ANNUAL
ANNUAL REPORTREPORT 2018
2018
Year
Yearended
endedMarch
March31,
31,2018
2018

AN NUA L R E P ORT 2 0 1 8
CONTENTS
01 Consolidated Financial Highlights

17 Compliance

02 Message from the President

18 Board of Directors, Executive Officers
and Corporate Auditors

06 Medium-Term Management Plan
19 Consolidated Financial Statements
08 Environmental Initiatives
54 Independent Auditors’ Report
10 In Partnership with the Community- Contributing to the Local Community -55 Capital Management

12 Corporate Governance

56 Organization, Group Network

14 Risk Management

57 Affiliates and Subsidiaries, Bank Data

PROFILEThe Nanto Bank, Ltd. (the “Bank” or “Nanto Bank”) is based in Nara Prefecture, a region rich in tradition andculture dating back to its development as Japan’s first capital in the early 8th century. Since its establishment in
1934, Nanto Bank has achieved steady growth in partnership with its region and continues to maintain a sound financial structure. As of March 31, 2018, Nanto Bank had deposits of ¥4,817.6 billion, loans of ¥3,330.5 billion and total
assets of ¥5,808.4 billion.
Nanto Bank’s domestic network of 140 branches extends
beyond Nara Prefecture to the neighboring prefectures ofOsaka, Kyoto, Hyogo, Mie, Wakayama and Tokyo. The Bankhas become a trusted institution in communities throughout
its region thanks to its commitment to regionally focusedservices designed to meet the needs of local customers.
Nanto Bank continues to make a positive contribution toregional economic development by providing a comprehensive range of financial services, including overseas services,and maintains representative offices in Hong Kong andShanghai.

OSAKA

KYOTO

HYOGO

TOKYO
MIE

CORPORATE PHILOSOPHY
1. Pursue sound and efficient management
2. Provide superior comprehensive financial services
3. Contribute to regional prosperity
4. Strive to become a highly reliable, friendly and attractive bank

NARA (NARA PREFECTURE)
WAKAYAMA

Consolidated Financial Highlights
Thousands of
U.S. dollars

Millions of yen

2018

2017

2016

2015

2014

2018

For the year:
Total income .............................................

¥

79,899¥81,230¥76,417¥

81,869¥82,717$752,061

Total expenses ..........................................

61,88464,45061,58663,85762,923

582,492

Income before income taxes ....................

18,015

16,77914,83118,012

19,794

169,568

Net income ...............................................

13,16012,50812,159

9,874

9,079

123,870

Total assets ...............................................

5,808,433

5,815,095

5,505,607

5,328,661

5,187,191

54,672,750

Loans and bills discounted .......................

3,330,514

3,252,218

3,188,341

3,079,175

2,972,159

31,348,964

Securities ..................................................

1,539,150

1,686,575

1,797,411

1,693,517

1,907,331

14,487,481

Deposits and negotiable certificatesof deposit ................................................

4,836,602

4,765,789

4,766,330

4,754,414

4,662,888

45,525,244

Total liabilities .........................................

5,524,294

5,563,956

5,253,894

5,077,342

4,966,542

51,998,249

Non-controlling interests .........................

—

—

—

7,935

7,336

—

Total net assets .........................................

284,139

251,139251,712251,318

220,648

2,674,501

Common stock .........................................

37,92429,24929,24929,24929,249356,965

At year-end:

Per share data:

Yen

U.S. dollars

Net income ...............................................

¥ 418.05¥ 466.05¥ 453.22¥ 36.81¥ 33.78$ 3.93

Stockholders’ equity ................................

8,714.54

9,353.18

9,376.62

906.92794.95

82.02

Capital adequacy ratio (%) ......................

9.88

9.42

9.36

9.72

10.51

Note: U.S. dollar amounts are included solely for the convenience of readers and are calculated at the exchange rate of ¥106.24 to US$1.00, the rate prevailing on March 31, 2018.

Net Income

Total Assets(Billions of yen)(Billions of yen)
12.1

12.5

Total Net Assets(Billions of yen)
5,815.0

13.1
5,187.1

5,328.6

5,505.6

5,808.4

284.1
251.3

251.7

251.1

2015

2016

2017

220.6

9.8
9.0

2014

2015

2016

2017

2018

2014

2015

2016

2017

2018

2014

2018

01

Message
Message fromfrom thethe President
President
We would like to express our sincerest condolences and wishes for reconstruction as fast as possible for everyone affected by
the heavy rains in July 2018 and the earthquake in the northern part of Osaka Prefecture in June 2018.
The purpose of this Annual Report 2018 is to disclose our performance in fiscal 2017 (the year ended March 31, 2018) and
our initiatives conducted during the fiscal year. We would appreciate it if you would read through the report.
The Japanese economy is expanding moderately thanks to the improving corporate performance and the employment situation. This recovery trend is expected to continue with support from strong growth in overseas economies and construction
investments in anticipation of the Tokyo Olympics in the future. In terms of the regional economy centered around Nara Prefecture, there were bright signs as a result of inbound tourism and the overall economy is undergoing a recovery in the samemanner as the Japanese economy. However, the region is also facing the issues of a decreasing population and insufficient
workforce and efforts toward the local community, people and job creation are required for regional revitalization.
Under these circumstances, we are entering the second year of the Bank’s medium-term management plan titled “Vitality
Creation Plan II – Changing and Taking on Challenges” (April 2017 to March 2020) to realize the management vision of a “Vitality Creating Bank” which creates vitality in the community and itself. We have implemented various measures and made manyreforms to create regional economic vitality, deliver customer-centric services, improve productivity and profitability throughreviewing operations and upgrade the management and controls framework.
We believe it is the role of a regional financial institution to support the local economy, and all of our executives and employees will adhere to our management philosophies of pursuing sound and efficient management and contributing to regional prosperity while endeavoring to deliver high-quality services that are truly needed.
We look forward to the continued understanding and support of all of our stakeholders.

“Vitality Creating Bank”- Creating New Values and Revitalizing the Region Introduction
population, and a declining population, and the emergence of
new financial services using fintech. Within this environment,
we are working to implement the medium-term management
plan titled “Vitality Creation Plan II – Changing and Taking on
Challenges,” which started last year, in order to realize themanagement vision of a “Vitality Creating Bank” which creates vitality in the community and itself.
In the new medium-term management plan, we have set thethree years as a period in which to strive to change to a robust
structure in consideration of the changing financial climate.
For the plan’s final year, coinciding with our 85th anniversary,
we will endeavor to achieve good results in terms of earnings
Looking at the Japanese economy, while it will be necessary toand financial position, and we will strongly pursue businesswatch for the impact of fluctuations in financial markets andmodel reform through the pursuit of the Four Reforms ofprotectionist trade policies originating from the U.S., the econ-awareness reform, sales reform, clerical operations reform,

omy is moderately expanding thanks to factors including theand expenses reform. During the current fiscal year, we will

effect of inbound tourism, growing construction investments insteadily endeavor to achieve these reforms as we implement

anticipation of the Tokyo Olympics, and improvements invarious measures based on the stance that this reform will lead

employment and wage conditions, and these trends are expect-

to the Bank’s future.

ed to continue in the future, particularly in major metropolitan
areas. However, conditions in the operating environment for
financial institution are becoming increasingly severe as aresult of factors such as chronic shortage of manpower andshrinking markets stemming from lower fertility and aging
02

Creating Regional Economic Vitality
Regional creation of an autonomous and sustainable society that

In addition, we made a third investment in the Nara Prefecture

takes advantage of the characteristics of the local community is an

Tourism Revitalization Fund in April of this year. It is hoped thatessential initiative for a regional bank. In order to fulfill our role as

this fund will further promote regional revitalization using the his-a coordinator in cooperation with local municipality as well as

toric resource of kominka (old houses). Furthermore, we imple-

universities, companies, and various organizations, the Bankmented the fourth NANTO Success Road business plan

actively coordinates and cooperates in a wide range of activities

commercialization support project during the previous fiscal year

such as regional economy vitalizing projects that include support

to support customers who want to establish or develop new busi-

for business creation and promotion of transfers and permanentnesses. Students also submitted plans this time, and 11 plans were

citizenship in the region.

awarded. As was done with the previous plans, headquarters rep-

Specific projects include the Ikoma Vacant House Distribution

resentatives will continue to provide support for these plans

Promotion Platform, which was established in May of this year

toward achieving prompt commercialization while working

with Ikoma City, and real estate distribution-related organizations

together with external organizations.

in the city to promote the distribution of vacant houses, etc. There
are plans to take advantage of the knowledge of experts in various
fields and provide support for individual properties.
In response to the corporate management issue of securinghigh-quality human resources, tours of companies in Nara
Prefecture for students were conducted jointly with universities
and economic organizations in Nara Prefecture in February of thisyear. We believe there will be even more demands in the future for
efforts in which industries, governments, schools and finance collaborate to unite the region. Going forward, we will work to promote regional revitalization and the development of the regional
economy through the effective use of the resources these groups
have and cooperating together to respond to regional needs.
In October of last year, the Tourism Strategy Office was estab-

Since its foundation, we have endeavored to conduct businesslished in the Public Institutions & Regional Vitality Creation

closely rooted in the region as a bank that grows together with theDivision, and a Cooperative Agreement on Tourist Area Creations

region. We will continue to do our utmost in response to challeng-

was signed with the Nara Visitors Bureau. We have dispatchedes in the region and link such efforts to the revitalization of thebank employees to cooperate with the establishment of new busi-

region.

ness models through tourism promotion.

Delivering Customer-centric Services
The needs of customers are changing at an unprecedented
speed and becoming more diverse and sophisticated in linewith the social and economic situation. In order to gain thecontinued support of customers in these circumstances, wewould like to deliver optimal services truly desired by customers by constantly responding to these changes.
Based on this stance, we will aim to further instill andentrench a spirit of customer satisfaction (CS) and thoroughly ensure operation management from a customer-oriented
approach in an aim to be the “Number One Bank in Service.”
By delivering customer-centered services, we would liketo establish new business models in line with the times as aregional financial institution.
03

Message
Message fromfrom thethe President
President
Improving Productivity and Profitability through Reviewing OperationsFirst, in terms of sales, we are reviewing the branch and sales

and the NANTO Regional Vitality Creation Support Limited

framework in consideration of market characteristics. We are

Liability Investment Partnership (known as: NANTO Regional

aiming to achieve a balance between improvements in customer

Vitality Creation Support Fund) in September. We will utilize

convenience and efficiency through efforts including changes

these funds in an effort to use technologies and know-how fromfrom a full bank to branches specializing in individual custom-business partnerships with the companies invested in, improveers, relocation of branches, and the introduction of mobile ATM

the corporate value of companies invested in, and achieve fur-vehicles. As a new initiative, Hoken no Madoguchi @Nanto

ther synergies with the bank.

Bank was opened in two branches in July of this year in cooper-

In addition, we will strengthen business matching and over-ation with Hoken no Madoguchi Group Inc. We offer a largeseas business support and do our utmost to support businesslineup of insurance products including medical insurance andexpansion for customers through means such as continuing tocancer insurance, and we work to propose products in line withhold the Active Company Matching Fair and the Food andthe life plan of customers.

Goods Business Panel, as well as the holding of business panels
and business seminars throughout Asia.
Furthermore, we started lease intermediary services with thesubsidiary Nanto Lease Co., Ltd. that can propose financing andleases for capital expenditures by customers from April of thisyear, and we will also provide business succession support and
M&A advisory services through headquarters with specialized
knowledge.
As more advanced skills and know-how are required than in
the past to support the needs of customers in both the personal
department and corporate department, our sales branches, specialized personnel at headquarters and the Nanto Bank Groupwill devote their full efforts while working closely together with

Next, in terms of initiatives for each department, for individual customers, we aim to serve as the closest possible consultant

04

external organizations in order to offer optimal solutions for customers.

for customers of all generations by paying proper attention to

In terms of clerical operations, we will improve productivity

their life stages. As for strengthening our securities business andthrough a fundamental overhaul of sales branch and headquar-

inheritance business that serve as the pillars of our retail sales,

ters clerical operations as we transform ourselves into an effi-

following the launch of trust and inheritance services in April ofcient organization. At sales branches, we will work to further

last year, we are currently preparing to establish a securities sub-improve the efficiency of clerical operations from the perspec-

sidiary. In the non-face-to-face channel, we launched a “service

tive of abolition, simplification, machine usage/labor saving andcompleted on the website” that offers one-stop service from var-concentration and establish branch operations systems that areious loan applications to contract signing over the Internet from

simple and convenient for customers to use. In July of this year,

April of this year. Going forward, we will work to introduce

we opened a semi-self bank counter (quick counter) integrated

new financial services in order to improve customer conve-

with an ATM that does not require entry for deposit slips at thenience.

Saidaiji Branch. Because these counters are simpler and more

Next, for corporate customers, we aim to become the true

convenient for customers and they also reduce bank administra-main bank for the customer through exercising the consultation

tive work, we have plans to gradually increase these counters infunction and delivering solutions according to the company’s

the future. In addition, we completed the consolidation of thegrowth stage. We have supported business creation and develop-

back-end operations of sales branches at headquarters that wement of new businesses through the business plan commercial-have pursued since 2016 in June of this year at all sales branch-ization support project, the utilization of the dedicated NANTO

es. We also established a Document Management Center toCommercialization Support Fund 80 financing program, and the

reduce the burden of sales branches related to the storage offormation of the NANTO CVC Limited Liability Investment

documents, etc., and started operations of this center from July

Partnership (known as: NANTO CVC Fund) in June of last yearof this year. We believe these measures will reduce the number

of administrative personnel at sales branches and increase the

Furthermore, in terms of expenses, we have been transform-

number of personnel who can respond to the needs of customers.

ing the existing expenses structure and improve productivity and

Next, we will work to vitalize our human resources and orga-

profitability by achieving reforms in awareness, sales, clericalnization by fostering the spirit of taking on challenges among

operations and expenses under the medium-term management

the bankers, bolstering the human resource development system,

plan and raising the quality of sales clerical operations, andand realizing a work-life balance. In order to improve motiva-

human resources quality to a higher level.

tion and fulfillment in work, and ensure that each and every
employee can perform to 100% of their ability, we will work to
assign appropriate human resources to appropriate positions,develop systems to reduce overtime work and support the diversification of working styles, and develop the capability of youngbank employees at an early stage. Furthermore, we have newly
established a continuous employment system for further participation of the senior generation.
In addition, in order to develop employees who are capableof thinking and acting for themselves, we have adopted the kaizen (improvement) and 5S approaches of manufacturers andwill work to create an improvement culture and ethos that are
unique to the Bank.

Upgrading the Management and Controls Framework
We will continue to work to make our business management

executives and employees as we enhance the efforts to build

structure more advanced in order to firmly support the busi-

a more effective compliance framework.

ness model aimed for under the medium-term management

In addition, we will continue to develop a more advanced

plan and further improve the level of trust from customers.

risk management structure in order to strengthen credit risk

Compliance is fundamental for banks to faithfully carrymanagement and market risk management, etc. to maintainout their social responsibilities and public missions. In orderthe soundness of management and allow customers to safely

to earn the constant trust of our stakeholders, we are commit-

use our services.

ted to instilling greater awareness of compliance among all

In Partnership with the Community
The Bank has conducted business activities rooted in the local
community as it has grown together with the community up
until now. While there will be no change to this policy in the
future, the Bank must respond flexibly to changes in the surrounding environment. For this reason, we have displayed“Break it Down, Nanto” posters* in our branches since May ofthis year. These posters represent our message of creating newvalues beyond common sense and fixed ideas up until now to
be reborn as a new bank. All our executives and employees
will work together to improve corporate value and live up to
the expectations of our stakeholders as we strive for a responsive management based on keen sensibilities and steadily fulfill our mission of creating regional vitality.
We look forward to your continued support.

President Takashi Hashimoto05

Medium-Term Management Plan
The Bank embraces a management vision up to its 90th anniversary, aiming to become a bank which creates vitality in the community and itself as “Vitality Creating Bank.” In order to achieve this management vision, the medium-term management plan
titled “Vitality Creation Plan II – Changing and Taking on Challenges” was started in April 2017. This plan has set forth the threecore strategies of regional revitalization, pursuit of the Four Reforms and upgrading of management and controls. In particular, forthe pursuit of the Four Reforms, ten strategies have been set for awareness reform, sales reform, clerical operations reform andexpenses reform upon which we will strongly pursue business model reform.
Medium-Term Management Plan

Management
vision“Vitality Creating Bank”
We aim to become a bank that creates vitality in the community and itself through i) delivering high-quality financial and consultation functions as a regional financial institution and ii) cultivating a corporate culture full of dreams and pride.

Medium-term
management
plan(Term: April 2017 to March 2020)“Vitality Creation Plan II– Changing and Taking on Challenges”
We have set the three years as a period in which to strive to change to a robust structure in consideration of
the changing financial climate. For the plan’s final year, coinciding with our 85th anniversary, we will
endeavor to achieve good results in terms of earnings and financial position.

The 90th
anniversary(2024)The 85th
anniversary(June 2019)
The 80th
anniversary(2014)

06“Vitality Creation Plan”“Vitality Creation Plan II– Changing and Taking on
Challenges”(April 2014 toMarch 2017)(April 2017 toMarch 2020)

● Basic philosophy

Create regional economic vitality

Deliver customer-centric services

Make utmost efforts to revitalize our salestarget areasin pursuit of co-creation with communities

Deliver optimum and sophisticated services bypromptly meeting the increasingly diverse needs ofcustomers

Improve productivity and profitability
through reviewing operations● Priority strategies and initiatives policy

Bolster risk controls and earnings management, thusbuilding a management and controls framework
capable of responding to the changing environment
in a flexible manner(Initiatives policy)
Create regional vitality by playing a leading role in community,
people and job areas

1) Regional revitalization
Human resources andorganizational strategy

Vitalize our human resources and organization by fostering the spiritof taking on challenges among the bankers, bolstering the humanresource development system and realizing a work-life balance

Platform and market strategy

Revise the framework of our branches and sales, bolster points-ofcontact with customers and deliver high-quality services

Retail business strategy

Serve as the closest possible consultant for customers of all
generations by paying proper attention to their life stages

Corporate business strategy

Aim to become the true main bank for the customer through exercising the consultation
function and delivering solutions according to the company’s growth stage

Osaka strategy

Raise the Bank’s presence by actively allocating or reallocating ourcorporate resources based on branch continuity

Municipality strategy

Seek to develop relationships with individual municipalities by
delivering financing and consulting functions to themMarket investment strategy

Expand profits by diversifying our investment methods while
taking risks appropriately

Group strategy

Grow consolidated profits through delivering comprehensive
financial services by tapping into our Group’s capabilities

Clericaloperations
reformClerical operations strategy

Fundamentally overhaul the clerical operations of branches and theheadquarters, thus transforming the organization into a more efficient one

ExpensesreformExpenses strategy

Awareness
reform2) Pursuit of the Four
Reforms

Sales
reform3) Upgrading of management and controls

Medium-Term Management Plan

Improve productivity and profitability throughenhancing the quality of sales, clerical operations andhuman resources based on the Four Reforms (toawareness, sales, clerical operations and expenses)

Upgrade the management and controls
framework

Revise expenses as a whole to transform our expense structure
Upgrade our management and controls to firmly support thebusiness model and to obtain even greater trust from customers● Target metrics
Fiscal 2016 Result

Fiscal 2017 Result

Fiscal 2019 Target

OHR

74.45%

77.03%

Less than 70%

Non-interest income ratio

10.40%

10.83%At least 20%

Capital adequacy ratio

9.19%

9.64%

Approx. 10%

ROA

0.24%

0.20%

At least 0.3%

ROE

4.88%

4.90%

At least 5%

Calculation formals is more common plural form for the metrics
・OHR: Expenses/Core business gross profit
・Non-interest income ratio: (Fees and commissions + Other operating
income (excluding gains/losses on bonds (JGBs,etc.))/Core gross business profit: Core capital/Risk assets
・Capital adequacy ratio
・ROA: Core net business profit/Total assets
・ROE: Net income/Net assets

07Environmental Initiatives
Environmental Policy

Environmental Initiatives

Nanto Bank has its headquarters in historic Nara, an ancient capital of Japan and spiritual homeland of the Japanesepeople, where the Bank has grown together with the region. To preserve the splendid culture of Nara that has beenprotected from time immemorial for future generations, we strive to take regional leadership, and work to protect theenvironment and promote the creation of a recycling society.
1. We will establish environmental management systems for the purpose of recognizing that consideration of the preservationof the region’s blessed natural environment and historic features and reducing environmental impact is the basis forbusiness activities, and making actions accordingly. We strive to continually improve this system and prevent pollution to
improve environmental performance.
2. We will support customers involved in environmental conservation through the development and provision ofenvironmentally-conscious financial products and services.
3. We will promote resource and energy conservation and waste reduction by giving consideration to impacts on theenvironment in our day-to-day operations.
4. We will comply with environmental regulations and other requirements, and conduct environmental conservation
activities.
5. To implement these policies, we will establish specific environmental objectives and targets and review them periodically.
October 1, 2001 (established)
July 1, 2008 (revised)
December 1, 2017 (revised)

Nanto Bank, Ltd.
PRESIDENT Takashi HashimotoE x p l a n a t i o no ft e r m s

Environmental Management System
A framework for the management of an organization and auditing on its activities in order to conduct environmental conservation activities. The Environmental
Policy above serves as the basic policy for the management of this system.

Promotion of environmental conservation activities
Environmental ISO activities
The Bank obtained the ISO 14001 certification for the Head Office and Business support center in 2002, and subsequently acquired
certification for the recycling center, training center, and other locations.
Members of the Nanto Bank Group are working together to conduct environmental conservation activities
that include continued environmental conservation activities according to ISO standards by the departments
subject to certification and initiatives such as cool biz and everyday environmental conservation activities atsales branches and affiliates that are not subject to the certification.
In light of the fact that a sufficient awareness of the activities conducted has been instilled, in February
2014, we transitioned to a self-declaration of conformity* under which we make a declaration based on our own
responsibility that our environmental management system is in compliance with the international ISO 14001
standard. Efforts have been further strengthened even after the transition to this system.
In addition, the Bank has approved and registered with the national movement, “COOL CHOICE” national
campaign, promoted by the Ministry of the Environment to cope with global warming. The Bank also
participates in the “Fun to Share” campaign, promoted by the Ministry of the Environment through activities
that aim to reduce carbon gas in a sustainable manner.
*

A comment regarding this self-declaration of conformity has been received from external consultant Sompo Risk Management & Health Care Inc. as a third-party assessment.

Recycling CenterWe established a recycling center in June 2007 for the purpose of maintaining the confidentialityof documents and recycling them after their retention limits expire.
After paper leaves a large shredder, it is taken to a paper factory to be recycled into toilet
paper, notepads, and other items. The amount of paper recycled in this manner during Fiscal
2017 reached 310 tons.
We will continue to contribute to reducing paper waste and the recycling of paper resources in
the future.
Recycling center

Reduction of Energy Usage
The Bank has worked to reduce energy (electricity + city gas +heavy oil) usage through measures such as the standardizationof air-conditioning settings (a room temperature of 28°C whencooling and 20°C when heating) as part of environmental ISO
activities and the adoption of LED lighting in branches anddisplay windows.
In addition, we formulated a plan aimed at reducing energy
08

usage by over 5% compared to Fiscal 2009 over a period offour years since Fiscal 2010, and we have worked to streamline
energy usage over the medium- to long-term through measures
such as the introduction of energy-saving air-conditioning
equipment, etc.
We have also worked to save electricity since Fiscal 2011, andwe will continue efforts to reduce energy usage in the future.

