ANNUAL REPORT
2018
ブランドマーク

和文

英文

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Contents
Message from the President ������������������������������������

1

Profile of the Company (Joint Holding Company)/Organization Chart ������������������

2

Board of Directors of Nishi-Nippon Financial Holdings Inc. �����������������������

3

Outline of Nishi-Nippon Financial Holdings Group ��������������������������

4

Outline of Medium-Term Business Plan �������������������������������

5

Financial Highlights ����������������������������������������

6

Toward a Sounder Financial Position ��������������������������������

7

Financial Results �����������������������������������������

8

Initiatives for Improvement of Management at SMEs and Regional Revitalization �������������

9

Providing Broader/Deeper Support for International Business ��������������������� 12
ESG (Environment, Social and Governance) Initiatives ������������������������� 13
Risk Management Systems ������������������������������������ 15
Financial Section ����������������������������������������� 17
Outline of Banking Subsidiaries����������������������������������� 72
Organization Chart of Banking Subsidiaries ����������������������������� 73
Notes: 1. In this report, Japanese yen figures are rounded down to the nearest million yen.
2. Conversion into U.S, dollars (solely for the convenience of readers outside Japan) has been made at the exchange rate of ¥106.24 to $1.

Organization
Chartof Banking Subsidiaries
Messagefrom thePresident
I am pleased to report on the business performance ofcontinuing high level of production and exports as a result

Nishi-Nippon Financial Holdings, Inc. (NNFH) for the fiscalof brisk foreign demand,The
despitethe temporary
Nishi-Nippon
Cityimpact
Bank,onLtd.

International Network of

The Nishi-Nippon City Bank, Ltd.

Internal Audit Division

Generalyear ended
31st March2018.
Shareholders’Meeting

Corporate Planning Division

tourism of the heavy rains of July 2017 in Northern Kyushu.

Corporate Risk Management Division

In line with the current Medium-Term Business Plan,

INTERNATIONAL
Meanwhile, the management
environmentBUSINESS
in which the

Directors
Division“Leaping Forward
2020 - Innovating Ideas IT
forStrategy
Our Clients,”

Group finds itself continues
to see dramaticchanges,
3-6, Hakata-ekimae
1-chome,Hakata-ku,

Compliance Risk Supervisory Division(Audit and Supervisory
Committee Members)

Public Relations Division

DIVISION

NNFH Group (the Group) is pushing aheadExecutive
with various
Secretariat

Fukuoka 812-0011, Japanbrought about by the continuationof extremely low interest

Human
Resources Division
Audit
and
Supervisory
initiatives undertheconceptof “enhancementof theNISIJPJTFKK
rates, rapid progress inSWIFT:
informationand communications

Committee Members’
OfficePhone: +81-92-476-2481

Corporate Administration Division

Fax: +81-92-476-2488

Group’s comprehensive financial strengths”Operations
stage when
we & Management
technology,
Planning
Division and deregulation due to revision of the Banking
Treasury & Portfolio Investment Division

TREASURY & PORTFOLIO
Act and other regulations.

accelerate our drive to become customers’ preferred

Treasury & Securities Transaction Division
INVESTMENT DIVISION
Boardgroupof Directors
Branchesregional financial
by focusing on expansionof ourAgainst this backdrop, we will further cement

11-8, Kyobashi 1-chome, Chuo-ku, Tokyo

Credit Risk Management Division

relationships within the104-0031,
Group in Japanorder to deliver financial

business foundations for a greater leap forward.
Credit Supervision Division

Phone: +81-3-3561-9306

Business Planning DivisionDuring the fiscal year ended 31st March, 2018, theBusiness Promotion Division

Executive Committee

RetailBusiness Division
Japanese economy remained in a moderate
recoveryservices that exceed customers’
expectations. In doing so,
SWIFT: NISIJPJTFax: +81-3-3561-4365

we will aim to become the regional financial group with “No.

International Business Divisionphase, due primarily to a pickup in private consumption
1” collective strength thatgrows together
with its
TREASURY& SECURITIESOverseas Representative Offices

TRANSACTION DIVISION

and an increase in capital expenditures on the backHongof Kong Rep.

customers and local communities.

3-6, Hakata-ekimae 1-chome, Hakata-ku,

Seoul Rep.

Fukuoka
812-0011,
Japan in our futureYour continued support
for andcooperation

improvements in the employment and corporate earnings
Shanghai Rep.

Phone: +81-92-476-2540, +81-92-476-2484

Singapore Rep.

situations.

endeavors would be greatly
SWIFT:appreciated.
NISIJPJT, NISIJPJTFKK

Personal Loan Transaction Division

Fax: +81-92-441-6106

Corporate
The economy in our host region of Kyushu
also Business Solution Division
Private Banking Division

registered a moderate recovery, underpinned
by a Relationship Management Division
Regional
Kita-Kyushu General Headquarters

turnaround in employment and income situations and a

Chikuho Regional Headquarters
Chikugo Regional Headquarters
Kyushu Regional Headquarters
Tokyo Headquarters(As of 30th June, 2018)

Suite 3112, Tower 6, The Gateway, Harbour
City, 9 Canton Road, Tsim Sha Tsui, Kowloon,
Hong Kong
Phone: +852-2526-2259
Fax: +852-2845-9264

SEOUL REPRESENTATIVE OFFICE

The Bank of Nagasaki, Ltd.

6th Fl., The Exchange Seoul Bldg, 21
Mugyo-ro, Chung-ku, Seoul 04520, Republicof Korea
Phone: +82-2-755-0670
Fax: +82-2-756-2160

Audit and Supervisory Board Members
GeneralShareholders’ Meeting

July 2018
HONG KONG REPRESENTATIVEOFFICE

Board of Directors
Executive Committee

SHANGHAI REPRESENTATIVEOFFICE

Corporate Planning Division

Hiromichi Tanigawa
Human Resources & Corporate
Administration Division
President
Nishi-Nippon Financial Holdings,BusinessInc. Management Division

Room No. 2209 Shanghai International Trade
Center, 2201 Yan-An Road (West), Chang
Ning District,Shanghai, People’s Republic of
China
Phone: +86-21-6219-0600
Fax: +86-21-6278-5940(Concurrently President of The Nishi-Nippon
City Bank,
Ltd.)
Credit Supervision
Division
Operations Planning &Management DivisionInternal Audit Division(As of 30th June, 2018)

SINGAPORE REPRESENTATIVEOFFICE
1 Marina Boulevard Unit#25-07
One Marina Boulevard, Singapore 018989
Phone: +65-6222-0115
Fax: +65-6222-0171

Nishi-Nippon
Financial
Holdings
ANNUALREPORT
Nishi-Nippon
Financial
Holdings
GroupGroupANNUALREPORT2018 2018
1

73

Profile of the Company (Joint Holding Company)
Name: Nishi-Nippon Financial Holdings, Inc.
Location

1-1, Hakata-ekimae 3-chome, Hakata-ku, Fukuoka, Japan

Business

Management and operation of banks and other companies that Nishi-Nippon FH may have as
subsidiaries under the Banking Act and any all businesses incidental or related thereto.

Capital50 billion yen

Date of establishment

October 3, 2016

Fiscal year end

March 31

Stock exchangeTokyo Stock Exchange and Fukuoka Stock Exchange

Share-trading unit

100 shares

Credit Ratings

R&I: A (Stable)
JCR: A (Stable)
as of 30th June, 2018

Organization Chart

Nishi-Nippon Financial Holdings, Inc.
General Shareholders’ Meeting

Board of Directors

Audit and Supervisory
Committee
Audit and Supervisory
Committee Members Office

Executive Committee

Group Strategy Planning
Division

2

Nishi-Nippon Financial Holdings Group

Compliance & Risk
Management Division

ANNUAL REPORT 2018

Corporate Planning
DivisionInternal Audit Division

Board of Directors of Nishi-Nippon Financial Holdings Inc.

ChairmanPresident

Isao Kubota

Hiromichi Tanigawa

Chairman ���������������������� Isao Kubota
President ���������������������� Hiromichi Tanigawa
Directors ����������������������� Souichi Kawamoto
Kiyota Takata
Shigeru Urayama
Hiroyuki Irie
Shinya Hirota
Hideyuki Murakami
Directors (Audit and Supervisory Committee Members) ��� Kiyotaka Tomoike
Yuji Tanaka (outside)
Hirohiko Okumura (outside)
Nobuko Takahashi (outside)(as of 30th June, 2018)* Directors/Audit and Supervisory Committee Members Yuji Tanaka, Hirohiko Okumura, and Nobuko Takahashi are Outside Directors as prescribed in Article 2 (xv) of theCompanies Act of Japan.

Major Shareholders (Common Stock)
Name
Japan Trustee Services Bank, Ltd. (Trust Account)

Shares held (thousands) (Note 1)(%) (Note 2)

17,365

11.23

Japan Trustee Services Bank, Ltd. (Trust Account No.4)

9,740

6.30

Japan Trustee Services Bank, Ltd. (Trust Account No.9)

6,816

4.41

The Master Trust Bank of Japan, Ltd. (Trust Account)

4,820

3.11

Nippon Life Insurance Company

3,861

2.49

J.P. MORGAN BANK LUXEMBOURG S.A. 380578

2,923

1.89

Meiji Yasuda Life Insurance Company

2,765

1.78

Japan Trustee Services Bank, Ltd. (Trust Account No.5)

2,557

1.65

The Nishi-Nippon City Bank Employee Shareholding Association

2,245

1.45

Risona Bank, Limited.

2,200

1.42

Total

55,29735.78(as of 31st March, 2018)

Notes: 1. The figures are rounded down to the nearest thousand.
2. Percentage share in issued shares excluding treasury stock.

Nishi-Nippon Financial Holdings GroupANNUAL REPORT 20183

Outline of Nishi-Nippon Financial Holdings Group
Group Management Philosophy
Aiming high and motivated by pride in our services, we are committed to becoming a leading financial group through our ability
to respond to change and to grow with our customers

Group Brand Slogan

Sincere Relationships, Best Solutions
Meaning behind Our Logo
英文

Our logo uses the motif of the “Sun,” the energy which creates our future, and the vibrant image of“Wings.” The radiating wings symbolize the infinite future. And the color gradation from light to darkorange expresses the Nishi-Nippon Financial Holdings Group’s commitment to evolving andtransforming itself toward the future.
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Strengths as a “Comprehensive Financial Group”
The Group has adopted a “parallel” structure whereby NNFH serves as a “control tower”to direct and guide each Group
company whilst also assuming a birds-eye perspective in order to oversee them across the board, thereby building amanagement framework that allows this comprehensive financial group to best exploit its strengths.
Banking
The Nishi-Nippon City Bank, Ltd.

Information system service
NTT Data NCB Corporation

Banking
The Bank of Nagasaki, Ltd.
Credit cards, credit guarantee
The Kyushu Card Co., Ltd.

Holding company
Nishi-Nippon Financial Holdings, Inc.

Payment Service
Japan Payment service CO., LTD.

Financial instruments exchange
Nishi-Nippon City Tokai Tokyo Securities Co., Ltd.
Research studies, management consultancy
NCB Research & Consulting Co., Ltd.
Claims servicing
Kyushu Servicer
Credit guarantee
Nishi-Nippon Credit Guarantee Co.

NTT Data NCB Corporation
is an equity-method affiliate.

Group Management Strategy
Under the holding company structure, we will promote two Group Management Strategies: “Development of comprehensive
financial services that exceed the expectations of customers and host communities (Realization of matrix management)” and“Advancement of a group management framework and risk management system (Realization of a monitoring model).”Development of comprehensive financial services
that exceed the expectations of customers and host

Matrix management

communities (Realization of matrix management)

The holding company, from the

The holding company will demonstrate

standpoint of meeting individual

its oversight function over thecustomer needs, will develop strategies

subsidiaries while continuouslythat embrace the entire group.

Advancement of a group management framework andrisk management system(Realization of a monitoring model)

4

Monitoring model

Nishi-Nippon Financial Holdings GroupANNUAL REPORT 2018

monitoring their business execution.

Outline of Medium-Term Business Plan
Framework
Group Management Philosophy“Aiming high and motivated by pride in our services, we are committed to becoming a leading financial group throughour ability to respond to change and to grow with our customers”

Medium-Term Business Plan

Leaping Forward 2020—Innovating Ideas for Our Clients—(for the three-year period April 2017–March 2020)

The Group’s strengths

Concept

Challenges for the Group

Solid customer base andrelationships of trust with customers

Difficult earnings environment
owing to the negative interest policy

High consulting skills“Enhancement of the Group’s comprehensive financial strengths” stage,
when we accelerate our drive to become customers’ preferred regional
financial group by focusing on expansion of our business foundations for agreater leap forward

Spirit of regional industry
development and businesspromotion handed down from theformer entities

Enhancement of customer-oriented,
Basic Strategy 1 comprehensive financial services —Service innovation—

Advanced and diverse products/
services

Basic Strategy 2

Establishment of robust earnings structure—Behavioral innovation—

Ample real channels and highly
convenient digital channels

Basic Strategy 3

Empowerment of trustworthy human resources andorganizations —Human resources innovation—

Changing lifestyles and needs ofcustomers

Broad networks with central/overseas organizations

Basic Strategy 4

Advancement of group management—Corporate governance innovation—

Economic uncertainty both
domestically and abroad

Basic Strategy 1

Four Basic Strategies

Enhancement of customer-oriented,
comprehensive financial services- Service innovation -Aiming to become customers’ preferred comprehensive
financial group•We will aim to become acomprehensive financial groupthat customers choose byproviding products/services thattap into the merits/strengths ofeach Group company andbuilding a sales system/channel
capable of catering tocustomers’ diverse needs.

Basic Strategy 3

Priority Measures
Developing “comprehensive
support” through concerted
efforts of the Group
Advancing “business promotion with optimal solutions
for each customer”
Achieving “best mix channel”

Empowerment of trustworthy humanresources and organizations- Human resources innovation -Further developing trustworthiness in human resources andconsolidating “individual” strengths into “organizational” power•We will aim to consolidate“individual” strengths into
“organizational” power by
establishing all employees’
behavioral patterns as “amember of the Group,” while
also further developing
trustworthiness in humanresources, which is the very
source of our competitiveness.

Priority Measures
Developing human resources
so that everyone can play anactive role
Establishing behavioral
patterns as “a member of
the Group”

Basic Strategy 2

Changing markets due to theshrinking and aging population
with a low birthrate
Intensifying competition against
other regional banks and newentrants from other industries
Remarkable progress in FinTech

Establishment of robust earnings structure- Behavioral innovation -Realizing sustainable growth•We will build up staying powerthat ensures sustainable growth
into the future by further raising
all employees’ earnings/costs
awareness, expanding thecustomer base for the entire
Group, and becoming ourcustomers’ house bank.

Basic Strategy 4

Priority Measures
Generating synergies
through collaboration among
Group companies
Forging efforts to improveearnings and reduce costs

Advancement of group management- Corporate governance innovation -Becoming able to respond to any environmental change both
appropriately and flexibly•We will build an advanced risk

management system for the entire
Group and allocate the Group’s
resources in an optimal mannerthat takes into account businessfields meriting attention and theconditions of each regional market,
so that we can flexibly respond tothe various environmental changes
and risks that may lie ahead.

Priority Measures
Establishing a functioning
governance structure
Advancing the Group’s risk
management system
Allocating the Group’s
resources optimally

Nishi-Nippon Financial Holdings GroupANNUAL REPORT 2018

5

Financial Highlights
On a consolidated basis, net business profits for the fiscal year under

On a consolidated basis, total assets at the end of the fiscal year

review showed an increase of ¥19 million year-on-year to ¥34,809

period under review were ¥9,961.6 billion ($93 billion) ; total

million, due primarily to increases in net interest income, net fees andliabilities were ¥9,426.7 billion ($88 billion) ; and net assets stoodcommissions, and net trading income, despite a decrease in net otherat ¥534.8 billion ($5 billion).
The year-end balance of deposits was ¥8,345.2 billion ($78

operating income stemming from the rise in currency swap costs.
Ordinary income increased by ¥69 million year-on-year tobillion) ; the loan balance at the end of the fiscal year was¥33,937 million, due mainly to reduced cost of credit despite a¥7,041.5 billion ($66 billion) ; and the year-end balance of

decrease in net gains related to stocks.

securities was ¥1,563.8 billion ($14 billion).

Profit attributable to owners of the parent decreased by¥746 million year-on-year to ¥21,467 million due to an increase
in income taxes.

Consolidated
Total income
Total expenses
Profit (loss) before income taxes
Profit (loss) attributable to owners of parent

Profit (loss) attributable to owners of parent per share

Total assets
Deposits
Loans and bills discounted
Securities
Capital stock
Total net assets

Thousands of US dollars

Millions of yen

142,824
110,401
32,422
21,467

1,344,355
1,039,175
305,179
202,069

145,938
113,516
32,422
22,214Yen

US dollars

Yen

137.78

1.296

Millions of yen

Thousands of US dollars

9,961,663
8,345,294
7,041,558
1,563,859
50,000534,895

93,765,659
78,551,345
66,279,728
14,720,064
470,632
5,034,783

The Nishi-Nippon City Bank, Ltd.

142.24
Millions of yen

9,486,448
8,019,012
6,803,828
1,655,774
50,000511,678

2017

2018
Millions of yen

Thousands of US dollars

Millions of yen

Total income
Total expenses
Income before income taxes
Net income

140,168
100,554
39,614
31,671

1,319,360
946,486
372,874
298,113

136,484
104,016
32,46725,177

Total assets
Deposits
Loans and bills discounted
Securities
Capital stock
Total net assets

9,682,635
8,145,409
6,836,291
1,556,641
85,745
516,625

91,139,264
76,669,896
64,347,625
14,652,126
807,093
4,862,814

9,227,333
7,812,742
6,574,638
1,677,231
85,745479,981

The Bank of Nagasaki, Ltd.

2017

2018
Millions of yen

6

2017

2018
Millions of yen

Thousands of US dollars

Millions of yen

Total income
Total expenses
Income before income taxes
Net income

5,432
4,751
680
551

51,13044,727
6,403
5,189

5,416
4,840
575
440

Total assets
Deposits
Loans and bills discountedCapital stock
Total net assets

278,090237,606
242,536
6,121
14,786

2,617,567
2,236,505
2,282,915
57,621
139,178

273,033
246,127
237,047
6,121
14,259Nishi-Nippon Financial Holdings GroupANNUAL REPORT 2018

Toward a Sounder Financial Position
Pursuit of a sounder financial position is ranked as one of the Group’s key priorities. Accordingly, we are strengthening our capital adequacy
and reducing non-performing loans (NPLs) .

Capital Ratio at 9.67% (On a Consolidated Basis)*

As of 31st March, 2018, the Group’s NPL balance (subject
to mandatory disclosure of claims under the Financial

The capital ratio as of 31st March, 2018, stood at 9.67% on a

Reconstruction Law, consolidated basis) decreased by ¥10.1

consolidated basis, 9.91% for The Nishi-Nippon City Bank, Ltd.

billion year-on year to ¥140.1 billion. As a result, the NPL ratio

and 8.72% for The Bank of Nagasaki, Ltd.

declined to 1.97%, compared to 2.18% at the end of theprevious fiscal year.

These figures are significantly higher than the minimum level

On a consolidated basis, the coverage ratio for loansof 4.0% required of banks operating in Japan.

subject to mandatory disclosure of claims under the Financial

We will be implementing measures to further strengthen ourcapital adequacy and raise the capital ratio.

Reconstruction Law, mainly through collateral and guarantees,*Minimum level required of banks operating in Japan : 4%

is 83.39% and the coverage ratio for bankrupt and quasibankrupt assets remains at 100%.

NPL Ratio Improved by 0.21 Percentage Points to
1.97% (On a Consolidated Basis)
The Group carries out write-offs and provision of reserves for its
NPLs according to strict standards, based on self-assessmentof assets.

Capital ratio
Consolidated(¥ billion)

9.08%

The Nishi-Nippon City Bank, Ltd.

The Bank of Nagasaki, Ltd.

(¥ billion)(¥ billion)

9.67%

9.53%

9.02%

5,179.3

9.91%

9.30%

8.65%

8.72%

8.65%

4,988.0
4,300.6

4,205.5

4,143.3

3,978.6

161.1

159.6

155.2

470.5

409.8

406.8

450.3

385.6

394.4

13.4

13.8

14.0

2016/032017/032018/03

2016/032017/032018/03

2016/032017/032018/03

Risk-weighted assets, etc.
Shareholders’ equity
Capital ratio

Risk-weighted assets, etc.
Shareholder’s equity
Capital ratio

Risk-weighted assets, etc.
Shareholder’s equity
Capital ratio

Notes: 1. The following approaches are adopted to calculate risk-weighted assets, etc.
Amount of credit risk-weighted assets:
2018/03･2017/03: Foundation Internal Ratings-Based (FIRB) approach for consolidated figures and The Nishi-Nippon City Bank, Ltd., Standardized Approach (SA) for
The Bank of Nagasaki, Ltd.
2016/03: Standardized Approach (SA)Operational risk equivalent amounts: The Standardized Approach (TSA)
2. The capital ratio (consolidated) for the fiscal year ended 31st March 2016 is for the Group in which The Nishi-Nippon City Bank, Ltd. is a parent company.

Balance of NPLs and ratio of loans subject to mandatory disclosure of claims under the Financial Reconstruction Law
Consolidated

The Nishi-Nippon City Bank, Ltd.

The Bank of Nagasaki, Ltd.

(¥ billion)(¥ billion)(¥ billion)

2.34%

2.37%

2.29%

2.18%

2.14%

1.97%

2.07%

1.92%

1.72%
152.5

150.2

140.1

30.7

34.4

106.3

97.4

5.4

141.7

143.5

4.9

132.4

29.3

30.5

34.2

29.1

95.4

98.7

90.1

88.7

4.1
4.5

15.4

2016/0318.3

2017/03

15.3

2018/03

Substandard loans
Claims on potentially bankrupt borrowers
Bankrupt and quasi-bankrupt assets (unrecoverable claims)
Ratio of loans subject to mandatory disclosure of claims
under the Financial Reconstruction Law

14.1

2016/0317.3

2017/03

14.5

2018/03

Substandard loans
Claims on potentially bankrupt borrowers
Bankrupt and quasi-bankrupt assets (unrecoverable claims)
Ratio of loans subject to mandatory disclosure of claims
under the Financial Reconstruction Law

4.2

0.8

2016/03

0.6

2017/03

3.6
0.5

2018/03

Claims on potentially bankrupt borrowers
Bankrupt and quasi-bankrupt assets (unrecoverable claims)
Ratio of loans subject to mandatory disclosure of claims
under the Financial Reconstruction Law

Note: Balance of NPLs and ratio of loans (consolidated) for the fiscal year ended 31st March 2016 is the Group in which The Nishi-Nippon City Bank, Ltd. is a parent company.

Nishi-Nippon Financial Holdings GroupANNUAL REPORT 20187

Financial Results
Balance of loans to small andmedium-sized enterprises, etc.

Balance of loans
The Nishi-Nippon City Bank, Ltd.

The Nishi-Nippon City Bank, Ltd.

