INTEGRATED REPORT 2021

ブランドマーク

和文

英文

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Organization Chart of Banking Subsidiaries
Group Management Philosophy

International Network of

The Nishi-Nippon City Bank, Ltd.

Aiming high and motivated by pride in our services, we are committed to becoming a leading financial group through our ability
to respond to change and to grow with our customers

GeneralShareholders’ Meeting

The Nishi-Nippon City Bank, Ltd.

Internal Audit DivisionCorporate Planning DivisionCorporate Risk Management Division

INTERNATIONAL BUSINESSDIVISION

Compliance Risk Supervisory Division
Audit and Supervisory
Committee

Group Brand Slogan

IT Planning & Management Division

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

Public Relations Division
Executive Secretariat

Sincere Relationships, Best Solutions

Audit and Supervisory
Committee
Members Office

Human Resources DivisionCorporate Administration Division
Operations Planning & Management Division
Treasury & Portfolio Investment Division
Treasury & Securities Transaction Division

Board of Directors

Credit Risk Management Division

TREASURY & PORTFOLIOINVESTMENT DIVISION

4th Fl., Nittetsu Nihonbashi Bldg,
13-1, Nihonbashi 1-chome, Chuo-ku, Tokyo
Credit Supervision Division103-0027, Japan
Contents
Business Planning Division
Phone: +81-3-6262-7957
Digital Strategy Division
SWIFT: NISIJPJTExecutive
Committee
Profile of theCompany(Joint HoldingBusinessCompany)/Organization
Chart�����������������
02
Promotion Division
Fax: +81-3-3273-2255
Branches

Meaning behind Our Logo

英文

Retail Business Division

Holdings
Inc.����������������������
Board of Directors of Nishi-Nippon Financial
International
Business Division

03

TREASURY & SECURITIESTRANSACTION DIVISION 04
Outline of Nishi-Nippon Financial Holdings Group�������������������������
Overseas Representative Offices

Hong Kong Representative Office
Shanghai Representative Office

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

Fukuoka 812-0011, Japan
Providing Broader/Deeper Support for International
Business��������������������
Representative
Office05

Phone: +81-92-476-2540, +81-92-476-2484
SWIFT: NISIJPJT, NISIJPJTFKK
Personal Loan Transaction Division
Financial/Non-Financial Highlights��������������������������������
06
Fax: +81-92-441-6106
Registered in Singapore

Corporate Business Solution Division

PrivateBanking Division
Strengths of the Nishi-Nippon Financial
Holdings
Group�����������������������

08

HONG KONG REPRESENTATIVEOFFICE
Kita-Kyushu General Headquarters
10
A Brief Sketch of our Operating Base�������������������������������
Regional Relationship Management Headquarters

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Our logo uses the motif of the “Sun,” the energy which creates our future, and the vibrant image of “Wings.” The radiating wings
symbolize the infinite future. And the color gradation from light to dark orange expresses the Nishi-Nippon Financial HoldingsGroup’s commitment to evolving and transforming itself toward the future.

Editorial Policy
The Nishi-Nippon Financial Holdings, Inc. (NNFH) has put together this Integrated Report 2021 in a bid to help investors andother stakeholders understand the initiatives by the NNFH Group to sustain business growth and create value. It has been
compiled with reference to the International Integrated Reporting Framework issued by the International Integrated Reporting
Council (IIRC), bringing together financial and non-financial information, including management philosophy, management plans,and ESG (environmental, social, and governance) information.
Scope of Report
Period covered: April 2020 to March 2021 (Some subsequent information is also included.)
Organizations covered: The Nishi-Nippon Financial Holdings, Inc. and its subsidiaries and affiliates

Cautionary Statement Regarding Forward-Looking Statements
The Report contains statements about the NNFH Group’s future operating results. These forward-looking statements are nota guarantee of future performance but involve risks and uncertainty. Please note that actual results could differ from thoseindicated due to a variety of factors, including changes in the operating environment.

Suite 3112, Tower 6, The Gateway, Harbour

Chikuho Regional Headquarters

City, 9 Canton Road, Tsim Sha Tsui, Kowloon,
Chikugo Regional Headquarters
12
Message from the President�����������������������������������
Hong Kong

Kyushu Regional Headquarters

Phone: +852-2526-2259
Headquarters
Value Creation Process/Medium-TermTokyo
BusinessPlan������������������������
Fax: +852-2845-9264(As of 30th June, 2021)

Growth Strategy Work reform����������������������������������

18
20

SHANGHAI REPRESENTATIVEOFFICE21
GrowthStrategy
strategy���������������������������������TheBank ofDigital
Nagasaki,Ltd.

Room No. 2209 Shanghai International Trade

Center, 2201 Yan-An Road (West), Chang
22
GrowthGeneral
Strategy
Initiatives
for ESG and the SDGs�������������������������
Shareholder’sMeeting

Ning District,Shanghai, People’s Republic of

China
Board ofAuditors
Communication
with
Shareholders and Investors��������������������������

36

Internal Audit DivisionCorporate Governance�������������������������������������

38

Phone: +86-21-6219-0600
Fax: +86-21-6278-5940

Corporate Planning Division

REPRESENTATIVE OFFICE 42
Risk Management���������������������������������������
Human Resource & Corporate
Board of Directors

REGISTERED IN SINGAPORE

Administration Division

1 Marina Boulevard Unit#25-07
Compliance������������������������������������������
Branches46

Operations Planning &Outline of Banking Subsidiaries����������������������������������

108

Organization Chart of Banking Subsidiaries����������������������������

109

One Marina Boulevard, Singapore 018989
Executive Committee
Credit Supervision Division
Phone: +65-6222-0115
48
Financial Section����������������������������������������
Business Management Division
Fax: +65-6222-0171
Management Division(As of 30th June, 2021)

Notes
1. Amounts have been rounded down to the nearest unit in principle.
2. Conversion into U.S, dollars (solely for the convenience of readers outside Japan) has been made at the exchange rate of¥110.71 to $1.
Nishi-Nippon
Financial
Holdings
INTEGRATEDREPORT
Nishi-Nippon
Financial
Holdings
GroupGroupINTEGRATEDREPORT
2021 20211

109

Profile of the Company (Joint Holding Company)

Board of Directors of Nishi-Nippon Financial Holdings Inc.

Name: Nishi-Nippon Financial Holdings, Inc.
Location

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

Business

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

Capital50 billion yen

Date of establishment

October 3, 2016

Fiscal year end

March 31

Stock exchangeTokyo Stock Exchange and Fukuoka Stock Exchange

Share-trading unit

100 shares

Credit Ratings

R&I: A (Stable)
JCR: A (Stable)(As of 30th June, 2021)

Chairman

Deputy Chairman

President

Isao Kubota

Hiromichi Tanigawa

Hideyuki Murakami

Chairman���������������������� Isao Kubota
Deputy Chairman������������������� Hiromichi Tanigawa
President���������������������� Hideyuki Murakami

Organization Chart

Directors����������������������� Kiyota Takata
Takashige Honda
Directors (Audit and Supervisory Committee Members)��� Kiyotaka Tomoike
Nobuko Takahashi (outside)
Toshio Sakemi (outside)

Nishi-Nippon Financial Holdings, Inc.

Chiharu Kubo (outside)
General Shareholders’ Meeting(As of 30th June, 2021)* Directors/Audit and Supervisory Committee Members Nobuko Takahashi, Toshio Sakemi, and Chiharu Kubo are Outside Directors as prescribed in Article 2 (xv) of the Companies Act of Japan.

Nomination and Remuneration
Advisory Committee

Board of Directors

Audit and Supervisory
Committee
Audit and Supervisory
Committee Members Office

Major Shareholders (Common Stock)
Name
Executive Committee

Group Strategy Planning
Division

Compliance & Risk
Management DivisionCorporate Planning
Division

Custody Bank of Japan, Ltd. (Trust Account)

Internal Audit Division(As of 30th June, 2021)

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

12,265

8.27

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

9,868

6.66

Custody Bank of Japan, Ltd. (Trust Account No.4)

9,155

6.17

Nippon Life Insurance Company

3,861

2.60

Aso Corporation

3,308

2.23

Meiji Yasuda Life Insurance Company

2,765

1.86

The Nishi-Nippon City Bank Employee Shareholding Association

2,465

1.66

Resona Bank, Ltd.

2,200

1.48

Custody Bank of Japan, Ltd. (Trust Account No.5)

2,060

1.39

JP MORGAN CHASE BANK 385781

2,041

1.37

Total

49,991

33.73(As of 31st March, 2021)

Notes: 1. The figures are rounded down to the nearest thousand.
2. Shareholding ratio (excluding treasury Shares)

2

Nishi-Nippon Financial Holdings GroupINTEGRATED REPORT 2021

Nishi-Nippon Financial Holdings GroupINTEGRATED REPORT 2021

3

Outline of Nishi-Nippon Financial Holdings Group

Providing Broader/Deeper Support for International Business

Strengths as a “Comprehensive Financial Group”

The NNFH Group supports local businesses by addressing their requirements for doing business in
Asia and other parts of the world. To this end, the NNFH Group offers consulting services that go
beyond the definition of financial support, together with advanced products/services, through allianceswith local partners and specialists with experience in international business.

The NNFH Group has adopted a “parallel” structure whereby NNFH serves as a “control tower”to direct and guide each Group
company whilst also assuming a birds-eye perspective in order to oversee them across the board, thereby building amanagement framework that allows this comprehensive financial group to best exploit its strengths.

Holding company
Nishi-Nippon Financial Holdings, Inc.

Banking
The Nishi-Nippon City Bank, Ltd.

Management and maintenance ofinvestment partnership assets
NCB Venture Capital Co., Ltd.

Banking
The Bank of Nagasaki, Ltd.

Information system service
NTT Data NCB Corporation

Credit cards, credit guarantee
The Kyushu Card Co., Ltd.

Payment Service
Japan Payment service CO., LTD.

Financial instruments exchange
Nishi-Nippon City Tokai Tokyo Securities Co., Ltd.

Credit guarantee
Nishi-Nippon Credit Guarantee Co.

Nishi-Nippon
City Bank• International Business Support Office, International Business Div.
Support for international business provided by personnel with professional skills and know-how• “NCB Forex Super Direct”, “NCB Direct Forward Exchange Contracts”
A broad range of forex transactions, including foreign remittance and application/inquiry on import letters of credit
via the Internet• International Consultation Office
Finely tuned support for overseas expansion offered by personnel with extensive international experience throughcollaboration with international partner financial institutions, lawyers, insurance companies, etc.
NCB Research &• “Door to Asia” (website)
Consulting
Detailed information provision• Asia Business Seminars
Sponsorship of seminars on international business
Kyushu Card

Research studies, management consultancy,
Fee-charging employment placement business
NCB Research & Consulting Co., Ltd.
Claims servicing
Kyushu Servicer

Multifaceted windows for international business support• A variety of credit cards
Support for all major cards, including VISA, MasterCard, JCB, AMEX, and UnionPay

NTT Data NCB Corporation
is an equity-method affiliate.
Japan Payment Services CO.,LTD. is a non-consolidated,
non-equity method subsidiary.

Broad area coverage by our overseas bases and partner institutions(As of 30th June, 2021)

Bank of China
Shinhan Bank
JBIC

Shanghai Representative Office

The Bank of Yokohama

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

TAITRA

HKTDC

Nishi-Nippon City Bank’s overseas operations..........................................3 in Asia

Bangkok Bank
Bangkok Representative Office

Matrix management
The holding company, from thestandpoint of meeting individual
customer needs, will develop
strategies that embrace theentire group.

Development of comprehensive financial
services that exceed the expectations ofcustomers and host communities(Realization of matrix management)

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

OCB
BNP Paribas

Monitoring model
The holding company will
demonstrate its oversightfunction over the subsidiaries
while continuously monitoring
their business execution.

Partner financial institutions...................................9 institutions(7 foreign, JBIC, and Bank of Yokohama)Representative Office Registered in Singapore

Bank of Yokohama’s overseas operations
4 in Asia and 1 in New YorkDBS Bank

Bank Resona Perdania

Partner institutions...................................2 institutions(As of 30th June, 2021)* Nishi-Nippon City Bank concluded Basic Agreement for Overseas Business Support Services with The Bank of Yokohama in September 2016.

4

Nishi-Nippon Financial Holdings GroupINTEGRATED REPORT 2021

Nishi-Nippon Financial Holdings GroupINTEGRATED REPORT 2021

5

Financial/Non-Financial Highlights

Financial Highlights

Non-Financial Highlights

Ordinary income

Profit attributable to owners of parent

Balance of deposits/NCD(consolidated)(consolidated)(two banks combined)

Number of private
customers
Two banks
combined¥26.7 billion¥18.0 billion¥9,502.4 billion

4,095

Kyushu Card
(membership)
Nishi-Nippon City
Tokai Tokyo Securities

K

912
34

Two banks
combined

31st March, 31st March, 31st March,
2019
2020
2021

(Nishi-Nippon City Bank)

136

K

Kyushu Card
(member stores)

K

Nishi-Nippon City
Tokai Tokyo Securities

K

55
3
5

K
K

NCB Research &Consulting (membership)
31st March, 31st March, 31st March,
2019
2020
2021

Number of main customers*

Number of corporate
customers

K

22,497

31st March, 31st March, 31st March,
2019
2020
2021
(as of 31st March, 2021)(as of 31st March, 2021)(as of 31st March, 2021)

Number/amount of loans to support
startups and second startups(Nishi-Nippon City Bank)

Recipients of The Excellent
Executive Award*

Balance of loans

Balance and % of loans to SMEs

Management of client assets

COVID-19-related Lending(two banks combined)(two banks combined)(Group total)(two banks combined)* Granted by the Prize of Excellent Executive¥8,581.8 billion
31st March, 31st March, 31st March,
2019
2020
2021

¥6,315.3 billion ¥1,046.7 billion
79.1%
31st March, 31st March, 31st March,
2019
2020
2021

31st March, 31st March, 31st March,
2019
2020
2021

Ratio of loans subject to mandatory disclosure ofclaims under the Financial Reconstruction Law

Capital ratio

OHR(two banks combined)(consolidated)(consolidated)

1.64%

9.49%

67.7%

22K
¥729.4 billion

5,745 cases¥132.6 billion(March 2020-May 2021)(year ended 31st March, 2021)(January 1973-April 2021)

the Nishi-Nippon City Bank
app

Number/amount of SDGs Private
Placement Bonds underwritten(Nishi-Nippon City Bank)

Reduction of CO2 Emissions*

950,000

Total :
downloads
31st March, 31st March, 31st March,
2019
2020
2021
6

Nishi-Nippon Financial Holdings Group

31st March, 31st March, 31st March,
2019
2020
2021

INTEGRATED REPORT 2021

31st March, 31st March, 31st March,
2019
2020
2021

(as of 30th June, 2021)

Total :

174 executives(Nishi-Nippon City Bank)

266 cases /Total :
¥25.8 billion* As measured according to the standards on periodical
reports stipulated in the Act on the Rational Use of Energy(as of 31st March, 2021)(FY2020)

Vs. FY2013-46.6%

Nishi-Nippon Financial Holdings GroupINTEGRATED REPORT 2021

7

Strengths of the Nishi-Nippon Financial Holdings GroupA Solid Customer Base Built upon Mutual Trust■ JapanN umber of main customers(current as of 31st March, 2021)

Nishi-Nippon City Bank

22,497
Financial Service for the Benefitof Local Communities% of loans by prefecture
KyushuNishi-Nippon
City Bank

Fukuoka Prefecture

88.4% 78.5%% of loans to SMEs, etc.
Nishi-Nippon
City Bank

79.0%((current as of 31st March, 2021), excluding loans to the Ministry of Finance, Japan)

Under the belief that “Without regional development,
there will be no growth of the Group,” the NNFH Groupremains committed to developing and supporting local
businesses and industries.
The Nishi-Nippon City Bank preferentially caters to its
host region, with approximately 90% of its borrowers
based in the Kyushu region and 80% in Fukuoka
Prefecture, and approximately 80% of its borrowers are
SMEs or individuals. The Nishi-Nippon City Bank makes
a fair assessment of the feasibility of their businesses andgrowth potential and, if needed, suggests solutions andprovides support.
8

Nishi-Nippon Financial Holdings GroupINTEGRATED REPORT 2021

Extensive Global Network

Since its foundation in October 2004, The Nishi-Nippon
City Bank, Ltd., the primary subsidiary of Nishi-Nippon
Financial Holdings, Inc. (NNFH), has continuously
expanded its scale of operations. It now boasts total
assets of 11,789,400 million yen, a balance of deposits
and negotiable certificates of deposit (NCD) of 9,262,700
million yen, a balance of loans of 8,318,700 million yen,and 22,497 main customers (current as of 31st March,2021).
The Kyushu Card Co., Ltd., on the other hand, offers
full brand settlement services to support all majorinternational credit card brands, thus building one of thelargest customer bases among bank-affiliated credit card
issuers. It has 912,000 cardmembers, 55,000
merchants, and a transaction volume of 363,100 million
yen (current as of 31st March, 2021, except thetransaction volume, which is for the fiscal year ended
31st March, 2021).