River Beatification Activities
As river beatification activities, The Bank has participated as a volunteer in the Yamato River
Joint Cleanup (sponsored by Nara Prefecture, etc.) since 2014 and the Kizugawa River Basin
Cleaning Campaign (sponsored by the Kizugawa River Basin Cleaning Campaign Committee)
since 2017.

The Bank’s hockey club also participated in clean-up
activities in the basin of the Akishino River during the
Yamato River Joint CleanupStart of power supply from Ikoma Civic Power, Ltd.* for two branches in Ikoma City
The Bank will continue to use our expertise as a regional financial
institution to support the operation of Ikoma Civic Power by offering
management advice and financial assistance such as financing forworking capital.
* A company established in July 2017 through the signing of a shareholders’ agreement between
Ikoma City and the Bank, Osaka Gas Co., Ltd., Ikoma Chamber of Commerce & Industry andGeneral Incorporated Association Shimin Energy Ikoma. Ikoma Civic Power’s basic philosophy is
to use the profits gained through its business to improve convenience of the lives of the citizens ofIkoma City and to contribute to regional revitalization, and the profits from power supply are also
returned to city residents.

Environmental Initiatives

The supply of power from Nara Prefecture’s first municipal new powercompany, Ikoma Civic Power, Ltd., was started in February 2018 at two
branches in Ikoma City (the Ikoma Branch and Motomachi Sub-branch),which became the first private-sector locations to receive this power supply.
Ikoma Civic Power preferentially supplies electricity generated
through clean energy such as solar power and small-scale hydropowerfrom within Ikoma City, and by receiving power from Ikoma Civic
Power, the Bank hopes to contribute to reductions in greenhouse-gas
emissions, the spread and expansion of renewable energy and local
production of energy for local consumption that are being addressed by
Ikoma City as a model environmental city.

Kizukai Activities (the Wood Movement) and Yoshino Heart Project
Kizukai Activities is a forest preservation movement that promotes the active use of domestic wood resources to restore sound cycles for forests throughtree planting and thinning and to create healthy forests that absorb plenty of CO2.
The Bank became the first company in the banking industry to receive the Kizukai Activities logo
mark of approval from the Forestry Agency in November 2008.
As part of its support for the Yoshino Heart Project*, the Bank has emphasized the importance ofwood use in environmental preservation though the distribution of environmentally-friendly wood
products and the use of Yoshino 3.9 Paper, and these activities are also linked with Kizukai Activities.
The Bank received a letter of appreciation from the Minister of Agriculture, Forestry and Fisheries
B-(3)-080031
in October 2011 for our activities that served as significantly effective PR for Kizukai Activities.
Yoshino Heart logo mark Thank You Green Style logo

Participation in the Yoshino Cherry Tree Preservation GroupIn recent years, signs of blight and decay have been noticed among shiroyama-zakura (cherrytrees famous for their blossoms) at the Mount Yoshino World Heritage Site in Yoshino, Nara
Prefecture. To preserve about 30,000 of these trees, the Bank is participating as a special memberin the Yoshino Cherry Tree Preservation Group established as a public-private partnership.
In addition to providing financial support for this group, the Bank also actively supports
group activities through means such as dispatching volunteer staff to various events toactively cooperate in protection and cultivation efforts for the Yoshino Cherry Tree as aregional financial institution.

Fund raising during events“Cherry Picking” to raise saplings from mother trees in Mount Yoshino
The group plants cherry tree saplings at Mount Yoshino, and an event named “Cherry Picking” is conducted as part of these efforts. Our
employees participate as volunteer staff in this event.

Environmentally-Conscious Financial Products
The Bank also actively backs up environmental conservation activities in the region through finance.
NANTO Green Privately Placed
Bonds

A product that provides preferential treatment for some guarantee fees and commissions when underwriting
privately placed bonds that are issued by businesses engaged in environmentally-conscious management orin the reduction of environmental burden.

NANTO EnvironmentallyConscious Finance

A product that provides preferential interest rates based on the Bank’s prescribed environmental ranking for
capital investment funds related to environmental considerations by businesses engaged in environmentallyconscious management.

NANTO Eco Private Car Loans

A low-interest product (compared to NANTO Private Car Loans) that supports the purchase of low emission
vehicles or low fuel consuming vehicles.

NANTO Eco Renovation Loans

A low-interest product (compared to NANTO Renovation Loans) which supports home renovations thatsave energy.

09

In Partnership with the Community - Contributing to the Local CommunityPromoting Social Contribution Activities
NANTO Manyo Charity WalkThe NANTO Manyo Walk started in 1988 as a walk around local places of historical interest
related to Manyoshu every fall and spring.
Since the fall of 2004, it has been held as a charity walk in which we make donations to
the Nara Prefecture Council of Social Welfare.

Initiatives in Financial and Economics Education

In Partnership with the Community - Contributing to the Local Community-

The Bank is focusing on local financial and economics education through means such as
sending instructors and offering bank tours for local junior-high schools, etc. and holding
financial seminars for parents and children during summer vacation. We are also actively
involved in financial and economics education, etc. at elementary schools and junior highschools in the region using a humanoid robot named PALRO that can respond to humanvoice and is capable of mutual communication.
In addition, we sponsored the Nara Tournament of the “National High School Student
Finance and Economics Quiz Championship ‘Economic Koshien’” and we broadly
provided high-school students in the prefecture with the opportunity to participate.
Furthermore, we also provide learning and employment assistance by offeringinternships to students from special needs schools.

Economics Koshien Nara Tournament
PALRO

NANTO Nara Cheer Squad
The NANTO Nara Cheer Squad comprises 38 people who have retired from the Bank. The
group was formed during the 1,300th Anniversary of Nara Heijo-kyo Capital in 2010 as agroup of volunteer guides for temples and shrines in Nara Prefecture.
The detailed tours by these former bank employees have been very well received bytemple visitors, such as in the “Prayer Corridor, Hidden Treasure, and Treasured BuddhaSpecial Exhibition,” which is a special exhibition of cultural treasures at various locations
within Nara Prefecture.
Volunteers provided tours at five locations in the spring of 2018.
We will continue to revitalize tourism in Nara Prefecture going forward.
Volunteer guides at the Kasugataisha shrine

Nanto Bank Hockey TeamOn the occasion of the 1982 “Wakakusa” National Sports Festival, we formed a women’s
hockey team, to contribute to the promotion of sports in Nara Prefecture.
The team was certified as a Top Sports City Nara partner team in April 2016, and we areworking to contribute to the local community and interact with it through hockey withactivities such as participating in sports projects and visiting schools in Nara City andholding hockey school for local elementary-school students.

Nanto Scholarship Society
In order to assist fostering human resources in the local community, academic scholarships are provided for high-school and university
students of outstanding character and academic ability who reside in Nara Prefecture.
As of May 31, 2018, there were 67 students currently on scholarship, and the total number of graduates is 1,387.

CSR-Related Financial Products
The Bank also actively backs up the contributions of business to the local community through finance.
NANTO CSR Privately Placed
Bonds

10

A product in which we purchase goods to support the growth and study of children and students within
a set ratio of the bond issuance amount to commemorate the bond issuance, reflecting the desires of thebusiness. The goods are then donated to public nursery schools, kindergartens and elementary and juniorhigh schools designated by the businesses within the Bank’s salestarget area.

Small Kindness GroupThe Nanto Bank’s Small Kindness Group carries out a wide variety of public service
activities, such as cleanups and blood donations with the aim of creating cheerful local
communities.
As part of its “Sincere Books” campaign, the Society donated books to Nara Juvenile
Prison from 1987 to 2015 (a total of 55,000 books over 29 years) and then donated toNara Reformatory from 2016 when it was decided to close the prison.

Dementia Supporter Training Course and Sign Language Class

Sign language class

Certified as Mahoroba “ai Support Company”
The Mahoroba “ai Support Campaign” encourages people to “help out when they see someone with an impairment who is having
difficulties in his or her daily life” that is promoted by Nara Prefecture, and we were certified for our involvement as a “Loving Support
Company” in this campaign in December 2016.

Meeting the Needs of the Visually Impaired
For all our ATMs (including ones outside branches), we haveadopted universal design specifications with features making
them accessible to the elderly, the visually impaired andthose in wheelchairs. Furthermore, an operation screen thathas acquired certification for its color universal design whichemphasizes color contrast that is easy for everyone to see,and for its easy-to-understand boundaries between buttons, it
is sequentially introduced to new ATMs.
In March 2018, we installed the COMUOON desktop-type
interactive support system in some branches to facilitate easyuse of bank counters by elderly customers and customers
with hearing impairments.
In addition, at the request of customers, we provide
account balance and transaction records in Braille, and makebank book cases and card cases with the account name andnumber in Braille.
* Special features of our ATMs
• Large and easy-to-read letters (enlarged display also available)• Equipped with an easy-to-operate voice guidance system• Easy access to the display screen for wheelchair users

Enhancing the Barrier-Free Environment and Environmental
Friendliness at Branches
The Bank strives for barrier-free construction in our branches
so that the elderly, children, and people with impairments canuse our branches with ease.
In addition, we promote the use of equipment that reduces
the environmental burden, such as LED (light emitting diode)lighting.
* Special features of our barrier-free branches• Reserved parking spaces for wheelchair users• Braille blocks to guide the visually impaired• Eliminating steps and bumps

Installation of AEDs at All Branches
We have installed an AEDs (automatedexternal defibrillator) at cash corners at
all branches so that they can be used bypeople in the region.

In Partnership with the Community - Contributing to the Local Community-

In support with the objective of the Dementia Supporter Caravan promoted by the
Ministry of Health, Labour and Welfare, we have conducted the Dementia Supporter
Training Course as part of new employee training since 2008. The knowledge gained
through this course is used in bank counter support and support for people with dementia
in the region.
Sign language class is also part of new employee training, and employees learn how tocommunicate with people with hearing difficulties and about the attitude they should
adopt in these situations.

* An AED is a medical device that uses electric shock tobring the heart back to its normal rhythm when it has
spasms and is not able to pump blood. Since July 2004,
people who are not medical practitioners have been
permitted to use this device.
COMUOON desktop-type
interactive support system

Dedicated speaker andmicrophoneATMs with voice interaction (VI) function

ATMs that have easy access for wheelchairs

Counter use example

11

Corporate Governance
From the viewpoint of enhancing and strengthening
corporate governance, the Bank considers achieving fairmanagement which can earn strong trust from our customers,
stockholders and other stakeholders by increasing thetransparency and efficiency of management, as well as

meeting the expectations of stakeholders and continuously
enhancing corporate value, as one of our most importantmanagement priorities. The Bank’s main corporate
governance system (as of July 1, 2018) is as follows.

Corporate Governance System
The Board of Directors, comprising nine directors, including two
outside directors, plays a central role in our corporate governancesystem. The Board of Directors Regulations are strictly applied,and prompt and efficient decision making are undertaken.
The Board of Directors meetings are held once a month inprinciple, and extraordinary meetings are convened as necessary.
At the meetings, decisions are made on important managerial
matters and business execution with all corporate auditors inattendance, and reports on the status of business execution andvarious committees are made.
Additionally, the Management Directors’ Committee

meeting, comprising directors (seven directors), excluding
outside directors, is held once a week in principle as a decisionmaking institution for important matters concerning daily
operational management to ensure prompt decision making.
Moreover, with an aim of supplementing appropriate businessexecution in response to diversification and advancement ofoperations, committees such as the ALM Committee and theCompliance Committee have been established.
In April 2016, the Bank introduced the executive officer
system to assist business execution by directors and revitalize
and speed up decision making of the Board of Directors.

Corporate Governance Structure
Corporate Governance

Stockholders’ Meeting

Board of Directors

Report(Nine directors, including two outside directors)

Audit

Appointment/
Dismissal/
Supervision

President(Representative Director)

Discussion session

Instruction

Supervision

Various committees

Headquarters

Sales branches

Consolidated
Subsidiaries

Cooperation
Report/Cooperation
Appointment/Dismissal/Non-reappointment/Judgment on reasonableness of accounting audit

Cooperation

Group Operation
Conference

ALM Committee
Compliance Committee

Accounting
audit

12

ReportReportEvaluation(Deliberation, etc. of important matters)(Directors (excluding outside directors) /Full-time corporate auditors)

Internal Audit

Accounting Auditor

Management Directors’ Committee
Review

Internal Audit Division

ReportCorporate Auditors’ OfficeAppointment/
Dismissal

Board of Corporate Auditors (Four corporate auditors, including two outside corporate auditors)

Appointment/
Dismissal

AssistanceAppointment/
Dismissal

Matters Related to Corporate Auditors and Board of Corporate Auditors
The Bank adopts a corporate auditor system, consisting of
two full-time corporate auditors with extensive knowledge ofbank operations, finance and accounting and two highly
independent outside corporate auditors (independent
officers). The four corporate auditors combine theirknowledge and capabilities to enhance the effectiveness andtransparency of audits conducted by corporate auditors andthe Board of Corporate Auditors.
Corporate auditors appropriately monitor and audit
directors in the performance of their duties throughinvestigations of operations and assets in various ways,
including attending the Board of Directors meetings, theManaging Directors’ Committee and other important
meetings, as well as inspecting important documents andother items, and ensures the fairness and legality ofmanagement decisions.

The Board of Corporate Auditors meeting is held once amonth in principle, and extraordinary meetings are convened
as necessary. In addition, the Board of Corporate Auditors
conducts effective audits while keeping close cooperation
through measures such as regularly holding discussion
sessions with Representative Directors, regular reporting
sessions with accounting auditors and the internal auditing
department, as well as exchanging opinions and hearing
information, etc. at a three-party audit meeting consisting ofcorporate auditors, internal auditing department, andAccounting Auditor. The Corporate Auditor’s Office assists
the Board of Corporate Auditors by assigning two dedicatedstaff members.

Status of Internal Audit and Corporate Auditors’ Audit
In regard to the corporate auditors’ audits, operational
audits and accounting audits are performed at the sole
discretion of each responsible auditor. Audit results arereported to the Board of Corporate Auditors, Representative
Directors and the Board of Directors.

Systems to Ensure Proper Operations

Corporate Governance

The Internal Audit Division consists of 33 staff memberswith necessary knowledge and experience. This division is
independent from the departments that are audited and is
responsible for internal audits as an organization under the
direct control of the Board of Directors. Audit results arereported to the Board of Directors.

In order to ensure the proper operations of the Bank, the Board of Directors has resolved at its meetings to establish thestructure outlined below.

(1) A system to ensure that execution of duties by directors and employees is conducted in compliance withlaws, regulations and Articles of Incorporation;(2) A system regarding retention and management of information related to execution of duties by directors;(3) Regulations on management of risk of loss and other systems;(4) A system to ensure efficient execution of duties by directors;(5) A system to ensure appropriate operations in the corporate group comprising the Bank and its
subsidiaries;(6) Matters related to employees whose appointment is requested by corporate auditors to assist them intheir duties;(7) M atters related to the independence of employees assisting the duties of corporate auditors fromdirectors and ensuring the effectiveness of instructions to such employees;(8) A system for directors and employees of the Bank and directors, corporate auditors and employees ofsubsidiaries, as well as persons who have received reports from the aforementioned persons, to report tocorporate auditors and other systems for reporting to corporate auditors;(9) A system to ensure that any person who has made the aforementioned report will not be treateddisadvantageously on the grounds of having made such report;(10) Matters related to advance payment or reimbursement procedures for expenses incurred for execution ofduties by corporate auditors and other policies related to the processing of expenses or obligations
incurred for such execution of duties by corporate auditors;(11) Other systems to ensure that corporate auditors’ auditing is conducted effectively.
13

Risk Management
In recent years, the management environment surrounding
financial institutions has changed drastically, and the risks
they face have become more diversified and complex.
The Bank regards risk management as one of its mostimportant management issues and aims to create an advanced

risk management system so that the Bank can maintainappropriate and sound management and provide reliable services to its customers.

Risk Management Coordination
To cope with the various risks that the Bank faces in its banking business, the Bank has established specific units for eachcategory of risk. The Bank also incorporates the Risk
Management Division responsible for risk management coordination in order to gain a precise understanding of thenature and extent of risks and take expeditious steps toward
their management.
Furthermore, the Bank defines its basic risk management
policies in risk management regulations and other requirements, including the Risk Management Coordination
Regulations, in an effort to appropriately manage the risks.
Moreover, the Bank has adopted a policy of Risk
Management Coordination under which it quantifies various

risks by using the integrated risk management method,
intending to keep the amount of risks and its capital adequacy at appropriate levels in the light of its management vitality. Biannually, the Bank determines risk capital (risk based
amounts) for each category of risk within the scope of its
capital adequacy to limit the value of each risk (e.g., VaR) to
the amount of risk capital.
The situation of each risk is evaluated at a monthly ALM
Committee meeting which decides the appropriate level ofrisk control to implement, aiming to conduct more
effective and efficient risk and return management from theviewpoint of maintaining sound management and higher
profitability alongside effective utilization of capital.

Risk Management

Risk Management Structure
Board ofDirectors

Board ofCorporate Auditors

Management Directors’Committee

Emergency Council(Warning Council)

ALM Committee(ALM Subcommittee)

Committees

Operational Risk Management Committee(Operational Risk Management Subcommittee)

Organization

Risk Management Structure

Compliance Structure

Supervising Division

Risk Management Division

Compliance Management Division

Risk Categories

Credit Risk(

Risk
Management
Division

Main Divisionin Charge) (Market Risk

)(

)(

Risk
Management
Division

Operational Risk
(Risk Management Division)

Liquidity Risk

)(

Risk
Management
Division

Administrative Risk
Operations Support
Division

Systems Risk

Legal Risk
ComplianceManagement
Division) (Systems Division) (Personnel Risk
Personnel
Division)(

Tangible Assets Risk
General Affairs
Division) (Reputational Risk
Corporate
Planning
Division) (Operations

Divisions of Headquarters/Branches/Consolidated Subsidiaries

Auditing

Internal Audit Division

External Auditing

14

Compliance Committee(Compliance Subcommittee))(

Compliance
Compliance Management
Division)• Managing Internal Capital Managing Internal Capital refers to the implementation of
measures to maintain a sufficient level of internal capital,
capital adequacy assessment and computation of the capital
adequacy ratio.
The Bank conducts a quarterly assessment of its internal
capital adequacy by analyzing factors that cause the capital
adequacy ratio to fluctuate.
We also use the integrated risk management method toquantify the various risks faced by the Bank, and we regularly compare the level of these risks with the Bank’s internal
capital so as to control and carry out the assessments of ourinternal capital adequacy for each risk.

As for the capital adequacy assessment, the Bank positions itself to be able to review the allocation of its internal
capital, discuss necessary internal capital strategies and othernecessary actions through the monthly ALM Committee
meeting. We intend to maintain a sound management withthe help of appropriate risk control practices and increase
profitability through the effective utilization of our internal
capital by fully implementing this internal capital management structure.

• Managing Credit Risk which was established to assist borrowers with businessrestructuring and recovery initiatives. Together these units
form a structure that supports flexible risk management tailored to the specific circumstances of each customer.
Our credit analysis and risk management measures
include rigorous self-assessment, credit ratings consistent
with the borrower classifications used in the self-assessmentand other methods with which the Bank objectively recognizes and manages each customer’s credit capability. In addition, we have a policy of setting an interest rate (Pricing) tobe applied to individual customers according to their ratingbased creditworthiness. Through this, we take measures tostrengthen our credit risk management and increase profitability.
The Bank regularly and thoroughly reviews transaction
terms and establishes credit limits for borrowers with debt
exceeding a certain amount, with a view to reducing credit
risk by conducting strict credit control.

Risk Management

Credit risk is the risk of the value of assets decreasing or disappearing due to factors such as deterioration in the financial
condition of a borrower and the incurring of loss as a result.
To ensure the soundness of its assets, the Bank has established the Risk Management Division and Credit Analysis
Division as credit risk management departments that are separate and independent from business operations departments.
The Risk Management Division plans and supervises thecredit risk management structure within the Bank, conducts
credit portfolio analysis by segment and current status analysis by managing the levels of credit concentration on major
creditors for each industry and rating group and strives tobuild a sound credit portfolio by measuring credit risks using
statistical calculation methods for future potential loss.
The Credit Analysis Division consists of the Credit
Analysis Group, which handles general screening and industry-specific screening, the Management Group, which intensively supervises borrowers whose business performance has
deteriorated, and the Business Vitalization Support Office,• Managing Asset Appraisals 
Asset Appraisals are for the review of assets held by financial
institutions in order to determine the accurate status of theinstitution’s assets. It is an important method of credit risk
management and a preliminary procedure to accurately
assess the amount of depreciation and allowances. Assetassessment conducted by the financial institution itself isreferred to as a self-assessment.
The Bank carries out an assessment of its assets in which
the actual assessments are conducted by its operating branches

in conformity with the Regulations on Self-Assessment of
Assets. Assessment results are then subjected to a rigorous
verification process in which the results are examined by theCredit Analysis Division and further audited by the Internal
Audit Division. According to the audit results, the Bank
determines the appropriate amounts of depreciation andallowances. In this way, the Bank strives to perform appropriate asset assessment practices and maintain and improve
the soundness of its assets.

• Managing Market Risk Market risk is the risk of fluctuations in the value of assets
and liabilities or profits of the Bank due to fluctuations ininterest rates, exchange rates, stock prices, etc., and theincurring of losses as a result.
The Bank controls its market operations under a system ofreciprocal checks and balances based on a clear demarcation

between front office units, which implement transactions,and back office units, which carry out administrative processing. The middle office unit responsible for risk management
is the Risk Management Division, which develops risk management systems, checks compliance with risk management
regulations and other requirements and monitors the posi15

tions and profit performance of market units. The Risk
Management Division also carries out wide-ranging analyses
to quantify the risk levels of assets and liabilities, including
deposits, loans and securities. In its analyses, the divisionuses a variety of analytical techniques, including the value atrisk (VaR) and basis point value (BPV) methods and interest
rate fluctuation simulations. The results of this work are used
to provide timely reports to management.
Allowable risk limits are measured based on VaR anddetermined by the Bank’s ALM Committee biannually inconsideration of its capital status, market conditions andother factors. Market operations staff members make efforts
to generate profits while complying with these allowable risk
limits. Every month, the ALM Committee obtains actual risk
and revenue results from each market operation and discusses appropriate ways to control risks and generate earnings
efficiently by taking into account the market prospects andother conditions. In addition, the Bank conducts stress tests
by using scenarios that capture the characteristics of market
environments and its portfolios in order to understand theimpact of extreme market fluctuations exceeding VaR projections, bracing for contingency events.

• Managing Liquidity Risk 

Risk Management

Liquidity risk, also known as fund-raising risk, is defined as
the risk of loss due to an obstacle in raising the required
funds either because of a mismatch between the use and procurement of funds or an unexpected outflow of funds or
being forced to borrow at higher interest rates than usual.
According to monthly fund management plans formulatedby the ALM Committee, the Financial Investment Division
closely manages the Bank’s cash flow position on a day-today basis, and the Risk Management Division monitors the
management conditions. The ALM Committee is also

responsible for overall monitoring and management of cash
flow risk, including the monitoring of assets available for liquidation and the status of fund procurement.
The cash flow situation is classified into one of three levels according to financial situations: “regular phase,” “concern phase” and “crisis phase.” The Bank has developed
management systems that can be flexibly implemented ineach of these situations.

• Managing Operational Risks Operational risk is the risk of the Bank incurring a loss due
to inadequate or failed processes of banking operations,activities of executives and employees (including part-timeand temporary and other similarly classified workers) or systems as well as external events.
At the Bank, departments in charge of operational risks
apply the perspectives of specialists to the management ofadministrative risk, systems risk, legal risk, personnel risk,

tangible assets risk and reputational risk.
In addition, information about loss from operational accidents and results of potential risk analysis, etc., are collectively reported to the Operational Risk Management
Committee, which understands and manages each risk comprehensively. This enables the Bank to preferentially deal
with major risks and minimize the effects of the risks.