The Nishi-Nippon City Bank, Ltd.

Total outstanding loans

Total outstanding loans to SMEs, etc.

Total outstanding deposits/NCD

Consumer loans
Housing loans
Business loans[+4.9%]
6,220.1(¥ billion)[ ] YoY change

Individuals
SMEs[+4.0%]
6,836.2[+5.7%]
6,574.6[+5.8%]
4,848.1

252.2

206.9

167.2

2,439.6
2,281.9

2,372.9

3,771.0

3,994.8

2016/031,809.7

4,144.3

2018/032017/033,038.4

2016/03(¥ billion)[ ] YoY change[+4.9%]
5,426.3[+6.7%]
5,172.9

1,919.3

1,865.3

3,506.9

3,307.5

2018/032017/03

Financial institutions and municipality(¥ billion)
Enterprises[ ] YoY change
Retail customers[+5.8%]
7,547.9[+3.5%]
7,812.7355.1

2,188.9

2,410.7

2,550.6

4,961.3

5,097.7

5,239.5

2016/032017/03

The Bank of Nagasaki, Ltd.

The Bank of Nagasaki, Ltd.

Total outstanding loans

Total outstanding loans to SMEs, etc.

Total outstanding deposits/NCD[+0.2%]
229.1(¥ billion)[ ] YoY change[+3.4%]
237.0

14.7

15.2

138.3

140.8

76.0

2016/0380.9

2017/03

Individuals
SMEs[+0.5%]
199.0[+2.3%]
242.5

130.1

140.3

87.0

2018/0368.8

2016/03

Group total(¥ billion)[ ] YoY change

Investment trusts[-2.2%]
954.6[+5.6%]
1,007.7[-1.3%]
995.0

162.1
15.6
38.7

237.2

262.2

23.1
26.8

20.3
21.4

468.7

460.7

269.3

259.8

2016/032017/03

444.9

246.0

2018/03* Group total = Nishi-Nippon City Bank + The
Bank Of Nagasaki + Nishi-Nippon Tokai Tokyo
Securities

Nishi-Nippon Financial Holdings Group[+2.6%]
204.2[+0.6%]
205.4

15.0

Management of client assets

Nishi-Nippon City Tokai Tokyo Securities Co.,Ltd.
Foreign currency deposits
Public bonds
Insurance(¥ billion)[ ] YoY change

ANNUAL REPORT 2018

135.6

68.5

2017/03[+4.3%]
8,145.4

304.2

397.7

The Bank of Nagasaki, Ltd.
Consumer loans
Housing loans
Business loans

8Balance of deposits/NCD

2018/03

Financial institutions and municipality(¥ billion)
Enterprises[ ] YoY change
Retail customers[+6.6%]
251.8[-2.3%]
246.1[-3.5%]
237.6

17.4
36.9

16.5
40.4

15.5
39.7

197.4

189.0

182.3

137.0

68.3

2018/03

2016/032017/032018/03

Initiatives for Improvement of Management at SMEs and Regional Revitalization
Support for Customers Starting Businesses
The Group offers a range of services designed specifically for customers who are planning to start up
new businesses or diversify their existing ones. These services include helping to meet their funding andconsulting needs at the time of startup through financing, venture fund investment and other means,provision of information on government subsidies and public loans, and arrangement of partnerships
with external organizations for the purposes of commercializing and marketing new technologies.
In order to fulfill the obligations expected of a financial institution, namely, to help local industries todevelop by offering seamless financial support from startup through establishment, and beyond, theGroup has developed its initiatives in this regard through alliances and partnerships forged with externalorganizations and Group companies. Going forward, the Group will pass on and develop its “goodDNA” by uniting as one to engage in a wide range of support programs that will contribute to thedevelopment of local industries.
[Startup/second startup* projects assisted by the banking subsidiaries (fiscal year ended March 2018)](Cases)The Nishi-Nippon City Bank, Ltd.

The Bank of Nagasaki, Ltd.

Startup

2,810

28

Second startup

78

0* Definition of “second startup”- Commencement of a new business by a successor, etc. to an existing company- Commencement of a new business by a manager, etc. who has transferred (handed over) an existing business- Restructuring of a company to make a drastic business turnaround (change of business)

Establishment of “NCB Startup Support Salons”
The Nishi-Nippon City Bank, Ltd. opened an “NCB Startup Support Salon” in Fukuoka in February
2016 and another in Kita-Kyushu in November 2017 with the aim of offering consultation services on
potential issues to customers aspiring to set up their own businesses and providing a “platform” forfledgling entrepreneurs to network with their peers.
At these salons, customers can avail themselves of in-depth consultations with consultants
specializing in startup support, covering everything from pre-startup business plan formulation andfinancing at the time of startup through post-startup management consultation.
“NCB Startup Support Salons”
Fukuoka
Kita-Kyushu

3,401 visitors in total(as of 30th April, 2018)29 startup consultants(as of 10th May, 2018)

Business operations at “FUKUOKA growth next”
Since April 2017, NNFH and The Nishi-Nippon City Bank have engaged in business operations at“FUKUOKA growth next,” a Fukuoka City startup support center operated through public-private
partnership.
In collaboration with the Open Innovation Promotion Office of NNFH, a broad range of events areoffered, including pitch contests, demonstrations, informational sessions on recent trends in FinTech,and conferences.

Nishi-Nippon Financial Holdings GroupANNUAL REPORT 2018

9

Initiatives for Improvement of Management at SMEs and Regional Revitalization
Business Feasibility Assessment
The Group has always believed that, in order to fulfill its social responsibility, facilitation of regional
financing is its single most important role. In line with this principle, the Group continues to proactively
enhance its support services for small- and medium-sized enterprises.
By fairly and adequately evaluating feasibility of the contents and growth potential of enterprises’
businesses, the Group helps these clients to find solutions to any management issues and enhance thevalue of their businesses.
[Financing based on Business feasibility assessment (fiscal year ended March 2018)]
The Nishi-Nippon City Bank, Ltd.

The Bank of Nagasaki, Ltd.

Total number of businesses assessed (instances)(Percentage share in all borrowers)

3,726(9.1%)

277(10.0%)

Total outstanding loans to businesses assessed (¥ billion)(Percentage share in loan balance)

1,999.4(39.8%)

20.1(26.6%)* Loans extended in the fiscal years ended March 2017 and 2018

[Improvement of management at main customers (fiscal year ended March 2018)]
The Nishi-Nippon City Bank, Ltd.

The Bank of Nagasaki, Ltd.

Total number of main customers (instances)

17,713

1,498

Total outstanding loans to main customers (¥ billion)

2,715.9

44.0

Total number of businesses improved (instances)

14,224867

Total outstanding loans to businesses improved (¥ billion)

2,242.5

32.2* Main customer refers to the customer we have the largest share in their borrowings.
* Number of businesses showing year-on-year improvement of net sales, operating income margin, etc.

Provision of Funds and Various Other Financing Means
The Group makes capital commitments to a variety of funds for businesses in various stages, including
support for startups and new businesses, business growth, business succession, shift to “sixth-orderindustrialization,” and commercialization of business seeds, as well as improvement of management
and support for business turnaround. In addition to lending, which is the Group’s main business activity
as a financial institution, it financially supports the growth of regional businesses by tapping into those
funds.
[Cases where funds issued by The Nishi-Nippon
City Bank were utilized (fiscal year ended March2018)](Cases)NCB Kyushu Six-Order
Industrialization Support Fund*1

1

NCB Kyushu Revitalization Fund*2

2

QB Fund No. 1*

9

Total

12

3

10

Nishi-Nippon Financial Holdings GroupANNUAL REPORT 2018

*1 Established to create new business opportunities in Kyushu
through collaboration among those in the primary,secondary, and tertiary industries, with the aim of creating
added value. To date, a total of ¥722 million from this fundhas been invested in 11 cases (as of 31st March, 2018),
which places the Group in the leading position among
regional banks.
*2 By providing growth capital in various forms, this fund is
aimed at supporting local businesses contributing torevitalization of the local economy and creation of jobs.
*3 Managed by QB Capital, LLC, which was established jointlywith Kyushu TLO Company, Limited, this fund is aimed atrevitalizing the regional economy in Kyushu by creating new
industries through use of research outcomes fromuniversities in Kyushu.

Broader Access to Consultation on Asset Management and InheritanceEstablishment of Private Banking Division
In April 2017, a Private Banking Division was established at The Nishi-Nippon City Bank in an effort toprovide more specialized consultation services on inheritance, business succession, and asset
management.
“NCB Inheritance Plaza” and “NCB Premium Lounge”
At “NCB Inheritance Plaza” and “NCB Premium Lounge,” The Nishi-Nippon
City Bank offers consultation services specifically focused on inheritance.
There, specialists with good knowledge and experience of inheritancematters offer total support, from provision of basic information on
inheritance through more advanced technical advice.
Customer booth at “NCB Inheritance Plaza”

Opening of NCB α Ropponmatsu Sub-Branch
In collaboration with Seattle’s Best Coffee and Subway, The Nishi-Nippon
City Bank has opened NCB α Ropponmatsu Sub-Branch on the formersite of Kyushu University’s Ropponmatsu Campus as a new style of office,complete with the latest information communication technologies including
a Pepper semi-humanoid robot and tablet tables. There, customers canseek consultation on their inheritance and financing needs.

Layout of NCB α Ropponmatsu Sub-Branch

Proposals on Asset Management in Compliance with Fiduciary Duty
In June 2017, Nishi-Nippon Financial Holdings, Inc., The Nishi-Nippon City Bank, Ltd., The Bank ofNagasaki, Ltd., and Nishi-Nippon City Tokai Tokyo Securities Co., Ltd. formulated and published the“Basic Policy for Duties Concerning Management and Building of Customers’ Assets (Basic Policy for
Fiduciary Duty).”
In compliance with the Basic Policy, the Group is committed to building a customer-oriented
operational system for management and building of customers’ assets, which enables the Group tooffer an optimal line of financial instruments that contribute to stable formation of quality financial assets
for customers, use information and communication technologies to give easy-to-understand productexplanations, and establish and perpetuate a customer-oriented sales structure.

Nishi-Nippon Financial Holdings GroupANNUAL REPORT 201811

Providing Broader/Deeper Support for International Business• In accordance with shrinking population in Japan, many Japanese companies are seeking opportunities overseas, but there
are still quite a few issues that need to be addressed. The Group has been providing finely tuned support for their international
business activities to help companies deal with such issues.
• In March 2017, in response to the growing needs to expand into Southeast Asia, where a huge market has developed since
the inauguration of the ASEAN Economic Community, Nishi-Nippon City Bank opened a representative office in Singapore.
• In order to foster greater support for Japanese SMEs in Asia in corporate banking account services, trade finance and capital
market advisory solutions, the Nishi-Nippon City Bank signed amemorandum of understanding (MOU) with DBS Bank, Southeast Asia’s
largest bank in May 2017.
• In collaboration with international and domestic partner institutions, we willleverage our overseas operations and further strengthen intra-groupcollaborations so as to provide broader/deeper support for international
Singapore representative office opening Memorandum of understanding signingbusiness.
ceremony
ceremony
Multifaceted windows for international business support• International Business Support Office, International Business Div.
Support for international business provided by personnel with professional skills and know-how• “World Business Square (WBS)”
Nishi-Nippon City
Total support for international business, including forex trading such as foreign remittance and letter of credit
transactions
Bank• “NCB Forex Super Direct,” “NCB Direct Forward Exchange Contracts”
A broad range of forex transactions, including foreign remittance and application/inquiry on import letters of credit
via the Internet

NCB Research &Consulting• International Consultation Office
Finely tuned support for overseas expansion offered by personnel with extensive international experience throughcollaboration with international partner financial institutions, lawyers, insurance companies, etc.
• “Door to Asia” (website)
Detailed information provision• Asia Business Seminars
Sponsorship of seminars on international business

Kyushu Card

• A variety of credit cards
Support for all major cards, including VISA, MasterCard, JCB, AMEX, UnionPay, and Shinhan

Broad area coverage by our overseas bases and partner institutions(China)(Japan)JBIC
The Bank of Yokohama

Bank of China
Shanghai Representative Office
Shanghai Branch(South Korea)
Seoul Representative Office
Shinhan Bank

Hong Kong Representative OfficeHong Kong Representative Office(Thailand)

Bangkok Bank
Bangkok Representative Office(Singapore)

DBS Bank
Singapore Representative Office(Indonesia)

Bank Resona Perdania(Vietnam)
OCB / BNP Paribas
Nishi-Nippon City Bank’s overseas operations(4 in Asia)
Bank of Yokohama’s overseas operations(3 in Asia, 1 each in London and New York)*
Partner foreign financial institutions(7 foreign banks)(as of 30th June, 2018)

Major initiatives by Nishi-Nippon City Bank
Month/Year

12

Details

September 2016

Concluded Basic Agreement for Overseas Business Support Services with The Bank of Yokohama*March 2017

Opened a representative office in Singapore

May 2017

Signed Memorandum of Understanding regarding Business Tie-ups with DBS Bank, Southeast Asia’s largest bankNishi-Nippon Financial Holdings GroupANNUAL REPORT 2018

ESG (Environment, Social and Governance) Initiatives
With the aim of enhancing corporate value and realizing a sustainable society, the Group is actively
engaged in ESG initiatives in ways that only a regional financial institution can accomplish.

Environment
Establishment of Environment Office [May 2009]- The Environment Office supports incubation of regional environmental businesses throughparticipation in environmental business promotion projects sponsored by local governments, theMinistry of Economy, Trade and Industry, and the Ministry of the Environment.
Rebuilding as Eco-Friendly Offices- We are rebuilding existing offices as “eco-friendly offices” equipped with solar power generators,
rainwater recycling systems, eco-friendly glass, LED lighting, and energy-conserving air conditioners.
In fiscal 2017, a total seven offices were renovated.
NNFH Kita-Kyushu Building(opened in November 2017)

Financing and Business Matching for Environment-Related Businesses- We extend financial support to woody biomass power generation businesses for their recyclable
energy-related projects.
- We began handling private placement bonds for businesses with eco-friendly management, as
certified by national and local governments (first case underwritten in February 2008).
- We are helping to expand the environment market by way of business matching with environmentrelated businesses (solar power generation, energy conservation, and energy service companies[ESCOs]).

SocialIn collaboration with local governments, universities, and other external organizations, the Group isproactive in restoring the local economy and holistic regional revitalization under the banner of“comprehensive community support” thereby stimulating the regional economy, achieving co-prosperity
with the regional community, and building a regional society.
“Tsunagu Kokoro (Connecting Hearts)” Private Placement Bonds in Support of Local Community
In February 2017, The Nishi-Nippon City Bank began handling “Tsunagu Kokoro” private placement
bonds in support of the local community, under which donations are offered for the purchase of books
and sports gear for local schools in support of learning and the personal growth of the children who willplay an important role in the future of the Kyushu region. A total ¥4.47 billion in bonds have been
underwritten for 43 companies as of 30th June, 2018.
How the Donations Work

The Nishi-Nippon
City Bank, Ltd.
(1)Issuanceof private
placement
bonds

Press release(2)Requests
for recipientsand gifts

Issuers

Mass media(3)Coordination of gifts

Local schools, etc.
(recipients)(4)Donated under the issuer’s
name or joint names (up to 0.2%of the amount of the bonds)
Nishi-Nippon Financial Holdings GroupANNUAL REPORT 201813

Collaboration with Local Governments and Other External Organizations
Since signing the “Comprehensive Agreement on Recreation of the Local Economy” with 13 local
governments from June 2015 onward, the Group has embarked on a series of initiatives designed toassist regional revitalization.
Commending Managers for Outstanding Contributions to Development of the Regional Economy<Excellent Executive Prize (awarded by The Prize of Excellent Executive)>
Every year, awarding of the Prize of Excellent Executive recognizes managers ofsmall- and medium-sized enterprises in the Kyushu and Yamaguchi regions who
have recorded outstanding achievements in terms of management and technology
and thereby contributed to development of their regional economies.
On 26th April, 2018, the 45th commendation ceremony for “Excellent Executive
Recipients of Excellent
Prize” was held. Since its inception in 1973, a total 165 managers have been
Executive Prize
commended. This prestigious prize has been the major source of encouragement for
managers of local businesses, with some going on to make their enterprises publicly listed companies.

Governance

Audit and Supervisory
Committee

Board of Directors

Executive Committee

PDCA cycle for the Group’s business administration
Group strategies arereviewed

NNFH draws up
Group strategies

NNFH monitors
the status of businessexecution by each company

DO

A C T I ON

PLAN

C

HECK

Each Group company
conducts business according
to Group strategies

Group companies
PDCA Cycle for Group Business Administration
With NNFH (holding company) focusing on business administration and Group companies
concentrating on business execution, further advancement of the Group’s business administration is
aimed at.
Company with Audit and Supervisory Committee
Reinforcing governance and building a prompt and efficient decision-making system
Ensuring effectiveness of auditing and oversight functions by ensuring that outside directors comprise amajority of board members.

14

Nishi-Nippon Financial Holdings GroupANNUAL REPORT 2018

Risk Management Systems
With accelerating liberalization and globalization of finance and advances in information and communication technology, the risks attendanton financial services are becoming ever more diverse and complex. Against that backdrop, the Group is making concerted efforts toadvance risk management, which is one of its key priority issues for management, by establishing a Basic Policy on Risk Management to beobserved by the entire Group, with the goals of building a sound management foundation and ensuring stable revenue flow.

Integrated Risk Management:

Liquidity Risk Management:

Integrated risk management refers to a series of practices
designed to keep abreast of the general picture of risks that are
unique to the Group’s structure but which each Group company
could not be expected to deal with individually, including thosefacing the entire Group and those spreading within it, and toassess and manage such risks by comparing them against theGroup’s management resilience (equity capital).

NNFH established a Liquidity Risk Management Policy under its
Risk Management Regulations in an effort to reinforce theliquidity risk management system.
In order to prevent tight finances, the Group maintains thesoundness of its assets so that it can ensure market liquidity
and stabilize cash flows.

Operational Risk Management:
NNFH established an Operational Risk Management Policy
under its Risk Management Regulations, thereby strengthening
its operational risk management system.
Given that operational risks are so extensive, varied, anddiverse that they concern every single operation and section andthus must be avoided as far as possible in business
management, the Group has developed an organizational setup
and system that properly manage such risks, in order to prevent
them from becoming actualized and to minimize their impacts
should any such risks occur.

Credit Risk Management:
Recognizing credit risk as the most important type of risk for theGroup, NNFH established a Credit Risk Management Policy
under its Risk Management Regulations, thereby reinforcing thecredit risk management system.
The Group objectively and quantitatively monitors the risks
of individual borrowers and feeds any findings back to its credit
portfolio management, thereby managing the entire Group in an
integrated manner.

Crisis Management:

Market Risk Management:

As a basic policy for developing a system to ensure that theminimum operations necessary for maintaining the financial
system’s functions can continue without interruption in the eventof a large-scale disaster, IT system failure, or other contingency,
NNFH established the Business Continuity Regulations. NNFH’s
subsidiaries then formulated Business Continuity Plans (BCPs)
in accordance with this basic policy, and they work to enhance
effectiveness of the business continuity management system bycarrying out various types of drills.

NNFH established a Market Risk Management Policy under its
Risk Management Regulations to reinforce its market risk
management system.
The Group sets limits on market risks so as to enable
adequate management of such risks and undertakes themwithin the range of those limits in order to achieve stable flow ofrevenue.

Internal Audit Division
Credit risk (Compliance & Risk Management Division)
Market risk (Compliance & Risk Management Division)
Liquidity risk (Compliance & Risk Management Division)
Board of Directors

Audit and Supervisory
Committee

Operational risk (Compliance & Risk Management Division)

Executive Committee
Compliance &Risk Management
Division

Administrative risk (Compliance & Risk Management Division)
System risk (Compliance & Risk Management Division)

Head Office
Divisions

Legal risk (Compliance & Risk Management Division)
Human error risk (Corporate Planning Division)
Tangible asset risk (Corporate Planning Division)
Reputational risk (Compliance & Risk Management Division)

Consolidated Subsidiaries and Affiliates

NNFH established a Compliance & Risk Management Division to manage all matters concerning credit risk management under one umbrella. This Division periodically monitors the status of risk management within the Group and issues directives for improvement as necessary, thereby ensuring that the risk management system is effective.

Commitment to Anti-Money Laundering (AML) Compliance
In order to reinforce its commitment to prevention of money laundering and financing of terrorism, which is being demanded on aninternational level, special organizations for this task were established within the Compliance & Risk Management Department of NNFH andthe Compliance Risk Supervisory Division of The Nishi-Nippon City Bank, Ltd. on 1st August , 2018.
Nishi-Nippon Financial Holdings GroupANNUAL REPORT 2018

15

16

Nishi-Nippon Financial Holdings GroupANNUAL REPORT 2018

Financial Section

Contents
Nishi-Nippon Financial Holdings, Inc. and Subsidiaries
Consolidated Balance Sheet ................................................................... 18
Consolidated Statement of Income ......................................................... 19
Consolidated Statement of Comprehensive Income ................................ 19
Consolidated Statement of Changes in Net Assets ................................. 20
Consolidated Statement of Cash Flows ................................................... 22
Notes to Consolidated Financial Statements ........................................... 23
Quarterly Information (Unaudited) ............................................................. 60
The Nishi-Nippon City Bank, Ltd.
Non-Consolidated Balance Sheet (Unaudited) ......................................... 61
Non-Consolidated Statement of Income (Unaudited) ................................ 62
Non-Consolidated Statement of Changes in Net Assets (Unaudited) ....... 63
The Bank of Nagasaki, Ltd.
Non-Consolidated Balance Sheet (Unaudited) ......................................... 66
Non-Consolidated Statement of Income (Unaudited) ............................... 67
Non-Consolidated Statement of Changes in Net Assets (Unaudited) ....... 68
Notes to Non-Consolidated Financial Statements (Unaudited) ..................... 70
Independent Auditor’s Report ...................................................................... 71

Nishi-Nippon Financial Holdings GroupANNUAL REPORT 201817

Consolidated Balance Sheet
Nishi-Nippon Financial Holdings, Inc. and Subsidiaries
31st March, 2018 and 2017
Thousands of
U.S. dollars (Note 1)

Millions of yen

2017

2018

¥1,076,592¥807,097$10,133,590

—

128

—

Commercial paper and other debt purchased

35,99333,606

338,792

Trading account assets (Notes 3 and 28)

1,142

869

10,7582018
Assets:Cash and due from banks (Notes 6 and 27)
Call loans and bills bought

2,850

850

26,826

Securities (Notes 4, 6, 27 and 28)

Money held in trust (Note 29)

1,563,859

1,655,774

14,720,064

Loans and bills discounted (Notes 5, 7 and 27)

66,279,728

7,041,558

6,803,828

Foreign exchange assets (Note 8)

8,359

7,539

78,683

Other assets (Notes 6 and 9)

96,07055,567904,273

Tangible fixed assets (Notes 10 and 17)

1,174,641

124,793

121,035

Intangible fixed assets

4,198

5,704

39,521

Asset for retirement benefits (Note 31)

25,652

12,328241,460

631

952

5,945

Customers’ liabilities for acceptances and guarantees

Deferred tax assets (Note 32)

23,537

26,123

221,550

Reserve for possible loan losses (Note 27)(42,958)(44,339)(404,356)

(618)

(618)

(5,822)¥9,961,663¥9,486,448$93,765,659$78,551,345

Reserve for devaluation of securities
Total assets
Liabilities and net assets:
Liabilities:¥8,345,294¥8,019,012

Call money and bills sold (Notes 6 and 27)

Deposits (Notes 6, 11, and 27)

64,38759,924

606,054

Payables under repurchase agreements (Notes 6 and 27)

100,753

69,174

948,355

Guarantee deposits received under securities lending transactions (Note 6)

27,63018,714260,077

Borrowed money (Notes 6, 13 and 27)

748,876

630,662

7,048,916

113

89

1,070

Bonds (Notes 12 and 27)

Foreign exchange liabilities (Note 8)

20,00030,000188,253

Other liabilities (Note 14)

517,758

55,006

91,616

Liability for retirement benefits (Note 31)

751

811

7,069

Reserve for retirement benefits for directors and corporate auditors

232

248

2,188

Reserve for reimbursement of deposits

2,539

2,420

23,899Reserve for other contingent losses

1,409

1,497

13,267

Reserve under the special laws

9

7

92

Deferred tax liabilities (Note 32)

21,224

9,210

199,780

Deferred tax liabilities on revaluation of premises (Note 17)

15,00015,256

141,195

Acceptances and guarantees

23,537

26,123

221,550

9,426,768

8,974,769

88,730,875

Total liabilities
Net assets:
Capital stock (Note 15)

50,00050,000470,632

Capital surplus

134,791

141,868

1,268,747

Earned surplus

236,924

219,7932,230,089

Treasury stock (Note 16)(10,668)(15,829)(100,417)

411,048395,8313,869,051

79,474

62,122748,067

(33)

(384)

(316)

Revaluation of premises, net of taxes (Note 17)

30,05830,400282,925

Retirement benefits liability adjustments, net of taxes (Note 31)

6,927

(192)

65,205

116,426

91,946

1,095,881

Total shareholders’ equity
Net unrealized gains on securities available for sale, net of taxes (Note 28)
Net deferred gains (losses) on hedging instruments, net of taxes

Total accumulated other comprehensive income
Non-controlling interests
Total net assets (Note 37)
Total liabilities and net assets
See accompanying Notes to Consolidated Financial Statements.

