Nabegataki Falls (Oguni-machi, Aso-gun, Kumamoto Prefecture)

ANNUAL REPORT 2011

Profile
The Higo Bank is a regional bank whose main business base is Kumamoto Prefecture in central Kyushu.
Possessing a varied sweep of natural beauty, including the volcano Mt. Aso, which boasts the world’s
largest caldera, and the scenic Amakusa area with its
200 islands of widely varying sizes, the prefecture ishome to thriving agricultural, forestry, and fisheries
industries.
In recent years, Kumamoto Prefecture has
become a center for leading-edge industries, notably
semiconductors, for which it has been called “Japan’s
Silicon Valley.” The number of high-tech companies

to many new industries, and we have a support orga-setting up shop in Kumamoto is still on the increase,nization in which the public and private sectors work

and is expected to contribute greatly to the area’s

together, called the Kumamoto Prefecture Businessdevelopment in the near future.

Promotion Support Center. The center was estab-

The center of Kumamoto city has also been seeing the successive start-ups of a number of redevel-

lished with funds from the Kumamoto prefectural
government and the Higo Bank.

opment projects, and accelerating progress is being

In addition to our main work of banking opera-

made in bolstering the city’s transport infrastructure.

tions, we also put our energy into creating a better

The Kyushu Shinkansen Line from Fukuoka toliving environment for the prefecture’s citizens by

Kagoshima opened in March 2011, and the construc-

supporting organizations such as The Distribution

tion of a modern road traffic network, principally to

Economics Institute of Kumamoto Area. Higin Capital

feed the Kyushu Expressway is progressing.

Co., Ltd., established in 1996, also cooperates with

These conditions offer many opportunities to vital-

these organizations to provide comprehensive sup-ize the region by cultivating small and medium-sized

port to match the growth stage of local companies.

mainstay businesses and promoting new businesses

The Bank has continued to be active in support-

to support these new industries. Kumamoto is home

ing cultural events such as concerts and art exhibits
as well as in promoting environmental conservation
efforts, with the establishment of the Higo Water

Contents
Profile ................................................................................. 1
Message from the President ......................................... 2
Management Policy ....................................................... 3
Results (Non-Consolidated) . ......................................... 5
Excellent Financial Indicators ...................................... 6
Environmental Initiative . .............................................. 8
Corporate Data . .............................................................. 9Service Network ............................................................. 10
Financial Section ........................................................... 11

Resources Protection Foundation. The Bank iscommuted to a wide range of social contribution
activities.

1
The Higo Bank, Ltd. Annual Report 2011

Message from the President

In the first half of fiscal 2010, ended March 31, 2011, with the Japanese economy maintaining an upward trend
in exports and production, corporate profits improved substantially and consumer spending also followed amoderate upswing. In the second half of the fiscal year, overseas economies, particularly in Asia, rebounded
and there were various economic stimulus benefits. Despite signs of recovery up to the second half, someproduction activities declined significantly due to supply chain disruption and electrical supply restrictions
caused by the Great East Japan Earthquake. As a result, momentum was weak in the second half.
Meanwhile, within the prefecture, the economy continued to recover modestly until the second half due
to better employment and income conditions, strong home investment, private capital investment, and otherfactors. However, at the end of fiscal 2010, the prefecture faced downward economic pressure owing to adrop in some production in manufacturing industries in the prefecture caused by the impact of the earthquake disaster and rapidly cooling business and consumer sentiment.
Amid these circumstances, the Bank has been implementing its Fifth Medium-term Management Plan
entitled “Rebuilding the customer first principle — The rediscovery of home” since April 2010. Under thetheme “the rediscovery of home,” we have rebuilt the “customer-first” management philosophy to provide
financial services from the customers’ point of view with the goal of creating even stronger relationships withcustomers and the community.
In Kumamoto, the opening of the Kyushu Shinkansen Line, in March 2011, the project to elevate theexisting JR Line and Kumamoto’s becoming a designated city by government ordinance in 2012 were major
turning points for Kumamoto Prefecture. Taking this as an opportunity, all executives and employees areworking to achieve a banking group that will contribute to the entire region. We are doing everything we canto surpass the expectations of our stakeholders.
We hope that our shareholders will continue to favor us with their support and encouragement in our
future endeavors.
July 2011

Takahiro Kai, President
2
The Higo Bank, Ltd. Annual Report 2011

Management Policy
Fifth Medium-term Management Plan
In the continuing harsh environment that surrounds financial institutions, we believe it is more
important than ever to provide financial services that are closely linked to the region. We must
understand things from the customers’ perspective and come up with the most appropriate andtimely measures so that our relationship of trust with the customer is further strengthened.
In recognition of this, the Bank launched its Fifth Medium-term Management Plan (Rebuilding
the customer-first principle — The rediscovery of home) in April 2010. By subjecting the Plan
to thorough market research and analysis within the prefecture we seek to further solidify ourrelationship with the customer.

Theme
Rebuilding the Principle of Putting the Customer-First — The Rediscovery of Home
The theme of our Fifth Medium-term Management Plan is a bi-directional concept that puts the corporate philosophy of “putting the customer-first” into practice through the “rediscovery of home.” At the same time, byconducting research that helps us to rediscover our market (home), we build a better customer-first approach.

Plan Period
The Five Years from April 1, 2010 to March 31, 2015
Looking ahead, in light of social infrastructure developments such as the opening of the Kyushu ShinkansenLine and Kumamoto becoming a designated city by government ordinance, we forecast a major turnaroundfor Kumamoto over the medium to long term. This requires a management plan that is based on a long-term
vision. Therefore, we have decided to implement our plan over a five-year period, divided into two phases,
Phase 1 (two years) and Phase 2 (three years).

3
The Higo Bank, Ltd. Annual Report 2011

Management Policy

Basic Policy
1. Sound and Strong Management Practices for Strategic Improvement
Ensure earnings based on the soundness of our assets and human resources

2. Expand and Deepen Business Relations with Local-area Customers
Increase and deepen transactional relations so that customers use all of the Bank’s financial products.

3. Develop Independent and Creative Talent
Develop employees that are capable of independent thought and action

Strategy
1. Rebuild Sales Structure Beginning with the Customer: “Customer & Market Oriented”
	We provide optimal financial services to our customers and inform them of all of our financial products as we work to
improve customer convenience through the promotion of our branch infrastructure and paperless banking. In thisway, we are rebuilding our sales structure beginning with the customer. To ensure the soundness of the structure, wewill improve customer protection and management preparedness.

2.	Pursue Business Reform through Information and Communication Technology: “Computerand Communication Oriented”
	While upgrading our systems infrastructure and developing our IT-based operational structure, we will develop aframework that provides customers with optimal financial services through trouble-free and intelligent communications, thereby improving service quality and productivity.

3.	Demonstrate the Independence, Spontaneity, Autonomy and Self Help that Underpin
Creativity: “Creative Man-Power Oriented”
	Throughout the organization, the Bank employs a host of training activities to develop a sense of responsibility andcreativity within our personnel. In this way, we will foster an environment throughout the Group that encourages
professional development. Through the high-level capabilities and specialized expertise they develop, our employees
will provide services that meet customers’ expectations.

Financial Targets (Fiscal 2011)
1. Core targets
Gross business profit

Net income

ROA (net income basis)

Tier I ratio

Adjusted OHR¥61.5 billion¥10.0 billion

0.26%

12.4%

62.0%

2. Sub-targets
Increase in total funds undermanagement

Ratio of non-performing loans+¥200.0 billion

2.2%* Total funds under management: The total balance of deposits and balance of assets under management is the Bank’s own indicator.

4
The Higo Bank, Ltd. Annual Report 2011

Results (Non-Consolidated)
Deposits and Loans
Deposits
As a result of closely tailoring its marketing initiatives tocustomer and regional needs, Higo Bank increased total
deposits by ¥98 billion, or 2.9%, to ¥3,507 billion. The termend balance of negotiable certificates of deposit stood at¥135 billion.
As a result, the term-end balance of deposits, including
negotiable certificates of deposit, stood at ¥3,643 billion,up ¥149 billion, or 4.3%.
Deposits

Balance at term end (Unit: ¥ billion)

4,000
3,198

3,316

3,246

3,408

3,507

Loans
The Bank responded proactively to the needs of local
SMEs, public bodies and retail banking customers (individuals). As a result, loans outstanding increased by ¥66
billion, or 2.9%, compared with the previous term-end, to¥2,326 billion.