Internal Audit Posture
For the enhancement and reinforcement of risk management,
it is necessary for the PDCA cycle to function effectively inan aim for self-improvement while each division, branch,
etc., that conducts operations management and risk management departments conduct mutual oversight for each risk.

The Internal Audit Division, an internal auditing department, promotes risk management and strives to ensure thesoundness of management and the appropriateness of business by ascertaining the risk occurrence situation for each
operation and verifying the situation of the PDCA cycle
function and providing advice as necessary.

Crisis Management Posture
Along with the above risk management, the Bank has formulated a Crisis Management Plan and a Crisis Management
Plan Response Manual for each type of crisis to properly
respond to the occurrence and materialization of crises related to business operations such as natural disasters, including
large-scale earthquakes, systems malfunctions or virulent
strains of influenza or other pandemics. In the event of a crisis, the Bank responds, depending on the level of emergencyof the crisis, by having the Emergency Council, Response
Headquarters, or other divisions gather information and
16

engaging in centralized supervision and command in aneffort to minimize the impact of the crisis on its operations.
In the meantime, the Bank, as an organization responsible
for social function maintenance, takes measures to continuously provide customer services, including improvement offacilities to continue its business operations in the event ofdisasters or other events while striving to ensure the effectiveness of the crisis management posture and continuously
improve it through measures including risk management
training provided every year.

Compliance
Compliance refers to strict observance of ethics and social

The Bank takes the following approach in order tonorms as well as laws, regulations, government ordinances

increase awareness of compliance and respond to legal risks.

and the Bank’s regulations. Compliance is essential forbanks to faithfully carry out their social responsibilities andpublic missions.

Thorough Execution of Compliance● In recognition of the public mission and social responsibilities that financial institutions need to perform, the Bank regards
compliance with laws and regulations as the most important management issue and has established a Charter of Corporate
Behavior which consists of Basic Policies and a Code of Conduct for all officers and employees to follow to gain the trust of all
our stakeholders, including local communities, our customers and our shareholders.
● To establish a basic framework for the compliance system, we have established our compliance regulations and rules fordisciplinary action and demonstrate fairness and transparency in the administration of disciplinary action as means of establishinga clear stance on compliance with laws and regulations.
● Deliberations and decisions in matters of compliance are the responsibility of the Compliance Committee, which is chaired by the● A Compliance Program consisting of concrete plans to achieve compliance is drawn up each year and undergoes appropriate
review.
● The Bank strives to properly operate a Compliance Hotline as part of its internal reporting system that was established to prevent
legal violations and misconduct before they occur, to discover them promptly if they occur and to rectify them immediately.

Compliance

President and operates horizontally across the bank’s organizational structure. Plans and supervision of compliance are carriedout in the Compliance & Risk Management Division.

● To instill a compliance mindset throughout the Bank, we have compiled a Compliance Handbook, which serves as a guide forachieving compliance and has been distributed to all officers and employees, and regularly conduct seminars and other grouptraining at the workplaces of individual workgroups.
● The Bank has established Regulations on Response to Antisocial Forces in order to take a resolute stand against anti-social forcesthat pose a threat to the order and security of civil society and takes strong measures to intervene and block any attempt by suchforces to create any relationship with the Bank.

17

Board of Directors, Executive Officers and Corporate Auditors(As of July 1, 2018)

Board of Directors and Corporate Auditors

Yasuo Ueno

Takashi Hashimoto

ChairmanPresident(Representative Director)

Naoki Minowa

Toru Hagihara

Director
Senior Managing Executive Officer(Representative Director)

Director
Senior Managing Executive Officer(Representative Director)(Business Planning & Promotion Headquarters)

Shigeyori Kawai

Keizo Nishikawa

Director
Managing Executive Officer

Director
Managing Executive Officer

ChairmanYasuo Ueno
President
Takashi Hashimoto
Director And Senior
Managing Executive
Officers
Naoki Minowa
Toru Hagihara(Business Planning &Promotion Headquarters)
Director And Managing
Executive Officers
Shigeyori Kawai
Keizo Nishikawa

18

Director And
Executive Officer
Kazuomi Nakamuro(Internal Audit Division)
Directors
Hiroshi Nakagawa
Matazaemon Kitamura
Managing Executive
Officers
Kiyohide Sawamura(In charge of Osaka Region)
Yoshiaki Morita(In charge of Special
Assignment)

Executive Officers
Satoru Wada
(Corporate Planning Division)
Kazuya Yokotani(Public Institutions & Regional
Vitality Creation Division)
Tomomi Onishi(Financial Investment Division)
Kazunobu Nishikawa(Head Office)Takahiro Konaka(Operations Support Division)Takeshi Sugiura(Tokyo Branch)
Satoru Fujiwara(In charge of Special
Assignment)

Naoki Ota
(Corporate Business Division
and Corporate Venture Capital
Office)Koji Honda(Osaka Chuo Office)Corporate Auditors
Masaaki Hashimoto
Takao Handa
Katsuhisa Yoshikawa
Masahiro Nakamura

Note:	Hiroshi Nakagawa and Matazaemon Kitamura are outside directors pursuant to Item 15, Article 2 of the Company Law and Katsuhisa Yoshikawa and Masahiro
Nakamura are outside corporate auditors pursuant to Item 16, Article 2 of the Company Law.

18

Consolidated Financial Statements
Consolidated Balance Sheets
The Nanto Bank, Ltd. and Consolidated Subsidiaries as of March 31, 2018 and 2017
Thousands of
U.S. dollars(Note 1)Millions of yen

2017

2018

¥ 820,151
489
2,983
—
33,0001,539,150
3,330,514
2,206
16,093
27,574
41,587
12,871
25,416
18
3,281
4,464
3,971
493
1,281
8,748
(19,813)¥5,808,433¥ 736,472
11,7764,304
10
31,0001,686,575
3,252,218
5,031
13,86343,17841,26812,01325,582
315
3,357
4,755
4,202
552
1,307
8,995
(25,662)¥5,815,095$ 7,719,794
4,602
28,077—
310,617
14,487,481
31,348,964
20,764
151,477
259,544
391,443
121,150
239,231169
30,88242,01837,3774,640
12,057
82,341(186,492)$54,672,750

Liabilities and net assets:
Liabilities:
Deposits (Notes 7 and 19) ..............................................................................
Negotiable certificates of deposit (Note 19) ...................................................
Call money and bills sold (Note 19) ...............................................................
Payables under repurchase agreements (Notes 7 and 19) ..............................
Payables under securities lending transactions (Notes 7 and 19) ...................
Borrowed money (Notes 7, 19 and 29) ..........................................................
Foreign exchanges ..........................................................................................
Borrowed money from trust account ..............................................................
Other liabilities (Note 29) ..............................................................................
Liability for retirement benefits (Note 22) .....................................................
Reserve for reimbursement of deposits ..........................................................
Reserve for contingent losses .........................................................................
Deferred tax liabilities (Note 24) ...................................................................
Acceptances and guarantees ...........................................................................
Total liabilities ...........................................................................................

4,817,646
18,956531
74,699345,250
208,368251
2,850
20,141
21,936
244
867
3,801
8,748
¥5,524,294

4,737,336
28,453—
29,203504,092
205,308
136—
23,41925,115
192
965
737
8,995
¥5,563,956

45,346,818
178,426
4,998
703,115
3,249,717
1,961,295
2,362
26,826
189,580
206,475
2,296
8,160
35,777
82,341$51,998,249

37,92434,749172,323

29,24926,075
161,245356,965
327,080
1,622,016(1,812)(1,828)(17,055)

243,185
45,328(282)(4,206)
40,840113
284,139¥5,808,433

214,742
43,526(409)(6,831)36,284
112
251,139¥5,815,095

2,289,015
426,656(2,654)(39,589)
384,4121,063
2,674,501$54,672,750

Net assets (Note 3):
Common stock: Authorized 64,000 thousand shares in 2018 and 2017
Issued 33,025 thousand shares in 2018 and27,275 thousand shares in 2017 ...........................................
Capital surplus ................................................................................................
Retained earnings ...........................................................................................
Less treasury stock: Issued 433 thousand shares in 2018
and 437 thousand shares in 2017 ..................................
Total stockholders’ equity
Valuation difference on available-for-sale securities (Note 20) .....................
Deferred gains or losses on hedges (Note 21) ................................................
Accumulated adjustments for retirement benefits (Note 22) .........................
Total accumulated other comprehensive income .......................................
Stock acquisition rights ................................................................................
Total net assets ...........................................................................................
Total liabilities and net assets ....................................................................
See Notes to Consolidated Financial Statements.

Consolidated Financial Statements

2018

Assets:Cash and due from banks (Notes 17 and 19) .................................................
Call loans and bills bought (Note 19) ............................................................
Debt purchased (Note 19) ..............................................................................
Trading account securities (Notes 19 and 20) ................................................
Money held in trust (Notes 19 and 20) ...........................................................
Securities (Notes 5, 7, 10, 19 and 20) ............................................................
Loans and bills discounted (Notes 6, 8 and 19) .............................................
Foreign exchanges (Note 6) ...........................................................................
Lease receivables and lease investment assets ...............................................
Other assets (Note 7) ......................................................................................
Tangible fixed assets (Note 9) ........................................................................
Buildings ....................................................................................................
Land ...........................................................................................................
Construction in progress ............................................................................
Other tangible fixed assets .........................................................................
Intangible fixed assets ....................................................................................
Software .....................................................................................................
Other intangible fixed assets (Note 7) ........................................................
Deferred tax assets (Note 24) .........................................................................
Customers’ liabilities for acceptances and guarantees ...................................
Reserve for possible loan losses (Note 19) ....................................................
Total assets .................................................................................................

19

Consolidated Financial Statements
Consolidated Statements of Income
The Nanto Bank, Ltd. and Consolidated Subsidiaries for the Years Ended March 31, 2018 and 2017
Thousands of
U.S. dollars(Note 1)Millions of yen

Consolidated Financial Statements

2018

2017

2018

Income:Interest income:Interest on loans and bills discounted ........................................................
Interest and dividends on securities ...........................................................
Other interest income .................................................................................
Trust fees ........................................................................................................
Fees and commissions ....................................................................................
Other operating income (Note 11) .................................................................
Other income (Note 12) .................................................................................
Total income ..........................................................................................

¥30,899
19,097568
28
17,5162,467
9,322
79,899¥32,372
19,824618—
17,176
6,360
4,878
81,230$290,841
179,753
5,346
263
164,871
23,22187,744752,061

Expenses:
Interest expense:
Interest on deposits ....................................................................................
Interest on borrowings and rediscounts .....................................................
Interest on payables under securities lending transactions ........................
Other interest expense ................................................................................
Fees and commissions ....................................................................................
Other operating expenses (Note 13) ...............................................................
General and administrative expenses (Note 14) .............................................
Other expenses (Note 15) ...............................................................................
Total expenses ........................................................................................

779
453
1,150
1,434
9,059
4,000
43,366
1,641
61,884

1,201
475
1,725
335
8,807
3,483
43,355
5,066
64,450

7,332
4,263
10,824
13,497
85,26937,650408,189
15,446582,492

18,015

16,779169,568

4,355
498
4,854
13,160¥13,160

4,624
(353)
4,270
12,508¥12,508

40,992
4,687
45,689123,870$123,870

Income before income taxes .............................................................................
Income taxes (Note 24):
Current ............................................................................................................
Deferred ..........................................................................................................
Total income taxes .................................................................................
Net income .........................................................................................................
Net income attributable to owners of parent .................................................

U.S. dollars(Note 1)Yen

Per share of common stock (Note 27):
Net income - basic ..........................................................................................
Net income - diluted .......................................................................................
Dividends .......................................................................................................

¥418.05
417.6370.00¥466.05465.51
70.00

$3.93
3.93
0.65

See Notes to Consolidated Financial Statements.

Consolidated Statements of Comprehensive Income
The Nanto Bank, Ltd. and Consolidated Subsidiaries for the Years Ended March 31, 2018 and 2017
Thousands of
U.S. dollars(Note 1)Millions of yen

Net income ..........................................................................................................
Other comprehensive income (loss) (Note 16):
Valuation difference on available-for-sale securities .....................................
Deferred gains (losses) on hedges ..................................................................
Adjustments for retirement benefits (Note 22) ...............................................
Total other comprehensive income (loss) ..................................................
Total comprehensive income for the year ...........................................................
Total comprehensive income attributable to:
Owners of parent ............................................................................................
See Notes to Consolidated Financial Statements.

20

2018

2017

2018

¥13,160¥ 12,508$123,870

1,802
127
2,625
4,555
¥17,716(13,546)
210
2,124(11,211)¥   1,297

16,961
1,195
24,70842,874$166,754¥17,716¥   1,297$166,754

Consolidated Statements of Changes in Net Assets
The Nanto Bank, Ltd. and Consolidated Subsidiaries for the Years Ended March 31, 2018 and 2017

Number ofshares ofcommonstock(thousands)

Balance at April 1, 2016 ................... 272,756
Reverse stock split ......................... (245,480)
Cash dividends ...............................
—Net income attributable to ownersof parent .........................................
—
Purchase of treasury stock .............
—
Disposition of treasury stock .........
—
Transfer from retained earnings tocapital surplus ................................
—Net changes in the items other thanstockholders’ equity .......................
—
Balance at April 1, 2017 ...................
27,275Issuance of new shares ..................
5,750
Cash dividends ...............................
—Net income attributable to ownersof parent .........................................
—
Purchase of treasury stock .............
—
Disposition of treasury stock .........
—
Transfer from retained earnings tocapital surplus ................................
—Net changes in the items other thanstockholders’ equity .......................
—
Balance at March 31, 2018 (Note 3) ...
33,025

Balance at April 1, 2017 ................... $275,310
Issuance of new shares ..................
81,645
Cash dividends ...............................
—Net income attributable to owners—of parent .........................................
—
Purchase of treasury stock .............
—
Disposition of treasury stock .........
Transfer from retained earnings tocapital surplus ................................
—Net changes in the items other than—stockholders’ equity .......................
Balance at March 31, 2018 (Note 3) ... $356,965

Accumulated
adjustments
for retirement
benefits

StockacquisitionrightsTotal net
assets¥(620)¥(8,956)¥136¥251,712

—
—

—
—

—
—

—
(1,878)

—
—
—

—
—
—

—
—
—

—
—
—

12,508
(19)
50

—

—

—

—

—

—

—
¥161,245—(2,080)—¥(1,828)——(13,546)¥43,526——210¥(409)——

2,124¥(6,831)
—
—

—
—
(2)

13,160
—
—

—
(5)
21

—
—
—

—
—
—

—
—
—

—
—
—

13,160
(5)
19

—

2

(2)

—

—

—

—

—

—

—
¥37,924—¥34,749—¥172,323—¥(1,812)1,802¥45,328127¥(282)

2,625¥(4,206)

1
¥113

4,556
¥284,139

Commonstock

CapitalsurplusRetainedearnings¥29,249¥26,075¥150,620¥(1,864)¥57,072

—
—

—
—

—
(1,878)

—
—

—
—

—
—
—

—
—
(4)

12,508
—
—

—
(19)
55

—

4

(4)

—
¥29,249
8,674——¥26,075
8,674
—

—
—
—

CapitalsurplusRetainedearnings$245,434 $1,517,742
81,645——(19,578)

Thousands of U.S. dollars (Note 1)
Valuation
Accumulateddifference on
Deferredadjustments
Less treasury available-for- gains or losses for retirement
stock
sale securities on hedges
benefits$(17,206) $409,695————(23) (11,235)¥112 ¥251,139—
17,348—(2,080)StockacquisitionrightsTotal net assets$(3,849)——$(64,297)——$1,054——$2,363,883
163,290(19,578)——(18)

123,870
—
—

—
(47)
197

—
—
—

—
—
—

—
—
—

—
—
—

123,870
(47)
178

18

(18)

—

—

—

—

—

—

—
16,961$(17,055) $426,656

1,195$(2,654)

24,708$(39,589)

9$1,06342,884$2,674,501——$327,080 $1,622,016

Consolidated Financial Statements

CommonstockMillions of yen
Valuation
Deferreddifference
on availablegains or
Less treasury
losses on
for-salestockhedgessecurities

See Notes to Consolidated Financial Statements.

21

Consolidated Financial Statements
Consolidated Statements of Cash Flows
The Nanto Bank, Ltd. and Consolidated Subsidiaries for the Years Ended March 31, 2018 and 2017
Thousands of
U.S. dollars(Note 1)Millions of yen

Consolidated Financial Statements

2018

2017

¥ 18,015
3,622
95(5,848)598
51(98)(50,565)
3,817(2,159)
(471)
2,380
28
—
—
(78,295)
80,310(9,497)
3,060¥ 16,779
3,714
—
1,843
925
27
113
(52,815)
3,738(6,208)
(86)
1,858
130
68
(68)
(63,877)
18,013(18,553)
15,583$ 169,568
34,092894(55,045)
5,628
480
(922)
(475,950)
35,928(20,321)(4,433)22,402
263——(736,963)
755,929(89,391)
28,802

1,141
12,60746,027(158,842)
2,825
115(2,345)2,850
51,517(4,061)
13,108(70,013)(7,143)—(77,157)

147(12,554)
29,203
270,444(1,277)
(65)
(734)
—
55,007(4,237)(5,582)
251,539(1,247)23
250,315

10,739118,665
433,236(1,495,124)
26,5901,082(22,072)
26,826484,911(38,224)
123,381(659,007)(67,234)—(726,251)

Cash flows from investing activities
Purchases of securities ...................................................................................
Proceeds from sales of securities ...................................................................
Proceeds from maturities of securities ...........................................................
Increase in money held in trust ......................................................................
Decrease in money held in trust .....................................................................
Purchase of tangible fixed assets ....................................................................
Proceeds from sales of tangible fixed assets ..................................................
Purchase of intangible fixed assets .................................................................
Proceeds from state subsidy ...........................................................................
Other ...............................................................................................................
Net cash provided by investing activities ...................................................

(392,267)
399,756
144,354(1,986)457(2,424)33(1,204)—(0)
146,719(406,747)
281,217
216,930(10,031)
1,117(2,873)—(1,594)68(84)
78,001(3,692,272)
3,762,763
1,358,753(18,693)
4,301(22,816)310(11,332)—(0)
1,381,014

Cash flows from financing activities
Proceeds from issuance of common stock .....................................................
Dividends paid ................................................................................................
Purchase of treasury stock ..............................................................................
Other ...............................................................................................................
Net cash provided by (used in) financing activities
Effect of exchange rate changes on cash and cash equivalents ....................
Net increase (decrease) in cash and cash equivalents ....................................
Cash and cash equivalents at beginning of year ............................................
Cash and cash equivalents at end of year (Note 17) ......................................

17,348(2,079)(5)
015,263(5)
84,821
733,948¥818,769—(1,879)(19)
1(1,897)1
326,421407,527¥733,948

163,290(19,568)(47)
0
143,665(47)
798,3906,908,396$7,706,786

Cash flows from operating activities
Income before income taxes ...........................................................................
Depreciation ...................................................................................................
Impairment loss ..............................................................................................
Increase (decrease) in reserve for possible loan losses ..................................
Increase (decrease) in liability for retirement benefits ...................................
Increase (decrease) in reserve for reimbursement of deposits .......................
Increase (decrease) in reserve for contingent losses ......................................
Interest income ...............................................................................................
Interest expense ..............................................................................................
Loss (gain) on investment securities ..............................................................
Loss (gain) on money held in trust .................................................................
Foreign exchange losses (gains) .....................................................................
Losses (gains) on sales of fixed assets ...........................................................
Loss on reduction of non-current assets .........................................................
State subsidy ...................................................................................................
Net decrease (increase) in loans and bills discounted ....................................
Net increase (decrease) in deposits ................................................................
Net increase (decrease) in negotiable certificates of deposit ..........................
Net increase (decrease) in borrowed money ..................................................
Net decrease (increase) in due from banks (excluding due fromthe Bank of Japan) ..........................................................................................
Net decrease (increase) in call loans and bills bought ...................................
Net increase (decrease) in call money ............................................................
Net increase (decrease) in payables under securities lending transactions ....
Net decrease (increase) in foreign exchange assets .......................................
Net increase (decrease) in foreign exchange liabilities ..................................
Net decrease (increase) in lease receivables and lease investment assets ......
Net increase (decrease) in borrowed money from trust account ....................
Interest received .............................................................................................
Interest paid ....................................................................................................
Other ...............................................................................................................
Subtotal ......................................................................................................
Income taxes paid ...........................................................................................
Income taxes refunded ...................................................................................
Net cash provided by (used in) operating activities ...................................

See Notes to Consolidated Financial Statements.

22

2018

Notes to Consolidated Financial Statements
The Nanto Bank, Ltd. and Consolidated Subsidiaries
Years ended March 31, 2018 and 2017

1. BASIS OF PRESENTATION
The accompanying consolidated financial statements of The Nanto Bank,
Ltd. (the “Bank”) and its consolidated subsidiaries (together, the “Group”)
have been prepared in accordance with the provisions set forth in the Japanese Financial Instruments and Exchange Act and its related accounting
regulations and the Ordinance for Enforcement of the Banking Law and in
conformity with accounting principles generally accepted in Japan, which
are different in certain respects from the application and disclosure requirements of International Financial Reporting Standards.
The accompanying consolidated financial statements have been restructured and translated into English, with some expanded descriptions, fromthe consolidated financial statements of the Bank prepared in accordancewith Japanese GAAP and filed with the appropriate Local Finance Bureauof the Ministry of Finance as required by the Financial Instruments andExchange Act. Some supplemental information included in the statutory
Japanese language consolidated financial statements, but not required forfair presentation, is not presented in the accompanying consolidated financial statements.
As permitted by the Financial Instruments and Exchange Act of Japan,
amounts less than one million yen have been omitted. As a result, the totals
shown in the financial statements do not necessarily agree with the sum of
the individual amounts.
The translation of the Japanese yen amounts into U.S. dollar amounts is
included solely for the convenience of the readers outside Japan, using theprevailing exchange rate at March 31, 2018, which was ¥106.24 to
US$1.00. The translations should not be construed as representations that
the Japanese yen amounts have been, could have been or could in the future
be converted into U.S. dollars at this or any other rate of exchange.

b. Cash and cash equivalents
In preparing the consolidated statements of cash flows, cash and cash
equivalents represents cash and due from the Bank of Japan.
c. Finance leases
As lessor:
Finance leases are accounted for in a manner similar to that used for ordinary sale transactions. Revenue from finance lease transactions and related
costs are recognized upon receipt of the lease payments. Finance leases
which transfer ownership of the lease assets to the lessee are recognized aslease receivables, and all finance leases which do not transfer ownership ofthe lease assets to the lessee are recognized as lease investment assets.
As for finance leases which commenced before April 1, 2008 and do nottransfer ownership of the lease assets to the lessee, the appropriate bookvalue (net of accumulated depreciation and amortization) in tangible andintangible fixed assets as of March 31, 2008 was recorded as the beginningbalance of “Lease receivables and lease investment assets,” and the total
amount of interest equivalent for the remaining lease term after the adoption of the “Accounting Standard for Lease Transactions” (AccountingStandards Board of Japan (“ASBJ”) Statement No. 13, issued on March 30,2007) is allocated over the remaining lease term using the straight-line
method.
For the fiscal years ended March 31, 2018 and 2017, differences between income before income taxes and income before income taxes calculated as if the accounting treatment for ordinary sale transactions had been
applied to the finance leases which do not transfer ownership of the leased
assets to the lessee were not material.
d. Securities
Trading securities are stated at fair value. Gains and losses realized on disposal and unrealized gains and losses from market value fluctuations arerecognized as gains or losses in the period of the disposal or the change.
Cost of sales for such securities is determined using the moving averagemethod. Held-to-maturity debt securities are stated at amortized cost on astraight-line method, cost of which is determined using the moving averagemethod. Available-for-sale securities with available fair values are stated atfair value in principle based on the market price as of the fiscal closing date.
Unrealized gains and losses on available-for-sale securities are reported,
net of applicable income taxes, as a separate component of accumulated
other comprehensive income. Available-for-sale securities for which it isextremely difficult to determine the fair value are stated at moving average
cost.
If the fair value of held-to-maturity debt securities or available-for-salesecurities declines significantly, the securities are stated at fair value, andthe difference between the fair value and the carrying amount is recognized
as a loss in the period of the decline. In such a case, the fair value will be
the carrying amount of the securities at the beginning of the next fiscal year.
Securities managed as trust assets in the individually managed money
held in trust primarily for securities management purposes are measured atfair value.

