The Bank of Iwate, Ltd.

Annual Report 2013

AnnualReport2013

Masahiro Takahashi
President

Message from the President
Two and a half years have passed since the Great East Japan Earthquake occurred. The disaster brought about
drastic changes in the business environment surrounding the Bank of Iwate, and, while the regional community was
already faced with a decreasing birthrate, aging society, and declining population, there are concerns that these
problems may worsen rapidly and that the market that forms the Bank’s base of operations will shrink, depending
on how the reconstruction situation develops and other factors.
In light of these circumstances, the Bank launched its new three-year medium-term management plan “Iwagin
Frontier Plan – Reconstruction and Creation, toward a Prosperous Future” starting in April 2013, under the newlong-term vision “Demonstrating a dominant presence as a driving force in the region, while establishing ourposition as a top quality bank.” Under the three basic policies of “Active contribution to the revitalization of theregional community,” “Reform of the organization and earnings structure to enhance profitability,” and“Strengthening of CS activities and fostering of human resources” of the new plan, the Bank will devote effort toinitiatives such as strongly promote reconstruction assistance and being actively involved in nurturing industries tosupport the next generation.
As the top regional bank, recovery from the disaster is our responsibility and our greatest mission. We arecommitted to supporting the reconstruction of the region and creating a prosperous future by making full use of ourrelationship banking function and being a proactive driver of the local economy.

― 1 ―Overview of the New Medium-term Management Plan

― 2 ―Analysis of the Financial Position and Business Performance of the Bank(on a consolidated basis)

Financial Position
Principal Accounts
Deposits (including negotiable certificate of deposit)
Public deposits increased due to the inflow of the subsidies relating to the reconstruction, and both personal andcorporate deposits also increased. As a result, total deposits grew by ¥340.4 billion during the term, to ¥3,296.2
billion (US$35,047.0 million).
Loans
Loans to individuals decreased while loans to both local governments and corporations increased. As a result, thevalue of total loans increased by ¥92.9 billion during the term, to ¥1,611.2 billion (US$17,131.7 million).
Securities
Along with the increase in fund management, we pressed ahead with increased purchases of bonds including
national bonds. As a result, the value of total securities increased by ¥130.1 billion during the term, to ¥1,239.2
billion (US$13,176.1 million).

Cash Flow Analysis
Net cash provided by operating activities decreased by ¥14.4 billion to a net inflow of ¥249.7 billion (US$2,654.9
million). A cash inflow of ¥439.1 billion due to increase in deposits and a cash inflow of ¥32.3 billion due todecrease in call loans and others outweighed a cash outflow of ¥98.7 billion due to decrease in negotiablecertificate of deposit and a cash outflow of ¥92.9 billion due to increase in loans and bills discounted.
Net cash used in investing activities decreased by ¥22.0 billion to a net outflow of ¥112.8 billion (US$1,199.9
million). A cash inflow of ¥225.3 billion from sales and redemptions of securities was surpassed by a cash outflow
of ¥332.4 billion on acquisition of securities.
Net cash used in financing activities increased by ¥0.7 billion to a net outflow of ¥11.7 billion (US$124.9 million),primarily due to a cash outflow on the redemption of bonds with stock acquisition rights and other factors.
As a result of the above, the term-end balance of cash and cash equivalents increased by ¥125.1 billion from theprevious term-end, to ¥356.8 billion (US$3,793.8 million).

Business Performance
Earnings
Total income decreased by ¥0.7 billion to ¥45.2 billion (US$481.1 million). This was mainly attributable to thedecline in interest income as a result of the decrease in interest on loans reflecting a lower yield, in addition to thedecrease in gain on sale of bonds including national bonds, despite the increase in fees and commissions boosted
primarily by fees related to asset under management and recording of the reversal of reserve for possible loan losses
due to our efforts to help clients improve their management. Total expenses decreased by ¥2.2 billion to ¥34.0
billion (US$361.3 million). This was mainly attributable to the decrease in financing expenses and the decreases inlosses on sale of stocks and other securities and in amortization thereof.
As a result, income before income taxes increased by ¥1.4 billion to ¥11.3 billion (US$119.9 million), while net
income increased by ¥1.5 billion to ¥6.4 billion (US$68.2 million).

Capital Ratio
The capital ratio rose by 0.31 point year-on-year to 13.77%, due to the increase in equity reflecting the increase ininternal reserves.

― 3 ―Corporate Governance
1 Corporate Governance(1) Outline of the Bank’s Governance Structure① Governance structure and basic approach to corporate governance
The Governance structure of the Bank is developed on the basis of the coordination between appointed
outside directors and the Board of Corporate Auditors as well as internal audit divisions. The reason behind
the adoption of this structure is the philosophy that supervision of management should be reinforced by theenhanced functions of the Board of Directors and implementation of outside directors, along with thereinforcement of corporate auditors’ functions through the appointment of highly independent outside
auditors.
Ever since its establishment, the management of the Bank of Iwate has been based on the two fundamental
mission objectives of contributing to the well-being of the regional community and ensuring the financial
soundness of the Bank under all circumstances. Amid today’s rapidly changing business environment, themanagement of the Bank continues to uphold these principles in its day-to-day performance of business
operations. To fulfill the duties expected of us as the leading bank in our region, by our business partners,
shareholders, and the community as a whole, we take complete responsibility for our management
decisions and are working to raise our management transparency, strengthen management oversightfunctions, and practice corporate governance in a manner that meets the very highest standards.
②

Outline of the corporate governance functions within the Bank
The Bank has chosen the corporate auditor system, in which business execution of directors is monitoredby the Board of Directors and corporate auditors. As executive institutions for operation, the Board of
Directors is in place along with the Executive Committee and the Compliance Committee that discusses
and decides the matters referred by the Board of Directors, on top of executive officers system.
With the purpose to reinforce executive structure focused on corporate governance, the Bank has placed
the Compliance Committee on a par with the Executive Committee, along with the hitherto efforts toenhance functions to supervise management including extended functions of the Board of Directors,
appointment of outside directors and strengthening of corporate auditors’ functions.

― 4 ―

③

Organization chart
General Meeting of Shareholders
Appointment/dismissal

Board of Directors
12 directors(3 outside directors)
Appointment/
dismissal;
oversight

Appointment/dismissal

Appointment/dismissal

Board of Corporate Auditors
4 corporate auditors(3 outside auditors)

Audit
Audit

Reports

Accounting Auditors

Reports
Reports
Coordination

Coordination

Audit

President

Audit Division

Reports

Executive Committee(Discussion of important matters)

ALM Committee
Credit Risk Committee
Reports

Financing Facilitation
Committee

Visiting audit andmonitoring, etc.

Reports

References and reports
on important items

Operational Risk Committee
Compliance Committee

Recommendations
on plans, reports, etc.

Disclosureof policies;
approval of plans

Customer Interest Protection Committee
Recommendations
on plans, reports, etc.

Disclosureof policies

Customer service offices (Head Office and branches), support divisions④

Internal control system development
With regard to internal control, the Board of Directors has laid down the Basic Policies Regarding theStructure of the Bank’s Internal Control System, which contains nine items, including a statement of theneed for the Bank to operate a system that ensures that the conduct of all directors and employees conforms
both to the law and to the Articles of Incorporation of the Bank.

⑤

Development of risk management structure
For the purpose of risk management, the Bank, upon developing structure for the execution of operations
and monitoring, has developed a structure to manage individual risks as well as a structure to manage suchrisks on an integral basis. To firm up these management structures, the Risk Management Regulations havebeen set out to clearly indicate the basic principles of risk management while defining the specificfunctions responsible for each category of risk within the Bank. Meanwhile, the Risk Management
Division is in place as the department responsible for managing various categories of risks on an integral
basis, which coordinates risk management across the Bank.
The Audit Division responsible for internal audits is striving to improve business administration byauditing to examine the adequacy and effectiveness of the internal control system including complianceand risk management, upon ensuring its independence from the departments being audited.

⑥

Accounting audit
Accounting audits of the Bank are conducted by the independent auditing company KPMG AZSA LLC at
the request of the Bank. The certified public accountants in charge of auditing the Bank’s financial
statements for the reporting term were Atsushi Fukuda, Motofumi Okumura, and Takayuki Narita, and they
were assisted by seven other certified public accountants and nineteen other staff.

― 5 ―(2) Internal Audits and Auditing by Corporate Auditors① Internal audits
The Bank’s Audit Division, with a staff of nineteen, is primarily responsible for conducting internal audits.
In principle, audits are conducted on all divisions of the head office, branches, subsidiaries and affiliatecompanies at least once a year. The audits focus principally on checking the accuracy of the Bank’s
securities reports and financial statements, to confirm the effective operation of the Bank’s internal control
system. Staff of the division is making effort to enhance coordination with corporate auditors byexchanging information, to ensure objective and efficient auditing.
② Auditing by corporate auditors
The Board of Corporate Auditors comprises four corporate auditors. Auditing conducted by the Bank’s
corporate auditors consists of audits of divisions at the Bank’s Head office as well as on-site audits ofbranch offices conducted on a periodical basis. In addition, the corporate auditors carry out their auditing
tasks with the collaboration of the Audit Division and the accounting auditors. Furthermore, corporate
auditors regularly meet with accounting auditors to receive reports and exchange opinions, and attend
visiting audits by accounting auditors to check the adequacy of their execution of duties.
(3) Outside Directors and Outside Auditors① Human relationships, capital relationships, trading relationships and other conflicts of interest
The outside directors and outside auditors of the Bank have no special conflicts of interest with the Bankother than standard transactions such as deposits, and the Bank has determined that there are no risks ofconflict of interests between the outside directors and outside auditors, and the general stockholders. The
Bank has also determined that no conflicts of interest including human relationships, capital relationships
and significant trading relationships exist between the Bank and the entities for which the outside directors
and outside auditors serve.
The Bank’s relationship with each of the outside directors and outside auditors is as follows.
Outside Directors- The Bank has three outside directors; Hiroshi Miura, Atsushi Takahashi and Fumio Ube. Mr. Miura, as
the President and CEO of IWATE NIPPO CO., LTD., is in an executive position of said company as ofthe date of submission of the Annual Securities Report (hereinafter “currently”). He has served to date asan outside director of DAIICHI SHOJI CO., LTD. since his appointment in June 2012, and he also served
as executive directors of numerous other entities with which the Bank had transactions in the past. Mr.
Takahashi served as the Chairman of The Sumitomo Trust and Banking Company, Limited (currently
Sumitomo Mitsui Trust Bank, Limited) until March 2011 and currently he is the advisor of said company.
Mr. Ube served as the Representative Director and Executive Vice President of Tohoku Electric Power
Company, Incorporated until June 2012 and currently serves as the Vice Chairman of TOHOKUECONOMIC FEDERATION.
- In terms of the transactions between the Bank and the outside directors, transactions including loans exist
between the entities in which the outside directors currently serve as executive directors, etc. and entities
in which the outside directors served as executive directors in the past; however, they are all standardtransactions and do not pose any special conflicts of interest.
- In terms of capital relationships between the Bank and outside directors, Mr. Takahashi holds 1,000
shares of the Bank’s shares; however, such shares held only account for a small portion of outstanding
shares.
Outside Auditors- The Bank has three outside auditors; Hisaki Miyadate, Koichi Adachi and Shinobu Obara. Mr. Obara
currently serves as the Senior Managing Director of Iwate Menkoi Television Co., Ltd. and theRepresentative Director and President of Ma cherie, Inc., and is in executive positions, etc. in these
entities.
― 6 ―

-

In terms of transactions between the Bank and the outside auditors, transactions including loans exist
between the entities in which Mr. Obara currently serves as an executive director, etc., however, they arestandard transactions and do not pose special conflicts of interest. Additionally, there are no special
conflicts of interest between the Bank and Mr. Miyadate and Mr. Adachi.
- As for Mr. Miyadate and Mr. Adachi, they have been reported to the Tokyo Stock Exchange, Inc. as
independent directors/corporate auditors with no risks of conflicts of interest between generalstockholders.
② The status and standards for functions, duties, and appointment of outside directors and outside auditors
The Bank elects outside directors and outside auditors in order to reinforce the functions of monitoring andsupervision over the Bank’s management. At the Bank, the Board of Directors and the corporate auditors
conduct monitoring over the directors’ execution of duties; and the outside directors, based on their deep
experience and knowledge and from an objective outside position that pays due consideration to theinterests of the general stockholders, play a vital role in reinforcing the management’s decision-making andsupervisory functions. Additionally, the outside auditors, based on their extensive insight and specialized
knowledge, play a vital role in reinforcing the audit functions over the directors’ execution of duties.
Although the Bank has not determined any specific provisions regarding independence in the election of
their outside directors and outside auditors, it expects the officers to objectively and appropriately fulfill thefunctions and roles of supervision and audit, and elects them based on the fundamental understanding thatno conflicts of interest will arise with the general stockholders.
③ Cooperation between outside auditors and internal audit divisions
Outside auditors monitor and supervise the management of the Bank through attendance at the Board of
Directors meetings and the Board of Corporate Auditors meetings, reports from the Compliance Committee
etc., and cooperation with the Audit Division and accounting auditors to ensure the effectiveness of audits
based on a high level of independence.