18

Nishi-Nippon Financial Holdings GroupANNUAL REPORT 2018

7,420

23,89969,850534,895

511,678

5,034,783¥9,961,663¥9,486,448$93,765,659

Consolidated Statement of Income
Nishi-Nippon Financial Holdings, Inc. and Subsidiaries
Year ended 31st March, 2018 and 2017
Thousands of
U.S. dollars (Note 1)

Millions of yen

2018

2017

¥84,759
14,086
1,573
32,584
2,489
1,241
6,090
142,824¥85,498
14,274
1,498
31,745
1,222
2,667
9,032
145,938$797,810
132,590
14,811
306,705
23,43011,681
57,325
1,344,355

2,381
180
932

3,718
382
659

22,413
1,698
8,776

206
455
931
11,5092,14885,238
6,417
110,401
32,422

27
405
1,135
10,9872,023
85,608
8,569
113,516
32,422

1,941
4,288
8,763
108,336
20,223
802,322
60,4091,039,175
305,179

9,609
546
10,15522,266

9,979
(881)
9,098
23,32390,453
5,139
95,592
209,586798¥21,467

1,108¥22,2147,517$202,069

2018

Income:Interest and dividend income:Interest on loans and discounts
Interest and dividends on securities
Other interest income (Note 18)
Fees and commissions
Trading income
Other operating income (Note 19)
Other income (Note 20)
Total income
Expenses:
Interest expenses:
Interest on deposits
Interest on call money and bills soldInterest on payables under repurchase agreements
Interest on guarantee deposits received under securities lendingtransactions
Interest on borrowings
Other interest expenses (Note 21)
Fees and commissions
Other operating expenses (Note 22)
General and administrative expenses (Note 23)
Other expenses (Note 24)
Total expenses
Profit (loss) before income taxes
Income taxes (Note 32)
Current
Deferred
Total income taxes
Profit (loss)
Profit (loss) attributable to:Non-controlling interests
Owners of parent (Note 37)
See accompanying Notes to Consolidated Financial Statements.

Consolidated Statement of Comprehensive Income
Nishi-Nippon Financial Holdings, Inc. and Subsidiaries
Year ended 31st March, 2018 and 2017
Thousands of
U.S. dollars (Note 1)

Millions of yen

2018

2017

2018

¥22,266¥23,323$209,586

Net unrealized gains on securities available for sale

17,424(1,033)164,008

Net deferred gains (losses) on hedging instruments

350

626

3,299

7,119

5,830

67,015

Profit (loss)
Other comprehensive income:Retirement benefits liability adjustments
Total other comprehensive income (Note 25)¥24,894¥5,424$234,323

Comprehensive income¥47,161¥28,747$443,910¥46,290¥27,590$435,715¥870¥1,156$8,195Comprehensive income attributable to owners of parent
Comprehensive income attributable to non-controlling interests
See accompanying Notes to Consolidated Financial Statements.

Nishi-Nippon Financial Holdings GroupANNUAL REPORT 201819

Consolidated Statement of Changes in Net Assets
Nishi-Nippon Financial Holdings, Inc. and Subsidiaries
Year ended 31st March, 2018 and 2017
Thousands of
U.S. dollars (Note 1)

Millions of yen

2018

2017

2018

¥50,000¥85,745$470,632—(35,745)—

Shareholders’ equity:
Capital stock (Note 15)
Balance at beginning of the year
Changes during the year
Changes due to share transfer
Total changes during the year—

(35,745)—¥50,000¥50,000$470,632¥141,868¥90,531$1,335,358

Changes due to share transfer—

51,567—

Sale of treasury stock

0

(2)

1

(7,076)(228)(66,612)

Balance at end of the year
Capital surplus
Balance at beginning of the year
Changes during the year

Retirement of treasury stock
Total changes during the year
Balance at end of the year

(7,076)

51,336(66,610)¥134,791¥141,868$1,268,747¥219,793¥207,138$2,068,836

Earned surplus
Balance at beginning of the year
Changes during the year
Cash dividends paid (Note 38)(4,679)(4,697)(44,043)

Profit (loss) attributable to owners of parent

21,46722,214

202,069

Retirement of treasury stock—(4,968)—

Reversal of revaluation of premises

342

106

3,226

Total changes during the year
Balance at end of the year

17,131

12,654

161,252¥236,924¥219,793$2,230,089(¥15,829)(¥4,189)($148,999)—(15,821)—(1,916)(1,022)(18,035)

Treasury stock (Note 16)
Balance at beginning of the year
Changes during the year
Changes due to share transfer
Acquisition of treasury stock
Sale of treasury stock
Retirement of treasury stock
Total changes during the year
Balance at end of the year

0

6

5

7,076

5,196

66,612

5,161(11,640)

48,582(¥10,668)(¥15,829)($100,417)¥395,831¥379,226$3,725,827

Total shareholders’ equity
Balance at beginning of the year
Changes during the year
Cash dividends paid (Note 38)(4,679)(4,697)(44,043)

Profit (loss) attributable to owners of parent

21,46722,214

202,069

Acquisition of treasury stock(1,916)(1,022)(18,035)

0

4

6

342

106

3,226

Sale of treasury stockReversal of revaluation of premises
Total changes during the year
Balance at end of the year

20

Nishi-Nippon Financial Holdings GroupANNUAL REPORT 201815,216

16,605

143,224¥411,048¥395,831$3,869,051

Consolidated Statement of Changes in Net Assets
Nishi-Nippon Financial Holdings, Inc. and Subsidiaries
Year ended 31st March, 2018 and 2017

Thousands of
U.S. dollars (Note 1)

Millions of yen

2018

2017

2018

¥62,122¥63,203$584,736

17,352(1,081)

163,330

Accumulated other comprehensive income:Net unrealized gains on securities available for sale, net of taxes
Balance at beginning of the year
Changes during the year
Net changes in items other than shareholders’ equity
Total changes during the year
Balance at end of the year

17,352(1,081)

163,330¥79,474¥62,122$748,067(¥384)(¥1,011)($3,616)

350

626

3,299

350

626

3,299

(¥33)

(¥384)($316)¥30,400¥30,507$286,151

(342)

(106)

(3,226)

Net deferred gains (losses) on hedging instruments, net of taxes
Balance at beginning of the year
Changes during the year
Net changes in items other than shareholders’ equity
Total changes during the year
Balance at end of the year
Revaluation of premises, net of taxes
Balance at beginning of the year
Changes during the year
Net changes in items other than shareholders’ equity
Total changes during the year
Balance at end of the year

(342)

(106)

(3,226)¥30,058¥30,400$282,925(¥192)(¥6,023)($1,810)

7,119

5,830

67,015

7,119

5,830

67,015¥6,927(¥192)$65,205¥91,946¥86,676$865,461

24,4795,270

230,419

Retirement benefits liability adjustments
Balance at beginning of the year
Changes during the year
Net changes in items other than shareholders’ equity
Total changes during the year
Balance at end of the year
Total accumulated other comprehensive income
Balance at beginning of the year
Changes during the year
Net changes in items other than shareholders’ equity
Total changes during the year
Balance at end of the year

24,4795,270

230,419¥116,426¥91,946$1,095,881¥23,899¥21,927$224,961(16,479)

1,971(155,111)(16,479)

1,971(155,111)¥7,420¥23,899$69,850¥511,678¥487,831$4,816,251

Non-controlling interests:
Balance at beginning of the year
Changes during the year
Net changes in items other than shareholders’ equity
Total changes during the year
Balance at end of the year
Total net assets:
Balance at beginning of the year
Changes during the year
Cash dividends paid (Note 38)(4,679)(4,697)(44,043)

Profit (loss) attributable to owners of parent

21,46722,214

202,069

Acquisition of treasury stock(1,916)(1,022)(18,035)

0

4

6

342

106

3,226

Sale of treasury stockReversal of revaluation of premises
Net changes in items other than shareholders’ equity
Total changes during the year
Balance at end of the year

8,000

7,242

75,30823,216

23,847

218,532¥534,895¥511,678$5,034,783

See accompanying Notes to Consolidated Financial Statements.

Nishi-Nippon Financial Holdings GroupANNUAL REPORT 201821

Consolidated Statement of Cash Flows
Nishi-Nippon Financial Holdings, Inc. and Subsidiaries
Year ended 31st March, 2018 and 2017
Thousands of
U.S. dollars (Note 1)

Millions of yen

2018

2017

2018

¥32,422
6,861
1,135
283
(233)
(1,381)
0(13,324)(60)¥32,422
6,615
974
189
(111)
2,623
0
(6,972)(3,534)$305,179
64,58010,6902,669(2,201)(12,999)2(125,416)
(565)

(15)
118
(88)
(100,419)
5,087(2,343)
(4)
(691)
376
(273)
(237,730)
268,620
57,661
118,214(88)(2,258)36,04130
246(0)(101,271)
6,327(4,608)(3)(1,293)468
414(351,874)
232,344
23,330124,392
1,107(1,236)
21,601

(149)
1,115
(829)
(945,212)
47,882(22,062)(46)(6,513)
3,545(2,574)(2,237,672)
2,528,434
542,745
1,112,711(832)(21,258)
339,245

8,916
(819)
24
101,776(5,565)(59,777)
212,463(7,634)¥204,828(1,178)744
15104,052(6,766)
2,796
81,843(14,869)¥66,974

83,927(7,712)
227
957,982(52,386)(562,665)
1,999,840(71,858)$1,927,981(¥241,402)
55,252296,928(2,000)—(10,071)966(958)(¥206,745)
83,218282,300(450)
1,603(11,879)
88(1,417)($2,272,234)
520,074
2,794,887(18,825)—(94,799)
9,095(9,017)(181)¥98,535—¥146,717(1,703)$927,477(10,000)(4,678)(349)(17,000)(1,916)
0(¥33,943)(18,800)(4,697)(684)—(1,022)
4(¥25,199)(94,126)(44,039)(3,291)(160,015)(18,035)
6($319,500)

(¥12)

(¥5)

($122). Net increase in cash and cash equivalents¥269,407¥188,486$2,535,835. Cash and cash equivalents at beginning of the year

¥803,760¥615,274$7,565,520¥1,073,168¥803,760$10,101,356. Cash flows from operating activities:
Profit (loss) before income taxes
Depreciation
Losses on impairment of fixed assets
Amortization of goodwill
Equity in gains of nonconsolidated subsidiaries and affiliate(Decrease) increase in reserve for possible loan losses
Increase in reserve for devaluation of securities
Increase in asset for retirement benefits
Decrease in liability for retirement benefits(Decrease) increase in reserve for retirement benefits for directors andcorporate auditors
Increase in reserve for reimbursement of deposits
Decrease in reserve for other contingent losses
Income from lending activities
Funding costs
Gains on securities
Gains on money held in trust
Net foreign exchange gains
Losses on sale of tangible fixed assets
Net (increase) decrease in trading account assets
Net increase in loans and bills discounted
Net increase in deposits
Net increase in certificates of deposit
Net increase in borrowed money, exclusive of subordinated borrowings
Net (increase) decrease in due from banks, exclusive of central bank
Net increase in call loans
Net increase in call money
Net increase (decrease) in guarantee deposits received under securities
lending transactions
Net (increase) decrease in foreign exchange assets
Net increase in foreign exchange liabilities
Interest and dividends received
Interest paid
OthersSubtotal
Income taxes paid
Net cash provided by operating activities. Cash flows from investing activities:
Payments for purchase of securities
Proceeds from sale of securities
Proceeds from redemption of securities
Payments for increase in money held in trust
Proceeds from decrease in money held in trust
Payments for purchase of tangible fixed assets
Proceeds from sale of tangible fixed assets
Payments for purchase of intangible fixed assets
Payments for acquisition of subsidiaries’ shares resulting in changes
in scope of consolidation
Net cash provided by investing activities. Cash flows from financing activities:
Redemption of subordinated bonds
Dividends paid
Dividends paid to non-controlling shareholders
Payments for distribution to non-controlling shareholders
Payments for acquisition of treasury stock
Proceeds from sale of treasury stock
Net cash used in financing activities. Effects of changes in exchange rates on cash and cash equivalents. Cash and cash equivalents at end of the year (Note 36)
See accompanying Notes to Consolidated Financial Statements.

22

Nishi-Nippon Financial Holdings GroupANNUAL REPORT 2018

Notes to Consolidated Financial Statements
Nishi-Nippon Financial Holdings, Inc. and Subsidiaries

1. Basis of Presentation of Consolidated Financial Statements
The accompanying consolidated financial statements of Nishi-Nippon Financial Holdings, Inc. (the “Company”), and its consolidated
subsidiaries have been prepared in conformity with accounting principles generally accepted in Japan, which are different in certain respects
as to the application and disclosure requirements of International Financial Reporting Standards, and are compiled from the consolidated
financial statements prepared by the Company as required by the Financial Instruments and Exchange Law of Japan.
In addition, the notes to the consolidated financial statements include information which is not required under accounting principles
generally accepted in Japan but is presented herein as additional information.
Solely for the convenience of readers outside Japan, certain items in the original Japanese financial statements have been reclassified
for presentation.
As permitted by the Financial Instruments and Exchange Law, amounts of less than one million yen have been omitted by theCompany.
Consequently, the totals shown in the accompanying consolidated financial statements (both in yen and U.S. dollars) do not necessarily
agree with the sum of the individual amounts.
The amounts in U.S. dollars are included solely for the convenience of readers outside Japan. A rate of ¥106.24= U.S.$ 1.00, theexchange rate on 31st March, 2018, has been used in translation.
In the consolidated financial statements, “—” is used to denote “nil” and “0” is used to denote rounding down to zero.

2. Summary of Significant Accounting Policies(1) Scope of Consolidation
The consolidated financial statements include the accounts of the Company and its consolidated subsidiaries.
The number of consolidated and non-consolidated subsidiaries for the years ended 31st March, 2018 and 2017 is as follows:
2018

2017

i) Number of consolidated subsidiaries:78ii) Number of non-consolidated subsidiaries:21i) Nishi-Nippon City Preferred Capital (Cayman) Limited was excluded from consolidation in 2018 due to completion of its liquidation.
However, its statement of income to the date of completion of the liquidation was included in the consolidated statement of income forthe year ended 31st March, 2018.
ii) NCB Kyushu Rokujika Ouen Investment, Limited Partnership was excluded from consolidation due to its insignificance in 2017 and2018.
Japan Payment Service CO., LTD. was excluded from consolidation due to its insignificance in 2018.
(2) Application of Equity Method
The number of non-consolidated subsidiaries and affiliates, which are accounted for by the equity method, for the years ended 31st
March, 2018 and 2017 is as follows:
2018

2017

i) Number of non-consolidated subsidiaries accounted for by the equity method:00ii) Number of affiliates accounted for by the equity method:11iii) Number of non-consolidated subsidiaries not accounted for by the equity method:

21iv) Number of affiliates not accounted for by the equity method:00(3) Fiscal Years of Consolidated Subsidiaries
The closing dates of consolidated subsidiaries are the same as the closing date for the consolidated financial statements.
(4) Trading Account Assets and Liabilities
Transactions that seek gains on short-term fluctuations and arbitrage in interest rates, currency prices, market prices of financial
instruments (trading transactions) are recognized on a trade date basis. They are recorded as trading assets or trading liabilities on the
consolidated balance sheets and gains or losses on these transactions are recorded in trading income or trading expenses on the
consolidated statements of income.
The Company’s consolidated subsidiaries engaged in the banking business value securities, monetary claims, etc. held for trading
purpose at the market price prevailing at the balance sheet date. Derivatives, such as futures and option transactions, are stated at theamount assuming that they were terminated or settled at the balance sheet date.

Nishi-Nippon Financial Holdings GroupANNUAL REPORT 201823

Notes to Consolidated Financial Statements

Trading income and expenses include interest income or expenses as well as changes in unrealized gains or losses on securities,
monetary claims and derivative financial products during the fiscal year.
(5) Securities
Securities held to maturity are carried at amortized cost using the straight-line method with cost determined by the moving averagemethod. Investments in non-consolidated subsidiaries not accounted for by the equity method are valued at cost determined by themoving average method. In principle, securities available for sale are carried at fair value with cost of sales determined by the moving
average method. However, securities available for sale, for which it is extremely difficult to determine the fair value, are valued at cost
determined by the moving average method.
The difference between the acquisition cost and the carrying amount of securities available for sale, representing unrealized gains
and losses, is recognized as unrealized gains (losses) on securities available for sale, net of taxes, and included directly in net assets.
Securities held as components of individually managed money trusts whose principal objective is investments in securities are stated
at fair value.
(6) Derivatives
Derivatives held or written are stated at fair value.
(7) Tangible Fixed Assets (excluding leased assets)
Tangible fixed assets of the Company and its consolidated subsidiaries engaged in the banking business are depreciated by the
declining-balance method; however, buildings (excluding facilities attached to buildings) acquired on or after 1st April, 1998 aredepreciated by the straight-line method. The useful lives for buildings and equipment are as follows:
Buildings:

3 to 60 years

Equipment:

2 to 20 years

Tangible fixed assets of other consolidated subsidiaries are depreciated mainly using the declining-balance method.
(8) Intangible Fixed Assets (excluding leased assets)
Intangible fixed assets are amortized using the straight-line method. Software for internal use is amortized based on the estimated usefullife determined by the Company and its consolidated subsidiaries (5 years).
(9) Leased Assets
The tangible and intangible fixed assets capitalized under the finance lease transactions entered into on and after 1st April, 2008 where
ownership of leased assets is not transferred to lessees are depreciated by the straight-line method over the lease term with their residual
value of zero.
(10) Accounting Treatment for Deferred Assets
Deferred assets are charged to expenses when incurred.
(11) Reserve for Possible Loan Losses
Major consolidated subsidiaries record the reserve for possible loan losses as follows:
For loans to insolvent customers who are undergoing bankruptcy or special liquidation, etc. (hereinafter, “borrowers underbankruptcy proceedings”) or who are in a similar financial condition although not yet in bankruptcy (hereinafter, “borrowers substantiallyin bankruptcy”), the reserve for possible loan losses is provided at the full amount of the book value of such loans after deducting theamount of direct write-offs (as defined below), and excluding the amounts deemed collectible from sale of the collateral pledged andthe guarantees that are deemed recoverable.
For the unsecured and unguaranteed portion of loans to customers not presently in the above circumstances, but with a highprobability of becoming so (hereinafter “customers with high probability of becoming insolvent”), the reserve for possible loan losses isprovided at the amounts deemed necessary after deduction of the estimated realizable value of collateral and guarantees based on thecustomer’s overall financial condition.
For other loans, the reserve for possible loan losses is provided at an amount based on the anticipated loss rates calculated fromthe actual losses for a certain period.
Regarding each loan, the Credit Review Office, which is independent of the operating divisions, reviews the operating divisions’evaluation of each loan for collectibility based on self-assessment standards.

24

Nishi-Nippon Financial Holdings GroupANNUAL REPORT 2018

Notes to Consolidated Financial Statements

For loans to borrowers under bankruptcy proceedings and borrowers substantially in bankruptcy that are secured by collateral andguarantees, the unrecoverable portion of such loans is determined by subtracting the estimated recoverable amounts from the disposalof the collateral and the amounts deemed recoverable from the guarantors. The unrecoverable amount is written off directly against thevalue of the loan (“direct write-off”). The amounts of such direct write-offs at 31st March, 2018 and 2017 were ¥5,193 million($48,884 thousand) and ¥5,130 million, respectively.
For loans to borrowers with a rescheduled or restructuring plan, which exceed a certain amount, the discounted cash flow (DCF)
method is applied to provide for doubtful accounts, if cash flows from collection of principal and receipts of interest can be reasonably
estimated. Under the DCF method a reserve for possible loan losses is provided at the difference between the cash flows discounted
by the original interest rate and the carrying value of the loan.
Other consolidated subsidiaries record a general reserve for possible loan losses by applying the historical loan-loss ratio observed
over specific periods, and record a specific reserve for certain loans at the estimated uncollectible amount based on assessment ofeach borrower’s ability to repay.
(12) Reserve for Devaluation of Securities
In order to provide for a loss on investments, the Company and its consolidated subsidiaries estimate the amount deemed necessary
based on a review of financial position, etc. of the companies issuing securities or golf club membership.
(13) Reserve for Retirement Benefits for Directors and Corporate Auditors
Reserve for retirement benefits for directors and corporate auditors is provided at the amount that would be paid in accordance with
the internally established rule at the balance sheet date if they were retired on that date.
(14) Reserve for Reimbursement of Deposits
Reserve for reimbursement of deposits is provided for possible losses on the future claims for withdrawal of the deposits, which wasderecognized, at an amount deemed necessary based on the estimates of the consolidated subsidiaries engaged in the banking
business.
(15) Reserve for Other Contingent Losses
Reserve for other contingent losses is provided for possible losses on loans under the shared responsibility system with the Credit
Guarantee Corporation as well as for possible losses resulting from other contingencies not covered by the other reserves, at an
amount deemed necessary based on the estimates of the future possible payments by the Company and its consolidated subsidiaries.
(16) Reserve under the Special Laws
Reserve under the special laws is a legal reserve for financial instruments exchange, which is provided for possible losses arising fromthe purchase or sale of securities or other securities-related trading activities by the Company’s consolidated subsidiary engaged in the
securities business at an amount estimated pursuant to Article 46, Item 5 of the Financial Instruments and Exchange Law as well as
Article 175 of the Cabinet Office Ordinance relating to the financial instruments services.
(17) Accounting for Retirement Benefits
For the consolidated subsidiaries engaged in the banking business, the retirement benefit obligation for employees is attributed to eachperiod by the benefit formula method.
Actuarial gain/loss is amortized using the straight-line method mainly over a period of 10 years following the year it arises, which iswithin the average remaining years of service of the current employees.
For other consolidated subsidiaries, liability for retirement benefits and retirement benefit expenses are calculated using thesimplified method, which assumes the retirement benefit obligation to be equal to the benefits payable if all eligible employees voluntarily
terminated their employment at fiscal year end.
(18) Foreign Currency Translation
Foreign currency-denominated assets and liabilities are translated into Japanese yen primarily at the exchange rate prevailing at thebalance sheet date.
(19) Accounting for Leases
Finance lease transactions which were initially engaged by the domestic consolidated subsidiaries prior to1st April, 2008 where there isno transfer of ownership are accounted for by the same method as applicable to ordinary operating lease contracts.