Consolidated Financial Statements

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIESa. Principles of consolidation
The accompanying consolidated financial statements include the accountsof the Bank and its ten subsidiaries at March 31, 2018 (ten in 2017).
The Bank has two (one in 2017) unconsolidated subsidiaries, Nanto
Sixth Industry Support Investment Limited Partnership and Nanto Regional
Vitality Creation Support Investment Limited Partnership. The unconsolidated subsidiaries are excluded from the scope of consolidation because theportion of their assets, net income (loss), retained earnings, accumulated
other comprehensive income and others that correspond to the Bank’s equity are immaterial to the extent that their exclusion from the scope of consolidation does not preclude reasonable judgment of the Group’s financial
position and results of operations.
The Bank has no affiliates over which it has the ability to exercise significant influence over operating and financial policies.
The Bank has two (one in 2017) unconsolidated subsidiaries not accounted for by the equity method, Nanto Sixth Industry Support Investment
Limited Partnership and Nanto Regional Vitality Creation Support Investment Limited Partnership, and one (one in 2017) affiliate not accounted forby the equity method, Nara Prefecture Tourism Revitalization Investment
Limited Partnership. The unconsolidated subsidiaries and affiliate not accounted for by the equity method are excluded from the scope of the equity
method because the effect on the accompanying consolidated financial
statements is not significant in terms of the portion of net income (loss),retained earnings, accumulated other comprehensive income, and others
which correspond to the Bank’s equity.
Potager Co., Ltd., of which the Bank owns between 20% and 50% of
the voting rights (execution rights), was not recognized as an affiliate forthe year ended March 31, 2018, because it is held by the Bank’s unconsolidated subsidiary for the purpose of incubating investees and not for the
purpose of controlling the entity.
All consolidated subsidiaries have fiscal years ending on March 31.

All significant intercompany accounts, transactions and unrealized
profits on transactions are eliminated.

e. Derivatives and hedge accounting
Derivatives are measured at fair value.
To account for hedging transactions in connection with interest rate risk
arising from financial assets and liabilities, the Bank applies the deferredhedge accounting method stipulated in “Treatment for Accounting and Auditing of Application of Accounting Standard for Financial Instruments in
the Banking Industry” (JICPA Industry Audit Committee Report No. 24,

23

Consolidated Financial Statements

February 13, 2002). The Bank assesses the effectiveness of such hedges in
offsetting movement in the fair value from changes in interest rates by classifying the hedged items, such as loans and deposits, and the hedging instruments, such as interest rate swaps, by their maturity. Regarding cash
flow hedges, the Bank assesses the effectiveness by verifying the correlation of the hedged items with the hedging instruments.
A portion of the deferred hedge losses and gains that were previously
accounted for under the “macro hedge method,” which had been applied inorder to manage interest rate risk arising from large volume transactions inloans, deposits and other interest earning assets and interest bearing liabilities as a whole using derivatives pursuant to “Temporary Treatment for
Accounting and Auditing of Application of Accounting Standard for Financial Instruments in Banking Industry” (JICPA Industry Audit Committee
Report No. 15, February 15, 2000) is no longer subject to hedge accounting. The deferred hedge losses and gains are being charged to “Interest income” or “Interest expense” over a 15-year period (maximum) from March
31, 2004 according to their maturity and notional principal amount. The
total amount of deferred hedge loss under the “macro hedge method” wasnil in 2018 and ¥0 million in 2017.
In order to hedge risk arising from the volatility of exchange rates foravailable-for-sale securities (excluding bonds) denominated in foreign currencies, the Bank applies fair value hedge accounting on the condition thatthe hedged available-for-sale securities are designated in advance and thatsufficient on-balance (actual) or off-balance (forward) liability exposure
exists to cover the cost of the hedged securities denominated in the same
foreign currency.

Consolidated Financial Statements

f. Tangible fixed assets (except for leased assets)
Depreciation of tangible fixed assets of the Bank is computed by the declining-balance method, except for buildings (excluding facilities attached tobuildings and structures acquired on or before March 31, 2016 which are
depreciated by the declining- balance method) which are depreciated by thestraight-line method. The estimated useful lives of major items are as follows:
6 to 50 years
Buildings
Others3 to 20 years
Depreciation of the assets of the consolidated subsidiaries is computed
principally by the declining-balance method over the estimated useful lifeof the asset.
g. Intangible fixed assets (except for leased assets)
Amortization of intangible fixed assets is computed by the straight-line
method. Acquisition costs of software to be used internally are capitalized
and amortized by the straight-line method primarily over a useful life of
five years.
h. Lease assets
Lease assets with respect to finance leases that do not transfer ownership of
tangible fixed assets and intangible fixed assets are depreciated or amortized using the straight-line method with the assumption that the term of thelease is the useful life. The residual value of leased assets is the value guaranteed in the lease contract or zero for assets without such guaranteedvalue.
i. Reserve for possible loan losses
The reserve for possible loan losses is provided according to predetermined
standards. For loans to insolvent customers who are undergoing bankruptcy
or other special liquidation (“bankrupt borrowers”) or who are in a similar
financial condition (“effectively bankrupt borrowers”), the reserve for possible loan losses is provided based on the amount of the claims net of theamount expected to be recovered from collateral and guarantees and net of24

the deducted amount mentioned below. For the unsecured and unguaranteed portions of loans to customers not presently in the above circumstances but for whom there is a high probability of so becoming (“likely to
become bankrupt borrowers”), the reserve for possible loan losses is provided for the estimated unrecoverable amounts determined after an evaluation of each customer’s overall financial condition. For other loans, thereserve for possible loan losses is provided for based on the Bank’s actual
rate of loan losses in the past.
All the claims are assessed by the operating divisions based on the selfassessment criteria for asset quality, and the assessment results are auditedby the Asset Audit Division, which is independent from the operating divisions.
For claims against “bankrupt borrowers” and “effectively bankrupt borrowers,” the amount exceeding the estimated value of collateral and guarantees is deemed uncollectible and is deducted directly from those claims
in principle. At March 31, 2018 and 2017, the deducted amounts were
¥7,118 million ($66,999 thousand) and ¥6,224 million, respectively. The
reserve for possible loan losses of the consolidated subsidiaries is provided
for general claims by the amount deemed necessary based on the historicalloan-loss ratio and for certain doubtful claims by the amount deemed uncollectible based on an assessment of each claim.
j. Employee retirement benefits
In calculating projected benefit obligations, expected benefits are attributed
to each period by the benefit formula basis.
Prior service costs are recognized as profit or loss at the time of occurrence.
Actuarial gains and losses are amortized from the fiscal year following
the year in which the gains and losses are recognized by the straight-line
method over a fixed period (ten years), within the average remaining service years of the current employees.
Consolidated subsidiaries applied the simplified method where theamount to be required for voluntary termination at the fiscal year-end isrecorded as projected benefit obligations in the calculation of the liability
for retirement benefits and retirement benefit costs.
k. Reserve for reimbursement of deposits
A reserve for reimbursement of deposits which were derecognized as liabilities under certain conditions is provided for possible losses on the future
claims of withdrawal based on historical reimbursement experience.
l. Reserve for contingent losses
To pay its contribution to the Credit Guarantee Corporation, the Bank provides a reserve for contingent liabilities not covered by other reserves in an
amount deemed necessary based on estimated future losses.
m. Foreign currency translations
Foreign currency assets and liabilities are translated at fiscal year-end exchange rates.
n. Income taxes
Deferred income taxes are recorded to reflect the tax effects of temporary
differences between the carrying amounts of assets and liabilities for tax
and financial reporting purposes.
The asset and liability approach is used to recognize deferred tax assets
and liabilities for the expected future tax consequences of temporary differences between the carrying amounts of assets and liabilities for financial
reporting purposes and the amounts for income tax purposes.

o. Recognition criteria for lease income and costs for finance leases
Lease income and costs are recognized at the time of receiving lease fees.

(3) Effects of the application of the guidance
The above guidance will be applied retroactively and the beginning balanceof retained earnings of the consolidated statements of changes in net assets
after the retroactive application will increase by ¥29 million ($272 thousand) because accumulated effects on net assets as of the beginning of thefollowing fiscal year will be reflected.

p. Consumption taxes
Transactions subject to national and local consumption taxes are recorded
at amounts exclusive of consumption taxes.
q. Changes in accounting policies
For the year 2018
None

The following standard and guidance were issued but not yet adopted.
“Accounting Standard for Revenue Recognition” (ASBJ Statement No.
29, March 30, 2018)“Implementation Guidance on Accounting Standard for Revenue Recognition” (ASBJ Guidance No. 30, March 30, 2018)(1) Overview
The above standard and guidance provide comprehensive principles forrevenue recognition. Under the standard and guidance, revenue is recognized by applying following five steps:
Step 1: Identify the contract(s) with customers.
Step 2: Identify the performance obligations in the contract.
Step 3: Determine the transaction price.
Step 4: Allocate the transaction price to the performance obligation in
the contract.
Step 5: Recognize revenue when (or as) the entity satisfies a performance obligation.
(2) Effective date
The Group is scheduled to apply the accounting standard and its guidancefrom the beginning of the fiscal year ending March 31, 2022.
(3) Effects of the application of the standards
The Bank and its consolidated domestic subsidiaries are currently in theprocess of determining the effects of these new standards on the consolidated financial statements.

For the year 2017
Due to amendments to the Japanese Corporation Tax Act, the Bank and its
domestic subsidiaries adopted “Practical Solution on a Change in Depreciation Method due to Tax Reform 2016” (“Practical Issue Task Force No.
32, June 17, 2016 (hereinafter, “PITF No. 32”)) from the current fiscal year
and changed the depreciation method for buildings, facilities attached tobuildings and structures, which were acquired since April 1, 2016, from thedeclining-balance method to the straight-line method.
The impact on income before income taxes for the fiscal year ended
March 31, 2017 was immaterial.

s. Additional information
The Bank and its domestic subsidiaries adopted “Revised Implementation
Guidance on Recoverability of Deferred Tax Assets” (ASBJ Guidance No.
26, March 28, 2016 (hereinafter, “Guidance No. 26”)) from the fiscal year
ended March 31, 2017.

3. CHANGES IN NET ASSETS(1) Type and numbers of shares issued and treasury stock for the fiscal years ended March 31, 2018 and 2017 were as follows:(Thousands of shares)

Remarks

2018

Shares issued
Common stock .............................

April 1, 2017

Increase

Decrease

Consolidated Financial Statementsr. Standards and guidance not yet adopted
For the year 2018
The following guidance was issued but not yet adopted.
“Implementation Guidance on Tax Effect Accounting” (ASBJ Guidance No. 28, February 16, 2018)(1) Overview
The above guidance was revised regarding the treatment of temporary differences to be added in the future related to items such as shares in subsidiaries in the nonconsolidated financial statements.
(2) Effective date
The Group is scheduled to apply the implementation guidance from the
beginning of the fiscal year ending March 31, 2019.

March 31, 201827,2755,750—

33,025

Total .........................................
Treasury stock
Common stock .............................

27,2755,750—

33,025

437

1

5

433

Total .........................................

437

1

5

433

Note 1

Notes 2&3

Notes: 1.	The increase of 5,750 thousand shares in common stock issued was due to capital increase through public offering (5,000 thousand shares) and third-party allocation (750 thousand shares).
2. The increase of 1 thousand shares in common stock of treasury stock was due to the purchase of shares of less than one unit.
3.	The decrease of 5 thousand shares in common stock of treasury stock was due to the execution of stock options.

25Consolidated Financial Statements(Thousands of shares)

Remarks

2017

Shares issued
Common stock .............................
Total .........................................
Treasury stock
Common stock .............................
Total .........................................

April 1, 2016

Increase

Decrease

March 31, 2017272,756
272,756——

245,480
245,480

27,27527,275

Notes 1 & 2

4,454
4,454

12
12

4,030
4,030

437
437

Notes 1, 3 & 4

Notes: 1. On October 1, 2016, the Bank implemented a one-for-ten reverse stock split.
2. The decrease of 245,480 thousand shares in common stock issued was due to the reverse stock split.
3.	The increase of 12 thousand shares in common stock of treasury stock comprises an increase of 8 thousand shares due to the purchase of shares of less than one unit executed
before the reverse stock split, an increase of 1 thousand shares due to the purchase of shares of less than one unit after the reverse stock split and an increase of 2 thousand shares
due to the purchase of fractional shares less than one unit allotted in the reverse stock split.
4.	The decrease of 4,030 thousand shares in common stock of treasury stock comprises a decrease of 129 thousand shares due to the execution of stock options, a decrease of 1
thousand shares due to sales of shares of less than one unit before the reverse stock split, a decrease of 0 thousand shares due to sales of shares of less than one unit after thereverse stock split, a decrease of 3,898 thousand shares due to the reverse stock split and a decrease of 0 thousand shares due to the disposition of shares of less than one unit in
the reverse stock split.

(2) Matters concerning Stock Acquisition Rights
For the fiscal year ended March 31, 2018
Shares expected to be acquired upon exercise of stock acquisition rights
Number of sharesClassification
The Bank

Breakdown
Stock acquisitionrights granted as
stock options

April 1, 2017

Total

Increase

Decrease

March 31, 2018

Balance at end ofcurrent fiscal year
(Millions of yen)(Thousands of U.S.
dollars)

—

—

—

—

¥113

$1,063

—

—

—

—

¥113

$1,063For the fiscal year ended March 31, 2017
Shares expected to be acquired upon exercise of stock acquisition rights
Number of sharesClassification

Consolidated Financial Statements

The Bank

Breakdown
Stock acquisitionrights granted as
stock options

April 1, 2016

Total

Increase

Decrease

March 31, 2017

Balance at end ofcurrent fiscal year
(Millions of yen)

—

—

—

—

¥112

—

—

—

—

¥112

(3) Information on dividends is as follows:(a) Dividends paid in the fiscal year ended March 31, 2018
Resolution

Annual stockholders’ meeting held on
June 29, 2017
Board of Directors’ meeting held on
November 10, 2017

Type of shares

Millions of yen (thousands of U.S. dollars), except per share amount
Aggregate amount of
Cash dividends
dividends
per share
Record date

Effective dateCommon stock¥939 ($8,838)¥35.00 ($0.32)

March 31, 2017

June 30, 2017

Common stock¥1,140 ($10,730) ¥35.00 ($0.32)

September 30,
2017

December 5, 2017(b) Dividends paid in the fiscal year ended March 31, 2017
Resolution

Annual stockholders’ meeting held on
June 29, 2016
Board of Directors’ meeting held on
November 11, 2016

Type of shares

Millions of yen, except per share amount
Aggregate amount of
Cash dividends
dividends
per share
Record dateCommon stock
Common stock

¥939
¥939

Effective date

¥3.50

March 31, 2016

June 30, 2016

¥3.50

September 30,
2016

December 5, 2016(c) Dividends to be paid in the fiscal year ending March 31, 2019
Resolution

Annual stockholders’ meeting held on
June 28, 2018

Type of shares

Millions of yen (thousands of U.S. dollars), except per share amount
Aggregate amount of
Source ofCash dividends
dividends
dividends
per share
Record dateCommon stock ¥1,140 ($10,730)

Retainedearnings¥35.00 ($0.32)

March 31, 2018

Effective dateJune 29, 2018

4. STOCKHOLDERS’ EQUITY
Under the Banking Law of Japan and the Company Law, the entire amount of the issue price of shares is required to be accounted for as capital, although
the Bank may, by resolution of its Board of Directors, account for an amount not exceeding one half of the issue price of the new shares as additional paidin capital, which is included in capital surplus.

26

The Banking Law provides that an amount equal to at least 20% of cash dividends and other cash appropriations be appropriated and set aside as legal
earnings reserve until the total amount of legal earnings reserve and additional paid-in capital equals 100% of common stock. The total amount of legal
earnings reserve and additional paid-in capital of the Bank has reached 100% of common stock. Therefore, the Bank is not required to provide additional
legal earnings reserve.
The legal earnings reserve and additional paid-in capital may be used to eliminate or reduce a deficit by resolution of the stockholders’ meeting or may
be capitalized by resolution of the Board of Directors. On condition that the total amount of legal earnings reserve and additional paid-in capital remains
equal to or more than 100% of common stock, they are available for distribution by resolution of the stockholders’ meeting. Legal earnings reserve is included in retained earnings in the accompanying financial statements.
The maximum amount that the Bank can distribute as dividends is calculated based on the nonconsolidated financial statements of the Bank in accordance with the Company Law.
5. SHARES OR INVESTMENTS IN CAPITAL OF UNCONSOLIDATED SUBSIDIARIES AND AFFILIATES
Shares or investments in capital of unconsolidated subsidiaries and affiliates at March 31, 2018 and 2017 were as follows:
Thousands of
U.S. dollars

Millions of yen

2018

Shares or investments in capital .........................................................................

2017

¥122

2018

¥32

$1,148

6. NONPERFORMING LOANS
Nonperforming loans at March 31, 2018 and 2017 were as follows:
Thousands of
U.S. dollars

Millions of yen

Loans to bankrupt borrowers ..............................................................................
Past due loans .....................................................................................................
Past due loans (three months or more) ...............................................................
Restructured loans ..............................................................................................
Total ................................................................................................................

2018

2017

2018

¥ 1,60746,680467
6,764¥55,520¥ 1,105
55,588322
11,235¥68,252$ 15,126
439,382
4,395
63,667$522,590

7. PLEDGED ASSETSAt March 31, 2018 and 2017, securities of ¥720,845 million ($6,785,062 thousand) and ¥842,875 million, respectively, and other assets of ¥1,978 million($18,618 thousand) and ¥1,978 million, respectively, were pledged as collateral for deposits of ¥43,693 million ($411,266 thousand) and ¥44,652 million,
respectively, payables under repurchase agreements of ¥74,699 million ($703,115 thousand) and ¥29,203 million, respectively, payables under securities
lending transactions of ¥345,250 million ($3,249,717 thousand) and ¥504,092 million, respectively, and borrowed money of ¥198,592 million ($1,869,277
thousand) and ¥196,612 million, respectively.
Securities of ¥24,146 million ($227,277 thousand) and ¥9,203 million and other assets of ¥55 million ($517 thousand) and ¥14,000 million were pledged
for transaction guarantees at March 31, 2018 and 2017, respectively.
Unexpired lease contract claims of ¥4,592 million ($43,222 thousand) and ¥3,754 million were pledged as collateral for borrowed money of ¥3,572
million ($33,621 thousand) and ¥3,117 million at March 31, 2018 and 2017, respectively.
At March 31, 2018 and 2017, other assets included initial margins of futures markets of ¥539 million ($5,073 thousand) and ¥328 million, respectively,
and security deposits of ¥1,029 million ($9,685 thousand) and ¥1,057 million, respectively, and other intangible fixed assets included key money of ¥493
million ($4,640 thousand) and ¥552 million, respectively.

Consolidated Financial Statements

Bills discounted are accounted for as financing transactions in accordance with “Treatment for Accounting and Auditing of Application of AccountingStandard for Financial Instruments in the Banking Industry” (JICPA Industry Audit Committee Report No. 24, February 13, 2002). This accounting treatment allows the Bank the right to sell or pledge them without restrictions. The total face value of commercial bills and purchased foreign exchange bills
obtained as a result of discounting was ¥23,052 million ($216,980 thousand) and ¥18,007 million at March 31, 2018 and 2017, respectively.

8. LOAN COMMITMENTS
Commitment line contracts on overdrafts and loans are agreements to lend to customers when they apply for borrowing up to a prescribed amount as longas there is no violation of any condition established in the contract. The amounts of unused commitments at March 31, 2018 and 2017 were ¥963,457 million($9,068,684 thousand) and ¥972,010 million, respectively, and the amount of unused commitments whose original contract terms were within one year or
unconditionally cancelable at any time at March 31, 2018 and 2017 were ¥941,700 million ($8,863,893 thousand) and ¥948,278 million, respectively.
Since many of these commitment line contracts are expected to expire without being drawn upon, the total amount of unused commitments does notnecessarily affect actual future cash flow.
Many of these commitments line contracts have clauses that allow the Group to reject the application from customers or reduce the contract amounts if
economic conditions change. In addition, the Group may request that customers pledge collateral such as real estate and securities or take other necessary
measures such as scrutinizing customers’ financial positions and revising contracts when the need to secure claims arises.

27

Consolidated Financial Statements

9. TANGIBLE FIXED ASSETS
Accumulated depreciation of tangible fixed assets was ¥44,646 million ($420,237 thousand) and ¥44,346 million at March 31, 2018 and 2017, respectively.
Accumulated capital gains directly offset against the acquisition cost of tangible fixed assets to obtain tax benefits were ¥783 million ($7,370 thousand) and¥783 million at March 31, 2018 and 2017, respectively. For the years ended March 31, 2018 and 2017, the capital gain offset from acquisition costs was niland ¥68 million ($606 thousand), respectively.
10. GUARANTEESThe amount guaranteed by the Bank for privately placed bonds (stipulated by Article 2, Paragraph 3 of the Financial Instruments Exchange Act) included in“Bonds” of “Securities” was ¥13,660 million ($128,576 thousand) and ¥8,302 million at March 31, 2018 and 2017, respectively.
11. OTHER OPERATING INCOME
For the fiscal years ended March 31, 2018 and 2017, other operating income consisted of the following:Thousands of
U.S. dollars

Millions of yen

2018

Gains on sales of bonds ......................................................................................
Other ...................................................................................................................
Total ................................................................................................................

2017¥2,100366¥2,467¥6,132
227¥6,3602018$19,766
3,454$23,221

12. OTHER INCOME
For the fiscal years ended March 31, 2018 and 2017, other income consisted of the following:Thousands of
U.S. dollars

Millions of yen

2018

Gains on sales of stocks and other securities ......................................................
Reversal of allowance for loan losses .................................................................
Recovery of written-off claims ...........................................................................
State subsidy .......................................................................................................
Other ...................................................................................................................
Total ................................................................................................................

2017¥3,857
3,036
627
—
1,801
¥9,322¥2,505
—
978
68
1,325
¥4,8782018$36,304
28,576
5,901—
16,961$87,744

Consolidated Financial Statements

13. OTHER OPERATING EXPENSES
For the fiscal years ended March 31, 2018 and 2017, other operating expenses consisted of the following:Thousands of
U.S. dollars

Millions of yen

2018

Losses on sales of bonds .....................................................................................
Other ...................................................................................................................
Total ................................................................................................................