― 7 ―(4) Compensation for Directors and Corporate Auditors① Aggregate amount of compensation paid to directors and corporate auditors, amount of compensation by
category of compensation, and the number of persons that were paid, by classification of directors andcorporate auditors
Aggregate amount of compensation
Classification of directors Number ofRetirement
Basicand corporate auditors
persons
Bonus(¥ million)
benefits
compensation
Directors (excluding
11
224
123
26
74
outside directors)
Corporate auditors
1
20
13
2
4
(excluding outside
auditors)
Outside directors and
8
39
26
5
6
outside auditors(Notes) 1. The above numbers of persons include two directors and two outside directors/auditors who
resigned at the closing of the 130th General Meeting of Shareholders held on June 22, 2012.
2. The above amounts include ¥76 million provision for retirement benefits for directors and corporate
auditors (¥66 million for directors, ¥4 million for corporate auditors and ¥5 million for outside
directors/auditors), ¥34 million accrued bonuses for directors and corporate auditors (¥26 million for
directors, ¥2 million for corporate auditors and ¥5 million for outside directors/auditors) and ¥9
million for the difference between the retirement benefits paid to the directors and corporate auditors
retired during the current fiscal year and the provision for retirement benefits made for the same
directors and corporate auditors during the previous fiscal year (¥8 million for directors and ¥1
million for outside directors/auditors).
3. Apart from the above, ¥42 million employees’ compensation was paid to directors concurrently
serving as employees (¥34 million employees’ salary and ¥7 million employees’ bonus).
4. Maximum aggregate amounts of compensation for directors and corporate auditors were decided asfollows by the general meetings of shareholders.
For directors:¥20 million per month(According to the resolution at the 107th General Meeting of Shareholders)(Excluding employees’ compensation payable to directors concurrently
serving as employees)
For corporate auditors: ¥4 million per month(According to the resolution at the 100th General Meeting of Shareholders)② Combined compensation for individual directors and corporate auditors
Not applicable, as there are no directors or corporate auditors whose combined compensations exceeded¥100 million.
③ The Group’s Policies on deciding the amount of compensation for directors and corporate auditors
As authorized by the resolution at the 131st General Meeting of Shareholders held on June 21, 2013, theBank abolished the retirement benefits system for directors and corporate auditors following the review ofthe system of compensation for directors and corporate auditors and launched a stock compensation-type
stock option scheme instead. As a result, the Bank’s compensation system for directors (excluding outside
directors) comprises basic fixed compensation, bonus and stock compensation-type stock options, whilethat for outside directors and corporate auditors comprises basic fixed compensation alone. Details of thestock compensation-type stock option scheme are described in (9) Description of stock option scheme in 1)
Stock information of 4 Status of the Company.
The maximum amounts of compensation (including bonus) are ¥260 million per year for directors
including outside directors and ¥60 million per year for corporate auditors.
The monthly amount of basic fixed compensation is decided at the Board of Directors meeting and at theBoard of Corporate Auditors meeting after the General Meeting of Shareholders, based on the scope andnature of responsibility as well as experience of each director and corporate auditor that is paid. The― 8 ―amount of bonus for directors and corporate auditors is decided according to the Bank’s internal rules
separately set out, in consideration of the Bank’s financial business results in each fiscal year as well as
each director and corporate auditor’s personal contribution thereto. The amount is decided at the Board of
Directors meetings or in the consultation of the corporate auditors according to the formulas based on thescope and nature of responsibility as well as years of service of each director and corporate auditor, as
stipulated by the Bank’s internal rules separately set out.
Retirement benefits are to be paid to the directors and corporate auditors who retired at the conclusion of
the 131st General Meeting of Shareholders within the range set out in the Bank’s relevant guidelines, while
the final payment of retirement benefits is to be made to directors who have been reappointed and tocorporate auditors who have been in office within the range likewise, and the specific amounts andpayment method of such retirement benefits are subject to the decision of the Board of Directors in the caseof directors (including retiring directors), while up to the consultation of the corporate auditors in the caseof corporate auditors according to the resolution by the said General Meeting of Shareholders.

― 9 ―(5) Holding of Shares① Number of stocks held by the Bank for other purposes than pure investment and their balance sheet value
Number of stocks held: 141
Balance sheet value: ¥20,430 million② Classification, stock name, number of shares, balance sheet values, and purpose of holding of investment
securities for other purposes than pure investment are as follows:(Previous fiscal year)
The stocks whose balance sheet values exceed a hundredth of capital amount are displayed below.
(Specific investment stocks)
Balance sheet
Number ofvaluesPurpose of holding
Stock nameshares(Millions of yen)
Tohoku Electric Power Company, Incorporated
2,277,797
2,150 Reinforcement of relationshipthrough shareholding
Mitsubishi UFJ Financial Group, Inc.
4,040,310
1,664 Ibid.
NIPPON STEEL CORPORATION
4,918,200
1,116 Ibid.
TAIYO NIPPON SANSO CORPORATION
1,822,849
1,064 Ibid.
East Japan Railway Company
200,000
1,042 Ibid.
TOSHIBA CORPORATION
2,024,483
736 Ibid.
The Yamagata Bank, Ltd.
1,323,800
520 Ibid.
SECOM CO., LTD.
104,644423 Ibid.
THE AKITA BANK, LTD.
1,517,159
411 Ibid.
The Bank of Kyoto, Ltd.
540,000
405 Ibid.
Daiwa Securities Group Inc.
1,099,806
359 Ibid.
JFE Holdings, Inc.
200,047355 Ibid.
The Toho Bank, Ltd.
1,052,090
297 Ibid.
Tokio Marine Holdings, Inc.
127,086288 Ibid.
The Ogaki Kyoritsu Bank, Ltd.
863,000
257 Ibid.
The Chugoku Bank, Limited
222,000
248 Ibid.
The Yamanashi Chuo Bank, Ltd.
656,000
241 Ibid.
The Aomori Bank, Ltd.
937,000
239 Ibid.
The Hyakugo Bank, Ltd.
619,000
235 Ibid.
Sumitomo Metal Industries, Ltd.
1,383,988
231 Ibid.
NTN CORPORATION
657,555
230 Ibid.
THE OITA BANK, LTD.
860,000
227 Ibid.
Yamaguchi Financial Group, Inc.
300,000
225 Ibid.
Shoei Company, Limited.
632,491
213 Ibid.
The Daishi Bank, Ltd.
731,000
212 Ibid.
DCM Holdings Co., Ltd.
317,949
208 Ibid.
The Musashino Bank, Ltd.
71,600203 Ibid.
The Iyo Bank, Ltd.
277,000
203 Ibid.
THE KAGOSHIMA BANK, LTD.
377,000
199 Ibid.
THE BANK OF SAGA LTD.
801,000
189 Ibid.
The Juroku Bank, Ltd.
611,000
174 Ibid.
Electric Power Development Co., Ltd.
72,000161 Ibid.
The Kita-Nippon Bank, Ltd.
68,250155 Ibid.
The Hokkoku Bank, Ltd.
500,000
155 Ibid.
THE SHIMIZU BANK, LTD.
45,400148 Ibid.
The Shikoku Bank, Ltd.
474,000
146 Ibid.
Nagase & Co., Ltd.
137,000
140 Ibid.
Sumitomo Seika Chemicals Company, Limited.
356,000
136 Ibid.

― 10 ―

(Current fiscal year)
The stocks whose balance sheet values exceed a hundredth of capital amount are displayed below.
(Specific investment stocks)
Balance sheet
Number ofvaluesPurpose of holding
Stock nameshares(Millions of yen)
Mitsubishi UFJ Financial Group, Inc.
4,040,310
2,254 Reinforcement of relationshipthrough shareholding
Tohoku Electric Power Company, Incorporated
2,277,797
1,731 Ibid.
East Japan Railway Company
200,000
1,544 Ibid.
NIPPON STEEL & SUMITOMO METAL
5,935,431
1,394 Ibid.
CORPORATIONTAIYO NIPPON SANSO CORPORATION
1,822,849
1,162 Ibid.
TOSHIBA CORPORATION
2,024,483
955 Ibid.
Daiwa Securities Group Inc.
1,099,806
721 Ibid.
The Yamagata Bank, Ltd.
1,323,800
586 Ibid.
SECOM CO., LTD.
104,644507 Ibid.
The Bank of Kyoto, Ltd.
540,000
495 Ibid.
THE AKITA BANK, LTD.
1,517,159
397 Ibid.
JFE Holdings, Inc.
200,047353 Ibid.
The Chugoku Bank, Limited
222,000
341 Ibid.
Tokio Marine Holdings, Inc.
127,086336 Ibid.
The Toho Bank, Ltd.
1,052,090
317 Ibid.
THE OITA BANK , LTD.
860,000
306 Ibid.
The Ogaki Kyoritsu Bank, Ltd.
863,000
295 Ibid.
The Hyakugo Bank, Ltd.
619,000
290 Ibid.
Yamaguchi Financial Group, Inc.
300,000
285 Ibid.
The Yamanashi Chuo Bank, Ltd.
656,000
281 Ibid.
The Daishi Bank, Ltd.
731,000
280 Ibid.
The Aomori Bank, Ltd.
937,000
267 Ibid.
The Musashino Bank, Ltd.
71,600264 Ibid.
DCM Holdings Co., Ltd.
317,949
255 Ibid.
THE KAGOSHIMA BANK, LTD.
377,000
250 Ibid.
The Iyo Bank, Ltd.
277,000
246 Ibid.
ARCS COMPANY, LIMITED
109,590232 Ibid.
The Hokkoku Bank, Ltd.
500,000
196 Ibid.
THE BANK OF SAGA LTD.
801,000
191 Ibid.
Electric Power Development Co., Ltd.
72,000178 Ibid.
The Kita-Nippon Bank, Ltd.
68,250164 Ibid.
NTN CORPORATION
657,555
161 Ibid.
ORIX Corporation
13,230157 Ibid.
Nagase & Co., Ltd.
137,000
157 Ibid.
Mitsubishi UFJ Lease & Finance Company
29,660147 Ibid.
LimitedMS&AD Insurance Group Holdings, Inc.
66,756137 Ibid.
The Shikoku Bank, Ltd.
474,000
136 Ibid.
Sumitomo Seika Chemicals Company, Limited.
356,000
128 Ibid.
THE SHIMIZU BANK, LTD.
45,400127 Ibid.

