments for purchases of fixed assets........................................................................
Proceeds from sales of fixed assets.................................................................................
Payments for purchases of intangible assets............................................................
Payments for purchases of investments in subsidiaries....................................
Net cash used in investing activities.......................................................................

(330,000)
237,829
71,203
202(9,124)396(1,918)(1,417)(32,828)(644,531)
516,849
120,840
17(3,150)43(2,401)(12,332)(2,746,112)
1,979,109
592,522
1,681(75,926)
3,300(15,968)(11,791)(273,186)

Financing activities:
Cash dividends paid.................................................................................................................
Cash dividends paid to minority shareholders........................................................
Payment for purchase of treasury stock......................................................................
Proceeds from sales of treasury stock...........................................................................
Net cash used in financing activities......................................................................

(2,299)(0)(22)
0(2,322)(2,079)(0)(532)
0(2,611)(19,137)
(4)
(186)
4
(19,323)

Foreign currency translation adjustments on cash and cash equivalents���Net increase in cash and cash equivalents........................................................................
Cash and cash equivalents at beginning of year...........................................................
Cash and cash equivalents at end of year (Note 3)......................................................

16
51,213225,862¥ 277,075(6)
83,272
142,590¥ 225,862

138
426,172
1,879,526$ 2,305,699

See notes to consolidated financial statements.

15
The Higo Bank, Ltd. Annual Report 2015

The Higo Bank, Ltd. and its Consolidated Subsidiaries

Notes to Consolidated Financial Statements
Year ended March 31, 2015

1. Basis of Presenting Consolidated Financial Statements
The accompanying consolidated financial statements of The Higo Bank, Ltd. (the “Bank”) and its consolidated subsidiaries(together, the “Group”) have been prepared in accordance with the provisions set forth in the Japanese Financial Instruments
and Exchange Act, its related accounting regulations and the Enforcement Regulation for the Banking Law of Japan (the“Banking Law”), and in accordance with accounting principles generally accepted in Japan, which are different in certain
respects as to 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 order to present them in a form which is more familiar to readers
outside Japan. In addition, certain reclassifications have been made in the 2014 financial statements to conform to the classifications used in 2015.
Amounts of less than ¥1 million and $1 thousand have been omitted. As a result, the totals shown in the financial statements
and notes thereto do not necessarily agree with the sum of the individual account balances.
The consolidated financial statements are stated in Japanese yen, the currency of the country in which the Bank isincorporated and operates. The translations of Japanese yen amounts into U.S. dollar amounts are included solely for theconvenience of readers outside Japan and have been made at the rate of ¥120.17 to $1, the approximate rate of exchange
at March 31, 2015. Such translations should not be construed as representations that the Japanese yen amounts could be
converted into U.S. dollars at that or any other rate.

2. Summary of Significant Accounting Policies
a. Consolidation
The consolidated financial statements include the accounts of the Bank and its seven significant subsidiaries as of March 31,
2015 and 2014, respectively. The fiscal periods of all consolidated subsidiaries end on March 31.
Under the control or influence concept, those companies in which the Bank, directly or indirectly, is able to exercise control
over operations are fully consolidated.
Investments in remaining unconsolidated subsidiaries and an affiliated company are stated at cost. If the equity method of
accounting had been applied to the investment in this company, the effect on the accompanying consolidated financial
statements would not be material.
All significant intercompany balances and transactions have been eliminated in consolidation. All material unrealized profit
included in assets resulting from transactions within the Group is eliminated.

b. Business combinations
In October 2003, the Business Accounting Council (the “BAC”) issued a Statement of Opinion, “Accounting for Business
Combinations,” and in December 2005, the Accounting Standards Board of Japan (the “ASBJ”) issued ASBJ Statement No. 7,“Accounting Standard for Business Divestitures” and ASBJ Guidance No. 10, “Guidance for Accounting Standard for Business
Combinations and Business Divestitures.” The accounting standard for business combinations allowed companies to apply
the pooling of interests method of accounting only when certain specific criteria are met such that the business combination
is essentially regarded as a uniting-of-interests. For business combinations that do not meet the uniting-of-interests criteria,
the business combination is considered to be an acquisition and the purchase method of accounting is required. This
standard also prescribes the accounting for combinations of entities under common control and for joint ventures.
In December 2008, the ASBJ issued a revised accounting standard for business combinations, ASBJ Statement No. 21,“Accounting Standard for Business Combinations.” Major accounting changes under the revised accounting standard are as
follows: (1) The revised standard requires accounting for business combinations only by the purchase method. As a result,the pooling of interests method of accounting is no longer allowed. (2) The current accounting standard accounts for the16
The Higo Bank, Ltd. Annual Report 2015

The Higo Bank, Ltd. and its Consolidated Subsidiaries

Notes to Consolidated Financial Statements
Year ended March 31, 2015

research and development costs to be charged to income as incurred. Under the revised standard, in-process researchand development (IPR&D) acquired in the business combination are capitalized as an intangible asset. (3) The previous
accounting standard provided for a bargain purchase gain (negative goodwill) to be systematically amortized over a period
not exceeding 20 years. Under the revised standard, the acquirer recognizes the bargain purchase gain in profit or loss
immediately on the acquisition date after reassessing and confirming that all of the assets acquired and all of the liabilities
assumed have been identified after a review of the procedures used in the purchase price allocation. The revised standard
was applicable to business combinations undertaken on or after April 1, 2010.

c. Cash and cash equivalents
Cash and cash equivalents in the consolidated statement of cash flows are composed of cash on hand and due from the
Bank of Japan.

d. Foreign currency translation
The Bank maintains its accounting records in Japanese yen. Foreign currency assets and liabilities are translated into
Japanese yen at the exchange rates prevailing on the balance sheet date.

e. Trading assets/liabilities and trading income/expenses
Trading transactions intended to take advantage of short-term fluctuations and arbitrage opportunities in interest rates,
currency exchange rates, market prices of securities and related indices are recognized on a trade date basis and recorded in
Trading assets or Trading liabilities in the consolidated balance sheet. Income or expenses generated on the relevant tradingtransactions are recorded in Trading income or Trading expenses in the consolidated statement of income.
Securities and other monetary claims held for trading purposes are stated at fair value at the consolidated balance sheet
date. Derivative financial products, such as swaps, forward contracts and option transactions, are stated at their fair values,
assuming that such transactions were terminated and settled at the consolidated balance sheet date.
Trading income and Trading expenses include the interest received and interest paid during the fiscal year, the gains orlosses resulting from any change in the value of securities and other monetary claims between the beginning and the end of
the fiscal year and the gains or losses resulting from any change in the value of financial derivatives between the beginningand the end of the fiscal year, assuming they were settled at the end of the fiscal year.

f. Financial instrumentsi ) Securities
Held-to-maturity debt securities are stated at amortized cost as determined by the moving average method. Available-forsale securities with market quotations are stated at the market prices prevailing on the balance sheet date. Cost of sales ofsuch securities is determined by the moving average method. Net unrealized gains or losses on these securities, net of taxes,
are reported in a separate component of equity. Available-for-sale securities, the market quotations of which are extremely
difficult to obtain are stated at cost as determined by the moving average method. For other than temporary declines infair value, securities are reduced to net realizable value by a charge to income. Securities included in money held in trusts
managed separately, the primary objective of which is to invest, are stated at market prices. In addition, investments inunconsolidated subsidiaries and an affiliated company that are not accounted for by the equity method are stated at cost
determined by the moving average method.
ii) Derivatives
Derivatives other than those designated as “Trading assets and Trading liabilities” (see (e) Trading assets/liabilities andTrading income/expenses) are stated at fair value, with changes in fair value included in net profit or loss for the period inwhich they arise, except for derivatives that are designated as “hedging instruments” (see iii) Hedge accounting below).
iii) Hedge accountinga) Hedge of interest rate risks
The Bank applies deferral hedge accounting to hedges of interest rate risk associated with financial assets and liabilities in

17
The Higo Bank, Ltd. Annual Report 2015

The Higo Bank, Ltd. and its Consolidated Subsidiaries

Notes to Consolidated Financial Statements
Year ended March 31, 2015

accordance with the Industry Audit Committee Report No. 24, “Accounting and Auditing Treatments on the Applicationof Accounting Standards for Financial Instruments in the Banking Industry,” issued by the Japanese Institute of Certified
Public Accountants (the “JICPA”). Specific matching criteria are not measured at fair value, but the net payments orreceipts under the swap agreements are recognized and included in interest expenses or income.
b) Hedge of foreign currency exchange risks
The Bank applies the deferral method of hedge accounting for hedges of the risks arising from financial assets and liabilities
due to the fluctuation of foreign exchange rates which is described in “Treatment for Accounting and Auditing of Applicationof Accounting Standard for Foreign Currency Transactions in Banking Industry” (the JICPA Industry Audit Committee Report
No. 25). The Bank assesses the effectiveness of hedging instruments executed for reducing the risk of changes in currency
exchange rates with currency swaps or foreign exchange swaps, by verifying that there exist foreign currency positions of thehedging instruments corresponding to the foreign currency monetary assets and liabilities to be hedged.

g. Fixed assets and intangible assetsi) Fixed assets and intangible assets are stated at cost less accumulated depreciation
Depreciation of fixed assets owned by the Group is computed by the declining-balance method while the straight-line
method is applied to buildings acquired after April 1, 1998. The range of useful lives is principally from 20 to 50 years for buildings and from 5 to 20 years for other fixed assets.
Amortization of intangible assets owned by the Group is computed by the straight-line method over the estimated useful livesof the assets. Cost of computer software obtained for internal use is amortized over the estimated useful lives of five years.
ii) Land revaluation
Under the “Law of Land Revaluation,” the Bank elected a one-time revaluation of its own-use land to a value based on realestate appraisal information as of March 31, 1999.
The resulting excess of land revaluation represents unrealized appreciation of land and is stated, net of income taxes, as acomponent of equity. There was no effect on the statement of income. Continuous readjustment is not permitted unlessthe land value subsequently declines significantly such that the amount of the decline in value should be removed from theexcess of land revaluation account and related deferred tax liabilities.
The carrying amount of the land after the above one-time revaluation exceeded the fair value by ¥11,674 million ($97,152
thousand) and ¥11,737 million as of March 31, 2015 and 2014, respectively.

h. Long-lived assets
The Group reviews its long-lived assets for impairment whenever events or changes in circumstance indicate the carrying
amount of an asset or asset group may not be recoverable. An impairment loss would be recognized if the carrying amountof an asset or asset group exceeds the sum of the undiscounted future cash flows expected to result from the continued
use and eventual disposition of the asset or asset group. The impairment loss would be measured as the amount by which
the carrying amount of the asset exceeds its recoverable amount, which is the higher of the discounted cash flows from thecontinued use and eventual disposition of the asset or the net selling price at disposition.

i. Reserve for possible loan losses
Reserve for possible loan losses is provided as follows:i ) The reserve for claims on debtors who are legally or substantially bankrupt is provided based on the amount remaining after
deducting the amount expected to be collected through the disposal of collateral or through the execution of guarantees.
ii) T he reserve for claims on debtors who are not currently legally bankrupt but are likely to become bankrupt is provided at
the amount considered necessary after due consideration of the results of a solvency assessment. The solvency assessment
identifies the amounts expected to remain after deducting the amounts expected to be collected through the disposal ofcollateral or through the execution of guarantees.