2017¥3,506493¥4,000¥2,1591,323¥3,483

2018$33,000
4,649$37,650

14. GENERAL AND ADMINISTRATIVE EXPENSES
For the fiscal years ended March 31, 2018 and 2017, general and administrative expenses consisted of the following:Thousands of
U.S. dollars

Millions of yen

Salaries and allowances ......................................................................................
Retirement benefit costs .....................................................................................
Other ...................................................................................................................
Total ................................................................................................................

2018

2017

2018

¥19,863
3,645
19,856¥43,366¥19,363
3,969
20,021¥43,355$186,963
34,309186,916$408,189

15. OTHER EXPENSES
For the fiscal year ended March 31, 2018 and 2017, other expenses consisted of the following:Thousands of
U.S. dollars

Millions of yen

2018

Write-offs of loans ..............................................................................................
Provision for possible loan losses .......................................................................
Losses on sales of stocks and other securities ....................................................
Other ...................................................................................................................
Total ................................................................................................................

28

¥ 514
—
291
835
¥1,6412017¥1,045
2,584
269
1,166
¥5,0662018$ 4,838
—
2,739
7,859
$15,436

16. OTHER COMPREHENSIVE INCOME (LOSS)
The components of other comprehensive income (loss) for the fiscal years ended March 31, 2018 and 2017 were as follows:
Thousands of
U.S. dollars

Millions of yen

Valuation difference on available-for-sale securities:
Gains (losses) incurred during the year ..........................................................
Reclassification adjustments to net income ....................................................
Amount before tax effect ...........................................................................
Tax effect ....................................................................................................
Valuation difference on available-for-sale securities .....................................
Deferred gains or losses on hedges .....................................................................
Gains (losses) incurred during the year ..........................................................
Reclassification adjustments to net income ....................................................
Amount before tax effect ...........................................................................
Tax effect ....................................................................................................
Deferred gains or losses on hedges ................................................................
Adjustments for retirement benefits:
Gains (losses) incurred during the year ..........................................................
Reclassification adjustments to net income ....................................................
Amount before tax effect ...........................................................................
Tax effect ....................................................................................................
Adjustments for retirement benefits ...............................................................
Total other comprehensive income (loss) ...........................................................

2018

2017

2018

¥ 5,344(2,159)3,184(1,381)
1,802¥(13,617)(6,208)(19,826)
6,279(13,546)$ 50,301(20,321)29,969(12,998)
16,961

(63)
248
184
(57)
127

94
209
303
(92)
210

(592)
2,334
1,731
(536)
1,195

1,866
1,910
3,777
(1,152)
2,625¥ 4,555

880
2,178
3,059
(934)
2,124
¥(11,211)

17,564
17,97835,551(10,843)
24,708$ 42,874

17. STATEMENTS OF CASH FLOWS
The reconciliation between cash and due from banks in the consolidated balance sheets at March 31, 2018 and 2017 and cash and cash equivalents in the
consolidated statements of cash flows for the fiscal years then ended were as follows:
Thousands of
U.S. dollars

Millions of yen

2018

2017

¥820,151
(428)
(600)
(353)
¥818,769¥736,472(1,768)(600)(154)¥733,948

2018$7,719,794(4,028)(5,647)(3,322)$7,706,786

18. LEASE TRANSACTIONS
Operating leases
As lessee:
Future minimum lease payments under operating leases which were not cancelable at March 31, 2018 and 2017 were as follows:
Thousands of
U.S. dollars

Millions of yen

2018

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

¥ 87
859
¥946

2017

2018

¥

$ 818
8,085
$8,90487923¥1,011

Consolidated Financial Statements

Cash and due from banks on the consolidated balance sheets ...........................
Current deposits due from banks ........................................................................
Time deposits due from banks ............................................................................
Other due from banks .........................................................................................
Cash and cash equivalents on the consolidated statements of cash flows ..........

As lessor:
There was no applicable matter to be noted regarding future minimum lease payments under operating leases which were not cancelable at March 31, 2018and 2017.

29

Consolidated Financial Statements
19. FINANCIAL INSTRUMENTS AND RELATED DISCLOSURES
a. Matters relating to the status of financial instruments(1) Policy on financial instruments
The Group is composed of the Bank and ten consolidated subsidiaries andprovides financial services such as banking, securities, leasing and credit
guarantee businesses.
The Group’s major banking business includes (i) the acceptance of deposits, lending services, bills discounting and remittance, and (ii) the guarantee of debt, acceptance of bills and other services related to the banking
business. The securities business includes underwriting and dealing in securities, over-the-counter derivative transactions and other related services
including security index future transactions in accordance with the Financial Instruments and Exchange Act.
The Bank, in addition to being a money lender and borrower in the interbank market to adjust surplus and deficit of funds, raises funds by loans
and bonds with consideration for the financial market conditions and thebalance of length.
The Bank conducts asset and liability management (ALM), identifying
various types of risk exposures associated with the banking business as the
Bank holds financial assets and liabilities exposed to the market risk associated with fluctuation in interest rates. As part of its risk management, theBank utilizes derivative transactions such as interest rate swaps. The Bank
also enters into derivative transactions for trading purposes with certain
position limits.

Consolidated Financial Statements
30(2) Contents and risk of financial instruments
Financial assets held by the Group are composed mainly of loans to corporate and individual customers that are exposed to credit risk arising from
customer nonperformance. In addition, loan balances are significantly concentrated in Nara prefecture, where the head office of the Bank is located.
Accordingly, changes in the economic circumstances of the region could
have a great impact on the credit risk.
Securities consist principally of Japanese government bonds, Japanese
local government bonds, equity securities, foreign securities, investment
trusts that are classified as other securities (available-for-sale), privatebonds guaranteed by the Bank that are classified as held-to-maturity debt
securities and Japanese government bonds classified as trading purpose securities. These securities are exposed to the credit risk of issuers and themarket risk of fluctuation in interest rates and market prices. Since financial
assets denominated in foreign currencies are exposed to exchange rate risk,
currency related derivative transactions are used to balance the amount offunding and amount of operations for each currency to reduce the risk.
In the banking business, financial liabilities consist principally of deposits from retail clients in Japan and are exposed to interest rate risk. In
addition, foreign currency deposits are exposed to exchange rate risk. With
respect to borrowed money, the Group may be forced to raise funds underunfavorable conditions and, accordingly, become significantly exposed toliquidity risk if the fund raising capacity of the Group significantly declined
and led to the inability to repay under circumstances such as the significant
deterioration of the financial position of the Group. Furthermore, borrowed
money with floating interest rates is exposed to interest rate risk.
Derivative transactions include interest rate swaps for interest rate related transactions, currency swaps and forward foreign exchange transactions for currency related transactions, and bond future transactions andbond option transactions for bond related transactions. In addition, certain
credit derivatives are embedded in the financial instruments. The Bank utilizes those derivative transactions in order to hedge the position of the customers as well as to capture various risks associated with transactions withcustomers and control those risks properly. The Bank also uses derivatives
for trading purposes with certain position limits.
The Bank applies the deferred hedge accounting method for derivativetransactions when used as hedging instruments. Interest rate swaps are usedas hedging instruments to avoid interest rate risks of hedged items such asloans and deposits with fixed interest rates. Deferred hedge accounting has

been applied to derivatives used as hedging instruments.
The Bank assesses the effectiveness of hedges in offsetting movementin the fair value from changes in interest rates by classifying the hedged
items such as deposits and loans and the hedging instruments such as interest rate swaps by their maturity. For cash flow hedges, the Bank assesses theeffectiveness by verifying the correlation between the hedged items and thehedging instruments. Transactions which do not meet the requirements ofhedge accounting and derivative transactions for trading purposes are exposed to interest rate risk, foreign currency risk, price fluctuation risk andcredit risk.
(3) Risk management system for financial instruments
Credit risk management
The Group has established a framework for credit control which includes
credit reviews for individual transactions, credit limits, credit information
management, internal credit ratings, guarantees and collateral and self-assessment in accordance with the Group’s “Rules on credit risk management” and “Rules on self-assessment of assets.” These credit controls are
performed by each branch and the Credit Analysis Division, and the independent Audit Department audits the status of credit risk controls and its
results. The status of credit risk controls is periodically evaluated and reported to the Management Directors’ Committee and board meeting.
Credit risks associated with the issuers of securities are managed by the
Financial Investment Division and Risk Management Division. With respect to the credit risks associated with the issuer of the securities and counterparty risk associated with derivative transactions, related credit
information and fair values of the securities are periodically checked tomonitor those risks.
Market risk management(a) Interest rate risk
From the perspective of ALM, the Group manages market risk such as interest rate risk associated with assets and liabilities, including loans, deposits and securities comprehensively. The Group’s “Rules on Market Risk
Management” stipulates that the Bank makes efforts to manage the market
sector effectively, taking risk and reward into account as well as avoiding
excessive risk taking by setting appropriate risk limits based on the Group’s
ability to take risk and identifying market risk properly.
The ALM Committee, the decision making entity for the managementof market risks, sets certain semiannual risk limits determined by VaRbased upon the Bank’s capital adequacy and market conditions. The Bank
pursues profit opportunities within the risk limits. The Risk Management
Division assesses interest rate risk by VaR, reports to the ALM Committee
on a monthly basis and properly monitors its operations. Other methodologies such as BPV and the simulation of the interest rate fluctuation are also
used so that the Bank can identify and analyze risk from a broader point ofview.
(b) Foreign currency risk
With regard to foreign currency risk associated with operations and procurement of financial instruments denominated in foreign currency, theGroup manages risk by balancing the amount of funding and amount ofoperations for each currency. In addition, as for foreign currency exchangetransactions for investment purposes, the Risk Management Division assesses the foreign currency risk by VaR, reports to the ALM committee ona monthly basis and properly monitors its operations.
(c) Price fluctuation risk
With regard to investments in securities, the Group prepares its asset management plan semiannually and makes investment decisions at the ALM
Committee based upon expected returns and correlations between investment items and related market fluctuation risk. The Financial Investment
Division plays a part in investments for investment purposes, and the Corporate Business Division plays a part in investments for the purpose ofbusiness alliances and capital affiliation. Continuous monitoring of market
conditions and restrictions on investments in riskier assets such as securitized instruments help to avoid unnecessary price fluctuation risk.
The Risk Management Division assesses the price fluctuation risk ofequity securities, etc., by VaR, reports monthly to the ALM Committee
about compliance with risk limits and properly manages the risk.
(d) Derivative transactions
With respect to derivative transactions for hedging purposes, the Groupestablishes internal rules defining the authority and hedge policies which
are governed by the Risk Management Division. With respect to derivativetransactions for trading purposes, certain trading limits and loss limit rules
are set semiannually by the ALM Committee. The Risk Management
Division, which serves as the middle office, monitors compliance and calculates the total amount of risk. The Financial Investment Division, which
serves as the back office, checks each derivative transaction, marked-tomarket position, and evaluates the profit and loss from the transactions ona daily basis. In addition to those functions, the related divisions checkeach other so as not to exceed limits on loss.
The directors of the Bank are reported to from both the middle officeand the back office and monitor the risks associated with the Bank’s portfolio as a whole, including loans, deposits and securities at the ALM
Committee.
(e) Quantitative information relating to market risk
The Group manages the quantity of market risk for financial instruments
such as loans, deposits, securities and derivatives by VaR. To calculate
VaR, the Group has adopted the historical method (confidence level of
99%, observation period of 1,250 business days, holding period of 120

business days [holding period for equity securities other than purely forinvestment purposes are 240 business days] and the correlation of risk categories are not considered.).
At March 31, 2018, the Group’s total market risk (decrease in estimated economic value) was ¥56,285 million ($529,791 thousand) (¥59,428
million in 2017). In addition, the Group conducted back tests comparing
actual income with the VaR calculated by the model. However, VaR is astatistical measure of market risk based on past fluctuations in the market
and certain probability of occurrence. It may not be possible to capture therisk if the market fluctuates rapidly under extraordinary circumstances.
Management of liquidity risk associated with financing activities
The Financial Investment Division manages the Bank’s cash position based
upon the monthly funding plan designed by the ALM Committee, while theRisk Management Division monitors the situation. The ALM Committee
manages financing risk comprehensively by understanding the amount ofcash for which the Bank can liquidate and also can raise from the market ona regular basis.
In addition, the Group categorizes its financing situation into “RegularPhase” “Concern Phase” and “Crisis Phase” and prepares appropriate management structures for each phase so that the Group can take proper action
accordingly.
(4) Supplementary explanation on the fair value of financial instruments
The fair values of financial instruments comprise the values determinedbased on quoted market prices and values calculated on a reasonable basis
when no market price is available. Certain assumptions are used for the
calculation of such amounts, and, accordingly, the result of such calculations may vary if different assumptions are used.

Millions of yen

2018

Cash and due from banks ...........................................................................
Call loans and bills bought .........................................................................
Debt purchased ...........................................................................................
Trading account securities .........................................................................
Trading securities ...................................................................................
Money held in trust ....................................................................................
Securities
Held-to-maturity debt securities ............................................................
Available-for-sale securities ..................................................................
Loans and bills discounted .........................................................................
Reserve for possible loan losses (*1) ....................................................
Total assets .................................................................................................
Deposits ......................................................................................................
Negotiable certificates of deposit ...............................................................
Call money and bills sold ...........................................................................
Payables under repurchase agreements ......................................................
Payables under securities lending transactions ..........................................
Borrowed money ........................................................................................
Total liabilities ...........................................................................................
Derivative transactions (*2) .......................................................................
Hedge accounting not applied ...............................................................
Hedge accounting applied .....................................................................
Total derivative transactions .......................................................................

Carrying amount

Fair value¥ 820,151
489
2,983

¥ 820,151
489
2,983

—
33,000—33,000——13,6601,521,099
3,330,514(19,324)
3,311,190¥5,702,575¥4,817,646
18,956531
74,699345,250
208,368¥5,465,452

13,676
1,521,099

15—

3,332,246¥5,723,647¥4,817,749
18,956531
74,699345,250
208,274¥5,465,461

21,056¥21,071
¥ 102
—
—
—
—
(94)
¥
8

2,485
(287)
2,198

2,485
(287)
2,198

—
—
—

¥

¥

Difference

¥

¥

—
—
—

Consolidated Financial Statements

b. Fair value of financial instruments
The table below summarizes the carrying amounts, fair values and differences of financial instruments as of March 31, 2018 and 2017. Note that unlisted
equity securities for which it is extremely difficult to identify the fair value and immaterial accounts are not included in the table (see Note 2 below).

31

Consolidated Financial Statements
Millions of yen

2017
Carrying amount

Fair value¥ 736,472
11,7764,304¥ 736,472
11,7764,304

10
31,00010
31,000——8,302
1,675,414
3,252,218(25,045)
3,227,173¥5,694,453¥4,737,336
28,453—
29,203504,092
205,308¥5,504,394

8,338
1,675,414

35—

3,250,545¥5,717,861¥4,737,624
28,453—
29,203504,092
205,205¥5,504,579

23,372¥23,408
¥ 288
—
—
—
—
(103)
¥ 185

(2,049)(448)¥(2,497)(2,049)(448)¥(2,497)———

Cash and due from banks ...........................................................................
Call loans and bills bought .........................................................................
Debt purchased ...........................................................................................
Trading account securities
Trading securities ...................................................................................
Money held in trust ....................................................................................
Securities
Held-to-maturity debt securities ............................................................
Available-for-sale securities ..................................................................
Loans and bills discounted .........................................................................
Reserve for possible loan losses (*1) ....................................................
Total assets .................................................................................................
Deposits ......................................................................................................
Negotiable certificates of deposit ...............................................................
Call money and bills sold ...........................................................................
Payables under repurchase agreements ......................................................
Payables under securities lending transactions ..........................................
Borrowed money ........................................................................................
Total liabilities ...........................................................................................
Derivative transactions (*2) .......................................................................
Hedge accounting not applied ...............................................................
Hedge accounting applied .....................................................................
Total derivative transactions .......................................................................

Difference

¥

—
—

¥

Thousands of U.S. dollars

2018
Carrying amount

Consolidated Financial Statements

Cash and due from banks ...........................................................................
Call loans and bills bought .........................................................................
Debt purchased ...........................................................................................
Trading account securities
Trading securities ...................................................................................
Money held in trust ....................................................................................
Securities
Held-to-maturity debt securities ............................................................
Available-for-sale securities ..................................................................
Loans and bills discounted .........................................................................
Reserve for possible loan losses (*1) ....................................................
Total assets .................................................................................................
Deposits ......................................................................................................
Negotiable certificates of deposit ...............................................................
Call money and bills sold ...........................................................................
Payables under repurchase agreements ......................................................
Payables under securities lending transactions ..........................................
Borrowed money ........................................................................................
Total liabilities ...........................................................................................
Derivative transactions (*2) .......................................................................
Hedge accounting not applied ...............................................................
Hedge accounting applied .....................................................................
Total derivative transactions .......................................................................

Fair value

Difference$ 7,719,794
4,602
28,077$ 7,719,794
4,602
28,077—
310,617—
310,617——

128,576
14,317,573
31,348,964(181,890)
31,167,074$53,676,346$45,346,818
178,426
4,998
703,115
3,249,717
1,961,295$51,444,390

128,727
14,317,573

141—

31,365,267$53,874,689$45,347,788
178,426
4,998
703,115
3,249,717
1,960,410$51,444,474

198,192$198,333
$
960
—
—
—
—
(884)
$
75

23,390(2,701)
20,68923,390(2,701)
20,689

—
—
—

$

$

$

$

—
—
—

(*1) General reserve for possible loan losses and specific reserve for possible loan losses corresponding to loans are deducted.
(*2) Assets and liabilities arising from derivative transactions are presented on a net basis, and net liabilities are presented in parentheses.

(Note 1) Computation method for fair value of financial instruments
AssetsCash and due from banks:
With respect to due from banks without maturities, the carrying amount ispresented as the fair value as the fair value approximates the carrying
amount. With respect to due from banks with maturities, the fair value iscalculated for each category of maturity by discounting the cash flow at theinterest rate assumed if the same due from banks were newly executed.

32

Call loans and bills bought and debt purchased:
The carrying amount is presented as the fair value as the residual maturity
is less than one year and the fair value approximates the carrying amount.
Trading account securities:
The fair value of securities held for trading purposes is determined based onquoted market prices or values calculated on a reasonable basis if no market
price is available.

Money held in trust:
The fair value of securities managed as trust assets in individually managed
money held in trust primarily for securities management purposes is determined based on the values presented by the trust bank. For additional information on money held in trust categorized by holding purposes, see Note
20, “SECURITIES AND MONEY HELD IN TRUST.”The fair value of loans without a predetermined repayment date due tothe lending amount being limited within the value of the applicable collateral is presented using the carrying amount, as the fair value is deemed toapproximate the carrying amount considering the estimated repayment
term and interest rates. The fair value of embedded derivative loans is presented using market prices at financial institutions.

Securities:
The fair value of equity securities is determined using the market price on
exchanges. The fair value of debt securities is determined based on market
price or value calculated on a reasonable basis if no market price is available. The fair value of listed investment trusts is determined using the market price on exchanges and the fair value of other investment trusts isdetermined using standard prices published by the Investment Trust Association, Japan or presented from the financial institutions with which they
are transacted. The fair value of the private bonds guaranteed by the Bankis calculated by discounting the aggregate value of principle and interest at
the interest rate assumed if the same bond were newly issued for each category based on term, redemption method and guarantees. With respect tothe private bonds guaranteed by the Bank issued by “bankrupt borrowers,”“effectively bankrupt borrowers” and “likely to become bankrupt borrowers,” the amount of possible loan losses is computed based on the present
value of estimated future cash flow or the recoverable amounts from collateral and guarantees. Therefore, the fair value approximates the carrying
amount, net of reserve for possible loan losses, and such amount is presented as the fair value.
For additional information on securities categorized by holding purposes, see Note 20, “SECURITIES AND MONEY HELD IN TRUST.”

Liabilities
Deposits and negotiable certificates of deposits:
With respect to on-demand deposits, the payment obligation due when demanded at the balance sheet date, which is the carrying amount, is deemed
to be the fair value. The fair value of time deposits is computed using thepresent value by discounting future cash flows for each category of a certain period. The interest rate to be applied when a new deposit is taken isused as the discount rate. For deposits whose residual maturity is less than
one year, the carrying amount is presented as the fair value as the fair value
approximates the carrying amount.

Payables under repurchase agreements:
The carrying amount is presented as the fair value as the fair value isdeemed to approximate the carrying amount since the interest rate is thefloating interest rate which reflects the market interest rate due to the shortterm nature.
Borrowed money:
The fair value of borrowed money with floating interest rates is presented
using the carrying amount as the fair value approximates the carrying
amount since the interest rate reflects the market interest rate due to theshort-term nature and the credit situation of the Group does not vary significantly after executing the borrowing. The fair value of borrowed moneywith fixed interest rates is computed, by discounting the aggregate value ofprincipal and interest at the interest rate assumed if the same borrowing
were newly executed, for each category of type of maturities. As for the
borrowed money whose maturity is less than one year, the carrying amountis presented as the fair value as the fair value approximates the carrying
amount.
Derivative transactions
For derivative transactions, see Note 21, “DERIVATIVE TRANSACTIONS.”

Consolidated Financial Statements

Loans and bills discounted:
The fair value of loans with floating interest rates is presented using thecarrying amount as the fair value approximates the carrying amount, aslong as the credit situation of the borrower does not vary significantly after
the loan is executed, since they reflect market interest rates due to theirshort-term nature. The fair value of loans with fixed rates is computed, by
discounting the aggregate value of principal and interest at the interest rate
assumed if the same loans were newly executed, for each type of loan, internal rating and maturity. As for the loans whose maturity is less than one
year, the carrying amount is presented as the fair value as the fair value
approximates the carrying amount.
With respect to receivables from “bankrupt borrowers,” “effectively
bankrupt borrowers” and “likely to become bankrupt borrowers,” theamount of possible loan losses is computed based on the present value ofthe estimated future cash flow or the recoverable amounts from collateraland guarantees. Therefore, the fair value approximates the carrying amount,net of reserve for possible loan losses, and this amount is presented as thefair value.

Call money and bills sold and payables under securities lending transactions:
The carrying amount is presented as the fair value as the residual maturity
is less than one year and the fair value approximates the carrying amount.

(Note 2) The table below summarizes financial instruments whose fair value is extremely difficult to estimate. Note that these instruments are not includedin the above table regarding the fair value of financial instruments.
Carrying amountThousands of
U.S. dollars

Millions of yen

2018

Unlisted equity securities (*1) (*2) ....................................................................
Investment in partnerships (*3) ..........................................................................
Total ....................................................................................................................

¥1,6842,704¥4,3892017¥1,642
1,215¥2,8572018$15,850
25,451$41,312(*1)	The fair value of unlisted equity securities is not disclosed, since there is no market price and it is extremely difficult to estimate the fair value.
(*2)	No impairment loss was recognized for either the fiscal year ended March 31, 2018 or 2017.
(*3)	The fair value of unlisted equity securities among the investment in partnerships is not disclosed since there is no market price and it is extremely difficult to estimate the fair value.

33

Consolidated Financial Statements(Note 3) Redemption schedule of monetary claims and securities with maturities
Millions of yen

2018
Due within one
year or lessDue from banks ..............................................
Call loans and bills bought .............................
Debt purchased ...............................................
Securities ........................................................
Held-to-maturity debt securities ................
Bonds .....................................................
Available-for-sale securities with
contractual maturities ................................
Japanese government bonds ..................
Japanese local government bonds .........
Corporate bonds ....................................
Other ......................................................
Loans and bills discounted (*) .......................
Total ...............................................................