Nishi-Nippon City Bank

locations*Bank of Nagasaki

locations

Nishi-Nippon City Tokai Tokyo Securities* The number does not include online branches andin-store branches.

5,745 cases / ¥132.6 billion

Recipients of The Excellent Executive Award(current as of 30th April, 2021)

Total :

174 executives

Having started as a financial service catering exclusively
to small- and medium-sized enterprises, the NNFH
Group maintains the unaltered DNA of developing SMEs.
The Nishi-Nippon City Bank remains committed tosupporting business startups in a bid to create industries
and jobs in the region; listening carefully to the needs ofmany SMEs, including fledgling businesses, they offer
finely-tuned support. For the fiscal year ended 31st
March, 2021, their support was extended to 5,745
startups and second startups, with the total amount ofloans reaching 132,600 million yen.
Since 1973, they have granted the Excellent Executive
Award to outstanding business managers who haveprovided distinguished services to the development of theregional economy via the Prize of Excellent Executive. A
total of 174 executives have been commended thus far.

(current as of 30th June, 2021)

3

Nishi-Nippon City Bank’s
overseas operations

Partner financial institutions

DNA of developing SMEs

Nishi-Nippon
City Bank

outlets■ Overseas

Partner institutions

 umber/amount of loans support startups
Nand second startups (the year ended March 2021)

163
23
16

9
2

in Asia

The NNFH Group has built an extensive network thatspans domestic and international locations.
In Japan, we maintain a network of sales locations forbanking and brokerage services in Fukuoka, Kyushu, tooffer services with a “human touch” that can only bedone through physical channels. Meanwhile, we are keen
to enhance convenience for customers by strengthening
the functions of our digital channels; The Nishi-Nippon
City Bank app, a smartphone app for retail customers
and the “NCB Business Station”, a platform for corporate
customers.
Overseas, we meet customers’ needs for theirbusiness in Asia and elsewhere at the Nishi-Nippon City
Bank’s three overseas operations in Shanghai, Hong
Kong, and Singapore and through collaboration with ourpartner institutions and experts in respective regions.

institutions

institutions

The Nishi-Nippon City Bank app(current as of 30th June, 2021)

Total :

950,000

downloads

A Group Capable of Offering
Comprehensive Financial Services

Collaboration with Partner Companies
and External Organizations

In October 2016, the Nishi-Nippon City Bank and six
other companies transformed themselves to establish aholding company (NNFH) to further bolster their collective
strengths. With seven subsidiaries offering a diverse
range of distinctive services in parallel, including banking,financial instruments exchange, and credit cards, under
its umbrella, the NNFH Group offers comprehensive
financial services. Implementing matrix management,
which oversees business activities by each Group
company in an integrated manner, the new Groupstructure makes it possible to offer a broad range offinancial services.
We are also focused on developing new businessdomains. Established in May 2020, NCB Venture CapitalCo., Ltd. formed NCB Venture Investment Limited
Partnership (a.k.a. NCB Venture Fund) in September
2020 to develop a platform for start-to-finish support oflocal businesses, from foundation to IPO.

The NNFH Group enjoys close ties with a group of
influential companies with a diverse array of businesses,
which allow us to respond to a broad spectrum ofcustomer needs through alliances with such external
partners, as well as our Group companies.
Among the partner companies are Kyushu Leasing
Service Co., Ltd., the leading company of its kind in the
Kyushu region listed on the first section of the Tokyo
Stock Exchange, Nishi-Nippon Yuukoh shoji, Inc. one of
the largest insurance agents for financial institutions in
the Kyushu region, and City Ascom Co., Ltd., which
provides a variety of nationwide IT solutions.
We are also proactive in forming open and innovative
partnerships and alliances with external companies,
universities, and others, with a view toward providing
diverse and advanced services and revitalizing the local
economy.

Nishi-Nippon Financial Holdings GroupINTEGRATED REPORT 2021

9

A Brief Sketch of our Operating Base
- An Unmatched Potential of Fukuoka, Kyushu -Fukuoka and other areas in the Kyushu Region, the NNFH Group’s main market, offer anumber of favorable business opportunities, including a strong economy and series of largescale urban redevelopment projects.

Kita-Kyushu City

Kita-Kyushu City’s approach to create “harmony
between industry and environment” has been met
with great acclaim both in Japan and abroad.

KyushuThe Kyushu region accounts forapprox. 10% of Japan’s GDP.

A robust economy of a size smaller only than thethree major metropolitan areas

Designated as an SDGs Model City by the OECD (2018)
Designated as an SDGs Future City and an Environmental Future
City by the Japanese government (2018)
Signed an Agreement on Cooperation for the Achievement of the SDGs with
Kita-Kyushu City

Kyushu maintains close mutual relationships
with fast-growing Asian countries.

In January 2020, the Nishi-Nippon City Bank and Kita-Kyushu City agreed to support regional businesses’
SDGs initiatives toward the shared target of achieving the SDGs.

Kyushu hosts a diverse range ofindustries.

Fukuoka City

Automobiles

Semiconductors

Agriculture

Unit production of automobiles in the
Kyushu region

National market share: 15% (2018)
Unit production of integrated circuits (ICs)in the Kyushu region

National market share: 28% (2018)
Agricultural production value in the
Kyushu region

National market share: 21% (2017)

Source: Kyushu Economy International, Kyushu Economic Research Center

Fukuoka Prefecture

Fukuoka Prefecture accounts
for 40+% of Kyushu’s GDP.
Fukuoka Prefecture driving the Kyushu economy
Of 370,000 SMEs based in the Kyushu region,

Fukuoka City’s population growth rate (7.1%*) is
the highest among major cities.
*Growth between 2010 and 2017

Fukuoka City plays host to universities and othereducational institutions
Fukuoka has the largest number of schools per 100,000 persons in Japan* (2015)* A comparison of the number of schools (universities, graduate schools, junior colleges, collegesof technology, and specialized training colleges) in the 21 large cities, including government
ordinance cities and special wards of Tokyo

Fukuoka City ranks highest among metropolitan
areas in Japan at 5.8%* in terms of the startup rate
* FY2019. National average: 4.9%
Source: Overview of Fukuoka City’s Economy, Economy, Tourism & Culture Bureau,
Fukuoka City
Project Names
Fukuoka City plays
host to many urban Hakata Connected
redevelopment
Tenjin Big Bang
projects.

Construction investment

Knock-on effect/year¥260.0 billion ¥500.0 billion¥290.0 billion ¥850.0 billion

130,000 (36%) are in Fukuoka.
Participating in the two largest
urban redevelopment projects inFukuoka City
The NNFH Group will participate in the
two largest urban re-development
projects in Fukuoka City, “Hakata
Connected” and “Tenjin Big Bang.”

See p.30

10

Nishi-Nippon Financial Holdings GroupINTEGRATED REPORT 2021

Designer’s rendition of “Hakata
Connected”

The first project of “Tenjin Big Bang”
Designer’s rendition of “Tenjin Business Center”

Nishi-Nippon Financial Holdings GroupINTEGRATED REPORT 2021

11

Message from the President

The Best Mix
Solutions to
Hideyuki Murakami
President
Nishi-Nippon Financial Holdings, Inc.

(Concurrently President of The Nishi-Nippon City Bank, Ltd.)

Introduction
Please allow me to begin by briefly introducing
myself. Effective 29th June 2021, I, Hideyuki
Murakami, assumed the presidency of Nishi-Nippon
Financial Holdings, Inc. (NNFH) and the Nishi-Nippon
City Bank, Ltd.
It gives me great pleasure to report on thebusiness performance of NNFH for the fiscal year
ended 31st March, 2021.
To soundly fulfill the duties and roles as a regional
financial group, I am determined to accelerate theimplementation of priority measures in my sincere
desire to develop the NNFH Group (the Group) andserve our host community of Fukuoka, Kyushu.

Making the True Worth of a Regional
Financial Institution Felt Amid the COVID19 PandemicFirst of all, I express my heartfelt sympathy to all
those affected by the novel coronavirus disease(COVID-19). As a responsible regional financial
institution, we at the NNFH Group have put our heartand soul into supporting customers in our hometerritory of Kyushu and elsewhere who have sufferedfrom the COVID-19 pandemic.
During these unusual times, we need to carefully
modify customer support according to relevant
priorities, such as the state of infection and theextent of the impact on each customer. Prioritizing
the well-being and protection of the lives of ourcustomers and employees, the NNFH Group began
by assisting customers in financing while working toprevent the further spread of infection. We thenshifted our focus to fact-finding interviews withcustomers, analyzing realities, and implementing theinitiatives based on resultant findings.

12

Nishi-Nippon Financial Holdings GroupINTEGRATED REPORT 2021

between Human Touch and Digital
Become a Leading Financial GroupBy virtue of this approach, we are among thelargest COVID-19-related loan providing banks inJapan, both in terms of the number of cases and thetotal amount loaned, which is a testament to thelevel of confidence our customers place in us. I feelheartened to reconfirm the relationship of deep trustwith small- and medium-sized enterprises (SMEs)
and retail customers, which the NNFH Group haslong fostered, and it is reassuring to know that our
officers and employees are highly motivated to fulfill
their duties with a sense of responsibility as afinancial institution catering to the customer needs ofour home region.
Moving on to the next step, we are currently
focusing on hands-on support, that is, joining ourcustomers in putting our heads together to consider
how their business models, which differ greatly
among different sectors and enterprises, can be
adjusted to fit into the world with and after COVID19. Corporate earnings are becoming polarized, as
seen in the “K-shaped” recovery from thedisturbances brought about by the COVID-19
pandemic. To corporate customers whose businessis thriving, we finance their capital expenditures oroffer solutions that may lead to the expansion of theirbusiness, such as M&As. To customers who arestruggling but are expected to recover once thepandemic is over, we offer financial support until they
recover. And to customers whose business modeland services demand a drastic change, we suggest
ways to improve their management.
COVID-19 vaccination is well underway in Japan,
but we still find it hard to shake off the mood of
uncertainty. We, everyone in the NNFH Group, willcontinue to innovate ideas and work up a sweat
together with our valued customers, thus strongly
underpinning regional economies.

NNFH Group’s Growth Strategy
In the Medium-Term Business Plan, “Leaping
Forward 2023 - Bringing Vibrancy to the Kyushu
Region and Beyond - (the MTBP),” whose
compilation I was involved in as an MTBP formulationcommittee chair, we made clear the course of actionthat our growth strategy would take, and it remains
unchanged. Let me take this opportunity to share thereview of the first year of the MTBP and walk you
through our management policy for fiscal 2021.

The First Year of the MTBP in Review
I think it is safe to say that we made a good start in
fiscal 2020, the first year of the MTBP.
If we look at the numbers, our net income
decreased by 2.1 billion yen year-on-year to 18.0
billion yen. This is primarily because of an increase incredit costs due to a conservative allowance for loan
losses, despite an increase in net interest income
and a decrease in expenses.
Looking back on fiscal 2020, our businessenvironment was tougher and more opaque thanusual, as COVID-19 infections exploded while thenegative interest rate policy continued adding
downward pressure on our earnings. Portions of our
fiscal 2020 financial results were affected by thesenegative impacts.
That said, looking ahead to our future businessperformance, we can find three positives. First, ourextended financing support for COVID-19-hit
customers has increased our lending, which in turnhas expanded our customer base. Second, ourexpenses dropped sharply due partly to our work
reform. And third, as we increased the allowance forlending, we were able to preemptively assuage asource of future concern in the form of credit costs
due to the pandemic and prepare for it reasonably
well.

Nishi-Nippon Financial Holdings GroupINTEGRATED REPORT 2021

13

Message from the President

Given the above, I must say that, despite thedecrease in consolidated net income by 2.1 billion
yen, it was a rather solid and substantial showing,
striking a good balance between offense anddefense.
As for specific measures taken, we accelerated
our initiatives for work reform and digital-related
measures for corporate and retail customers.

FY2021 Management Policy
The magnitude of the changes to society and theeconomy brought about by the COVID-19
pandemic—polarization of corporate earnings andacceleration of digitization, to name but a few—isboth expansive and substantial. Meanwhile, initiatives
for ESG and the SDGs have become elements thatno enterprise can do without in their pursuit ofbusiness.
Given these external circumstances, we havedeliberately chosen five priority areas for fiscal 2021,
the second year of the MTBP. They are: 1) Hands-on
support for corporate customers amid the COVID-19
pandemic, 2) Proper management of credit risks, 3)
Initiatives for ESG and the SDGs, 4) Digital strategy,
and 5) Work reform.
The first priority area of “Hands-on support forcorporate customers amid the COVID-19 pandemic”
is the one that puts to test the true worth of aregional bank. While many enterprises are being
forced to retool their business models as the
pandemic drags on, it will be increasingly importantto “stand close by customers to put our heads
together to work out solutions to their businesschallenges.” We will continue putting our heart andsoul into going above and beyond fulfilling the roles
regional banks are expected to play.
Next comes “Proper management of credit risks.”
In fiscal 2020, the Nishi-Nippon City Bank increased
its allowance for loan losses by conservatively
re-categorizing borrowers who are likely to be
adversely affected significantly by the ongoingpandemic. Since we had increased allowance forloan losses in preparation for the expected
repercussions of COVID-19 the year before, we
believe that we are reasonably well prepared for the
future. We will also have our branch offices and the
Headquarters check loan proposals from more than
one perspective to prevent any risk from being
overlooked, thus curbing a potential increase incredit costs into the future. Meanwhile, our branch
offices will investigate the real conditions of COVID-

14

Nishi-Nippon Financial Holdings GroupINTEGRATED REPORT 2021

19-affected customers to provide the support theyneed both proactively and continuously.
Now, I will move on to elaborate on the other threeareas of: 3) Initiatives for ESG and the SDGs, 4)Digital strategy, and 5) Work reform.

Initiatives for ESG and the SDGs
The SDGs have become a shared commitment of
the international community. What regional financial
institutions, including the NNFH Group, are expected
to do in this regard is, I believe, to proactively
address challenges facing the host community torealize a sustainable society.
The NNFH Group has long been proactive in adiverse range of community services, beyond thecultivation and support for local enterprises andindustries, as well as startups. ESG and the SDGs,
which are rapidly garnering interest, are, so to speak,our forte. The NNFH Group will remain committed to
ESG and the SDGs as we reorganize and improve
our extensive service menu. In April 2020, weestablished the specialized organization to promote
the SDGs under the Corporate Planning Division,
which takes the lead in orchestrating unified
initiatives throughout the Group.
Initiatives for the Environment and Climate
ChangeIn April 2021, the NNFH Group expressed its support
for the recommendations of the Task Force on
Climate-related Financial Disclosures (TCFD).
Among the ESG topics, carbon neutrality is one of
the greatest concerns for the world. Amidst thismajor trend, how the NNFH Group and its customers
in our host region go about achieving carbon
neutrality while driving business growth is crucially
important.
They say that there are two aspects to carbon
neutrality for enterprises. One is “defensive,” orreducing their greenhouse effect gases (GHGs)
emissions, and the other is “offensive,” namely,
representing various growth strategies, including thetransition to decarbonization. Going forward, there is
every reason to believe that a massive amount of
capital will be invested across the globe to achievecarbon neutrality, which should bring us a significant
business opportunity.
We are ready to support our customers both on
the “defensive” and “offensive” fronts. For example,
we can extend loans or offer consulting services tocustomers working on capex projects aimed at

reducing GHGs emissions by introducing solar
power generation, constructing a net zero energy
building (ZEB), or other means. We can also assist
customers in utilizing various subsidies and grants
from governments. We may need to offer an
integrated service between regional revitalization andthe cultivation of startups in addition to theaforementioned services.
Assisting customers’ transition to a carbon-neutral
business model in terms of both financing andconsulting—This is one of the priority measures wewill focus on in the second year of the MTBP and
beyond.
Initiatives to Create Jobs and Industries in the
RegionThe NNFH Group’s founding business is a financial
service provider exclusively for SMEs. Having
inherited the “DNA of developing SMEs” from ourformer entities, we will remain committed to creating
industries and jobs in the region through theprovision of finely-tuned support for startups and theutilization of funds.
The Nishi-Nippon City Bank maintains NCB
Startup Support Salons in the Fukuoka and KitaKyushu areas. There, a specialist team of BusinessStartup Consultants is available to provide fine-tuned
consultation services to answer questions customers
might have about their startup plans, such assupport for drawing up business plans and initialfunding. Given the COVID-19 pandemic, customers
may seek their service remotely over the internet.
We are also planning to open a new incubation(startup support) center within the Nishi-Nippon City
Bank Daimyo Branch building. A place for foundersof new businesses to network and find matches, the
new facility will be operated in an integrated mannerwith NCB Startup Support Salons.
With regard to the utilization of funds, in
September 2020, we set up the 2.0-billion-yen NCB
Venture Fund to invest in venture businesses andbusinesses marking their second foundation from a
broad range of sectors. In April 2021, we formed the
QB Fund No. 2, a vehicle to invest in universitylaunched venture businesses and the like, for 3.1
billion yen.
In addition, in September 2020, we organized an
open innovation business competition for startups.
After the final selection in March 2021, we
commended promising entrepreneurs.
We will forge ahead with these measures toextend our support to 13,000 startups, a target we

set for the ongoing MTBP (10,000 for the previous
MTBP).
Human Resources Strategy
I want the NNFH Group to be a diverse and vibrantorganization.
In a time of change like this, for us to live up to ourGroup Management Philosophy and “respond tochange and grow with our customers,” it is vital that
ours is a diverse and vibrant organization.
Employees with diverse backgrounds, regardlessof age, gender, and whether or not they started theircareer at the NNFH Group, all bring irreplaceable
opinions and ideas to raise the Group’s value throughtrial and error, taking on challenges without fear of
failure—This is the corporate culture I want to create
for our organization.
Speaking of mid-career recruitment, we are
aggressively hiring industry-ready specialists in digitaltechnology and technical and advanced consulting,
and we put 17 of such employees on our payroll infiscal 2020. Going forward, we will remain aggressive
in recruiting outstanding talents with broad
backgrounds.
For an enterprise to sustain its business growth, allemployees must be given equal opportunities toshine, regardless of their gender. The NNFH Group iscommitted to the empowerment of female
employees and the expansion of the work-lifebalance program, and it is with pleasure that I canreport that the number of female managers has
almost tripled over the last ten years.
For the development of young employees, tocoincide with the restructuring of the branch office
network this fiscal year, we have reengineered ourtraining program, in which a group of new recruits
follow a special curriculum to become professionallytrained from a long-term perspective.
We will continue to forge ahead with these
initiatives.