― 11 ―

③ Balance sheet value, dividend income, gain or loss on sales and gain or loss on valuation, in respect of theinvestment stocks held purely for investment purpose
At the end of the previous fiscal year
Gain or loss on
Balance sheet value Dividend income Gain or loss on sales
valuation(Millions of yen)
(Millions of yen)
(Millions of yen)
(Millions of yen)
Listed stocks
10,648
241
(444)
2,295
Unlisted stocks-

At the end of the current fiscal year
Balance sheet value Dividend income Gain or loss on sales(Millions of yen)
(Millions of yen)
(Millions of yen)
Listed stocks
Unlisted stocks

15,084
-

289
-

(109)
-

Gain or loss on
valuation(Millions of yen)
4,898-

④ Of all investment stocks held during the current fiscal year, those whose purpose of holding changed fromother than pure investment to pure investment meanwhile
None(6) Statutory Number of Directors
The Articles of Incorporation of the Bank stipulate that there shall be no more than twelve directors.
(7) Resolutions for Appointment of Directors
The Articles of Incorporation provide that resolutions for appointment of directors are passed by simple
majority at a General Meeting of Shareholders at which at least one-third of eligible shareholders withvoting rights are present, without use of cumulative voting.
(8) Important Items that may be Approved by Resolution of the Board of Directors① Based on Article 165, Clause 2 of the Corporation Law, the Articles of Incorporation of the Bank providethat Bank shares may be purchased on the markets by resolution of the Board of Directors only, without theneed for approval at the General Meeting of Shareholders. This measure is intended to ensure flexible
adjustment of the number of the Bank’s shares on the market.
② Based on Article 454, Clause 5 of the Corporation Law, the Articles of Incorporation of the Bank providethat an interim dividend may be paid by resolution of the Board of Directors only, with September 30 eachyear as date of record. This measure is to ensure a more stable distribution of profits to shareholders.
(9) Special Resolutions of the General Meeting of Shareholders
Based on Article 309, Clause 2 of the Corporation Law, special resolutions may be passed with a majorityof two-thirds of eligible shareholders at a meeting at which at least one-third of shareholders with voting
rights are present. By relaxing quorum requirements for approval of special resolutions by the General
Meeting of Shareholders, our objective is to achieve smoother progress through the agenda at meetings ofshareholders.

― 12 ―

2 Compensation for Audit Certification Services(1) Compensation Paid to Certified Public Accountants for Audit Certification Services
FY2011Compensation forCompensation foraudit certification
services other thanservices
audit certification¥55-(Millions of yen)
FY2012Compensation forCompensation foraudit certification
services other thanservices
audit certification¥55-

For the Bank
For consolidated
subsidiaries of the
Bank
Total
¥55
¥55
Notes: 1. Compensation paid during the previous term with respect to audit certification services includes ¥1million paid to KPMG AZSA LLC for the auditing of the English-language version (translation) of theBank’s financial statements on a consolidated basis for fiscal 2011.
2. Compensation paid during the reporting term with respect to audit certification services includes ¥1million paid to KPMG AZSA LLC for the auditing of the English-language version (translation) of theBank’s financial statements on a consolidated basis for fiscal 2012.
(2) Other Important Compensatory Payments
None(3) Nature of Services Performed for the Bank by the Certified Public Accountants Other than Financial
Accounting
None(4) Changes in Policy Regarding Payment of Compensation for Auditing Services
There were no changes during the reporting period.

― 13 ―

Consolidated Balance Sheets
The Bank of Iwate, Ltd. and its consolidated subsidiary
31 March 2013 and 2012

Millions of yen

Thousands of
U.S dollars(Note 1)ASSETS

2013

2012

2013

Cash and due from banks (Notes 3 and 5)
Call loans and bills bought (Note 5)
Commercial paper and other debt purchased (Note 5)
Money held in trust (Note 5)
Securities (Notes 4, 5 and 7)
Loans and bills discounted (Notes 5, 6 and 8)
Foreign exchange assets
Premises and equipment (Note 10 and 23)
Intangible assets (Note 11 and 23)
Deferred tax assets (Note 18)
Customers' liabilities for acceptances and guarantees (Note 16)
Other assets (Notes 7 and 9)
Reserve for possible loan losses¥422,360
190,000
17,383
4,985
1,239,216
1,611,241
1,867
17,018
2,741
7
5,180
9,084
(13,775)¥293,155
225,000
14,689995
1,109,081
1,518,341
1,336
16,054
962
1,737
5,613
7,217
(17,172)$4,490,803
2,020,202
184,827
53,004
13,176,140
17,131,749
19,851
180,946
29,14474
55,077
96,588(146,465)¥3,507,307¥3,177,008$37,291,940¥3,296,175
10,255
470
－
1,635
34
420
271
213
－
8,128
5,180
16,565¥2,955,752
26,9995,000
10,450
9,356
29
418
185
237
105
－
5,613
16,029$35,047,049
109,038
4,997－
17,384
362
4,466
2,881
2,265
－
86,42255,077
176,130

3,339,346

3,030,173

35,506,071

12,090
4,811
123,721(4,125)31,989(525)

12,0904,811
118,408(4,123)
15,905(256)

128,549
51,1541,315,481(43,860)
340,127(5,582)

Total assets
LIABILITIES AND NET ASSETS
Liabilities:
Deposits (Notes 5, 7 and 12)
Borrowed money (Notes 5, 7 and 13)
Call money (Notes 5 and 7)
Corporate bonds (Notes 5 and 14)
Liability for severance and retirement benefits (Note 17)
Accrued bonuses for directors and corporate auditors
Retirement benefits for directors and corporate auditors
Provision for losses on reimbursement of dormant deposits
Provision for contingent losses
Provision for disastrous losses
Deferred tax liabilities (Note 18)
Acceptances and guarantees (Note 16)
Other liabilities (Note 15)
Total liabilities
Net assets (Note 19):
Common stock:
Authorized — 49,450 thousand shares at 31 March 2013 and 31 March 2012
Issued and outstanding — 19,098 thousand shares at 31 March 2013 and 31
March 2012
Capital surplus
Retained earnings
Treasury stock, at cost
Net unrealized holding gains on available-for-sale securities
Net unrealized losses on hedging derivatives
Total net assets
Total liabilities and net assets

See accompanying notes.

― 14 ―

167,961

146,835

1,785,869¥3,507,307¥3,177,008$37,291,940

Consolidated Statements of Income
The Bank of Iwate, Ltd. and its consolidated subsidiaryYears ended 31 March 2013 and 2012
Thousands of
U.S dollars(Note 1)Millions of yen
Income:Interest income:Interest on loans and discounts
Interest and dividends on securities
Other interest income
Fees and commissions
Other operating income (Note 21)
Other income (Note 22)
Total income
Expenses:
Interest expense:
Interest on deposits
Interest on borrowings
Other interest expense
Fees and commissions
General and administrative expenses (Note 20)
Other operating expenses (Note 21)
Other expenses (Note 22)
Total expenses

2013

2012

2013

¥22,300
13,358
281
6,654
429
2,226

¥23,276
13,335
273
6,153
1,563
1,461

$237,108
142,031
2,988
70,7504,561
23,66845,24846,061

481,106

1,355
141
286
2,609
27,476
1,189
920

1,715
293
257
2,470
27,257637
3,533

14,407
1,499
3,041
27,741
292,142
12,642
9,783

33,97636,162361,255

Income before income taxes
Provision for income taxes (Note 18)
Current
Deferred

11,272

9,899

119,851

3,060
1,797

4,020
972

32,536
19,107

4,857

4,992

51,643

Net income before minority interests

6,415

4,907

68,208

Minority interests in net income
Net income

－

－

－

¥6,415¥4,907$68,208

Yen
Per share data:
Net income
Diluted net income
Cash dividends applicable to the year

See accompanying notes.

― 15 ―

U.S dollars

2013

2012

¥349.42340.9065.00¥266.79248.64
60.00

2013
$3.72
3.62
0.69

Consolidated Statements of Comprehensive Income
The Bank of Iwate, Ltd. and its consolidated subsidiaryYears ended 31 March 2013 and 2012
Thousands of
U.S dollars(Note 1)Millions of yen
2013
Net income before minority interests
Other comprehensive income (Note 24):
Net unrealized holding gains on available-for-sale securities
Net unrealized losses on hedging derivatives
Share of the other comprehensive income of affiliates accounted for using theequity method

2012

2013

¥6,415¥4,907$68,208

16,081
(269)

7,286
(261)

170,983(2,860)3

2

32

15,815

7,027

168,155

Comprehensive income¥22,230¥11,934$236,363

Total comprehensive income
Attributable to:
Owners of the parent
Minority interests¥22,230¥11,934$236,363

22,230－11,934－

236,363－

Total other comprehensive income

See accompanying notes.

― 16 ―

Consolidated Statements of Changes in Net Assets
The Bank of Iwate, Ltd. and its consolidated subsidiaryYears ended 31 March 2013 and 2012
Thousands of
U.S dollars(Note 1)
2013

Millions of yen
2013
2012
Stockholders' equity
Common stock
Balance at beginning of year
Change during year
Total change during year
Balance at end of year

¥12,090－－¥12,090¥12,090－－¥12,090$128,549－－$128,549

Capital surplus
Balance at beginning of year
Change during year
Total change during year
Balance at end of year

¥4,811－－¥4,811¥4,811－－¥4,811$51,154－－$51,154¥118,408¥114,606$1,258,990(1,102)
6,415
0
5,313
¥123,721(1,104)
4,907
(1)
3,802
¥118,408(11,717)
68,208056,491$1,315,481¥(4,123)¥(3,985)$(43,838)

(3)
1
(2)
¥(4,125)

(140)
2
(138)
¥(4,123)

(32)
10
(22)
$(43,860)¥131,186¥127,522$1,394,855(1,102)
6,415
(3)
1
5,311
¥136,497(1,104)
4,907
(140)
1
3,664
¥131,186(11,717)
68,208(32)
1056,469$1,451,324¥15,905¥8,617$169,112

16,08416,084¥31,989

7,288
7,288
¥15,905

171,015
171,015$340,127¥(256)¥4$ (2,722)

(269)
(269)
¥(525)(260)(260)¥(256)(2,860)(2,860)$(5,582)¥15,649¥8,621$166,390

15,815
15,815¥31,464

7,028
7,028
¥15,649

168,155
168,155$334,545¥146,835¥136,143$1,561,245(1,102)6,415(3)
115,815
21,126¥167,961(1,104)
4,907
(140)
1
7,028
10,692¥146,835(11,717)
68,208(32)
10168,155
224,624$1,785,869

Retained earnings
Balance at beginning of year
Change during year
Cash dividends
Net income
Disposal of treasury stock
Total change during year
Balance at end of year
Treasury stock
Balance at beginning of year
Change during year
Acquisition of treasury stock
Disposal of treasury stock
Total change during year
Balance at end of year
Total shareholders' equity
Balance at beginning of year
Change during year
Cash dividends
Net income
Acquisition of treasury stock
Disposal of treasury stock
Total change during year
Balance at end of year
Accumulated other comprehensive income
Net unrealized holding gains on securities
Balance at beginning of year
Change during year
Net changes of items other than stockholders' equity during year
Total change during year
Balance at end of year
Net unrealized gains (losses) on hedging derivatives
Balance at beginning of year
Change during year
Net changes of items other than stockholders' equity during year
Total change during year
Balance at end of year
Total accumulated other comprehensive income
Balance at beginning of year
Change during year
Net changes of items other than stockholders' equity during year
Total change during year
Balance at end of year
Total net assets
Balance at beginning of year
Change during year
Cash dividends
Net income
Acquisition of treasury stock
Disposal of treasury stock
Net changes of items other than stockholders' equity during year
Total change during year
Balance at end of year

See accompanying notes.