Nishi-Nippon Financial Holdings GroupANNUAL REPORT 201825

Notes to Consolidated Financial Statements(20) Hedge Accountingi) Hedge accounting for interest rate risks
The consolidated subsidiaries engaged in the banking business apply the deferred method as hedge accounting for interest raterisks of certain financial assets and liabilities by using the individual hedging, which directly matches hedged items and hedging
instruments.
With regard to hedging transactions to offset fluctuations in the fair value of fixed-rate bonds classified as available-for-salesecurities, in accordance with operational rules concerning hedge accounting, hedged items are distinguished by identical type ofbonds and interest rate swaps are used as hedging instruments. Since significant terms related to those hedged items and hedging
instruments are nearly identical, such hedging transactions are deemed highly effective in terms of evaluation of hedge effectiveness.
No evaluation is performed for hedge effectiveness of qualifying interest rate swaps accounted for by the special treatment, as it
is ascertained that the criteria for the special treatment are continually met.
ii) Hedge accounting for foreign exchange rate risk
The consolidated subsidiaries engaged in the banking business apply the deferred method as hedge accounting for foreign exchangerisks of various foreign currency-denominated financial assets and liabilities in accordance with the “Accounting and Auditing
Treatment for Accounting for Foreign Currency Transactions in Banking Industry” (JICPA Industry Audit Committee Report No. 25 of
29th July, 2002).
The consolidated subsidiaries treat foreign exchange swap transactions as hedging instruments for the purpose of the hedge of
foreign currency-denominated financial assets and liabilities, and the subsidiaries test hedge effectiveness by matching the foreign
currency swap position as hedging instruments with the related foreign currency-denominated financial assets and liabilities ashedged items.
iii) Internal contract
For internal contracts, the consolidated subsidiaries engaged in the banking business manage the foreign currency swaps that aredesignated as hedging instruments in accordance with the strict criteria for external transactions stipulated in the JICPA Industry
Audit Committee Report No. 25. Therefore, the subsidiaries either recognizes gains or losses that arise from such currency swaps as
earnings or defers them, rather than eliminating them.
(21) Amortization of Goodwill
Goodwill is amortized using the straight-line method over five years.
(22) Cash and Cash Equivalents in the Consolidated Statement of Cash Flows
Cash and Cash Equivalents in the consolidated statement of cash flows are composed of cash and due from central bank.
(23) Accounting Treatment for Consumption Taxes
The tax excluded method is used as the accounting treatment for consumption taxes and local consumption taxes for the Company
and its domestic consolidated subsidiaries.
(24) Application of the Consolidated Tax Payment System
The Company and some of its consolidated subsidiaries have adopted the consolidated tax payment system, where the Company isdesignated as a parent company.
(Accounting Standards Issued but Not Yet Effective)“Implementation Guidance on Tax Effect Accounting” (ASBJ Guidance No. 28 of 16th February, 2018)
Overview
The accounting treatment for taxable temporary differences related to investments in subsidiaries when an entity prepares separate
financial statements was modified.
Scheduled date of adoption
The Company plans to adopt the above-mentioned implementation guidance from the beginning of the fiscal year ending 31st
March, 2019.
Impact of the adoption of the implementation guidance
The Company is currently evaluating the effect of the adoption of this implementation guidance on its consolidated financial
statements.

26

Nishi-Nippon Financial Holdings GroupANNUAL REPORT 2018

Notes to Consolidated Financial Statements“Accounting Standard for Revenue Recognition” (ASBJ Statement No. 29 of 30th March, 2018)“Implementation Guidance on Accounting Standard for Revenue Recognition” (ASBJ Guidance No. 30 of 30th March, 2018)
Overview
This is a comprehensive accounting standard for revenue recognition. Specifically, the accounting standard establishes thefollowing five-step model that will apply to revenue from customers:
Step 1: Identify the contract(s) with a customer.
Step 2: Identify the performance obligations in the contract.
Step 3: Determine the transaction price.
Step 4: Allocate the transaction price to the performance obligations in the contract.
Step 5: Recognize revenue when (or as) the entity satisfies a performance obligation.
Scheduled date of adoption
The Company plans to adopt the above-mentioned accounting standard and implementation guidance from the beginning of the
fiscal year ending 31st March, 2022.
Impact of the adoption of the accounting standard and implementation guidance
The Company is currently evaluating the effect of the adoption of this accounting standard and implementation guidance on its
consolidated financial statements.

3. Trading Account Assets
Trading account assets at 31st March, 2018 and 2017 consisted of the following:Thousands of
U.S. dollars

Millions of yen

2017

2018
Trading securities
Other trading assets
Total

¥869

¥1,142

2018$10,758———¥1,142¥869$10,758

4. Securities
Securities at 31st March, 2018 and 2017 consisted of the following:Thousands of
U.S. dollars

Millions of yen

2018

2017

Japanese government bonds¥472,435¥596,276$4,446,865

Japanese municipal bonds

88,204

114,840

830,235

2018

Corporate bonds (including
government-guaranteed bonds)*

447,921484,892

4,216,130

Stock**

162,398

129,149

1,528,597

Other securities***392,900

330,615

3,698,234¥1,563,859¥1,655,774$14,720,064

Total* Corporate bonds included bonds offered through private placement. The guarantee obligation of Nishi-Nippon City Bank for such private placement bonds at 31st
March, 2018 and 2017 were ¥8,619 million ($81,132 thousand) and ¥4,266 million, respectively.
** Stock included stock of affiliates of ¥739 million ($6,957 thousand) and ¥548 million at 31st March, 2018 and 2017, respectively.
*** Other securities included investments in non-consolidated subsidiaries of ¥211million ($1,991 thousand) and ¥241 million at 31st March, 2018 and 2017, respectively.

Nishi-Nippon Financial Holdings GroupANNUAL REPORT 201827

Notes to Consolidated Financial Statements

5. Loans and Bills Discounted
Loans and bills discounted at 31st March, 2018 and 2017 consisted of the following:Thousands of
U.S. dollars

Millions of yen

2018

2017

Bills discounted*¥30,287¥25,862$285,081

Loans on notes

236,589

223,452

2,226,935

Loans on deed

57,103,083

2018

6,066,631

5,894,192

Overdraft

708,050

660,3216,664,627

Total¥7,041,558¥6,803,828$66,279,728*

Bills discounted are recorded as cash lending / borrowing transactions in accordance with the “Accounting and Auditing Treatments for Application of AccountingStandard for Financial Instruments in Banking Industry” (JICPA Industry Audit Committee Report No. 24). The consolidated subsidiaries engaged in the banking
business have right to sell or collateralize such bills at its discretion. Total face value of commercial bills and bills of exchange acquired through discounting amounted
to ¥31,142 million ($293,130 thousand) and ¥26,094 million at 31st March, 2018 and 2017, respectively.

Non-performing loans included in the loans at 31st March, 2018 and 2017 consisted of the following:Thousands of
U.S. dollars

Millions of yen

2017

2018

2018

Loans to legally bankrupt entities**¥2,214¥1,778$20,840

Delinquent loans***

1,018,625

108,218

113,541

Loans past due for three months or more****

1,624

936

15,290Loans with altered lending conditions*****

27,55833,360259,395¥139,615¥149,617$1,314,151

Total
**

Loans to legally bankrupt entities are loans on which interest is placed on a non-accrual status (“non- accrual loans”), excluding loans written off, as principal orinterest has not been paid for a substantial period or for other reasons and there are no prospects for recovery or repayment of principal or interest, and to which
certain circumstances apply as stated in the Implementation Ordinances for the Corporation Tax Law.
*** Delinquent loans are non-accrual loans other than (i) loans to legally bankrupt entities and (ii) loans for which interest payments have been rescheduled in order toassist the restructuring of these borrowers.
**** Loans past due for three months or more are loans for which principal or interest has not been paid for a period of three months or more from the next business dayof the last due date, and that are not included in loans to legally bankrupt entities or delinquent loans.
***** Loans with altered lending conditions are loans restructured to provide relief to borrowers, such as reducing interest rates, rescheduling interest and principal
payment, or waiving the claims, in order to assist the restructuring of these borrowers. Such loans exclude loans to legally bankrupt entities, delinquent loans, andloans past due for three months or more.

6. Assets Pledged as Collateral
Assets pledged as collateral by the Company and its consolidated subsidiaries at 31st March, 2018 and 2017 consisted of the following:Thousands of
U.S. dollars

Millions of yen

2017

2018

2018

Assets pledged as collateral
¥37

¥40

$348

Securities

967,933

802,332

9,110,816

Total¥967,970¥802,372$9,111,164

Deposits¥11,672¥18,514$109,870

Call money and bills sold

38,200—359,563

Payables under repurchase agreements

100,753

69,174

948,355

Cash and due from banks

Liabilities secured by the above assets

28

Guarantee deposits received under securities lending transactions

27,63018,714260,077

Borrowed money

740,116

621,618

6,966,454

Nishi-Nippon Financial Holdings GroupANNUAL REPORT 2018

Notes to Consolidated Financial Statements

Other than the items shown above, the following items were pledged as collateral for foreign exchange transactions and/or as substitutes
for initial margin on futures at 31st March, 2018 and 2017:
Thousands of
U.S. dollars

Millions of yen

2017

2018
Securities

2018

¥—

¥2

$—

2,644

65,892

24,896

Cash and due from banks

Additionally, the following was included in other assets at 31st March, 2018 and 2017:
Thousands of
U.S. dollars

Millions of yen

2017

2018
Cash collateral paid for financial instruments

2018¥47,303¥9,716$445,249

2,176

2,406

20,482

Deposits included in other assets

7. Contracts for Commitment Lines of Credit
Contracts for commitment lines of credit related to overdraft agreements and loan credit facilities represent a promise on a lending bank at a
specified credit limit, to a customer upon request for funds, unless there is a violation of the contractual conditions.
The aggregate amounts under commitment contracts not yet drawn down at 31st March, 2018 and 2017 are as follows:
Thousands of
U.S. dollars

Millions of yen

2018

2017

2018

Aggregate amount under commitment contracts not yet drawn down

¥2,016,916¥2,046,944$18,984,526

Of the above amount, those with original maturity of less than one year or cancellable at any time
without penalty

1,978,716

1,993,150

18,624,970

As many of these contracts expire without the right to extend the loans being exercised, the aggregate total of the undrawn amount
does not necessarily affect the future cash flows of the Company and its consolidated subsidiaries. Many of these contracts havestipulations that allow the consolidated subsidiaries to turn down a loan request or reduce the amount of the credit line if there is a change
in financial conditions, a need to secure their credit, or other similar reasons. In addition to obtaining necessary collateral (real estate,securities, etc.) at the time the contract is entered into, the consolidated subsidiaries assess the condition of the customer’s business
operations, and analyze other information, based on internal procedures and standards. If necessary, the contract is reviewed and revised,or additional steps are taken to secure the credit extended to the customer.

8. Foreign Exchange
Foreign exchange assets and liabilities at 31st March, 2018 and 2017 consisted of the following:Thousands of
U.S. dollars

Millions of yen

2017

2018

2018

Assets:Foreign exchange bills bought

¥855

¥232

$8,048Foreign exchange bills receivable

187

289

1,769

Due from foreign banks (their accounts)

—

—

—

Due from foreign banks (our accounts)

7,316

7,017

68,865¥8,359¥7,539$78,683

Foreign exchange bills sold

¥38

¥13

$366

Foreign exchange bills payable

74

75

703

¥113

¥89

$1,070Total
Liabilities:

Total

Nishi-Nippon Financial Holdings GroupANNUAL REPORT 201829

Notes to Consolidated Financial Statements

9. Other Assets
Other assets at 31st March, 2018 and 2017 consisted of the following:Thousands of
U.S. dollars

Millions of yen

2017

2018
¥19

¥12

$182

6,783

6,538

63,849Domestic exchange settlement account*
Accrued income

2018

90

70

848

Financial derivative products

7,330

6,609

68,998Cash collateral paid for financial instruments

47,303

9,716

445,249

Prepaid expenses

Other
Total

34,54332,621

325,145¥96,070¥55,567$904,273* Domestic exchange settlement account represents unsettled debit balances arising from inter-bank domestic exchange transfers.

10. Tangible Fixed Assets
Tangible fixed assets at 31st March, 2018 and 2017 consisted of the following:Thousands of
U.S. dollars

Millions of yen

2018

2017

2018

Land

¥75,821¥75,828$713,676

Buildings

36,93929,897

347,696

Construction in progress

267

3,058

2,513

Leased assets

265

191

2,496

Other tangible fixed assets
Total

11,501

12,059108,257¥124,793¥121,035$1,174,641* The amounts of accumulated depreciation for tangible fixed assets at 31st March, 2018 and 2017 were ¥72,651 million ($683,842 thousand) and ¥71,380, respectively.

The accelerated depreciation entry amounts for tangible fixed assets at 31st March, 2018 and 2017 are as follows:
Thousands of
U.S. dollars

Millions of yen

2017

2018

¥7,440¥7,305

2018$68,763

11. Deposits
Deposits at 31st March, 2018 and 2017 consisted of the following:Thousands of
U.S. dollars

Millions of yen

2018

2017

Current deposits¥380,573¥358,781$3,582,206

Ordinary deposits

4,458,586

4,113,424

41,967,114

Deposits at notice

14,713

15,145

138,494

2,902,618

2,990,162

27,321,330

478,620

420,959

4,505,089

Time deposits
Negotiable certificates of deposit
Other deposits
Total

30

Nishi-Nippon Financial Holdings GroupANNUAL REPORT 20182018

110,182

120,538

1,037,110¥8,345,294¥8,019,012$78,551,345

Notes to Consolidated Financial Statements

12. Bonds
Bonds at 31st March, 2018 and 2017 consisted of the following:Thousands of
U.S. dollars

Millions of yen

2017

2018

2018

Bonds:¥—¥10,000$—

10,00010,00094,126

2.70% Japanese yen subordinated bonds due 2017
0.67% Japanese yen callable subordinated bonds due 2023
0.87% Japanese yen callable subordinated bonds due 2025
Total

10,00010,00094,126¥20,000¥30,000$188,253

13. Borrowed Money
The weighted average interest rates on borrowed money are 0.07% both at 31st March, 2018 and 2017.
The aggregate annual maturity amounts within five years of borrowed money after 31st March, 2018 are as follows:
Millions of yen

Thousands of
U.S. dollars

2019¥35,186$331,197

2020

12,964122,0302021

167,290

1,574,648

2022

533,158

5,018,438

2023

92

868

Year ending 31st March

14. Other Liabilities
Other liabilities at 31st March, 2018 and 2017 consisted of the following:Thousands of
U.S. dollars

Millions of yen

2017

2018

2018

¥43

¥36

$407

Accrued income taxes

5,571

2,879

52,447

Accrued expenses

8,301

8,620

78,138

Unearned income

2,440

2,777

22,975

Financial derivative products

4,958

6,739

46,670

282

226

2,660

1,345

546

12,660

Domestic exchange settlement accountLease obligations
Cash collateral received for financial instruments

785

849

7,389

Others31,27868,940294,409

Total¥55,006¥91,616$517,758

Asset retirement obligations

Nishi-Nippon Financial Holdings GroupANNUAL REPORT 201831

Notes to Consolidated Financial Statements

15. Capital Stock
Capital stock during the year ended 31st March, 2018 consisted of the following:
Common stock

1st April, 2017

Capital stock

Issued shares

Millions of yen

Thousands of
U.S. dollars

179,596,955¥50,000$470,632———

Decrease*

10,000,000——

31st March, 2018

169,596,955¥50,000$470,632

Increase* The decrease of 10,000,000 shares is due to retirement of treasury shares.

Capital stock during the year ended 31st March, 2017 consisted of the following:

1st April, 2016

Common stock

Capital stock

Issued shares

Millions of yen

796,732,552¥85,745——

Decrease*

617,135,597(35,745)

31st March, 2017

179,596,955¥50,000

Increase* The decrease of 617,135,597 shares is due to retirement of treasury shares of 16,813,800 and a decrease resulting from the share transfer of 600,321,797.

16. Treasury Stock
Treasury stock during the year ended 31st March, 2018 consisted of the following:
Common stock

Treasury stock

Number of shares

Millions of yen

Thousands of
U.S. dollars

23,641,226(¥15,829)($148,999)

Increase*

1,454,907(1,916)(18,035)

Decrease*

10,000,595

7,077

66,617

31st March, 201815,095,538(¥10,668)($100,417)

1st April, 2017

* The increase of 1,454,907 shares is due to acquisition of treasury shares of 1,441,700 and purchase of fractional shares of 13,207.
The decrease of 10,000,595 shares is due to retirement of treasury shares of 10,000,000 and sale of fractional shares of 595.

Treasury stock during the year ended 31st March, 2017 consisted of the following:
Common stock

Treasury stock

Number of shares

Millions of yen

1st April, 2016

11,734,569(¥4,189)

Increase*

28,742,222(16,844)

Decrease*

16,835,565

5,203

31st March, 2017

23,641,226(¥15,829)* The increase of 28,742,222 shares is due to an increase resulting from the share transfer of 23,529,205, acquisition of treasury shares of 5,131,000 and purchase of
fractional shares of 82,017.
The decrease of 16,835,565 shares is due to retirement of treasury shares of 16,813,800 and sale of fractional shares of 21,765.

32

Nishi-Nippon Financial Holdings GroupANNUAL REPORT 2018

Notes to Consolidated Financial Statements

17. Revaluation of Premises AccountBased on the Law Concerning Land Revaluation (Law No. 34, promulgated on 31st March, 1998), the consolidated subsidiaries engaged in
the banking business have revalued land used for business purposes.
The deferred taxes on revaluation differences are presented in the account, “Deferred tax liabilities on revaluation of premises” in theliabilities of the consolidated balance sheet. The amount of revaluation differences, net of tax, is presented as “Revaluation of premises, netof taxes” in net assets.
The excess of the aggregate market value of land for business use revalued in accordance with Article 10 of the Law Concerning Land
Revaluation over the book value after revaluation at 31st March, 2018 and 2017 are as follows:
Thousands of
U.S. dollars

Millions of yen

2018¥6,86220172018¥14,774$64,596

18. Other Interest Income
Other interest income for the years ended 31st March, 2018 and 2017 consisted of the following:Thousands of
U.S. dollars

Millions of yen

2017

2018

2018
¥8

¥8

Interest on call loans and bills bought

$76

181

191

1,708

Others

1,383

1,298

13,027

Total¥1,573¥1,498$14,811

Interest on deposits with banks

19. Other Operating Income
Other operating income for the years ended 31st March, 2018 and 2017 consisted of the following:Thousands of
U.S. dollars

Millions of yen

2017

2018

2018

Gains on foreign exchange transactions¥691¥1,293$6,513

Gains on sale of bonds

129

693

1,218

Others

419

679

3,949

Total

¥1,241¥2,667$11,681

20. Other Income
Other income for the years ended 31st March, 2018 and 2017 consisted of the following:Thousands of
U.S. dollars

Millions of yen

2017

2018

2018

¥2,656¥5,720$25,003

Gains on money held in trust

4

3

46

Equity in earnings of affiliates

233

111

2,201

Gains on disposition of fixed assets

211

75

1,987

Reversal of reserve for possible loan losses

102

—

961

Recoveries of written-off claims

161

240

1,520

Rental income on land and buildings

390

382

3,678

Gains on sale of stock and other securities

Others

2,329

2,498

21,926Total¥6,090¥9,032$57,325

Nishi-Nippon Financial Holdings GroupANNUAL REPORT 201833

Notes to Consolidated Financial Statements

21. Other Interest Expenses
Other interest expenses for the years ended 31st March, 2018 and 2017 consisted of the following:Thousands of
U.S. dollars

Millions of yen

2017

2018

2018

Bonds

¥166

¥531

Others

764

603

7,195

Total

¥931

¥1,135$8,763$1,568

22. Other Operating Expenses
Other operating expenses for the years ended 31st March, 2018 and 2017 consisted of the following:Thousands of
U.S. dollars

Millions of yen

2017

2018

2018

Losses on sale of bonds¥298¥1,249$2,806

Losses on redemption of bonds

125

148

1,181

Losses on devaluation of bonds

12

29

116

1,712

596

16,119¥2,148¥2,023$20,223

Expenses for derivatives other than trading derivatives
Total

23. General and Administrative Expenses
General and administrative expenses for the years ended 31st March, 2018 and 2017 consisted of the following:Thousands of
U.S. dollars

Millions of yen

2018

2017

2018

¥32,439¥32,685$305,345

1,895

3,079

17,842

38

45

361

Depreciation

6,861

6,615

64,580Rental expenses

3,288

3,548

30,955

Taxes

5,411

5,321

50,933

Salaries and allowances
Employee retirement benefits
Retirement benefits for directors and corporate auditors

Others35,30434,313332,304

Total¥85,238¥85,608$802,322

24. Other Expenses
Other expenses for the years ended 31st March, 2018 and 2017 consisted of the following:Thousands of
U.S. dollars

Millions of yen

2017

2018
Provision for possible loan losses¥—¥2,553$—Losses on write-offs of claims

2,727

1,510

25,676

Losses on sale of stock and other securities

0

300

0

Losses on devaluation of stock and other securities

5

78

55

Losses on money held in trust

—

0

—

Losses on disposition of tangible fixed assets

587

543

5,533

1,135

974

10,690

136

208

1,286

Others

1,823

2,399

17,168

Total¥6,417¥8,569$60,409

Impairment losses
Losses on sale of loans

34

2018

Nishi-Nippon Financial Holdings GroupANNUAL REPORT 2018

Notes to Consolidated Financial Statements

25. Other Comprehensive Income
Reclassification adjustments and tax effects related to other comprehensive income for the years ended 31st March, 2018 and 2017 are as
follows:
Thousands of
U.S. dollars

Millions of yen

2017

2018

2018

Net unrealized gains on securities available for sale:Amount arising during the year

¥28,834¥4,078

Reclassification adjustments(3,154)(7,396)(29,692)

Amount before tax effect

25,679(3,318)

241,711

Tax effect(8,255)

2,284(77,703)¥17,424(¥1,033)$164,008

Net unrealized gains on securities available for sale$271,404

Net deferred gains (losses) on hedging instruments:
Amount arising during the year(¥436)¥40($4,108)

Reclassification adjustments

940

861

8,856

Amount before tax effect

504

902

4,748

(153)

(275)

(1,448)

¥350

¥626

$3,299Amount arising during the year

¥8,633¥6,062$81,267

Reclassification adjustments

1,609

2,324

15,151

Amount before tax effect

10,243

8,387

96,419Tax effect(3,123)(2,556)(29,404)

Retirement benefits liability adjustments¥7,119¥5,830$67,015

Total other comprehensive income¥24,894¥5,424$234,323

Tax effect
Net deferred gains (losses) on hedging instruments
Retirement benefits liability adjustments

26. Lease Transactions(1) Finance leases
Information on finance lease transactions which are accounted for as operating leases at 31st March, 2018 and 2017 is summarized asfollows:
Thousands of
U.S. dollars

Millions of yen

2018

2017

2018

Amounts equivalent to acquisition cost
Tangible fixed assets
Total¥1,867¥1,867$17,580¥1,867¥1,867$17,580¥1,527¥1,450$14,380¥1,527¥1,450$14,380

¥339

¥417

$3,199¥339¥417$3,199Amounts equivalent to accumulated depreciation
Tangible fixed assets
Total
Amounts equivalent to carrying value
Tangible fixed assets
Total

Note: The amount equivalent to acquisition cost includes an interest element as the total future finance lease payments are not significant to the balance of tangible
fixed assets at the end of the year.