Digital Strategy
One of the basic strategies for the current MTBP
reads, “Providing customer-oriented ‘One to One
Solutions.’” This stems from our fundamental idea ofmaking the best use of digital technology wheretasks can be performed digitally while offering quality
solutions with a “human touch” in regard to technicaland advanced consultation services that only
humans can do.

Nishi-Nippon Financial Holdings GroupINTEGRATED REPORT 2021

15

Message from the President

Our basic strategy for digitalization takes the formof a “partnership model,” under which we offer
industry-leading digital services through partnerships
with third parties. Since its debut in March 2015, theNishi-Nippon City Bank app has constantly addedfunctions and services that increase convenience forretail customers. Topping 950,000 downloads(current as of 30th June, 2021), ours is one of themost downloaded regional bank apps in Japan. In
December 2020, we launched the “NCB Business
Station,” a platform for corporate customers thatoffers the first one-stop financial and non-financial
services from any regional bank in Kyushu.
In October 2020, we invited IT specialists fromexternal partner businesses to establish the Digital
Solutions Team. Working closely with Group
companies and partner businesses, we areproactively supporting corporate customers inaddressing the needs to digitalize their operations,and we are looking forward to undertaking projectsof a higher level. In the ongoing MTBP, we have laidout a plan to reallocate about 100 personnel to such
key fields as digitalization, corporate solutions, andmarket operation, and I am delighted to say that wehave almost accomplished the plan one year after its
implementation. We now have nearly 100 members
working in the digital field. We will continue topreferentially allocate human and monetary
resources to this tremendously important field.
I think that the goal of digital transformation (DX)
we should reach for is to create a new businessdomain or an innovative business model by analyzing
and utilizing data made available to us via digitaltechnology. We will make the most of the data wehave accumulated thus far and team up with external
partners to work on DX.
But this does not mean that the NNFH Group’s
ultimate forte is digital solutions. We do need digitalskills, but our greatest strength is, after all, a humantouch.
When the pandemic broke out, clerks at the NishiNippon City Bank voluntarily gave up holidays tosupport customers, despite a legitimate concern
about infection, out of their sincere wish to lend to
customers in need as quickly as possible. Their
dedication is, in my mind, an embodiment of humantouch. A leading financial group that is deeply
entrenched in its home territory and is growing withcustomers—This is the goal we should reach for, andI have no doubt whatsoever that we need a humantouch to make it a reality.

16

Nishi-Nippon Financial Holdings GroupINTEGRATED REPORT 2021

We will ceaselessly seek, through trial and error, tobring the best mix between digital technology andhuman touch to a higher dimension.

Work Reform
In April 2018, the Nishi-Nippon City Bank
commenced work reform, which is comprised of“work flow innovation,” “digital innovation,” and“resource innovation.”
I am delighted to say that these initiatives for work
reform are bearing much fruit. Instead of being amere reduction in administrative work or expenses, it
is safe to say that the work reform is bringing about amassive qualitative change to the entire organization
on a never-before scale in the history of the NishiNippon City Bank.
We are taking an integrated approach to “workflow innovation” and “digital innovation.” Bythoroughly streamlining the work flow, digitalizing
operations through the strategic use of tablet
computers, Robotic Process Automation (RPA,
automating business processes by software robots),and other techniques, and restructuring the branch
office network, we have drastically reviewed
operations at branch offices and the Headquarters,with the result that the work volume has been
reduced substantially; for example, time spent on
administrative work at branch offices has been
reduced by more than 30% since commencing work
reform.
For “resource innovation,” we are optimizing
branch functions and operations according to thescale and characteristics of the market andreallocating human resources to priority fields. Within
three years since April 2018, we have closed 15
branches and are beginning to see expected effects
in such forms as fulfillment of roles according to thequality of each branch. In April 2020, we abolished aregion-specific clerical position, with the result thatsome 800 clerks simultaneously changed their career
trajectory to the regional managerial track, thus
preparing ourselves to shift more persons to sales
operations.
Given a pickup in lending process efficiency, in
April 2021, we shifted from a three-division system ofsaving, lending, and sales to a two-division system of
in-store service and outside sales. We also
recalculated the required number of personnel at
each branch.

In forging ahead with work reform like this, we
make it a rule to listen to what persons in the field,
who have direct contact with customers, think andface in the form of challenges, so that we can feed
their input back to our reform. I am glad to reportthat communication between the Headquarters andbranch offices has been significantly improved
thanks to this constant effort.
In the second year of the MTBP, we will further
deepen such initiatives for work reform and roll themout throughout the NNFH Group.

In Conclusion
The operating environment that regional financial
institutions find themselves in remains difficult. With
the spread of COVID-19 and its impact on theJapanese and global economies, as well as Japan’s
declining and aging population with a low birthrate,
and the negative interest rate policy becoming along-term norm, challenges abound.
Meanwhile, on the back of the changes in work
styles and lifestyles, progress in digitalization, and thegrowing interest in ESG and the SDGs, customer
issues and needs are becoming increasingly diverse
and advanced.

Against this backdrop, while making constantefforts to adapt to such changes, the NNFH Group
provides customer-oriented “One to One Solutions”
in the forms of a human touch and digital solutions,thus contributing to the development of customers
and the regional community.
Aiming high and motivated by pride in ourservices, we are committed to becoming a leading
financial group through our ability to respond tochange and to grow with customers—To achieve thisgoal that remains unchanged, we are determined toaggressively respond to major shifts in society as weestablish a new business style for the NNFH Group.
Your continued support for and guidance in our
future endeavors is most appreciated.

Hideyuki Murakami
President
Nishi-Nippon Financial Holdings, Inc.

(Concurrently President of The Nishi-Nippon City Bank, Ltd.)

Nishi-Nippon Financial Holdings GroupINTEGRATED REPORT 2021

17

Value Creation Process/Medium-Term Business Plan
One to One Solutions

Group Management Philosophy

Providing products and services that perfectly match the needs

Aiming high and motivated by pride in our services, we are committed to becoming a leadingand problems of individual customers in order to enhancefinancial group through our ability to respond to change and to grow with our customers.

customer satisfaction (experience) and build long-lasting
business relationships- Creating Vibrancy to the Region and Beyond The NNFH Group will provide customer-oriented “One to One Solutions” via physical (“human touch”)
and digital contributions to the development of the host community and customers.

Host community
Creating greater Having young families (with or without children) settle down
vibrancy to
Fukuoka and other areas
Lively and vibrant city
Retailin the Kyushu Region
customers

Job creation
Creation/revitalization of local industries

Corporate customers
Support forbusiness
startups

Contributing
to the SDGs
Better corporate earnings

Higher income levels

More investments

Expanded consumption

Solving
regional
issuesRegional
development

Providing customer-oriented “One to One Solutions”
Human touchPartner companies(leasing, insurance, guarantee, systems)

Socialcontributions

DigitalBanking

Credit cards

Securities

Consultancy

External organizations

Open and innovative collaboration with partner companies and external organizations
Shareholders and investors

Group employees

Return to shareholders

HR development

Higher shareholder value

Greater job satisfaction

Medium-Term Business Plan Leaping Forward 2023 - Creating Vibrancy to the Region and Beyond Ba sic St rat egie s a nd P r ior ity Me a s ure s
Basic strategy
Priority
measures

Basic strategy
Priority
measures
Basic strategy

Priority
measures18

NNFH’s priorit y SDGs

1.
(1)
(2)
(3)
(4)

Demonstrating the Group’s collective strength with which to lead the regional development
Supporting business startups to create industries and jobs in the region
Showing leadership in regional development
Building a support structure to address regional issues
Social services designed to enhance regional appeals[Revitalizing the regional economy]

2.
(1)
(2)
(3)

Providing customer-oriented “One to One Solutions”
Building a structure for providing customer-oriented solutions
Providing solutions to corporate customers
Providing solutions to retail customers[Increasing customer satisfaction]

3.
(1)
(2)
(3)
(4)
(5)

Innovating resources for sustainable growth
Accelerating work reform
Strategically re-allocating management resources
Strengthening management of securities
Reinforcing forward-looking strategic investments
Developing HRs who challenge themselves and reforming the corporate culture[Solid management foundation]

Nishi-Nippon Financial Holdings GroupINTEGRATED REPORT 2021

Target management indices

Results for the year ended March 2020 Results for the year ended March 2021 Targets for the year ending March 2023
Consolidated net income*1
5% of non-interest-earnings*2
Consolidated OHR
Consolidated equity ratio¥20.2 billion¥18.0 billion¥21.5 billion

20.2%
69.8%
9.36%

18.5%
67.7%
9.49%

Approx.22%
60-69%
Approx.10%*1 Net income attributable to owners of parent*2 (Net fee and commission income + Net trading income + Net other operating income excluding net gains (losses) related to bonds and the cost of currency
swaps) / Gross operating profit (all consolidated numbers)
Nishi-Nippon Financial Holdings GroupINTEGRATED REPORT 2021

19

Growth Strategy Work reform

Growth Strategy Digital strategy

In April 2018, the Nishi-Nippon City Bank embarked on a series of work reforms, comprising the three pillars of work
flow innovation, digital innovation, and resource innovation. These attempts to carry out work reform have helped
reduce the amount of paperwork and expenses, and brought about qualitative changes in the entire organization on ascale that is arguably the largest in the company’s history by a wide margin.

In an effort to meet increasingly diversified and advanced customer needs, the NNFH Group provides customeroriented “One to One Solutions” in the forms of human touch and digital solutions, thus contributing to thedevelopment of customers and the regional community.

A general picture of work reform

Given the ongoing digitalization of banking and the resultant decline in customer traffic, we will expand contact with customers
by enhancing the functions of digital channels (PCs, smartphones, etc.), while at the same time strengthening our consulting
function (discovering customers’ issues and true needs and providing solutions) through physical channels (clerks, branches).

Three pillars of work reform
work flow innovation

digital innovation

resource innovation
Reviewing theconfiguration of branches
according to market needs

Utilizing ICT(RPA, tablet computers, etc.)

Thoroughly streamlining work flow

Streamlining
labor atbranch offices

What we have achieved (April 2018–March 2021)
Reducing the amount of paperwork, branch offices, expenses, etc.
Paperwork at HQ
and branches

Number of
branches-811

Number of
ATMs

-15

human-minutes-300

Reducing expenses

Re-allocating personnel to priority fields
Corporate
solutionsfield

Marketoperation
field

Group
companies,etc.

(more than 1.5 billion yen was cut due to work reform)

Factors for a reduction in expenses(Nishi-Nippon City Bank)

71.0 work reform-0.9(billion yen)

Benefits of work reform: -1.5
otherfactors work reform

-0.2

+150

-0.6

Labor costs

-1.1

about

66.8

-2.5
-3.1

72.0%

OHR

-3.5%pt

120

about

270

Upgrading the branch network toenhance consulting service

Non-personnel
expenses and taxes

the year ended
March, 2018

current as of March 2021
Approx.

other
factors

the year ended
March, 2021

 imultaneous switch from region-specific clericalS
positions to a regional managerial track (April 2020)● Introducing a two-division system, establishing a
special training program for new recruits (April 2021)

68.5%

Reinforcing thesales structure

Changes in the environment

Diversification of lifestyles / Progress in digitalization / Decline in visitors and ATM users

Customer needs

Warm and reliable persons to consult / Advanced expertise / Convenient, hassle-free, pleasant, comfortable“Good advisers for customers,” who, throughdialogues, get to know customers better toaddress their issues and true needs“Places specializing in consulting service,” where
technical and advanced solutions are offeredBusiness that takes advantagesof digital technology

Physicalchannels

Digitalchannels(clerks, branches) (PCs, smartphones,
and ATMs)

Easy 24/7 access, completing transactions
promptly
Discovering customer needs to guide them tophysical channels

Provision of customer-oriented “One to One Solutions”
Physical channels (clerks, branches)

Headcount for the priority fields above
current as of March 2018

Roles of each channel in meeting diverse customer needs

Consultancy only
humans can do

Building an organization with a trend of increasing productivity

Digitalfield

Providing customer-oriented “One to One Solutions”

Increasing the job satisfactionof individual employees

Improving both quality and quantity of dialogues with customers byincreasing work efficiency to save time and developing HRs
Increasing efficiency in office work at
branch offices by accelerating work reform
HR development

Strengthening the branch
office support structure

Human
touch

Reshuffling positions across job categories
to allocate more persons to sales

Sharing info and developing data foundation

Digital channels (PCs, smartphones, and ATMs)
Increase customer contact by enhancing the convenience of digital channels
and their service menus, thus sending more customers to physical channels
Expanding service menus for the Nishi-Nippon City Bank app

Our goals

DigitalIntroducing a platform for corporate customers
Introducing automating marketing

Rolling out work
reform initiatives
throughout
the Group

20

Nishi-Nippon Financial Holdings Group

Enhancing theearnings power andproductivity of the
NNFH GroupINTEGRATED REPORT 2021

Making branch
offices a hub for
consulting services

A Vehicle to Promote the Digital Strategy
In April 2020, the Nishi-Nippon City Bank set up the Digital Strategy Division, which specializes in flexibly planning financial services
that leverage digital technology to enhance customers’ convenience. In addition to the four areas of activities, namely, digitalizationof customer transactions, utilization of customer data, promotion of open innovation, and digitalization of the sales process, this newdivision is focused on the recruitment and development of human resources by, for example, putting more effort into hiring midcareer specialists.
Nishi-Nippon Financial Holdings GroupINTEGRATED REPORT 2021

21

Growth Strategy Initiatives for ESG and the SDGs
With the firm belief that “Without regional development, there will be no growth of the Group,” the NNFH Group has dedicated itself
to wide-ranging community activities as we offer solutions that address regional challenges through our primary services of support
for startups and funding environmental projects.
In the current Medium-Term Business Plan, “Leaping Forward 2023 - Creating Vibrancy to the Region and Beyond -,” which was
kicked off in April 2020, we prioritize Environmental, Social, and Governance (ESG) criteria and the Sustainable Development Goals(SDGs) in our management strategies and determine the NNFH’s priority SDGs. At the same time, we established the specializedorganization to promote the SDGs, which orchestrates diverse initiatives taken in this regard within the Group.
Then in April 2021, the NNFH Group stipulated its policies concerning ESG and the SDGs in the form of the Nishi-Nippon
Financial Holdings Group Sustainability Declaration.
Going forward, the NNFH Group will continue to bolster its ESG/SDGs initiatives in ways exclusive to regional financial institutions.