― 17 ―

Consolidated Statements of Cash Flows
The Bank of Iwate, Ltd. and its consolidated subsidiaryYears ended 31 March 2013 and 2012
Millions of yen
2013
2012

Thousands of
U.S dollars(Note 1)
2013

Cash flows from operating activities:
Net income before income taxes
Adjustments to reconcile income before income taxes to net cash provided by operating activities:
Depreciation
Impairment losses
Equity in (gains) losses of affiliates
Increase (decrease) in reserve for possible loan losses
Increase (decrease) in provision for contingent losses
Increase (decrease) in accrued bonuses for directors
Increase (decrease) in liability for severance and retirement benefits(Increase) decrease in prepaid pension costs
Increase (decrease) in retirement benefits for directors and corporate auditors
Increase (decrease) in provision for losses on reimbursement of dormant deposits
Increase (decrease) in provision for disastrous losses
Interest income
Interest expenses
Investment securities (gains) losses, net(Increase) decrease in money held in trust
Foreign exchange (gains) losses, net(Gains) losses on disposal of premises and equipment
Net (increase) decrease in loans and bills discounted
Net increase (decrease) in deposits
Net (increase) decrease in due from banks, excluding the Bank of Japan
Net (increase) decrease in call loans and others
Net increase (decrease) in call money
Net (increase) decrease in foreign exchange assets
Net increase (decrease) in foreign exchange liabilities
Net increase (decrease) in negotiable certificates of deposit
Net increase (decrease) in borrowed money
Interest received
Interest paid
Other, net
Sub-total
Income taxes paid
Income taxes refunded
Net cash provided by operating activities¥11,272¥9,899$119,851

1,897
58
(32)
(3,397)(24)
6(7,720)(2,447)2
87(77)(35,938)
1,782
(383)
9
(162)
194
(92,900)
439,078(4,060)32,311(4,530)(532)－(98,655)(16,744)
36,313(2,111)
2,044
255,341(5,655)
9249,695

1,849
82
(17)
(2,258)
(115)
0
1,061
－
58
0
(273)
(36,884)
2,266
1,033
5
(14)
103
(44,775)
265,821(60,976)(222,057)－796(0)302,609
12,52036,880(3,325)
2,076
266,364(2,256)
4
264,112

20,170617(340)(36,119)(255)
64(82,084)(26,018)
21
925
(819)
(382,116)
18,947(4,072)96(1,722)
2,063(987,772)
4,668,559(43,169)
343,551(48,166)(5,657)－(1,048,963)(178,033)
386,103(22,446)
21,733
2,714,949(60,128)96
2,654,917

Cash flows from investing activities:
Acquisition of securities
Proceeds from sale of securities
Proceeds from redemption of securities
Acquisition of money held in trust
Decrease in money held in trust
Acquisition of premises and equipment
Proceeds from sale of premises and equipment
Payment for retirement of premises and equipment
Acquisition of intangible assets
Net cash used in investing activities(332,359)
40,377
184,905(4,000)－(1,197)
－
(40)
(534)
(112,848)(337,049)
92,973
150,657(5,477)9,400(1,270)274－(401)(90,893)(3,533,854)
429,314
1,966,029(42,531)－(12,727)－(425)(5,678)(1,199,872)

Cash flows from financing activities:
Increase in subordinated borrowings
Payment for redemption of bonds
Payment for redemption of subordinated bonds and corporate bonds with stock acquisition rights
Repayments of lease obligations
Cash dividends paid
Payment for acquisition of shares in treasury
Proceeds from sale of shares in treasury
Net cash used in financing activities－－(10,450)(191)(1,102)(3)
0(11,746)

10,000(10,000)(11,247)－(1,104)(139)
1(12,489)－－(111,111)(2,031)(11,717)(32)
0(124,891)

Effect of exchange rate changes on cash and cash equivalents
Net increase (decrease) in cash and cash equivalents
Cash and cash equivalents at beginning of year
Cash and cash equivalents at end of year (Note 3)

44
125,145
231,659¥356,80424
160,754
70,905¥231,659

468
1,330,622
2,463,147$3,793,769

See accompanying notes.

― 18 ―

Notes to Consolidated Financial Statements
The Bank of Iwate, Ltd. and its consolidated subsidiaryYears ended 31 March 2013 and 2012
1. BASIS OF PRESENTING CONSOLIDATED FINANCIAL STATEMENTS
The accompanying consolidated financial statements of The Bank of Iwate, Ltd. (the “Bank”) and its consolidated subsidiary havebeen prepared in accordance with the provisions set forth in the Financial Instruments and Exchange Law of Japan, its related
accounting regulations and the Banking Law of Japan, and in conformity with accounting principles generally accepted in Japan(“Japanese GAAP”), which are different in certain respects as to application and disclosure requirements to International Financial
Reporting Standards.
The accompanying consolidated financial statements have been restructured and translated into English (with some expanded
descriptions) from the consolidated financial statements of the Bank prepared in accordance with Japanese GAAP and filed with theappropriate Local Finance Bureau of the Ministry of Finance as required by the Financial Instruments and Exchange Law. Some
supplementary information included in the statutory Japanese language consolidated financial statements, but not required for fairpresentation, is not presented in the accompanying consolidated financial statements.
The translation of the Japanese yen amounts into U.S. dollars is included solely for the convenience of readers, using the prevailingexchange rate at 29 March 2013, which was ¥94.05 to U.S. $1. The convenience translations should not be construed as
representations that the Japanese yen amounts have been, could have been, or could in the future be, converted into U.S. dollars at
this or any other rate of exchange.

2. SIGNIFICANT ACCOUNTING POLICIESReporting entity
The consolidated financial statements include the accounts of the Bank and its significant subsidiary. Japanese GAAP on
consolidated financial statements requires consolidation of all significant investees that are controlled through substantial ownershipof majority voting rights or existence of certain conditions. All significant intercompany transactions and account balances are
eliminated.
Investments in affiliates over which the Bank has the ability to exercise significant influence in terms of operating and financial
policies of the investees are accounted for by the equity method.

Trading account securities and Securities
Securities are classified as follows based on purpose: (a) securities held for trading purposes (hereafter, “trading account securities”),(b) debt securities intended to be held to maturity (hereafter, “held-to-maturity debt securities”), (c) equity securities issued bysubsidiaries and affiliated companies, and (d) all other securities that are not classified in any of the above categories (hereafter,“available-for-sale securities”).
(a) Trading account securities — National government bonds held for trading purpose are presented as trading account securities.
Trading account securities are stated at fair market value. Gains and losses realized on disposal and unrealized gains and losses frommarket value fluctuations are recognized as gains or losses in the period of the change.

― 19 ―

(b) Held-to-maturity debt securities are stated at amortized cost.
(c) Available-for-sale securities with available fair market values are stated at fair market value. Unrealized gains and unrealized
losses on these securities are reported, net of applicable income taxes, as a separate component of the net assets.
Realized gains and losses on sale of such securities are computed using moving average cost.
Securities for which it is extremely difficult to determine the fair market value are stated at moving average cost.
Securities included in money held in trust are stated at fair market value.
Available-for-sale securities with available fair market values are written down when a significant decline in fair value below thecost of such securities is deemed to be other than temporary. The amount written down is accounted for as an impairment loss.

Money held in trust
Securities that are invested as part of trust assets in an independently managed money trusts that invest primarily in securities arestated at fair value.

Derivatives and hedge accounting
The Bank employs forward exchange contracts, currency swaps and interest rate swaps to meet customers’ needs and to mitigate
interest rate risks and foreign exchange risks. Derivative financial instruments are stated at fair market value.
If derivative financial instruments are used as hedges and meet certain hedging criteria, the Bank defers recognition of gains orlosses resulting from changes in fair value of the derivative financial instruments until the related losses or gains on the hedged
items are recognized.
Transactions to hedge against interest rate risks affecting the financial assets and liabilities of the Bank are accounted for using
deferred hedge accounting in accordance with the provisions of the Japanese Institute of Certified Public Accountants (hereinafter“JICPA”) Industry Audit Committee Report No. 24.
Regarding the effectiveness of a hedge, a hedge that is intended to offset the effects of market fluctuations is assessed on agroup-by-group comparison of hedged items and hedging instruments. Both hedged items, including deposits and loans, andhedging instruments, including interest rate swaps, are classified into groups by remaining maturity period. The effectiveness of acash flow hedge is assessed on the basis of the correlation between the base interest rate index of the hedged cash flow and that of
the hedging instrument.
As for the hedging transactions against currency exchange risks arising from assets and liabilities in foreign currencies, the Bank
applies deferred hedge accounting in accordance with the provisions of ‘Accounting and Auditing Concerning Accounting for
Foreign Currency Transactions in the Banking Industry’ (JICPA Industry Audit Committee Report No. 25). The Bank assesses theeffectiveness of currency swap and foreign exchange swap transactions executed for offsetting the risks of changes in currency
exchange rates by verifying that there exist foreign currency positions of the hedging instruments corresponding to the foreign
currency monetary claims and debts to be hedged.
Certain interest rate swaps which qualify for hedge accounting and meet specific matching criteria are not remeasured at fair values,
but the differential paid or received under the swap contracts are recognized as interest expenses or income.

― 20 ―

Depreciation and amortization methods(1)

Premises and equipment (except leased assets)

Premises and equipment are stated at cost less accumulated depreciation. The Bank and its consolidated subsidiary depreciate theirpremises and equipment under the declining-balance method over their estimated useful lives. Estimated useful lives are as follows:
Buildings: 3~30 years
Equipment and furniture: 3~20 years
Depreciation of buildings acquired by the Bank on and after 1 April 1998 (excluding installed facilities such as electrical and water
facilities) is computed under the straight-line method, in accordance with the revision of corporate tax regulations.
(2)Intangible assets (except leased assets)

The Bank and its consolidated subsidiary amortize their intangible assets under the straight-line method over their estimated useful
lives. Costs of computer software developed or obtained for internal use are amortized using the straight-line method over estimateduseful lives of 5 years.
(3)

Leased assets

Depreciation and amortization of leased assets pertaining to finance lease transactions other than those that transfer the ownership ofthe leased assets to the Bank, included in “Premises and equipment” and “Intangible assets”, is computed under the straight-line
method. The lease term is equal to the useful life and that there is no residual value except where residual value guarantees are
stipulated in lease contracts.
Furthermore, depreciation of leased assets that transfer the ownership to the Bank is computed by the same method used for owned
assets.
(Changes in accounting policies that are difficult to distinguish from changes in accounting estimates)
In accordance with the amendment of the Corporation Tax Act, effective from the beginning of the fiscal year ended 31 March 2013,
the Bank and its consolidated subsidiary have changed their depreciation method for those premises and equipment acquired on andafter 1 April 2012. As a result of this change, income before income taxes increased by ¥38 million ($404 thousand) from thecorresponding amounts which would have been recorded under the previous method.

Finance leases
Finance leases entered into prior to 1 April 2008, except those leases for which the ownership of the leased assets is considered to betransferred to the lessee, are accounted for in the same manner as operating leases.

Reserve for possible loan losses
The reserve for loans to borrowers which are classified as legally bankrupt or substantially bankrupt is calculated by deducting theestimated disposal value of collateral and the amount deemed collectible from guarantees from the book value.
The Bank also provides specific reserves for potentially bankrupt borrowers based on the amount calculated by deducting theestimated disposal value of collateral and the amount deemed collectible from guarantees from the book value.
For all the other loans, general reserves are provided collectively. The ratio of the general reserves is determined based on the
Bank’s loan loss experience. The above-mentioned reserve for possible loan losses is made on the basis of the results of a strict― 21 ―

assessment of the quality of all the Bank’s loan assets, using the Bank’s internally established rules for self-assessment.

Accrued bonuses for directors and corporate auditors
Accrued bonuses for directors and corporate auditors are provided in the amount of the estimated bonuses which are attributable toeach fiscal year.

Employees’ severance and retirement benefits
Under the terms of the retirement plan of the Bank and its consolidated subsidiary, substantially all employees are entitled to a
lump-sum payment at the time of retirement. The amount of the retirement benefit is, in general, based on the length of service, basesalary at retirement and reason for retirement. In addition, the Bank has a funded pension plan covering substantially all employees.
The liability and expenses for severance and retirement benefits are determined based on the amounts actuarially calculated using
certain assumptions. The Bank provides a liability for employees’ severance and retirement benefits (and prepaid pension costs, if
applicable) based on the estimated amounts of projected benefit obligation at the balance sheet date and the fair value of the plan
assets at that date. Prior service costs are charged to income as incurred.
Actuarial gains or losses are recognized as income or expenses commencing from the following year under the straight-line method
over 10 years.
From the current fiscal year, the Bank has set up retirement benefit trust.

Retirement benefits for directors and corporate auditors
Retirement benefits for directors and corporate auditors are provided for the future payments of directors and corporate auditors’
retirement benefits attributed to each fiscal year.

Provision for losses on reimbursement of dormant deposits
Provision for losses on reimbursement of dormant deposits which were recorded as profit is provided for the future reimbursement
based on the historical reimbursement experience.

Provision for contingent losses
Provision for contingent losses is provided for the estimated future deposits required due to the implementation of burden charge
system of credit guarantee corporations.

Provision for disastrous losses
Provision for disastrous losses is provided for the future payments of repairs or abandonments of damaged fixed assets by the Great
East Japan Earthquake.

Income taxes
Income taxes consist of corporation, enterprise and inhabitants taxes. The provision for income taxes is computed based on the― 22 ―

pretax income of each of the Bank and its consolidated subsidiary with certain adjustments required for tax purposes.
Deferred tax assets and liabilities are recorded based on the temporary differences between the financial statement and tax bases ofassets and liabilities. 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 of assets and liabilities for financial reporting purposes
and the amounts used for income tax purposes.

Foreign currency translation
Assets and liabilities denominated in foreign currencies are translated into Japanese yen at the exchange rate prevailing at the end ofeach year.