18
The Higo Bank, Ltd. Annual Report 2015

The Higo Bank, Ltd. and its Consolidated Subsidiaries

Notes to Consolidated Financial Statements
Year ended March 31, 2015iii) T he reserve for claims on debtors other than the above is provided based on the loan-loss rates calculated using theactual historical loss experience during a certain period in the past.
All claims are assessed by the branches and credit supervision divisions based on the internal rules for the self-assessment ofassets. The asset examination division, which is independent from the branches and credit supervision divisions, examines
these self-assessments, and the reserve is provided based on the examination results.
With respect to the claims with collateral or guarantees on debtors who are legally or substantially bankrupt, estimateduncollectible amounts have been directly charged off against claims. The charge off amounted to ¥2,158 million ($17,965
thousand) and ¥3,627 million for the years ended March 31, 2015 and 2014, respectively.

j. Bonuses to directors and audit & supervisory board members
Bonuses to directors and audit & supervisory board members are accrued at the end of the year to which such bonuses are
attributable.

k. Retirement and pension plans
The Bank has a cash-balance type pension plan and a defined benefit corporate pension plan (fund type). The consolidated
subsidiaries have unfunded retirement benefit plans. The amount of liability for employees’ retirement benefit is determinedbased on the projected benefit obligations and the pension assets at the balance sheet date. Past service cost is amortizedusing the straight-line method over ten years. Net actuarial gain or loss is amortized using the straight-line method over ten
years commencing from the next fiscal year of occurrence.
In May 2012, the ASBJ issued ASBJ Statement No. 26, “Accounting Standard for Retirement Benefits” and ASBJ Guidance No.
25, “Guidance on Accounting Standard for Retirement Benefits,” which replaced the accounting standard for retirement
benefits that had been issued by the BAC in 1998 with an effective date of April 1, 2000, and the other related practical guidance, and were followed by partial amendments from time to time through 2009.
(a) U nder the revised accounting standard, actuarial gains and losses and service costs that are yet to be recognized in profit
or loss are recognized within equity (accumulated other comprehensive income), after adjusting for tax effects, andany resulting deficit or surplus is recognized as a liability (liability for retirement benefits) or asset (asset for retirement
benefits).
(b) T he revised accounting standard does not change how to recognize actuarial gains and losses and past service costs in
profit or loss. Those amounts are recognized in profit or loss over a certain period no longer than the expected averageremaining service period of the employees. However, actuarial gains and losses and past service costs that arose in thecurrent period and have not yet been recognized in profit or loss are included in other comprehensive income, andactuarial gains and losses and past service costs that were recognized in other comprehensive income in prior periods
and then recognized in profit or loss in the current period, are treated as reclassification adjustments (see Note 10).
(c) T he revised accounting standard also made certain amendments relating to the method of attributing expected benefit
to periods, the discount rate, and expected future salary increases.
This accounting standard and the guidance for (a) and (b) above are effective for the end of annual periods beginning on orafter April 1, 2013, and for (c) above are effective for the beginning of annual periods beginning on or after April 1, 2014, orfor the beginning of annual periods beginning on or after April 1, 2015, subject to certain disclosure in March 2015, all withearlier application being permitted from the beginning of annual periods beginning on or after April 1, 2013. However, noretrospective application of this accounting standard to consolidated financial statements in prior periods is required.
The Bank applied the revised accounting standard and guidance for retirement benefits for (a) and (b) above, effective March
31, 2014, and for (c) above, effective April 1, 2014.
With respect to (c) above, the Bank changed the method of attributing the expected benefit to periods from a straight-line
basis to a benefit formula basis, the method of determining the discount rate from a method based on the number of years
that is an approximation of the average remaining service lives for employees with regard to the term of claims serving as a

19
The Higo Bank, Ltd. Annual Report 2015

The Higo Bank, Ltd. and its Consolidated Subsidiaries

Notes to Consolidated Financial Statements
Year ended March 31, 2015

basis for determination of the discount rate to a method using a single weighted-average discount rate which reflects the
expected period of payment of retirement benefits and the amount of retirement benefits for each expected period of payment timing and amount of benefit payment, and recorded the effect of (c) above as of April 1, 2014, in retained earnings. As
a result, liability for retirement benefits as of April 1, 2014, increased by ¥693 million ($5,768 thousand), asset for retirement
benefits as of April 1, 2014, increased by ¥171 million ($1,429 thousand) and retained earnings as of April 1, 2014, decreasedby ¥337 million ($2,807 thousand), respectively.

l. Reserve for contingent losses
Under the joint responsibility system with governmental credit guarantee organizations, reserve for contingent losses isprovided for possible future payments to the organizations in an amount deemed necessary based on estimated losses in
the future.

m. Reserve for repayments for dormant deposits
Reserve for repayments for dormant deposits is provided for possible losses on future withdrawal of inactive deposits which
had been recognized as income.

n. Leases
Revenues and cost of revenues of finance lease transactions are recognized when lease payments are made.

o. Per share information
The computation of basic net income per share is based on the weighted average number of shares of common stock
outstanding during the year. The average number of common shares used in the computation was 230,510 thousand sharesand 231,521 thousand shares for the years ended March 31, 2015 and 2014, respectively.
Diluted net income per share is not disclosed for the years ended March 31, 2015 and 2014, because there are no potential
common shares.
Cash dividends per share presented in the accompanying consolidated statement of income are dividends applicable to therespective years including dividends to be paid after the end of the year.

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 consequences of temporary differences between the carrying amounts and the tax bases of assets and liabilities. Deferred taxes aremeasured by applying currently enacted tax laws to the temporary differences.

q. Appropriations of retained earnings
Appropriations of retained earnings at each year end are reflected in the consolidated financial statements for the following
year upon shareholders’ approval.

r. Accounting changes and error corrections
In December 2009, the ASBJ issued ASBJ Statement No. 24, “Accounting Standard for Accounting Changes and Error
Corrections” and ASBJ Guidance No. 24, “Guidance on Accounting Standard for Accounting Changes and Error Corrections.”
Accounting treatments under this standard and guidance are as follows:(1) Changes in Accounting Policies
When a new accounting policy is applied following revision of an accounting standard, the new policy is applied retrospectively unless the revised accounting standard includes specific transitional provisions, in which case the entity shall comply
with the specific transitional provisions.

20
The Higo Bank, Ltd. Annual Report 2015

The Higo Bank, Ltd. and its Consolidated Subsidiaries

Notes to Consolidated Financial Statements
Year ended March 31, 2015

(2) Changes in Presentation
When the presentation of financial statements is changed, prior-period financial statements are reclassified in accordancewith the new presentation.
(3) Changes in Accounting Estimates
A change in an accounting estimate is accounted for in the period of the change if the change affects that period only, and isaccounted for prospectively if the change affects both the period of the change and future periods.
(4) Corrections of Prior-Period Errors
When an error in prior-period financial statements is discovered, those statements are restated.

s. New accounting pronouncements
Accounting Standards for Business Combinations and Consolidated Financial Statements—In September 2013, the ASBJ
issued revised ASBJ Statement No. 21, “Accounting Standard for Business Combinations,” revised ASBJ Guidance No. 10,“Guidance on Accounting Standards for Business Combinations and Business Divestitures,” and revised ASBJ Statement No.
22, “Accounting Standard for Consolidated Financial Statements.” Major accounting changes are as follows:(a) T ransactions with noncontrolling interest—A parent’s ownership interest in a subsidiary might change if the parent
purchases or sells ownership interests in its subsidiary. The carrying amount of minority interest is adjusted to reflect thechange in the parent’s ownership interest in its subsidiary while the parent retains its controlling interest in its subsidiary.
Under the current accounting standard, any difference between the fair value of the consideration received or paid andthe amount by which the minority interest is adjusted is accounted for as an adjustment of goodwill or as profit or loss inthe consolidated statement of income. Under the revised accounting standard, such difference shall be accounted for as
capital surplus as long as the parent retains control over its subsidiary.
(b) P resentation of the consolidated balance sheet—In the consolidated balance sheet, “minority interest” under the current
accounting standard will be changed to “noncontrolling interest” under the revised accounting standard.
(c) P resentation of the consolidated statement of income—In the consolidated statement of income, “income before
minority interest” under the current accounting standard will be changed to “net income” under the revised accounting
standard, and “net income” under the current accounting standard will be changed to “net income attributable to ownersof the parent” under the revised accounting standard.
(d) P rovisional accounting treatments for a business combination—If the initial accounting for a business combination isincomplete by the end of the reporting period in which the business combination occurs, an acquirer shall report inits financial statements provisional amounts for the items for which the accounting is incomplete. Under the current
accounting standard guidance, the impact of adjustments to provisional amounts recorded in a business combination
on profit or loss is recognized as profit or loss in the year in which the measurement is completed. Under the revised
accounting standard guidance, during the measurement period, which shall not exceed one year from the acquisition,
the acquirer shall retrospectively adjust the provisional amounts recognized at the acquisition date to reflect new
information obtained about facts and circumstances that existed as of the acquisition date and that would have affected
the measurement of the amounts recognized as of that date. Such adjustments shall be recognized as if the accounting
for the business combination had been completed at the acquisition date.
(e) A cquisition-related costs—Acquisition-related costs are costs, such as advisory fees or professional fees, which an acquirer
incurs to effect a business combination. Under the current accounting standard, the acquirer accounts for acquisitionrelated costs by including them in the acquisition costs of the investment. Under the revised accounting standard,acquisition-related costs shall be accounted for as expenses in the periods in which the costs are incurred.

21
The Higo Bank, Ltd. Annual Report 2015

The Higo Bank, Ltd. and its Consolidated Subsidiaries

Notes to Consolidated Financial Statements
Year ended March 31, 2015

The above accounting standards and guidance for (a) transactions with noncontrolling interest, (b) presentation of theconsolidated balance sheet, (c) presentation of the consolidated statement of income, and (e) acquisition-related costs are
effective for the beginning of annual periods beginning on or after April 1, 2015. Earlier application is permitted from the
beginning of annual periods beginning on or after April 1, 2014, except for (b) presentation of the consolidated balance
sheet and (c) presentation of the consolidated statement of income. In the case of earlier application, all accounting
standards and guidance above, except for (b) presentation of the consolidated balance sheet and (c) presentation of theconsolidated statement of income, should be applied simultaneously.
Either retrospective or prospective application of the revised accounting standards and guidance for (a) transactions with
noncontrolling interest and (e) acquisition-related costs is permitted. In retrospective application of the revised standards
and guidance, the accumulated effects of retrospective adjustments for all (a) transactions with noncontrolling interest and(e) acquisition-related costs which occurred in the past shall be reflected as adjustments to the beginning balance of capitalsurplus and retained earnings for the year of the first-time application. In prospective application, the new standards andguidance shall be applied prospectively from the beginning of the year of the first-time application.
The revised accounting standards and guidance for (b) presentation of the consolidated balance sheet and (c) presentationof the consolidated statement of income shall be applied to all periods presented in financial statements containing thefirst-time application of the revised standards and guidance.
The revised standards and guidance for (d) provisional accounting treatments for a business combination are effective for abusiness combination which occurs on or after the beginning of annual periods beginning on or after April 1, 2015. Earlier
application is permitted for a business combination which occurs on or after the beginning of annual periods beginning on
or after April 1, 2014.
The Bank expects to apply the revised accounting standards and guidance for (a), (b), (c) and (e) above from April 1, 2015,
and for (d) above for a business combination which will occur on or after April 1, 2015, and is in the process of measuring theeffects of applying the revised accounting standards and guidance in future applicable periods.