Selected measures

Initiatives for theEnvironment andClimate Change

Corresponding SDGs

Support for the TCFD Recommendations and relevant initiatives
Eco-Friendly Branches
Committed to Beautification of the Local Environment
Participation in environmental initiatives
See p.24 – p.25

Initiatives for
ESG FinanceSupporting corporate customers’ ESG/SDGs initiatives
Supporting retail customers’ ESG/SDGs initiatives
ESG investment by the NNFH GroupSee p.26– p.27

Group Management Philosophy

Efforts to create
jobs andindustries in theregionFinely-tuned startup support
Business support through funds
Solutions to labor-related challenges facing local companies
Participation in regional development projects
See p.28 – p.30

Aiming high and motivated by pride in our services, we arecommitted to becoming a leading financial group through our ability
to respond to change and to grow with our customers.
The Nishi-Nippon Financial Holdings Group Sustainability Declaration

Guided by the Group Management Philosophy, we at the NNFH
Group aim to develop the regional economy and enhance ourPartnership with
the Local
Community

Multifaceted
Programs
Benefitting the
Local Community

Collaborating with Local Governments
Collaborating with Universities
See p.31

Commendation
Provision of economic/financial information and finance education
Support for customers’ efforts to achieve the SDGs
Cultural/artistic activities
See p.31

enterprise value, while at the same time contributing to therealization of a sustainable society.
NNFH ’s priority S D G s

Human resource
strategy

HR development
Diversity & Inclusion
Work style reform
See p.32 – p.34

22

Nishi-Nippon Financial Holdings GroupINTEGRATED REPORT 2021

Nishi-Nippon Financial Holdings GroupINTEGRATED REPORT 2021

23

Growth Strategy Initiatives for ESG and the SDGs

Initiatives for the Environment and Climate Change

Risks Associated with Climate Change
Climate Change Risks

Support for the TCFD Recommendations and relevant initiatives
In 2009, the NNFH Group established the specialized organization related to the ennironment at its subsidiary, the Nishi-Nippon City Bank
(which was restructured into the specialized organization to promote the SDGs, the NNFH, in April 2020), to take a variety of environmental
measures, including renovation of our branches to fully equip them with eco-friendly features and underwriting of private placement bonds.
Recent years have seen abnormal weather causing increasingly frequent damage throughout the world on an unprecedented scale.
In our hometown Fukuoka, Kyushu, too, we have had major disasters, including the Northern Kyushu floods in July 2017 and anotherlocalized downpour in July 2020, which left us with serious damage. Without a doubt, climate control is one of the major challenges
facing our community.
It was against this background that in April 2021, the NNFH Group declared its support for the Recommendations of the Task Force on
Climate-related Financial Disclosures (TCFD)* with the recognition that it is important to assess and prepare for the impact that climaterelated risks and opportunities may have on its business. Going forward, we will make arrangements and disclose relevant information inaccordance with the TCFD Recommendations while supporting our customers in dealing with the challenges posed by climate change.
* A set of recommendations that the TCFD, created by the Financial Stability Board (FSB), published in June 2017 to help public companies and otherorganizations disclose the impact of climate-related risks and opportunities to investors and other stakeholders.

Governance
The NNFH Group ensures that its policies and important matters concerning sustainability, including climate change, are reflected in its
management strategies and risk management after deliberations at the Executive Committee chaired by the President and reported to
the Board of Directors as needed. Day-to-day operations are left to central supervision by the specialized organization to promote theSDGs of the Corporate Planning Division, which monitors the status of the measures taken by the NNFH Group and follows uponsuch efforts.
With regard to the fulfillment of the TCFD Recommendations, we have launched a cross-divisional project team to proceed witharrangements and disclosures in compliance with them.

Changes in the world

Physical risks

Wind and flood
damage due totyphoons, torrential
rains, etc.

Transition risks

Tightening of environmental
regulations
Development ofinnovative technologies

The NNFH Group has made it clear that it “aims to develop the regional economy and enhance its enterprise value while contributing
to the realization of a sustainable society” in its Group Sustainability Declaration, which describes its policies on its initiatives for ESG
and the SDGs. Accordingly, the Group has selected “Goal 13: Take urgent action to combat climate change and its impacts” as oneof its priority SDGs, thus including climate control in its management imperatives and deploying a variety of environmental-related
measures.
We will intensify our support for customers’ initiatives to deal with climate change, including transitioning to de-carbonized
operations and other capex projects designed to reduce greenhouse gas (GHG) emissions.

Risk category

Operational Risk
Damage to Group companies’ sales offices(Tangible asset risk)
Degradation of the value of assets pledged by investees/borrowers Credit Risk
Loss generated by the shutdown of operations by investees/borrowers Credit Risk
Confusion in the financial market due to serious/extensive damage Market Risk
Loss generated by rapid changes in policies/regulations on
Credit Risk
the part of investees/borrowers
Degradation of asset value and/or loss generated on the part of investees/borrowers
Credit Risk
at the time of rapid structural changes brought about by technological innovation

Indices and Targets
The NNFH Group works to monitor its CO2 emissions from business activities and to reduce its environmental load. In fiscal 2020,
the Nishi-Nippon City Bank successfully reduced its CO2 emissions* by 46.6% compared to fiscal 2013.
* As measured according to the standards on periodical reports stipulated in the Act on the Rational Use of Energy

CO2 Emissions (Nishi-Nippon City Bank)(t-CO2)20,00018,13815,00027.9%

10,000Strategies

Descriptions of risks

13,0645,000
0FY201346.7%

FY2018

46.6%

9,664

9,670

FY2019FY2020

Selected Environmental Measures

Products and services
offered to customers

Group’s activitiesU nderwriting environmental private placement bondsU nderwriting “Green Bonds”
F inancing renewable energy power generation businessO ffering preferential interest rates to eco-friendly equipment funds (business loans, housing
mortgages)S ale of ESG/SDGs-related investment trust…etc.
Investing in SDGs bonds (social bonds, green bonds, etc.)P articipating in external initiatives (Principles for Financial Action for the 21st Century)R enovating branches into eco-friendly onesP
 romoting energy-saving initiatives (closing part of ATMs during certain blocks of time, proper
control of air-conditioners, etc.)P aperless campaignC ommitted to Beautification of the Local Environment…etc.

Impact Climate Change Has on the NNFH Group’s Management
The NNFH will analyze based on some future scenarios the risks and opportunities that may come about through climate change
and impact our management over the mid- and long-term. We will also implement measures based on the findings of the analysis.

Eco-Friendly Branches
The Nishi-Nippon City Bank is renovating branches to make them fully equipped with ecofriendly features, such as solar power generation, rainwater utilization, LED lighting, andenergy-saving air-conditioning (26 branches renovated current as of 31st March, 2021).

Committed to Beautification of the Local Environment
The NNFH Group is an active participant in environment beautification activities, including
Fukuoka City’s Flower Town one person one flower movement and volunteer-clean-up ineach community.

Nishi-Nippon City Bank Shime Branch(renovated in July 2020)

Participation in environmental initiatives

Risk Management
The NNFH is aware of the fact that physical risks and transition risks attributable to climate change will have an impact on the NNFH
Group’s business administration and financial position. We will thus continue to monitor and analyze the possible impacts arisingfrom the risks associated with climate change and build a framework for controlling such risks.

24

Nishi-Nippon Financial Holdings GroupINTEGRATED REPORT 2021

(Nishi-Nippon Financial Holdings)(Nishi-Nippon City Bank)

Nishi-Nippon Financial Holdings GroupINTEGRATED REPORT 2021

25

Growth Strategy Initiatives for ESG and the SDGs

Initiatives for ESG FinanceSupporting corporate customer’s ESG/SDGs initiatives
Implementing Feasibility Studies That Take ESG Factors into Account
In October 2019, the Nishi-Nippon City Bank was selected as a recipient of support under the framework of the Project to Promote
ESG Finance in Each Region*, which was publicly offered by the Ministry of the Environment, Government of Japan (MOE).
In April 2020, we incorporated ESG elements into feasibility study sheets, a tool for communicating with business partners, bytapping into the knowledge and know-how gained throughsupport from the project.
* With the purpose of stimulating ESG regional finance, the project isdesigned to support recipient organizations in conducting market surveys
to discover and shed light on the future potential and profitability ofpromising green projects and other initiatives in their region, and conducting
a feasibility study by taking into account ESG elements and building its
process. (MOE)

SDGs Private Placement Bonds
Nishi-Nippon City Bank handles SDGs Private Placement Bonds in support of its customers’
endeavors to achieve the SDGs. Based on survey findings by a third-party organization (Kyushu
Economic Research Center), Nishi-Nippon City Bank grants an SDGs Certificate to issuers of thebonds.

Balance of loans
outstanding(current as of March 2021)(First case underwritten in September 2006) A total of ¥2.05 billion in bonds underwritten for 10 cases current as of 31st March, 2021

Environment Private
Placement Bonds

For companies who have received certification, etc. from national/local governments or otherwise
for their eco-friendly management(First case underwritten in February 2008) A total of ¥5.10 billion in bonds underwritten for 45 cases current as of 31st March, 2021

Donation-Type Bonds

The Nishi-Nippon City Bank offers financing to renewable energy power generation businesses that help to reduce GHGs, including
solar power generation and wind power generation.

266 cases¥25.86 billion

For companies who have received certification, etc. from national/local governments or otherwise
CSR
their CSR activities*
Private Placement Bonds for* Compliance, regional contributions, environmental friendliness, etc.

“Tsunagu Kokoro” Private Placement Bonds in
Support of Local Community

Donations are offered under the issuer’s name or joint name for the purchase ofbooks, sports gear, etc. for local schools(First case underwritten in March 2017)

A total of ¥11.97 billion in bonds underwritten for 129 cases current as of 31st March, 2021

“Kyushu History” Private Placement Bonds
in Support of UNESCO World Heritage Sites

Donations are offered under the issuer’s name or joint name to management
bodies (municipal governments, etc.) of UNESCO World Heritage sites in
Kyushu(First case underwritten in October 2018)

Financing Renewable Energy Power Generation Businesses

Cumulative total underwritten

A total of ¥200 million in bonds underwritten for 2 cases current as of 31st March, 2021

“Kibo-no-Wa” Private Placement
Bonds in Support of Children’s
Cafeterias

Donations are offered under the issuer’s name or joint name to operators of
makeshift eateries for disadvantaged children“Kansha-no-Kokoro” Private
Placement Bonds in Support ofCombat against COVID-19

Donations are offered under the issuer’s name or joint name to COVID-19
relief funds, etc.

A total of ¥4.87 billion in bonds underwritten for 65 cases current as of 31st March, 2021

(First case underwritten in October 2019)

A total of ¥1.67 billion in bonds underwritten for 15 cases current as of 31st March, 2021

(First case underwritten in August 2020)

Requesting an
SDGs survey

The Nishi-Nippon
City Bank, Ltd.
Issuing
privateplacementbonds

SDGs Certificate

Issuers¥55.2 billion

Surveyfindings

Kyushu Economic
Research Center

Part of theissuance commission(equivalent to 0.3%of the amountissued) is donated

COVID-19
relief funds

SDGs Certificate(current as of March 2021)

Supporting retail customer’s ESG/SDGs initiatives

ESG Investment by the NNFH Group

Sales of ESG/SDGs-Related Investment Trust

Investment in SDGs Bonds

The NNFH Group provides its customers with opportunities to make
ESG investments through sales of ESG/SDGs-related investment
trust.

Sales figures thus far(Group total)¥12.1 billion(the year ended March 2021)

26

Nishi-Nippon Financial Holdings GroupINTEGRATED REPORT 2021

As part of its investment activities designed to ameliorate
environmental and social challenges, the Nishi-Nippon City Bank
invests in various SDGs bonds, including Japan Student
Support Bonds, social bonds issued by the Japan Student
Services Organization (JASSO) and green bonds issued by
Sumitomo Mitsui Trust Bank, Limited.

Investment records¥13.4 billion(the year ended March 2021)

Nishi-Nippon Financial Holdings GroupINTEGRATED REPORT 2021

27

Growth Strategy Initiatives for ESG and the SDGs

Efforts to create jobs and industries in the region
The NNFH Group started as a financial institution specializing in financial services for SMEs. The NNFH Group is making
active contributions to the creation of jobs and industries in the region by providing funds and consulting services toventure businesses before and after their foundation by giving full play to the unaltered DNA of developing SMEs.

Issues and troubles for founders
When making a business plan

At the foundation

After starting up

Managerial knowledge in general(legal, labor, accounting, etc.)

Fundraising
Knowledge required for business management

Finding customers and sales channels
Fundraising
Recruitment

Finely-tuned startup support
NCB Startup Support Salons
At the NCB Startup Support Salons in Fukuoka City and Kita-Kyushu City
(opened in February 2016 and November 2017, respectively), the Nishi-Nippon
City Bank offers consulting services on everything to do with starting a business,
including support for pre-startup business plan formulation, financing at the timeof startup, post-startup management guidance/consultation, and organization ofseminars. The salons also provide entrepreneurs with opportunities to networkwith their peers.
At these salons, customers can avail themselves of in-depth consultations with
consultants specializing in startup support. Given the spread of COVID-19, online
consultation services are also available.

10,323 visitors in total(current as of 31st March,2021)

Nishi-Nippon
City BankJapan FinanceCorporation

Credit Guarantee
Corporation

Boosting the startup support function
New

New

QB
Fund*
No. 2

New

NCB
VentureFund

Platform forcorporate
customers

Incubation
facilityNew
Supportprograms

Leasing

Loans tosupportstartups

NCB
Startup Support
SalonsFunding function

Drawing up of startup prospectuses
Startup funds
Following up with founders
Follow-up seminars

NNFH Business Competition 2020 - OPEN INNVOATION HUB -Existing programs
QB
Fund*
No. 1

NCB Research &Consulting

NNFH organized an open innovation business competition for startups. In September 2020, there were a total of 68 entrants, and ashortlist of 10 contestants who survived the first two rounds of screening gave presentations at the final round in March 2021. The
first and second most outstanding contestants were commended.

Startupcounseling

A Platform for Corporate Customers
In December 2020, the Nishi-Nippon City Bank opened the “NCB Business Station”, a platform for corporate customers.
A one-stop service providing financial and non-financial trading for corporate customers, this online platform also provides
information that helps to assist customers with their main businesses in their fledgling years, including business matching service,
management information, and subsidies information.

Consulting service* Offering end-to-end support for universities’ technological seeds from the pre-foundation days to the growth phase

Business support through funds
Support Extended to Startups and Second Startups* : Number of Cases*(Nishi-Nippon City Bank)
1

+30%

2,056

2,214

FY2015FY20162,804

FY2017FY2018

KPI: Approx. 13,000 borrowers within 3 years

5,745

Approx. 10,000 borrowers

3,835

NCB Venture Fund

2

4,252

FY2019Nishi-Nippon Financial Holdings GroupINTEGRATED REPORT 2021

Investee: Kyulux, Inc.
A venture business launched by Kyushu
University. Developing novel organic
electroluminescent materials that achieve efficient
light emission without using rare metals (massproduction scheduled to start in fiscal 2022).

QB Fund No. 2

FY2020*1 Definition of “second startup”- Commencement of a new business by a successor, etc. to an existing company- Commencement of a new business by a manager, etc. who has transferred (handed over) an existing business- Restructuring of a company to make a drastic business turnaround (change of business)*2 Extended to business within five years of startup or second startup

28

NCB Venture Capital Co., Ltd., a wholly-owned subsidiary of the Nishi-Nippon
City Bank, formed the NCB Venture Fund (total value 2.0 billion yen) in
September 2020 to meet the diverse financing needs of foundation days. By
tapping into the know-how that its parent company has cultivated through the
management of funds, NCB Venture Capital is poised to offer hands-on support
to venture businesses.

FY2021

FY2022In April 2021, the Nishi-Nippon City Bank teamed up with NCB Venture Capital Co., Ltd., and QB Capital, LLC to form the QB No. 2
Investment Limited Partnership (a.k.a. QB Fund No. 2) in a bid to support university-launched venture businesses (total value: 3.1
billion yen). This fund is a successor to QB Fund No. 1, which was jointly formed with QB Capital in September 2015 (total amountinvested: 2.17 billion yen). The QB Fund No. 2 aims to raise at least 5.0 billion yen.

Solutions to labor-related challenges facing local companies
Entry into Staffing Agency Business
In April 2019, NCB Research & Consulting Co., Ltd. gained a license for a fee-charging employment placement business to become
the first Kyushu-based regional bank group to start a staffing agency business. The move is out of a desire to help local companies
to solve their challenges concerning human resources. Through alliances with external staffing agencies, they are fulfilling
customers’ diverse staffing demands.
Nishi-Nippon Financial Holdings GroupINTEGRATED REPORT 2021

29

Growth Strategy Initiatives for ESG and the SDGs

Partnership with the Local Community

Participation in regional development projects
The NNFH Group spares no effort in bringing liveliness and vibrancy to the region by playing a leading role in development projects
in the Kyushu region, including the two largest urban redevelopment projects in Fukuoka City, “Hakata Connected” and “Tenjin Big
Bang,” which are detailed below.