Loans

2,500
2,112

2,182

2,266

2,260

2,326

0
2006
Fiscal

2007

2008

2009

2010

2,000

3,000

Balance at term end (Unit: ¥ billion)

1,500
2,000
1,000
1,000

500

0
2006
Fiscal

2007

2008

2009

2010

Earnings
Net business profit
Despite a decline in gross business profit, net businessprofit increased ¥0.9 billion, to ¥21.3 billion year on year
due to expense reductions and decreased provision ofreserve for possible loan losses (recorded to extraordinary
profit due to excess reversal).
Net business profit

Balance at term end (Unit: ¥ billion)

Net income

Balance at term end (Unit: ¥ billion)

12.0

25.0
20.4

20.0
15.0

Net income
Net income for the term increased ¥4.1 billion, to ¥10.8 billion, due to the reversal of reserve for possible loan losses.

21.3

17.5
14.6

10.0
8.0

14.3

10.8
8.5
7.2

6.0
10.0

4.6

4.0

5.0
0
2006
Fiscal

6.7

2.0
2007

2008

2009

2010

0
2006
Fiscal5
The Higo Bank, Ltd. Annual Report 2011

2007

2008

2009

2010

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, 2011 (billions of yen)

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

Coverage
ratio

5.4
32.9
19.4
57.7
2,283.7
2,341.5

3.6
21.0
10.6
35.2

1.8
9.6
4.3
15.8

100.0%
93.4%
77.1%
88.5%

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 ¥57.7 billion in non-performing loans forwhich disclosure is mandatory under the Financial Reconstruction
Law, accounting for 2.47% of its total loans and claims — a low
level for a Japanese regional bank. Of these non-performing loans,
88.5% are covered by collateral, guarantees, and the reserve forpossible loan losses, providing a sufficient buffer for the Bank. On
a consolidated basis, the Bank carries a total of ¥59.7 billion in nonperforming loans, accounting for 2.53% of the credit 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 toborrowers 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.

6
The Higo Bank, Ltd. Annual Report 2011

Loans requiring caution: 0.23%
Loans at risk: 1.41%
Loans to borrowers underbankruptcy proceedings
and equivalent loans: 0.83%
Total 2.47%
Normal assets: 97.53%

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 other items) 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, 2011, Higo Bank’s capital ratio was 13.39%
based on domestic standards. This is one of the highest ratios ofany regional bank in Japan, and is far above the 4% standard forcapital adequacy under the Prompt Corrective Action measures.
Using only Tier I capital, which includes common stockand certain other elements of equity, the capital ratio stands at
12.43%.
* 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 thestandardized approach for the calculation of the credit risk amount and thebasic indication approach for the calculation of the operational risk amount.

Capital Ratio
14

13.39%

12.84%

12.20%

12(Unit: %)10
8
6

Domestic
Standards
4%

4
2
0

Fiscal 2009

Fiscal 2008

Fiscal 2010

* Risk-weighted assets are calculated by multiplying assets and the credit equivalents of off-balance-sheet transactions by a risk factor that varies dependingon the credit quality of each asset.
* Tier I capital is a core item within owned capital and is composed of capitalstock, additional paid-in capital and retained earnings.

Higo Bank Wins “A”-Level Ranking
Higo Bank, recognized for its sound management andstable financial position, has received official ratings fromthree credit rating agencies. These evaluations havebeen high — an “A” ranking — for each of its long-term
issue credit ratings.

(Long-term credit rating: as of March 31, 2010)❖ Moody’s Japan ............................................................... A1❖ Standard & Poor’s Ratings Japan . ........................... A❖ Rating and Investment Information, Inc. . ........ A+* A top-class regional bank in Kyushu, with high standards among thedomestic banks.

Moody’s 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

7The Higo Bank, Ltd. Annual Report 2011

Environmental Initiative
Acquisition of ISO 14001 Certification
In 2004, The Higo Bank became the first financial institution in Kyushu to acquire ISO
14001 certification, an international standard covering environment-related matters. In
2008, in addition to the Bank’s head office and annex, this certification was acquired by
all departments and related companies. As a result of our efforts to conserve energy andresources, we have successfully reduced our consumption of electricity, water and paper
to a fixed level.

Environmental Policy
Kumamoto’s Mt. Aso boasts a volcanic caldera that supplies clean and fresh underground water to one million Kumamoto
city residents. This natural wonder is an integral part of our home town of Kumamoto, and to ensure that it is passed on to
future generations, each and every employee of The Higo Bank takes their role seriously. Through the planting of forests andother activities the Bank will create prosperous and vibrant communities.
1. With the reduction of the environmental impact of the Bank’s corporate activities as one of its basic core corporate activities, the Bank will work to continuously improve its environment management system.
2. By providing environmental-friendly financial products and information to the Bank’s customers, and help them tobecome more environmentally aware.
3. Through planting programs that are part of our Aso Taikan-no Mori project, and the cultivation and maintenance of water
conservation forests, we will prevent global warming through CO2 absorption, as well as preserve and prevent the pollution of ground water.
4. We will faithfully follow all laws and regulations related to the environment, as well as other related requirements agreed
to by the Bank.
5. These environmental policies shall be distributed and displayed throughout the Bank, and shall be similarly communicated to those outside of the Bank.
July 1, 2009
The Higo Bank, Ltd.
Takahiro Kai, President

8
The Higo Bank, Ltd. Annual Report 2011

Corporate Data
Established: July 25, 1925
Total Assets: ¥3,929.5 billion
Deposits: ¥3,507.6 billion
Loans and Bills Discounted: ¥2,326.5 billion
Capital Stock: ¥18.1 billion

Capital Ratio: 13.39% (domestic standards)
Number of Employees: 2,277
Number of Offices: 123(Head Office and 116 domestic branches, 6 sub-branches and1 overseas representative office)(As of March 31, 2011)

Organization
GENERAL MEETING OF SHAREHOLDERS

SECRETARIAT
GENERAL PLANNING DIVISIONFINANCIAL MARKETS DIVISION
BUSINESS PROMOTION DIVISION
BUSINESS INTELLIGENCE DIVISIONPUBLIC INSTITUTIONS DIVISIONLOAN ADMINISTRATION DIVISIONLOAN DIVISION
BRANCHESOPERATIONS ADMINISTRATION DIVISIONCENTRALIZED AFFAIRS OFFICECOMPUTER SYSTEMS DIVISIONPERSONNEL DIVISIONGENERAL ADMINISTRATION DIVISION
BUSINESS ADMINISTRATION DIVISIONCUSTOMERS’ OFFICEINTERNAL AUDIT DIVISION
AUDITORS’ OFFICEBOARD OF DIRECTORSMANAGEMENT COMMITTEE

BOARD OFCORPORATE AUDITORS

Board of Directors and Corporate Auditors
ChairmanPresident and Representative Director
Executive Vice President and Representative Director
Senior Executive Managing Officer and Director
Executive Managing Officer and Directors
Executive Officer and Directors
Standing Corporate Auditors
Outside Corporate Auditors
Executive Managing Officer
Executive Officers

Principal Shareholders(As of June 25, 2011)

Hiroo Oguri
Takahiro Kai
Hiroo Nagata
Masaaki Eguchi
Katsuhiko Oda
Yusuke Okazaki
Yoshihiro Iwamoto
Katsutoshi Yoshizu
Akira Kawakami
Hiroshi Sakai
Yasuaki Yamamoto
Hiroshi Takii

Shiichiro Shimoyama
Shoji Kojima
Tsuyoshi Mogami
Junichi Nishimoto
Toshitaka Manabe

Toyonori Ueno

Yoshikazu Miyata
Yasuo Kobayashi

Toshiro Kunitake
Kazunori Tomita(As of March 31, 2011)

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

BRANCHSUPPORT CENTER

Number of shares(thousand)
11,621
10,053
8,221
7,683
6,171
5,864
5,371
4,654
3,854
3,433
66,927

Equity stake
(%)
4.88
4.22
3.45
3.23
2.59
2.46
2.25
1.95
1.62
1.44
28.14

9
The Higo Bank, Ltd. Annual Report 2011

Yoshihiro Kataoka

Service Network
Head OfficeForeign Exchange Offices

1, Renpeicho, Kumamoto 860-8615
Phone: (096) 325-2111

Head Office
1, Renpeicho, Kumamoto 860-8615
Phone: (096) 326-8642

Operations Administration
Division
1, Renpeicho, 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
Osaka Branch
NM Plaza Midosuji 6F,
6-3, Awaji-cho 3-chome,
Chuo-ku, Osaka 541-0047
Phone: (06) 6208-6551
Fukuoka Branch
8-1, Daimyo 2-chome,
Chuo-ku, Fukuoka 810-0041
Phone: (092) 741-7935
Kagoshima Branch
1-3, Yamanokuchicho,
Kagoshima 892-0844
Phone: (099) 223-7221

10
The Higo Bank, Ltd. Annual Report 2011

Suidocho Branch
3-31, Kamitoricho,
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
Matsubase Branch920-1, Matsubase Matsubasemachi,Uki, 869-0502
Phone: (0964) 32-1121
Yatsushiro Branch
3-25, Honmachi 2-chome,
Yatsushiro 866-0861
Phone: (0965) 32-3171
Amakusa Branch
6-1, Minamishinmachi,
Amakusa 863-0031
Phone: (0969) 22-2151