3. Cash and Cash Equivalents
A reconciliation of the cash and cash equivalents balances in the consolidated statement of cash flows and the accountbalances in the consolidated balance sheet was as follows:
2015

2014

Thousands of
U.S. dollars
2015¥294,806(10,010)(6,008)(1,712)¥277,075¥248,161(10,010)(10,292)(1,997)¥225,862$2,453,248(83,298)(50,000)(14,250)$2,305,699

Millions of yen

Cash and due from banks�������������������������������������������������������������������������������������
Time deposit due from banks����������������������������������������������������������������������������
Foreign currency due from banks��������������������������������������������������������������������
Other due from banks���������������������������������������������������������������������������������������������Cash and cash equivalents�����������������������������������������������������������������������������������

22
The Higo Bank, Ltd. Annual Report 2015

The Higo Bank, Ltd. and its Consolidated Subsidiaries

Notes to Consolidated Financial Statements
Year ended March 31, 2015

4. Securities
The costs and aggregate fair values of securities at March 31, 2015 and 2014, were as shown in the table below. The amounts
shown in the following tables include trading securities classified as “trading assets” and beneficiary interests in trusts classified as “monetary claims purchased” in addition to “securities” stated in the consolidated balance sheet.
Millions of yen
March 31, 2015

Securities classified as:
Trading�������������������������������������������������������������
Available-for-sale:
Equity securities����������������������������������
Debt securities�������������������������������������
Other...........................................................
Held-to-maturity:
Debt securities......................................

Cost

Net unrealized
gains (losses)

66,4691,201,298
352,649¥   33,785
1,166,445
339,658¥32,684
34,853
12,990

7,952

7,902

50

Fair value¥    1,229

Millions of yen
March 31, 2014

Securities classified as:
Trading..............................................................
Available-for-sale:
Equity securities����������������������������������
Debt securities�������������������������������������
Other����������������������������������������������������������
Held-to-maturity:
Debt securities�������������������������������������

March 31, 2015

Securities classified as:
Trading�������������������������������������������������������������
Available-for-sale:
Equity securities����������������������������������
Debt securities�������������������������������������
Other...........................................................
Held-to-maturity:
Debt securities......................................

Cost

Net unrealized
gains (losses)

52,131
1,283,126
224,823¥   31,349
1,249,319
220,293¥20,781
33,806
4,530

10,371

10,256

114

Fair value¥      685

Thousands of U.S. Dollars
Net unrealized
Fair value
Costgains (losses)$   10,228
553,133
9,996,658
2,934,585$  281,149
9,706,627
2,826,480$271,983
290,031108,104

66,18065,759421

The information of available-for-sale securities which were sold for the years ended March 31, 2015 and 2014, was as follows:
March 31, 2015

Proceeds

Millions of yen
Realized gains

Available-for-sale:
Equity securities..........................................
Debt securities.............................................
Other..................................................................
Total.............................................................

¥  5,975
204,756
51,878¥262,611¥2,015752
1,625¥4,392

Realized losses

23
The Higo Bank, Ltd. Annual Report 2015

¥ (48)(577)(91)¥(717)

The Higo Bank, Ltd. and its Consolidated Subsidiaries

Notes to Consolidated Financial Statements
Year ended March 31, 2015

March 31, 2014

Proceeds

Millions of yen
Realized gains

Available-for-sale:
Equity securities..........................................
Debt securities.............................................
Other..................................................................
Total.............................................................

¥  6,570
478,463
29,648¥514,682¥1,473
3,903
258¥5,635

March 31, 2015

Proceeds

Available-for-sale:
Equity securities..........................................
Debt securities.............................................
Other..................................................................
Total.............................................................

$   49,727
1,703,892
431,712$2,185,331

Realized losses¥   (70)(1,518)(275)¥(1,865)

Thousands of U.S. Dollars
Realized gains
Realized losses$16,772
6,258
13,525$36,555$  (404)(4,802)(762)$(5,969)

The impairment losses on available-for-sale equity securities for the years ended March 31, 2015 and 2014, were zero.
Net unrealized gains (losses) on available-for-sale securities for the years ended March 31, 2015 and 2014, consisted of thefollowing:
2015

2014

Thousands of
U.S. dollars
2015¥80,528(24,979)(29)¥55,519¥59,119(20,253)(15)¥38,849$670,119(207,869)(242)$462,008

Millions of yen

Valuation differences:
Available-for-sale securities...........................................................................
Deferred tax liabilities........................................................................................
Minority interests..................................................................................................
Net unrealized gains (losses) on available-for-sale securities..........

5. Money Held in TrustThe carrying amounts and unrealized gains (losses) of money held in trust, as of March 31, 2015 and 2014, were as follows:
Money held in trust held for trading
2015

2014

Thousands of
U.S. dollars
2015¥4,942
67¥4,943
20$41,128
565

Millions of yen

Carrying amounts........................................................................................................
Unrealized gains (losses) credited to income............................................

24
The Higo Bank, Ltd. Annual Report 2015

The Higo Bank, Ltd. and its Consolidated Subsidiaries

Notes to Consolidated Financial Statements
Year ended March 31, 20156. Loans and Bills Discounted
Loans and bills discounted as of March 31, 2015 and 2014, included the following:
2015

2014

Thousands of
U.S. dollars
2015¥   550
44,80022
15,976¥61,350¥   336
46,691
46
11,885¥58,959$  4,581
372,811
189
132,949$510,531

Millions of yen

Bankruptcy loans.........................................................................................................
Past due loans...............................................................................................................
Loans past due for three months or more..................................................
Restructured loans......................................................................................................
Total..............................................................................................................................

Bankruptcy loans represent non-accrual loans to borrowers who are legally bankrupt as defined in Article 96-1-3 and 4 of theJapanese Tax Law Enforcement Regulation (Article 97 of 1965 Cabinet Order).
Past due loans represent non-accrual loans other than bankruptcy loans and loans for which payments of interest are
deferred in order to assist or facilitate the restructuring of borrowers in financial difficulties.
Loans past due for three months or more include loans for which payments of principal or interest are delinquent by threemonths or more, as calculated from the day following the contracted payment date, but do not include bankruptcy loans or
past due loans.
Restructured loans represent loans on which contracts were amended in favor of borrowers (e.g., reduction of or exemption
from stated interest, deferral of interest payments, extension of maturity dates, renunciation of claims) in order to assist or
facilitate the restructuring of borrowers in financial difficulties, but do not include bankruptcy loans, past due loans or loans
past due for three months.
Loans include discounted bills amounting to ¥12,175 million ($101,322 thousand) and ¥14,005 million as of March 31, 2015
and 2014, respectively. The Bank is entitled, without limitation, to sell or pledge these discounted bills.

7. Fixed Assets and Intangible Assets
Fixed assets as of March 31, 2015 and 2014, consisted of the following:
2015

2014

Thousands of
U.S. dollars
2015¥ 9,837
27,651
10,582
6,148¥54,219¥ 8,641
27,863
4,305
6,441¥47,252$ 81,861
230,102
88,06051,162$451,187

Millions of yen

Buildings...........................................................................................................................
Land.....................................................................................................................................
Construction in progress........................................................................................
Other...................................................................................................................................
Total..............................................................................................................................

Accumulated depreciation at March 31, 2015 and 2014, amounted to ¥35,492 million ($295,349 thousand) and ¥36,090
million, respectively.
As of March 31, 2015 and 2014, deferred gains for tax purposes amounted to ¥3,487 million ($29,019 thousand) and ¥3,487
million, respectively.
Intangible assets as of March 31, 2015 and 2014, consisted of the following:
2015

2014

Thousands of
U.S. dollars
2015¥6,349167¥6,517¥6,559169¥6,728$52,837
1,396$54,233

Millions of yen

Software............................................................................................................................
Other...................................................................................................................................
Total..............................................................................................................................

25
The Higo Bank, Ltd. Annual Report 2015

The Higo Bank, Ltd. and its Consolidated Subsidiaries

Notes to Consolidated Financial Statements
Year ended March 31, 2015

8. Assets Pledged
Assets pledged as collateral were as follows:
2015

2014

Thousands of
U.S. dollars
2015¥153,121
2,830
714¥156,667¥67,085
4,551
1,036¥72,673$1,274,208
23,554
5,948$1,303,712

Millions of yen

Securities...........................................................................................................................
Lease receivables and investment assets.....................................................
Other...................................................................................................................................
Total..............................................................................................................................
Liabilities related to the above assets pledged were as follows:

2015

2014

Thousands of
U.S. dollars
2015¥34,236
74,89445,472¥25,455
33,797
4,916$284,902
623,240
378,398

Millions of yen

Deposits............................................................................................................................
Borrowing under securities lending transactions...................................
Borrowed money.........................................................................................................

In addition, securities totaling ¥127,421 million ($1,060,343 thousand) and ¥127,852 million were pledged as collateral forsettlement of exchange as of March 31, 2015 and 2014, respectively.
Guarantee deposits amounting to ¥365 million ($3,043 thousand) and ¥405 million were included in other assets at March
31, 2015 and 2014, respectively.

9. Commitment Line Agreements Related to Overdrafts and Loans
Commitment line agreements relating to overdrafts and loans represent agreements to allow customers to extend
overdrafts or loans up to agreed amounts at the customer’s request as long as no violation against the conditions of theagreements exists.
Unused commitment lines under such agreements were as follows:
2015

2014

Thousands of
U.S. dollars
2015¥620,727
25,731¥646,459¥631,007
27,704¥658,712$5,165,414
214,125$5,379,540

Millions of yen

Original maturity is within one year or
the Bank can cancel at any time without any penalty......................
Other...................................................................................................................................
Total..............................................................................................................................

The amount of unexercised commitment lines does not necessarily affect the future cash flows of the Group because mostof such agreements are terminated without being exercised. Most of these agreements have provisions, which stipulate that
the Group may deny extending loans or decrease the commitment line when there are certain changes in financial markets,
certain issues in securing loans and other reasons. The Group requests collateral in the form of premises or securities as
deemed necessary upon providing such commitments. In addition, the Group monitors the financial condition of customers
in accordance with its internal rules on a regular basis (semi-annually) and takes necessary measures including revisiting theterms of commitments and other means to prevent credit losses.

26
The Higo Bank, Ltd. Annual Report 2015

The Higo Bank, Ltd. and its Consolidated Subsidiaries

Notes to Consolidated Financial Statements
Year ended March 31, 2015

10. Retirement and Pension Plans
The Bank has a cash-balance type pension plan and a defined benefit corporate pension plan (fund type). The consolidated
subsidiaries have unfunded retirement benefit plans.
(1) The changes in defined benefit obligation for the years ended March 31, 2015 and 2014, were as follows:
Millions of yen

Balance at beginning of year (as previously reported)........................
Cumulative effect of accounting change.............................................
Balance at beginning of year (as restated)..................................................
Current service cost............................................................................................
Interest cost.............................................................................................................
Actuarial (gains) losses......................................................................................
Benefits paid............................................................................................................
Balance at end of year..............................................................................................

2015

2014

¥38,428521
38,950
1,052
390
1,166
(2,438)¥39,120¥39,465
39,465
1,209
391
(524)
(2,113)¥38,428

Thousands of
U.S. dollars
2015$319,785
4,338
324,124
8,759
3,250
9,703
(20,295)$325,543(2) The changes in plan assets for the years ended March 31, 2015 and 2014, were as follows:
2015

2014

Thousands of
U.S. dollars
2015¥30,511
610
1,894
573
(1,714)¥31,875¥30,896617(3)
581(1,580)¥30,511$253,903
5,078
15,767
4,772(14,270)$265,251

Millions of yen

Balance at beginning of year...............................................................................
Expected return on plan assets...................................................................
Actuarial gains (losses)......................................................................................
Contributions from the employer.............................................................
Benefits paid............................................................................................................
Balance at end of year..............................................................................................

(3) R econciliation between the liability recorded in the consolidated balance sheet and the balances of defined benefit
obligation and plan assets
2015

2014

Thousands of
U.S. dollars
2015¥ 30,296(31,875)(1,578)
8,823¥ 7,245¥ 30,178(30,511)
(333)
8,250
¥ 7,917$ 252,116(265,251)(13,134)
73,426$ 60,291

Millions of yen

Funded defined benefit obligation.................................................................
Plan assets........................................................................................................................
Total..............................................................................................................................
Unfunded defined benefit obligation............................................................
Net liability arising from defined benefit obligation......................