Nishi-Nippon Financial Holdings GroupANNUAL REPORT 201835

Notes to Consolidated Financial Statements

Future lease payments of finance leases which are accounted for as operating leases at 31st March, 2018 and 2017 are as follows:
Thousands of
U.S. dollars

Millions of yen

2017

2018

2018

Future finance lease payments
Due within one year

¥77

¥77

$726

Due after one year

262

339

2,473

¥339

¥417

$3,199Total

Note: The amount of the future finance lease payments at the end of the year includes an interest element as the total future finance lease payments are not significant
to the balance of tangible fixed assets at the end of the year.

Total lease payments during the year and the amount equivalent to depreciation expenses for the years ended 31st March, 2018 and2017 are as follows:
Thousands of
U.S. dollars

Millions of yen

2017

2018

2018

Total lease payments during the year

¥77

¥77

$726

The amount equivalent to depreciation expenses *

77

77

726

* The amount equivalent to depreciation expenses was calculated using the straight-line method with no residual value over the lease term.

(2) Operating leases
Future lease payments required under operating leases that are non-cancelable at 31st March, 2018 and 2017 are as follows:
Thousands of
U.S. dollars

Millions of yen

2017

2018

2018

Future operating lease payments
Due within one year

¥355

¥383

$3,342

Due after one year

347

671

3,274

¥702

¥1,054$6,616Total

27. Financial Instruments(1) Matters related to status of financial instrumentsi)

Policies for financial instruments
Nishi-Nippon Financial Holdings, Inc. Group (the “Group”) is engaged in the financial service business, with a primary focus onbanking businesses such as deposits, loans, securities, and domestic and foreign currency exchange businesses. The Groupmanages and raises funds, taking into account market conditions and balancing duration. To conduct these businesses, theCompany comprehends the risks arising from all of its assets and liabilities, including off-balance-sheet transactions, through theproper controls over these risks, and builds reasonable and effective portfolios. Thus the Company operates a comprehensive asset
and liability management (ALM) system with the aim of maximizing and stabilizing its profits.
In addition, some of the Company’s consolidated subsidiaries are engaged in banking, credit card, credit guarantee services,credit management, restructuring support services, claims servicing businesses and financial instruments and exchange services.

ii) Types of financial instruments and related risks
Loans, which comprise 70% of the Group’s total assets, are primarily made to domestic corporations and individuals and are
exposed to credit risks resulting from non-performance of contracts. Should the creditworthiness of major borrowers deteriorate, thevalue of collateral sharply decline, or other unanticipated problems arise, it could cause an increase in the cost of credit such as an
unexpected write-off or rise in reserve for possible loan losses. Moreover, considering the relative weight of the invested assets, theimpact of any such problems could be substantial and could have a negative effect on the financial position and performance of theGroup.
Securities are mainly stocks, debt securities, and investment trusts and are exposed to the credit risk of each issuer and the riskof interest rate fluctuation. Stocks that are marketable are exposed to price volatility risks that a decline in their market prices cause
impairment losses and valuation losses on the stocks. Debt securities are also subject to price volatility risks that an increase in themarket interest rates following economic recovery may cause valuation losses on the securities.
Borrowed money and bonds are exposed to liquidity risks that, if some problems arise in cash management due to deteriorationin financial positions at the Group, the Group is forced to raise funds at higher interest rates than usual, market transactions are

36

Nishi-Nippon Financial Holdings GroupANNUAL REPORT 2018

Notes to Consolidated Financial Statements

suspended as a result of market turmoil, or it is forced to make transactions at a drastically unfavorable price than usual, it could
impact future operations of the Group.
Derivative transactions include interest rate swaps, forward exchange transactions, currency swaps, and currency options. These
derivatives are utilized primarily as hedging instruments to manage and mitigate the market risks of on-balance-sheet assets andliabilities. In addition, some of the derivative transactions in trading operations are used for the purpose of making profits throughshort-term fluctuations in the market rates, arbitrage transactions and others. Hedge transactions consist mainly of interest rate
swaps as a hedge against interest rate fluctuation risks arising from loans with fixed interest rates, and forward exchange transactions
and currency options as a hedge against exchange rate fluctuation risks arising from foreign currency-denominated assets andliabilities. The Company assesses the hedge effectiveness based on the difference between accumulated changes in cash flows ofhedged items and hedging instruments. However, no evaluation is performed for the hedge effectiveness of qualifying interest rate
swaps accounted for by the special treatment under the Accounting Standard for Financial Instruments, as it is ascertained that suchderivatives continually meet the criteria for special treatment. Risks related to these derivatives transactions include the market risk ofa potential loss in the fair value of financial instruments or portfolios resulting from fluctuations in interest rates, foreign exchange
rates, stock prices and other factors as well as the credit risk of a potential loss in the value of a transaction due to default by
counterparties to the contracts.
iii) Risk management system for financial instruments(a) Credit risk management
Recognizing the credit risk as our highest priority, the Group is working on strengthening controls over the credit risk in accordancewith the Group’s credit risk management policy and credit policy.
The Group applies its strict standards to the screening of individual credit extension, and credits that exceed certain thresholds
are reviewed further by specialized staff in its Credit Supervision Division. In this way, the Group is working to maintain thesoundness of its assets.
Regarding its loan portfolios, the Group tries to diversify risks to ensure that there is no concentration on any particularindustrial sectors or customers, through its systems of credit risk quantification and portfolio management by sector based on thecredit rating system.
In addition, in order to properly carry out write-offs and set provisions, the Group conducts self-assessments of its assets anduses an independent audit department to constantly monitor the status of the self-assessment procedures and adequacy of writeoffs and provisions.
(b) Market risk management
The Group clearly separates the department responsible for conducting market transactions (front office) from the department
responsible for business administration (back office). Furthermore, the division which is independent from the market divisions has
been put in charge of risk management (middle office) to monitor conditions of the market transactions and their compliance withthe market risk-related regulations. The Group thus has a system of mutual controls among offices.
In addition, the Group is working to achieve stable profits by improving its management methods through a variety oftechniques for measuring risks such as VaR (Value at Risk) and BPV(Basis Point Value) methods, and by establishing a maximum
acceptable level for market risks and controlling the risks within the certain acceptable range.
(Quantitative information on market risks)
The measured quantity of market risks of the Group as a whole at 31st March, 2018 and 2017 were ¥32,745 million ($308,221
thousand) and ¥31,581 million, respectively.
Financial instruments of the consolidated subsidiaries engaged in the banking business which are subject to the measurement
include loans, deposits, securities and derivatives. The Group measures market risks using historical VaR method with anobservation period of five years, a confidence interval of 99% and a holding period of 6 months.
The Group performs backtesting, which compares VaR calculated by the model with actual performance (gain or loss). Basedon the results of the testing, we believe that the risk measurement model which we use captures market risks with sufficientaccuracy. However, since VaR measures market risks at a certain probability which is statistically calculated, it is not always
possible for the model to capture market risks in situations where market conditions change drastically.
(c) Liquidity risk management
The Group recognizes the liquidity risk as one of the most significant risks, because there are concerns over potential businessfailures and systemic risks when the liquidity risk rises. The Group provides against the liquidity risks by ensuring an adequate
reserve for outstanding claims and developing a contingency plan that assumes various scenarios.
As for the day-to-day cash management of the Group, a system of mutual controls among divisions has been put into place.
As a part of this system, the divisions responsible for the Group’s day-to-day cash management raise and manage marketable
funds, while the divisions responsible for managing the liquidity risk monitor the Group’s cash position. In this way, the Group
maintains a fluid and stable cash position.

Nishi-Nippon Financial Holdings GroupANNUAL REPORT 201837

Notes to Consolidated Financial Statements(d) Risk management for derivative transactions
The Group’s derivative transactions are entered into using operational rules prepared in accordance with the Group’s internal
regulations. The rules stipulate the scope of derivative usage, authorization, responsibility, procedure, credit line, loss-cut rule, andreporting system. Each business line is responsible for each relevant risk management and for reporting to management, including
the ALM Committee, on a monthly basis.
iv) Supplementary explanation of the estimated fair value of financial instruments
The fair value of financial instruments includes the value based on the market price as well as a reasonably estimated value in casethere is no market price. Because various assumptions are used in the estimation of the fair value, the fair value may vary whendifferent assumptions are used.
(2) Estimated fair value of financial instruments
Carrying value of financial instruments in the consolidated balance sheets at 31st March, 2018 and 2017 and their fair values andvaluation differences are as follows. Non-listed stocks and others whose fair value is extremely difficult to be estimated are excluded fromthe table below (refer to Note 2).
<At 31st March, 2018>
Millions of yen
Valuationdifferences

Carrying value

Fair value¥1,076,592¥1,076,592¥—

Assets:i) Cash and due from banksii) Securities:
Held-to-maturity securities

57,36458,533

1,168

Available-for-sale securities

1,490,487

1,490,487—

iii) Loans and bills discounted

7,041,558

Reserve for possible loan losses*
Total assets(41,256)
7,000,301

7,106,552

106,250¥9,624,746¥9,732,166¥107,419

Liabilities:¥8,345,294¥8,345,745¥450ii) Call money and bills sold

64,38764,387—iii) Payables under repurchase agreements

100,753

100,753—iv) Guarantee deposits received under securities lending transactions

27,63027,630—v) Borrowed money

748,876

742,424(6,451)i) Deposits

20,00020,113113¥9,306,943¥9,301,055(¥5,887)

Hedge accounting not applied

¥189

¥189

¥—

Hedge accounting applied

771

771

—

¥960

¥960

¥—

vi) Bonds
Total liabilities
Derivatives**

Total derivatives

38

Nishi-Nippon Financial Holdings GroupANNUAL REPORT 2018

Notes to Consolidated Financial Statements

Thousands of U.S. dollars
Valuationdifferences

Carrying value

Fair value$10,133,590$10,133,590$—

Held-to-maturity securities

539,948

550,951

11,003Available-for-sale securities

14,029,440

14,029,440—

iii) Loans and bills discounted

66,279,728

Assets:i) Cash and due from banksii) Securities:

Reserve for possible loan losses*
Total assets(388,333)
65,891,394

66,891,497

1,000,102$90,594,374$91,605,479$1,011,105

Liabilities:$78,551,345$78,555,585$4,240ii) Call money and bills sold

606,054

606,054—iii) Payables under repurchase agreements

948,355

948,355—iv) Guarantee deposits received under securities lending transactions

260,077

260,077—

7,048,916

6,988,186(60,729)

188,253

189,322

1,069$87,603,002$87,547,583($55,419)

Hedge accounting not applied$1,783$1,783$—Hedge accounting applied

7,259

7,259

—

$9,043$9,043$—i) Depositsv) Borrowed moneyvi) Bonds
Total liabilities
Derivatives**

Total derivatives* The general reserve for possible loan losses and the specific reserve for possible loan losses, which correspond to loans and bills discounted, have been deducted.
** Derivative transactions recorded in Other assets and Other liabilities are presented in total. The value of assets and liabilities arising from derivative transactions isshown at net value.

<At 31st March, 2017>
Millions of yen
Carrying value

Fair value

Valuationdifferences

Assets:i) Cash and due from banks¥807,097¥807,097¥—

ii) Securities:
Held-to-maturity securities

69,13070,827

1,697

Available-for-sale securities

1,569,923

1,569,923—

iii) Loans and bills discounted

6,803,828

Reserve for possible loan losses*
Total assets(41,860)
6,761,967

6,878,601

116,634¥9,208,117¥9,326,449¥118,331

Liabilities:¥8,019,012¥8,019,719¥707ii) Call money and bills sold

59,92459,924—iii) Payables under repurchase agreements

69,174

69,174—i) Depositsiv) Guarantee deposits received under securities lending transactions

18,714

18,714—v) Borrowed money

630,662

625,411(5,251)

30,00030,156156¥8,827,488¥8,823,100(¥4,387)

Hedge accounting not applied

¥273

¥273

¥—

Hedge accounting applied

(809)

(809)

—

(¥536)(¥536)¥—

vi) Bonds
Total liabilities
Derivatives**

Total derivatives* The general reserve for possible loan losses and the specific reserve for possible loan losses, which correspond to loans and bills discounted, have been deducted.
** Derivative transactions recorded in Other assets and Other liabilities are presented in total. The value of assets and liabilities arising from derivative transactions isshown at net value, and with the amount in parentheses representing net liability position.

Nishi-Nippon Financial Holdings GroupANNUAL REPORT 201839

Notes to Consolidated Financial Statements(Note 1) Methods for estimating the market value of financial instruments
Assets:i)Cash and due from banks
Because the fair value of due from banks that does not have stated maturity approximates its carrying value, the carrying value istreated as the fair value. The fair value of due from banks that has stated maturity is based on the present value of the totals by
maturity bucket discounted by the interest rate that would be applied if similar deposits were placed. As the fair value of due frombanks with a short-term original contractual maturity (one year or less) approximates its carrying value, its carrying value is treatedas the fair value.

ii) Securities
The fair value of stocks is based on their market price on the stock exchange, while the fair value of debt securities is based on the
Reference Prices (Yields) for OTC Bond Transactions published by the Japan Securities Dealers Association, the price quoted by
the correspondent financial institutions or the value reasonably calculated by the Group. The fair value of investment trusts is basedon the announced reference price or the price quoted by the correspondent financial institutions. The fair value of foreign securities
is based on the price quoted by the correspondent financial institutions or the financial information vendors.
The fair value of private placement bonds with the Company’s own guarantee is based on the present value of future cash
flows discounted by the market interest rate adjusted for credit risk.
Notes concerning securities by each carrying purpose are presented in “28. Securities” of “Notes to Consolidated Financial
Statements.”iii) Loans and bills discountBecause loans and bills discounted with floating interest rates reflect market interest rates in a short period of time, the fair value ofsuch loans approximates their carrying value as long as the credit standing of the borrower has not changed significantly sinceorigination. Thus, the carrying value of such loans is treated as the fair value. The fair value of loans and bills discounted with fixedinterest rates is based on the present value of the total amount of principal and interest categorized by the type of loans, internalrating and term, discounted by the market interest rate adjusted for credit risk. Because the fair value of loans with a short-term
contractual maturity (one year or less) approximates their carrying value, the carrying value is treated as the fair value.
Regarding loans to borrowers under bankruptcy proceedings, borrowers substantially in bankruptcy and customers with highprobability of becoming insolvent, since the fair value of such loans approximates their carrying value after deducting the reservefor possible loan losses, which is calculated based on the present value of estimated future cash flows or the estimated amounts
collectible from the sale of collateral and guarantees, the carrying value is treated as the fair value.
With respect to loans and bills discounted that have no due date because of special attributes such as limiting the borrowings
to the amounts secured by collateral, because it is assumed that the fair value approximates the carrying value from the estimatedrepayment period and interest rate conditions, the carrying value is treated as the fair value.
Liabilities:i)

Deposits
For demand deposits, the amount which would be paid if its repayment were demanded on the consolidated balance sheet date(carrying value) is deemed to be the fair value. The fair value of time deposits is based on the discounted present value of the future
cash flows categorized by term. The discount rate is the interest rate that would be applied when new deposits were taken.
Because the fair value of those with a short-term original contractual maturity (one year or less) approximates their carrying value,
the carrying value is treated as the fair value.

ii) Call money and bills sold, iii) Payables under repurchase agreements, and iv) Guarantee deposits received under securities lendingtransactions
Since call money and bills sold, payables under repurchase agreements and guarantee deposits received under securities lendingtransactions have short-term original contractual maturity (one year or less) and their fair value approximates the carrying value, thecarrying value is treated as the fair value.
v) Borrowed money
Because borrowed money with floating interest rates reflects market interest rates in a short period of time and the credit standingof the Company and its consolidated subsidiaries has not changed significantly since the borrowing, the fair value of suchborrowed money is deemed to approximate the carrying value. Therefore, the carrying value is treated as the fair value. The fairvalue of borrowed money with fixed interest rates is based on the present value of the total amount of principal and interest of theborrowed money categorized by term, discounted by the market interest rate adjusted for credit risk. Because the fair value ofborrowed money with a short-term original contractual maturity (one year or less) approximates its carrying value, the carrying
value is treated as the fair value.
vi) Bonds
The fair value of bonds is based on the Reference Price (Yields) for OTC Bond Transactions published by the Japan Securities
Dealers Association or the price quoted by the securities company.

40

Nishi-Nippon Financial Holdings GroupANNUAL REPORT 2018

Notes to Consolidated Financial Statements

Derivative transactions:
Derivative transactions are presented in “30. Derivatives” of “Notes to Consolidated Financial Statements.”(Note 2) Financial instruments whose fair value is extremely difficult to be estimated are as stated below.
They are not included in “Assets: ii) Available-for-sale securities” presented in “Estimated fair value of financial instruments.”
Thousands of
U.S. dollars

Millions of yen

Non-listed stocks

2018

2017

2018

¥14,470¥14,420$136,208

1,537

2,300

14,467¥16,007¥16,720$150,675

Investments in partnerships
Total

Notes: 1. Because non-listed stocks have no market price and because it is extremely difficult to estimate their fair value, they are not subject to the fairvalue disclosure.
2. In the years ended 31st March, 2018 and 2017, impairment losses of ¥5 million ($55 thousand) and ¥78 million were recorded for non-listed
stocks, respectively.
3. Investments in partnerships whose fair value is extremely difficult to be estimated because the partnership’s assets are non-listed stocks, etc. are
not subject to the fair value disclosure.

(Note 3) Repayment schedules for monetary claims and securities with stated maturity at 31st March, 2018 and 2017
<At 31st March, 2018>
Millions of yen

Due from banks

Due in1 year or lessDue from
1 year to 3 years

Due from
Due from
Due from
3 years to 5 years 5 years to 7 years 7 years to 10 years

Due after
10 years¥971,364

¥—

¥—

¥—

¥—

¥—

9,309

32,597

10,000

6,000

—

—

—

25,00010,000

6,000

—

—

1,000

5,290

—

—

—

—

Securities:
Held-to-maturity securities
Government bonds
Municipal bonds

8,309

2,307

—

—

—

—

216,617

501,035

216,515

157,482

195,155

29,332Government bonds

97,000261,200

38,00026,0005,000—

Municipal bonds

15,08013,034

10,36518,99023,651—

Corporate bonds

76,775

132,325

116,042

58,192

46,786—

Corporate bonds
Securities available for sale with maturity

27,762

94,47652,10854,299119,717

29,332

1,414,042

1,135,524

984,423

660,639

793,015

1,848,052¥2,611,334¥1,669,157¥1,210,938¥824,121¥988,171¥1,877,384

Due in1 year or lessDue from
1 year to 3 years$9,143,118

$—

$—

$—

$—

$—

87,622306,824

94,12656,475———

235,316

94,12656,475——

Municipal bonds

9,412

49,792————

Corporate bonds

78,20921,714————

OthersLoans and bills discounted
Total

Thousands of U.S. dollars

Due from banks

Due from
Due from
Due from
3 years to 5 years 5 years to 7 years 7 years to 10 years

Due after
10 years

Securities:
Held-to-maturity securities
Government bonds

2,038,948

4,716,076

2,037,988

1,482,324

1,836,933

276,096

Government bonds

913,027

2,458,584

357,680

244,728

47,063—

Municipal bonds

141,942

122,684

97,562

178,746

222,618—

Corporate bonds

722,656

1,245,531

1,092,268

547,750

440,388—

Others261,322889,275

490,477

511,098

1,126,862

276,096

Securities available for sale with maturity

Loans and bills discounted
Total

13,309,887

10,688,298

9,266,030

6,218,370

7,464,381

17,395,071$24,579,576$15,711,199$11,398,145$7,757,169$9,301,314$17,671,168

Note: Excluded from Loans and bills discounted are ¥109,997 million ($1,035,366 thousand) relating to those whose repayment is not reasonably estimable because
the debtors are borrowers under bankruptcy proceedings, borrowers substantially in bankruptcy, or customers with high probability of becoming insolvent and¥95,862 million ($902,323 thousand) relating to those that do not have contractual maturity.

Nishi-Nippon Financial Holdings GroupANNUAL REPORT 201841

Notes to Consolidated Financial Statements<At 31st March, 2017>
Millions of yen
Due in1 year or lessDue from
1 year to 3 years¥710,798

¥—

¥—

¥—

¥—

¥—

11,927

26,90615,00016,000———10,00015,00016,000——

Municipal bonds

6,089

6,290

—

—

—

—

Corporate bonds

5,838

10,616————Due from banks

Due from
Due from
Due from
3 years to 5 years 5 years to 7 years 7 years to 10 years

Due after
10 years

Securities:
Held-to-maturity securities
Government bonds

291,257

494,506

284,883

194,566

138,439

16,571Government bonds

126,500

282,700

88,50033,00018,000—

Municipal bonds

25,267

21,73011,444

8,605

34,341—

Corporate bonds

89,267

123,261

120,028

96,74530,125—

Others50,223

66,81564,911

56,21655,972

16,571

Securities available for sale with maturity

Loans and bills discounted
Total

1,362,805

1,096,062

959,112666,652

776,223

1,735,955¥2,376,788¥1,617,475¥1,258,995¥877,219¥914,662¥1,752,526

Note: Excluded from Loans and bills discounted are ¥114,623 million relating to those whose repayment is not reasonably estimable because the debtors areborrowers under bankruptcy proceedings, borrowers substantially in bankruptcy, or customers with high probability of becoming insolvent and ¥92,391 million
relating to those that do not have contractual maturity.