The Higo Bank, Ltd. and Consolidated Subsidiaries

Consolidated Balance Sheets
March 31, 2011 and 2010

2011

2010

Thousands of
U.S. dollars (Note 1)2011¥  236,120
28,866
1,076
1,304
4,292
1,272,250
2,325,979
5,668
16,55342,3536,171
2,442
12,135(23,326)¥3,931,889¥  204,008
57,216
1,337
1,190
4,343
1,194,692
2,260,131
2,939
17,632
42,671
5,819
4,824
14,744(25,388)¥3,786,162$ 2,839,688
347,157
12,951
15,684
51,622
15,300,667
27,973,300
68,177
199,083
509,366
74,216
29,370145,950(280,530)$47,286,707¥3,641,753¥3,490,313
10,234
8,761
91$43,797,401

Millions of yen

ASSETS:Cash and due from banks (Notes 4 and 16)..............................................................
Call loans and bills bought (Note 16)............................................................................
Monetary claims purchased................................................................................................
Trading assets (Note 17)........................................................................................................
Money held in trust (Note 6)...............................................................................................
Securities (Notes 5, 9 and 16)..............................................................................................
Loans and bills discounted (Notes 7, 10 and 16)....................................................
Foreign exchange assets.......................................................................................................
Other assets...................................................................................................................................
Fixed assets (Notes 8 and 15).............................................................................................
Intangible assets (Notes 8 and 15)..................................................................................
Deferred tax assets (Note 14)..............................................................................................
Customers’ liabilities for acceptances and guarantees......................................
Reserve for possible loan losses (Note 16).................................................................
Total assets..............................................................................................................................

LIABILITIES AND EQUITY:
Liabilities:
Deposits (Notes 9 and 16).....................................................................................................
Call money and bills sold......................................................................................................
Borrowing under securities lending transactions (Note 9)..............................
Trading liabilities (Note 17)..................................................................................................
Borrowed money (Note 9)....................................................................................................
Other liabilities.............................................................................................................................
Reserve for employees’ retirement benefits (Note 11).......................................
Reserve for directors’ and corporate auditors’ retirement benefits............
Reserve for contingent losses.............................................................................................
Reserve for repayments for dormant deposits........................................................
Deferred tax liabilities related to land revaluation................................................
Acceptances and guarantees.............................................................................................
Total liabilities........................................................................................................................
Equity (Note 12):
Common stock
authorized, 482,858,000 shares;
issued, 237,785,291 shares in 2011 and 2010....................................................
Capital surplus..............................................................................................................................
Retained earnings (Note 19)................................................................................................
Treasury stock at cost, 3,156,533 shares in 2011 and
1,460,842 shares in 2010.....................................................................................................
Accumulated other comprehensive income:Unrealized gains (losses) on available-for-sale securities (Note 5).......
Deferred gains (losses) on derivatives under hedge accounting.........
Excess of land revaluation.............................................................................................
Total accumulated other comprehensive income.................................
Minority interests in consolidated subsidiaries.......................................................
Total equity.............................................................................................................................
Total liabilities and equity..............................................................................................

5,814
231
5,000
19,486
8,141
610
369
528
7,125
12,1353,701,199

22,772
8,204
525
495
567
7,231
14,744
3,563,943

69,927
2,782
60,132
234,349
97,918
7,345
4,449
6,359
85,699145,950
44,512,317

18,128
8,133
181,918

18,1288,133
173,172

218,026
97,8172,187,830(1,552)(907)(18,675)

17,243(539)
5,460
22,163
1,899
230,690¥3,931,889

16,315(36)
5,599
21,8781,814
222,219¥3,786,162

207,372(6,489)65,665266,548
22,8432,774,390$47,286,707

See notes to consolidated financial statements.

11
The Higo Bank, Ltd. Annual Report 2011

The Higo Bank, Ltd. and Consolidated Subsidiaries

Consolidated Statements of Income
Years ended March 31, 2011 and 2010

2011

2010

Thousands of
U.S. dollars (Note 1)
2011¥40,952
16,724487
10,647
74
3,956
2,712
75,556¥42,875
15,177
1,103
10,745
110
3,284
2,989
76,286$492,509
201,135
5,865
128,057
896
47,58832,625
908,679

3,113
2,021
3,477
3,795
40,03837,45024,314
41,82645,642
481,517
2,797
75,468709,016

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........................................................................................................
Other income...............................................................................................................................
Total income..........................................................................................................................
Expenses:
Interest on deposits..................................................................................................................
Interest expenses.......................................................................................................................
Fees and commissions expenses.....................................................................................
Other operating expenses....................................................................................................
General and administrative expenses...........................................................................
Provision of reserve for possible loan losses.............................................................
Losses on impairment of long-lived assets................................................................
Other expenses (Note 13).....................................................................................................
Total expenses......................................................................................................................

232
6,275
58,954

5,923
1,908
3,470
1,003
40,364
3,061
38
9,685
65,457

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

16,601

10,828

199,662

Income taxes (Note 14):
Current..............................................................................................................................................
Deferred...........................................................................................................................................
Net income before minority interests...........................................................................
Minority interests in net income........................................................................................
Net income..........................................................................................................................................

3,909
1,709
10,982
87¥10,895

4,275
(297)

47,02020,554132,086
1,049$131,036

133¥ 6,716Yen

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

¥46.01
8.00

See notes to consolidated financial statements.

12
The Higo Bank, Ltd. Annual Report 2011

U.S. dollars¥28.41
7.50

$0.55
0.09

The Higo Bank, Ltd. and Consolidated Subsidiaries

Consolidated Statement of Comprehensive Income
Year ended March 31, 2011

Net income before minority interests.......................................................................................................................
Other comprehensive income (Note 18):
Unrealized gains (losses) on available-for-sale securities..............................................................................
Deferred gains (losses) on derivatives under hedge accounting............................................................
Share of other comprehensive income in affiliates..........................................................................................
Total other comprehensive income...........................................................................................................................
Comprehensive income (Note 18).................................................................................................................................
Total comprehensive income attributable to (Note 18):
Owners of the parent..........................................................................................................................................................
Minority interests....................................................................................................................................................................
See notes to consolidated financial statements.

13
The Higo Bank, Ltd. Annual Report 2011

Millions of yen
2011

Thousands of
U.S. dollars (Note 1)
2011¥10,982$132,086

926
(503)
(0)
421
¥11,404

11,137(6,051)(11)
5,074$137,160¥11,319     85$136,136   1,024

The Higo Bank, Ltd. and Consolidated Subsidiaries

Consolidated Statements of Changes in Equity
Years ended March 31, 2011 and 2010

Thousands

Balance at April 1, 2009......................................................................................
Net income...................................................................................................................
Cash dividends, ¥7.00 per share......................................................................
Purchase of treasury stock..................................................................................
Sale of treasury stock..............................................................................................
Reversal of excess of land revaluation.........................................................
Net change in the year.........................................................................................
Balance at March 31, 2010...............................................................................
Net income...................................................................................................................
Cash dividends, ¥8.00 per share......................................................................
Purchase of treasury stock..................................................................................
Sale of treasury stock..............................................................................................
Change in equity in affiliates accounted forby equity method —treasury stock...........................................................
Reversal of excess of land revaluation.........................................................
Net change in the year.........................................................................................
Balance at March 31, 2011...............................................................................

Balance at April 1, 2009.........................................................
Net income......................................................................................
Cash dividends, ¥7.00 per share.........................................
Purchase of treasury stock.....................................................
Sale of treasury stock.................................................................
Reversal of excess of land revaluation............................
Net change in the year............................................................
Balance at March 31, 2010..................................................
Net income......................................................................................
Cash dividends, ¥8.00 per share.........................................
Purchase of treasury stock.....................................................
Sale of treasury stock.................................................................
Change in equity in affiliates accounted forby equity method —treasury stock..............................
Reversal of excess of land revaluation............................
Net change in the year............................................................
Balance at March 31, 2011..................................................

Millions of yen

Outstanding
number ofshares ofcommon stock

Commonstock

CapitalsurplusRetainedearnings

Treasurystock

236,380¥18,128¥8,133¥168,033
6,716(1,654)¥  (877)(59)
2

236,324(0)
76
18,1288,133(3,048)1,352

173,172
10,895(1,890)
(398)

(31)
1

(907)

(1,483)
838
(0)

139
234,628¥18,128¥8,133¥181,918¥(1,552)

Millions of yen
Accumulated other comprehensive income
Minority
Unrealized
DeferredTotal
gains (losses) on gains (losses) on
Excess ofaccumulated other interests inavailable-for-sale derivatives underlandcomprehensive consolidated
subsidiaries
securities
hedge accounting revaluation
incomeTotal
equity¥ (4,567)¥(157)¥5,675¥   950¥1,67820,883
16,315

121
(36)

(76)
5,599

20,92821,878

135
1,814

927
¥17,243(503)¥(539)(139)¥5,460See notes to consolidated financial statements.