2015

2014

Thousands of
U.S. dollars
2015¥ 8,823(1,578)¥ 7,245¥8,250(333)¥7,917$ 73,426(13,134)$ 60,291

Millions of yen

Liability for retirement benefits..........................................................................
Asset for retirement benefits................................................................................
Net liability arising from defined benefit obligation......................

27
The Higo Bank, Ltd. Annual Report 2015

The Higo Bank, Ltd. and its Consolidated Subsidiaries

Notes to Consolidated Financial Statements
Year ended March 31, 2015(4) The components of net periodic benefit costs for the years ended March 31, 2015 and 2014, were as follows:
2015

2014

Thousands of
U.S. dollars
2015¥1,052
390
(610)
(597)
906
0
¥1,142¥1,209
391
(617)
(597)
1,299
0
¥1,686$ 8,759
3,250(5,078)(4,968)7,541
2$ 9,506

Millions of yen

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

(5) Other comprehensive income on defined retirement benefit plans for the years ended March 31, 2015 and 2014
Millions of yen
2015

Prior service cost..........................................................................................................
Actuarial (gains) losses.............................................................................................
Total..............................................................................................................................

2014¥   597(1,634)¥(1,037)

Thousands of
U.S. dollars
2015$ 4,968(13,604)$ (8,636)(6) Accumulated other comprehensive income on defined retirement benefit plans as of March 31, 2015 and 2014
2015

2014

Thousands of
U.S. dollars
2015¥   (49)2,274¥2,224¥ (646)
3,909¥3,262$ (414)18,928$18,514

Millions of yen

Unrecognized prior service cost........................................................................
Unrecognized actuarial (gains) losses............................................................
Total..............................................................................................................................
(7) Plan assets(a) Components of plan assets

Plan assets as of March 31, 2015 and 2014, consisted of the following:
Debt investments........................................................................................................
Equity investments.....................................................................................................
General account of life insurance companies..............................................
Others.................................................................................................................................
Total..............................................................................................................................

2015

2014

35%
29
32
4
100%

26%
13
46
15
100%

(b) Method of determining the expected rate of return on plan assets
The expected rate of return on plan assets is determined considering distribution of plan assets currently and in the
future, investment performance of the past 10 years and the long-term rates of return which are expected currently andin the future from the various components of the plan assets.
(8) Assumptions used for the years ended March 31, 2015 and 2014, were set forth as follows:
Discount rate..........................................................................................................................
Expected rate of return on plan assets..................................................................
Expected rate of salary increase.................................................................................

28
The Higo Bank, Ltd. Annual Report 2015

2015

2014

0.7%
2.0%
5.5%

1.1%
2.0%
5.2%

The Higo Bank, Ltd. and its Consolidated Subsidiaries

Notes to Consolidated Financial Statements
Year ended March 31, 2015

11. Equity
Japanese banks are subject to the Companies Act of Japan (the “Companies Act”) and the Banking Law. The significant provisions in the Companies Act and the Banking Law that affect financial and accounting matters are summarized below:(a) Dividends
Under the Companies Act, companies can pay dividends at any time during the fiscal year in addition to the year-end
dividend upon resolution at the shareholders’ meeting. For companies that meet certain criteria such as: (1) having theBoard of Directors, (2) having independent auditors, (3) having the Audit & Supervisory Board, and (4) the term of serviceof the directors is prescribed as one year rather than two years of normal term by its articles of incorporation, the Boardof Directors may declare dividends (except for dividends in kind) at any time during the fiscal year if the company hasprescribed so in its articles of incorporation. The Bank meets all the above criteria.
The Companies Act permits companies to distribute dividends-in-kind (non-cash assets) to shareholders subject to acertain limitation and additional requirements.
Semiannual interim dividends may also be paid once a year upon resolution by the Board of Directors if the articles ofincorporation of the company so stipulate. The Companies Act and the Banking Law provides certain limitations on theamounts available for dividends or the purchase of treasury stock.
(b) Increases/decreases and transfer of common stock, reserve and surplus
The Banking Law requires that an amount equal to 20% of dividends must be appropriated as a legal reserve (a component of retained earnings) or as additional paid-in capital (a component of capital surplus) depending on the equity
account charged upon the payment of such dividends until the aggregate amount of legal reserve and additional paid-in
capital equals 100% of common stock. Under the Companies Act, the total amount of additional paid-in common andlegal reserve may be reversed without limitation. The Companies Act also provides that common stock, legal reserve,
additional paid-in capital, other capital surplus and retained earnings can be transferred among the accounts undercertain conditions upon resolution of the shareholders.
(c) T reasury stock and treasury stock acquisition rights
The Companies Act also provides for companies to purchase treasury stock and dispose of such treasury stock byresolution of the Board of Directors. The amount of treasury stock purchased cannot exceed the amount available for
distribution to the shareholders which is determined by a specific formula. Under the Companies Act, stock acquisitionrights are presented as a separate component of equity. The Companies Act also provides that companies can purchaseboth treasury stock acquisition rights and treasury stock. Such treasury stock acquisition rights are presented as a separate
component of equity or deducted directly from stock acquisition rights.

12. Other Income
Other income included gains on sales stocks and other securities in the amount of ¥2,532 million ($21,072 thousand) and¥1,667 million for the years ended March 31, 2015 and 2014, respectively.

29
The Higo Bank, Ltd. Annual Report 2015

The Higo Bank, Ltd. and its Consolidated Subsidiaries

Notes to Consolidated Financial Statements
Year ended March 31, 2015

13. Income Taxes
The Group is subject to Japanese national and local income taxes which, in the aggregate, resulted in a normal effective
statutory tax rate of approximately 35.3% and 37.7% for the years ended March 31, 2015 and 2014.
The tax effects of significant temporary differences and tax loss carryforwards which resulted in deferred tax assets andliabilities as of March 31, 2015 and 2014, were as follows:
2015

2014

Thousands of
U.S. dollars
2015¥ 6,918
2,823
860
1,311

¥7,902
2,912
990
1,474

$ 57,571
23,496
7,160
10,913

2,642
1,969
16,525(2,206)
14,3181,849
2,246
17,376(2,444)
14,932

21,985
16,388
137,516(18,362)
119,153(25,077)
(167)
(505)
(32)
(25,781)¥(11,462)(20,350)
(288)
(117)
(40)
(20,797)¥ (5,865)(208,679)(1,390)(4,203)(268)(214,542)$ (95,388)

Millions of yen

Deferred tax assets:
Reserve for possible loan losses..................................................................
Liability for retirement benefits...................................................................
Depreciation............................................................................................................
Loss on impairment of securities...............................................................
Deferred gains (losses) on derivatives under hedge
accounting.............................................................................................................
Other............................................................................................................................
Subtotal...............................................................................................................
Valuation allowance...........................................................................................
Deferred tax assets.......................................................................................
Deferred tax liabilities:
Unrealized gains on available-for-sale securities..............................
Deferred income on fixed assets sold.....................................................
Asset for retirement benefits........................................................................
Other............................................................................................................................
Deferred tax liabilities.................................................................................
Net deferred tax liabilities......................................................................................

A reconciliation between the normal effective statutory tax rates and the actual effective tax rates reflected in the accompanying consolidated statement of income for the year ended March 31, 2015, was as follows:
2015

Normal effective statutory tax rate...........................................................................
Expenses not deductible for income tax purposes................................
Income not taxable for income tax purposes............................................
Valuation allowance...................................................................................................
Inhabitant taxes per capita.....................................................................................
Change in effective statutory tax rate.............................................................
Gain on negative goodwill.....................................................................................
Other-net...........................................................................................................................
Actual effective tax rate...................................................................................................

35.3%
0.2
(0.9)
0.0
0.4
4.7
(0.2)
0.2
39.7%

A reconciliation between the normal effective statutory tax rates and the actual effective tax rates reflected in the accompanying consolidated statement of income for the year ended March 31, 2014, is not disclosed due to immaterial difference.
New tax reform laws enacted in 2015 in Japan changed the normal effective statutory tax rate for the fiscal year beginningon or after April 1, 2015, to approximately 32.8% and for the fiscal year beginning on or after April 1, 2016, to approximately
32.0%. The effect of these changes was to decrease deferred tax assets by ¥34 million ($289 thousand), deferred tax liabilitiesby ¥1,256 million ($10,459 thousand), deferred tax liabilities related to land revaluation by ¥503 million ($4,193 thousand)and increase unrealized gains on available-for-sale securities by ¥2,583 million ($21,497 thousand), deferred income taxes by¥1,018 million ($8,472 thousand), excess of land revaluation by ¥503 million ($4,193 thousand).

30
The Higo Bank, Ltd. Annual Report 2015

The Higo Bank, Ltd. and its Consolidated Subsidiaries

Notes to Consolidated Financial Statements
Year ended March 31, 2015

14. Financial Instruments and Related Disclosures(a) B ank policy for financial instruments
The main business of the Bank is procuring funds directly from deposits accepted from individual and corporate customers
and from financial markets including call money markets, and managing such funds in the form of loans and investments
in securities. Moreover, the Bank is engaged in a variety of services related to financial instruments including the trading ofstocks and bonds associated with securities investment, as well as over-the-counter sales of public debt securities.
The Bank’s major means of raising funds are accepting customer deposits (including negotiable certificates of deposit).
Deposits from individual customers in particular form a significant proportion of total deposits. In raising funds, the Bank
actively solicits fixed-term deposits to ensure funding stability. Some funds are raised directly from financial markets using
such means of funding as call money, as well as derivatives including currency swaps and foreign repurchase transactions asa means of raising foreign currency funds.
The Bank’s major means of operating funds is lending, and the following is securities investment such as in stocks andbonds. Loans are primarily provided to small- and medium-sized enterprises (SMEs) and individual customers in Kumamoto
Prefecture, loans are also provided to the public sector and to large corporations outside the Prefecture. Securities investments are primarily investments in Japanese government bonds (JGBs) and public debt securities, the Bank also invests incorporate bonds, stocks, foreign securities and other financial instruments.
As mentioned above, the Bank holds substantial financial assets and liabilities that are subject to fluctuations in interest rates
and prices. To protect itself from the negative effects of the fluctuations, the Bank practices Asset Liability Management(ALM).
In addition, some of the subsidiaries that engage in credit card business and lending activities raise funds from borrowing,
and some of the subsidiaries acquire, hold and sell securities.
(b) Nature and extent of risks arising from financial instrumentsi) Financial assets
The significant proportion of financial assets held by the Group is loans, which are primarily provided to domestic institutions and individual customers. Loans are subject to credit risk, which represents loss on default caused by deteriorated
credit of the borrowers. Additionally, fixed interest rate loans are subject to market risk and their fair value is exposed torisk of fluctuation in market interest rate.
The second largest proportion of financial assets held by the Group is securities, which include domestic bonds, stocks,
foreign bonds and investment trusts. Securities held by the Group are subject to market risk, and their fair value is
exposed to risk of fluctuation in variable risk factors including interest rates, stock prices and exchange rates. The Groupis also subject to the liquidity risk and their fair value is exposed to risk of fluctuation in market prices. Some securities,
such as stocks and bonds, are subject to credit risk, which represents loss on default caused by deteriorated credit of theissuers.
ii) Financial liabilities
Deposits and marketable funds procured are subject to liquidity risk, which represents the outflow of deposits and an
inability to raise needed funds caused by deteriorated credit of the Bank, as well as losses caused by having to maketransactions under unfavorable conditions. Some of the Group companies raise funds by borrowing, which are subject toliquidity risk in turn.
In addition, funds procured at fixed interest rates are subject to market risk and their fair value is exposed to risk of fluctuation in market interest rate.