(Note 4) Repayment schedules for bonds, borrowed money and other interest-bearing debts at 31st March, 2018 and 2017
<At 31st March, 2018>
Millions of yen
Due in1 year or lessDue from
1 year to 3 years¥8,024,310¥265,564¥41,643¥6,288¥7,487¥0Call money and bills sold

64,387

—

—

—

—

—

Payables under repurchase agreements

100,753

—

—

—

—

—

Guarantee deposits received under
securities lending transactions

27,630

—

—

—

—

—

Borrowed money

35,186180,255

533,251

157

26

—

Bonds

—

—

—

10,00010,000—Total¥8,252,268¥445,819¥574,894¥16,445¥17,514¥0

Due in1 year or lessDue from
1 year to 3 years

Deposits

Due from
Due from
Due from
3 years to 5 years 5 years to 7 years 7 years to 10 years

Due after
10 yearsThousands of U.S. dollars
Due after
10 years$75,530,032$2,499,666$391,975$59,190$70,480$0Call money and bills sold

606,054

—

—

—

—

—

Payables under repurchase agreements

948,355

—

—

—

—

—

Guarantee deposits received under
securities lending transactions

260,077

—

—

—

—

—

Borrowed money

331,197

1,696,678

5,019,306

1,481

251

—

Bonds

—

—

—

94,126

94,126—

Total$77,675,718$4,196,345$5,411,281$154,798$164,858$0

Deposits

Note: Demand deposits are included under “Due in 1 year or less.”42

Due from
Due from
Due from
3 years to 5 years 5 years to 7 years 7 years to 10 years

Nishi-Nippon Financial Holdings GroupANNUAL REPORT 2018

Notes to Consolidated Financial Statements<At 31st March, 2017>
Millions of yen
Due in1 year or lessDue from
1 year to 3 years

Due from
Due from
Due from
3 years to 5 years 5 years to 7 years 7 years to 10 years

Due after
10 years¥7,656,225¥307,274¥44,694¥4,270¥6,545¥0Call money and bills sold

59,924

—

—

—

—

—

Payables under repurchase agreements

69,174

—

—

—

—

—

Guarantee deposits received under
securities lending transactions

18,714

—

—

—

—

—

Borrowed money

36,381

146,716

447,395

130

38

—

Deposits

Bonds

10,000——10,00010,000—Total¥7,850,420¥453,991¥492,090¥14,401¥16,583¥0Note: Demand deposits are included under “Due in 1 year or less.”

28. Securities(1) Trading securities and commercial papers (including those included in “Trading account assets”)
Thousands of
U.S. dollars

Millions of yen

2017

2018
Holding losses recognized in income

(¥7)

2018
(¥3)

($68)

(2) Held-to-maturity securities
i)

Securities whose fair value exceeds their carrying value<At 31st March, 2018>
Millions of yen
Carrying value

Valuationdifferences

Fair value

Bonds:
Government bonds¥40,410¥41,421¥1,010

Municipal bonds

6,319

6,403

84

Corporate bonds

10,634

10,70873

57,36458,533

1,168

Others

—

—

—

Total

¥57,364¥58,533¥1,168

Thousands of U.S. dollars
Carrying value

Valuationdifferences

Fair value

Bonds:
Government bonds$380,368$389,881$9,513795

Municipal bonds

59,48260,278

Corporate bonds

100,097

100,791694

539,948

550,951

11,003

Others

—

—

—

Total

$539,948$550,951$11,003

Nishi-Nippon Financial Holdings GroupANNUAL REPORT 201843

Notes to Consolidated Financial Statements<At 31st March, 2017>
Millions of yen
Carrying value

Valuationdifferences

Fair value

Bonds:
Government bonds¥40,161¥41,421¥1,259Municipal bonds

12,45812,663

205

Corporate bonds

16,51016,742

231

69,13070,827

1,697

Others

—

—

—

Total

¥69,130¥70,827¥1,697ii) Securities whose carrying value exceeds their fair value<At 31st March, 2018>
None<At 31st March, 2017>
None(3) Available-for-sale securities (including negotiable due from banks included in “Cash and due from banks”)i)Securities whose carrying value exceeds their acquisition cost
<At 31st March, 2018>
Millions of yen
Valuationdifferences

Carrying value

Acquisition cost

¥142,540¥47,215¥95,324

Government bonds

432,024

428,908

3,116

Municipal bonds

38,53338,393140

Corporate bonds

366,527

363,3073,220

837,086

830,609

6,476

StocksBonds:

Others122,842

105,514

17,327

Total¥1,102,468¥983,340¥119,128

Thousands of U.S. dollars
Valuationdifferences

Carrying value

Acquisition cost

$1,341,679$444,427$897,252

Government bonds

4,066,497

4,037,164

29,333

Municipal bonds

362,703361,3851,318

Corporate bonds

3,449,998

3,419,688

30,3107,879,199

7,818,237

60,962

StocksBonds:

44

Others

1,156,275

993,173

163,101

Total$10,377,155$9,255,838$1,121,316

Nishi-Nippon Financial Holdings GroupANNUAL REPORT 2018

Notes to Consolidated Financial Statements<At 31st March, 2017>
Millions of yen
Valuationdifferences

Carrying value

Acquisition cost

¥110,079¥48,309¥61,769

Government bonds

556,115551,340

4,774

Municipal bonds

61,612

61,377234

Corporate bonds

410,867

406,913

3,953

1,028,595

1,019,632

8,962

StocksBonds:

Others

231,185

212,272

18,912

Total¥1,369,859¥1,280,215¥89,644ii) Securities whose acquisition cost exceeds their carrying value<At 31st March, 2018>
Millions of yen

StocksCarrying value

Acquisition cost

¥5,387¥6,138Valuationdifferences(¥751)

Bonds:
Government bonds
Municipal bonds
Corporate bonds

—

—

—

43,351

43,563(211)

70,75970,867(107)

114,110

114,430(319)

Others268,520274,295(5,775)

Total¥388,018¥394,865(¥6,846)

Thousands of U.S. dollars

StocksCarrying value

Acquisition cost

$50,709$57,779

Valuationdifferences($7,070)

Bonds:
Government bonds
Municipal bonds
Corporate bonds

—

—

—

408,049

410,044(1,995)666,034

667,049(1,015)

1,074,084

1,077,094(3,010)

Others2,527,491

2,581,852(54,360)

Total$3,652,284$3,716,726($64,441)<At 31st March, 2017>
Millions of yen

StocksCarrying value

Acquisition cost

¥4,650¥5,819Valuationdifferences(¥1,169)

Bonds:———

Municipal bonds

40,76941,086(317)

Corporate bonds

57,51457,693(178)

98,284

98,779(495)

Government bonds

Others97,12998,505(1,376)

Total¥200,063¥203,105(¥3,041)

Nishi-Nippon Financial Holdings GroupANNUAL REPORT 201845

Notes to Consolidated Financial Statements(4) Available-for-sale securities sold for the years ended 31st March, 2018 and 2017 are as follows:<At 31st March, 2018>
Millions of yen
Proceeds
from sale

Stocks

Gains

Losses¥1,991¥2,662(¥0)

Bonds:
Government bonds

—

—

—

Municipal bonds

—

—

—

Corporate bonds

120

1

—

120

1

—

Others

14,670

107

(298)

Total

¥16,782¥2,771(¥298)

Thousands of U.S. dollars
Proceeds
from sale

Stocks

Gains

Losses$18,748$25,062($0)

Bonds:
Government bonds

—

—

—

Municipal bonds

—

—

—

Corporate bonds

1,129

13

—

1,129

13

—

Others138,090

1,014(2,806)

Total$157,967$26,089($2,806)<At 31st March, 2017>
Millions of yen
Proceeds
from sale

Gains

Losses¥2,737¥1,029(¥150)

Government bonds

—

—

—

Municipal bonds

—

—

—

Corporate bonds

—

—

—

—

—

—

StocksBonds:

Others28,421

5,283(1,249)Total¥31,159¥6,312(¥1,399)(5) Devaluation of securities
Securities other than trading securities (excluding securities whose fair value is extremely difficult to be estimated) are devalued to the fairvalue, and the difference between the acquisition cost and the fair value is treated as the loss for the fiscal year (“devaluation”), if the fairvalue (primarily the closing market price at the consolidated balance sheet date) has significantly deteriorated compared with theacquisition cost (including amortized cost) unless it is deemed that there is a possibility of a recovery in the fair value. The amounts ofdevaluation were ¥12 million ($116 thousand) and ¥29 million for bonds for the years ended 31st March, 2018 and 2017, respectively.
The criteria for determining whether the fair value of a security has “significantly deteriorated” are outlined as follows:
1. The fair value is 50% or less of the acquisition cost, or
2. The fair value exceeds 50% but is 70% or less of the acquisition cost and the security meets certain conditions such as the quoted
market price for a certain period in the past and financial conditions of the issuer.

46

Nishi-Nippon Financial Holdings GroupANNUAL REPORT 2018

Notes to Consolidated Financial Statements(6) Unrealized gains/losses on securities available for sale
The components of the unrealized gains/losses on securities available for sale at 31st March, 2018 and 2017 are as follows:<At 31st March, 2018>
Millions of yen

Thousands of
U.S. dollars

Revaluation difference¥112,282$1,056,874

Deferred tax liability(32,437)(305,327)

Revaluation difference (before non-controlling interest adjustment), net of taxes

79,844

751,547(369)(3,480)——¥79,474$553,725

Amount corresponding to non-controlling interests
Amount corresponding to the parent’s share of net unrealized gains on available-for-sale securities owned
by affiliates
Unrealized gains on securities available for sale, net of taxes<At 31st March, 2017>
Millions of yen

Revaluation difference¥86,602

Deferred tax liability(24,182)

Revaluation difference (before non-controlling interest adjustment), net of taxes

62,420(297)

Amount corresponding to non-controlling interests
Amount corresponding to the parent’s share of net unrealized gains on available-for-sale securities owned
by affiliates—¥62,122

Unrealized gains on securities available for sale, net of taxes

29. Money Held in Trust
Money held in trust at 31st March, 2018 and 2017 are as follows:
Thousands of
U.S. dollars

Millions of yen

2017

2018

2018

Money held in trust for other purposes than investment
purposes and held-to-maturity purposes:
Acquisition Cost

¥2,850¥850$26,826

Carrying value

2,850

850

26,826———

Unrealized gains/losses

30. Derivatives(1) Derivative transactions to which hedge accounting is not applied
Summarized below are the contract value or the notional principal and the fair value of the derivative transactions at 31st March, 2018and 2017, to which hedge accounting is not applied. The amounts of the contract value are not necessarily indicative of the actual
market risk of derivative transactions.
i)Interest related transactions<At 31st March, 2018>
Millions of yen
Contract value
Type of transactions

Total

Over one year

Fair value

Unrealized
gain (loss)

Over-the-counter transactions:Interest rate swaps:
Receive-fixed and pay-floating¥37,793¥37,529¥814

Receive-floating and pay-fixed

37,79337,529

(589)

(589)

—

—

¥225

¥225

Total

Nishi-Nippon Financial Holdings Group¥814

ANNUAL REPORT 201847

Notes to Consolidated Financial Statements

Thousands of U.S. dollars
Contract value
Type of transactions

Total

Over one year

Fair value

Unrealized
gain (loss)

Over-the-counter transactions:Interest rate swaps:
Receive-fixed and pay-floating$355,734$353,249

Receive-floating and pay-fixed

355,734

353,249(5,552)(5,552)——$2,118$2,118

Total$7,671$7,671

Notes: 1. The above transactions are marked to market and unrealized gains/losses are included in the consolidated statement of income.
2. Calculation of fair value is based on the discounted cash flows and others.

<At 31st March, 2017>
Millions of yen
Contract value
Type of transactions

Total

Over one year

Fair value

Unrealized
gain (loss)

Over-the-counter transactions:Interest rate swaps:
Receive-fixed and pay-floating¥44,627¥38,627

Receive-floating and pay-fixed

44,627

38,627

(667)

(667)

—

—

¥255

¥255

Total

¥923

¥923

Notes: 1. The above transactions are marked to market and unrealized gains/losses are included in the consolidated statement of income.
2. Calculation of fair value is based on the discounted cash flows and others.

ii. Currency related transactions<At 31st March, 2018>
Millions of yen
Contract value
Type of transactions

Total

Over one year

Fair value

Unrealized
gain (loss)

Over-the-counter transactions:¥141,010¥24,802(¥209)(¥209)

Sell

12,219

182

258

258

Buy

7,671

127

(84)

(84)

Sell

77,457

46,951(2,824)

(225)

Buy

77,457

46,951

2,824

884

—

—

(¥35)

¥623

Currency swaps
Forward foreign:

Currency option:

Total

Thousands of U.S. dollars
Contract value
Type of transactions

Total

Over one year

Fair value

Unrealized
gain (loss)

Over-the-counter transactions:$1,327,284$233,454($1,971)($1,971)

Sell

115,015

1,720

2,431

2,431

Buy

72,208

1,200

(795)

(795)

Sell

729,077

441,938(26,590)(2,118)Buy729,077

441,938

26,590

8,325

—

—

($335)$5,872Currency swaps
Forward foreign:

Currency option:

Total

Notes: 1. The above transactions are marked to market and unrealized gains/losses are included in the consolidated statement of income.
2. Calculation of fair value is based on the discounted cash flows and others.

48

Nishi-Nippon Financial Holdings GroupANNUAL REPORT 2018

Notes to Consolidated Financial Statements<At 31st March, 2017>
Millions of yen
Contract value
Type of transactions

Total

Over one year

Unrealized
gain (loss)

Fair value

Over-the-counter transactions:¥93,938¥49,453

(¥18)

(¥18)

Sell

6,416

201

(122)

(122)

Buy

4,399

172

158

158

Sell

98,59255,040(3,043)

(132)

Buy

98,59255,040

3,043

929

—

—

¥17

¥814

Currency swaps
Forward foreign:

Currency option:

Total

Notes: 1. The above transactions are marked to market and unrealized gains/losses are included in the consolidated statement of income.
2. Calculation of fair value is based on the discounted cash flows and others.

(2) Derivative transactions to which hedge accounting is applied
Summarized below are the contract value or the notional principal and the fair value of the derivative transactions at 31st March, 2018and 2017, to which hedge accounting is applied. The amounts of the contract value are not necessarily indicative of the actual market
risk of derivative transactions.
i)Interest related transactions<At 31st March, 2018>
Millions of yen
Contract value

Hedge accounting
methodType of transactions

Hedged item

Principle hedge
accounting method

Interest rate swaps:

Available-forsale securities

Special treatment forinterest rate swaps

Interest rate swaps:

Receive-floating and pay-fixed
Receive-floating and pay-fixed

Loans and bills
discounted,
and deposits

TotalOver one year

¥15,404¥15,404

170,769

167,364

—

—

—

—

Interest rate options
Total

Fair value(¥54)(Note 2)(¥54)

Thousands of U.S. dollars
Contract value

Hedge accounting
methodType of transactions

Hedged item

Principle hedge
accounting method

Interest rate swaps:

Available-forsale securities

Special treatment forinterest rate swaps

Interest rate swaps:

Receive-floating and pay-fixed
Receive-floating and pay-fixedInterest rate options
Total

Loans and bills
discounted,
and deposits

TotalOver one year

$145,000$145,000

1,607,394

1,575,338

—

—

—

—

Fair value($509)(Note 2)($509)

Notes: 1. Calculation of fair value is based on the discounted cash flows and others.
2. Since the interest rate swaps, to which the special treatments are applied, are accounted for as synthetic products composed of loans and bills
discounted and deposits, their fair value is included in the fair value of the said loans and bills discounted and deposits which are disclosed in “Financial
Instruments (Note 27)”.

Nishi-Nippon Financial Holdings GroupANNUAL REPORT 201849

Notes to Consolidated Financial Statements<At 31st March, 2017>
Millions of yen
Contract value

Hedge accounting
methodType of transactions

Hedged item

Principle hedge
accounting method

Interest rate swaps:

Available-forsale securities

Special treatment forinterest rate swaps

Interest rate swaps:

Receive-floating and pay-fixed
Receive-floating and pay-fixed

Loans and bills
discounted,
and deposits

Interest rate options

Total

Over one year

¥16,267¥16,267

203,020

173,035

5,000

—

—

—

Total

Fair value(¥528)(Note 2)(¥528)

Notes: 1. Calculation of fair value is based on the discounted cash flows and others.
2. Since the interest rate swaps, to which the special treatments are applied, are accounted for as synthetic products composed of loans and bills
discounted and deposits, their fair value is included in the fair value of the said loans and bills discounted and deposits which are disclosed in “Financial
Instruments (Note 27)”. The balance of unamortized premium for interest rate options is ¥2 million.

ii) Currency related transactions<At 31st March, 2018>
Millions of yen
Contract value

Hedge accounting
methodPrinciple hedge
accounting method

Type of transactions

Hedged item

Total

Forward foreign

Securities denominated inforeign currencies¥38,481

¥—

¥825

—

—

¥825

Total

Over one year

Fair value

Thousands of U.S. dollars
Contract value

Hedge accounting
methodPrinciple hedge
accounting method

Type of transactions

Hedged item

Total

Forward foreign

Securities denominated inforeign currencies$362,210$—$7,768——$7,768

Total

Over one year

Fair value

Notes: 1. The deferred method is applied as hedge accounting in accordance primarily with “Accounting and Auditing Treatment for Accounting for Foreign
Currency Transactions in Banking Industry” (JICPA Industry Audit Committee Report No. 25 of 29th July, 2002).
2. Calculation of fair value is based on the discounted cash flows and others.

<At 31st March, 2017>
Millions of yen
Contract value

Hedge accounting
methodPrinciple hedge
accounting method

Type of transactions

Hedged item

Total

Forward foreign

Securities denominated inforeign currencies¥44,245¥—(¥284)——(¥284)

Total

Over one year

Fair value

Notes: 1. The deferred method is applied as hedge accounting in accordance primarily with “Accounting and Auditing Treatment for Accounting for Foreign
Currency Transactions in Banking Industry” (JICPA Industry Audit Committee Report No. 25 of 29th July, 2002).
2. Calculation of fair value is based on the discounted cash flows and others.

31. Employee Retirement Benefits(1) Description of the retirement benefit plans
The Company’s domestic consolidated subsidiaries adopt funded or unfunded defined benefit plans and/or the defined contribution plan
to provide for employee retirement benefits.
Under the defined benefit corporate pension plans (all funded), lump-sum or annuity payments are made at the amounts based onsalaries and the length of service periods of the covered employees. Nishi-Nippon City Bank, a consolidated subsidiary, has establisheda retirement benefit trust for its defined benefit corporate pension plan.
Under the lump-sum payment plans (principally unfunded, however, some plans have a funded status as a result of theestablishment of a retirement benefit trust), retirement benefits are paid in the form of a lump sum at the amounts based on salaries andthe length of service periods of the covered employees.

50

Nishi-Nippon Financial Holdings GroupANNUAL REPORT 2018

Notes to Consolidated Financial Statements

The consolidated subsidiaries may also pay additional retirement benefits that are not subject to actuarial calculation.
As of 31st March, 2018, the lump-sum payment plans have been adopted by 6 consolidated subsidiaries. The corporate pension
fund plans have been adopted by 2 consolidated subsidiaries. The defined contribution plan has been adopted by 1 consolidated
subsidiary.
For the lump-sum payment plans that certain consolidated subsidiaries have adopted, liability for retirement benefits and retirement
benefit expenses are calculated using the simplified method which assumes the retirement benefit obligation to be equal to the benefits
payable if all the eligible employees voluntarily terminated their employment at fiscal year end.
(2) Defined benefit plansi)

Reconciliation between the balances of retirement benefit obligation at the beginning and end of the year for the years ended 31st
March, 2018 and 2017
Thousands of
U.S. dollars

Millions of yen

2018

2017

2018

¥70,357¥70,499$662,251

Service cost

2,129

2,203

20,039Interest cost

616

617

5,806

Actuarial gain and loss

(104)

1,034

(983)

Retirement benefits paid

(3,856)(3,995)(36,297)———¥69,142¥70,357$650,816

Retirement benefit obligation at beginning of the year

OthersRetirement benefit obligation at end of the yearii) Reconciliation between the balances of plan assets at the beginning and end of the year for the years ended 31st March, 2018 and2017
Thousands of
U.S. dollars

Millions of yen

2018

2017

2018

Plan assets at beginning of the year

¥81,875¥71,509$770,661

Expected return on plan assets

2,694

2,352

25,365

Actuarial gain and loss

8,529

7,097

80,284Contributions by employer

2,914

2,911

27,437

152

154

1,436

(2,122)(2,150)(19,977)

Contributions by employees
Retirement benefits paid

—

—

—

¥94,044¥81,875$885,208

OthersPlan assets at end of the yeariii) Reconciliation between the balances of retirement benefit obligation and plan assets at the end of the year and the amounts of theliability and asset for retirement benefits recognized in the consolidated balance sheets at 31st March, 2018 and 2017
Thousands of
U.S. dollars

Millions of yen

2018

2017

2018

Retirement benefit obligation (funded)¥68,686¥69,955$646,518

Fair value of plan assets(94,044)(81,875)(885,208)(25,358)(11,919)(238,689)

456

402

4,297

(¥24,901)(¥11,517)($234,391)

Retirement benefit obligation (unfunded)
Net liability (asset) for retirement benefits in the balance sheet

Thousands of
U.S. dollars

Millions of yen

2018

2017

2018

Liability for retirement benefits

¥751

¥811

$7,069Asset for retirement benefits(25,652)(12,328)(241,460)

Net liability (asset) for retirement benefits in the balance sheet(¥24,901)(¥11,517)($234,391)

Nishi-Nippon Financial Holdings GroupANNUAL REPORT 201851

Notes to Consolidated Financial Statementsiv) Components of retirement benefit expenses for the years ended 31st March, 2018 and 2017
Thousands of
U.S. dollars

Millions of yen

2017

2018

2018

Service cost

¥1,976¥2,047

Interest cost

616

617

5,806

Expected return on plan assets(2,694)(2,352)(25,365)

Amortization of unrecognized actuarial gain and loss

1,609

2,324

15,151

387

441

3,650

¥1,895¥3,078$17,842

OthersRetirement benefit expenses$18,599

Notes: 1. Contributions by employees to corporate pension funds, etc. have been deducted from the service cost.
2. Retirement benefit expenses of consolidated subsidiaries that have adopted the simplified method are reported in total under “Service cost.”v) Items recorded in retirement benefits liability adjustments included in other comprehensive income (gross of income tax effects) for
the years ended 31st March, 2018 and 2017
Thousands of
U.S. dollars

Millions of yen

2017

2018
¥10,243

Actuarial gain and loss

2018

¥8,387$96,419vi) Items recorded in retirement benefits liability adjustments included in accumulated other comprehensive income (gross of income tax
effects) at 31st March, 2018 and 2017
Thousands of
U.S. dollars

Millions of yen

2017

2018
Unrecognized actuarial gain and loss

2018(¥284)¥9,959$93,742vii) Matters concerning plan assets
1) Percentages of each main category of the total plan assets at 31st March, 2018 and 2017 are as follows:
2017

2018
Bonds

25%

28%

Stocks63%

59%

Cash and deposits

1%

1%

Others

11%

12%

Total

100%

100%

* Retirement benefit trusts established for the corporate pension plans accounted for 30% and 27% of the total plan assets at 31st March, 2018 and 2017,
respectively. Retirement benefit trusts established for the lump-sum payment plans accounted for 25% and 23% of the total plan assets at 31st March, 2018 and2017, respectively.