14
The Higo Bank, Ltd. Annual Report 2011

284
¥22,16385¥1,899¥196,047
6,716(1,654)(31)
1
76
21,063
222,219
10,895(1,890)(1,483)
439
(0)
139
370
¥230,690

The Higo Bank, Ltd. and Consolidated Subsidiaries

Consolidated Statements of Changes in Equity
Years ended March 31, 2011 and 2010

Thousands of U.S. dollars (Note 1)

Balance at March 31, 2010.................................................................................................................
Net income.....................................................................................................................................................
Cash dividends, $0.09 per share........................................................................................................
Purchase of treasury stock....................................................................................................................
Sale of treasury stock................................................................................................................................
Change in equity in affiliates accounted forby equity method —treasury stock.............................................................................................
Reversal of excess of land revaluation...........................................................................................
Net change in the year...........................................................................................................................
Balance at March 31, 2011.................................................................................................................

Commonstock

CapitalsurplusRetainedearnings

Treasurystock$218,026$97,817$2,082,645
131,036(22,736)$(10,918)(4,788)(0)
1,672$218,026$97,817$2,187,830

Thousands of U.S. dollars (Note 1)
Accumulated other comprehensive income
Unrealized
Deferred
Total
Minority
gains (losses) on gains (losses) on
Excess ofaccumulated other interests inavailable-for-sale derivatives underlandcomprehensive consolidated
securities
hedge accounting revaluation
incomesubsidiaries

Balance at March 31, 2010..................................................
Net income......................................................................................
Cash dividends, $0.09 per share.........................................
Purchase of treasury stock.....................................................
Sale of treasury stock.................................................................
Change in equity in affiliates accounted forby equity method —treasury stock..............................
Reversal of excess of land revaluation............................
Net change in the year............................................................
Balance at March 31, 2011..................................................

$196,222

11,150$207,372$  (437)(6,051)$(6,489)(17,836)
10,079$67,338(1,672)$65,665

See notes to consolidated financial statements.

15
The Higo Bank, Ltd. Annual Report 2011

$263,122

3,425$266,548$21,819

1,024$22,843$(18,675)

Total
equity$2,672,513
131,036(22,736)(17,836)
5,290
(0)
1,672
4,450
$2,774,390

The Higo Bank, Ltd. and Consolidated Subsidiaries

Consolidated Statements of Cash Flows
Years ended March 31, 2011 and 2010

2011

2010

Thousands of
U.S. dollars (Note 1)
2011¥ 16,601¥ 10,828$  199,662(4,399)2,982
232(2,062)(62)(3,549)
2,740
38
79
(167)

(52,914)35,865
2,797(24,804)
(753)

84
(125)
(38)
(58,164)
5,135
5,147
42
44
(66,259)
151,440

36
(194)
130
(59,156)
7,832
3,839
19
(165)
4,838
125,6111,021(1,507)(466)(699,511)
61,764
61,907511
537(796,866)
1,821,288

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................................................................
(Decrease) increase in reserve for possible loan losses......................................
Decrease in reserve for employees’ retirement benefits...................................
Increase in reserve for directors’
and corporate auditors’ retirement benefits..........................................................
Decrease in reserve for contingent losses..................................................................
(Decrease) increase in reserve for repayments for dormant deposits......
Interest and dividend income............................................................................................
Interest expenses.......................................................................................................................
Losses on securities..................................................................................................................
Losses on money held in trust...........................................................................................
Net decrease (increase) in trading assets....................................................................
Net (increase) decrease in loans and bills discounted........................................
Net increase in deposits.........................................................................................................
Net increase in borrowed money(excluding subordinated borrowings).......................................................................
Net decrease (increase) in due from banks(excluding deposits paid to the Bank of Japan)...................................................
Net decrease in call loans and others............................................................................
Net decrease in call money and others........................................................................
Net (decrease) increase in borrowing under securities
lending transactions..............................................................................................................
Interest income (cash basis)................................................................................................
Interest expense (cash basis)..............................................................................................
Other..................................................................................................................................................
Total adjustments...............................................................................................................
Net cash provided by operating activities..........................................................

5,000

60,132

88,156
28,611(10,234)(50,943)
29,577(21,730)

1,060,204
344,099(123,083)(2,947)58,463(6,292)(394)
194,360
210,962

8,761
59,479(8,223)
4,742
103,597
114,426(35,447)
703,103(75,673)(4,738)2,337,466
2,537,128(552,363)
368,242
99,4703(1,104)222(2,227)(6,642,981)
4,428,656
1,196,275
36(13,285)
2,676(26,783)(87,756)(428,105)
135,345
186,333
4(1,145)129(2,670)0(110,108)

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

(1,885)(1,483)439(2,929)(1,650)(31)
1(1,680)(22,679)(17,836)5,290(35,225)

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 4)......................................................

(8)
120,267
67,671¥187,939(3)
2,634
65,036¥ 67,671(100)
1,446,396
813,846$2,260,243

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............................................................
Proceeds from sales of intangible assets.....................................................................
Net cash used in investing activities.......................................................................

See notes to consolidated financial statements.

16
The Higo Bank, Ltd. Annual Report 2011

(1,055,405)

The Higo Bank, Ltd. and Consolidated Subsidiaries

Notes to Consolidated Financial Statements
Years ended March 31, 2011 and 2010

1. Basis of Presenting Consolidated Financial Statements
The accompanying consolidated financial statements of The Higo Bank, Ltd. (the “Bank”) and 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 conformity with accounting principles generally accepted in Japan, which are different in certain
respects as to application and disclosure requirements of International Financial Reporting Standards.
Under Japanese GAAP, a consolidated statement of comprehensive income is required from the fiscal year ended March 31,
2011 and has been presented herein. Accordingly, accumulated other comprehensive income is presented in the consolidated balance sheet and the consolidated statement of changes in equity. Information with respect to other comprehensive
income for the year ended March 31, 2010 is disclosed in Note 18. In addition, “net income before minority interests” isdisclosed in the consolidated statement of income from the year ended March 31, 2011.
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 2010 financial statements to conform to the classifications used in 2011.
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 ¥83.15 to $1, the approximate rate of exchange
at March 31, 2011. 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 six and seven significant subsidiaries as ofMarch 31, 2011 and 2010, respectively. The fiscal periods of all consolidated subsidiaries end on March 31.
HIGIN JCB Card Ltd., a former consolidated subsidiary, merged with Higin World Card CO., Ltd., another consolidated subsidiary, to form THE HIGIN CARD.CO., LTD. on October 1, 2010.
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, and those companies over which the Group has the ability to exercise significant
influence are accounted for by the equity method.
Investment in an affiliated company is accounted for by the equity method. Investment in a remaining unconsolidated subsidiary is 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. Cash and cash equivalents
Cash and cash equivalents in the consolidated statements of cash flows are composed of cash on hand and due from the
Bank of Japan.

17
The Higo Bank, Ltd. Annual Report 2011

The Higo Bank, Ltd. and Consolidated Subsidiaries

Notes to Consolidated Financial Statements
Years ended March 31, 2011 and 2010

c. 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.

d. 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 recordedin Trading assets or Trading liabilities on the consolidated balance sheets. Income or expenses generated on the relevant
trading transactions are recorded in Trading income or Trading expenses on the consolidated statements 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.

e. 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 or amortized cost as determined by the moving average method. For other than temporary declines in fair value, securities are reduced to net realizable value by a charge to income. Securities included in money
held in trusts managed separately, the primary objective of which is to invest, are stated at market prices.
ii) Derivatives
Derivatives other than those designated as “Trading assets and Trading liabilities” (see (d) 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 inaccordance 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 andliabilities due to the fluctuation of foreign exchange rates which is described in “Treatment for Accounting and Auditingof Application of 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 ofchanges in currency exchange rates with currency swaps or foreign exchange swaps, by verifying that there exist foreign
currency positions of the hedging instruments corresponding to the foreign currency monetary assets and liabilities to behedged.

18
The Higo Bank, Ltd. Annual Report 2011

The Higo Bank, Ltd. and Consolidated Subsidiaries

Notes to Consolidated Financial Statements
Years ended March 31, 2011 and 2010

f. 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 forbuildings 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.
Leased assets under finance lease transactions, in which substantial ownership is not deemed to be transferred, are depreciated by the straight-line method over the lease term. The salvage value is either zero or guaranteed amounts if it is specified
in the lease contracts.
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 ¥11,209 million ($134,804
thousand) and ¥9,908 million as of March 31, 2011 and 2010, respectively.

g. 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.

h. Reserve for possible loan losses
Reserve for possible loan losses is provided as follows:i ) T he 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 ofguarantees.
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.
iii) 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-assessmentof assets. 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 ¥3,365 million ($40,473
thousand) and ¥5,054 million for the years ended March 31, 2011 and 2010, respectively.