31
The Higo Bank, Ltd. Annual Report 2015

The Higo Bank, Ltd. and its Consolidated Subsidiaries

Notes to Consolidated Financial Statements
Year ended March 31, 2015iii) Derivatives
The derivative transactions conducted by the Bank include interest rate swaps and currency swaps. The Bank applies
deferred hedge and specific matching criteria to transactions undertaken as hedges against risk and evaluates hedge
effectiveness on the basis of the market price fluctuation rate and the details of the contract. Derivative transactions are
subject to market risk associated with the deteriorating credit standing of the counterparty and credit risk of default of thecontract and changing risk factors. The consolidated subsidiaries do not undertake derivative transactions.
(c) Risk management for financial instrumentsi) Basic risk management policy
The Bank positions risk management as an important business challenge and enhances organization and system for
managing risk rigorously. By monitoring various types of risk properly and managing risk by responding to changing
financial conditions appropriately, we maintain and enhance the financial soundness of the Group and establish a business foundation.
ii) Risks and the risk management system
To enhance the risk management system, the Bank has instituted “Integrated Risk Management Rules” which define risk
management policies each fiscal year for each type of risk — credit risk, market risk and liquidity risk, and define the risk
management organizations and corresponding authorities. With respect to risk management for operating divisions suchas divisions, sections, offices, branches, and Group companies, each headquarter division assumes functional responsibility for risk management of each type of risk. The Compliance and Risk management Division assumes overall control forrisk management of all banking-related risks and reports on the risk management status to the Board of Directors. In addition, the Internal Audit Division, which is independent of the operating divisions, audits the risk management functions inoperating division and in Business Administration Division and reports the results to the Board of Directors.
iii) Integrated risk management
The Bank manages integrated risk in order to grasp and combine the various types of risks together in an integrated
manner and to manage it so that the overall volume of risk does not get too big for management to handle. In addition,
the Bank has introduced a system for allocating risk capital within the range of shareholders’ equity as a provision against
various types of risks, and is taking steps to ensure management soundness and to raise profitability and efficiency.
a) Credit risk
To enhance credit risk management, at headquarters, the Loan Division and the Loan Administration Division have been
separated from the business promotion division, and have been operating under a system of mutual checks and balances, resulting in rigorous loan assessment and management. In addition, the Loan Division manages loan balances andthe Board of Directors reviews the status of those balances so that loans are not biased to particular regions, businesses,
companies and groups.
A credit rating system has been introduced to accurately grasp the creditworthiness of customers and to refine our credit
risk management. Credit rating is a basic credit risk management concept and forms the basis of self-assessment. The
Bank has established an independent self-assessment division that performs audit and is working to enhance its functions
by giving it the ability to perform checks and balances at branches and the Loan Division.
Audits are carried out by our external auditors to confirm that our standards for in-house credit assessment are appropriate, and that such standards are rigorously applied.
b) Market risk
The Bank determines risk acceptance and risk hedge policies in the comprehensive risk control committee and ALM committee based on interest rate forecasts and profit targets through Value at Risk (VaR) method to ensure stable profitability.
In the banking account and trading account, financial instruments influenced by interest rate risks are deposits, loans andbills discounted, bonds and derivatives related to interest rate and financial instruments influenced by price volatility risks
are stocks, mutual funds related to stocks and derivatives related to stocks.

32
The Higo Bank, Ltd. Annual Report 2015

The Higo Bank, Ltd. and its Consolidated Subsidiaries

Notes to Consolidated Financial Statements
Year ended March 31, 2015

The Bank calculates VaR based on the historical simulation method (a holding period of from 10 days to 6 months, aconfidence interval of 99% and observation period of 5 years). As of March 31, 2015, VaR related to interest rate risks was¥16,255 million ($135,270 thousand) and VaR related to price volatility risks was ¥18,055 million ($150,252 thousand)and as of March 31, 2014, VaR related to interest rate risks was ¥14,283 million and VaR related to price volatility risks was¥24,343 million.
The Bank performs back testing to validate VaR periodically. However, VaR measures the amount of market risk by certain
occurrence probabilities which are statistically calculated based on past market movements. Therefore, there are cases inwhich VaR cannot capture risk under sudden and dramatic changes in market beyond normal circumstances. The Bank
does not apply quantitative analysis to some financial instruments that are small in value and financial instruments heldby the consolidated subsidiaries and affiliated companies.
c) Liquidity risk
Management department of liquidity risk grasps and analyzes the uses of funds on a daily, weekly, and monthly basis, andperforms simulations the sources of funds. In addition, to provide for contingencies, the Bank implements a three-phased
system of cash management, depending on the relative tightness of its cash position, so that it can swiftly respond to any
situation. The Bank has also established action plans and a reporting system.
(d) Supplemental explanation for fair value of financial instruments
Fair values of financial instruments include market prices as well as reasonably calculated prices in cases where there areno market prices available. Since the calculations of the reasonably calculated prices are implemented under certain conditions and assumptions, the result of calculations would differ if such calculations are made under different conditions andassumptions.
(e) Fair value of financial instruments
Fair values and carrying amounts of financial instruments as of March 31, 2015 and 2014, are shown below. Immaterial
accounts in the consolidated balance sheet are not included in the table below. Some instruments, such as unlisted stocks,
whose fair values cannot be reliably determined, are not included in the table below (see Note 14 (e) (Note 2)).

(1) Cash and due from banks...............................................................................
(2) Securities:
Held-to-maturity debt securities................................................................
Available-for-sale securities...........................................................................
(3) Loans and bills discounted............................................................................
Reserve for possible loan losses (*1).........................................................
Total assets...............................................................................................................
(1) Deposits.....................................................................................................................
(2) Borrowing under securities lending transactions ...........................
(3) Borrowed money.................................................................................................
Total liabilities.........................................................................................................
Derivatives (*2)
For which hedge accounting is not applied...............................
For which hedge accounting is applied.........................................
Total...............................................................................................................

Carrying
amountMillions of yen
2015
Fair
value

¥  294,806¥  294,806

7,902
1,620,417
2,669,577(19,778)
2,649,799
4,572,926
4,196,538
74,89456,0604,327,493

7,952
1,620,417¥    50

2,677,306
4,600,483
4,197,519
74,89456,0584,328,472

27,50727,557980(9,487)(9,054)¥   (18,542)(9,487)(9,054)¥   (18,542)

33
The Higo Bank, Ltd. Annual Report 2015

Net unrealized
gains (losses)

(2)
978

The Higo Bank, Ltd. and its Consolidated Subsidiaries

Notes to Consolidated Financial Statements
Year ended March 31, 2015

(1) Cash and due from banks...............................................................................
(2) Securities:
Held-to-maturity debt securities................................................................
Available-for-sale securities...........................................................................
(3) Loans and bills discounted............................................................................
Reserve for possible loan losses (*1).........................................................
Total assets...............................................................................................................
(1) Deposits.....................................................................................................................
(2) Borrowing under securities lending transactions............................
(3) Borrowed money.................................................................................................
Total liabilities.........................................................................................................
Derivatives (*2)
For which hedge accounting is not applied...............................
For which hedge accounting is applied.........................................
Total...............................................................................................................

(1) Cash and due from banks...............................................................................
(2) Securities:
Held-to-maturity debt securities................................................................
Available-for-sale securities...........................................................................
(3) Loans and bills discounted............................................................................
Reserve for possible loan losses (*1).........................................................
Total assets...............................................................................................................
(1) Deposits.....................................................................................................................
(2) Borrowing under securities lending transactions ...........................
(3) Borrowed money.................................................................................................
Total liabilities.........................................................................................................
Derivatives (*2)
For which hedge accounting is not applied...............................
For which hedge accounting is applied.........................................
Total...............................................................................................................

Carrying
amountMillions of yen
2014
Fair
value

¥  248,161¥  248,161

10,256
1,560,081
2,556,401(19,050)
2,537,350
4,355,850
4,106,069
33,797
14,0784,153,945

10,371
1,560,081¥   1142,562,919
4,381,534
4,107,212
33,797
14,082
4,155,091

25,56825,683
1,142(3,188)(5,467)¥   (8,656)(3,188)(5,467)¥   (8,656)

Carrying
amountThousands of U.S. dollars
2015
Fair
value

$ 2,453,248$ 2,453,248

65,75913,484,377
22,215,008(164,585)
22,050,423
38,053,808
34,921,683
623,240
466,51036,011,433

66,18013,484,377$    421

22,279,324
38,283,130
34,929,843
623,240
466,492
36,019,577

228,901
229,3228,160(78,954)(75,347)$  (154,301)(78,954)(75,347)$  (154,301)

Net unrealized
gains (losses)

3
1,146

Net unrealized
gains (losses)

(17)
8,143

*1. General reserve for possible loan losses and specific reserve for possible loan losses provided to loans and bills discounted are separately
presented in the above table.
*2. Derivatives recorded in Trading assets, Trading liabilities, Other assets and Other liabilities are aggregated and shown herein. Assets andliabilities attributable to the derivative contracts are totally offset and the net liability position as a consequence of offsetting would be
represented with brackets.

34
The Higo Bank, Ltd. Annual Report 2015

The Higo Bank, Ltd. and its Consolidated Subsidiaries

Notes to Consolidated Financial Statements
Year ended March 31, 2015

(Note 1) Valuation method of financial instruments.
Assets(1) Cash and due from banks
With regard to amounts due from banks without maturity and short-term (within one year) due from banks, as these instruments are settled within a short term and their fair value and carrying amounts are nearly identical, their carrying amounts
are assumed as their fair value.
(2) Securities
The fair value of equity securities is determined based on their prices quoted by the stock exchanges. The fair value of bonds
is determined based on their prices quoted by the exchanges or at rates indicated by financial institutions handling thesetransactions for the Bank. The fair value of investment trusts is based on the base value publicly disclosed. In capital investments in investment partnerships, after applying the fair value to those partnership assets that can be measured at fair value,
the equivalent amount of equity in said fair value is recorded at the deemed fair value of the partnership assets. The fair valueof privately placed bonds guaranteed by the Bank is calculated using the same method as described in “(3) Loans and bills
discounted” accounted below. For information pertaining to investment securities by holding purpose, please refer to Note 4.
(3) Loans and bills discounted
As loans bearing floating rates of interest reflect market rates of interest in the short term, unless credit conditions of the lending entity have changed significantly after lending the loans, their fair value and carrying amounts are nearly identical, so theircarrying amounts are assumed as their fair value. Fixed-rate loans are segmented by loan type, internal rating and period, andtheir fair value is determined by discounting the total amount of principal and interest by the interest rate that consists of theswap rate and the credit spread and the assumed interest rate on new lendings of the same type. The fair value of loans lentto entities that are bankrupt, substantially bankrupt or in danger of bankruptcy are determined according to the current valueof expected future cash flows or the amount of collateral that is expected to be recoverable and guarantee amounts that are
determined to be recoverable. As these amounts are nearly identical to the carrying amounts after deducting the allowancefor doubtful accounts, these amounts are assumed as their fair value. For loans that are fully secured by collateral and thathave no specified repayment term, as in terms of their expected repayment periods and interest conditions their fair value
and carrying amounts are nearly identical, their carrying amounts are assumed as their fair value.
Liabilities(1) Deposits
For demand deposits, fair value is assumed as the amount to be paid when demanded on the balance sheet data (i.e., thecarrying amounts). The fair value of time deposits is determined by segmenting such deposits by term and discounting
future cash flows to their current value. The discount rate used is the rate of interest on new borrowings of the same type.
As the term on deposits is short (within one year), their fair value and carrying amounts are nearly identical, so their carrying
amounts are assumed as their fair value.
(2) Borrowing under securities lending transactions
As their remaining term is short (within one year) and their fair value and carrying amounts are nearly identical, their carrying
amounts are assumed as their fair value.
(3) Borrowed money
As borrowed money bearing floating rates of interest reflects market rates of interest in the short term, the credit conditionsof the Bank and the consolidated subsidiaries have not changed significantly after lending the loans their fair value andcarrying amounts are nearly identical, and their carrying amounts are assumed as their fair value. For those with fixed-rateinterest, the fair value is determined by segmenting such borrowed money by term and discounting the total amount ofprincipal and interest by the rate of interest on new borrowings of the same type. As for borrowed money which have a short
repayment term (within one year), their fair value and carrying amounts are nearly identical, so their carrying amounts are
assumed as their fair price.