Due after one
year throughthree years

Due after three
years throughfive years

Due after five
years throughseven years

Due after sevenyears through ten
years

Due after ten
years¥ 773,023
489
2,983
103,940
2,597
2,597

¥

—
—
—
369,141
4,765
4,765

¥

—
—
—
179,538
5,287
5,287

¥

—
—
—
122,043
1,010
1,010

¥

—
—
—
183,985
—
—

¥

—
—
—
167,381——

101,343
53,00026,287
9,004
13,052479,864¥1,360,301

364,376
247,000
20,81330,53466,028618,828¥987,970

174,251
110,500
22,37338,296
3,080
471,773¥651,312

121,033
68,50031,412
20,377
743
338,806¥460,850

183,985—
66,757
14,004103,224
349,829¥533,814

167,381—
3,970
73,80189,609748,424¥915,806

Due after sevenyears through ten
years

Due after ten
years

Millions of yen

2017
Due within one
year or less

Consolidated Financial Statements

Due from banks ..............................................
Call loans and bills bought .............................
Debt purchased ...............................................
Securities ........................................................
Held-to-maturity debt securities ................
Bonds .....................................................
Available-for-sale securities with
contractual maturities ................................
Japanese government bonds ..................
Japanese local government bonds .........
Corporate bonds ....................................
Other ......................................................
Loans and bills discounted (*) .......................
Total ...............................................................

Due after one
year throughthree years

Due after three
years throughfive years

Due after five
years throughseven years¥ 689,396
11,776
4,304
133,658
1,724
1,724

¥

—
—
—
294,172
2,918
2,918

¥

—
—
—
378,809
2,943
2,943

¥

—
—
—
160,294
716
716

¥

—
—
—
274,337
—
—

¥

—
—
—
97,354——

131,934
54,000
7,069
12,90457,960496,025¥1,335,161

291,253
206,500
31,970
11,204
41,579625,936¥920,108375,866
215,000
32,97531,74096,150437,952¥816,762

159,578
61,50028,43042,862
26,785315,922¥476,216

274,337
60,00073,556
26,451
114,330
364,039¥638,377

97,354—
4,412
56,90636,036691,686¥789,041

Due after sevenyears through ten
years

Due after ten
years

Thousands of U.S. dollars

2018
Due after one
year throughthree years

Due after three
years throughfive years

Due after five
years throughseven years$ 7,276,195
4,602
28,077
978,350
24,44424,444$———
3,474,595
44,85144,851$———
1,689,928
49,76449,764$———
1,148,748
9,506
9,506

$

—
—
—
1,731,786——$

953,906
498,870
247,430
84,751
122,853
4,516,792$12,804,038

3,429,743
2,324,924
195,905
287,405
621,498
5,824,811$9,299,416

1,640,163
1,040,097
210,589
360,466
28,9904,440,634$6,130,572

1,139,241644,766
295,670
191,801
6,993
3,189,062$4,337,820

1,731,786—
628,360
131,814
971,611
3,292,818$5,024,604

1,575,498—
37,368694,663
843,458
7,044,653$8,620,161

Due within one
year or lessDue from banks ..............................................
Call loans and bills bought ..............................
Debt purchased ...............................................
Securities ........................................................
Held-to-maturity debt securities ................
Bonds .....................................................
Available-for-sale securities with
contractual maturities ................................
Japanese government bonds ..................
Japanese local government bonds .........
Corporate bonds ....................................
Other ......................................................
Loans and bills discounted (*) .......................
Total ...............................................................

———
1,575,498——(*) Loans from “bankrupt,” “effectively bankrupt” and “likely to become bankrupt” borrowers, which are not expected to be repaid, and amounting to ¥40,490 million ($381,118 thousand)and ¥47,255 million at March 31, 2018 and 2017, respectively, are not included.
Loans whose payment term is not determined amounting to ¥282,497 million ($2,659,045 thousand) and ¥273,399 million at March 31, 2018 and 2017, respectively, are not included.

34

(Note 4) Redemption schedule of bonds payable, borrowed money and interest bearing liabilities
Millions of yen

2018

Deposits (*) ....................................................
Negotiable certificates of deposits .................
Call money and bills sold ...............................
Payables under repurchase agreements ..........
Payables under securities lending transactions ...
Borrowed money ............................................
Total ...............................................................

Due within one
year or lessDue after one
year throughthree years

Due after three
years throughfive years

Due after five
years throughseven years

Due after sevenyears through ten
years

Due after ten
years¥4,324,543
18,956531
47,045345,250
21,895¥4,758,222¥438,163————
164,522¥602,686¥ 54,939——
27,654—
21,862¥104,456

¥—
—
—
—
—
80
¥80

¥—
—
—
—
—
7
¥ 7

¥—
—
—
—
—
—
¥—

Millions of yen

2017

Deposits (*) ....................................................
Negotiable certificates of deposits .................
Payables under repurchase agreements ..........
Payables under securities lending transactions ...
Borrowed money ............................................
Total ...............................................................

Due within one
year or lessDue after one
year throughthree years

Due after three
years throughfive years

Due after five
years throughseven years

Due after sevenyears through ten
years

Due after ten
years¥4,199,138
28,453—504,092
39,011¥4,770,696¥468,473———
89,662¥558,136¥ 69,723—
29,203—76,487¥175,414

¥ —
—
—
—
108
¥108

¥—
—
—
—
37
¥37

¥—
—
—
—
—
¥—

Thousands of U.S. dollars

2018
Due after three
years throughfive years

Due after five
years throughseven years

Due after sevenyears through ten
years

Due after ten
years$40,705,412
178,426
4,998
442,818
3,249,717
206,089$44,787,481$4,124,275————
1,548,588$5,672,872$517,121——
260,297—
205,779$983,207

$ —
—
—
—
—
753
$753

$—
—
—
—
—
65
$65

$—
—
—
—
—
—
$—

(*) Demand deposits are included in “Due within one year or less.”

20. SECURITIES AND MONEY HELD IN TRUSTThe securities in this note include “Trading account securities” and beneficial trust interests under “Debt purchased,” in addition to “Securities” classified
on the consolidated balance sheets.
(1) Information on trading account securities and securities with available fair values at March 31, 2018 and 2017 was as follows:(a) Trading securities
Thousands of
U.S. dollars

Millions of yen

2018

2017

¥—

Amount of net unrealized gains (losses) included in the statements of income ....

Consolidated Financial Statements

Deposits (*) ....................................................
Negotiable certificates of deposits .................
Call money and bills sold ...............................
Payables under repurchase agreements ..........
Payables under securities lending transactions ...
Borrowed money ............................................
Total ...............................................................

Due within one
year or lessDue after one
year throughthree years

2018

¥(2)

$—

(b) Held-to-maturity debt securities
Millions of yen

2018
Carrying amount

Fair value

Fair value exceeding carrying amount:
Corporate bonds .........................................................................................
Subtotal ......................................................................................................

Unrealized gains (losses)¥10,308¥10,308¥10,351¥10,351¥ 43¥ 43

Fair value not exceeding carrying amount:
Corporate bonds .........................................................................................
Subtotal ......................................................................................................
Total ...........................................................................................................

¥ 3,352¥ 3,352¥13,660¥ 3,324¥ 3,324¥13,676

¥(27)
¥(27)
¥ 15

35

Consolidated Financial Statements

Millions of yen

2017
Carrying amount

Fair value

Fair value exceeding carrying amount:
Corporate bonds .........................................................................................
Subtotal ......................................................................................................

Unrealized gains (losses)¥5,941¥5,941¥5,983¥5,983¥42¥42

Fair value not exceeding carrying amount:
Corporate bonds .........................................................................................
Subtotal ......................................................................................................
Total ...........................................................................................................

¥2,361¥2,361¥8,302¥2,354¥2,354¥8,338

¥ (6)
¥ (6)
¥35

Thousands of U.S. dollars

2018
Carrying amount

Fair value

Fair value exceeding carrying amount:
Corporate bonds .........................................................................................
Subtotal ......................................................................................................

Unrealized gains (losses)$ 97,025$ 97,025$ 97,430$ 97,430

$ 404
$ 404

Fair value not exceeding carrying amount:
Corporate bonds .........................................................................................
Subtotal ......................................................................................................
Total ...........................................................................................................

$ 31,551$ 31,551$128,576$ 31,287$ 31,287$128,727$(254)$(254)$ 141(c) Available-for-sale securities
Millions of yen

2018

Consolidated Financial Statements
36

Carrying amount exceeding acquisition cost:
Stocks .........................................................................................................
Bonds .........................................................................................................
Japanese government bonds ..................................................................
Japanese local government bonds ..........................................................
Japanese corporate bonds ......................................................................
Others .........................................................................................................
Foreign securities included ....................................................................
Subtotal ......................................................................................................
Carrying amount not exceeding acquisition cost:
Stocks .........................................................................................................
Bonds .........................................................................................................
Japanese government bonds ..................................................................
Japanese local government bonds ..........................................................
Japanese corporate bonds ......................................................................
Others .........................................................................................................
Foreign securities included ..................................................................
Subtotal ......................................................................................................
Total ...........................................................................................................

Carrying amount

Acquisition cost

¥ 104,803
814,404
490,505
167,470
156,428
145,529
114,646¥1,064,737¥

48,469796,656
480,043
162,894
153,719
141,479
111,406¥ 986,605¥ 56,333
17,747
10,462
4,576
2,709
4,050
3,239
¥ 78,131

¥

¥

¥

5,799
40,777—
8,566
32,210409,785
185,397¥ 456,362¥1,521,099

6,214
41,062—
8,702
32,359425,852
190,542¥ 473,128¥1,459,734

Unrealized gains (losses)

(414)
(285)
—
(136)
(148)
(16,066)(5,144)¥(16,766)¥ 61,365

Millions of yen

2017
Carrying amount

Acquisition cost¥

94,094
912,199
593,497
175,079
143,621211,525
184,037¥1,217,818¥

48,818888,650
578,736
169,303
140,610
206,654
180,403¥1,144,123¥ 45,275
23,54814,760
5,776
3,010
4,871
3,633
¥ 73,695¥¥¥

Carrying amount exceeding acquisition cost:
Stocks .........................................................................................................
Bonds .........................................................................................................
Japanese government bonds ..................................................................
Japanese local government bonds ..........................................................
Japanese corporate bonds ......................................................................
Others .........................................................................................................
Foreign securities included ....................................................................
Subtotal ......................................................................................................
Carrying amount not exceeding acquisition cost:
Stocks .........................................................................................................
Bonds .........................................................................................................
Japanese government bonds ..................................................................
Japanese local government bonds ..........................................................
Japanese corporate bonds ......................................................................
Others .........................................................................................................
Foreign securities included ....................................................................
Subtotal ......................................................................................................
Total ...........................................................................................................

4,840
70,193
20,102
8,921
41,169383,560
191,234¥ 458,595¥1,676,414

5,126
70,77820,1399,094
41,545398,205
198,383¥ 474,109¥1,618,233

Unrealized gains (losses)

(286)
(584)
(37)
(172)
(375)
(14,644)(7,149)¥(15,514)¥ 58,180

Thousands of U.S. dollars

2018
Carrying amount

Carrying amount not exceeding acquisition cost:
Stocks .........................................................................................................
Bonds .........................................................................................................
Japanese government bonds ..................................................................
Japanese local government bonds ..........................................................
Japanese corporate bonds ......................................................................
Others .........................................................................................................
Foreign securities included ....................................................................
Subtotal ......................................................................................................
Total ...........................................................................................................

Unrealized gains (losses)$

986,474
7,665,700
4,616,952
1,576,336
1,472,402
1,369,813
1,079,122$10,021,997$

456,221
7,498,644
4,518,477
1,533,264
1,446,903
1,331,692
1,048,625$ 9,286,568$530,242
167,046
98,47543,07225,49838,121
30,487$735,419$$$ (3,896)(2,682)—(1,280)(1,393)(151,223)(48,418)$(157,812)$ 577,607

54,583383,819—
80,628303,1813,857,163
1,745,077$ 4,295,576$14,317,573

58,490386,502—81,908
304,583
4,008,396
1,793,505$ 4,453,388$13,739,966

Consolidated Financial Statements

Carrying amount exceeding acquisition cost:
Stocks .........................................................................................................
Bonds .........................................................................................................
Japanese government bonds ..................................................................
Japanese local government bonds ..........................................................
Japanese corporate bonds ......................................................................
Others .........................................................................................................
Foreign securities included ....................................................................
Subtotal ......................................................................................................

Acquisition cost

The securities loaned under unsecured securities lending transactions are included in Japanese government bonds under “Securities” in the amount of¥20,790 million ($195,689 thousand) and nil at March 31, 2018 and 2017, respectively.
(2) Held-to-maturity debt securities sold for the fiscal years ended March 31, 2018 and 2017
Millions of yen

2018

Bonds .........................................................................................................
Japanese corporate bonds ......................................................................
Total ...........................................................................................................

Sales amount

Gains on sales

¥110
110
¥110

¥0
0
¥0

Losses on sales

¥—
—
¥—

Thousands of U.S. dollars

2018

Bonds .........................................................................................................
Japanese corporate bonds ......................................................................
Total ...........................................................................................................

Sales amount

Gains on sales$1,035
1,035$1,035$00$0

Losses on sales

$—
—
$—

(Reason for sale) Sales of Japanese corporate bonds comprise retirement by purchase of private bonds.
There were no held-to-maturity debt securities sold for the fiscal year ended March 31, 2017.

37

Consolidated Financial Statements(3) Available-for-sale securities sold for the fiscal years ended March 31, 2018 and 2017
Millions of yen

2018

Stocks .........................................................................................................
Bonds .........................................................................................................
Japanese government bonds ..................................................................
Japanese local government bonds ..........................................................
Japanese corporate bonds ......................................................................
Others .........................................................................................................
Foreign securities included ....................................................................
Total ...........................................................................................................

Sales amount

Gains on sales

Losses on sales¥ 11,547
88,271
84,563239
3,468
205,830
196,624¥305,649¥3,357
345
339
—
5
2,254
1,528
¥5,957

¥ 216
12
—
0
11
3,569
3,215
¥3,798Millions of yen

2017

Stocks .........................................................................................................
Bonds .........................................................................................................
Japanese government bonds ..................................................................
Japanese local government bonds ..........................................................
Others .........................................................................................................
Foreign securities included ....................................................................
Total ...........................................................................................................

Sales amount

Gains on sales

Losses on sales¥ 10,750
15,35915,120239
240,999
239,506¥267,109¥2,140
116
116
—
6,381
5,881
¥8,638

¥ 269
0
—
0
2,159
2,159
¥2,429Thousands of U.S. dollars

2018

Consolidated Financial Statements

Stocks .........................................................................................................
Bonds .........................................................................................................
Japanese government bonds ..................................................................
Japanese local government bonds ..........................................................
Japanese corporate bonds ......................................................................
Others .........................................................................................................
Foreign securities included ....................................................................
Total ...........................................................................................................

Sales amount

Gains on sales

Losses on sales$ 108,687
830,864
795,961
2,249
32,643
1,937,405
1,850,753$2,876,967$31,598
3,247
3,190
—
47
21,216
14,382$56,071$ 2,033112—
0
103
33,59330,261$35,749(4) Information on money held in trust at March 31, 2018 and 2017 was as follows:
Money held in trustThousands of
U.S. dollars

Millions of yen

Carrying amount (fair value) ..............................................................................
Amount of net unrealized gains (losses) included in the statements of income ..

2018

2017

2018

¥33,000
30¥31,000
22$310,617
282

The principal amount of trusts under contracts for replacement of principal losses is as follows:
Thousands of
U.S. dollars

Millions of yen

2018

Money in trust .....................................................................................................

2017¥2,8502018¥—$26,826(5) The components of the valuation difference on available-for-sale securities recorded under net assets at March 31, 2018 and 2017 were as follows:
Thousands of
U.S. dollars

Millions of yen

Valuation difference ............................................................................................
Deferred tax liabilities ........................................................................................
Amounts equivalent to difference on available-for-sale securities .....................
Non-controlling interests adjustment .................................................................
Valuation difference on available-for-sale securities ..........................................
(6) Securities reclassified for the fiscal years ended March 31, 2018 and 2017
Not applicable.

38

2018

2017

2018

¥ 61,365(16,036)¥ 45,328—¥ 45,328¥ 58,180(14,654)¥ 43,526—¥ 43,526$ 577,607(150,941)$ 426,656—$ 426,656

(7) Impairment loss on securities
In the event that the fair value of securities, except trading securities, with available fair values declines significantly from the acquisition cost and the fairvalue is not expected to recover, such securities are stated at fair value and the difference between the fair value and the acquisition cost is recognized as loss
in the period of the decline (“impairment loss”). The fair value is regarded as “significantly declined” when (i) the fair value as of the end of the fiscal year
has declined by more than 50% of the acquisition cost or (ii) the fair value as of the end of the fiscal year has declined by more than 30% but less than 50%of the acquisition cost, and has not been expected to recover within one year. No impairment loss was recognized for either the fiscal year ended March 31,2018 or 2017.
21. DERIVATIVE TRANSACTIONS(1) Derivative contracts to which hedge accounting is not appliedWith respect to derivatives to which hedge accounting is not applied, the contract amount or notional principal amount defined in the contract, fair value,
unrealized gains (losses) and the method used to calculate fair value by transaction type as of March 31, 2018 and 2017 were as follows:
Note that the contract amount does not represent the market risk exposure of the derivative transactions themselves.
(a) Interest rate related transactions
Millions of yen

2018
Category

Transaction type

Fair value

Unrealized gains (losses)

—
—

—
—

—
—

—
—

—
—

—
—

—
—

—
—

—
—

—
—

—
—

—
—

¥ 500
3,813
—

¥ 500
3,813
—

¥ 22
(140)
—

¥ 22
(140)
—

—
—

—
—

—
—

—
—

—
—
—

—
—
—

—
—
¥(117)——¥(117)¥¥

Millions of yen

2017
Category

Transaction typeInterest rate futures
Sold ..........................................................
Bought ......................................................
Interest rate options
Sold ..........................................................
Bought ......................................................
Over-the-counter Forward rate agreements
transactions
Sold ..........................................................
Bought ......................................................
Interest rate swaps
Receive fixed rate/pay floating rate ..........
Receive floating rate/pay fixed rate ..........
Receive floating rate/pay floating rate ......
Interest rate options
Sold ..........................................................
Bought ......................................................
Other
Sold ..........................................................
Bought ......................................................
Total ........................................................................................

Contract amount

Exchangetransactions

Fair value

Unrealized gains (losses)

—
—

—
—

—
—

—
—

—
—

—
—

—
—

—
—

—
—

—
—

—
—

—
—

—
3,768
—

¥ 2
(204)
—

¥ 2
(204)
—

—
—

—
—

—
—

—
—

—
—
—

—
—
—

—
—
¥ —

—
—
¥(201)

¥ 257
4,272
—

¥

Contract amount due
after one year¥¥

Consolidated Financial Statements

Interest rate futures
Sold ..........................................................
Bought ......................................................
Interest rate options
Sold ..........................................................
Bought ......................................................
Over-the-counter Forward rate agreements
transactions
Sold ..........................................................
Bought ......................................................
Interest rate swaps
Receive fixed rate/pay floating rate ..........
Receive floating rate/pay fixed rate ..........
Receive floating rate/pay floating rate ......
Interest rate options
Sold ..........................................................
Bought ......................................................
Other
Sold ..........................................................
Bought ......................................................
Total ........................................................................................

Contract amount

Exchangetransactions

Contract amount due
after one year

39Consolidated Financial Statements

Thousands of U.S. dollars

2018
Category

Transaction type

Contract amount

Exchangetransactions

Interest rate futures
Sold ..........................................................
Bought ......................................................
Interest rate options
Sold ..........................................................
Bought ......................................................
Over-the-counter Forward rate agreements
transactions
Sold ..........................................................
Bought ......................................................
Interest rate swaps
Receive fixed rate/pay floating rate ..........
Receive floating rate/pay fixed rate ..........
Receive floating rate/pay floating rate ......
Interest rate options
Sold ..........................................................
Bought ......................................................
Other
Sold ..........................................................
Bought ......................................................
Total ........................................................................................

Contract amount due
after one year

Fair value

Unrealized gains (losses)

—
—

—
—

—
—

—
—

—
—

—
—

—
—

—
—

—
—

—
—

—
—

—
—

$ 4,706
35,890—$ 4,706
35,890—$ 207(1,317)—$ 207(1,317)
—

—
—

—
—

—
—

—
—

—
—
—

—
—
—

—
—
$(1,101)——$(1,101)$$

Notes: 1. The above transactions are measured at fair value, and unrealized gains (losses), except as in Note 3, are recognized in the consolidated statements of income.
2. The fair values of exchange transactions are based on the closing prices on the Tokyo Financial Exchange Inc., etc.
		 The fair values of over-the-counter transactions are based on the discounted cash flow method, option pricing model, etc.
3. As of March 31, 2018 and 2017, “Receive floating rate/pay fixed rate” of interest rate swaps includes the contract amount of ¥3,313 million ($31,184 thousand) and ¥4,014
million, fair value of ¥(136) million ($(1,280) thousand) and ¥(202) million, and unrealized gains (losses) of ¥(136) million ($(1,280) thousand) and ¥(202) million, respectively,
for which the application of hedge accounting was cancelled since the requirements for hedge accounting were not met. Unrealized gains (losses) on “Receive floating rate/pay
fixed rate” of ¥(146) million ($(1,374) thousand) and ¥(195) million at March 31, 2018 and 2017, respectively, were deferred over the hedge period due to the cancellation.

Consolidated Financial Statements
40(b) Currency related transactions
Millions of yen

2018
Category

Transaction type

Currency futures
Sold ..........................................................
Bought ......................................................
Currency options
Sold ..........................................................
Bought ......................................................
Over-the-counter Currency swaps
transactions
Forward foreign exchange contracts
Sold ..........................................................
Bought ......................................................
Currency options
Sold ..........................................................
Bought ......................................................
Other
Sold ..........................................................
Bought ......................................................
Total ........................................................................................

Contract amount

Exchangetransactions

Contract amount due
after one year

Fair value

Unrealized gains (losses)

—
—

—
—

—
—

—
—

—
—
¥455,423——¥314,731——¥2,458——¥2,458

7,648
945

1,057
—

147
(2)

147
(2)

—
—

—
—

—
—

—
—

—
—
—

—
—
—

—
—
¥2,603——¥2,603¥¥

Millions of yen

2017
Category

Transaction type

Contract amount

Exchangetransactions

Currency futures
Sold ..........................................................
Bought ......................................................
Currency options
Sold ..........................................................
Bought ......................................................
Over-the-counter Currency swaps ...........................................
transactions
Forward foreign exchange contracts
Sold ..........................................................
Bought ......................................................
Currency options
Sold ..........................................................
Bought ......................................................
Other
Sold ..........................................................
Bought ......................................................
Total ........................................................................................

Contract amount due
after one year

Fair value

Unrealized gains (losses)

—
—

—
—

—
—

—
—

—
—
¥393,351——¥255,457——¥(1,843)——¥(1,843)

2,722
202

—
—

(4)
0

(4)
0

—
—

—
—

—
—

—
—

—
—
—

—
—
—

—
—
¥(1,847)——¥(1,847)¥¥

Thousands of U.S. dollars

2018
Category

Transaction type

Fair value

Unrealized gains (losses)

—
—

—
—

—
—

—
—

—
—
$4,286,737——$2,962,452——$23,136——$23,136

71,987
8,894

9,949
—

1,383
(18)

1,383
(18)

—
—

—
—

—
—

—
—

—
—
—

—
—
—

—
—
$24,501——$24,501$$

Notes: 1. The above transactions are measured at fair value, and unrealized gains (losses) are recognized in the consolidated statements of income.
2. The fair values are based on the discounted present value, etc.