19
The Higo Bank, Ltd. Annual Report 2011

The Higo Bank, Ltd. and Consolidated Subsidiaries

Notes to Consolidated Financial Statements
Years ended March 31, 2011 and 2010

i. Bonuses to directors and corporate auditors
Bonuses to directors and corporate auditors are accrued at the year end to which such bonuses are attributable.

j. Reserve for employees’ retirement benefits
Reserve for retirement benefits, which is provided for the payment of employees’ retirement benefits, represents theestimated present value of projected benefit obligations in excess of the fair value of the plan assets, taking into accountadjustments for unrecognized prior year service costs and unrecognized actuarial differences. Unrecognized prior service
costs and unrecognized actuarial differences are amortized on a straight-line basis over a period of ten years from the year
following the year in which they arise.

k. Reserve for directors’ and corporate auditors’ retirement benefits
Reserve for directors’, corporate auditors’ and executive officers’ retirement benefits are provided at the amount that would
be required if all such persons retired at the balanced sheet date.

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
In March 2007, the Accounting Standards Board of Japan (the “ASBJ”) issued ASBJ Statement No. 13, “Accounting Standard
for Lease Transactions,” which revised the previous accounting standard for lease transactions issued in June 1993. The
revised accounting standard for lease transactions was effective for fiscal years beginning on or after April 1, 2008 with early
adoption permitted for fiscal years beginning on or after April 1, 2007.
The Group applied the revised accounting standard effective April 1, 2008. In addition, the Group accounted for leases
which existed at the transition date and do not transfer ownership of the leased property to the lessee as operating leasetransactions.
All other leases are accounted for as operating leases.

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 236,806 thousand sharesand 236,360 thousand shares for the years ended March 31, 2011 and 2010, respectively.
Diluted net income per share is not disclosed for the years ended March 31, 2011 and 2010 because there are no potential
common shares.
Cash dividends per share presented in the accompanying consolidated statements of income are dividends applicable to
the respective 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 statements 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.

20
The Higo Bank, Ltd. Annual Report 2011

The Higo Bank, Ltd. and Consolidated Subsidiaries

Notes to Consolidated Financial Statements
Years ended March 31, 2011 and 2010

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. New accounting pronouncements
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 with revision of accounting standards, the new policy is applied retrospectively
unless the revised accounting standards include specific transitional provisions. When the revised accounting standards
include specific transitional provisions, an entity shall comply with the specific transitional provisions.
(2) Changes in Presentations
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.
This accounting standard and the guidance are applicable to accounting changes and corrections of prior period errors
which are made from the beginning of the fiscal year that begins on or after April 1, 2011.

3. Accounting Change
Asset Retirement Obligations
In March, 2008, the ASBJ published the accounting standard for asset retirement obligations, ASBJ Statement No. 18“Accounting Standard for Asset Retirement Obligations” and ASBJ Guidance No. 21 “Guidance on Accounting Standard for
Asset Retirement Obligations.” The Group applied this accounting standard effective April 1, 2010. The effect of this change
was to decrease income before income taxes and minority interests by ¥139 million ($1,677 thousand).

4. Cash and Cash Equivalents
A reconciliation of the cash and cash equivalents balances in the consolidated statements of cash flows and the accountbalances in the consolidated balance sheets were as follows:
2011

2010

Thousands of
U.S. dollars
2011¥236,120(47,472)(708)¥187,939¥204,008(135,390)(946)¥ 67,671$2,839,688(570,925)(8,519)$2,260,243

Millions of yen

Cash and due from banks......................................................................................
Foreign currency due from banks.....................................................................
Other due from banks..............................................................................................
Cash and cash equivalents....................................................................................

21
The Higo Bank, Ltd. Annual Report 2011

The Higo Bank, Ltd. and Consolidated Subsidiaries

Notes to Consolidated Financial Statements
Years ended March 31, 2011 and 2010

5. Securities
The costs and aggregate fair values of securities at March 31, 2011 and 2010 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 sheets.
Millions of yen
March 31, 2011

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

Cost

Net unrealized
gains (losses)

45,1001,147,186
70,841¥    35,641
1,129,416
69,684¥ 9,458
17,770
1,157

8,529

7,679

850

Fair value¥     1,022

Millions of yen
March 31, 2010

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

March 31, 2011

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

Cost

Net unrealized
gains (losses)

60,924
1,036,209
88,217¥    47,325
1,022,987
88,486¥13,598
13,222
(269)

9,068

8,150

918

Fair value¥     1,055

Thousands of U.S. Dollars
Net unrealized
Fair value
Costgains (losses)$     12,301
542,400
13,796,590
851,970$   428,646
13,582,874
838,054$113,753
213,716
13,916

102,583

92,353

10,23022
The Higo Bank, Ltd. Annual Report 2011

The Higo Bank, Ltd. and Consolidated Subsidiaries

Notes to Consolidated Financial Statements
Years ended March 31, 2011 and 2010

The information of available-for-sale securities which were sold for the years ended March 31, 2011 and 2010 was as follows:
March 31, 2011

Proceeds

Millions of yen
Realized gains

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

¥ 12,423
333,952
20,313¥366,689¥  3202,466
260¥3,047

March 31, 2010

Proceeds

Millions of yen
Realized gains

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

¥ 13,508
72,57254,555¥140,636¥1,021
1,679
444¥3,145

March 31, 2011

Proceeds

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

$  149,408
4,016,263
244,303$4,409,976

Realized losses¥(3,994)(2,407)(1,475)¥(7,877)

Realized losses¥  (618)(213)(5,541)¥(6,374)

Thousands of U.S. Dollars
Realized gains
Realized losses$ 3,852
29,667
3,127$36,648$(48,042)(28,956)(17,740)$(94,739)

The impairment losses on available-for-sale equity securities for the years ended March 31, 2011 and 2010 were ¥314 million($3,778 thousand) and ¥568 million, respectively.

Net unrealized gains (losses) on available-for-sale securities for the years ended March 31, 2011 and 2010 consisted of thefollowing:
Millions of yen

Valuation differences:
Available-for-sale securities...........................................................................
Deferred tax liabilities........................................................................................
Minority interests..................................................................................................
Unrealized gains (losses) on available-for-sale securities
of affiliates attributable to the parent company............................
Net unrealized gains (losses) on available-for-sale securities..........

Thousands of
U.S. dollars
2011

2011

2010

¥28,386(11,150)¥26,551(10,241)(1)$341,385(134,101)

7¥17,2438¥16,31587$207,372

6. Money Held in TrustThe carrying amounts and unrealized gains (losses) of money held in trust, as of March 31, 2011 and 2010, were as follows:
Money held in trust held for trading
2011

2010

Thousands of
U.S. dollars
2011¥4,292(1)¥4,343
2$51,622(23)

Millions of yen

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

23
The Higo Bank, Ltd. Annual Report 2011

The Higo Bank, Ltd. and Consolidated Subsidiaries

Notes to Consolidated Financial Statements
Years ended March 31, 2011 and 2010

7. Loans and Bills Discounted
Loans and bills discounted as of March 31, 2011 and 2010 included the following:
2011

2010

Thousands of
U.S. dollars
2011¥ 1,388
36,043567
18,859¥56,857¥ 2,50735,7141,386
8,444¥48,051$ 16,693
433,469
6,821
226,816$683,800

Millions of yen

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

 ankruptcy loans represent non-accrual loans to borrowers who are legally bankrupt as defined in Article 96-1-3 and 4 of the
B
Japanese Tax Law Enforcement Regulation (Article 97 of 1965 Cabinet Order).
 ast due loans represent non-accrual loans other than bankruptcy loans and loans for which payments of interest arePdeferred in order to assist or facilitate the restructuring of borrowers in financial difficulties.
L oans 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.
 estructured loans represent loans on which contracts were amended in favor of borrowers (e.g., reduction of or exemptionRfrom 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.
Loans included discounted bills amounting to ¥15,332 million ($184,392 thousand) and ¥16,001 million as of March 31, 2011
and 2010, respectively. The Bank is entitled, without limitation, to sell or pledge these discounted bills.

8. Fixed Assets and Intangible Assets
Fixed assets as of March 31, 2011 and 2010 consisted of the following:
2011

2010

Thousands of
U.S. dollars
2011¥ 8,752
29,099453
84,220¥42,353¥ 8,573
29,467
466
108
4,055
¥42,671$103,094
349,960
5,457
100
50,754$509,366

Millions of yen

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

 ccumulated depreciation at March 31, 2011 and 2010 amounted to ¥36,474 million ($438,660 thousand) and ¥36,279
A
million, respectively.
 s of March 31, 2011 and 2010, deferred gains for tax purposes of ¥2,804 million ($33,729 thousand) and ¥2,801 million,A
respectively.