Appropriations of retained earnings
Under the Company Law of Japan, the appropriation of retained earnings with respect to a given financial period is made byresolution of the shareholders at a general meeting held subsequent to the close of the said financial period. The accounts for that
period, therefore, do not reflect such appropriations. See Note 26.

Amounts per share
Net income per share of common stock is computed based on the weighted average number of shares outstanding, excluding
treasury stock, during each year. Diluted net income per share reflects the potential dilution that could occur if stock options to issuecommon stock were exercised. Cash dividends per share represent the amounts applicable to the respective years and consist ofinterim dividends for the current year and year-end dividends declared after the end of the year.

Consumption taxes
With respect to the Bank and its consolidated subsidiary, national and local consumption taxes are accounted for with the tax
exclusion method.

Unapplied new accounting standards"Accounting Standard for Retirement Benefits" (the Accounting Standard Board of Japan (hereinafter "ASBJ") Statement No. 26,
17 May 2012) and "Guidance on Accounting Standard for Retirement Benefits" (ASBJ Guidance No. 25, 17 May 2012)(1)

Overview

Unrealized actuarial differences and unrealized prior service costs are required to be recognized in net assets at net of tax effects.
Funded status is fully recognized as a liability or an asset on the consolidated balance sheets. With respect to the amortization
method of the expected benefit, the benefit formula basis is newly allowed as an option, in addition to the straight-line method. In
addition, the method for determining the discount rate is amended.
(2)

Date of adoption

The Bank and its consolidated subsidiary will adopt the accounting standards effective from the year end of the fiscal year ending 31
March 2014. However, the Bank and its consolidated subsidiary will adopt the amendments to the method for calculating projected― 23 ―

benefit obligation and service costs from the beginning of the fiscal year ending 31 March 2015.
(3)

The effect of adopting the accounting standards

The effect of adopting these accounting standards is currently under evaluation.

3. NOTES TO CONSOLIDATED STATEMENTS OF CASH FLOWS(1) Cash and cash equivalents
In preparing the consolidated statements of cash flows, cash and due from the Bank of Japan are considered to be cash and cash
equivalents. As of 31 March 2013 and 2012, the reconciliation of cash and cash equivalents in the consolidated statements of cash
flows with cash and due from banks in the consolidated balance sheets is as follows:

Thousands of U.S.
dollars

Millions of yen
2013

2012

2013

Cash and due from banks¥422,360¥293,155$4,490,803

Less: Time deposits(65,000)－(691,122)－(61,000)

－

(556)

(496)

(5,912)¥356,804¥231,659$3,793,769

Deposits in foreign currencies
Deposits in other banks other than the Bank of Japan
Cash and cash equivalents(2) Significant non-cash transactions
Assets and liabilities associated with finance lease transactions that were recorded in the fiscal year ended 31 March 2013 amounted
to ¥3,289million ($34,971thousand).

4. SECURITIESSecurities held by the Bank at 31 March 2013 and 2012 consisted of the following:Thousands of U.S.
dollars

Millions of yen
2013

2012

2013

National government bonds¥432,392¥386,603$4,597,469

Local government bonds

276,647

239,861

2,941,489

Debentures

378,430

353,346

4,023,711

Stock shares

35,86629,028381,350

Other securities

115,881

100,243

1,232,121¥1,239,216¥1,109,081$13,176,140

Unsecured loaned securities which borrowers have the right to sell or pledge in the amount of ¥45,000 million ($478,469 thousand)and ¥50,000 million as of 31 March 2013 and 2012 were included in National government bonds, respectively.

A. The following tables summarize acquisition costs, book values and fair values of securities with available fair values as of 31
March 2013 and 2012:(a) Held-to-maturity debt securities― 24 ―

Millions of yen
Book value
As of 31 March 2013¥46,209
As of 31 March 2012
32,801

Fair value

Difference

Gain

Loss

¥47,657¥1,448¥1,466¥(18)

33,159

358

573

(215)

Thousands of U.S. dollars
Book value
As of 31 March 2013
$491,324

Fair value

Difference$506,720

Gain$15,396Loss$15,587$(191)(b) Available-for-sale securities
Securities below include negotiable certificates of deposit classified as cash and due from banks.
Millions of yen
Acquisition cost
As of 31 March 2013:
Corporate stocks
Bonds
Other
As of 31 March 2012:
Corporate stocks
Bonds
Other

Book value

Difference

Gain

Loss

¥23,7021,021,131
112,991¥34,460
1,058,007
114,322¥10,758
36,876
1,331¥11,640
36,9922,534¥(882)(116)(1,203)¥1,157,824¥1,206,789¥48,965¥51,166¥(2,201)¥22,045938,654
102,905¥27,578
961,167
99,535¥5,53322,513(3,370)¥6,86822,708405¥(1,335)(195)(3,775)¥1,063,604¥1,088,280¥24,676¥29,981¥(5,305)

Thousands of U.S. dollars
Acquisition cost
As of 31 March 2013:
Corporate stocks
Bonds
Other

Book value

Difference

Gain

Loss

$252,015
10,857,321
1,201,393$366,401
11,249,410
1,215,545$114,386
392,089
14,152$123,764
393,323
26,943$(9,378)(1,234)(12,791)$12,310,729$12,831,356$520,627$544,030$(23,403)

B. Total sales of available-for-sale securities sold in the years ended 31 March 2013 and 31 March 2012 amounted to ¥38,664
million ($411,100 thousand) and ¥92,964 million, respectively. The related gains and losses amounted to ¥1,187 million ($12,621
thousand) and ¥673 million ($7,156 thousand) in 2013, ¥1,392 million and ¥1,576 million in 2012, respectively.

C. Available-for-sale securities other than trading securities (except securities which fair market values is extremely difficult todetermine) written down for the year ended 31 March 2013 and 2012 amounted to ¥49 million ($521 thousand) and ¥687 million,
respectively, due to a significant decline in fair value below the cost which is deemed to be other than temporary.

5. FAIR VALUE OF FINANCIAL INSTRUMENTS(1) Overview
a. Policy for financial instruments― 25 ―

The Bank and its consolidated subsidiary provide financial services, focusing on banking businesses such as depositing,accommodating, and trading of securities and investing in securities.
Regarding the main operations of the Bank and its consolidated subsidiary, the Bank raises funds through deposits and call money,
etc. and applies them to loans receivable and investing in securities and so on. So the financial assets and liabilities of the Bank andits consolidated subsidiary are tended to be affected by interest rate fluctuations, and are exposed to risks stemmed from changes infinancial market environments (interest rate risks and price fluctuation risks), as well as to risks arising from fund shortage.
The Bank and its consolidated subsidiary manage those risks using the ALM method in order to appropriately control the balance
between revenues and risks in consideration of the status of the financial assets and liabilities, trend of financial markets, policies forfund management and investment policies. The Bank and its consolidated subsidiary use derivatives for the purpose of reducing
risks and avoid using derivatives for speculative purposes.

b. Types of financial instruments and related risks
The financial assets of the Bank and its consolidated subsidiary consist mainly of loans for domestic enterprises and individuals andinvestment securities.
Loans are exposed to credit risks stemming from defaults of borrower. Total balance of loans as of the current fiscal year end ismade up of mainly that of local governments, and secondly individuals, manufacturing industries, whole and retail sales industries
in terms of industrial categories and we can found that it covers approximately every kind of industries as a whole.
Securities are fundamentally constituted of bonds, stocks and investment trusts, which are held for investing purposes,
held-to-maturity purposes and business transaction purposes, while trading securities are held for trading purposes. They are
exposed to credit risks of issuers, interest rate risks and risks stemming from fluctuation of market prices.
Liabilities, such as deposits, corporate bonds and call money, etc., are exposed to risks arisen from fluctuation of interest rates
stemming from mismatching between interests or periods of assets and liabilities. In addition, they are exposed to risks of fundshortage where the Bank and its consolidated subsidiary fail to control cash receipts and disbursement due to unexpected fundoutflow and suffer losses from unusual high interest rates imposed on, as well as market liquidity risks where the Bank and its
consolidated subsidiary fail to raise funds owing to market shrinkage, and are obliged to enter into unusual unfavorable transactions.
Regarding derivative transactions, the Bank and its consolidated subsidiary enter into interest rate swap contracts in terms of ALM
control and adopt hedge accounting to them as hedging instrument and treating interest rate risks on loans and bonds as hedge items.
The Bank and its consolidated subsidiary evaluate effectiveness of the hedge based on accumulated fluctuation of cash flow ofhedging instruments and hedged items for the periods beginning from implementation of the hedging to the date of the evaluation
and analysis on them.
Furthermore, there are interest rate swap contracts (hedging instruments) and loans and bonds (hedged items), which are treatedunder qualified method. Some transactions that are not qualified for hedge accounting are exposed to risks stemming fromfluctuation of interest rates.
The consolidated subsidiary neither holds financial assets such as securities nor owes borrowings except cash and negotiable
deposits.

― 26 ―

c. Monitoring of credit risks
In accordance with the internal policies of the Bank and its consolidated subsidiary for managing credit risks arising fromaccommodation procedures, each related division monitors credit worthiness of their main customers periodically, and monitors due
dates and outstanding balances by individual customer. In addition, the Bank and its consolidated subsidiary are making efforts to
identify and mitigate risks of bad debts from customers who are having financial difficulties.
The results of the above monitoring are regularly reported to the Board of Directors and the results of monitoring of internal rating,loan portfolios and quantification of credit risks are reported to the credit risk committee. Theses monitoring procedures are
subjected to austere internal audit.
Credit risks of issuers of securities and counterparty risks of derivative transactions are controlled through periodical review on
credit information and fair value of securities at the financial market section.

d. Monitoring of market risks(Interest rate risks)
The risks arising from fluctuations in interest rates are controlled using the ALM method at the ALM committee, with reference tothe discussion at fund accommodation meeting and interest rate analysis group, through monitoring and analysis of execution of the
ALM and the discussion of future actions. Concretely, the results of the above monitoring are reported on a monthly to the ALM
committee using gap analysis, interest rate sensitivity analysis, BPV and VaR. Derivative instruments such as interest rate swap
contracts for the purposes of hedging the interest rate risks are used in terms of the ALM method.
(Foreign currency exchange risks)Foreign currency swap contracts and foreign currency exchange swap contracts are used in order to control the foreign currency
exchange risks.
(Price fluctuation risks)
In accordance with the internal policies of the Bank and its consolidated subsidiary on managing market related risks, the risks
arising from fluctuation of market price of stocks are controlled through daily measuring VaR based on a certain holding periods
and credit sections, confirming whether the quantities of risks exceed a certain portion of equity capital or not. Upper limits onlosses on an aggregation basis or on realization basis are defined to control them on a daily basis. These results are reported by the
Risk Management Division to the management on a daily basis.
Investing in securities at the financial market section is executed in accordance with invested items and investing guidelines
prescribed in the fund and securities operation standards and primary polices on investing, controlled through continuous monitoringof the investments. The information related to market environment and investment status is reported to the management on a regularbasis.
(Derivative transactions)
In conducting derivative transactions, each division responsible for execution of transactions, evaluation of efficiency of the hedging
or related administration is clearly identified, following the hedge transaction guidelines, and the fund and securities operation
standards, with setting up segregation of duties and checking systems.

― 27 ―

(Information on volume of market risk)
1. Financial instruments in market investment division
The Bank employs variance and covariance method in calculating VaR of bonds and stocks held using following parameters forcalculation.
Holding period

Confidence interval

Observation period

Investments in bond

3 months

99%

1 yearInvestments in stock

3 months

99%

1 yearShares held for policy reasons

6 months

99%

1 yearInvestments in trust

3 months

99%

1 year

The risk indicator of market investment departments, which is supposed to describe estimated losses, at the end of the year ended 31
March 2013 and 2012 was as follows:
Millions of yen
2013

Thousands of U.S. dollars
2012¥17,7032013¥13,014$188,230

The Bank periodically verifies the effectiveness of risk measurement under the VaR method by a back testing protocol thatcompares the volume under the VaR method with the amount of gains or losses. As a result of conducting the back testing protocol
with holding period of 1 day, the Bank supposes the method undertaken will provide a reliable indicator of the market risks.
The method of variance and covariance the Bank uses to measure the volume under VaR assumes that changes in the market follow
a normal distribution. Accordingly, under conditions subject to changes in the market exceeding the assumption, risks may beunderestimated.