The NNFH Group has signed the comprehensive agreement on regional revitalization with 13 local governments and an individual
agreement on solutions to issues each of the eight local governments has (the SDGs, internationalization, tourism promotion, etc.)
as part of its commitment to regional revitalization.
Helping Local Public Bodies to Go Cashless
The Nishi-Nippon City Bank is advocating that local public bodies introduce a taxes and utility charges settlement service using
smartphone apps offered by PayPay and LINE Pay, in support of their move toward cashless payments that are non-face-to-faceand contactless, the demand for which is growing amid the pandemic. (As of this writing, 14 local public organizations haveintroduced the service.)
The Kyushu Card Co., Ltd. has signed a membership contract with 59 local public bodies in Fukuoka Prefecture and elsewhere,
assisting them in their efforts to introduce credit card payments of hometown tax, municipal tax, and other public charges.

Hakata Connected
In December 2019, the Nishi-Nippon City Bank decided to launch a chain of redevelopment,
which includes rebuilding its HQ Main Building, HQ Annex, and Administrative HQ Buildingthat have become obsolete, in the hopes that doing so will catalyze “Hakata Connected.”
After the demolition of the HQ Main Building started in June 2020, the project has been
almost in line with plans. Construction of the new HQ Building is due to start sometime infiscal 2022 for scheduled completion in fiscal 2025.
To reduce the environmental load by introducing low-carbon technology, the new HQ
Building will feature a variety of the latest environmental equipment (natural draft, highperformance glass, lighting control system, use of recycled water, etc.), as well as
environmentally friendly equipment. Furthermore, for the sake of business continuity planning(BCP), the new HQ Building will come with a base-isolation structure and an emergency powersystem to offer shelter to customers and community members in the wake of natural disasters.
Project area: Within a 500m radius of Hakata Station (approx. 80 ha)¥260.0 billion
Knock-on effect/year............... ¥500.0 billion
Total floor area................................ x1.5 times
Jobs................................................ x1.6 times
Construction investment...........

Nishi-Nippon City Bank
HQ Annex

Nishi-Nippon
City Bank
HQ Main Bldg.

Designer’s rendition of “Hakata Connected”

Econom ic effectNishi-Nippon City Bank
Administrative HQ Bldg.

A chain of
re-development
HakataStationThe Nishi-Nippon City Bank is working on a chainof re-development, which includes rebuilding its HQ- A catalyst for Hakata Connected

Source: Fukuoka City

The NNFH Group has concluded the agreement on industry-university collaboration and cooperation with 10 local universities toorganize various programs that contribute to the regional development and the advancement of learning.
As part of its community service, in fiscal 2020 the Nishi-Nippon City Bank sent its officers and clerks to universities to provide
students with opportunities to gain practical financial knowledge through lectures.

Multifaceted Programs Benefitting the Local Community
Commendation
The Excellent Executive Award
Since January 1973, the Prize of Excellent Executive (Chairman: Isao Kubota) has commended excellent executives who have madeoutstanding achievements in the management and/or technology of SMEs in the Kyushu region and Yamaguchi Prefecture, thus
contributing to the development of the regional economy.
A total of 174 executives have been commended current as of 30th April, 2021.

The Asian Contribution Award / The Asian Youth Award
In order to facilitate international mutual understanding, the Nishi-Nippon Foundation (Chairman: Isao Kubota) has annuallycommended groups, individuals, elementary and junior high schools, and regional groups of children who are working toward thedevelopment of Asian countries and the international exchange between them. Those to be commended are picked from the
Kyushu Region and Okinawa and Yamaguchi Prefectures, and the winners of the awards either receive The Asian Contribution
Award (held 22 times current as of 31st March, 2021, since March 2000) or The Asian Youth Award (held 16 times current as of
31st March, 2021, since March 2006).

Provision of economic/financial information and finance education

For the first project of “Tenjin Big Bang,” the Nishi-Nippon City Bank has been appointed as themain bank for the “Tenjin Business Center,” the first office building in the Kyushu region tofeature cutting-edge anti-infection facilities (developer: Fukuoka Jisho Co., Ltd., scheduled
completion: September 2021). Their Tenjin Branch and the Fukuoka Branch of Nishi-Nippon
City Tokai Tokyo Securities Co., Ltd. are due to move into the brand new building as a tenant.

Lectures on economic matters

Designer’s rendition of “Tenjin Business Center”
Project area:
Within a 500m radius of Tenjin
Intersection (approx. 80 ha)
Na
ka
su
St Ka
at wa
io
n bat
a

Econom ic effectTenjin Business Center(provisional name)nStatioTenjinThe Nishi-Nippon City Bank is involved in the “Tenjin
Business Center” (provisional name), the first project ofTenjin Big Bang, as the main bank of the project’s developer.

Nishi-Nippon Financial Holdings Group

Collaborating with Universities* The Asian Kids Award has been renamed The Asian Youth Award.

Tenjin Big Bang

30

Collaborating with Local Governments
Agreement with Local Public Organizations

INTEGRATED REPORT 2021

¥290.0 billion
Knock-on effect/year............... ¥850.0 billion
Total floor area ............................... x1.7 times
Jobs................................................ x2.4 times
Construction investment..........

Source: Fukuoka City

The Nishi-Nippon City Bank has hosted this popular annual talk by its Chairman Isao Kubota, to share the latest financial andeconomic information that customers may find useful in steering their businesses or developing a business outlook for the New
Year. Since January 2008, a total of 14 sessions have been held current as of 31st March, 2021.
To prevent the further spread of COVID-19, the January 2021 lecture was given in a hybrid model, which allowed visitors toattend either physically or virtually.

Finance Literacy Education
In August 2007, the Nishi-Nippon City Bank began organizing a series of workshops on financial literacy designed to help young
citizens to deepen their financial Knowledge.
The August 2020 session was given via a webinar to prevent the further spread of COVID-19.

Support for customer’s efforts to achieve the SDGs
colabora
In June 2020, the Nishi-Nippon City Bank launched “colabora”, a website focusing on the SDGs for regional revitalization.
Other than the NNFH Group’s initiatives to achieve the SDGs, this special website features articles on local companies’ efforts toachieve the SDGs and local governments’ initiatives for regional revitalization (a total of 19 articles were uploaded by the end of
March 2021).

Cultural/artistic activities
Music Festival
The Nishi-Nippon City Bank and the Fukuoka Cultural Foundation (Chairman: Isao Kubota) have co-hosted the year-end since
December 2014 to invite the audience for the city to be more festive and alive with music (held 6 times current as of 31st March,2021).
Nishi-Nippon Financial Holdings GroupINTEGRATED REPORT 2021

31

Growth Strategy Initiatives for ESG and the SDGs

Human resource strategy

Development of Specialists
In the current Medium-Term Business Plan, “Leaping Forward 2023 - Creating Vibrancy
to the Region and Beyond -,” we made it clear that we provide customer-oriented “Oneto One Solutions” in the forms of human touch and digital solutions.
To this end, we are systematically developing specialists in digital technology as well as
human resources capable of offering technical and advanced consultation services.
In addition to training such personnel in-house, we remain aggressive in mid-career
hiring to seek persons who can add immediate value to the company.
In fiscal 2020, the Nishi-Nippon City Bank placed 17 such specialists on its payroll.

The NNFH Group strives to foster financial professionals full of humanitarianism and expert knowledge by developing trustworthy
human resources, enhancing organizational resilience, and fostering a corporate culture that supports the growth of its people.

HR developmentH uman Resource Development Programsfor Each Job ClassNew Graduates
At the Nishi-Nippon City Bank, all new graduates undergo initial
in-service training at the Kokoro-kan to take their first step on
their career path. As they ready themselves for their career andfoster camaraderie with peers, they learn the fundamental
knowledge required to take the lead in shaping the future of thebank.
After the initial in-service training, the trainees take both offthe-job training outside of their workplaces and on-the-job
training (OJT), including coaching at their branches, to establish
themselves as full-fledged salespersons two years later.
For the OJT at branches, they are taken care of by “buddies”
who assist them in acquiring the knowledge they need topursue their career and give them advice on their private life,and by coaches, who provide them with professional guidance.
The trainees are also given numerous opportunities to selfstudy, such as holiday seminars and a home learning support
system.

32

Number of Certified Skilled Professional of
Financial Planning (grade of 3 or higher)

3,684

34

3,125
17
7

the end of March2019
FY2021 Initial In-service Training

Middle-Ranking Employees
At the midpoint in their career, they take follow-up training
sessions or are put on temporary assignments to learn about
advanced solutions that are required to provide products andservices tailored to the needs of each customer.
Depending on their vocational aptitude and preferences, they
may be assigned to the planning department or IT/digitaldepartment of any division, where they may gain greater job
satisfaction, which also helps to enhance the organizational
strength of the NNFH Group.

Managerial candidates
Managerial candidates undergo the most rigorous assessments
to determine if they have the aptitudes and skills required ofmanagers.
Upon promotion, they are required to take periodical
management seminars and training sessions for which outside
experts are invited, so that they can continue to hone their skills
as managers.

Experienced employees
Amid the drastic changes in the environment that financial
institutions find themselves in, experienced employees areencouraged to change their career for the purposes ofmaintaining/increasing job satisfaction for all employees,
prompting a generational shift, and making better use of theirplentiful knowledge and experiences.

INTEGRATED REPORT 2021

*The total number of specialists hired mid-career after thefoundation of the Nishi-Nippon City Bank in October 2004
(excluding new recruits)

3,392

Younger Employees
Employees will take more practical training sessions from their
third year on, alternating between OJT and classroom lectures.
They are also given opportunities to have dialogues with theirsupervisors to give shape to the career path they desire basedon their vocational aptitude and preferences.

Nishi-Nippon Financial Holdings Group

Mid-Career Hiring

the end of March2020

the end of March2021

the end of March2019

the end of March2020

the end of March
2021

The Kokoro-kan—Where Human Resources Richin Humanity are Fostered
Built to “develop trustworthy human resources,” the Kokoro-kan is our humanresource training center (12 floors above ground and one basement floor), whichhouses training facilities, the bachelors’ dormitory, a gymnasium, and cultural
facilities.
Some of the latest facilities include the main hall with a capacity of 300 persons,a mock branch, and the computer and terminal training room. Employees who
forge the future of the bank may also self-study in a learning room.
They may also enjoy reading at the library, learning about the history of theGroup at the archives, or enjoy cultural activities offered by circles of like-minded
colleagues. In the multi-purpose arena (gymnasium) and martial arts dojo,
members of the kendo, badminton, and other sports clubs hone their skills, or
employees gather for recreational activities to foster enriched humanity.
The café and spacious rooftop garden with ATMs are open to the public for
local residents to mingle with each other.

Nishi-Nippon Financial Holdings GroupINTEGRATED REPORT 2021

33

Growth Strategy Initiatives for ESG and the SDGs

Diversity & Inclusion
The NNFH Group believes that employees of all genders should be given opportunities to shine in order to sustain its businessgrowth. Accordingly, we empower female employees and constantly improve programs designed to help them to maintain a goodwork-life balance.

Programs for Good Work-Life Balance
We offer proactive programs to support balancing work and family life.
Childcare leave(until a child is up
to 4 years of age)
Short-hour shift(until a child finishes
third grade inelementary school)
Etc.
Support Room for
Employees onChildcare Leave
Support Room for Employees on Childcare Leave(Kokoro-kan)(Kokoro-kan) omen in Managerial
W
Positions

186

Over the last decade, thenumber of women in
managerial positions has
tripled.

TripledPrevent the further spread of COVID-19
The NNFH Group is doing everything it can to prevent the further spread of COVID-19 to ensure that customers can visit its
branches without anxiety and protect its officers and clerks from infection.

Wearing masks
We always wear masks both inside and outside ofbranches.

Setting acrylic partitions on the counter
63

Acrylic plates are placed between customers andclerksAppropriately distanced seats
the end of March2011

the end of March
2021

Appropriate distance is kept within offices

Frequent hand washing and gargling

Networking support for female employees
The Nishi-Nippon City Bank supports its female employees in networking at this opportunity to compare notes with their role models
and mingle with those from outside the industry.

Work style reform
To provide workplaces where its employees feel satisfied with what they do, the Nishi-Nippon City Bank supports flexible work
styles of their choice, in addition to increasing work efficiency by robotic process automation or otherwise.

Telework

Everyone is encouraged to wash their hands andgargle at regular intervals.

Eating lunch / taking a break at separate
seats or in different time slots
Time and place of eating/break are staggered toprevent congestion in the break room

Increasing Accessibility to Customers
Barrier-Free Facilities

Working from home without going to their offices
Work-from-Home

We promote universal design and barrier-free facilities at our branches for our valued customers.

Mitigates the burden of commuting and enables efficient use of timeWorking while on the move (in the car, train, etc.) or at a café
Reduces travel time, as one does not need to return to their office from their destinations

Mobile work

Working at an office other than their own or a facility for teleworkers
Satellite office

Entrance with no steps (slope)

Easy access to a workplace reduces commuting time

Use of secured notebook computers on which the workflow
system that enables electronic decision-making is installed adds tothe number of terminals available for telework.

Telework-capable
computers and tablet
computers:

Accessible Toilet

Services Friendly to Persons with Disabilities

2,600 units(current as of 31st March, 2021)

The Nishi-Nippon City Bank and Bank of Nagasaki have installed a total of 868 and 44 ATMs (including those outside branches) for
visually-impaired persons, respectively, with at least one at every branch (current as of 31st March, 2021). Customers are also welcome toask our staff to write/read for them.

Staggered Office Hours
Employees may start early or finish late by a margin of up to four hours.

Customers can write here while seated34

Nishi-Nippon Financial Holdings GroupINTEGRATED REPORT 2021

Priority ATM for visually-impaired persons

Nishi-Nippon Financial Holdings GroupINTEGRATED REPORT 2021

35

Communication with Shareholders and Investors

Investor Relations

NNFH is engaged in the following to promote constructive dialogue with shareholders and investors.

1

Appointing responsible
persons

A director in charge of the Corporate Planning Division is responsible for ensuring that constructive
dialogue occurs at financial results briefings and other opportunities to engage with shareholders andinvestors and for providing as many of such opportunities as possible.

2

A framework for
promoting constructive
dialogueThrough cooperation with each division and Group company, the Corporate Planning Division develops aframework under which varying management information is gathered, analyzed, and offered toshareholders and investors in an appropriate form.

3

Measures to promote
opportunities for dialogue

As part of dialogues with shareholders and investors, financial results briefings and other events areorganized.

Feeding backshareholders’ opinions

Opinions presented in dialogues with shareholders and investors are appropriately fed back to the
management team by persons participating in the dialogues.

5

Control of insider
information

To manage important corporate information appropriately and prevent insider trading, we establish andkeep everyone informed of relevant in-house regulations. We will not include matters that have yet to bemade publicly available in handouts for investors or make any comment on issues that may be deemedmaterial facts.

IR Calendar
Feb

Financial results
announcement
Financial results releases

Apr hird-quarter financial
T
settlement

Annual Securities
Report and quarterly
reports
Issuance of
disclosure materialsMar hird-quarter financial
T
results report

May

Jun

Jul

Aug

Sep

Oct

 irst-quarterF
financialsettlement

 ull-year financial
F
settlement

 nnual Securities
A
ReportNov

Dec

 econd-quarter
S
financialsettlement

 irst-quarter financial
F
results report

Mini Disclosure Report
Interim Mini Disclosure Report nnual General MeetingAof Shareholders

General Meeting of
Shareholders
Briefing for
institutional investors
and analysts

 ull-year financial
F
results briefing

For Private Investors

Shareholder Return Policy
In light of the public nature of a bank holding company and the importance of maintaining its sound management, we strive tostrengthen our financial resilience by retaining an appropriate level of internal reserves and continue with stable dividend
payments to our shareholders. Our basic policy on shareholder returns is as follows:
1. With a stable annual dividend of 25 yen per share as the base,
2. Maintain around 30% of the ratio of total return to net income attributable to owners of parent
With the above as rough guidance for the time being, we will decide what and how much to each term by taking into
account the current economic circumstances, financial conditions, earnings forecasts, and other parameters.

S econd-quarter
financial results
reportIntegrated Report (Disclosure Report)
Interim Disclosure Report

We organize financial results briefings twice a year for institutional investors, analysts, and others, with the President making thepresentation after announcing the full-year results and interim results.
In addition, we invite a director in charge of IR and others to do one-on-one meetings to explain the financial conditions,management strategies, and other information of the NNFH Group and gather opinions and comments.

To help deepen understanding of the NNFH Group, we organize informational meetings for private investors in the host community
as we see fit, with the President or a Deputy President speaking on such occasions.