24
The Higo Bank, Ltd. Annual Report 2011

The Higo Bank, Ltd. and Consolidated Subsidiaries

Notes to Consolidated Financial Statements
Years ended March 31, 2011 and 2010

Intangible assets as of March 31, 2011 and 2010 consisted of the following:
2011

2010

Thousands of
U.S. dollars
2011¥5,97522
173¥6,171¥5,62825
165¥5,819$71,864
267
2,083$74,216

Millions of yen

Software............................................................................................................................
Lease assets.....................................................................................................................
Other...................................................................................................................................
Total..............................................................................................................................

9. Assets Pledged
Assets pledged as collateral were as follows:
2011

2010

Thousands of
U.S. dollars
2011¥39,122¥34,971$470,505

Millions of yen

Securities...........................................................................................................................
Liabilities related to the above assets pledged were as follows:

Millions of yen

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

2011

2010

¥21,231
5,814
5,000

¥36,134
8,761

Thousands of
U.S. dollars
2011$255,337
69,92760,132

In addition, securities totaling ¥123,264 million ($1,482,435 thousand) was pledged as collateral for settlement of exchange
as of March 31, 2011. Securities totaling ¥118,920 million was pledged as collateral for settlement of exchange, short-term
funding, derivatives or as variation margin as of March 31, 2010.

10. 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:
2011

2010

Thousands of
U.S. dollars
2011¥611,882
12,072¥623,954¥607,346
11,442¥618,789$7,358,781
145,183$7,503,965

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 mostsuch agreements are terminated without being exercised. Most of these agreements have provisions, which stipulate theGroup 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.

25
The Higo Bank, Ltd. Annual Report 2011

The Higo Bank, Ltd. and Consolidated Subsidiaries

Notes to Consolidated Financial Statements
Years ended March 31, 2011 and 2010

11. Reserve for Employees’ Retirement Benefits
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 reserve for employees’ retirement benefits as of March 31, 2011 and 2010 were as follows:
2011

2010

Thousands of
U.S. dollars
2011¥(37,788)
27,017(10,770)
7,832(2,695)(5,634)2,507¥ (8,141)¥(38,006)
26,300(11,706)
8,815(3,481)(6,371)
1,832¥ (8,204)$(454,460)
324,924(129,535)
94,194(32,422)(67,763)
30,154$ (97,918)

Millions of yen

Projected benefit obligations..............................................................................
Plan assets........................................................................................................................
Unrecognized actuarial differences.................................................................
Unrecognized prior service cost........................................................................
Prepaid pension cost................................................................................................
Reserve for employees’ retirement benefits...............................................

Notes: 1. Discretionary additional payments are not included.
2. Consolidated subsidiaries apply simplified method to calculate projected benefit obligations.

Net pension expenses related to the retirement benefits for the years ended March 31, 2011 and 2010 were as follows:
2011

2010

Thousands of
U.S. dollars
2011¥1,066
681
(657)
(785)
1,966
34
¥2,305¥1,108
659
(619)
(785)
2,191
28
¥2,581$12,830
8,192(7,907)(9,449)23,646415$27,728

Millions of yen

Service cost.....................................................................................................................
Interest cost....................................................................................................................
Expected return on plan assets..........................................................................
Amortization of prior service cost.....................................................................
Amortization of actuarial differences..............................................................
Other...................................................................................................................................
Net pension expenses.......................................................................................

Note: Net pension expenses of certain consolidated subsidiaries adopting simplified method are included in the service cost.

Assumptions used in the calculation of the above information were as follows:
Discount rate..........................................................................................................................
Expected rate of return on plan assets..................................................................
Method of attributing the projected benefits toperiods of services............................................................................................................
Amortization period of prior service cost.............................................................
Amortization period of unrecognized actuarial differences....................

2011

2010

1.7%
2.5%

1.8%
2.5%

Straight-line basis
10 years
10 years

Straight-line basis
10 years
10 years

26
The Higo Bank, Ltd. Annual Report 2011

The Higo Bank, Ltd. and Consolidated Subsidiaries

Notes to Consolidated Financial Statements
Years ended March 31, 2011 and 201012. 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) D ividends
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 Board of Corporate Auditors, 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 total of 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
and legal reserve may be reversed without limitation. The Companies Act also provides that common stock, legal reserve,
additional paid-in capital, other capital surplus 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 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.

13. Other Expenses
Other expenses included losses on sales stocks and other securities in the amount of ¥5,584 million for the year ended March
31, 2010.

27
The Higo Bank, Ltd. Annual Report 2011

The Higo Bank, Ltd. and Consolidated Subsidiaries

Notes to Consolidated Financial Statements
Years ended March 31, 2011 and 2010

14. 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 40.4% for the years ended March 31, 2011 and 2010.
The tax effects of significant temporary differences and loss carryforwards which resulted in deferred tax assets and liabilities
as of March 31, 2011 and 2010 were as follows.
2011

2010

Thousands of
U.S. dollars
2011¥ 9,024
3,288
1,262
1,409
2,401
17,386(2,521)
14,865¥10,323
3,313
1,336
2,458
1,983
19,414(3,414)16,000$108,533
39,55015,18016,95628,878209,099(30,323)
178,776(11,150)(211)(1,012)(48)(12,423)¥ 2,442(10,241)
(194)
(740)

(134,101)(2,537)(12,182)(584)(149,406)$ 29,369

Millions of yen

Deferred tax assets:
Reserve for possible loan losses..................................................................
Reserve for employees’ retirement benefits.......................................
Depreciation............................................................................................................
Loss on impairment of securities...............................................................
Other............................................................................................................................
Subtotal...............................................................................................................
Valuation allowance...........................................................................................
Deferred tax assets.......................................................................................
Deferred tax liabilities:
Unrealized gains on available-for-sale securities..............................
Deferred income on fixed assets sold.....................................................
Prepaid pension cost.........................................................................................
Other............................................................................................................................
Deferred tax liabilities.................................................................................
Net deferred tax assets.............................................................................................

(11,176)¥ 4,824

A reconciliation between the normal effective statutory tax rates and the actual effective tax rates reflected in the accompanying consolidated statements of income for the years ended March 31, 2011 and 2010 was as follows:
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.............................................................................
Other-net...................................................................................................................
Actual effective tax rate...........................................................................................

2011

2010

40.4%
0.3
(1.4)
(5.5)
0.4
(0.4)
33.8%

40.4%
0.7
(2.4)
(2.7)
0.3
0.4
36.7%

28
The Higo Bank, Ltd. Annual Report 2011

The Higo Bank, Ltd. and Consolidated Subsidiaries

Notes to Consolidated Financial Statements
Years ended March 31, 2011 and 2010

15. Leases
The Group leases certain equipment and other assets.
Total lease payments under finance leases for the years ended March 31, 2011 and 2010 were ¥569 million ($6,849 thousand)and ¥740 million, respectively.
Pro forma information of leased property whose lease inception was before March 31, 2008
ASBJ Statement No. 13, “Accounting Standard for Lease Transactions” requires that all finance lease transactions should becapitalized to recognize lease assets and lease obligations in the balance sheet. However, the ASBJ Statement No. 13 permits
leases without ownership transfer of the leased property to the lessee whose lease inception was before March 31, 2008
to be accounted for as operating lease transactions if certain “as if capitalized” information is disclosed in the note to thefinancial statements. The Group applied the ASBJ Statement No. 13 effective April 1, 2008 and accounted for such leases as
operating lease transactions. Pro forma information of leased property whose lease inception was before March 31, 2008
such as acquisition cost, accumulated depreciation, obligations under finance leases, depreciation expense, interest expenseand other information of finance leases that do not transfer ownership of the leased property to the lessee on an “as if
capitalized” basis was as follows:
2011

2010

Thousands of
U.S. dollars
2011¥2,412(1,876)¥  535¥3,106(2,067)¥1,039$29,009(22,565)$ 6,443¥  393194¥  587¥  50340¥  526587¥1,114¥  65769$ 4,732
2,333$ 7,066$ 6,055
492

Millions of yen

Acquisition cost............................................................................................................
Accumulated depreciation...................................................................................
Net leased property...................................................................................................
Obligations under finance leases:
Due within one year...........................................................................................
Due after one year...............................................................................................
Total.......................................................................................................................
Depreciation expense..............................................................................................
Interest expense...........................................................................................................

Depreciation is computed based on the straight-line method over the lease term of the leased assets. Interest expense,
computed as total lease payments less acquisition cost of the leased assets, are allocated over the lease term, using theinterest method.
The minimum rental commitments under non-cancellable operating leases at March 31, 2011 and 2010 were as follows:
Millions of yen
2011

Due within one year..................................................................................................
Due after one year......................................................................................................
Total..............................................................................................................................