35
The Higo Bank, Ltd. Annual Report 2015

The Higo Bank, Ltd. and its Consolidated Subsidiaries

Notes to Consolidated Financial Statements
Year ended March 31, 2015

Derivatives
The information of the fair value for derivatives is included in Note 15.
(Note 2) Financial instruments, whose fair value cannot be reliably determined.
The following instruments are not included in “Assets (2) Securities” in the above table showing the fair value of financial
instruments as of March 31, 2015 and 2014.
Carrying amount

2015

2014

Thousands of
U.S. dollars
2015¥1,3695¥1,375¥1,373
5¥1,379$11,399
46$11,446

Millions of yen

Unlisted stocks (*1, *2)..............................................................................................
Other (*1)..........................................................................................................................
Total..............................................................................................................................

*1. Fair value of unlisted stocks is exempt from disclosure because they do not have a market price and their fair value cannot be reliably
determined.
*2. The Group wrote off unlisted stocks amounting to zero and ¥14 million for the years ended March 31, 2015 and 2014, respectively.

(Note 3) Maturity analysis for claims and securities with contractual maturities as of March 31, 2015 and 2014

1 yearor lessDue from banks.................................................
Securities
Held-to-maturity debt securities.....
Corporate bonds................................
Available-for-sale securities withmaturity........................................................
Japanese government bonds....
Municipal government bonds....
Corporate bonds................................
Loans and bills discounted (*1)...............
Total...................................................................

Over
10 years¥253,593
881
881¥  3,708
3,708¥  3,006
3,006¥    146
146¥    159
159

77,475
1,867
23,13021,224
348,365¥680,315

418,183
220,544
51,72256,856
430,853¥852,744

569,377
384,484
63,58451,714
360,579¥932,964

167,183
127,584
9,203
19,129293,620¥460,950

117,977
23,1339,390
14,136285,173¥403,309

1 yearor lessDue from banks.................................................
Securities
Held-to-maturity debt securities.....
Corporate bonds................................
Available-for-sale securities withmaturity........................................................
Japanese government bonds....
Municipal government bonds....
Corporate bonds................................
Loans and bills discounted (*2)...............
Total...................................................................

Millions of yen
2015
Over 1 year to Over 3 years to Over 5 years to Over 7 years to
3 years
5 years
7 years
10 yearsMillions of yen
2014
Over 1 year to Over 3 years to Over 5 years to Over 7 years to
3 years
5 years
7 years
10 years¥147,671
74,361
12,22736,993613,818¥761,490Over
10 years¥204,842
5,656
5,656

¥  1,756
1,756¥  2,524
2,524¥    161
161¥    158
158

63,528
4,581
34,907
11,926364,842¥638,869

390,468
218,883
50,94546,855
399,619¥791,844

565,670
365,907
66,77765,801
358,973¥927,168

312,798
244,164
24,856
14,739266,609¥579,568

77,28036,918
8,553
18,449285,245¥362,683

36
The Higo Bank, Ltd. Annual Report 2015

¥ 69,885
18,484
13,53536,833553,253¥623,139

The Higo Bank, Ltd. and its Consolidated Subsidiaries

Notes to Consolidated Financial Statements
Year ended March 31, 2015

1 yearor lessDue from banks................................................. $2,110,289
Securities
Held-to-maturity debt securities.....
7,336
Corporate bonds................................
7,336
Available-for-sale securities withmaturity........................................................
644,715
Japanese government bonds....
15,539Municipal government bonds....
192,479
Corporate bonds................................
176,623
Loans and bills discounted (*1)............... 2,898,937
Total................................................................... $5,661,278

Thousands of U.S. dollars
2015
Over 1 year to Over 3 years to Over 5 years to Over 7 years to
3 years
5 years
7 years
10 years$   30,857
30,857$   25,020
25,020$    1,221
1,221$    1,323
1,323

3,479,928
1,835,273
430,415
473,134
3,585,364$7,096,150

4,738,103
3,199,506
529,119
430,347
3,000,581$7,763,705

1,391,228
1,061,703
76,591
159,186
2,443,374$3,835,823

981,752
192,506
78,147
117,633
2,373,084$3,356,160

Over
10 years$1,228,853
618,802
101,752
307,844
5,107,920$6,336,773*1. Of loans and bills discounted, the portion whose timing of collection is unforeseeable, such as loans to “Legally bankrupt” borrowers,
loans to “De facto bankrupt” borrowers and loans to “In danger of bankruptcy” borrowers, amounting to ¥45,351 million ($377,393
thousand), is not included in the above table. Loans that do not have contractual maturity, amounting to ¥291,815 million ($2,428,354
thousand), are not included either.
*2. Of loans and bills discounted, the portion whose timing of collection is unforeseeable, such as loans to “Legally bankrupt” borrowers,
loans to “De facto bankrupt” borrowers and loans to “In danger of bankruptcy” borrowers, amounting to ¥47,027 million, is not includedin the above table. Loans that do not have contractual maturity, amounting to ¥280,829 million, are not included either.

(Note 4) Maturity analysis for interest bearing liabilities as of March 31, 2015 and 2014

1 yearor less

Deposits(*1)......................................................... ¥4,048,725
Borrowing under securities
lending transactions....................................
74,894
Borrowed money..............................................
45,917
Total.......................................................................... ¥4,169,537

1 yearor less

Deposits(*1)......................................................... ¥3,956,072
Borrowing under securities
lending transactions....................................
33,797
Borrowed money..............................................
4,479
Total.......................................................................... ¥3,994,349

1 yearor less

Deposits(*1)......................................................... $33,691,651
Borrowing under securities
lending transactions....................................
623,240
Borrowed money..............................................
382,101
Total.......................................................................... $34,696,993

Millions of yen
2015
Over 1 year to Over 3 years to Over 5 years to Over 7 years to
3 years
5 years
7 years
10 years¥129,930¥15,374¥985¥1,521

8,989¥138,920

1,153¥16,528¥985¥1,521Millions of yen
2014
Over 1 year to Over 3 years to Over 5 years to Over 7 years to
3 years
5 years
7 years
10 years¥129,493¥17,844¥1,274¥1,383

7,868¥137,362

1,730¥19,574¥1,274¥1,383Thousands of U.S. dollars
2015
Over 1 year to Over 3 years to Over 5 years to Over 7 years to
3 years
5 years
7 years
10 years$1,081,226$127,941$8,202$12,661

74,810$1,156,036

9,597$137,539$8,202$12,661*1. Deposits on demand (current deposit, ordinary deposit and deposit at notice) are included in “1 year or less”

37
The Higo Bank, Ltd. Annual Report 2015Over
10 yearsOver
10 yearsOver
10 years

The Higo Bank, Ltd. and its Consolidated Subsidiaries

Notes to Consolidated Financial Statements
Year ended March 31, 201515. Derivative Financial Instruments(a) Derivative financial instruments used by the Bank
The Bank enters into transactions with futures and options on interest rates, currencies, stocks, bonds, commodity, interest
rate swaps and currency swaps.
The Bank executes these derivative transactions in order to manage and hedge the risks associated with interest rate fluctuations and exposure to changes in the market value of assets and liabilities held by the Bank. In addition, the Bank enters into
derivative transactions for trading purposes, within the position and loss limits established by the Bank.
Consolidated subsidiaries in the Group do not enter into derivative transactions.
(b) Risks on derivative transactions
The major risks associated with derivative transactions, which have the potential to materially impact the Bank’s financial
condition, are market risk and credit risk.
Market risk is related to the increase and decrease in the fair value of the positions held by the Bank due to changes in themarket price and interest rates of the underlying assets. Market risk is also subject to changes in liquidity and the volatility ofthe markets. Credit risk refers to possible losses on the positions held by the Bank, which result from a counterparty’s failure
to perform according to the terms and conditions of the contract.
The Bank mainly applies a quantitative measurement method in order to capture market risk. The Bank monitors theoutstanding balance and profit and loss for each type of transaction on a daily basis. In addition, the Bank applies a “Value-atRisk” measurement method to transactions for which it is considered necessary to apply a more sophisticated method. The
Bank manages credit risk by establishing credit limits for counterparties. Reviews of the adequacy of established credit lines
are made on a regular basis and as deemed necessary.
(c) Risk management system of the Bank
The Bank exercises and controls the derivative transactions using limits including position limits, credit limits for each counterparty and stop loss limits in accordance with the Bank’s policy on derivative transactions. Risks quantified are reported
to the department and the director responsible for monitoring the transactions and the board of directors. The front office
function and the back office function are segregated. The middle office is responsible for risk management and monitors
front and back offices’ compliance with regulations and internal rules.
Contract amounts or notional principal amounts of derivative financial instruments disclosed represent nominal contract
amounts or the notional principal amounts set up for the calculation of the settlement amounts. Generally, they do not
represent the amounts for which the actual assets are exchanged. These amounts do not represent, by themselves, thevolume of market risk and credit risk related to the underlying derivative financial instruments.
(d) Fair value of derivative financial instruments
Derivative transactions to which hedge accounting was not applied as of March 31, 2015 and 2014i) Interest rate related transactions
There were no interest rate related transactions as of March 31, 2015 and 2014.
ii) Foreign exchange related transactions

Contractual value or
notional principal
amountCurrency swaps...................................................................................
Foreign exchange forward contracts:
Selling.................................................................................................
Buying................................................................................................

Millions of yen
2015
Includingover one
Fair
year
value

Unrealized
gains(losses)¥ 19,125¥4,461¥  (855)¥   (26)

191,999
6,364

784
783

(9,069)437(9,069)437

38
The Higo Bank, Ltd. Annual Report 2015

The Higo Bank, Ltd. and its Consolidated Subsidiaries

Notes to Consolidated Financial Statements
Year ended March 31, 2015

Millions of yen
2014
Includingover one
Fair
year
value

Unrealized
gains(losses)¥21,374¥13,230¥    22¥    15

143,035
5,117

784
783

(3,262)51(3,262)
51

Contractual value or
notional principal
amountCurrency swaps...................................................................................
Foreign exchange forward contracts:
Selling.................................................................................................
Buying................................................................................................

Thousands of U.S. dollars
2015
Includingover one
Fair
year
value

Unrealized
gains(losses)$ 159,152$37,129$ (7,119)$   (224)

1,597,735
52,962

6,532
6,519

(75,471)
3,637(75,471)
3,637

Contractual value or
notional principal
amountCurrency swaps...................................................................................
Foreign exchange forward contracts:
Selling.................................................................................................
Buying................................................................................................

Notes: 1. Derivative transactions shown above are stated at fair value in the accompanying consolidated financial statements.
2. Calculation or quotation of fair value of above derivatives is based on the discounted present value method, etc.