Consolidated Financial Statements

Currency futures
Sold ..........................................................
Bought ......................................................
Currency options
Sold ..........................................................
Bought ......................................................
Over-the-counter Currency swaps ...........................................
transactions
Forward foreign exchange contracts
Sold ..........................................................
Bought ......................................................
Currency options
Sold ..........................................................
Bought ......................................................
Other
Sold ..........................................................
Bought ......................................................
Total ........................................................................................

Contract amount

Exchangetransactions

Contract amount due
after one year(c) Stock related transactions
None(d) Bond related transactions
None(e) Commodity related transactions
None(f) Credit derivative transactions
None

41

Consolidated Financial Statements(2) Derivative contracts to which hedge accounting is appliedWith respect to derivatives to which hedge accounting is applied, the contract amount or notional principal amount defined in the contract, fair value and themethod used to calculate fair value by transaction type and by hedge accounting method as of March 31, 2018 and 2017 were as follows:
Note that the contract amount does not represent the market risk exposure of the derivative transactions themselves.
(a) Interest rate related transactions
Millions of yen

2018
Hedge accounting method

Transaction type

Major hedged items

Fundamental method

Interest rate swaps:
Receive fixed rate/pay
floating rate
Receive floating rate/pay
fixed rate

Interest bearing
assets and liabilities
such as loans anddeposits

Contract amountContract amount due after
one year

Fair value

—

—

—

¥6,479¥6,186¥(287)

—
—
—

—
—
—

—
—
—

—

—

—

—
—

—
¥(287)

Interest rate futures
Interest rate options
Other
Exceptional accounting Interest rate swaps—
method for interest rate
Receive fixed rate/pay
swaps
floating rate
Receive floating rate/pay
fixed rate
Total
—

¥

—
—

¥

Millions of yen

2017

Consolidated Financial Statements

Hedge accounting method

Transaction type

Major hedged items

Fundamental method

Interest rate swaps:
Receive fixed rate/pay
floating rate
Receive floating rate/pay
fixed rate

Interest bearing
assets and liabilities
such as loans anddeposits

Interest rate futures
Interest rate options
Other
Exceptional accounting Interest rate swaps—
method for interest rate
Receive fixed rate/pay
swaps
floating rate
Receive floating rate/pay
fixed rate
Total—

Contract amountContract amount due after
one year

Fair value

—

—

—

¥13,405¥7,670¥(448)

—
—
—

—
—
—

—
—
—

—

—

—

—
—

—
¥(448)¥——¥

Thousands of U.S. dollars

2018
Hedge accounting method

Transaction type

Major hedged items

Fundamental method

Interest rate swaps:
Receive fixed rate/pay
floating rate
Receive floating rate/pay
fixed rate

Interest bearing
assets and liabilities
such as loans anddeposits

Interest rate futures
Interest rate options
Other
Exceptional accounting Interest rate swaps—
method for interest rate
Receive fixed rate/pay
swaps
floating rate
Receive floating rate/pay
fixed rate
Total—

Contract amountContract amount due after
one year

Fair value

—

—

—

$60,984$58,226$(2,701)

—
—
—

—
—
—

—
—
—

—

—

—

—
—

—
$(2,701)

$

—
—

$

Notes: 1. Gain/loss on the above contacts is deferred until maturity of the hedged items under the fundamental method in accordance with the “Treatment for Accounting and Auditing ofApplication of Accounting Standard for Financial Instruments in the Banking Industry” (JICPA Industry Audit Committee Report No. 24, February 13, 2002).
2. The fair values of exchange transactions are based on the closing prices on the Tokyo Financial Exchange Inc., etc.
		 The fair values of over-the-counter transactions are based on the discounted cash flow method, option pricing model, etc.

42(b) Currency related transactions
None(c) Stock related transactions
None(d) Bond related transactions
None
22. PROJECTED BENEFIT OBLIGATIONS(1) Outline of employees’ retirement allowance
The Bank has a contributory defined benefit pension plan and a non-contributory unfunded lump-sum retirement allowance plan.
Ten consolidated subsidiaries have non-contributory unfunded lump-sum retirement allowance plans as defined benefit plans and apply the simplified
method in the calculation of their liability for retirement benefits and retirement benefit costs using the method in which the necessary amounts to be paid
for retirement benefits on a voluntary basis is regarded as the retirement benefit obligations.
(2) Defined benefit plans(a) Movement in projected benefit obligations
Thousands of
U.S. dollars

Millions of yen

Balance at the beginning of the fiscal year .........................................................
Service cost ....................................................................................................
Interest cost ....................................................................................................
Actuarial loss (gain) .......................................................................................
Benefits paid ...................................................................................................
Balance at the end of the fiscal year ...................................................................
Note:

2018

2017

2018

¥65,400
2,084
454
(325)
(2,605)¥65,008¥65,416
2,095
455
116
(2,683)¥65,400$615,587
19,615
4,273(3,059)(24,519)$611,897

Plans based on the simplified method have been included in the above.

(b) Movements in plan assets

Balance at the beginning of the fiscal year .........................................................
Expected return on plan assets .......................................................................
Actuarial gain (loss) .......................................................................................
Contributions paid by the employer ...............................................................
Benefits paid ...................................................................................................
Balance at the end of the fiscal year ...................................................................
Note:

2018

2017

2018

¥40,284
804
1,541
2,307
(1,866)¥43,072¥38,167
759
997
2,235
(1,874)¥40,284$379,179
7,567
14,504
21,714(17,564)$405,421

Plans based on the simplified method have been included in the above.

(c) Reconciliation from projected benefit obligations and plan assets to liability (asset) for retirement benefits
Thousands of
U.S. dollars

Millions of yen

Funded projected benefit obligations
Plan assets
Unfunded projected benefit obligations
Net liability (asset) for retirement benefits recorded on the consolidatedbalance sheet
Liability for retirement benefits
Asset for retirement benefits
Net liability (asset) for retirement benefits recorded on the consolidatedbalance sheet
Note:

2018

2017

2018

¥ 53,982(43,072)
10,91011,025¥ 54,408(40,284)
14,124
10,991$ 508,113(405,421)
102,692
103,774¥ 21,936¥ 25,115$ 206,475¥ 21,936—¥ 25,115—$ 206,475—¥ 21,936¥ 25,115$ 206,475

Consolidated Financial Statements

Thousands of
U.S. dollars

Millions of yen

Plans based on the simplified method have been included in the above.

43

Consolidated Financial Statements(d) Retirement benefit costs
Thousands of
U.S. dollars

Millions of yen

2018

Service cost
Interest cost
Expected return on plan assets
Net actuarial loss amortization
Total retirement benefit costs
Note:

2017

¥2,084
454
(804)
1,910
¥3,6452018¥2,095
455
(759)
2,178
¥3,969$19,615
4,273(7,567)
17,978$34,309

Retirement benefit costs of consolidated subsidiaries which have applied the simplified method are included in “Service cost.”(e) Adjustments for retirement benefits
The components of adjustments for retirement benefits (before tax effect) were as follows:
Thousands of
U.S. dollars

Millions of yen

2018

Actuarial gain (loss)
Total

2017

¥3,777¥3,7772018¥3,059¥3,059$35,551$35,551(f) Accumulated adjustments for retirement benefits
The components of accumulated adjustments for retirement benefits (before tax effect) were as follows:
Thousands of
U.S. dollars

Millions of yen

Unrecognized actuarial gain (loss)
Total

2018

2017

2018

¥(6,043)¥(6,043)¥(9,820)¥(9,820)$(56,880)$(56,880)(g) Plan assets
1) Plan assets comprise:
2018

Consolidated Financial Statements

Bonds ............................................................................................................................................................
Stocks ...........................................................................................................................................................
Cash and deposits .........................................................................................................................................
Life insurance general accounts ...................................................................................................................
Other .............................................................................................................................................................
Total ..............................................................................................................................................................

14.6%
31.1%
2.4%
32.9%
19.0%
100%

2017

17.1%
31.3%
4.7%
33.5%
13.4%
100%

2) Long-term expected rate of return
Current and target asset allocations and historical and expected returns on various categories of plan assets have been considered in determining the longterm expected rate of return.
(h) Actuarial assumptions
The principal actuarial assumptions for the fiscal years ended March 31, 2018 and 2017 were as follows:
2018

Discount rate .................................................................................................................................................
Long-term expected rate of return ................................................................................................................
Estimated rate of increase in salary ..............................................................................................................

0.70%
2.00%
3.90%

2017

0.70%
2.00%
3.90%

23. STOCK OPTIONS(a) Items and amounts expensed related to stock options
Thousands of
U.S. dollars

Millions of yen

2018

General and administrative expenses ..................................................................

44

2017

¥20

2018

¥25

$188

(b) Stock options outstanding at March 31, 2018a. Outline of stock options
Beneficiaries qualifying for stock option rights are entitled to acquire common stock upon the exercise of their rights. The following table summarizes thenumber of shares upon exercise of the stock option rights granted by the Bank outstanding at March 31, 2018:
Stock
options

Persons
granted2010
Stock Options
2011
Stock Options
2012
Stock Options
2013
Stock Options
2014
Stock Options

15 directorsof the Bank
14 directorsof the Bank
15 directorsof the Bank
15 directorsof the Bank
14 directors(excluding
outsidedirectors)of the Bank
13 directors(excluding
outsidedirectors)of the Bank
7 directors(excluding
outsidedirectors)of the Bank
7 directors(excluding
outsidedirectors)of the Bank

2015
Stock Options

2016
Stock Options

2017
Stock Options

Date of
grant

Exercise
price

ExerciseperiodVesting
conditions

Target ofservice period

Common stock
9,440 shares
Common stock
10,940 shares
Common stock
13,620 shares
Common stock
11,950 shares
Common stock
9,970 shares

July 29, 2010¥1($0.00)¥1($0.00)¥1($0.00)¥1($0.00)¥1($0.00)From July 30, 2010
to July 29, 2040
From July 30, 2011
to July 29, 2041
From July 28, 2012
to July 27, 2042
From July 27, 2013
to July 26, 2043
From July 26, 2014
to July 25, 2044

Not definedNot definedNot definedNot definedNot definedNot definedNot definedNot definedNot definedNot defined

Common stock
8,400 shares

July 24, 2015

¥1($0.00)From July 25, 2015
to July 24, 2045

Not definedNot defined

Common stock
6,560 shares

July 29, 2016¥1($0.00)From July 30, 2016
to July 29, 2046

Not definedNot defined

Common stock
6,910 shares

July 28, 2017¥1($0.00)From July 29, 2017
to July 28, 2047

Not definedNot defined

July 29, 2011
July 27, 2012
July 26, 2013
July 25, 2014

The number of stock options has been converted to the number of shares after the one-for-ten reverse stock split implemented on October 1, 2016.

b. Stock option activity:
1) Number of stock options
Number of shares

2010
2011
2012
2013
2014
2015
2016
2017
Stock Options Stock Options Stock Options Stock Options Stock Options Stock Options Stock Options Stock Options

Non-vested
March 31, 2017 – Outstanding ..........................
Granted ..............................................................
Forfeited ............................................................
Vested ................................................................
March 31, 2018 – Outstanding .........................
VestedMarch 31, 2017 – Outstanding ..........................
Vested ................................................................
Exercised ...........................................................
Forfeited ............................................................
March 31, 2018 – Outstanding ..........................
Note:

—
—
—
—
—

—
—
—
—
—

—
—
—
—
—

—
—
—
—
—

—
—
—
—
—

—
—
—
—
—

1,640
—
—
1,640
—

—
6,910
260
5,182
1,468

2,530
—
510
—
2,020

3,330
—
740
—
2,590

4,740
—
870
—
3,870

4,830
—
770
—
4,060

4,240
—
660
—
3,580

5,250
—
710
—
4,540

4,920
1,640
960
—
5,600

—
5,182
—
—
5,182

Consolidated Financial Statements

Note:

Number ofoptions granted(Note)The number of stock options has been converted to the number of shares after the one-for-ten reverse stock split implemented on October 1, 2016.

2) Price information
Yen

2010
2011
2012
2013
2014
2015
2016
2017
Stock Options Stock Options Stock Options Stock Options Stock Options Stock Options Stock Options Stock Options

Exercise price ........................................................
Average stock price at exercise date ......................
Fair value price at grant date .................................

¥

1
3,200
4,410

¥

1
3,200
3,860

¥

1
3,200
3,030

¥

1
3,200
3,720

¥

1
3,200
4,010

¥

1
3,200
3,970

¥

1
3,200
3,660

¥

1
—
2,861

45

Consolidated Financial Statements

U.S. dollars

2010
2011
2012
2013
2014
2015
2016
2017
Stock Options Stock Options Stock Options Stock Options Stock Options Stock Options Stock Options Stock Options

Exercise price ........................................................
Average stock price at exercise date ......................
Fair value price at grant date .................................
Note:$ 0.0030.12
41.50$ 0.0030.12
36.33$ 0.0030.12
28.52$ 0.0030.12
35.01$ 0.0030.12
37.74$ 0.0030.12
37.36$ 0.0030.12
34.45$ 0.00—
26.92“Average stock price at exercise date” and “Fair value price at grant date” have been converted to the price after the one-for-ten reverse stock split implemented on October 1, 2016.

(c) Assumptions used to measure the fair value of stock options
The assumptions used to measure the fair value of 2017 stock options granted in the fiscal year ended March 31, 2018 were as follows:
1) The Black-Scholes option pricing model was used as a measurement method.
2) Assumptions used for the Black-Scholes option pricing model:
1. Volatility of stock price: 28.61%, calculated using the market price of the Bank’s stock from October 2011 to July 2017.
2.	Estimated remaining outstanding period: 5.8 years, which was the average remaining tenure of directors at the date of issue, determined by theaverage time from appointment to retirement and from appointment to the date of issue.
3. Estimated dividend: ¥70 per share, which was calculated based on the actual amount of dividends for the fiscal year ended March 31, 2017.
4. Risk-free interest rate: (0.04)%, determined using the yield of national bonds equivalent to the estimated remaining outstanding period.
(d) Estimation method for the total number of vested stock option rights
The total number of stock option rights issued is deemed to reflect the actual number of stock option rights expired due to difficulties in estimating reasonably the number of stock option rights that will expire in the future.
24. INCOME TAXESThe Group is subject to a number of taxes based on income, including corporation tax, inhabitant tax and enterprise tax, which, in the aggregate, indicate astatutory tax rate in Japan of approximately 30.4 % and 30.6% for the fiscal years ended March 31, 2018 and 2017, respectively.
Significant components of deferred tax assets and liabilities as of March 31, 2018 and 2017 were as follows:
Thousands of
U.S. dollars

Millions of yen

Consolidated Financial Statements

Deferred tax assets:
Excess bad debt expense ................................................................................
Liability for retirement benefits .....................................................................
Depreciation ...................................................................................................
Write-down of land ........................................................................................
Loss on impairment of fixed assets ................................................................
Valuation loss on securities ............................................................................
Tax loss carryforwards ...................................................................................
Net deferred loss on hedging instruments ......................................................
Other ...............................................................................................................
Subtotal deferred tax assets: ............................................................................
Valuation allowance ............................................................................................
Total deferred tax assets ...................................................................................
Deferred tax liabilities:
Valuation difference on available-for-sale securities .....................................
Other ...............................................................................................................
Total deferred tax liabilities .............................................................................
Net deferred tax assets (liabilities) ..................................................................
Note:

2018

2017

2018

¥ 6,383
6,676
797
1,029
1,276
2,989
25
123
1,742
21,044(7,458)13,585¥ 7,293
7,651
817
1,031
1,247
3,375
46
180
1,852
23,496(8,226)
15,270$ 60,080
62,838
7,501
9,685
12,01028,134
235
1,157
16,396
198,079(70,199)
127,870(16,036)(68)(16,105)¥ (2,520)(14,654)(45)(14,700)¥ 570(150,941)(640)(151,590)$ (23,719)

Net deferred tax assets (liabilities) as of March 31, 2018 and 2017 are included in the following accounts in the consolidated balance sheets:
Thousands of
U.S. dollars

Millions of yen

2018

Deferred tax assets ..............................................................................................
Deferred tax liabilities ........................................................................................

¥1,2813,801

2017¥1,307737

2018$12,057
35,777

The following table summarizes the significant differences between the statutory tax rate and the effective tax rate for financial statement purposes for the
fiscal years ended March 31, 2018 and 2017:
Statutory tax rate ...........................................................................................................................................
Valuation allowance ................................................................................................................................
Non-deductible expenses ..........................................................................................................................
Non-taxable income .................................................................................................................................
Other .........................................................................................................................................................
Effective tax rate ...........................................................................................................................................

46

2018

2017

30.4%
(4.3)%
0.2%(0.7)%
1.3%
26.9%

30.6%
(6.0)%
0.2%(0.6)%
1.3%
25.4%

25. SEGMENT AND RELATED INFORMATION(1) Overview of the reportable segments
The Bank’s reportable segments are determined on the basis that separate financial information for such segments is available and examined periodically by
the Board of Directors to make decisions regarding the allocation of management resources and assess the business performances of the segments within theGroup. The Group’s main operations are banking services. The Bank also provides securities services and operates credit guarantee services, leasing services and credit card services. The Group has divided its business operations into the two reportable segments of “Banking and Securities” and “Leasing.”
Banking and Securities includes banking and the securities services, and Leasing includes leasing services.
(2) Basis of measurement for reported segment profit (loss), segment assets, segment liabilities and other material items
The accounting methods used for reportable business segments are presented in accordance with Note 2, “SUMMARY OF SIGNIFICANT ACCOUNTINGPOLICIES.” The reportable segment profit figures are based on operating profit. Income arising from intersegment transactions is based on arm’s length
prices.
(3) Information about reportable segment profit (loss), segment assets, segment liabilities and other material items
Segment information for the fiscal years ended March 31, 2018 and 2017 is summarized as follows:
Millions of yen

2018
Reportable segments
Banking and
Securities

Increase in tangible
and intangible fixed assets ..........................

¥

Leasing

71,848748
72,596
17,1755,791,792
5,514,988¥ 5,766
952
6,718
475
26,75522,354

3,348
51,040
3,825
—
22
4,329
2,813

Total

¥

Other

Total

¥

79,832
3,787
83,62018,633
5,837,313
5,546,892

Adjustment¥

67(3,787)(3,720)(494)(28,879)(22,598)

Consolidated

77,6141,700
79,315
17,6505,818,547
5,537,343¥ 2,217
2,086
4,304
982
18,7659,549¥

79,899—79,89918,1395,808,433
5,524,294

118
2
92
—
0
129

3,467
51,043
3,917
—
23
4,459

91
31
7
—
101
403

3,558
51,074
3,924
—
124
4,862

63
(509)
(107)
—
—
(8)

3,622
50,565
3,817
—
124
4,854

205

3,019

689

3,709

(80)

3,628

Notes: 1.	Ordinary income (“Total income” less extraordinary gain included in “Other income” in the consolidated statements of income) is presented in place of net sales of operatingcompanies of other industry groups.
2.	“Other” includes business segments which are not included in the reportable segments and comprises credit guarantees, real estate leasing and management, softwaredevelopment and credit cards.
3. Adjustments are as below:		 (1) Adjustment of ordinary income for outside customers of ¥67 million is mainly the recovery of written off claims included in “Leasing.”		 (2) Adjustment of segment profit of negative ¥494 million is the elimination of intersegment transactions.
		 (3) Adjustment of segment assets of negative ¥28,879 million is the elimination of intersegment transactions.
		 (4) Adjustment of segment liabilities of negative ¥22,598 million is the elimination of intersegment transactions and the adjustment of liability for retirement benefits.
		 (5) Adjustment of depreciation of ¥63 million is the elimination of intersegment transactions.
		 (6) Adjustment of interest income of negative ¥509 million is the elimination of intersegment transactions.
		 (7) Adjustment of interest expense of negative ¥107 million is the elimination of intersegment transactions.
		 (8) Adjustment of tax expense of negative ¥8 million is the elimination of intersegment transactions.
		 (9) Adjustment of increase in tangible and intangible fixed assets of negative ¥80 million is the elimination of intersegment transactions.
4.	Segment profit is reconciled to ordinary profit, which represents ordinary income less ordinary expenses. Ordinary expenses represent “Total expenses” less extraordinary loss
included in “Other expenses” in the consolidated statements of income. Therefore, consolidated segment profit, which shows ordinary profit, is reconciled to “Income before
income taxes” through the addition/deduction of extraordinary gain/loss, net.

Consolidated Financial Statements

Ordinary income:Outside customers ......................................
Intersegment income ...................................
Total ........................................................
Segment profit .................................................
Segment assets ................................................
Segment liabilities ...........................................
Others:Depreciation ...............................................
Interest income ...........................................
Interest expense ..........................................
Extraordinary gain ......................................
Extraordinary loss .......................................
Tax expense ................................................

47

Consolidated Financial Statements

Millions of yen

2017
Reportable segments
Banking and
Securities

Ordinary income:Outside customers ......................................
Intersegment income ...................................
Total ........................................................
Segment profit .................................................
Segment assets ................................................
Segment liabilities ...........................................
Others:Depreciation ...............................................
Interest income ...........................................
Interest expense ..........................................
Extraordinary gain ......................................
Extraordinary loss .......................................
Tax expense ................................................
Increase in tangible
and intangible fixed assets ..........................

Consolidated Financial Statements
48¥

Leasing

73,379830
74,21016,0595,802,932
5,556,156¥ 5,537
970
6,507
421
23,46819,272

3,453
53,401
3,745
—
118
3,824
4,187

Total

¥

Other

Total

¥

80,9903,875
84,866
17,483
5,844,443
5,584,434

Adjustment¥

170(3,875)(3,704)(574)(29,348)(20,477)

Consolidated

78,9171,800
80,71816,4805,826,401
5,575,428¥ 2,073
2,074
4,147
1,002
18,042
9,005¥

81,161—
81,161
16,9095,815,095
5,563,956

118
2
109
—
0
108

3,572
53,403
3,855
—
118
3,933

86
36
14
68
80
366

3,658
53,440
3,870
68
199
4,300

55
(625)
(132)
—
—
(29)

3,714
52,815
3,738
68
199
4,270

136

4,324

196

4,520

(52)

4,468

Notes: 1.	Ordinary income (“Total income” less extraordinary gain included in “Other income” in the consolidated statements of income) is presented in place of net sales of operatingcompanies of other industry groups.
2. 	“Other” includes business segments which are not included in the reportable segments and comprises credit guarantees, real estate leasing and management, softwaredevelopment and credit cards.
3. Adjustments are as below:		 (1) Adjustment of ordinary income for outside customers of ¥170 million is mainly the recovery of written off claims included in “Leasing.”		 (2) Adjustment of segment profit of negative ¥574 million is the elimination of intersegment transactions.
		 (3) Adjustment of segment assets of negative ¥29,348 million is the elimination of intersegment transactions.
		 (4) Adjustment of segment liabilities of negative ¥20,477 million is the elimination of intersegment transactions and the adjustment of liability for retirement benefits.
		 (5) Adjustment of depreciation of ¥55 million is the elimination of intersegment transactions.
		 (6) Adjustment of interest income of negative ¥625 million is the elimination of intersegment transactions.
		 (7) Adjustment of interest expense of negative ¥132 million is the elimination of intersegment transactions.
		 (8) Adjustment of tax expense of negative ¥29 million is the elimination of intersegment transactions.
		 (9) Adjustment of increase in tangible and intangible fixed assets of negative ¥52 million is the elimination of intersegment transactions.
4.	Segment profit is reconciled to ordinary profit, which represents ordinary income less ordinary expenses. Ordinary expenses represent “Total expenses” less extraordinary loss
included in “Other expenses” in the consolidated statements of income. Therefore, consolidated segment profit, which shows ordinary profit, is reconciled to “Income before
income taxes” through the addition/deduction of extraordinary gain/loss, net.