¥ 99
140
¥240

29
The Higo Bank, Ltd. Annual Report 20112010

Thousands of
U.S. dollars
2011$1,196
1,695$2,891

The Higo Bank, Ltd. and Consolidated Subsidiaries

Notes to Consolidated Financial Statements
Years ended March 31, 2011 and 2010

16. Financial Instruments and Related Disclosures
In March 2008, the ASBJ revised ASBJ Statement NO. 10 “Accounting Standard for Financial Instruments” and issued ASBJ
Guidance NO. 19 “Guidance on Accounting Standard for Financial Instruments and Related Disclosures.” This accounting
standard and the guidance was applicable to financial instruments and related disclosures at the end of the fiscal years
ending on or after March 31, 2010. The Group applied the revised accounting standard and the guidance effective March 31,
2010.
(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 as a means of raising foreign currency
funds.
The Bank’s major means of operating funds are lending, followed by securities investment such as in stocks and bonds. Loansare 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 areprimarily investments in Japanese government bonds (JGBs) and public debt securities, the Bank also invests in corporate
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 those that engage in the venture capital business invest in 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 JGBs, stocks, foreign bonds
and investment trusts. Securities held by the Group are subject to market risk, and their fair value is exposed to risk offluctuation in variable risk factors including interest rates, stock prices and exchange rates. The Group is also subject tothe liquidity risk and their fair value is exposed to risk of fluctuation in market prices. Some securities, such as stocks andbonds, are subject to credit risk, which represents loss on default caused by deteriorated credit of the issuers.
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.

30
The Higo Bank, Ltd. Annual Report 2011

The Higo Bank, Ltd. and Consolidated Subsidiaries

Notes to Consolidated Financial Statements
Years ended March 31, 2011 and 2010iii) 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 counter party and credit risk of defaultof the contract and changing risk factors. The consolidated subsidiaries and the associated company 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 companies and establish abusiness 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
such as divisions, sections, offices, branches, and Group companies, each headquarter division assumes functional
responsibility for risk management each type of risk. The Business Administration Division assumes overall control for risk
management of all banking-related risk 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 risk 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 risk, 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 accounting auditors to confirm that our standards for in-house credit assessment areappropriate, 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 due to ensure stableprofitability.

31
The Higo Bank, Ltd. Annual Report 2011

The Higo Bank, Ltd. and Consolidated Subsidiaries

Notes to Consolidated Financial Statements
Years ended March 31, 2011 and 2010

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.
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, 2011, VaR related to interest rate risks was¥19,596 million ($235,678 thousand) and VaR related to price volatility risks was ¥17,741 million ($213,362 thousand).
The Bank performed back testing to validate VaR periodically. However, VaR measures the amount of market risk bycertain occurrence probabilities which are statistically calculated based on past market movements. Therefore, there arecases in which VaR cannot capture risk under sudden and dramatic changes in market beyond normal circumstances. The
Bank does not do quantitative analysis to a part of financial instruments which are small in value and financial instruments
held by the consolidated subsidiaries and affiliated companies.
c) Liquidity risk
The General Planning Division manages liquidity risk. The General Planning Division also grasps and analyzes the usesof funds on a daily, weekly, and monthly, and performs simulations the sources of funds. In addition, to provide forcontingencies, 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 value and carrying amounts of financial instruments as of March 31, 2011 and 2010 are shown below. Immaterial
accounts on the consolidated balance sheet are not included in the table below. Some instruments, such as unlisted stocks,
whose fair value cannot be reliably determined, are not included in the table below (see Note 16(e) (Note 2)).

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

Carrying
amountMillions of yen
2011
Fair
value

¥  236,120¥  236,120

7,679
1,262,942
2,325,979(21,034)
2,304,945
3,811,687
3,641,753
3,641,753

8,529
1,262,942¥   850

2,333,899
3,841,492
3,645,139
3,645,139

28,95429,805
3,385
3,385

(433)
(1,460)¥    (1,893)(433)(1,460)¥    (1,893)

32
The Higo Bank, Ltd. Annual Report 2011

Net unrealized
gains (losses)

The Higo Bank, Ltd. and Consolidated Subsidiaries

Notes to Consolidated Financial Statements
Years ended March 31, 2011 and 2010

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

Carrying
amountThousands of U.S. dollars
2011
Fair
value

$ 2,839,688$ 2,839,688

92,353
15,188,728
27,973,300(252,974)
27,720,326
45,841,096
43,797,401
43,797,401

102,583
15,188,728$ 10,230

28,068,549
46,199,549
43,838,119
43,838,119

348,222
358,452
40,71740,717(5,212)(17,560)$    (22,773)(5,212)(17,560)$    (22,773)

Net unrealized
gains (losses)*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.

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

Carrying
amountMillions of yen
2010
Fair
value

¥  204,008
57,216¥  204,008
57,2168,150
1,184,928
2,260,131(23,125)
2,237,006
3,691,308
3,490,313
3,490,313

9,068
1,184,928¥   918

2,264,550
3,719,771
3,495,578
3,495,578

27,54428,462
5,264
5,264

869
(1,503)¥      (633)869(1,503)¥      (633)Net unrealized
gains (losses)*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.

33
The Higo Bank, Ltd. Annual Report 2011

The Higo Bank, Ltd. and Consolidated Subsidiaries

Notes to Consolidated Financial Statements
Years ended March 31, 2011 and 2010

(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) Call loans and bills bought
For items with a short commitment term (within one year), as their fair value and carrying amounts are nearly identical, theircarrying amounts are assumed as their fair value.
(3) 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 (4) Loans and bills
accounted below. For information pertaining to investment securities by holding purpose, please refer to Note 5.
(4) Loans and bills discounted
As loans bearing floating rates of interest reflect market rates of interest in the short term, unless credit conditions of thelending entity have changed significantly after lending the loans, their fair value and carrying amounts are nearly identical,so their carrying amounts are assumed as their fair value. Fixed-rate loans are segmented by loan type, internal rating andperiod, and their fair value is determined by discounting the total amount of principal and interest by the interest rate thatconsist of the swap rate and the credit spread and the assumed interest rate on new lendings of the same type. The fair valueof loans lent to entities that are bankrupt, substantially bankrupt or in danger of bankruptcy are determined according to
the current value of 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 allowance for doubtful accounts, these amounts are assumed as their fair value. For loans that are fully secured bycollateral and that have 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
Deposits
For demand deposits, fair value is assumed as amount to be paid when demanded on the balance sheet date (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.
Derivatives
The information of the fair value for derivatives is included in Note 17.

34
The Higo Bank, Ltd. Annual Report 2011

The Higo Bank, Ltd. and Consolidated Subsidiaries

Notes to Consolidated Financial Statements
Years ended March 31, 2011 and 2010

(Note 2) Financial instruments, whose fair value cannot be reliably determined.
The following instruments are not included in “Assets (3) Securities” in the above table showing the fair value of financial
instruments as of March 31, 2011 and 2010.
Carrying amount

2011

2010

Thousands of
U.S. dollars
2011¥1,622
5¥1,628¥1,607
6¥1,613$19,51766$19,584

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 ¥3 million ($37 thousand) and ¥42 million for the years ended March 31, 2011 and2010, respectively.

(Note 3) Maturity analysis for claims and securities with contractual maturities as of March 31, 2011

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

Millions of yen
2011
Over 1 year to Over 3 years to Over 5 years to Over 7 years to
3 years
5 years
7 years
10 yearsOver
10 years¥195,614
496
117
379

¥    837235
602¥   5,618¥    398¥    330

5,618

398

330

77,98812,31835,906
18,223
373,420¥647,518

276,259
114,60939,720105,808
414,522¥691,619

155,849
52,02356,44840,999335,104¥496,572

153,872
82,05235,35436,465
214,709¥368,979

527,561
413,50765,507
20,847
229,679¥757,570

1 yearor lessDue from banks................................................. $2,352,548
Securities
Held-to-maturity debt securities.....
5,967
Municipal government bonds....
1,409
Corporate bonds................................
4,558
Available-for-sale securities withmaturity........................................................
937,919
Government bonds..........................
148,148
Municipal government bonds....
431,832
Corporate bonds................................
219,167
Loans and bills discounted (*1)............... 4,490,924
Total................................................................... $7,787,360

Thousands of U.S. dollars
2011Over 1 year to Over 3 years to Over 5 years to Over 7 years to
3 years
5 years
7 years
10 years$    10,066
2,826
7,239

$    67,564$     4,786$     3,968

67,564

4,786

3,968

3,322,420
1,378,350
477,698
1,272,507
4,985,241$8,317,727

1,874,315
625,661
678,878
493,076
4,030,125$5,972,005

1,850,540
986,797425,191
438,550
2,582,190$4,437,517

6,344,692
4,973,033
787,821250,727
2,762,233$9,110,894¥ 17,380
16,897482
431,161¥448,541Over
10 years$  209,026
203,218
5,807
5,185,339$5,394,366*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 ¥37,431 million ($450,163
thousand), is not included in the above table. Loans that do not have contractual maturity, amounting to ¥289,950 million ($3,487,083
thousand), are not included either.