2) The expected long-term rate of return on plan assets has been estimated by taking into account the current and expected
allocation of the plan assets and the current and anticipated long-term rate of return on diverse assets that constitute the plan
assets.
viii) Assumptions for actuarial calculation
Major assumptions for actuarial calculation as of 31st March, 2018 and 2017
1) Discount rates:

2018

2017

0.893% (principally)

0.893% (principally)

2) Expected long-term rate of return on plan assets:

3.3% (principally)

3.3% (principally)

3) Expected rate of pay increase:

3.36% (principally)

3.71% (principally)(3) Defined contribution plans
Contributions of ¥0 million ($1 thousand) and ¥0 million have been made to the defined contribution plan by the consolidated subsidiaryfor the years ended 31st March, 2018 and 2017, respectively.

52

Nishi-Nippon Financial Holdings GroupANNUAL REPORT 2018

Notes to Consolidated Financial Statements

32. Income Taxes
The tax effect of temporary differences and tax loss carryforwards that give rise to the deferred tax assets and liabilities at 31st March, 2018and 2017 are as follows:
Thousands of
U.S. dollars

Millions of yen

2018

2017

2018
$129,601

Deferred tax assets:¥13,768¥13,944

Liability for retirement benefits

57

3,987

539

Accumulated depreciation

2,024

1,831

19,051

115

289

1,091

Reserve for possible loan losses

Loss carryforwards for tax purposes
OthersSub-total
Valuation allowance
Total deferred tax assets

8,425

8,371

79,302

24,391

28,423

229,587(7,657)(7,610)(72,080)

16,733

20,813

157,506

Deferred tax liabilities:
Reserve fund for deferred income of fixed assets

(1)

(1)

(12)

Unrealized losses on securities attributable to partition of corporation, net

(35)

(35)

(334)
(34,333)(3,647)(3,647)

Asset retirement obligations

(38)

(42)

(360)

Capital gain adjustments(1,081)(1,081)(10,184)

Gains on establishment of a retirement benefit trust

(83)

(79)

(784)

(32,437)(24,182)(305,327)

Total deferred tax liabilities(37,326)(29,071)(351,337)

Net deferred tax assets (liabilities)(¥20,592)(¥8,257)($193,834)

Share of retained earnings of affiliates accounted for by the equity method
Unrealized gains on securities available for sale, net(Changes in Presentation)“Gains on establishment of a retirement benefit trust” and “Share of retained earnings of affiliates accounted for by the equity method”
under “Deferred tax liabilities”, which were included in “Liability for retirement benefits” and “Others” under “Deferred tax assets”,
respectively, in the previous fiscal year, are presented separately from the current fiscal year for enhancing clarity of disclosure.
In order to reflect these changes in presentation, notes for the previous fiscal year have been reclassified.
As a result, “Liability for retirement benefits” of ¥339 million in the previous fiscal year has been reclassified as “Liability for retirement
benefits” of ¥3,987 million and “Gains on establishment of a retirement benefit trust” of ¥3,647 million, and “Others” of ¥8,291 million in
the previous fiscal year has been reclassified as “Others” of ¥8,371 million and “Share of retained earnings of affiliates accounted for by
the equity method” of ¥79 million, in the above notes for 2017.
The reconciliation between the statutory tax rate and the effective tax rate reflected in the consolidated statement of income for the year
ended 31st March, 2018 is not presented since the difference between those rates was equal to or less than 5% of the statutory rate.
The reconciliation between the statutory tax rate and the effective tax rate reflected in the consolidated statement of income for the year
ended 31st March, 2017 is as follows:2017
Statutory tax rate

30.7%

(Adjustments)
Items permanently not deductible for tax purposes such as entertainment expenses

0.6

Non-taxable dividend income and others(0.6)

Inhabitant tax on per capita basis

0.3

Capital gain adjustments

3.3

Increase in valuation allowance(6.7)

Others0.4

Effective tax rate

28.0%

Nishi-Nippon Financial Holdings GroupANNUAL REPORT 201853

Notes to Consolidated Financial Statements

33. Asset Retirement Obligations
Information on asset retirement obligations is as follows:
Asset retirement obligations that are recorded in the consolidated balance sheet(1) Outline of asset retirement obligations
The Company and its consolidated subsidiaries recognize asset retirement obligations for restoration obligations resulting from realestate lease agreements such as those of the Group branch offices and commercial fixed-term leasehold agreements. The Company
and its consolidated subsidiaries also recognize asset retirement obligations pertaining to obligations to remove hazardous substancesused in some of their branch offices in accordance with the Ordinance on Prevention of Health Impairment due to Asbestos.
(2) Method for calculating the value of asset retirement obligations
An asset retirement obligation is calculated by first estimating the period of expected use of the asset, which is the relevant building’s
depreciation period (principally 39 years), and then discounting the value of the relevant liability using the government bond’s market rate
(principally 2.304%) that matches said depreciation period as the discount rate.
(3) Changes in total asset retirement obligations for the years ended 31st March, 2018 and 2017
Thousands of
U.S. dollars

Millions of yen

2017

2018

2018

¥849

¥843

$7,996

Increase due to acquisition of tangible fixed assets

10

33

100

Adjustment for passage of time

11

13

107

Decrease due to fulfillment of asset retirement obligation

86

40

814

¥785

¥849

$7,389Balance at beginning of the year

Balance at end of the year

34. Business Segment Information(1) Segment Informationi)

Segment information summary
Financial information can be individually obtained for each of the Group’s reportable segments. This information is regularly reviewed
by the board of directors in order to determine how to allocate business resources and to evaluate business performance.
The Group consists of 7 consolidated subsidiaries and 1 affiliate. The Group is engaged in the financial services business, with a
primary focus on the banking business.
Thus, while the Group is composed of business segments offering different financial services, the Group’s reportable segment is
the “banking business” which Nishi-Nippon City Bank and The Bank of Nagasaki are engaged in.
The “banking business” is a wide range of services including services for deposits, loans, securities investment, domestic andforeign currency exchange, and other incidental services.

ii) Method for calculating the amount of ordinary income, profit or loss, assets, liabilities and other items
The accounting policies of reported business segments are the same as those described in “2. Summary of Significant Accounting
Policies”. The segment income is reported on an ordinary income basis. In addition, internal ordinary income among segments isbased on the same transaction terms as used in ordinary transactions with third parties.

54

Nishi-Nippon Financial Holdings GroupANNUAL REPORT 2018

Notes to Consolidated Financial Statementsiii) Ordinary income, profit or loss, assets, liabilities and other items by reportable segments<In 2018>
Millions of yen
Reportable segment
Banking

Other

Total

Adjustments

Consolidated¥142,613

Ordinary income
Ordinary income from third party customers¥129,286¥13,326¥142,613¥—

Internal ordinary income among segments

15,32911,34926,678(26,678)—

144,616

24,676

169,292(26,678)

142,613

Total ordinary income
Segment profit

41,801

11,143

52,945(19,007)

33,937

Segment assets

9,947,861

485,941

10,433,803(472,139)

9,961,663

Segment liabilities

9,410,723

81,2689,491,992(65,224)

9,426,768

Other items
Depreciation

6,630

230

6,861

—

6,861

Interest and dividend income

98,671

7,524

106,196(5,777)

100,419

Interest expenses

5,255

126

5,382

(295)

5,087

Increase in tangible and intangible fixed assets

10,780248

11,029—11,029Adjustments

Consolidated$1,342,367$—$1,342,367

Thousands of U.S. dollars
Reportable segment
Banking

Other

Total

Ordinary income
Ordinary income from third party customers
Internal ordinary income among segments
Total ordinary income$1,216,932$125,435

144,287

106,832

251,119(251,119)—

1,361,219

232,267

1,593,487(251,119)

1,342,367

Segment profit

393,465

104,890498,355(178,914)

319,441

Segment assets

93,635,744

4,573,999

98,209,744(4,444,085)

93,765,659

Segment liabilities

88,579,851

764,954

89,344,806(613,930)

88,730,875

Other items
Depreciation

62,412

2,168

64,580—64,580Interest and dividend income

928,764

70,828

999,593(54,380)

945,212Interest expenses

49,466

1,192

50,659(2,777)47,882

Increase in tangible and intangible fixed assets

101,473

2,343

103,817—

103,817

Notes: 1. Ordinary income is presented instead of net sales.
2. The category of “other” includes business segments which are not reportable segments, such as financial-related services for credit guarantee, credit
card and financial instruments exchange.
3. Adjustments for segment profit, segment assets, segment liabilities, interest and dividend income and interest expenses are primarily eliminations ofinternal transactions among segments.

Nishi-Nippon Financial Holdings GroupANNUAL REPORT 201855

Notes to Consolidated Financial Statements<In 2017>
Millions of yen
Reportable segment
Banking

Other

Total

Adjustments

Consolidated¥145,862

Ordinary income
Ordinary income from third party customers¥134,140¥11,722¥145,862¥—Internal ordinary income among segments

7,327

12,69620,023(20,023)—

141,467

24,419165,886(20,023)

145,862

Total ordinary income
Segment profit

34,409

11,774

46,183(12,315)

33,868Segment assets

9,449,568

498,696

9,948,264(461,816)

9,486,448

Segment liabilities

8,979,476

48,673

9,028,149(53,379)

8,974,769

Other items
Depreciation

6,385

229

6,615

—

6,615

Interest and dividend income

99,1508,957

108,107(6,835)

101,271

Interest expenses

6,984

80

7,064

(736)

6,327

Increase in tangible and intangible fixed assets

13,042

254

13,296—

13,296

Notes: 1. Ordinary income is presented instead of net sales.
2. The category of “other” includes business segments which are not reportable segments, such as financial-related services for credit guarantee, credit
card and financial instruments exchange.
3. Adjustments for segment profit, segment assets, segment liabilities, interest and dividend income and interest expenses are primarily eliminations ofinternal transactions among segments.

(2) Related Information
Ordinary income by services:<In 2018>
Millions of yen
Loan

Ordinary income from third party customers¥90,055

Securities¥19,366

Other

Total

¥33,191¥142,613

Thousands of U.S. dollars

Ordinary income from third party customers

Loan

Securities

Other

Total

$847,658$182,289$312,419

Loan

Securities$1,342,367

Note: Ordinary income is presented instead of net sales.

<In 2017>
Millions of yen

Ordinary income from third party customers¥90,529¥21,914

Other

Total

¥33,418¥145,862

Note: Ordinary income is presented instead of net sales.

(3) Impairment Losses on Tangible Fixed Assets by Reportable Segments<In 2018>
Millions of yen
Reportable segment
Banking

Other¥1,135

Impairment losses

Total

¥—

¥1,135

Thousands of U.S. dollars
Reportable segment
Banking$10,690

Impairment losses

56

Nishi-Nippon Financial Holdings GroupANNUAL REPORT 2018

Other

Total

$—

$10,690

Notes to Consolidated Financial Statements<In 2017>
Millions of yen
Reportable segment
Banking

Other

¥974

Impairment losses

Total

¥—

¥974

(4) Amortization and Balance of Goodwill by Reportable Segments<In 2018>
Millions of yen
Reportable segment
Banking

Other

Total

Goodwill
Amortization of goodwill

¥—

¥283

¥283

Balance at end of the year

¥—

¥945

¥945

Thousands of U.S. dollars
Reportable segment
Banking

Other

Total

Goodwill
Amortization of goodwill$—$2,669$2,669Balance at end of the year$—

$8,897$8,897<In 2017>
Millions of yen
Reportable segment
Banking

Other

Total

Goodwill
Amortization of goodwill

¥—

¥189

¥189

Balance at end of the year¥—

¥1,228¥1,228

Note: “Other” mainly consists of services for financial instruments exchange.

35. Related Party Transactions
Related party transactions for the years ended 31st March, 2018 and 2017 are as follows:(1) There are no relevant transactions of the Company with related parties to report.
(2) Transactions of the Company’s consolidated subsidiaries with related individuals, including shareholders and directors<In 2018>
There are no relevant transactions to report.
<In 2017>
Attribute

Name

Address

Company ownedby the Company’s
directors and theirclose relatives

Takata Kosan Chuo-ku
Ltd.
FukuokaCommon Business/
stock
occupation¥4(million)

Real-estateleasing

Equityownership—

RelationshipTransactions

Company owned byclose relatives ofCompany’s director(Kiyota Takata)

Loan

Transaction
amount¥—(million)

Account

Loans

Balance at
end of year

¥54
(million)* Terms and conditions of the transactions are similar to those with unrelated parties.

Nishi-Nippon Financial Holdings GroupANNUAL REPORT 201857

Notes to Consolidated Financial Statements

36. Reconciliation of Cash and Cash Equivalents
The reconciliation between “Cash and cash equivalents” in the consolidated statement of cash flows and each account in the consolidatedbalance sheet is as follows:
Thousands of
U.S. dollars

Millions of yen

2017

2018
Cash and due from banks on the consolidated balance sheet
Due from banks, exclusive of central bank
Cash and cash equivalents on the consolidated statement of cash flows

2018¥1,076,592¥807,097(3,424)(3,336)(32,233)¥1,073,168¥803,760$10,101,356$10,133,590

37. Per Share Information
Yen

Net assets per share at end of the year
Profit (loss) attributable to owners of parent per share*

U.S. dollars

2018

2017

2018

¥3,414.04¥3,127.67$32.135

137.78142.24

1.296

Basis for net assets per share as of 31st March, 2018 and 2017 are as follows:
Thousands of
U.S. dollars

Millions of yen

Net assets
Items to be deducted from net assets
Non-controlling interests
Net assets attributable to common stock

2018

2017

¥534,895¥511,678$5,034,783

7,420

23,89969,8507,420

23,89969,850527,474

487,778

4,964,933

2018

SharesNumber of shares of common stock outstanding at end of the year

2018

2017

154,501,417

155,955,729

Basis for profit (loss) attributable to owners of parent per share for the years ended 31st March, 2018 and 2017 are as follows:
Thousands of
U.S. dollars

Millions of yen

2017

2018

2018

Basis:
Profit (loss) attributable to owners of parent¥21,467¥22,214———

21,46722,214

202,069

Items not attributable to common stock
Profit (loss) attributable to owners of parent available for shareholders of common stock$202,069

SharesAverage number of shares of common stock outstanding during the year**

2018

2017

155,811,275

156,171,533* Diluted profit (loss) attributable to owners of parent per share for the years ended 31st March, 2018 and 2017 was not presented because the Company and its
consolidated subsidiaries had no dilutive shares during the years.
** Because the Company was established on 3rd October, 2016 through a joint share transfer, the average number of shares of common stock outstanding during theyear ended 31st March, 2017 has been calculated for the period before the establishment of the Company, from 1st April to 2nd October, 2016, by multiplying the
average number of shares outstanding during the period of Nishi-Nippon City Bank by its share transfer ratio, and for the period from 3rd October, 2016 to 31st March,2017 by using the Company’s average number of shares outstanding during the period.

58

Nishi-Nippon Financial Holdings GroupANNUAL REPORT 2018

Notes to Consolidated Financial Statements

38. Cash Dividends
Cash dividends paid during the years ended 31st March, 2018 and 2017 are as follows:<In 2018>
Types

Millions of yen

Thousands of
U.S. dollars

Cut-off date

Effective date

29th June, 2017
Ordinary General Meeting of Shareholders

Cash dividends(¥17.5 per share)¥3,142$29,582

31st March,
2017

30th June,2017

9th November, 2017
Meeting of Board of Directors

Cash dividends(¥12.5 per share)¥1,949$18,350

30th September,2017

8th December,
2017

Resolution<In 2017>
The Company is a joint holding company that was established on 3rd October, 2016 through a joint share transfer. Accordingly, the cash
dividends were paid at the amounts approved at the meetings of shareholders and the Board of Directors of the following wholly owned
subsidiary.
Resolution

Types

Millions of yen

Cut-off date

Effective date

29th June, 2016
Ordinary General Meeting of Shareholders

Cash dividends (¥3.5 per share),for common stock of Nishi-Nippon City Bank

¥2,747

31st March,
2016

30th June,
2016

8th November, 2016
Meeting of Board of Directors

Cash dividends (¥2.5 per share),for common stock of Nishi-Nippon City Bank

¥1,94930th September,2016

9th December,
2016

39. Subsequent Event
The following appropriation of earned surplus for the year ended 31st March, 2018 was approved at the shareholders’ meeting held on
28th June, 2018:
Resolution

28th June, 2018
Ordinary General Meeting of Shareholders

Types

Millions of yen

Thousands of
U.S. dollars

Cash dividends(¥17.5 per share)¥2,704$25,453

Cut-off date

Effective date

31st March,2018

29th June,
2018

Nishi-Nippon Financial Holdings GroupANNUAL REPORT 201859

Quarterly Information (Unaudited)
Nishi-Nippon Financial Holdings, Inc. and Subsidiaries
Year ended 31st March, 2018
Millions of yen
First Quarter

Second Quarter

Third Quarter

Fourth Quarter

from 1st April, 2017
to 30th June, 2017from 1st April, 2017
to 30th September, 2017from 1st April, 2017
to 31st December, 2017from 1st April, 2017
to 31st March, 2018

Ordinary income¥36,195¥72,215¥107,446¥142,613

Profit (loss) before income taxes¥11,329¥18,542

26,90832,422

Profit (loss) attributable to owners of parent¥7,417¥12,430

17,967

21,467First Quarter

Second Quarter

Third Quarter

Fourth Quarter

from 1st April, 2017
to 30th June, 2017from 1st April, 2017
to 30th September, 2017from 1st April, 2017
to 31st December, 2017from 1st April, 2017
to 31st March, 2018

Yen

Profit (loss) attributable to owners of parent per share¥47.55¥79.70¥115.21¥137.78

First Quarter

Second Quarter

Third Quarter

Fourth Quarter

from 1st April, 2017
to 30th June, 2017from 1st July, 2017
to 30th September, 2017from 1st October, 2017
to 31st December, 2017from 1st January, 2018
to 31st March, 2018

Yen

Profit (loss) attributable to owners of parent per share¥47.55¥32.14¥35.50¥22.52First Quarter

Second Quarter

Third Quarter

Fourth Quarter

from 1st April, 2017
to 30th June, 2017from 1st April, 2017
to 30th September, 2017from 1st April, 2017
to 31st December, 2017from 1st April, 2017
to 31st March, 2018

Thousands of U.S. dollars$340,698$679,736$1,011,353$1,342,367

Profit (loss) before income taxes

Ordinary income

106,642

174,535

253,283

305,179

Profit (loss) attributable to owners of parent

69,815

117,007

169,120

202,069First Quarter

Second Quarter

Third Quarter

Fourth Quarter

from 1st April, 2017
to 30th June, 2017from 1st April, 2017
to 30th September, 2017from 1st April, 2017
to 31st December, 2017from 1st April, 2017
to 31st March, 2018

U.S. dollars

Profit (loss) attributable to owners of parent per share

$0.44

$0.75

$1.08

$1.29

First Quarter

Second Quarter

Third Quarter

Fourth Quarter

from 1st April, 2017
to 30th June, 2017from 1st July, 2017
to 30th September, 2017from 1st October, 2017
to 31st December, 2017from 1st January, 2018
to 31st March, 2018

U.S. dollars

Profit (loss) attributable to owners of parent per share

60

Nishi-Nippon Financial Holdings GroupANNUAL REPORT 2018

$0.44

$0.30

$0.33

$0.21

Non-Consolidated Balance Sheet (Unaudited)
The Nishi-Nippon City Bank, Ltd.
31st March, 2018 and 2017
Thousands of
U.S. dollars

Millions of yen

2018

2017

2018

Cash and due from banks¥1,064,236¥794,047$10,017,284

Call loans and bills bought

—

128

—

Trading account assets

1,142

869

10,758

Money held in trust

2,850

850

26,826

Securities

1,556,641

1,677,231

14,652,126

Loans and bills discounted

6,836,291

6,574,638

64,347,625

Assets:Foreign exchange assets

8,359

7,539

78,683

Other assets

88,83050,130836,128

Tangible fixed assets

120,435

116,778

1,133,615

Intangible fixed assets

3,001

4,508

28,256

Prepaid pension cost

16,954

15,233

159,591

Customers’ liabilities for acceptances and guarantees

20,512

22,868

193,080

Reserve for possible loan losses(36,120)(36,990)(339,993)

Reserve for devaluation of securities

(501)

(501)

(4,719)¥9,682,635¥9,227,333$91,139,264¥8,145,409¥7,812,742$76,669,896

Call money and bills sold

41,38749,924

389,563

Payables under repurchase agreements

100,753

69,174

948,355

Guarantee deposits received under securities lending transactions

27,63018,714260,077

Borrowed money

740,104

640,375

6,966,349

113

89

1,070

Bonds

20,00030,000188,253

Other liabilities

31,19568,560293,631

Reserve for employee retirement benefits

1,358

2,670

12,784

Reserve for reimbursement of deposits

2,503

2,386

23,565Reserve for other contingent losses

1,348

1,427

12,695

Deferred tax liabilities

18,961

13,430178,476

Deferred tax liabilities on revaluation of premises

14,73014,986

138,650

Acceptances and guarantees

20,512

22,868

193,080

9,166,010

8,747,351

86,276,449

85,74585,745807,093

85,68485,684

806,514

Legal reserve

61

61

579

Voluntary reserves

3

3

29

Unappropriated retained earnings

238,049

211,0412,240,672

Total shareholders’ equity

409,543

382,5363,854,888

77,05767,429725,317

Total assets
Liabilities and Net assets:
Liabilities:
Deposits

Foreign exchange liabilities

Total liabilities
Net assets:
Capital stock
Capital surplus
Capital reserve
Earned surplus

Net unrealized gains on securities available for sale, net of taxes
Net deferred gains (losses) on hedging instruments, net of taxes
Revaluation of premises, net of taxes

(33)

(384)

(316)

30,05830,400282,925

Total valuation and translation adjustments

107,082

97,445

1,007,925

Total net assets

516,625

479,981

4,862,814¥9,682,635¥9,227,333$91,139,264

Total liabilities and net assets
See accompanying Notes to Non-Consolidated Financial Statements.