Thousands of U.S. dollars

2018
Reportable segments
Banking and
Securities

Ordinary income:Outside customers ...................................... $ 676,280
Intersegment income ...................................
7,040
Total ........................................................
683,320
Segment profit .................................................
161,662
Segment assets ................................................ 54,516,114
Segment liabilities ........................................... 51,910,655
Others:Depreciation ...............................................
31,513
480,421
Interest income ...........................................
Interest expense ..........................................
36,003Extraordinary gain ......................................
—
Extraordinary loss .......................................
207
Tax expense ................................................
40,747
Increase in tangible
and intangible fixed assets ..........................

26,477

Leasing

Total

Other

730,553
16,001
746,564
166,133
54,767,949
52,121,074$ 20,867
19,63440,512
9,243
176,628
89,881

1,110
18
865
—
0
1,214

32,633
480,449
36,869—216
41,971

856
291
65
—
950
3,793

33,490480,741
36,935—
1,167
45,764592(4,791)(1,007)——(75)

34,092475,950
35,928—1,167
45,6891,929

28,416

6,485

34,911(753)

34,149$ 54,273
8,960
63,234
4,471
251,835
210,410

$

Total

$

Adjustment

751,430
35,645787,085
175,385
54,944,587
52,210,956

Consolidated$

630 $ 752,061(35,645)—(35,015)752,061(4,649)170,736(271,827) 54,672,750(212,707) 51,998,249(4) Information about services
Millions of yen

2018

Ordinary income from outside customers ......

Banking

Securities andinvestments¥30,967¥25,989

Leasing¥5,766

Other

Total

¥17,177¥79,899

Consolidated Financial Statements

Notes: 1.	Ordinary income (“Total income” less extraordinary gain included in “Other income” in the consolidated statements of income) is presented in place of net sales of operatingcompanies of other industry groups.
2.	“Other” includes business segments which are not included in the reportable segments and comprises credit guarantees, real estate leasing and management, softwaredevelopment and credit cards.
3. Adjustments are as below:		 (1) Adjustment of ordinary income for outside customers of $630 thousand is mainly the recovery of written off claims included in “Leasing.”		 (2) Adjustment of segment profit of negative $4,649 thousand is the elimination of intersegment transactions.
		 (3) Adjustment of segment assets of negative $271,827 thousand is the elimination of intersegment transactions.
		 (4) Adjustment of segment liabilities of negative $212,707 thousand is the elimination of intersegment transactions and the adjustment of liability for retirement benefits.
		 (5) Adjustment of depreciation of $592 thousand is the elimination of intersegment transactions.
		 (6) Adjustment of interest income of negative $4,791 thousand is the elimination of intersegment transactions.
		 (7) Adjustment of interest expense of negative $1,007 thousand is the elimination of intersegment transactions.
		 (8) Adjustment of tax expense of negative $75 thousand is the elimination of intersegment transactions.
		 (9) Adjustment of increase in tangible and intangible fixed assets of negative $753 thousand is the elimination of intersegment transactions.
4.	Segment profit is reconciled to ordinary profit, which represents ordinary income less ordinary expenses. Ordinary expenses represent “Total expenses” less extraordinary loss
included in “Other expenses” in the consolidated statements of income. Therefore, consolidated segment profit, which shows ordinary profit, is reconciled to “Income before
income taxes” through the addition/deduction of extraordinary gain/loss, net.

Millions of yen

2017

Ordinary income from outside customers ......

Banking

Securities andinvestments¥32,434¥29,166

Leasing¥5,537

Other

Total

¥14,022¥81,161

Thousands of U.S. dollars

2018

Ordinary income from outside customers ......
Note:

Banking

Securities andinvestments

Leasing

Other

Total

$291,481$244,625$54,273$161,681$752,061

Ordinary income (“Total income” less extraordinary gain) is presented in place of net sales of operating companies of other industry groups.

(5) Information about geographic areasa. Ordinary income
The ratio of ordinary income from outside customers within Japan to the total ordinary income in the consolidated statements of income exceeded 90% forboth fiscal years ended March 31, 2018 and 2017; therefore, no information about geographic areas is required to be disclosed.

49Consolidated Financial Statements

b. Tangible fixed assets
The ratio of tangible fixed assets located in Japan to the total tangible fixed assets in the consolidated balance sheets exceeded 90% for both fiscal years
ended March 31, 2018 and 2017; therefore, no information about geographic areas is required to be disclosed.
(6) Information about major customers
There was no ordinary income from a specific customer exceeding 10% of the total consolidated ordinary income for either the fiscal year ended March 31,2018 or 2017. Therefore, information about major customers is not required to be disclosed.
(7) Information on impairment loss on fixed assets for each reportable segment
Millions of yen

2018
Reportable segments
Banking and securities
Leasing¥—

Impairment loss ..............................................

Other

Total

¥—

¥95

¥95

Thousands of U.S. dollars

2018
Reportable segments
Banking and securities
Leasing$—

Impairment loss ..............................................
Note:

Other

$—

Total

$894

$894

“Other” comprises real estate leasing and management.

There was no impairment loss on fixed assets for the fiscal year ended March 31, 2017.
(8) Information on amortization of goodwill and its remaining balance for each reportable segment
There is no information to be reported on amortization of goodwill and its remaining balance.
(9) Information on gain on negative goodwill for each reportable segment
There is no information to be reported on gain on negative goodwill.

Consolidated Financial Statements

26. RELATED PARTY TRANSACTIONS
For the fiscal year ended March 31, 2018, related party transactions were as follows:
Relationshipwith the Bank

Relatives ofofficers of the
Bank

A company inwhich amajority ofvoting rights
are held byrelatives ofofficers of the
Bank

Name

Paid-in Occupa- Voting
capitalrightsLocation (millions
tion/ ownershipof yen) Business(%)

Relationship ofrelated parties

Second son of
Yasuo Ueno
Lending of money*2(Director &Interest receivable
Chairmanof the Bank)
Loans
Eldest son of
Masaaki Hashimoto Lending of money*2(Corporate Auditor) Interest receivable
Loans
Son-in-law ofSatoru Wada
Lending of money*2(Executive Officer) Interest receivable
Loans

Year-end
Year-end
Transaction
Accounting balancebalanceamounttitle(millions of (thousands of(thousands ofyen)
U.S. dollars)
U.S. dollars)
216
0

Loans
—

22
—

207
—

—
0

—
0

Loans
—

18
—

169
—

—
0

—
0

Loans
—

26
—

244
—

Lending of money
Interest receivable

—
0

—
0

Loans
—

66
—

621
—

Loans

Lending of money
Interest receivable

200
2

1,882
18

Loans
—

200
—

1,882
—

Loans

Lending of money*2
Interest receivable

90
0

847
0

Loans
—

90
—

847
—

—

—

AtsutoHashimoto——Publicofficer—

Masato Ibi——

Officeworker

—

10

Metal
processing

—

Loans

32

Forestry

Direct1.28

36

Wholesaleof sheet
glass—

NIKKEN
BLAST CO., Daito City
Osaka
LTD. *3
KitamuraCity
Forestry Co., Osaka
OsakaLtd. *4
Murashima
YamatoGlass Shoji takada cityCo., Ltd. *5
Nara

Transaction
amount(millions of
yen)
23
0

Kohei Ueno

Officeworker—Details oftransactions

Policies regarding and terms and conditions of the transactions
Notes: 1. Terms and conditions of loans are determined on an arm’s length basis.
2. Real estate is accepted as collateral for loan transactions.
3. Relatives of Naoki Minowa (Senior Managing Executive Officer of the Bank) own 62.5% of the voting rights of this company directly.
4. Matazaemon Kitamura (Director of the Bank) and his relatives own 6% and 94% of the voting rights, respectively, of this company directly.
5. Relatives of Kozo Togawa (Executive Officer of the Bank) own 91.8% of the voting rights of this company directly.

50

For the fiscal year ended March 31, 2017, related party transactions were as follows:
Relationshipwith the Bank

Relatives ofofficers of the
Bank

A company inwhich amajority ofvoting rights
are held byrelatives ofofficers of theBank

Paid-in
Votingcapital Occuparightstion/(millions Business ownershipof yen)(%)

Relationship ofrelated parties

Name

Location

AtsutoHashimoto——Publicofficer—

Masato Ibi——

Officeworker

—

10

Metal
processing

—

Loans

32

Forestry

Direct1.55

10Real estate—

NIKKEN
Daito City
BLAST CO., Osaka
LTD. *3
KitamuraCity
Forestry Co., Osaka
OsakaLtd. *4
Sawamura Ikoma City
Co., Ltd. *5
NaraDetails oftransactions

Year-end
Transaction
amount Accounting balance(millions of
title(millions of
yen)
yen)

Eldest son of
Masaaki Hashimoto Lending of money*2(Corporate Auditor) Interest receivable
Loans
Son-in-law ofSatoru Wada
Lending of money*2(Executive Officer) Interest receivable
Loans

0

Loans
—

18
—

0

Loans
—

27
—

Lending of money
Interest receivable

—
0

Loans
—

105
—

Loans

Lending of money
Interest receivable

90
2

Loans
—

200
—

Loans

Lending of money
Interest receivable

10
0

Loans
—

13
—

Policies regarding and terms and conditions of the transactions
Notes: 1. Terms and conditions of loans are determined on an arm’s length basis.
2. Real estate is accepted as collateral for loan transactions.
3. Relatives of Naoki Minowa (Managing Director of the Bank) own 62.5% of the voting rights of this company directly.
4. Matazaemon Kitamura who took office as a Director of the Bank on June 29, 2016 and his relatives own 6% and 94% of the voting rights, respectively, of this company directly.
The above table presents the transactions during the period from June 29, 2016 through March 31, 2017.
5. Kiyohide Sawamura (Managing Executive Officer of the Bank) and his relatives each own 49.25% of the voting rights.

27. PER SHARE INFORMATION
Net assets per share at March 31, 2018 and 2017 and net income per share for the fiscal years then ended were as follows:Yen

Net assets per share ............................................................................................
Net income per share – basic ..............................................................................
Net income per share – diluted ...........................................................................

U.S. dollars

2018

2017

2018

¥8,714.54
418.05417.63¥9,353.18
466.05465.51$82.02
3.93
3.93

Basic information in computing the above per share data was as follows:
Thousands of
U.S. dollars

Millions of yen(Net assets per share)
Net assets ............................................................................................................
Amounts to be deducted from net assets: ...........................................................
Stock acquisition rights ................................................................................
Net assets attributed to common stock ...............................................................
Outstanding number of shares of common stock at end of year
(unit: thousands of shares) ................................................................................
(Basic and diluted net income per share)
Net income attributable to owners of parent .......................................................
Net income attributable to common stockholders of parent ...............................
Average outstanding number of shares during the year
(unit: thousands of shares) ................................................................................
Adjustment to net income attributable to owners of parent ................................
Increase in number of shares of common stock: ................................................
Stock acquisition rights ..................................................................................
Convertible securities not diluting net income per share ....................................

2018

2017

2018

¥284,139
113(113)
284,025¥251,139
112(112)
251,026$2,674,501
1,063(1,063)
2,673,428

32,592

26,838—¥ 13,160
13,160¥ 12,508
12,508$ 123,870
123,870

31,480—31(31)—26,838
—
31
(31)
—

—
—
—
—
—

Consolidated Financial Statements

Note: 	The Bank implemented a one-for-ten reverse stock split on October 1, 2016. Net assets per share, basic net income per share and diluted net income per share are computed basedon the assumption that the reverse stock split was implemented at the beginning of the fiscal year ended March 31, 2017.

51

Consolidated Financial Statements

28. SUBSEQUENT EVENTS(1) Retirement benefit plans
On April 1, 2018, the Bank transferred its defined benefit pension plans to risk sharing pension plans and defined contribution pension plans classified as adefined contribution plan provided in Paragraph 4 of “Accounting Standard for Retirement Benefits” (ASBJ Statement No. 26, December 16, 2016). Regarding the accounting treatments due to the transfer, the Bank will apply “Practical Solution on Accounting for Risk Sharing Pension Plan” (PITF No. 33,
December 16, 2016), “Accounting for Transfer between Retirement Benefit Plans” (ASBJ Guidance No. 1, December 16, 2016) and “Practical Solution on
Accounting for Transfer between Retirement Benefit Plans” (PITF No. 2, February 7, 2007).
The Bank estimates other income amounting to ¥4,784 million ($45,030 thousand) in the fiscal year ending March 31, 2019.
(2) Share transfer agreement
The Bank has resolved to conclude a share transfer agreement with shareholders of NARA SECURITIES CO., LTD. (“NARA SECURITIES”) at the meeting of the Board of Directors held on August 3, 2018 subject to approval by the relevant authorities, etc., in order to make it the Bank’s subsidiary by acquiring its shares.
1. Purpose
The Bank strives to cater to diversifying customer needs in one stop under the slogan of delivering comprehensive financial services by tapping into ourGroup’s capabilities as stipulated in the medium-term management plan “Vitality Creation Plan II — Changing and Taking on Challenges” rolled out in
April 2017.
The agreement aims to integrate the customer bases and know-how accumulated by the Bank and NARA SECURITIES and strengthen Group functions,enabling it to better provide a wide range of solutions and contributing to the asset formation of local customers and the development of the regional society.
2. Summary of NARA SECURITIES
(1) Name(2) Location(3) Title and name of representative(4) Business(5) Paid-in capital(6) Establishment

Consolidated Financial Statements
52(As of June 30, 2018)

NARA SECURITIES CO., LTD.
212-7, Minami-Koriyama-cho, Yamato-Koriyama City, Nara, Japan
Koji Tamura, President and Representative Director
Financial instruments business operator¥117,500,000 ($1,105 thousand)November 25, 1944

3. Number of shares acquired and shares held before and after acquisition(1) Number of shares held before transfer
50,000 shares (ratio of voting rights: 2.53%)(2) Number of shares acquired
1,880,600 shares(3) Number of shares held after transfer
1,930,600 shares (ratio of voting rights: 97.75%)*The Bank is to continue negotiating with other shareholders to make NARA SECURITIES a wholly-owned subsidiary.

4. Schedule(1) Resolution of the Board of Directors(2) Conclusion of share transfer agreement(3) Execution of share transfer

August 3, 2018
August 3, 2018
October 1, 2018 (planned)*Execution of share transfer is subject to approval of the relevant authorities.

29. BORROWED MONEY AND LEASE OBLIGATIONS
a. The details of borrowed money as of March 31, 2018 and 2017 were as follows:
Thousands of
U.S. dollars

Millions of yen

Borrowed money
Due from April 2018 through May 2025
Average interest rate: 0.19% p.a. ....................................................................

2018

2017

2018

¥208,368¥205,308$1,961,295

Millions of yen

Thousands of
U.S. dollars¥ 21,895
87,50877,013
21,313548
87¥208,368$ 206,089
823,682
724,896
200,611
5,158
818$1,961,295

Millions of yen

Thousands of
U.S. dollars

Annual maturities of borrowed money as of March 31, 2018 were as follows:2019 .........................................................................................................................................................
2020 .........................................................................................................................................................
2021 .........................................................................................................................................................
2022 .........................................................................................................................................................
2023 .........................................................................................................................................................
2024 and thereafter ..................................................................................................................................
Total .........................................................................................................................................................
b. Lease obligations
Lease obligations are included in “Other liabilities” in the accompanying consolidated balance sheets.
Annual maturities of lease obligation as of March 31, 2018 were as follows:2019 .........................................................................................................................................................
2020 and thereafter ..................................................................................................................................
Total .........................................................................................................................................................

¥ 0
—
¥ 0

$ 0
—
$ 0

Average interest rates are omitted since the interest equivalent amount included in total lease charges is allocated over the related period using the straightline method.

Consolidated Financial Statements

c. Other
The Group has not issued commercial paper by way of promissory notes for funding for operating activities.

53

Independent Auditors’ Report

Independent Auditors’ Report54Capital Management
Consolidated Capital Adequacy Ratio
As of March 31, 2018 and 2017
Millions of yen(1) Capital adequacy ratio ((2)/(3)) ..............................................................................................................
(2) Capital .....................................................................................................................................................
(3) Risk-weighted assets ...............................................................................................................................
(4) Requisite capital ......................................................................................................................................

2018

2017

9.88%
¥ 245,518
2,482,634
99,305

9.42%¥ 219,303
2,327,732
93,109Note: The capital adequacy ratio was calculated on the basis of the formula provided by the Ministry of Finance under Provision 14, Clause 2 of the Banking Law.

Nonconsolidated Capital Adequacy Ratio
As of March 31, 2018 and 2017
Millions of yen(1) Capital adequacy ratio ((2)/(3)) ..............................................................................................................
(2) Capital .....................................................................................................................................................
(3) Risk-weighted assets ...............................................................................................................................
(4) Requisite capital ......................................................................................................................................

2018

2017

9.64%
¥ 236,698
2,454,173
98,166

9.19%¥ 211,545
2,300,789
92,031

Note: The capital adequacy ratio was calculated on the basis of the formula provided by the Ministry of Finance under Provision 14, Clause 2 of the Banking Law.

Capital Management
55

Organization, Group Network(As of July 1, 2018)

ORGANIZATIONSTOCKHOLDERS’ MEETINGHEADQUARTERS
General Secretariat

BOARD OF DIRECTORS

Corporate Planning Division
Compliance Management Division

MANAGEMENT DIRECTORS’COMMITTEE

Business Planning& Promotion Headquarters

Risk Management Division

ChairmanPresident
Directors

Directors

Business Support DivisionCorporate Business Division
Personal Business Division
Private Banking Division
Public Institutions & Regional Vitality Creation Division• DOMESTIC
OFFICES

Osaka Regional Headquarter
Credit Analysis Division
Financial Investment Division

BOARD OF CORPORATE AUDITORS

Operations Support Division
Systems Division
Personnel DivisionCorporate Auditors

General Affairs DivisionCorporate Auditors’ OfficeInternal Audit Division

NANTO BANK GROUP

Organization, Group Network(As of July 1, 2018)
The Nanto Group, which consists of the Nanto Bank and its 10 consolidated subsidiaries, offers financial
services related to credit guarantees and leasing as well as its primary business, banking services.

THE NANTO BANK, LTD.

BankingHead Office and 109 Branches
28 Sub-branches
2 Agencies (Nanto Bank Agency Co., Ltd.’s business offices)
2 Representative Offices (Hong Kong and Shanghai)

Credit Guarantees

Nanto Credit Guarantee Co., Ltd.

Leasing

Nanto Lease Co., Ltd.

Computer Software
Development andServices

Nanto Computer Service Co., Ltd.

Credit Card Business

Nanto DC Card Co., Ltd.
Nanto Card Services Co., Ltd.

Other Operations

Nanto Estate Co., Ltd.
Nanto Business Service Co., Ltd.
Nanto Investment Management Co., Ltd.
Nanto Staff Service Co., Ltd.
Nangin Agency Co., Ltd.

Companies indicated with a pink square are consolidated subsidiaries.

56

Affiliates and Subsidiaries, Bank Data
(As of July 1, 2018)

Outline of Consolidated Subsidiaries
Indirect
Direct holdings holdings through
Capital(millions of yen) of the Bank (%) subsidiaries (%) Business line

Subsidiaries

Address

Established

Nanto Estate Co., Ltd.

16, Hashimoto-cho
Nara City, Nara, Japan

November 8,
1969

¥30

100%

—

Leasing and managementof real estate

Nanto Business Service
Co., Ltd.

93-2, Minami-Kyobate-cho
1-chome, Nara City, Nara, Japan

June 1,
1984

10

100

—

Centralized processing ofclerical operations for the Bank

Nanto Credit
Guarantee Co., Ltd.

1-1, Shimo-Sanjo-cho Nara City,
Nara, Japan

October 9,
1984

10

100

—

Credit guarantee

Nanto Lease Co., Ltd.

52-1, Omori-cho Nara City,
Nara, Japan

December 22,
1984

500

100

—

Leasing

Nanto Computer Service
Co., Ltd.

93-2, Minami-Kyobate-cho
1-chome, Nara City, Nara, Japan

July 1,
1986

10

100

—

Computer softwaredevelopment and services

Nanto Investment
Management Co., Ltd.

297-2, Omiya-cho 4-chome Nara
City, Nara, Japan

November 21,
1986

120

100

—

Investment advisory
services

Nanto DC Card Co., Ltd.

61-7, Higashi-Ikoma
October 12,
1-chome, Ikoma City, Nara, Japan 1990

50

100

—

Credit card business

Nanto Card Services
Co., Ltd.

61-7, Higashi-Ikoma
December 10,
1-chome, Ikoma City, Nara, Japan 1990

50

100

—

Credit card business

Nanto Staff Service
Co., Ltd.

103-1, Minami-Kyobate-cho
1-chome, Nara City, Nara, Japan

March 18,
1991

20

100

—

Dispatch of temporary staff

Nangin Agency Co., Ltd.

93-2, Minami-Kyobate-cho
1-chome, Nara City, Nara, Japan

October 6,
2009

50

100

—

Bank agency services

CORPORATE DATA (As of March 31, 2018)16, Hashimoto-cho
Nara City, Nara 630-8677, Japan
Phone: (0742) 22-1131
URL: http://www.nantobank.co.jp/

Authorized shares:
Outstanding shares:
Stated capital:
Number of stockholders:Date of incorporation:
Domestic network:
Overseas network:
Number of employees:
Ordinary stockholders’ meeting:Stock listings:

HONG KONG REPRESENTATIVE OFFICEROOM 1709,
17/F, HUTCHISON HOUSE,
10 HARCOURT ROAD,
HONG KONG
Phone: 852-2868-9932

SHANGHAI REPRESENTATIVE OFFICE
16F, Hang Seng Bank Tower, 1000 Lujiazui Ring Road,
Pudong New Area, Shanghai, China
Phone: 86-21-6841-2771

64,000,000
33,025 thousand
37,924 million
13,611
June 1934
140 offices
2 representative offices
2,624
June 28, 2018
Tokyo Stock Exchange

MAJOR STOCKHOLDERS (As of March 31, 2018)
Japan Trustee Services Bank, Ltd.
(trust account)
Nippon Life Insurance Co.

(standing proxy: The Master Trust Bank of Japan, Ltd.)

Meiji Yasuda Life Insurance Co.

(standing proxy: Trust & Custody Services Bank, Ltd.)The Master Trust Bank of Japan, Ltd.
(trust account)
Japan Trustee Services Bank, Ltd(trust account 9)
The Nanto Bank Employees’ Stockholders Association
Sumitomo Life Insurance Co.

(standing proxy: Japan Trustee Services Bank, Ltd.)The Bank of Tokyo-Mitsubishi UFJ, Ltd.
GOVERNMENT OF NORWAY(standing proxy: Citibank, N.A., Tokyo Branch)

DMG MORI Co., Ltd.
Total

Number of shares(thousands)

Percentage
(%)

1,376

4.22

1,053

3.23

1,043

3.20

977

2.99

948
792

2.90
2.43

662
508

2.03
1.55

505
476
8,343

1.55
1.46
25.59

Affiliates and Subsidiaries, Bank Data

HEAD OFFICE

Note:	The Bank of Tokyo-Mitsubishi UFJ, Ltd. has changed its name to MUFG Bank, Ltd. on
April 1, 2018.

57

THE
THENANTO
NANTOBANK,BANK,LTD.
LTD.
16,
16,Hashimoto-cho,
Hashimoto-cho,Nara
NaraCity,
City,Nara
Nara630-8677,
630-8677,Japan
Japan
Phone:
Phone:(0742)22-1131(0742)22-1131