4Jan

For Institutional Investors and Analysts

Return to shareholders
The Amount of Profit Distribution to Shareholders and Total Return Ratio

Second-quarter financial results briefing

21.6%

36

Nishi-Nippon Financial Holdings GroupINTEGRATED REPORT 2021

19.9%

30.5%

25.3%

25.0%

6.28

6.72

1.13

General Meetings of Shareholders
At Annual General Meetings of Shareholders held every June, we report our business performance to shareholders in the mostdigestible way possible, using videos and other tools. We held the 5th Annual General Meeting of Shareholders on 29th June, 2021,
by taking appropriate measures to minimize the chance of infection with COVID-19, by placing shareholders’ well-being and safety
before everything else.
We make it a rule to send a convocation notice to shareholders well before the meeting and disclose the notice on our and stock
exchanges’ websites prior to the dispatch.
We also make it easy for our shareholders to exercise their voting rights by allowing them to vote on the internet or otherwise andparticipating in the electronic voting platform for institutional investors operated by ICJ, Inc.
For the convenience of international shareholders and other parties, we disclose an English version of the convocation noticealongside its Japanese original on the websites of stock exchanges and NNFH.

(billion yen)

Acquisition of treasury stock
Dividends (Nishi-Nippon City Bank)
Dividends (Nishi-Nippon Financial Holdings)
Total return ratio*1

4.77

5.15

3.98

32.2%

30.2%

25.6%

2.00

5.68

4.72

1.00
1.95

*3

31.0%

6.55

7.10
2.50

6.52
2.00

5.47

4.65

4.60

4.52

1.00
4.47

FY2017FY2018FY2019FY20201.90

2.73

FY2012FY2013

FY2014FY2015

Nishi-Nippon City Bank (consolidated)*2

FY2016

Nishi-Nippon Financial Holdings (consolidated)*1 Total return ratio: Amount of profit distributed to shareholders (dividends + acquisition of treasury stock) / Net income attributable to owners of parent x 100*2 Consolidated with the Nishi-Nippon City Bank as the parent prior to the fiscal year ended March 2016 .99 billion yen earned during the fiscal year ended March 2015 minus 3.87 billion yen, which was used for the stock swap to acquire 100% ownership of two*3 4
subsidiaries

Nishi-Nippon Financial Holdings GroupINTEGRATED REPORT 2021

37

Corporate Governance

Basic Approaches

Overview of the Corporate Governance Structure

At the NNFH Group, enhancement of corporate governance is deemed to be a managerial issue of prime importance. Accordingly,
every possible effort is being made to “enhance the soundness and transparency of management,” “accelerate decision-making,”and “perform duties smoothly.”
By establishing an Audit and Supervisory Committee under NNFH, we not only enhance corporate governance, but we have also
built a system for prompt and efficient decision-making by delegating authority over performance of important duties. With NNFH
specializing in management oversight and Group companies focusing on the performance of day-to-day duties, we maintain anadvanced level of business administration for the Group.

General Shareholder’s Meeting
Election/Dismissal

Election/Dismissal

Board of Directors

Audit and Supervisory
Committee Members Office

Audit and Supervisory Committee

Cooperate

Consult

Directors

Directors who are Audit and Supervisory
Committee members, the majority ofwhose members are outside directors

General share holder’s Meeting

Cooperate

Audit/Supervise

Audit and Supervisory
Committee

Election/
Dismissal(excluding members of the Audit andSupervisory Committee)

ReportNomination andRemuneration
Advisory
Committee

Accounting auditors

Accounting
Audit

Audit Report

Nomination and Remuneration Advisory Committee

Board of Directors
Executive Committee

Internal Audit Division

Executive Committee

Internal Audit

PDCA cycle for the Group’s business administration
Corporate Planning Division

PLA N

NNFH monitors
the status of businessexecution byeach company

Group Strategy Planning Division

NNFH draws up
Group strategies

DO

AC T IO N

Group strategies arereviewed

Compliance & Risk
Management Division

Discuss/Report

Each Group company
conducts businessaccordingto Group strategies

C HEC K

The Nishi-Nippon
City Bank, Ltd.
NCB Venture
Capital Co., Ltd.

Group companies

The Bank ofNagasaki, Ltd.

The Kyushu Card
Co., Ltd.

Business management

Nishi-Nippon City Tokai
Tokyo Securities Co., Ltd.

NCB Research &Consulting Co., Ltd.

Kyushu Servicer

Nishi-Nippon Credit
Guarantee Co.

Japan Payment
service CO., LTD.

NTT Data
NCB Corporation

Efforts to Strengthen Corporate Governance
Establishment of Nishi-Nippon Financial Holdings, Inc.
Became a Company with an Audit and Supervisory Committee
Appointed three outside directors (one female outside director)

Established the Nomination and Remuneration
Advisory Committee, the majority of whose
members are outside directors

33.3%

33.3%

33.3%

9

9

9

Ratio of outside directors

23.1%

23.1%

13

13

25.0%

12

Number of directors(outside directors)

Appointment of Directors
Policy and Procedures for Nomination of Candidates for Directors
For the Board of Directors to effectively fulfill its roles and responsibilities, we believe it important to ensure that its members have adiverse range of knowledge, experience, and skills, on top of knowledge of the business and challenges of the NNFH Group. Ourbasic policy is to ensure that the Board of Directors is well balanced overall by appointing those with diverse expertise andbackgrounds as candidates for outside directors.
From this perspective, we appoint those well-versed in the NNFH Group’s business and challenges as candidates for directors.
We also ensure the objectivity and transparency of the decision-making process of the Board of Directors by allowing each Audit
and Supervisory Committee member to exercise his/her voting right held by the directors at the board meeting and the Audit andSupervisory Committee to exercise the statutory right to state its opinion at the general shareholders’ meeting in relation toappointment/dismissal and remuneration of directors who are not Audit and Supervisory Committee members.
Our articles of incorporation prescribe that the number of directors should be no more than twenty and that the number of
directors who are Audit and Supervisory Committee members should be three or more. Accordingly, we have appointed nine
directors, four of whom are Audit and Supervisory Committee members (current as of 30th June, 2021).

Policy and Procedures for Appointment/Dismissal of Senior Management3
as of 3rd October,
2016
38

3
as of 30th June,
2017

Nishi-Nippon Financial Holdings Group3
as of 30th June,
2018

INTEGRATED REPORT 2021

3
as of 30th June,20193
as of 30th June,2020

3
as of 30th June,
2021

Our Board of Directors appoints a representative director and senior managements (directors with special titles) after taking into
consideration reports by the Nomination and Remuneration Advisory Committee and, in the event that the performance of any
representative director or member of senior management falls under the standards of removal as stipulated by the Board of
Directors, deliberates on his/her removal, thereby ensuring objective, timely, and transparent procedures for appointment/removal ofsenior management.

Nishi-Nippon Financial Holdings GroupINTEGRATED REPORT 2021

39

Corporate GovernanceIndependence Standards for Outside Directors
We determine the independence of our outside directors based on whether or not we can expect them to proactively offer
suggestions and raise questions on the NNFH Group’s business challenges, assuming that the independence standards stipulatedby the Tokyo Stock Exchange, Inc. are fulfilled.
For instance, we take special care to determine if the independence of a person who has any of the following relationships with
the NNFH Group is compromised because of such relationships, and disclose to shareholders the relationships between the NNFH
Group and said person to the extent necessary.
1
2
3

4

5
6
7
8

A person who was an executing person of NNFH or any of its subsidiaries
A person for whom NNFH or any of its subsidiaries is his/her major counterparty*1(If he/she belongs to a company, an executing person of said company now or in the past)A major counterparty of NNFH or any of its subsidiaries*2(If he/she belongs to a company, an executing person of said company now or in the past)
A person who is a consultant, accounting professional or legal professional who has received a large amount ofmoney or other compensation*3, excluding remuneration for directors from NNFH or any of its subsidiaries, within thelast three years(If he/she belongs to a company or other form of organization, an executing person of said company or organization now
or in the past)
A person who is a major shareholder*4 of NNFH
(If he/she belongs to a company, an executing person of said company)
A person who has kinship status with a person outlined in 1-5 above
An executing person of a company where an officer or a clerk of NNFH or any of its subsidiaries is an outside officer
An executing person of a company or other form of organization who has received a large sum of donations*5 from
NNFH or any of its subsidiaries within the last three years*1 A counterparty that has received 2% or more of its consolidated net sales in the latest fiscal year from NNFH or any of its subsidiaries*2 A counterparty from which NNFH or any of its subsidiaries have received 2% or more of their consolidated gross profit in the latest fiscal year
*3 A total of 30 million yen or more in cash or other compensations over the last three years*4 A shareholder who holds 10% or more of the shares outstanding*5 A donation of 15 million yen or more in total received over the past three years

Descriptions of the Organs of the Company
Board of Directors
Comprised of nine directors (including four directors who are Audit and Supervisory Committee members, as of 30th June, 2021),
the Board of Directors of NNFH makes decisions about the performance of important duties concerning the Group’s management
and oversees the performance of the duties by directors.
NNFH has elected three independent outside directors (current as of 30th June, 2021) in order to ensure that independent andobjective perspectives augment the highly effective management oversight function by the Board of Directors. To adapt to rapidchanges in the operating environment and clearly determine responsibilities of directors in attaining business results for each fiscal
year, the term of office for directors (excluding those who are Audit and Supervisory Committee members) shall be one year, thus
keeping the Board of Directors actively engaged.
In addition, by introducing the executive officer system, we have separated management decision-making and oversight fromthe administration of business operations in order to enhance the oversight function and promote rapid decision-making.The
Board of Directors meets once a month, in principle.
Analysis and evaluation of board effectiveness
Every year, we analyze and evaluate the effectiveness of our Board of Directors at the board meeting.
At the board meeting held in June 2021, we analyzed and evaluated the effectiveness of our Board of Directors based on thefindings of a self-evaluation questionnaire distributed to all directors to verify that effectiveness is largely ensured.
Going forward, we will seek every opportunity available to provide outside directors with pertinent information in order to stimulate
discussions among directors.
Support for Outside Directors
We make it a rule to fully explain the business, financial position, organizations, and other matters of the NNFH Group to our outside
directors upon the assumption of their position. We are also taking appropriate measures to develop an environment in which
outside directors can fulfill their roles and responsibilities effectively by, for example, providing prior explanations of the agenda forthe board meeting and briefings on their duties, and organizing on-site visits.
We also appoint full-time Audit and Supervisory Committee Members, who support outside Audit and Supervisory Committee
Members, and we have established the Audit and Supervisory Committee Members Office, which is directly managed by the Audit
and Supervisory Committee. Full-time members of the Office assist all Audit and Supervisory Committee Members, including
outside members, and the Audit and Supervisory Committee in performing their duties.

40

Nishi-Nippon Financial Holdings GroupINTEGRATED REPORT 2021

Audit and Supervisory Committee
Comprised of four directors who are Audit and Supervisory Committee members (including three outside directors, current as of
30th June, 2021), the Audit and Supervisory Committee audits the performance of the duties by directors and compiles audit
reports. Audit and Supervisory Committee members shall, in accordance with an audit plan drawn up by the Audit andSupervisory Committee, attend important meetings, inspect important documents, and investigate the status of the operations
and the financial status of NNFH, in order to audit the performance of the duties by directors.
The Audit and Supervisory Committee is also partially responsible for overseeing directors by electing directors (excluding those
who are Audit and Supervisory Committee members) and stating opinions on the remunerations to directors. The Audit andSupervisory Committee meets at least once every three months, in principle.

Executive Committee
Comprised of the representative directors and five directors who are appointed by the president (current as of 30th June, 2021), theExecutive Committee deliberates on and makes decisions on important matters concerning management in accordance withmanagement policies or otherwise, determined by the Board of Directors. One full-time Audit and Supervisory Committee member
is invited to the Executive Committee meeting to provide pertinent advice.The Executive Committee meets whenever necessary.

Nomination and Remuneration Advisory Committee
NNFH has established the Nomination and Remuneration Advisory Committee, the majority of whose members are outside
directors, etc., with a view toward ensuring objectivity, timeliness, and transparency concerning the election and dismissal of arepresentative director and senior management members (directors holding responsible positions), assuring objectivity andtransparency concerning remunerations for directors and developing successors in a systematic manner.

Status of Internal Audit, Audit by the Audit and Supervisory Committee, and Accounting Audit
Internal Audit Division
NNFH has the Internal Audit Division, which conducts internal audits independent from all operations divisions and has 37
members as of 31st March, 2021. NNFH has established the Internal Audit Division, which conducts internal audits independent
from all operations divisions. The Internal Audit Division, in accordance with the Internal Audit Regulations, verifies and assesses
the adequacy and effectiveness of internal control systems of the Group, including a compliance structure and a risk management
structure, suggests improvements to problems, etc. to audited divisions, and reports audit findings, etc. to the Board of Directors,
Audit and Supervisory Committee (members), and the Executive Committee every month. By exchanging information withaccounting auditors, the division ensures that internal audits are conducted both objectively and efficiently.

Audits by the Audit and Supervisory Committee
The Audit and Supervisory Committee comprises four members, including three outside directors and one full-time director. A fulltime member of the Audit and Supervisory Committee, Kiyotaka Tomoike, has considerable knowledge on finance and accounting
through his experience of serving as a manager of several branch offices, in addition to work experience at the Corporate Planning
Division of the Nishi-Nippon City Bank, Ltd.
The Audit and Supervisory Committee audits the performance of directors’ duties by having directors and others report on thestatus of execution of their business, as well as their development and implementation of an internal control system, and byinvestigating their attendance at important meetings, their consultation of documents on important managerial decisions, and thestatus of their business execution and properties, in accordance with the audit policy and division of business as stipulated by the
Audit and Supervisory Committee.
The Audit and Supervisory Committee also verifies the appropriateness of the methods and findings of audits conducted byaccounting auditors by having them report on the status of business execution and by witnessing audits by accounting auditors.

Accounting Audit
The NNFH’s accounting audit business is executed by certified accountants affiliated with Ernst & Young ShinNihon LLC.

Directors’ Remuneration System
Policy for Decisions on the Content of Remuneration, Etc. of Individual Directors
We established the Nomination and Remuneration Advisory Committee, the majority of whose members are outside directors of
the NNFH Group, in order to enhance the objectivity and transparency of decisions on remuneration, etc. of directors (excluding
directors who are Audit and Supervisory Committee members; the same applies hereinafter).
Remuneration that directors receive shall be limited to monthly fixed price remuneration. The total amount of remuneration, etc.
of directors shall be no more than 25 million yen per month, which was approved at the general shareholders’ meeting held on
29th June, 2017.
The amount of remuneration, etc. to individual directors shall be decided for each position with a resolution of the Board of
Directors, by taking into consideration reports by the Nomination and Remuneration Advisory Committee.
Procedures for Decisions on Remuneration, Etc. of Directors
The Nomination and Remuneration Advisory Committee met in February 2021 to deliberate on remuneration, etc. of directors(excluding directors who are Audit and Supervisory Committee members). Remuneration, etc. of directors who are Audit andSupervisory Committee members has been decided through consultation among Audit and Supervisory Committee members.

Nishi-Nippon Financial Holdings GroupINTEGRATED REPORT 2021

41

Risk Management

Returns

ROE =Returns /Shareholder
equityManagement
policies- Internal/external
environments,
managerial
issues- Management
strategies Etc.

- Net income- ROE, RORA
Etc.

Integrated verification

Integrated management
Risks- Risk assets- Quantity of
risks
Etc.

Capital- Capital
adequacy ratio- Stress testing
Etc.

Earnings plans- Net income- ROE, RORA
Etc.

Risk capital
allocation plans- Amount of
capitalallocated,buffers- Capital
adequacy ratio,
IRRBB Etc.

Risks
and
returns
Returns
andcapital

How much of what risks
should be taken toachieve earnings targets
If returns commensuratewith risks are generated

RORA: Indicatesprofitability
commensurate withrisks

If returns commensuratewith capital are
generated

ROE: Indicatesprofitability
commensurate withcapitalIf capital sufficiency is

Capital ensured under risk
and risks scenarios or stressscenarios

Capital adequacy
ratio: Indicates
capital sufficiency
commensurate withrisks

Discuss/ReportCompliance & Risk Management Division
Categories
of riskOperatingdepartment

Credit risk

Risk management is one of the top priority issues in the management of the NNFH Group. Accordingly, we established the Basic
Policy on Risk Management, which serves as a set of shared norms for the Group, and we make concerted efforts to advance ourrisk management structure to establish a sound management base and ensure stable earnings.

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

Nishi-Nippon Financial Holdings GroupINTEGRATED REPORT 2021

System risk

Legal risk

Human error risk Tangible asset risk Reputational risk

Internal
audit

Divisions

The Nishi-Nippon
City Bank, Ltd.

The Bank ofNagasaki, Ltd.

The Kyushu
Card Co., Ltd.

NCB Venture
Capital Co., Ltd.

Instruction/monitoring of policies, etc.
Nishi-Nippon City Tokai
Tokyo Securities Co., Ltd.

NCB Research &Consulting Co., Ltd.

Kyushu Servicer

Nishi-Nippon Credit
Guarantee Co.

Japan Payment
service CO., LTD.