Derivative transactions to which hedge accounting was applied as of March 31, 2015 and 2014i) Interest rate related transactions

Hedgeditem

Millions of yen
2015
Contractual
Includingvalue or notional
over oneprincipal amount
year

Fair
value

Deferred method
Interest rate swaps:
Loans and Bills
discounted
Receive floating and pay fixed.................................... Available-for-salesecurities(Debt securities)
Specific matching criteria
Interest rate swaps:
Receive floating and pay fixed.................................... Loans and Bills
discounted

Hedgeditem¥242,977¥242,977¥(8,245)

138,885

138,416(2,973)

Millions of yen
2014
Contractual
Includingvalue or notional
over oneprincipal amount
year

Fair
value

Deferred method
Interest rate swaps:
Loans and Bills
discounted
Receive floating and pay fixed.................................... Available-for-salesecurities(Debt securities)
Specific matching criteria
Interest rate swaps:
Receive floating and pay fixed.................................... Loans and Bills
discounted
39
The Higo Bank, Ltd. Annual Report 2015

¥238,788¥238,093¥(5,239)

107,152

106,152(2,500)

The Higo Bank, Ltd. and its Consolidated Subsidiaries

Notes to Consolidated Financial Statements
Year ended March 31, 2015

Hedgeditem

Thousands of U.S. dollars
2015
Contractual
Includingvalue or notional
over oneprincipal amount
year

Fair
value

Deferred method
Interest rate swaps:
Loans and Bills
discounted
Receive floating and pay fixed.................................... Available-for-salesecurities(Debt securities)
Specific matching criteria
Interest rate swaps:
Receive floating and pay fixed.................................... Loans and Bills
discounted$2,021,944$2,021,944$(68,615)

1,155,737

1,151,842(24,742)

Notes: 1. As for interest rate swaps shown above, deferred hedge accounting is applied in accordance with JICPA Industry Audit Committee
Report No. 24.
2. Fair values of above derivatives are based on quoted market prices, such as those of the Tokyo Financial Exchange Inc.
3. Calculation or quotation of fair value of above derivatives is based on the discounted present value method or option pricing
models, etc.

ii) Foreign exchange related transactions

Hedgeditem

Millions of yen
2015
Contractual
Includingvalue or notional
over oneprincipal amount
year

Fair
value

Deferred method
Foreign currency
Foreign exchange forward contracts............................. due from banks
and deposits

Hedgeditem¥25,109

Millions of yen
2014
Contractual
Includingvalue or notional
over oneprincipal amountyear¥(808)

Fair
value

Deferred method
Foreign currency
Foreign exchange forward contracts............................. call loans anddue from banks

Hedgeditem¥24,083

Thousands of U.S. dollars
2015
Contractual
Includingvalue or notional
over oneprincipal amountyear¥(228)

Fair
value

Deferred method
Foreign currency
Foreign exchange forward contracts............................. due from banks
and deposits$208,948$(6,731)

Notes: 1. As for currency swaps shown above, deferred hedge accounting is applied in accordance with JICPA Industry Audit Committee
Report No. 25.
2. Calculation or quotation of fair value of above derivatives is based on the discounted present value method, etc.

40
The Higo Bank, Ltd. Annual Report 2015

The Higo Bank, Ltd. and its Consolidated Subsidiaries

Notes to Consolidated Financial Statements
Year ended March 31, 2015

16. Comprehensive Income
The components of other comprehensive income for the years ended March 31, 2015 and 2014, were as follows:
2015

2014

Thousands of
U.S. dollars
2015¥25,465(4,056)
21,409(4,726)
16,683¥(4,672)(3,783)(8,456)
3,154(5,301)$211,912(33,755)
178,157(39,328)
138,829(5,740)2,724(3,015)792(2,223)

(386)
1,989
1,602
(566)
1,036

(47,765)
22,669(25,096)
6,592(18,504)

Millions of yen

Unrealized gains (losses) on available-for-sale securities:
Gains arising during the year........................................................................
Reclassification adjustments to profit or loss.....................................
Amount before income tax effect.............................................................
Income tax effect..................................................................................................
Total.......................................................................................................................
Deferred gains (losses) on derivatives under hedge accounting:
Gains arising during the year........................................................................
Reclassification adjustments to profit or loss.....................................
Amount before income tax effect.............................................................
Income tax effect..................................................................................................
Total.......................................................................................................................
Excess of land revaluation:
Income tax effect..................................................................................................
Total.......................................................................................................................
Defined retirement benefit plans:
Adjustments arising during the year.......................................................
Reclassification adjustments to profit or loss.....................................
Amount before income tax effect.............................................................
Income tax effect..................................................................................................
Total.......................................................................................................................
Total other comprehensive income..........................................

503
503

4,193
4,193

728
309
1,037
(439)
598
¥15,561

6,063
2,573
8,636
(3,659)4,976$129,495¥(4,264)

17. Appropriation of Retained Earnings
The annual shareholders’ meeting, which was held on June 23, 2015, approved the following appropriations of retained
earnings for the year ended March 31, 2015:

Cash dividends (¥6.00 per share)...................................................................................................................

Millions of yen
2015

Thousands of
U.S. dollars
2015¥1,382$11,508

18. Business combination
Additional Information
Business integration between the Bank and Kagoshima Bank
The Bank and The Kagoshima Bank, Ltd. (Representative: Motohiro Kamimura, President (“Kagoshima Bank”); the Bank andKagoshima Bank shall be collectively referred to as the “Banks”) have resolved, at their respective board of directors’ meetings
held on March 27, 2015: (i) to establish “Kyushu Financial Group Inc,” a wholly owning parent company of the Banks (the“Joint Holding Company”) by way of share transfer (the “Share Transfer”) on October 1, 2015 (the “Effective Date”); and (ii) toestablish an outline of the Joint Holding Company and the conditions, etc., of the Share Transfer, on the condition that theapproval of the general shareholders’ meetings of the Banks will be obtained and that the necessary licenses and permits
will be obtained from the competent authorities, and thus, as of the same day, have entered into a “Business Integration
Agreement” and jointly prepared a “Share Transfer Plan” as set forth below.
41
The Higo Bank, Ltd. Annual Report 2015

The Higo Bank, Ltd. and its Consolidated Subsidiaries

Notes to Consolidated Financial Statements
Year ended March 31, 2015

In addition, the share transfer plan was approved at the general shareholder’s meetings held on June 23, 2015.
1. Purpose of Business Integration through Share Transfer(1) Background and Purpose of Business Integration
The Banks, in serving their corporate missions as regional banks based in the Kyushu region, have been dedicating themselves toestablishing stable revenue bases thanks to the strong patronage provided by the people living in each of the respective areas.
However, in terms of future bank management, the Banks have recognized that they will be further required to respond to changes
in the surrounding environment, including the coming population decrease and the transformation in the competitive landscape.
In view of such changes in the future environment and in order to realize “regional revitalization” by working together withthe region as regional banks, the Banks determined it necessary to establish a solid management foundation with which theBanks would be able to further exert their presence in the Kyushu region with a strong focus on their respective local areas,
and to create a new expanded community-based business model. As the Banks have already announced in the November
10, 2014, press release regarding the “Basic Agreement Regarding Business Integration between The Higo Bank, Ltd. and The
Kagoshima Bank, Ltd.,” the Banks entered into a basic agreement on November 10, 2014, to engage in consultations anddiscussions targeting a business integration through the establishment of a holding company, and since such time haveengaged in consultations and discussions targeting the establishment of the Joint Holding Company through the Share
Transfer scheduled to take place on October 1, 2015. As a result thereof, on March 27, 2015, the Banks have reached a final
agreement regarding conducting the business integration “on an equal footing” between the Banks.
(2) Method of Share Transfer and Contents of the Allotment in the Share Transfer(i) Method of Share Transfer
Based on the Share Transfer Plan, the Joint Holding Company plans to acquire all of the Banks’ issued and outstanding
shares on or around October 1, 2015, and, in exchange for such shares, to allot new shares in the Joint Holding Company toshareholders of the Banks.
Please note that the above schedule or form of the business integration may change in the future, in the course of engaging
in the consultations and discussions towards the business integration.
(ii) Contents of the Allotment in the Share Transfer (Share Transfer Ratio)
CompanyBank

Kagoshima Bank

Share Transfer Ratio

1

1.11

(Note 1) Share allotment ratio
The Bank shareholders will receive one share of Joint Holding Company common stock for each share of the Bank’s common
stock and the Kagoshima Bank shareholders will receive 1.11 shares of Joint Holding Company common stock for eachshare of Kagoshima Bank common stock. The total number of shares in the Joint Holding Company to be delivered to theshareholders of the Bank and the total number of shares in the Joint Holding Company to be delivered to the shareholders of
Kagoshima Bank under the Share Transfer Plan will be approximately the same (“1:1”). The number of shares constituting one
share unit of the Joint Holding Company will be 100 shares.
If there are any fractional shares less than one share in the common stock of the Joint Holding Company which must be
delivered to the shareholders of the Banks as a result of the Share Transfer, the amount in proportion to such fractional
portion less than one share shall be paid to the relevant shareholders in accordance with the provisions of Article 234 of
the Companies Act (Law No. 86 of July 26, 2005 (as amended); hereinafter the same shall apply) and the provisions of otherrelated laws and regulations.
Please note that the above-mentioned share transfer ratio is subject to change through mutual consultation between
the Banks if any material change occurs to, or if it is found that there is any event that will have a significant impact on theproperty condition or financial condition of the Bank or Kagoshima Bank during the period from the preparation date of the
Share Transfer Plan to the formation date of the Joint Holding Company.
(Note 2) Number of new shares to be delivered by the Joint Holding Company (planned)
463,407,669 shares of common stock
The above number is based on the total number of issued and outstanding shares of the Bank’s common stock as of
42
The Higo Bank, Ltd. Annual Report 2015

The Higo Bank, Ltd. and its Consolidated Subsidiaries

Notes to Consolidated Financial Statements
Year ended March 31, 2015

December 31, 2014, i.e., 230,755,291 shares and the total number of issued and outstanding shares of Kagoshima Bank common stock as of December 31, 2014, i.e., 210,403,655 shares. Each bank plans to cancel its treasury stock that it owns, to theextent practically possible, immediately before the Joint Holding Company acquires all of the Banks’ issued and outstanding
shares (the “Record Time”). Accordingly, the amount of the Bank’s treasury stock as of December 31, 2014, i.e., 256,172 sharesand the amount of Kagoshima Bank treasury stock as of December 31, 2014, i.e., 576,132 shares are excluded from the calculation of the above-mentioned numbers of new shares of common stock to be delivered by the Joint Holding Company.
If the amount of the Banks’ treasury stock as of December 31, 2014, changes on or before the Record Time, such as where ashareholder of the Bank or Kagoshima exercises its right to demand such bank to repurchase such shareholder’s shares, thenumber of new shares to be delivered by the Joint Holding Company may change.
(Note 3) Treatment of shares less than one share unit
The shareholders of the Banks who receive a fractional unit (a unit equals 100 shares) of Joint Holding Company common
stock as a result of the Share Transfer will not be able to sell their fractional units on the Tokyo Stock Exchange, Inc. (“TSE”) or
any other financial instruments exchange. The shareholders who hold such fractional units may compel the Joint Holding
Company to repurchase their fractional units in accordance with the provisions of Article 192(1) of the Companies Act. In
accordance with Article 194(1) of the Companies Act, the shareholders holding fractional units may compel the Joint Holding
Company to offer for sale the number of shares necessary to achieve a whole unit with respect to shares for which they only
have a fractional unit.
2. Schedule
March 27, 2015 (Friday)	Resolution at the board of directors’ meeting regarding the Business Integration
Agreement and Share Transfer Plan; entering into the Business Integration
Agreement; and preparing the Share Transfer Plan
March 31, 2015 (Tuesday)