2. Financial instruments such as deposits and loans receivable, etc.
The Bank employs variance and covariance method in calculating VaR of deposits and loans receivable, etc., using such parametersof 6 months as holding period, 99% as confidence interval and 1 year as observation period.
The risk indicator on interest rates of deposits and loans receivable, etc., which is supposed to describe estimated losses, at the endof the year ended 31 March 2013 and 2012 was as follows:
Millions of yen
2013

Thousands of U.S. dollars
2012¥2,6042013¥5,211$27,687

The calculation was conducted using cash flows allocated according to the interest terms of the related financial assets and liabilities
and the periodic fluctuations of interest. The method of variance and covariance the Bank undertakes to measure the volume under
VaR employs statistically calculated interest rate risks based on the past normal interest rate fluctuations, so if changes in theinterest market go beyond those assumptions, the impact may exceed the calculated amount.
(Monitoring of liquidity risks)
The Bank and its consolidated subsidiary adequately manage their liquidity risks based on various internal quantitative standards
prescribed in fund management regulation, monitoring their liquidity positions on a daily basis with minimum fund reserve
established twice a year.

― 28 ―(Supplementary explanation of the estimated fair value of financial instruments)
The fair value of financial instruments is based on their quoted market price, if available. When there is no quoted market priceavailable, the fair value is reasonably estimated. Since various assumptions and factors are reflected in estimating the fair value,
different assumption and factors could result in different fair value.

(2) Fair value of financial instruments
The carrying amounts and the estimated fair value of financial instruments as of 31 March 2013 and 2012 are as follows.
Millions of yen

Assets:Cash and due from banks
Call loans and bills bought
Commercial paper and other debt
purchased
Money held in trust
Securities
Held to maturity bonds
Available-for-sale securities
Loans and bills discounted
Reserve for possible loan losses
Liabilities:
Deposits
Borrowed money
Derivative transactions:
Derivative instruments not
qualifying for hedge accounting
Derivative instruments qualifying
for hedge accounting

Carrying
amounts

Thousands of U.S. dollars
2012

2013
Fair value

Carrying
amounts¥422,360
190,000¥422,360
190,000

17,383
4,985

2013

Fair value

Carrying
amounts

Fair value¥293,155
225,000¥293,155
225,000$4,490,803
2,020,202$4,490,803
2,020,202

17,552
4,985

14,689995

14,723995

184,827
53,004

186,624
53,00429,462
1,206,789
1,611,241(13,681)

30,741
1,206,789

18,643
1,088,280
1,518,341(16,529)

18,967
1,088,280

313,259
12,831,356
17,131,749(145,465)

326,858
12,831,356

1,597,560

1,603,522

1,501,812

1,509,186

16,986,284

17,049,676

3,296,175
10,255

3,296,561
10,2552,955,752
26,9992,956,371
26,94935,047,049
109,038

35,051,154
109,038

(23)

(23)

(75)

(75)

(245)

(245)

(835)

(1,426)

(398)

(594)

(8,878)(15,162)― 29 ―

(Note 1) Methods to determine the estimated fair value of financial instruments
a. Cash and due from banks, Call loans and bills bought
All cash and due from banks, call loans and bills bought are short-term in nature, and therefore their carrying amounts approximate
fair value.
b. Commercial paper and other debt purchased
As for commercial paper and other debt purchased whose terms are less than one year, their carrying amounts are supposed toapproximate fair value, while the fair value of those with long-term is based on either quoted market prices or prices provided by thefinancial institutions making markets.
c. Money held in trust
For the securities that are invested as part of trust assets in an independently managed money trusts that invest primarily in securities,
the fair value of the equity securities is determined using quoted market prices and the fair value of debt securities is determinedusing the prices provided by the financial institutions that the Bank has been dealing with.
d. Held to maturity bonds and other securities
The fair value of held to maturity bonds and other securities is based on either quoted market prices or prices provided by thefinancial institutions making markets in these bonds.
e. Loans and bills discounted
Fair value of loans and bills discounted is based on the present value of the total of principal and interest discounted by the interest
rate to be applied if similar new loans were entered into. As for loans and bills with short-term settlement, their carrying amounts
are supposed to approximate fair value.
The fair value of loans to borrowers which are classified as legally bankrupt or substantially bankrupt is based on the estimateddisposal value of collateral and the amount deemed collectible from guarantees, and therefore approximate their carrying amounts
after deduction of the specific reserves for potentially bankrupt borrowers.
f. Deposits
The fair value of deposits at notice is based on the payment amount that would be required to pay at the end of the year.
The fair value of time deposits is based on the present value of the total of principal and interest discounted by an interest rate to be
applied if similar new deposits were entered into. As to time deposits with short-term maturities, their carrying amounts
approximate the fair value.
g. Borrowed money
The fair value of borrowed money is based on the present value discounted by an interest rate to be applied if a similar new
borrowing is entered into. As to borrowed money with short-term maturity, its carrying amount approximates the fair value.
h. Derivative transactions
Please refer to the following section of the notes to Derivatives.

― 30 ―

(Note 2) The following table summarizes book values of securities for which is extremely difficult to determine the fair market
values as of 31 March 2013 and 2012:
Thousands of
U.S. dollars

Millions of yen
2013
Available-for-sale securities

2012¥2,9652013¥2,158$31,525(Note 3) Expected collections of assets and payments of liabilities with maturities at 31 March 2013 and 2012 are as follows:
2013
Millions of yen

Call loans and bills bought
Commercial paper and other debt purchased
Securities
Bonds held for maturity

Within one
year

One to three
years

Three tofive years

Five toseven years

Seven toten years

Over tenyears¥190,000
10,636

¥－
1,413

¥－

¥－

¥－

－

－

－

¥－
5,334

3,627

2,259

640

－

－

22,936Mainly consists of followings:
National bonds

3,000

－

－

－

－

21,936

Corporate bonds

627

2,259

640

－

－

1,000

149,298

256,189

192,540

204,764

290,21266,004

National bonds

31,64844,27875,717135,020

96,70224,091

Local government bonds

28,62071,811

8,731

9,590

121,970

35,925

Corporate bonds

73,759100,33180,78255,544

63,488－Loans

294,852

320,799

317,362

141,180

123,219

203,462

Deposits¥3,129,317¥156,388¥10,077

¥131

¥262

－

470

－

－

－

－

－

－

－

－

－

10,000－

Other securities
Mainly consists of followings:

Call money
Borrowed money

Note: Borrowed money is stated for the long-term and interest-bearing borrowed money.

― 31 ―

2012
Millions of yen
Within one
year

One to three
years

Three tofive years

Five toseven years

Seven toten years

Over ten
years¥225,000
5,531

¥－
930

¥－
1,385

¥－

¥－

－

－

¥－
6,843

9,086

4,844

1,740

－

－

2,972

National bonds

7,996

2,999

－

－

－

1,972

Corporate bonds

1,090

1,845

1,740

－

－

1,000

111,312274,259

167,194

140,480

284,038

65,29324,73446,90465,201

96,132

122,355

18,30940,803

Call loans and bills bought
Commercial paper and other debt purchased
Securities
Bonds held for maturity
Mainly consists of followings:

Other securities
Mainly consists of followings:
National bonds
Local government bonds

7,127

85,73824,6804,541

76,973

Corporate bonds

57,417

123,61250,71337,50378,228197

Loans

287,350

340,804

261,675

126,060

126,886

194,539

Deposits

2,757,011

188,125

10,229

139

248

－

5,000

－

－

－

－

－

Borrowed money

－

－

－

－

10,000－

Corporate bonds with stock acquisition rights

－

－

－

10,450－－Call money

2013
Thousands of U.S. dollars

Call loans and bills bought
Commercial paper and other debt purchased
Securities
Bonds held for maturity

Within one
year

One to three
years

Three tofive years

Five toseven years

Seven toten years

Over tenyears$2,020,202
113,088$－
15,024

$－

$－

$－

－

－

－

$－
56,71538,56524,019

6,805

－

－

243,870
233,237

Mainly consists of followings:
National bonds

31,898－－－－

Corporate bonds

6,667

24,019

6,805

－

－

10,633

1,587,432

2,723,966

2,047,209

2,177,182

3,085,720

701,797

336,502

470,792805,072

1,435,619

1,028,198

256,151
381,978

Other securities
Mainly consists of followings:
National bonds
Local government bonds

304,306

763,541

92,834

101,967

1,296,863

Corporate bonds

784,253

1,066,784

858,926

590,579

675,045－

Loans

3,135,056

3,410,941

3,374,397

1,501,116

1,310,144

2,163,339

Deposits

33,272,908

1,662,818

107,145

1,393

2,785

－

4,997

－

－

－

－

－

－

－

－

－

106,326－

Call money
Borrowed money― 32 ―

Derivatives
As stated in significant accounting policies, the Bank deals in interest rate swaps, currency swaps, forward exchange contracts.
a. Derivative instruments not qualifying for hedge accounting(Interest rate swap)
Notional amounts, market values, and valuation gains (losses) are as follows:
2013
Millions of yen
Notional
amounts

Valuation gain
(loss)

Fair value

Interest rate swap :Receive floating / Pay fixed rate

¥4,962

¥(29)

¥(29)

Receive fixed / Pay floating rate

－

－

－

2012
Millions of yen
Notional
amounts

Valuation gain
(loss)

Fair value

Interest rate swap :Receive floating / Pay fixed rate

¥4,962

¥(75)

¥(75)

Receive fixed / Pay floating rate

－

－

－

2013
Thousands of
U.S. dollars
Notional
amounts

Valuation gain
(loss)

Fair value

Interest rate swap :Receive floating / Pay fixed rate

$52,759$(308)$(308)

Receive fixed / Pay floating rate

－

－

－

Note: Transactions in the above table are revalued at fair market value. Valuation gains (losses) generated from the revaluation are
included in the consolidated statements of income.

(Forward exchange contracts)
Notional amounts, market values, and valuation gains (losses) are as follows:
2013
Millions of yen
Notional amounts
Forward foreign exchange :
Sell
Buy

¥27
380

― 33 ―

Valuation gain
(loss)

Fair value
¥1
5

¥1
5

2012
Millions of yen
Notional amounts
Forward foreign exchange :
Sell
Buy

Valuation gain
(loss)

Fair value

¥15
36

¥(1)
1

¥(1)
1

2013
Thousands of
U.S. dollars
Notional amounts
Forward foreign exchange :
Sell
Buy

Valuation gain
(loss)

Fair value

$287

$11

$11

4,040

53

53

Note: Transactions in the above table are revalued at fair market value. Valuation gains (losses) generated from revaluation are
included in the consolidated statement of income.

― 34 ―

b. Derivative instruments qualifying for hedge accounting(Interest rate swap)
Millions of yen
Notional
amounts
Interest rate swap :Receive floating / Pay fixed rate
(Deferral method)
Receive floating / Pay fixed rate
(Exceptional method)

Thousands of U.S. dollars
2012

2013
Fair value

Notional
amounts

2013
Fair value

Notional
amounts

Fair value¥30,223¥(811)¥32,157¥(397)$321,350$(8,623)

22,919

(591)

3,105

(195)

243,690(6,284)(Currency swap)
Thousands of U.S. dollars

Millions of yen
2012

2013
Notional
amounts
Currency swap:
Pay foreign currency / Receive
Japanese yen
Receive foreign currency / Pay
Japanese yen

Fair value

Notional
amounts

2013
Fair value

Notional
amounts

Fair value

¥－

¥－

¥－

¥－

$－

$－

125,000

(24)

－

－

1,329,080(255)(Forward exchange contracts)
Thousands of U.S. dollars

Millions of yen
2012

2013
Notional
amounts

Fair value

Notional
amounts

2013
Fair value

Notional
amounts

Fair value

Forward foreign exchange :
Sell
Buy

¥－
－

¥－
－

― 35 ―

¥－
512

¥－
(2)

$－
－

$－
－

6. LOANS AND BILLS DISCOUNTED
Loans and bills discounted at 31 March 2013 and 2012 consisted of the following:Thousands of
U.S. dollars

Millions of yen
Bills discounted
Loans on notes
Loans on deeds
Overdrafts

2013

2012

2013

¥4,572
104,613
1,298,745
203,311¥5,034112,986
1,231,487
168,834$48,612
1,112,313
13,809,091
2,161,733¥1,611,241¥1,518,341$17,131,749

Bills discounted are accounted for as financial transactions in accordance with JICPA Industry Audit Committee Report No. 24. The
Bank has rights to sell or pledge commercial bills discounted and foreign bills of exchanges bought without restrictions. The total
face value at 31 March 2013 and 2012 was ¥4,572 million ($48,612 thousand) and ¥5,034 million, respectively.