NTT Data
NCB Corporation

Allocating Risk capital
NNFH allocates risk capital to each Group company under the framework of integrated risk management.
In more concrete terms, we use consolidated shareholders’ equity to allocate risk capital to each Group company in eachcategory of credibility risk, market risk, and operational risk. We also monitor the quantity of risk and earnings results at each Group
company to ensure that risk is taken appropriately within the scope of allocated risk capital.
Stress Tests
The NNFH Group conducts stress tests to verify the impact that deterioration of the economic environment or market environment
may have on the equity capital ratio, sufficiency of shareholders’ equity, and appropriateness of risk-taking. We also set sharedstress scenarios throughout the Group by taking into account cases of economic free fall from the past and risks that could occur inthe future.
BufferTaking risks within allocated risk
capital(Consolidated)shareholders’equity(source ofrisk capital
allocation)

allocaterisk
capitalBufferVerify sufficiency of shareholders’ equity

Credit risk
Credit risk

Nishi-Nippon
City Bank

Market risk
Market risk
Operational risk

The Bank ofNagasaki
Other
Group
Companies

Nishi-Nippon
City Bank

Credit risk

Credit risk
Market risk
Operational risk

Shareholders’ equity
42

Operational risk
Administrative risk

Discuss/Report

Allocating risk capital to eachGroup company based on
management policy and earnings
plan

Grasping/assessing the status ofrisk by monitoring andconducting stress tests based onrisk scenarios

Market risk Liquidity risk

We evaluate and manage risks by comprehensively identifying potential risk situations that are inherent to a group organization and,thus, are difficult for individual Group companies to deal with, such as the statuses of risks in each category, and the likelihood ofthem adversely affecting the Group, and then assessing them against the Group’s financial resilience (equity capital).

Initiatives for Risk Management

Risk
Management
SystemA Group Financial Crime Prevention Committee

Instruction

Integrated Risk Management

Capital adequacy ratio =Core capital / Risk weighted assets

Controlling risks at a proper levelby comparing/verifying thequantity of risk, earnings, andshareholders’ equity

ReportExecutive Committee

Instruction

Major indicators ofrisk appetite

Cooperation

Internal Audit Division

RORA =
Returns / Risk
assetsThe Group’s approach

Risk
management
supervisingorganization

Instruction

How RAF works

Auditing/supervision
Audit and Supervisory Committeeof directors

Board of Directors
Discuss/Report

The NNFH Group has introduced a risk appetite framework (RAF), a tool for optimizing risks and returns through integrated
management of strategies and risk management.
In drawing up a business plan (management plan and medium-term business plan), we verify management policies, earnings
plans, and risk capital allocation in an integrated manner based on the forecasts of risks, returns, and capital for the coming three
years.
We also monitor indicators on risk appetite periodically to follow up on the progress of the plans.

Committees
Each Group company establishes a consultative body, such as an ALM Committee and Operational Risk Committee, according to
the characteristics of their operational risks, and deliberates on and assesses matters concerning risk management both periodicallyand cross-sectionally.

Discuss/Report

Risk Appetite Framework (RAF)

Credit risk
Market risk
Operational risk

Risk capital for allocation

StressOperational risk

Operational risk
Credit risk
Market risk
Operational risk
Credit risk
Market risk
Operational risk

Quantity of risk

Market risk

The Bank ofNagasakiCredit risk
Market risk
Operational risk

Other
Group
Companies

Credit risk
Market risk
Operational risk

Quantity of risk
(when under stress)

Nishi-Nippon Financial Holdings GroupINTEGRATED REPORT 2021

43

Risk Management

Risk Management Framework by Category
Credit Risk Management
Credit risk is the possibility of a loss resulting from a reduction or complete loss of the value of assets (including off-balance assets)
due to such reasons as a deterioration in the financial situation of borrowers. Recognizing credit risk as the most important type ofrisk for the NNFH Group, NNFH established a Credit Risk Management Policy under its Risk Management Regulations, thereby
reinforcing the credit risk management system. The Group objectively and quantitatively monitors the risks of individual borrowers
and feeds any findings back to its credit portfolio management, thereby managing the entire Group in an integrated manner.
Also, in order to control the risk of a major loss occurring to the Group due to a concentration of credit to specific customers, wemanage credit appropriately and ensure the soundness of management. To properly depreciate and provide allowances for assets,
we set unified standards for strict self-assessment of assets. Our subsidiary banks fully examine each borrower for their application
for funds, sources of repayment, revenue and expenditure planning, investment effect, and other parameters in light of their public
nature, safety, profitability, and growth potential. By making careful credit decisions based on the customer's situation thus
determined, we maintain and improve the soundness of management.

Market Risk Management
Market risk is the possibility of a loss due to fluctuations in the value of assets/liabilities (including off-balance assets) in response to
movements in interest rates, forex market, stock prices, and other parameters, and a loss due to fluctuations in earnings generated
from such assets/liabilities. NNFH established a Market Risk Management Policy under its Risk Management Regulations toreinforce its market risk management system. The NNFH Group sets limits on market risks so as to enable adequate managementof such risks and undertakes them within the Our subsidiary banks set various limits, including risk limits, position limits, and loss
limits, for each operations division and risk category, and manage their funds within the confines of applicable limits. The
management status is reported periodically to the ALM Committee of each subsidiary bank, thus ensuring appropriate management.

Office work risks and system risks—two of the major operational risks for the NNFH Group—are managed as follows.
Office Work Risk Management
The NNFH Group sees office work risk as one that is inherent in all types of work. As such, everyone in the Group is working to
improve the quality of office work and reduce the risks associated with it. Our subsidiary banks have developed operational rules forthe entire range of their work and strive to improve the quality of their paperwork through training sessions and on-site guidance on
office work. In addition, they centralize paperwork, use a computer system to check outcomes, and promote automation toincrease the accuracy and consistency of paperwork. For the sake of enhancing internal checks, we ask each branch office toconduct self-inspections and have the Internal Audit Division to conduct internal audits so that we can quickly locate problems andprevent office work accidents from occurring.
System Risk Management
With the understanding that proper and smooth operation of computer systems is crucially important for us to provide ourcustomers with quality service, the NNFH Group is working on the reinforcement of system risk management. Our subsidiary banks
are enhancing safety measures for the system and its backup to take every possible precaution toward the safe operation ofsystems. Furthermore, by taking measures such as using duplex lines for computers and communication lines, we prevent system
failures, minimize the impact of any failure, and achieve early recovery of systems, while at the same time taking safety measuresaccording to the usage situation of each system, the magnitude of imminent risks, and the importance of information to beprotected, thus ensuring information security.
Also, in order to prevent damage from cyber attacks, which are growing in sophistication and severity, we are constantly working
to reinforce our security control structure by establishing a Cyber Security Incidence Response Team (NCB-CSIRT) within the NishiNippon City Bank. The structure will gather and analyze information on cyber attacks even when none are occurring, and build asystem to promptly respond to cybersecurity incidents within the Group.

Liquidity Risk Management
Liquidity risk is the possibility of a loss due to a difficulty in securing necessary funds because of a timing mismatch between
management and procurement or an unexpected outflow of funds or due to being obliged to procure funds at an interest rate
significantly higher than usual (collectively, financing risk). It also refers to the possibility of a loss due to the inability to maketransactions in the market on account of confusion in the market or other reasons or due to being forced to make transactions at
prices significantly less favorable than usual (collectively, market liquidity risk). NNFH established a Liquidity Risk Management Policy
under its Risk Management Regulations in an effort to reinforce the liquidity risk management system. In order to prevent tightfinances, the NNFH Group maintains the soundness of its assets so that it can ensure market liquidity and stabilize cash flows. To
prepare for unforeseeable circumstances, our subsidiary banks secured a sufficient amount of liquidity reserve assets that can beconverted into funds on short notice. At the same time, they compiled Contingency Plans, in which they define their responses
when financing constraints are threatened or become obvious so that they can act promptly when needed.

Operational Risk Management
Operational risk is the possibility of a loss incurred by inappropriate business processes, behaviors of officers and clerks, or
systems, or by exogenous events. NNFH established an Operational Risk Management Policy under its Risk Management
Regulations, thereby strengthening its operational risk management system. Given that operational risks are so extensive, varied,and diverse that they concern every single operation and section and thus must be avoided as far as possible in business
management, the NNFH Group has developed an organizational setup and system that properly manage such risks, in order toprevent them from becoming actualized and to minimize their impacts should any such risks occur.
We group operational risks into six categories: 1. Office work risks, 2. System risks, 3. Legal risks, 4. Human risks, 5. Tangible
asset risks, and 6. Reputational risks, thus managing them according to the characteristics of risks each Group company is faced
with. Meanwhile, our Risk Management Department monitors and manages the operational risks faced by the NNFH Group as awhole.
Categories of Risk

44

Crisis Management
NNFH has compiled the Business Continuity Regulations, which serve as a basic policy on the development of arrangements
needed to continue with minimal operations required to maintain the functions of the financial system in the face of a large-scaledisaster, system failure, or other unforeseen contingency. In compliance with this basic policy, each Group company has establisheda business continuity plan (BCP) and, by conducting various training, is working to improve the effectiveness of the business
continuity arrangement.
Our Response to COVID-19
The NNFH Group has established countermeasures headquarters and other organizations at each Group company to gather
information on COVID-19, draw up anti-infection measures, and ensure business continuity arrangements when any employees are
infected. Furthermore, we have established arrangements for information exchange and crisis management across Group
companies to ensure the safety of our customers and employees so that customers may use our services without anxiety.

Definitions of Risk

Administrative risk

Risk of losses being incurred as officers and/or clerks fail to perform their office work accurately or
become involved in accidents, irregularities, etc.

System risk

Risk of losses being incurred due to system failures, such as computer system shutdowns,
malfunctioning, etc. or unauthorized use of computers

Legal risk

Risk of losses/damage being incurred as a result of a breach of duty due to fault involving customers or
inappropriate business/market practices

Human error risk

Risk of losses/damage being incurred due to unfair/unjust personnel practices (involving remuneration,
allowance, dismissal, and other issues) and discriminatory behavior (sexual harassment, etc.)

Tangible asset risk

Risk of harm/damage to tangible assets being incurred due to wind and flood damage by typhoons,
torrential rain, and other forms of natural disasters, as well as other events

Reputational risk

Risk of losses/damage being incurred due to lowering of credibility as a result of reputational damage, thespread of rumors, etc.

Nishi-Nippon Financial Holdings GroupINTEGRATED REPORT 2021

Nishi-Nippon Financial Holdings GroupINTEGRATED REPORT 2021

45

Compliance

Initiatives for Compliance
Effective compliance is one of the overriding management issues for the NNFH Group. As such, we have established the Basic
Policy for Compliance for the Group to follow and, based on the recognition that the compliance framework is a key infrastructure
upon which to build a relationship of mutual trust with our local communities and business partners, our management hasannounced to all employees the resolution to ensure compliance in an effort to foster a corporate culture that considers complianceto be of critical import.

Compliance Management Structure
Unified Management by the compliance supervising organization
Our Compliance & Risk Management Division is responsible for the unified management of matters related to compliance andperiodically monitors the status of compliance initiatives within the NNFH Group. They also work to ensure the effectiveness ofcompliance efforts by issuing improvement orders when deemed necessary.
Compliance Committee
Each Group company has established a Compliance Committee to conduct concrete and substantial discussions and assessmentsof matters regarding compliance that carry weight on their management on a regular basis.
Compliance Program
Pursuant to the Basic Policy for Compliance of the NNFH Group, each Group company draws up a compliance program, an annual
plan for practicing compliance, thus enhancing and reinforcing the compliance risk management framework.

The NNFH Group’s Compliance Management Structure
Audit and Supervisory
Committee

Auditing/supervisionof directors

Executive Committee

Internal Audit Division

Instruction

Discuss/Report

ReportInstruction

Compliance & Risk Management Division(Compliance supervising organization)

Internal audit

A Group Financial Crime
Prevention Office
Discuss/Report

The Nishi-Nippon
City Bank, Ltd.

The Bank ofNagasaki, Ltd.

NCB Venture
Capital Co., Ltd.

The Kyushu Card
Co., Ltd.

A Group Financial Crime Prevention Committee(Secretariat: Group Financial Crime Prevention Office)Cooperation

Divisions
Discuss/Report

NCB Research &Consulting Co., Ltd.

Kyushu Servicer

Nishi-Nippon
Credit Guarantee Co.

Japan Payment
service CO., LTD.

NTT Data
NCB Corporation

Measures against Money Laundering and Terrorism Financing
As threats of proliferation of weapons of mass destruction and terrorism increase globally, Japan and the international community
must come together to prevent funds from being distributed to criminals or terrorist organizations, making efforts to prevent money
laundering and terrorism financing more important than ever.
The NNFH Group has established the Basic Policy for Measures against Money Laundering and Terrorism Financing, under which
the entire Group commits itself to prevent money laundering and terrorism financing.

Basic Policy for Measures against Money Laundering and Terrorism Financing (Excerpts)
1. Organizational Structure- The NNFH Group’s management recognizes the importance of measures to prevent money laundering and other illegal financialtransactions and is actively committed to the prevention of such activities by appointing an officer in charge of measures to prevent money
laundering and other illegal financial transactions, while at the same time ensuring that all officers and clerks are dedicated to prevention inthis regard, thus reinforcing a framework for their management.
- The NNFH Group establishes a framework for unified management of money laundering and other illegal financial transactions byappointing persons and departments responsible for preventing such illegal financial transactions and has them draw up and manage
policies on our responses, so that we can deal with them cross-sectionally. The concrete content of such policies will be determined after46

Nishi-Nippon Financial Holdings GroupINTEGRATED REPORT 2021

3. Transaction Policy- The NNFH Group takes management measures commensurate with the risk with the customers or transactions in question, andimplements continued management in order to keep their information updated.
- The NNFH Group takes appropriate measures as dictated by relevant laws and regulations with regard to declining/eliminating business
relationships with financial criminals, those penalized for financial crimes, and the like, with whom developing or continuing a relationship isdeemed inappropriate.

Strongly recognizing its social responsibility, the NNFH Group is working to block its relationships with antisocial forces that threaten
the order and security of civil society.
In concrete terms, we designate a department that deals with antisocial forces and, through cooperation with police, lawyers, andother external professional bodies, firmly decline undue claims and interventions from antisocial forces, involving the entire
organization in doing so. Also, we ensure that we include an article to the effect that organized crime groups and other antisocial
forces should be eliminated in various application forms and contracts of the Group, in order to prevent transactions andrelationships with such groups.

Whistle-blowing System

Instruction/monitoring of policies, etc.
Nishi-Nippon City Tokai
Tokyo Securities Co., Ltd.

2. Initiatives for Reducing Risks- The NNFH Group identifies and assesses the risks that it faces in a timely and appropriate manner and takes measures to reduce suchrisks in accordance with the risk-based approach, in an effort to implement effective measures to prevent money laundering and otherillegal financial transactions.
- In order to put these initiatives into practice, the NNFH Group identifies and assesses the risks associated with the products and services
that it offers based on the content of the National Risk Assessment of Money Laundering and Terrorist Financing released by the National
Public Safety Commission, and compiles its measures to reduce such risks in a Risk Assessment Report.

Severing relations with anti-social forces

Board of Directors

Cooperation

taking into account specific circumstances, for example, whether or not a Group company falls under “specified business operators” asstipulated in Article 2, Paragraph 2, Act on Prevention of Transfer of Criminal Proceeds.
- The NNFH Group assesses risks that involve the entire Group and develops a framework needed to share information within the Group to
ensure the effectiveness of the measures to prevent money laundering and other illegal financial transactions.
- The NNFH Group makes a confirmation at times of transaction or takes other measures appropriately pursuant to relevant laws andregulations of Japan and other countries and strives to make constant verifications and advance its responses in this regard, in order toprevent customers or officials and clerks of the Group from committing or being involved in money laundering and other illegal financialtransactions.

In consideration of the purpose of the Whistleblower Protection Act, the NNFH Group has established the Whistle-blowing
Regulations and a whistle-blowing desk at each Group company, with a view toward the early discovery and correction of acts inviolation of relevant laws and regulations by the Group and strengthening compliance-oriented management. We have alsoestablished a whistle-blowing desk where employees of each Group company may directly report to or seek consultation fromwithout going through their company within NNFH and external law firms, in a bid to improve the effectiveness of the whistleblowing system.

Framework for Customer Protection
For the sake of customer protection, enhanced convenience, and facilitation of financing, the NNFH Group makes constant efforts
to establish a framework for customer protection by, for example, providing explanations to customers, responding to consultationand complaints from customers, managing customer information, supervising third-parties to whom it outsources part of its
operations, and appropriately managing conflicts of interest that may arise from transactions with customers.
To develop a framework for the safe management of customer information, we have established the Privacy Policy for publicannouncements and put it to appropriate use pursuant to applicable laws and regulations.