35
The Higo Bank, Ltd. Annual Report 2011

The Higo Bank, Ltd. and Consolidated Subsidiaries

Notes to Consolidated Financial Statements
Years ended March 31, 2011 and 2010

(Note 4) Maturity analysis for interest bearing liabilities as of March 31, 2011

1 yearor less

Deposits (*1)........................................................ ¥3,464,631

1 yearor less

Deposits (*1)........................................................ $41,667,244

Millions of yen
2011
Over 1 year to Over 3 years to Over 5 years to Over 7 years to
3 years
5 years
7 years
10 years¥158,425¥15,369¥1,504¥1,822Thousands of U.S. dollars
2011Over 1 year to Over 3 years to Over 5 years to Over 7 years to
3 years
5 years
7 years
10 years$1,905,300$184,842$18,096Over
10 yearsOver
10 years$21,917*1. Deposits on demand (current deposit, ordinary deposit and deposit at notice) are included in “1 year or less”

17. 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 set up 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.

36
The Higo Bank, Ltd. Annual Report 2011

The Higo Bank, Ltd. and Consolidated Subsidiaries

Notes to Consolidated Financial Statements
Years ended March 31, 2011 and 2010(d) Fair value of derivative financial instruments
Derivative transactions to which hedge accounting were not applied as of March 31, 2011 and 2010i) Interest rate related transactions

Contractual value or
notional principal
amountInterest rate swaps:
Receive floating and pay fixed............................................

¥2,913Contractual value or
notional principal
amountInterest rate swaps:
Receive floating and pay fixed............................................

$35,033

Millions of yen
2011
Includingover one
Fair
year
value

¥2,913¥(63)

Thousands of U.S. dollars
2011
Includingover one
Fair
year
value

$35,033$(766)

Unrealized
gains(losses)¥(63)

Unrealized
gains(losses)$(766)

Notes: 1. Derivative transactions shown above are stated at fair value in the accompanying consolidated financial statements.
2. Fair values of above derivatives are based on quoted market prices, such as those of the Tokyo Financial Exchange Inc.
3. Calculation on quotation of fair value of above derivatives are based on the discounted present value method or option pricing
models, etc.

Contractual value or
notional principal
amountInterest rate swaps:
Receive floating and pay fixed............................................

¥2,913

Millions of yen
2010
Includingover one
Fair
year
value

¥2,913¥(78)

Unrealized
gains(losses)¥(78)

Notes: 1. Derivative transactions shown above are stated at fair value in the accompanying consolidated financial statements.
2. Fair values of above derivatives are based on quoted market prices, such as those of the Tokyo Financial Exchange Inc.
3. Calculation on quotation of fair value of above derivatives are based on the discounted present value method or option pricing
models, etc.

ii) Foreign exchange related transactions

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

Millions of yen
2011
Includingover one
Fair
year
value

Unrealized
gains(losses)¥23,909¥23,909

¥ 49

¥ 49

18,165
2,958

678
670

(432)
12

(432)
12

37
The Higo Bank, Ltd. Annual Report 2011

The Higo Bank, Ltd. and Consolidated Subsidiaries

Notes to Consolidated Financial Statements
Years ended March 31, 2011 and 2010

Thousands of U.S. dollars
2011
Includingover one
Fair
year
value

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

Unrealized
gains(losses)$287,547$287,547$  600$  600218,463
35,578

8,155
8,064

(5,199)153(5,199)153

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 are based on the discounted present value method, etc.
Millions of yen
2010
Includingover one
Fair
year
value

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

Unrealized
gains(losses)¥26,817¥19,378

¥953

¥953

1,406
782

181
180

(25)
19

(25)
19

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 are based on the discounted present value method, etc.

Derivative transactions to which hedge accounting were applied as of March 31, 2011 and 2010i) Interest rate related transactions

Hedgeditem

Millions of yen
2011
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

38
The Higo Bank, Ltd. Annual Report 2011

¥124,106¥114,955¥  (893)

77,172

76,041(2,576)

The Higo Bank, Ltd. and Consolidated Subsidiaries

Notes to Consolidated Financial Statements
Years ended March 31, 2011 and 2010

Hedgeditem

Thousands of U.S. dollars
2011
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$1,492,564$1,382,502$(10,749)

928,106

914,509(30,988)

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 are based on the discounted present value method or option pricing
models, etc.

Hedgeditem

Millions of yen
2010
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¥76,294¥71,766¥    (58)92,86680,908(2,346)

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 are based on the discounted present value method or option pricing
models, etc.

ii) Foreign exchange related transactions

Hedgeditem

Millions of yen
2011
Contractual
Includingvalue or notional
over oneprincipal amount
year

Fair
value

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

39
The Higo Bank, Ltd. Annual Report 2011

¥39,005¥(566)

The Higo Bank, Ltd. and Consolidated Subsidiaries

Notes to Consolidated Financial Statements
Years ended March 31, 2011 and 2010

Hedgeditem

Thousands of U.S. dollars
2011
Contractual
Includingvalue or notional
over oneprincipal amount
year

Fair
value

Deferred method
Foreign currency
Foreign exchange forward contracts...................... call loans anddue from banks$469,096$(6,811)

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 are based on the discounted present value method, etc.

Hedgeditem

Millions of yen
2010
Contractual
Includingvalue or notional
over oneprincipal amount
year

Fair
value

Deferred method
Foreign currency
Foreign exchange forward contracts...................... call loans anddue from banks¥60,010¥(1,444)

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 are based on the discounted present value method, etc.

18. Comprehensive Income
Other comprehensive income for the year ended March 31, 2010 consists of the following:
Millions of yen
2010

Other comprehensive income:Unrealized gains (losses) on available-for-sale securities..............................................................................................................
Deferred gains (losses) on derivatives under hedge accounting............................................................................................
Share of other comprehensive income in associates......................................................................................................................
Total other comprehensive income...........................................................................................................................................................

¥20,879
121
6¥21,006

Total comprehensive income for the year ended March 31, 2010 comprises the following:
Millions of yen
2010

Total comprehensive income attributable to:
Owners of the parent..........................................................................................................................................................................................
Minority interests....................................................................................................................................................................................................
Total comprehensive income........................................................................................................................................................................

40
The Higo Bank, Ltd. Annual Report 2011¥27,721135¥27,857

The Higo Bank, Ltd. and Consolidated Subsidiaries

Notes to Consolidated Financial Statements
Years ended March 31, 2011 and 2010

19. Appropriation of Retained Earnings
The annual shareholders’ meeting, which was held on June 24, 2011, approved the following appropriations of retained
earnings for the year ended March 31, 2011:
Millions of yen
2011

Thousands of
U.S. dollars
2011

¥938

$11,287

Cash dividends (¥4.00 per share)...................................................................................................................

20. Segment Information
Segment information
As the Group is engaged in only banking segment, segment information is not provided.
Related information(a) Segment information by services
Year ended March 31, 2011

Ordinary income from external customers...............................

Ordinary income from external customers...............................

Lending

Millions of yen
2011
Securities
investment
Others¥40,952¥19,877

Lending

Thousands of U.S. dollars
2011
Securities
investment
Others$492,509$239,051¥13,813$166,128

Total¥74,642

Total$897,690

Note: Instead of the net sales of a non-financial 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.

41
The Higo Bank, Ltd. Annual Report 2011

Independent Auditors’ Report42
The Higo Bank, Ltd. Annual Report 2011

■ Explanation of front cover

Nabegataki Falls(Oguni-machi, Aso-gun, Kumamoto Prefecture)
Within Kumamoto Prefecture are nearly 150 waterfalls, eachwith their own distinctive character. The Nabegataki Falls
flow into the Horai River, a tributary of the Tsuetate Riverlocated in Oguni-machi, Aso-gun, Kumamoto Prefecture.
Behind the waterfall is the view from a hollowed cavern
from which you can gaze through the waterfall to theoutside. The water, which flows down from a height ofnine meters and stretches 20 meters across, looks just likea sparkling white lace curtain fitting in perfect harmony
with the greenery of the trees that surround it, and createsa breathtaking view.
Minami Oguni-machi, which is famous for Oguni-machi
with its Nabegataki Falls, and Kurokawa Hot Springs, has 13
waterfalls both large and small, and is noted for its scenic
beauty, which includes
a giant gingko treethat is over 1,000 years
old. The town attracts
tourists and visitors
who want to escapethe summer heat.

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