Nishi-Nippon Financial Holdings GroupANNUAL REPORT 201861

Non-Consolidated Statement of Income (Unaudited)
The Nishi-Nippon City Bank, Ltd.
Years ended 31st March, 2018 and 2017
Thousands of
U.S. dollars

Millions of yen

2018

2017

2018

Interest on loans and discounts¥79,929¥80,465$752,349

Interest and dividends on securities

14,453

14,322

136,045

Other interest income

228

224

2,149

Fees and commissions

25,47624,297

239,797

5

1

51

841

2,000

7,917

Income:Interest income:

Trading income
Other operating income
Other income
Total income

19,234

15,173

181,048

140,168

136,484

1,319,360

2,451

3,722

23,072

Expenses:
Interest expenses:
Interest on deposits
Interest on call money and bills sold

181

382

1,705

Interest on payables under repurchase agreements

932

659

8,776

Interest on borrowings

621

1,059

5,849

Interest on guarantee deposits received under securities lending transactions

206

27

1,941

Other interest expenses

931

1,135

8,763
140,733

Fees and commissions

14,951

14,309Other operating expenses

2,148

2,022

20,218General and administrative expenses

73,06574,143

687,739

Other expenses

5,066

6,554

47,685

Total expenses

100,554

104,016

946,486

Income before income taxes

39,61432,467

372,874

Current

7,611

8,012

71,646

Deferred

330

(722)

3,114

7,942

7,290

74,760¥31,671¥25,177$298,113

Income taxes

Total income taxes
Net income
See accompanying Notes to Non-Consolidated Financial Statements.

62

Nishi-Nippon Financial Holdings GroupANNUAL REPORT 2018

Non-Consolidated Statement of Changes in Net Assets (Unaudited)
The Nishi-Nippon City Bank, Ltd.
Years ended 31st March, 2018 and 2017
Thousands of
U.S. dollars

Millions of yen

2018

2017

2018

¥85,745¥85,745$807,093———¥85,745¥85,745$807,093¥85,684¥85,684$806,514

Shareholders’ equity
Capital stock
Balance at beginning of the year
Changes during the year
Total changes during the year
Balance at end of the year
Capital surplus:
Capital reserve
Balance at beginning of the year
Changes during the year
Total changes during the year
Balance at end of the year

—

—

—

¥85,684¥85,684$806,514

¥—

¥230

$—

Other capital surplus
Balance at beginning of the year
Changes during the year
Sale of treasury stock

—

(2)

—

Retirement of treasury stock

—

(228)

—

Total changes during the year
Balance at end of the year

—

(230)

—

¥—

¥—

$—

¥85,684¥85,914$806,514

Total capital surplus
Balance at beginning of the year
Changes during the year
Sale of treasury stock

—

(2)

—

Retirement of treasury stock

—

(228)

—

—

(230)

—

¥85,684¥85,684$806,514

¥61

¥61

$579

Total changes during the year
Balance at end of the year
Earned surplus:
Legal reserve
Balance at beginning of the year
Changes during the year
Total changes during the year
Balance at end of the year

—

—

—

¥61

¥61

$579

¥3

¥3

$30

Other earned surplus:
Reserve for deferred capital gains
Balance at beginning of the year
Changes during the year
Transfer from reserve for deferred capital gains
Total changes during the year
Balance at end of the year

(0)

(0)

(1)

(0)

(0)

(1)

¥3

¥3

$29

¥—

¥171,200$—

Other voluntary reserves
Balance at beginning of the year
Changes during the year
Transfer to other voluntary reserves—

25,500—Transfer from other voluntary reserves—(196,700)—

Total changes during the year—

(171,200)

—

¥—

¥—

$—

Balance at end of the year

Nishi-Nippon Financial Holdings GroupANNUAL REPORT 2018

63

Non-Consolidated Statement of Changes in Net Assets (Unaudited)
The Nishi-Nippon City Bank, Ltd.
Years ended 31st March, 2018 and 2017

Thousands of
U.S. dollars

Millions of yen

2018

2017

¥211,041¥30,228$1,986,461(47,129)2018

Unappropriated retained earnings
Balance at beginning of the year
Changes during the year
(5,007)(10,703)

Transfer from reserve for deferred capital gains

Cash dividends paid

0

0

1

Transfer to other voluntary reserves—(25,500)—

Transfer from other voluntary reserves
Net income
Retirement of treasury stock—

196,700—

31,671

25,177298,113—(4,968)—

Reversal of revaluation of premises

342

106

3,226

Total changes during the year

27,007

180,813254,211¥238,049¥211,041$2,240,672¥211,106¥201,493$1,987,071

Cash dividends paid

(5,007)(10,703)(47,129)

Net income

31,671

25,177298,113Retirement of treasury stock—(4,968)—

Reversal of revaluation of premises

342

106

3,226

Balance at end of the year
Total earned surplus
Balance at beginning of the year
Changes during the year

Total changes during the year

27,007

9,612

254,210¥238,113¥211,106$2,241,281¥—(¥4,188)$—

Acquisition of treasury stock—(1,014)—

Sale of treasury stock

—

6

—

Retirement of treasury stock

—

5,196

—

—

4,188

—

¥—

¥—

$—

¥382,536¥368,965$3,600,678

Cash dividends paid

(5,007)(10,703)(47,129)

Net income

Balance at end of the year
Treasury stock
Balance at beginning of the year
Changes during the year

Total changes during the year
Balance at end of the year
Total shareholders’ equity
Balance at beginning of the year
Changes during the year

31,671

25,177298,113

Acquisition of treasury stock—(1,014)—

Sale of treasury stock

—

4

—

Reversal of revaluation of premises

342

106

3,226

Total changes during the year
Balance at end of the year

64

Nishi-Nippon Financial Holdings GroupANNUAL REPORT 2018

27,007

13,570254,210¥409,543¥382,536$3,854,888

Non-Consolidated Statement of Changes in Net Assets (Unaudited)
The Nishi-Nippon City Bank, Ltd.
Years ended 31st March, 2018 and 2017

Thousands of
U.S. dollars

Millions of yen

2018

2017

2018

¥67,429¥61,643$634,689

9,628

5,786

90,628Valuation and translation adjustments
Net unrealized gains on securities available for sale, net of taxes
Balance at beginning of the year
Changes during the year
Net changes in items other than shareholders’ equity
Total changes during the year
Balance at end of the year

9,628

5,786

90,628¥77,057¥67,429$725,317(¥384)(¥1,011)($3,616)

350

626

3,299

350

626

3,299

(¥33)

(¥384)($316)¥30,400¥30,507$286,151

(342)

(106)

(3,226)

Net deferred gains (losses) on hedging instruments, net of taxes
Balance at beginning of the year
Changes during the year
Net changes in items other than shareholders’ equity
Total changes during the year
Balance at end of the year
Revaluation of premises, net of taxes
Balance at beginning of the year
Changes during the year
Net changes in items other than shareholders’ equity
Total changes during the year
Balance at end of the year

(342)

(106)

(3,226)¥30,058¥30,400$282,925¥97,445¥91,139$917,224

Total valuation and translation adjustments
Balance at beginning of the year
Changes during the year
Net changes in items other than shareholders’ equity

9,636

6,306

90,701

9,636

6,306

90,701¥107,082¥97,445$1,007,925¥479,981¥460,104$4,517,902

Cash dividends paid

(5,007)(10,703)(47,129)

Net income

31,671

25,177298,113

Acquisition of treasury stock—(1,014)—

Sale of treasury stock

—

4

—

Reversal of revaluation of premises

342

106

3,226

Total changes during the year
Balance at end of the year
Total net assets
Balance at beginning of the year
Changes during the year

Net changes in items other than shareholders’ equity
Total changes during the year
Balance at end of the year

9,636

6,306

90,70136,643

19,877344,911¥516,625¥479,981$4,862,814

See accompanying Notes to Non-Consolidated Financial Statements.

Nishi-Nippon Financial Holdings GroupANNUAL REPORT 201865

Non-Consolidated Balance Sheet (Unaudited)
The Bank of Nagasaki, Ltd.
31st March, 2018 and 2017
Thousands of
U.S. dollars

Millions of yen

2017

2018

2018

Assets:Cash and due from banks¥29,653¥30,4558

3

77242,536

237,047

2,282,915

Other assets

1,038

995

9,775
44,868

Securities
Loans and bills discounted$279,114

Tangible fixed assets

4,766

4,715

Intangible fixed assets

253

108

2,383

Deferred tax assets

458

617

4,312

Customers’ liabilities for acceptances and guarantees

44

48

414

(668)

(957)

(6,294)¥278,090¥273,033$2,617,567¥237,606¥246,127$2,236,505

23,00010,000216,490

Borrowed money

600

600

5,647

Other liabilities

960

812

9,036
3,818

Reserve for possible loan losses
Total assets
Liabilities and net assets:
Liabilities:
Deposits
Call money and bills soldReserve for employee retirement benefits

405

507

Reserve for retirement benefits for directors and corporate auditors

82

64

776

Reserve for reimbursement of deposits

35

33

334

Reserve for other contingent losses

60

69

571

Deferred tax liabilities on revaluation of premises

509

509

4,793

Acceptances and guarantees
Total liabilities

44

48

414

263,304

258,7732,478,389

6,121

6,121

57,621

Net assets:
Capital stock
Capital surplus
Capital reserve

2,000

2,000

18,825

Other capital surplus

2,463

2,463

23,192

Earned surplus
200

195

1,888

Unappropriated retained earnings

Legal reserve

2,908

2,387

27,378

Total shareholders’ equity

13,694

13,168

128,906

Revaluation of premises, net of taxes
Total valuation and translation adjustments
Total net assets
Total liabilities and net assets
See accompanying Notes to Non Consolidated Financial Statements.

66

Nishi-Nippon Financial Holdings GroupANNUAL REPORT 2018

1,091

1,091

10,272

1,091

1,091

10,272

14,786

14,259139,178¥278,090¥273,033$2,617,567

Non-Consolidated Statement of Income (Unaudited)
The Bank of Nagasaki, Ltd.
Years ended 31st March, 2018 and 2017
Thousands of
U.S. dollars

Millions of yen

2018

2017

2018

$38,170

Income:Interest and dividend income:¥4,055¥4,160

Other interest income

Interest on loans and discounts

251

251

2,364

Fees and commissions

710

728

6,687

Other income

415

275

3,908

Total income

5,432

5,416

51,130

Expenses:
Interest expenses:
175

240

1,654

Interest on call money and bills soldInterest on deposits

(0)

—

(7)

Interest on borrowings

0

—

0

Other interest expenses

2

2

25

1,215

1,175

11,445

0

—

0

3,314

3,367

31,197

Fees and commissions
Other operating expenses
General and administrative expenses
Other expenses

43

54

411

Total expenses

4,751

4,840

44,727

680

575

6,403

Income before income taxes
Income taxes
Current

(30)

(53)

(288)

Deferred

159

188

1,501

Total income taxes
Net income

128

135

1,213

¥551

¥440

$5,189See accompanying Notes to Non Consolidated Financial Statements.

Nishi-Nippon Financial Holdings GroupANNUAL REPORT 201867

Non-Consolidated Statement of Changes in Net Assets (Unaudited)
The Bank of Nagasaki, Ltd.
Years ended 31st March, 2018 and 2017
Thousands of
U.S. dollars

Millions of yen

2018

2017

2018

¥6,121¥6,121$57,621

Shareholders’ equity
Capital stock
Balance at beginning of the year
Changes during the year
Total changes during the year
Balance at end of the year

—

—

—

¥6,121¥6,121$57,621¥2,000¥2,000$18,825

Capital surplus:
Capital reserve
Balance at beginning of the year
Changes during the year
Total changes during the year
Balance at end of the year

—

—

—

¥2,000¥2,000$18,825¥2,463¥2,463$23,192

Other capital surplus
Balance at beginning of the year
Changes during the year
Total changes during the year
Balance at end of the year

—

—

—

¥2,463¥2,463$23,192¥4,463¥4,463$42,017

Total capital surplus
Balance at beginning of the year
Changes during the year———

¥4,463¥4,463$42,017

¥195

¥190

$1,841

Reserve of legal retained earnings

5

5

47

Total changes during the year

5

Total changes during the year
Balance at end of the year
Earned surplus:
Legal reserve
Balance at beginning of the year
Changes during the year

Balance at end of the year

5

47

¥200

¥195

$1,888¥2,387¥1,959$22,471

Other earned surplus:
Unappropriated retained earnings
Balance at beginning of the year
Changes during the year
Reserve of legal retained earnings

(5)

(5)

(47)

Cash dividends paid

(25)

(28)

(235)

Net income

551

440

5,189

Reversal of revaluation of premises

—

20

—

Total changes during the year

521

427

4,907

¥2,908¥2,387$27,378¥2,582¥2,149$24,312

Balance at end of the year
Total earned surplus
Balance at beginning of the year
Changes during the year
Cash dividends paid

(25)

(28)

(235)

Net income

551

440

5,189

Reversal of revaluation of premises

—

20

—

Total changes during the year

526

433

4,954

¥3,109¥2,582$29,267

Balance at end of the year

68

Nishi-Nippon Financial Holdings GroupANNUAL REPORT 2018

Non-Consolidated Statement of Changes in Net Assets (Unaudited)
The Bank of Nagasaki, Ltd.
Years ended 31st March, 2018 and 2017

Thousands of
U.S. dollars

Millions of yen

2018

2017

2018

¥13,168¥12,735$123,951

Total shareholders’ equity
Balance at beginning of the year
Changes during the year
Cash dividends paid

(25)

(28)

(235)

Net income

551

440

5,189

Reversal of revaluation of premises

—

20

—

Total changes during the year

526

433

4,954

¥13,694¥13,168$128,906¥1,091¥1,112$10,272

—

(20)

—

—

(20)

—

¥1,091¥1,091$10,272¥1,091¥1,112$10,272

—

(20)

—

—

(20)

—

¥1,091¥1,091$10,272¥14,259¥13,847$134,223

Cash dividends paid

(25)

(28)

(235)

Net income

551

440

5,189

Reversal of revaluation of premises

—

20

—

Net changes in items other than shareholders’ equity

—

(20)

—

526

412

4,954

¥14,786¥14,259$139,178

Balance at end of the year
Valuation and translation adjustments
Revaluation of premises, net of taxes
Balance at beginning of the year
Changes during the year
Net changes in items other than shareholders’ equity
Total changes during the year
Balance at end of the year
Total valuation and translation adjustments
Balance at beginning of the year
Changes during the year
Net changes in items other than shareholders’ equity
Total changes during the year
Balance at end of the year

Total net assets
Balance at beginning of the year
Changes during the year

Total changes during the year
Balance at end of the year
See accompanying Notes to Non-Consolidated Financial Statements.

Nishi-Nippon Financial Holdings GroupANNUAL REPORT 201869

Notes to Non-Consolidated Financial Statements (Unaudited)
The Nishi-Nippon City Bank, Ltd. and The Bank of Nagasaki, Ltd.
31st March, 2018 and 2017

1. Basis of Presentation of Financial Statements
The accompanying non-consolidated financial statements of The Nishi-Nippon City Bank, Ltd. and The Bank of Nagasaki, Ltd. (the Banks)
have been prepared from the accounts maintained by the Banks in accordance with the provisions set forth in the Japanese Corporation
Law, the Banking Law, and accounting principles generally accepted in Japan, which are different in certain respects as to the applicationand disclosure requirements of International Financial Reporting Standard.

2. Other Accounting Principles and Practices Employed by the Bank
Accounting principles employed by the Banks in preparing the accompanying non-consolidated financial statements which have significant
effects thereon, are explained in Note 2 of the Notes to Consolidated Financial Statements.

70

Nishi-Nippon Financial Holdings GroupANNUAL REPORT 2018

Nishi-Nippon Financial Holdings GroupANNUAL REPORT 201871

Outline of Banking Subsidiaries
As of 31st March, 2018, the Group has a nationwide network of 183 branches of The Nishi-Nippon City Bank, Ltd. (Head Office, 162
branches and 20 sub-branches) and 23 branches of The Bank of Nagasaki, Ltd. (Head Office and 22 branches), and four overseas
representative offices of The Nishi-Nippon City Bank, Ltd., in Hong Kong, Seoul, Shanghai, and Singapore.

The Nishi-Nippon City Bank, Ltd.
Business

Banking

Established

1st December, 1944

Headquarters

1-1, Hakata-ekimae 3-chome, Hakata-ku, Fukuoka 812-0011, Japan

Number of Employees

3,720

Number of Domestic Offices

183

Number of Correspondent Banks

122

Parent Company

Nishi-Nippon Financial Holdings, Inc. (NNFH’s share of voting rights 100%)Contents(As of 31st March, 2018)

Message from the President ������������������������������������
Board of Directors

1

Profile of the Company (Joint Holding Company)/Organization Chart ������������������ 2
Chairman �������������������� Isao Kubota
President��������������������
Hiromichi Tanigawa
Boardof Directorsof Nishi-Nippon Financial Holdings Inc. �����������������������
3
Deputy Presidents ����������������� Souichi Kawamoto
Kiyota Takata
Outline of Nishi-Nippon Financial Holdings Group ��������������������������
4
Representative Executive Director ���������� Shigeru Urayama
Executive
Directors ����������������
Hiroyuki Irie
Outlineof Medium-TermBusiness Plan �������������������������������
5
Shinya Hirota
Hideyuki Murakami
Financial Highlights ����������������������������������������
6
Managing Directors ���������������� Hiroyuki Takeo
Masaru Ikeda
Toward a Sounder Financial Position ��������������������������������
7
Ryutaro Kaichi
Directors(Auditand Supervisory Committee Members) � Seiji Ino
Financial
Results
�����������������������������������������
8
Michiaki Uriu (outside)
HiroshiFujioka (outside)(As of 30th June, 2018)
Initiatives for Improvement of Management at SMEs and Regional
Revitalization�������������
9*Directors/Audit and Supervisory Committee Members Michiaki Uriu and Hiroshi Fujioka are Outside Directors as prescribed in Article 2 (xv) of the Companies Act of Japan.

Providing Broader/Deeper Support for International Business ��������������������� 12

TheBank�������������������������
of Nagasaki, Ltd.
ESG (Environment, Social and Governance)
Initiatives
13
Business

Banking

Established

11th November, 1912

Risk Management Systems ������������������������������������ 15
Financial
Section �����������������������������������������
17
Headquarters
3-14, Sakaemachi, Nagasaki 850-8666, Japan
Number of Employees

251

Number of Domestic Offices

23

Outline of Banking Subsidiaries����������������������������������� 72
Organizationof Banking Subsidiaries �����������������������������
73
Parent Chart
Company
Nishi-Nippon Financial Holdings, Inc. (NNFH’s share of voting rights 100%)
Notes: 1. In this report, Japanese yen figures are rounded down to the nearest million yen.
2. Conversion into U.S, dollars (solely for the convenience of readers outside Japan) has been made at the exchange rate of ¥106.24 to $1.

(As of 31st March, 2018)

Board of Directors and Audit and Supervisory Board Members

President �������������������� Kazuo Yamamoto
Managing Directors ���������������� Yutaka Matsuyama
Tetsuhisa Matsumoto
Directors ��������������������� Tsunehiro Nakao
Yasuyuki Shigetomi
Hiroji Mochida
Hideyuki Murakami (part-time)
Audit and Supervisory Board Members �������� Kouji Nozu
Hiromi Uchio (part-time)
Mitsuru Kawatani (part-time)
72

Nishi-Nippon Financial Holdings GroupANNUAL REPORT 2018

(As of 30th June, 2018)

Organization Chart of Banking Subsidiaries
International Network of

The Nishi-Nippon City Bank, Ltd.

The Nishi-Nippon City Bank, Ltd.

Internal Audit Division

GeneralShareholders’ Meeting

Corporate Planning DivisionCorporate Risk Management Division
Compliance Risk Supervisory Division

Directors(Audit and Supervisory
Committee Members)

IT Strategy Division
Public Relations Division
Executive Secretariat
Human Resources Division

Audit and Supervisory
Committee Members’
OfficeCorporate Administration Division

INTERNATIONAL BUSINESSDIVISION
3-6, Hakata-ekimae 1-chome, Hakata-ku,
Fukuoka 812-0011, Japan
Phone: +81-92-476-2481
SWIFT: NISIJPJTFKK
Fax: +81-92-476-2488

Operations Planning & Management Division
Treasury & Portfolio Investment Division
Treasury & Securities Transaction Division

Board of Directors

Branches
Credit Risk Management Division
Credit Supervision Division
Business Planning Division
Business Promotion Division

Executive Committee

Retail Business DivisionInternational Business Division
Overseas Representative Offices
Hong Kong Rep.
Seoul Rep.
Shanghai Rep.
Singapore Rep.
Personal Loan Transaction DivisionCorporate Business Solution Division

TREASURY & PORTFOLIOINVESTMENT DIVISION
11-8, Kyobashi 1-chome, Chuo-ku, Tokyo
104-0031, Japan
Phone: +81-3-3561-9306
SWIFT: NISIJPJTFax: +81-3-3561-4365

TREASURY & SECURITIESTRANSACTION DIVISION
3-6, Hakata-ekimae 1-chome, Hakata-ku,
Fukuoka 812-0011, Japan
Phone: +81-92-476-2540, +81-92-476-2484
SWIFT: NISIJPJT, NISIJPJTFKK
Fax: +81-92-441-6106

Private Banking Division
Regional Relationship Management Division
Kita-Kyushu General Headquarters
Chikuho Regional Headquarters
Chikugo Regional Headquarters
Kyushu Regional Headquarters
Tokyo Headquarters(As of 30th June, 2018)

Suite 3112, Tower 6, The Gateway, Harbour
City, 9 Canton Road, Tsim Sha Tsui, Kowloon,
Hong Kong
Phone: +852-2526-2259
Fax: +852-2845-9264

SEOUL REPRESENTATIVE OFFICE

The Bank of Nagasaki, Ltd.

6th Fl., The Exchange Seoul Bldg, 21
Mugyo-ro, Chung-ku, Seoul 04520, Republicof Korea
Phone: +82-2-755-0670
Fax: +82-2-756-2160

Audit and Supervisory Board Members
GeneralShareholders’ Meeting

HONG KONG REPRESENTATIVEOFFICE

Board of Directors
Executive Committee
Corporate Planning Division
Human Resources & Corporate
Administration Division
Business Management Division
Credit Supervision Division
Operations Planning &Management DivisionInternal Audit Division(As of 30th June, 2018)

SHANGHAI REPRESENTATIVEOFFICE
Room No. 2209 Shanghai International Trade
Center, 2201 Yan-An Road (West), Chang
Ning District,Shanghai, People’s Republic of
China
Phone: +86-21-6219-0600
Fax: +86-21-6278-5940

SINGAPORE REPRESENTATIVEOFFICE
1 Marina Boulevard Unit#25-07
One Marina Boulevard, Singapore 018989
Phone: +65-6222-0115
Fax: +65-6222-0171

Nishi-Nippon Financial Holdings GroupANNUAL REPORT 2018

73

英文

最小使用サイズ

最小使用サイズ

6mm

6mm

1-1, Hakata-ekimae 3-chome, Hakata-ku,
Fukuoka, 812-0011, Japan
Phone: +81-92-461-1867

Printed in Japan