Reference date for annual general meeting of shareholders of the Banks

June 23, 2015 (Tuesday)	Annual general meeting of shareholders of the Banks for approval of the Share
Transfer Plan
September 28, 2015 (Monday) (planned) Delisting the shares of the Banks from the TSE and Fukuoka Stock Exchange (“FSE”)
October 1, 2015 (Thursday) (planned)	Registration of the incorporation of the Joint Holding Company (Effective Date)and listing of shares of the Joint Holding Company
Please note that the above schedule may change in the future depending upon the discussion between the Banks due toreasons, such as unforeseeable requirements arising in the course of implementing the Share Transfer.
3. Company overview (as of end of December 2014)
Trade name
The Higo Bank, Ltd.
Content of business
Ordinary banking business
Date of establishment
July 25, 1925
13-5, Koyamachi 1-chome, Chuo-ku,
Location of head office
Kumamoto-shi, Kumamoto prefecture
Representative
Takahiro Kai, President
Capital18,128 million yen
Number of issued shares
230,755 thousand shares
Total assets (consolidated)
4,520,643 million yen
Total equity (consolidated)
295,502 million yen
Deposit balance (nonconsolidated)
4,009,093 million yen
Loan balance (nonconsolidated)
2,656,231 million yen
Fiscal year end
March 31
Number of employees (nonconsolidated)
2,283
Number of branches
122(including subbranches )Fiscal year
FY ended March 2014
86,004 million yen
Results of Ordinary income (consolidated)
operations Ordinary income (consolidated)
19,904 million yen
Net income (consolidated)
11,826 million yen
43
The Higo Bank, Ltd. Annual Report 2015

The Kagoshima Bank, Ltd.
Ordinary banking business
October 6, 1879
6-6, Kinsei-cho, Kagoshima-shi,
Kagoshima prefecture
Motohiro Kamimura, President
18,130 million yen
210,403 thousand shares
4,077,604 million yen
311,814 million yen
3,595,059 million yen
2,636,657 million yen
March 312,359
152
FY ended March 2014
79,030 million yen
14,646 million yen
9,653 million yen

The Higo Bank, Ltd. and its Consolidated Subsidiaries

Notes to Consolidated Financial Statements
Year ended March 31, 2015

4. Status of the Newly Established Company in the Share Transfer
Trade name
Kyushu Financial Group Inc.
Location of
6-6, Kinsei-cho, Kagoshima-shi, Kagoshima prefecture
head office
Location of
1, Renpeicho, Chuo-ku, Kumamoto-shi, Kumamoto prefecture
headquarters
Chairman and Representative Director: (currently, President of Higo Bank)
Takahiro Kai
President and Representative Director: (currently, President of Kagoshima Bank)
Motohiro Kamimura
Director: Shiichiro Shimoyama(currently, Senior Executive Managing Officer andDirector of Higo Bank)
Director: Akihisa Koriyama(currently, Senior Managing Director of Kagoshima Bank)
Director: Tsuyoshi Mogami(currently, Executive Managing Officer and Director of Higo Bank)
Director: Hiroyuki Matsunaga(currently, Executive Officer, Manager of Corporate Planning
Division, and Manager of Business Integration Preparation Office,Corporate Planning Division, Kagoshima Bank)(currently, Corporate Auditor of Kagoshima Bank)
Representatives Director: Koji Tsumagari
and officers
Director: Tooru Hayashida(currently, Director and Executive Officer, Manager of Business(planned)
Integration Preparation Office, Higo Bank)
Director: Katsuaki Watanabe(currently, Senior Advisor of Toyota Motor Corporation)
Director: Takejiro Sueyoshi(currently, Special Advisor of UNEP Financial Initiative)
Company Auditor: Toyonori Ueno
(currently, Corporate Auditor of Higo Bank)
Company Auditor: Satoru Motomura(currently, Corporate Auditor of Kagoshima Bank)
Company Auditor: Kenichi Sekiguchi(currently, Special Advisor of Meiji Yasuda Life Insurance Company)
Company Auditor: Katsuro Tanaka(currently, Senior Managing Partner of TMI Associates)
Company Auditor: Yuko Tashima(currently, attorney)(Note 1) D irectors Katsuaki Watanabe and Takejiro Sueyoshi are outside directors as defined under Article 2(15) of theCompanies Act.
(Note 2) C ompany Auditors Kenichi Sekiguchi, Katsuro Tanaka and Yuko Tashima are outside company auditors as
defined under Article 2(16) of the Companies Act.

Capital stock
Legal capitalsurplusFiscal year end¥36,000 million¥9,000 million
March 31

5. Overview of Accounting in Connection with the Share Transfer
The purchase method of accounting is expected to be used since the Share Transfer is regarded as an acquisition under the
Accounting Standards for Business Combinations. The amount of goodwill (or negative goodwill) arising as a result of the
Share Transfer has not been determined at the present stage.

19. Segment Information
Under ASBJ Statement No. 17, “Accounting Standard for Segment Information Disclosures” and ASBJ Guidance No. 20,“Guidance on Accounting Standard for Segment Information Disclosures,” an entity is required to report financial anddescriptive information about its reportable segments. Reportable segments are operating segments or aggregations ofoperating segments that meet specified criteria. Operating segments are components of an entity about which separate
financial information is available and such information is evaluated regularly by the chief operating decision maker in deciding how to allocate resources and in assessing performance. Generally, segment information is required to be reported on
the same basis as is used internally for evaluating operating segment performance and deciding how to allocate resources tooperating segments.
(a) Description of reportable segments
The Group’s reportable segments are those for which separate financial information is available and regular evaluation by
the Bank’s management is being performed in order to decide how resources are allocated among the Group. Therefore,
the Group’s reportable segments consist of Banking and Leasing. Banking consists of deposit taking, lending, domestic andforeign exchange transactions and securities trading. Leasing consists of leasing and lending.

44
The Higo Bank, Ltd. Annual Report 2015

The Higo Bank, Ltd. and its Consolidated Subsidiaries

Notes to Consolidated Financial Statements
Year ended March 31, 2015(b) M ethods of measurement for the amounts of ordinary income, profit (loss), assets and other items for each reportablesegment
The accounting policies of each reportable segment are consistent with those disclosed in Note 2, “Summary of Significant
Accounting Policies.”(c) Information about ordinary income, profit (loss), assets, and other items is as follows:
Millions of yen
2015
Banking

Reportable Segment
Leasing

Ordinary income:Ordinary income byexternal customers............ ¥   71,265
Intersegment ordinary
income......................................
279
Total...................................................... ¥   71,545
Segment profit............................... ¥   20,276
Segment assets.............................. 4,722,480
Other:
Depreciation.............................
3,956
Interest income......................
53,318Interest expenses..................
5,655
Increase in fixed assets
and intangible assets........
10,403

Total

Other

Total

Reconciliations Consolidated¥13,948¥   85,213¥1,750¥   86,964

1,142¥15,090¥   885
47,223

1,422¥   86,636¥   21,162
4,769,703  961¥2,711¥  5529,208

2,383¥   89,347¥   21,715
4,778,911¥ (2,383)¥ (2,383)¥    (161)(34,562)¥   86,964¥   21,553
4,744,349

89
45
208

4,046
53,363
5,863

39
173
17

4,085
53,536
5,881

66
(136)
(131)

4,152
53,4005,749

53

10,456941

11,39830

11,428¥   86,964

Millions of yen
2014
Banking

Reportable Segment
Leasing

Ordinary income:Ordinary income byexternal customers............ ¥   70,933
Intersegment ordinary
income......................................
289
Total...................................................... ¥   71,222
Segment profit............................... ¥   18,674
Segment assets.............................. 4,475,727
Other:
Depreciation.............................
3,786
Interest income......................
52,665Interest expenses..................
4,794
Increase in fixed assets
and intangible assets........
5,466

Total

Other

Total

¥13,486¥   84,419¥1,585¥   86,004

1,115¥14,602¥   879
44,6391,405¥   85,825¥   19,553
4,520,367

942¥2,527¥  4898,208

2,347¥   88,352¥   20,043
4,528,575¥ (2,347)¥ (2,347)¥   (138)(30,225)¥   86,004¥   19,904
4,498,349

85
39
233

3,872
52,705
5,028

36
177
21

3,909
52,882
5,049

66
(151)
(147)

3,976
52,731
4,902

119

5,585

147

5,733

(120)

5,612

45
The Higo Bank, Ltd. Annual Report 2015

Reconciliations Consolidated¥   86,004

The Higo Bank, Ltd. and its Consolidated Subsidiaries

Notes to Consolidated Financial Statements
Year ended March 31, 2015

Thousands of U.S. dollars
2015
Banking

Reportable Segment
Leasing

Ordinary income:Ordinary income byexternal customers............ $   593,041
Intersegment ordinary
income......................................
2,329
Total...................................................... $   595,370
Segment profit............................... $   168,734
Segment assets.............................. 39,298,329
Other:
Depreciation.............................
32,924
Interest income......................
443,689
Interest expenses..................
47,059
Increase in fixed assets
and intangible assets........
86,570

Total

Other

Total

Reconciliations Consolidated$116,069$   709,110$14,566$   723,677

9,506$125,575$  7,372
392,970

11,835$  720,945$   176,106
39,691,299

7,998$22,565$ 4,596
76,627

19,834$   743,511$   180,703
39,767,927$ (19,834)$ (19,834)$  (1,343)(287,613)$   723,677$   179,360
39,480,314

745
375
1,734

33,670444,065
48,794

330
1,443
149

34,000445,50948,943552(1,135)(1,097)34,553444,374
47,846442

87,013

7,836

94,849252

95,102$   723,677

Notes: 1. Ordinary income means total income less certain special income included in other income in the accompanying consolidated
statement of income.
2. “Other” consists of other banking related activities such as credit card operations.
3. Segment profit is reflected as an adjustment to ordinary profit in the consolidated statement of income.
4. Reconciliations include items below.
		 a. For the year ended March 31, 2015, the segment profit reconciliations of ¥(161) million ($(1,343) thousand) include reconciliations in reserve for possible loan losses of ¥(21) million ($(177) thousand) and eliminations of intersegment transactions of ¥(140)
million ($(1,166) thousand).
		 b. For the year ended March 31, 2014, the segment profit reconciliations of ¥(138) million include eliminations of intersegment
transactions of ¥(139) million.
		 c. For the years ended March 31, 2015 and 2014, reconciliations of segment assets, interest income and interest expenses were
eliminations of intersegment transactions. Reconciliations of depreciation and increase in fixed assets and intangible assets werereconciliations in lease investments assets.

Related information(a) Segment information by services

Ordinary income by external customers............................

Lending

Securities
investment¥35,674¥21,878

Millions of yen
2015
Leasing

OthersTotal¥13,827¥15,583¥86,964

Millions of yen
2014

Ordinary income by external customers............................

Ordinary income by external customers............................

Lending

Securities
investment

Leasing

OthersTotal¥36,523¥21,495¥13,374¥14,610¥86,004

Lending

Thousands of U.S. dollars
2015
Securities
investment
Leasing
Others$296,868$182,066$115,062$129,679

Total$723,677

Note: Instead of the net sales of a nonfinancial company, ordinary income is presented.

(b) Segment information by geographic areas
Segment information by geographic areas is not disclosed since over 90% of the total consolidated ordinary income andtangible fixed assets of the Group resides in Japan.
(c) Segment information by major customers
Segment information by major customers is not disclosed since ordinary income by any customer has been fewer than 10%
of total ordinary income.
46
The Higo Bank, Ltd. Annual Report 2015

Independent Auditor’s Report47
The Higo Bank, Ltd. Annual Report 2015

The Higo Bank, Ltd.
1, Rempeicho, Chuo-ku, Kumamoto 860-8615, Japan
Phone: (096) 325-2111
http://www.higobank.co.jp/