The Bank is required to disclose loans to customers who meet specific criteria in accordance with the Banking Law. Doubtful loans
at 31 March 2013 and 2012 consisted of the following:Thousands of
U.S. dollars

Millions of yen
2013
Loans to borrowers under bankruptcy proceedings
Past due loans
Loans past due three months or more
Restructured loans, including loans to borrowers financiallyassisted by the Bank

― 36 ―¥1,94436,91115

2012¥1,016
43,523365

2013$20,670
392,461160

9,614

10,109102,222¥48,484¥55,013$515,513

7. PLEDGED ASSETSAt 31 March 2013, deposits amounting to ¥26,899 million ($286,007 thousand) were secured by pledges over pledged by securities
in the amount of ¥105,690 million ($1,123,764 thousand), and guarantee money deposits in the amount of ¥73 million ($776
thousand). At 31 March 2012, deposits amounting to ¥21,959 million, call money amounting to ¥5,000 million, and borrowed
money amounting to ¥16,770 million were secured by pledges over pledged by securities in the amount of¥159,792 million, andguarantee money deposits in the amount of ¥72 million. In addition to the above-mentioned assets pledged as collateral, the Bank
provided securities of ¥41,823 million ($444,689 thousand) and ¥57,601 million, and cash in the amount of ¥3 million ($32
thousand) and ¥3 million, respectively, as collateral for transactions such as exchange settlement transactions at 31 March 2013 and2012.

8. COMMITMENT LINE AGREEMENT
Commitment line agreements are agreements to lend to customers when they apply for borrowing, to a prescribed amount, as longas no violation of the condition of the agreement exists. The amount of unused commitment line related to such agreements at 31
March 2013 and 2012 amounted to ¥621,196 million ($6,604,955 thousand) and ¥644,277 million, respectively. The amount ofcommitment line agreements, having a condition that the original agreement period was less than one year or unconditionallycancelable at any time, was ¥604,120 million ($6,423,392 thousand) and ¥624,064 million at 31 March 2013 and 2012, respectively.
The amount of unused commitment line does not necessarily affect the future cash flows of the Bank and its consolidated subsidiarybecause most of such agreements were terminated without being used. The majority of these agreements contain provisions which
stipulate that the Bank may refuse to make loans or may decrease the commitment line when there are certain changes in financial
conditions, security for the loans or other reasons. When entering into loan agreements with the customers, the Bank requests
pledges of collateral in the form of premises or securities if necessary. After entering into loan agreements, the Bank periodicallychecks the financial condition of the customers based on its internal rules and performs certain actions relating to the security of theloans if necessary.

9. OTHER ASSETS
Other assets at 31 March 2013 and 2012 consisted of the following:Thousands of
U.S. dollars

Millions of yen
2013
Accrual income¥4,445

Other― 37 ―

2012¥4,2092013$47,262

4,639

3,008

49,326¥9,084¥7,217$96,588

10. PREMISES AND EQUIPMENT
Premises and equipment at 31 March 2013 and 2012 consisted of the following:Thousands of
U.S. dollars

Millions of yen
2013

2012

Land
Buildings
Equipment¥8,93233,359
9,386

Leased assets¥9,00332,75011,438$94,971354,694
99,7981,315－

13,982

261

338

2,775

53,25353,529566,220

36,23537,475385,274¥17,018¥16,054$180,946

Other
Accumulated depreciation2013

To conform with the Corporate Law of Japan, deferred gains on sale of real estate in the amount of ¥1,046 million ($11,122
thousand) and ¥1,046 million at 31 March 2013 and 2012, respectively, were deducted from the acquisition cost of premises andequipment.

11. INTANGIBLE ASSETS
Intangible assets at 31 March 2013 and 2012 consisted of the following:
Intangible assets
Thousands of
U.S. dollars

Millions of yen
2013

2012

2013

Software¥1,051¥842$11,175

Leased assets
Other

1,649
41

－
120

17,533436¥2,741¥962$29,144

12. DEPOSITS
Deposits at 31 March 2013 and 2012 consisted of the following:
Millions of yen
Current deposits
Ordinary deposits
Deposits at noticeTime deposits
Other deposits
Negotiable certificates of deposit― 38 ―

Thousands of
U.S. dollars

2013

2012

2013

¥43,014
1,577,768
5,390
1,210,882
186,842¥50,414
1,325,725
6,184
1,143,860
58,635$457,352
16,775,843
57,31012,874,875
1,986,624

272,279

370,934

2,895,045¥3,296,175¥2,955,752$35,047,049

13. BORROWED MONEY
Subordinated borrowings with a special provision stipulating that fulfillment of obligation is subordinated to otherobligations included in borrowed money at 31 March 2013 and 2012 consisted of the following:
Millions of yen

Subordinated borrowings

Thousands of
U.S. dollars

2013

2012

2013

¥10,000¥10,000$106,326

14. CORPORATE BONDS
Corporate bonds at 31 March 2013 and 2012 consisted of the following:Thousands of
U.S. dollars

Millions of yen
2013
Corporate bonds with stock acquisition rights

2012
¥－

2013

¥10,450$－

15. OTHER LIABILITIESOther liabilities at 31 March 2013 and 2012 consisted of the following:Thousands of
U.S. dollars

Millions of yen
2013

2012

2013

Accrual income taxes
Accrued expenses
Unearned income
Lease obligations

¥972
3,556
497
3,097

¥3,4493,431
537－$10,335
37,8105,284
32,929

Other

8,443

8,612

89,772¥16,565¥16,029$176,130― 39 ―

16. CONTINGENT LIABILITIES, ACCEPTANCES AND GUARANTEESAll contingent liabilities including letters of credit, acceptances and guarantees are reflected in acceptances and guarantees. As acontra account, customers’ liabilities for acceptances and guarantees are shown on the asset side, which represent the Bank’s right ofindemnity from customers.
The amount of guarantee obligation for privately-placed bonds (Financial Instruments and Exchange Law, Article 2, Item 3), out ofbonds included in Securities, stands at ¥2,227 million ($23,679 thousand) in 2013 and ¥2,693 million in 2012.

17. EMPLOYEES’ SEVERANCE AND RETIREMENT BENEFITSThe liability for severance and retirement benefits included in the consolidated balance sheets as of 31 March 2013 and 2012
consisted of the following:Thousands of U.S.
dollars

Millions of yen
2013

2012

2013

Projected benefit obligation¥24,652¥24,872$262,116

Unrecognized actuarial differences(3,622)(21,842)[10,000]
2,447(5,316)(10,200)－－(38,512)(232,238)[106,326]
26,018¥1,635¥9,356$17,384

Less fair value of plan assets[of which plan assets of retirement benefit trust]Prepaid pension costs

Severance and retirement benefit expenses included in the consolidated statements of income for the years ended 31 March 2013
and 2012 were comprised of the following:Thousands of
U.S. dollars

Millions of yen
2013

2012

2013

Service costs - benefits earned during the year

¥659

¥608

Interest cost on projected benefit obligation

373

364

3,966

(306)
1,036

(320)
998

(3,254)
11,016¥1,762¥1,650$18,735

Expected return on plan assets
Amortization of actuarial differences$7,007The discount rate used by the Bank in 2013 and 2012 was 1.5%. The rate of expected return on plan assets of retirement benefit trust
was 1.5 % in 2013 and the rate of expected return on plan assets used by the Bank in 2013 and 2012 was 3.0 %.
The estimated amount of all retirement benefits to be paid at future retirement dates is allocated equally to each service year using
the estimated number of total service years.
Prior service costs are recognized in the statements of income when they are determined to occur actuarially.
Actuarial differences are recognized in ten years (using the straight-line method within the employees’ average remaining service
period, commencing from the next fiscal year of incurrence).

― 40 ―

18. INCOME TAXESThe Bank and its subsidiary are subject to a number of taxes based on income such as corporation tax, inhabitant taxes andenterprise tax, which, in the aggregate, indicated a statutory tax rate in Japan of approximately 37.7% and 40.2% for the years ended
31 March 2013 and 2012, respectively.
Significant components of the Bank’s deferred tax assets and liabilities as of 31 March 2013 and 2012 are as follows:
Thousands of
U.S. dollars

Millions of yen
2013

2012

2013

Deferred tax assets:
Reserve for possible loan losses¥4,348¥5,446$46,231

Liabilities for severance and retirement benefits

3,270

3,341

34,769

Accumulated depreciation

1,357

1,375

14,428

722

738

7,677

1,618

1,585

17,203

11,315

12,485

120,308(1,971)(1,464)(20,957)

9,344

11,021

99,351(16,983)(8,776)(180,574)

(482)

(508)

(5,125)

(0)

(0)

(0)

(17,465)(9,284)(185,699)¥(8,121)¥1,737$(86,348)

Securities
Other
Subtotal
Allowance to reduce deferred tax assets to expected realizable value
Total deferred tax assets

Deferred tax liabilities:
Net unrealized holding gains on securities
Deferred gains on sale of real estate
Other
Total deferred tax liabilities
Net deferred tax assets

The following summarizes the significant difference between the statutory tax rate and the Bank’s effective tax rate for the year
ended 31 March 2013 and 2012.

2013
Statutory tax rate

2012

37.7%

40.2%

Non-deductible expenses

0.4

0.5

Non-taxable dividend income

(1.3)

(1.7)

Per capita inhabitant taxes

0.4

0.5

Valuation allowance

4.8

1.0

Decrease in deferred tax assets due to tax rate changes－

9.8

Other, net

1.1

0.1

43.1%

50.4%

― 41 ―

19. NET ASSETS
Under the Japanese Corporate Law (the “Law”) and the Banking Law of Japan, the following are provided: The entire amount of theissue price of shares is required to be accounted for as capital, although a company may, by resolution of its board of directors,
account for an amount not exceeding one-half of the issue price of the new shares as additional paid-in capital, which is included incapital surplus.
The Law and Banking Law provide that an amount equal to at least 20% of cash dividends and other cash appropriations shall beappropriated and set aside as a legal earnings reserve until the total amount of legal earnings reserve and additional paid-in capitalequals 100% of common stock. The legal earnings reserve and additional paid-in capital may be used to eliminate or reduce a deficit
by resolution of the shareholders’ meeting or may be capitalized by resolution of the Board of Directors. On condition that the total
amount of legal earnings reserve and additional paid-in capital remains equal to or exceeds 100% of common stock, they areavailable for distribution by the resolution of shareholders’ meeting. Legal earnings reserve is included in retained earnings in theaccompanying financial statements.
The maximum amount that the Bank can distribute as dividends is calculated based on the non-consolidated financial statements of
the Bank in accordance with the Law.
The amount of treasury stock held by the bank and its consolidated subsidiary was 739 thousand shares at 31 March 2013.

20. GENERAL AND ADMINISTRATIVE EXPENSES
General and administrative expenses for the years ended 31 March 2013 and 2012 consisted of the following:Thousands of
U.S. dollars

Millions of yen
2013
Salaries and allowances

2012

2013

¥11,051¥10,906$117,501

Fringe benefits and welfare

2,565

2,500

27,273Severance and retirement benefit expenses

1,762

1,650

18,735

Depreciation for premises and equipment

1,897

1,849

20,170

753

766

8,006

Rental expenses
Taxes other than income taxes

1,306

1,190

13,886

Other expenses

8,142

8,396

86,571¥27,476¥27,257$292,142― 42 ―

21. OTHER OPERATING INCOME AND EXPENSES
Other operating income and expenses for the years ended 31 March 2013 and 2012 consisted of the following:Thousands of
U.S. dollars

Millions of yen
2013

2012

2013

Other operating income :Gain on trading account securities transactions

¥5

¥4

$53

Gain on sale of bonds

301

1,363

3,200

Gain on sale of foreign bills of exchange

123

124

1,308

Gain on financial instruments

－

69

－

Other

0

3

0

¥429

¥1,563$4,561Thousands of
U.S. dollars

Millions of yen
2013

2012

2013

Other operating expenses :Loss on sales of bonds

¥558

¥501

$5,933

Loss on redemption of bonds

45

135

478

Loss on financial instruments

586

－

6,231

0

1

0

¥1,189¥637$12,642

Other

22. OTHER INCOME AND EXPENSES
Other income and expenses for the years ended 31 March 2013 and 2012 consisted of the following:Thousands of
U.S. dollars

Millions of yen
2013

2012

2013

Other income :Gain on disposal of premises and equipment¥7

Gain on sale of stocks and other securities
Other

¥147

$74

885

30

9,410

1,334

1,284

14,184¥2,226¥1,461$23,668
Thousands of
U.S. dollars

Millions of yen
2013

2012

2013

Other expenses :Provision for possible loan losses¥－¥1,260$－Loss on devaluation of stocks and other securities

58

698

617

Loss on sale of stocks and other securities

116

1,076

1,233

Loss on disposal of premises and equipment

201

175

2,137

Other

545

324

5,796

¥920

¥3,533$9,783― 43 ―

23. LEASE TRANSACTIONS
A. Finance leases(1) Finance leases that transfer the ownership(i) Details of leased assets(a) Premises and equipment:
Mainly consisted of equipment for the Bank’s network system(b) Intangible assets:
Mainly consisted of software for branch operating system(ii) Depreciation and amortization method of leased assets
Depreciation and amortization method of leased assets is described in Note 2. Depreciation and amortization methods (3) Leased
assets.

(2) Finance leases other than those that transfer the ownership(i) Details of leased assets(a) Premises and equipment:
Mainly consisted of equipment for branch operating system(b) Intangible assets:
Mainly consisted of software for branch operating system(ii) Depreciation and amortization method of leased assets
Depreciation and amortization method of leased assets is described in Note 2. Depreciation and amortization methods (3) Leased
assets.

(3) The following pro forma amounts present the acquisition cost, accumulated depreciation and net book value of the leased assets
as of 31 March 2013 and 2012, which would have been reflected in the consolidated balance sheets if finance leases other than thosethat transfer the ownership of the leased assets to the Bank (which are currently accounted for in the same manner as operatingleases) were capitalized.
Millions of yen
As of 31 March 2013
Premises and equipment
Intangible assets
Total

Acquisition cost

Accumulated
depreciation

Net book value

¥145
8

¥145
8

¥－
－

¥153

¥153

¥－

Millions of yen
As of 31 March 2012
Premises and equipment
Intangible assets
Total― 44 ―

Acquisition cost

Accumulated
depreciation

Net book value

¥158
8

¥138
7

¥20
1

¥166

¥145

¥21

Thousands of U.S. dollars
As of 31 March 2013

Acquisition cost

Accumulated
depreciation

Net book value$1,54285$1,54285$－－$1,627$1,627$－

Premises and equipment
Intangible assets
Total

Lease payments under certain finance leases, which are accounted for in the same manner as operating leases, for the years ended 31
March 2013 and 2012 were ¥23 million ($245 thousand) and ¥33 million, respectively.
Future lease payments as of 31 March 2013, inclusive of interest under such leases, were nil.

(4) Current portion of lease obligations and lease obligations (excluding current portion) as of 31 March 2013 consisted of thefollowing:
Millions of yen
2013

2012

Thousands of
U.S. dollars

Average interest
rate (%)

2013

2013

Current portion of lease obligations

¥462

¥－

$4,912

Lease obligations (excluding current portion)

2,635

－

28,017¥3,097¥－$32,929

2.37%

Note: The average interest rate represents the weighted-average rate applicable to the year-end balance.

The aggregate annual maturities of lease obligations are summarized as follows:Year ending 31 March

Thousands of
U.S. dollars

Millions of yen
2013

2012

2013

2013
2014

¥－
462

¥－
－

$－
4,912

2015

472

－

5,019

2016

482

－

5,125

2017

493

－

5,242

1,188

－

12,6312018 and thereafter

B. Operating leases(a) As lessee
Future lease payments under non-cancelable operating leases as of 31 March 2013 were ¥1 million ($11 thousand) due within one
year.
(b) As lessor
Future lease receivables under non-cancelable operating leases as of 31 March 2013 were ¥326 million ($3,466 thousand) including¥13 million ($138 thousand) due within one year.

― 45 ―

24. COMPREHENSIVE INCOME
Reclassification adjustments and tax effect amounts of other comprehensive income for the year ended 31 March 2013 and 2012were as follows:
Thousands of
U.S. dollars

Millions of yen
2013
Net unrealized holding gains on available-for-sale securities:
Amount for the year
Reclassification adjustment

2012

2013

¥24,759(470)¥9,1681,034$263,253(4,997)

Amount before tax effectTax effect amount24,289(8,208)

10,202(2,916)258,256(87,273)

Net unrealized holding gains on available-for-salesecurities

16,081

7,286

170,983

(617)
202

(606)
202

(6,560)2,148

Amount before tax effectTax effect amount

(415)
146

(404)
143

(4,412)
1,552

Net unrealized losses on hedging derivatives

(269)

(261)

(2,860)

3
－

2
－

32
－

3
－

2
－

32
－

Net unrealized losses on hedging derivatives:
Amount for the year
Reclassification adjustment

Share of other comprehensive income of affiliatedcompanies accounted for using the equity method:Amount for the year
Reclassification adjustment
Amount before tax effectTax effect amount
Share of other comprehensive income of affiliates
accounted for using the equity method
Total other comprehensive income― 46 ―

3

2

32¥15,815¥7,027$168,15525. SEGMENT INFORMATION(1) Reportable segment information
Reportable segment information has been omitted as the Bank and its consolidated subsidiary have a single segment, commercial
banking business for the years ended 31 March 2013 and 2012.
(2) Other segment related informationa. Information by services
Information by services for the years ended 31 March 2013 and 2012 was as follows:
2013
Millions of yen
Investment

Ordinary income from external customers

Bankingin securities

Other

Total

¥22,011¥14,544¥8,686¥45,241

2012
Millions of yen
Investment

Ordinary income from external customers

Bankingin securities

Other

Total

¥23,072¥14,728¥8,114¥45,9142013
Thousands of U.S. dollars
Investment

Ordinary income from external customers

Bankingin securities

Other

Total

$234,035$154,641$92,355$481,031

Note: “Ordinary income” corresponds to net sales of non-banking industries.

b. Information by geographic regioni. Ordinary income
Information as to ordinary income from domestic customers for the years ended 31 March 2013 and 2012 was omitted, because theamount of ordinary income from domestic customers was more than 90% of consolidated ordinary income.
ii. Tangible fixed assets
Information as to tangible fixed assets for the years ended 31 March 2013 and 2012 was omitted, because there was no tangible
fixed asset located abroad.

― 47 ―

c. Major Customers’ Segment Information
Major customers’ segment information is not shown for the years ended 31 March 2013 and 2012, since there is no customer
accounting more than 10% of the sales to customers in the consolidated statements of income.

d. Information on Impairment of Fixed Assets for Each Reportable Segment
Information on impairment of fixed assets for each reportable segment has been omitted for the years ended 31 March 2013 and2012, since the Bank and its consolidated subsidiary have a single segment.

e. Segment information on amortization of goodwill and its remaining balance
There is no information to be reported on amortization of goodwill and its remaining balance for the years ended 31 March 2013
and 2012.

f. Information on Gain in Negative Goodwill for Each Reportable Segment
There is no information to be reported on gain in negative goodwill for the years ended 31 March 2013 and 2012.

26. SUBSEQUENT EVENTS
a. Cash dividends
On 21 June 2013, the shareholders of the Bank authorized the following appropriations of retained earnings at 31 March 2013:
Thousands ofMillions of yen
Cash dividends (¥35 per share for year end)

U.S. dollars¥643$6,837b. Abolishment of the Retirement Benefit Program for Directors and Introduction of Stock Compensation-type Stock Option Plan
On 21 June 2013, shareholders of the Bank decided to abolish the retirement benefit program for directors and introduce the Stock
Compensation-type Stock Option Plan which grants stock acquisition rights to directors, as a result of reviewing its director’s
remuneration policy.
The stock acquisition rights can be exercised at a price of ¥1 per share in the period from 25 July 2013 to 24 July 2043, and a totalof 13,400 shares of common stock could be issued by the exercise of these rights.
The grantees may exercise their stock acquisition rights only within 10 days from the day following the date on which the grantees
lose their position as a director of the Bank (if the 10th day is a holiday, the next business day of the 10th day is applied).
Approval of the board of directors of the Bank is required for the acquisition of stock acquisition rights by assignment.
The number and the condition on exercise of stock acquisition rights would be adjusted, if the Bank carries out a merge, corporate
split, stock swap or stock transfer of the Bank’s common stock after the date of issuing of stock acquisition rights.

― 48 ―

─ 49 ─

Corporate Profile
・Corporate Data (As of March 31, 2013)
EstablishedMay 2, 1932
Paid-in Capital¥12,000 million

Employees
Stock Listing

1,497First Section of
the Tokyo Stock Exchange

Authorized Shares
49,450,000
Issued and Outstanding
19,097,786
Branches
109 (Iwate Prefecture 91)
SharesShareholders
7,777
・Board of Directors and Corporate Auditors (As of July 1, 2013)
President
Directors
Corporate Auditors
Executive Officers
Masahiro Takahashi
Katsuya Sato
Yukio Narita (standing)Shuetsu Inagaki
Yasuyuki Aramichi
Hisaki Miyadate (standing)
Mikio Kikuchi
Senior Managing
Shigeki Miura
Koichi Adachi
Director
Hiroshi Miura
Shinobu Obara
Masahiro Saito
Atsushi Takahashi
Fumio Ube
Senior Managing
Notes:
Director
1. Hiroshi Miura, Atsushi Takahashi and Fumio Ube satisfy the requirements for
Sachio Taguchi
outside directors as stipulated in Article 2, Item 15 of the Corporation Law.
Managing Directors
2. Hisaki Miyadate, Koichi Adachi and Shinobu Obara are outside auditors as
Osamu Sakamoto
stipulated in Article 2, Item 16 of the Corporation Law.
Keiji Iwata
Yuichi Kato・Organization (As of July 1, 2013)
General Meeting of Shareholders
Board of Directors

Board of Corporate Auditors
Corporate Auditors (standing)Corporate Auditors

Executive
Committee
President
Senior Managing Directors
Managing Directors
Directors
Executive Officers― 50 ―

General Planning Division
Cost Strategy OfficePublic Relations and CSR Office
General Affairs Division
Personnel Division
Human Resources Development Office
Sales Management Division
Direct Banking Center
Credit Card Center
Customer Response Center
CS Promotion OfficePrivate Banking Office
Regional Support Division
Public Affairs OfficeFinancial Markets DivisionInternational Business Office
Loan Supervision DivisionCorporate Financial Support Office
Personal Loan Center
Business Management Division
Operations Concentration Center
Systems Division
Risk Management Division
Financial Products Management OfficeCompliance Office
General Secretariat
Tokyo Liaison Office
Audit Division

・The Bank of Iwate Group
Name/Business Lines
Iwagin Business Service Co., Ltd.
Cash Management Services
Iwagin Lease Data Co., Ltd.
Computerized Accounting Services, Leasing
Iwagin DC Card Co., Ltd.
Credit Cards and Consumer Loans
Iwagin Credit Service Co., Ltd.
Credit Cards and Consumer Loans

Equity
100%
5%
5%
5%

― 51 ―

Head Office

A message from Iwate Bank concerning reconstruction

Trust, and beyond
By virtue of your support, the Bank of Iwate was able to celebrate the 81stanniversary of its foundation in May of this year.
This is entirely thanks to your loyal patronage, and all executives and employeesof the Bank extend our heartfelt gratitude.
The Bank will continue to dedicate its utmost efforts to the reconstruction anddevelopment of the regional community, as we strive to be your trusted bank ofchoice.
We thank you for your continued support and loyal patronage.

― 52 ―

The Bank of Iwate, Ltd.

2-3, Chuodori 1-chome, Morioka, Iwate 020-8688, Japan
Phone: +81-19-623-1111
URL: http://www.iwatebank.co.jp/

General Planning Division
Public Relations and CSR Office2-3, Chuodori 1-chome, Morioka, Iwate 020-8688, Japan
Phone: +81-19-623-1111 Fax: +81-19-652-7571
SWIFT: BAIWJPJT