Initiatives for the Financial ADR System
When a customer has a dispute with a financial institution that they find difficult to resolve, no matter how much they consult witheach other, they can avail themselves of the financial alternative dispute resolution* (ADR) system. Upon application by a customer
or a financial institution, a neutral dispute settlement organization designated by the national government attempts to solve
complaints and problems.
* A procedure for bringing about a flexible solution to daily troubles through the involvement of a neutral and fair third-party, rather than by a court.

Nishi-Nippon Financial Holdings GroupINTEGRATED REPORT 2021

47

Financial Section

Contents
Nishi-Nippon Financial Holdings, Inc. and Subsidiaries
Consolidated Balance Sheet .................................................................... 50
Consolidated Statement of Income .......................................................... 51
Consolidated Statement of Comprehensive Income ................................. 51
Consolidated Statement of Changes in Net Assets .................................. 52
Consolidated Statement of Cash Flows .................................................... 54
Notes to Consolidated Financial Statements ............................................ 55
Quarterly Information (Unaudited).............................................................. 92
The Nishi-Nippon City Bank, Ltd.
Non-Consolidated Balance Sheet (Unaudited) .......................................... 93
Non-Consolidated Statement of Income (Unaudited)................................. 94
Non-Consolidated Statement of Changes in Net Assets (Unaudited) ........ 95
The Bank of Nagasaki, Ltd.
Non-Consolidated Balance Sheet (Unaudited) .......................................... 97
Non-Consolidated Statement of Income (Unaudited) ................................ 98
Non-Consolidated Statement of Changes in Net Assets (Unaudited) ........ 99
Notes to Non-Consolidated Financial Statements (Unaudited) .................... 100
Independent Auditor’s Report ..................................................................... 101

48

Nishi-Nippon Financial Holdings GroupINTEGRATED REPORT 2021

Nishi-Nippon Financial Holdings GroupINTEGRATED REPORT 2021

49

Consolidated Balance Sheet

Consolidated Statement of Income

Nishi-Nippon Financial Holdings, Inc. and Subsidiaries

Nishi-Nippon Financial Holdings, Inc. and Subsidiaries

31st March, 2021 and 2020

Year ended 31st March, 2021 and 2020
Thousands of
U.S. dollars (Note 1)

Millions of yen

2021

2020

2021

¥1,738,761¥1,714,664$15,705,549

—

1,189

—

36,722

36,956

331,701

Assets:

2021

2020

¥82,193
9,985
1,911
0
30,879
1,842
4,972
3,585
135,371¥82,692
14,2711,660
032,638
1,382
3,995
6,958
143,599$742,422
90,19817,261
0278,918
16,643
44,91832,3901,222,755

699
(39)
911

1,022
106
4,120

6,320
(354)
8,229

44
253
194
11,832
1,855
81,272
12,446
109,472
25,898382
769
948
12,373
1,684
82,308
10,734
114,451
29,148

402
2,293
1,760
106,880
16,760734,101
112,427
988,821233,933

6,719
552
7,272
18,626

9,169
(398)
8,771
20,37760,695
4,991
65,686168,246537¥18,088154¥20,222

4,858$163,387

2021

Income:Cash and due from banks (Notes 6 and 27)
Call loans and bills bought
Commercial paper and other debt purchased
Trading account assets (Notes 3 and 28)
Money held in trust (Note 29)

131

1,385

1,184

11,273

5,370

101,831

Securities (Notes 4, 6, 27 and 28)

1,506,834

1,297,874

13,610,642

Loans and bills discounted (Notes 5, 6, 7 and 27)

8,543,946

7,554,143

77,174,113

Foreign exchange assets (Note 8)

11,074

14,407100,034

Other assets (Notes 6, 9)

115,565

88,913

1,043,861

Tangible fixed assets (Notes 10 and 17)

117,551

119,647

1,061,797

Intangible fixed assets

3,542

3,719

32,001

Asset for retirement benefits (Note 31)

17,7705,279

160,515

473

672

4,275

Deferred tax assets (Note 32)
Customers’ liabilities for acceptances and guarantees

16,565

20,248

149,627

Reserve for possible loan losses (Note 27)(44,068)(41,135)(398,056)

Reserve for devaluation of securities
Total assets

(577)

(571)

(5,213)¥12,075,567¥10,822,765$109,073,866$85,665,340

Liabilities and net assets:
Liabilities:
Deposits (Notes 6, 11, and 27)¥9,484,009¥8,831,047

Call money and bills sold (Notes 6 and 27)

208,128

39,0001,879,942

Payables under repurchase agreements (Notes 6 and 27)

194,294

207,019

1,754,981

Guarantee deposits received under securities lending transactions (Note 6)
Borrowed money (Notes 6, 13 and 27)

41,135

89,108371,556

1,437,688

994,175

12,986,074

Foreign exchange liabilities (Note 8)

210

118

1,901

Bonds (Notes 12 and 27)—

10,000—Borrowed money from trust account

3,205

835

28,951

107,648

99,962

972,344

Liability for retirement benefits (Note 31)

477

3,708

4,315

Reserve for retirement benefits for directors and corporate auditors

256

247

2,318

Other liabilities (Note 14)

Reserve for reimbursement of deposits

1,185

1,630

10,709Reserve for other contingent losses

1,254

1,430

11,334

Reserve under the special laws

12

10

116

Deferred tax liabilities (Note 32)

13,841534

125,024Deferred tax liabilities on revaluation of premises (Note 17)

14,746

14,930133,202

Acceptances and guarantees

16,565

20,248

149,627

11,524,660

10,314,007

104,097,741

Total liabilities

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

Consolidated Statement of Comprehensive Income
Nishi-Nippon Financial Holdings, Inc. and Subsidiaries
Year ended 31st March, 2021 and 2020

Net assets:
Capital stock (Note 15)

50,00050,000451,630

Capital surplus

127,202129,477

1,148,971

Earned surplus

284,535

270,954

2,570,097(8,597)(9,868)(77,658)

453,140

440,563

4,093,039

Treasury stock (Note 16)
Total shareholders’ equity

Thousands of
U.S. dollars (Note 1)

Millions of yen

Profit (loss)

2021

2020

2021

¥18,626¥20,377$168,246
165,562

Other comprehensive income:Net unrealized gains on securities available for sale, net of taxes (Note 28)

65,23847,032589,269

Net unrealized gains on securities available for sale

18,329(10,179)

Net deferred gains (losses) on hedging instruments, net of taxes(1,428)(1,841)(12,898)

Net deferred gains (losses) on hedging instruments

413(1,636)

3,735

Revaluation of premises, net of taxes (Note 17)

29,592

29,946

267,301

Retirement benefits liability adjustments(2,873)96,965(3,751)(14,486)

10,735(33,883)

89,65160,650809,788¥29,478(¥14,689)$266,263¥48,104¥5,688$434,510¥47,443¥5,543$428,534

¥661

¥144

$5,975Retirement benefits liability adjustments, net of taxes (Note 31)
Total accumulated other comprehensive income
Non-controlling interests
Total net assets (Note 37)
Total liabilities and net assets
See accompanying Notes to Consolidated Financial Statements.

50

Thousands of
U.S. dollars (Note 1)

Millions of yen

Nishi-Nippon Financial Holdings GroupINTEGRATED REPORT 2021

8,114

7,544

73,296550,906

508,758

4,976,124¥12,075,567¥10,822,765$109,073,866

Total other comprehensive income (Note 25)
Comprehensive income
Comprehensive income attributable to owners of parent
Comprehensive income attributable to non-controlling interests
See accompanying Notes to Consolidated Financial Statements.

Nishi-Nippon Financial Holdings GroupINTEGRATED REPORT 2021

51

Consolidated Statement of Changes in Net Assets

Consolidated Statement of Changes in Net Assets
Nishi-Nippon Financial Holdings, Inc. and Subsidiaries

Nishi-Nippon Financial Holdings, Inc. and Subsidiaries

Year ended 31st March, 2021 and 2020

Year ended 31st March, 2021 and 2020
Thousands of
U.S. dollars (Note 1)

Millions of yen

2020

2021

2021

Shareholders’ equity:

Thousands of
U.S. dollars (Note 1)

Millions of yen

2021

2020

2021

¥47,032¥57,200$424,823

18,205(10,168)

164,446

Accumulated other comprehensive income:Capital stock (Note 15)

Net unrealized gains on securities available for sale, net of taxes

Balance at beginning of the year

¥50,000¥50,000$451,630

Changes during the year

Balance at beginning of the year
Changes during the year

Total changes during the year
Balance at end of the year

—

—

—

¥50,000¥50,000$451,630

Capital surplus

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

Balance at beginning of the year

¥129,477¥132,510$1,169,517

(0)

(0)

(0)

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

(2,274)(3,032)(20,546)(2,274)(3,032)(20,546)¥127,202¥129,477$1,148,971¥270,954¥255,229$2,447,425

Earned surplus(10,168)

164,446¥47,032$589,269(¥1,841)(¥205)($16,634)

413(1,636)

3,735

413

(1,636)

3,735(¥1,428)(¥1,841)($12,898)¥29,946¥30,017$270,495

(353)

(71)

(3,194)

Net deferred gains (losses) on hedging instruments, net of taxes
Balance at beginning of the year

Sale of treasury stock

18,205¥65,238

Changes during the year
Net changes in items other than shareholders’ equity
Total changes during the year
Balance at end of the year
Revaluation of premises, net of taxes

Balance at beginning of the year
Changes during the year

Balance at beginning of the year
Changes during the year

Cash dividends paid (Note 38)(4,861)(4,568)(43,910)

Profit (loss) attributable to owners of parent

18,08820,222

163,387

353

71

3,194

Balance at end of the year
Retirement benefits liability adjustments

Reversal of revaluation of premises
Total changes during the year
Balance at end of the year

13,58015,725

122,671¥284,535¥270,954$2,570,097

Treasury stock (Note 16)

Net changes in items other than shareholders’ equity
Total changes during the year

Balance at beginning of the year

(353)

(71)

(3,194)¥29,592¥29,946$267,301(¥14,486)(¥11,612)($130,848)

10,735(2,873)96,965

10,735(2,873)96,965(¥3,751)(¥14,486)($33,883)¥60,650¥75,400$547,835

29,000(14,749)

261,952

Changes during the year

Balance at beginning of the year(¥9,868)(¥10,896)($89,137)

Changes during the year

Net changes in items other than shareholders’ equity
Total changes during the year

Acquisition of treasury stock
Sale of treasury stock(1,004)(2,005)(9,071)

Balance at end of the year

0

0

4

2,274

3,032

20,546

Balance at beginning of the year

1,270

1,027

11,479Changes during the year(¥8,597)(¥9,868)($77,658)¥440,563¥426,843$3,979,436

Cash dividends paid (Note 38)(4,861)(4,568)(43,910)

Profit (loss) attributable to owners of parent

18,08820,222

163,387

Acquisition of treasury stock(1,004)(2,005)(9,071)

0

0

3

353

71

3,194

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

Total accumulated other comprehensive income

Net changes in items other than shareholders’ equity
Total changes during the year

Balance at beginning of the year
Changes during the year

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

12,577

13,719113,603¥453,140¥440,563$4,093,039

Balance at end of the year

29,000(14,749)

261,952¥89,651¥60,650$809,788¥7,544¥7,490$68,144

570

53

5,151

570

53

5,151

¥8,114¥7,544$73,296¥508,758¥509,734$4,595,416

Non-controlling interests:
Balance at beginning of the year
Changes during the year
Net changes in items other than shareholders’ equity
Total changes during the year
Balance at end of the year
Total net assets:
Balance at beginning of the year
Changes during the year
Cash dividends paid (Note 38)(4,861)(4,568)(43,910)

Profit (loss) attributable to owners of parent

18,08820,222

163,387

Acquisition of treasury stock(1,004)(2,005)(9,071)

0

0

3

353

71

3,194

29,571(14,695)

267,104

42,148(976)

380,708¥550,906¥508,758$4,976,124

Sale of treasury stockReversal of revaluation of premises
Net changes in items other than shareholders’ equity
Total changes during the year
Balance at end of the year
See accompanying Notes to Consolidated Financial Statements.

52

Nishi-Nippon Financial Holdings GroupINTEGRATED REPORT 2021

Nishi-Nippon Financial Holdings GroupINTEGRATED REPORT 2021

53

Consolidated Statement of Cash Flows

Notes to Consolidated Financial Statements

Nishi-Nippon Financial Holdings, Inc. and Subsidiaries

Nishi-Nippon Financial Holdings, Inc. and Subsidiaries

Year ended 31st March, 2021 and 2020
Thousands of
U.S. dollars (Note 1)

Millions of yen. Cash flows from operating activities:
Profit (loss) before income taxes
Depreciation
Losses on impairment of fixed assets
Amortization of goodwill
Equity in gains of nonconsolidated subsidiaries and affiliate
Increase (decrease) in reserve for possible loan losses
Increase (decrease) in reserve for devaluation of securities(Increase) decrease in asset for retirement benefits(Decrease) increase in liability for retirement benefits
Increase in reserve for retirement benefits for directors and corporate
auditors
Decrease in reserve for reimbursement of deposits(Decrease) increase in reserve for other contingent losses
Income from lending activities
Funding costs
Gains on securities
Losses (gains) on money held in trust
Net foreign exchange gains
Losses (gains) on sale of tangible fixed assets
Net decrease (increase) in trading account assets
Net increase in loans and bills discounted
Net increase in deposits
Net decrease in certificates of deposit
Net increase in borrowed money, exclusive of subordinated borrowings
Net increase in due from banks, exclusive of central bank
Net decrease (increase) in call loans
Net increase (decrease) in call money
Net decrease in guarantee deposits received under securities lendingtransactions
Net decrease (increase) in foreign exchange assets
Net increase (decrease) in foreign exchange liabilities
Net increase in borrowed money from trust accountInterest and dividends received
Interest paid
OthersSubtotal
Income taxes paid
Net cash provided by operating activities

2021

2020

2021

¥25,898
5,729
818
—
(86)
2,933
5
(12,490)(3,230)¥29,148
5,692
1,046
283
(101)
(2,207)
(7)
882
843

$233,933
51,751
7,397
—
(785)
26,49653(112,826)(29,179)

9
(444)
(175)
(94,090)
2,064(4,698)
11
(589)
34
1,254
(989,802)
813,917(160,955)
443,513(1,368)1,423
156,4030(521)
49(98,624)
7,349(4,385)(12)(740)(1,478)(218)(212,938)
389,036(66,756)
102,253(526)(237)(29,731)82(4,018)(1,582)(849,882)
18,651(42,436)
99(5,322)315
11,331(8,940,497)
7,351,795(1,453,845)
4,006,080(12,357)
12,8581,412,728(47,973)
3,332
92
2,369
96,159(3,318)16,025
252,774(9,717)¥243,056(56,610)(6,011)(53)
835
100,483(7,357)47,195
196,578(8,336)¥188,242(433,321)
30,101
833
21,401
868,574(29,976)
144,755
2,283,208(87,770)$2,195,438. Cash flows from investing activities:
Payments for purchase of securities
Proceeds from sale of securities
Proceeds from redemption of securities
Payments for increase in money held in trust
Payments for purchase of tangible fixed assets
Proceeds from sale of tangible fixed assets
Payments for purchase of intangible fixed assets
Net cash provided by investing activities(¥551,762)
116,648
240,120(5,930)(3,701)
1,376(1,132)(¥204,381)(¥402,810)
131,843
328,957(500)(3,425)
4,938(968)¥58,034($4,983,857)
1,053,636
2,168,915(53,563)(33,431)
12,431(10,226)($1,846,095). Cash flows from financing activities:
Redemption of subordinated bonds
Dividends paid
Dividends paid to non-controlling shareholders
Payments for acquisition of treasury stock
Proceeds from sale of treasury stock
Net cash used in financing activities(¥10,000)(4,860)(91)(1,004)0(¥15,955)¥—(4,567)(90)(2,005)0(¥6,663)($90,326)(43,899)(823)(9,071)3($144,117)

¥8

¥6

$75

. Effects of changes in exchange rates on cash and cash equivalents¥22,728¥239,619$205,302. Cash and cash equivalents at beginning of the year

¥1,710,338¥1,470,719$15,448,820. Cash and cash equivalents at end of the year (Note 36)¥1,733,067¥1,710,338$15,654,122. Net increase in cash and cash equivalents

1. Basis of Presentation of Consolidated Financial Statements
The accompanying consolidated financial statements of Nishi-Nippon Financial Holdings, Inc. (the “Company”), and its consolidated
subsidiaries have been prepared in conformity with accounting principles generally accepted in Japan, which are different in certain respects
as to the application and disclosure requirements of International Financial Reporting Standards, and are compiled from the consolidated
financial statements prepared by the Company as required by the Financial Instruments and Exchange Law of Japan.
In addition, the notes to the consolidated financial statements include information which is not required under accounting principles
generally accepted in Japan but is presented herein as additional information.
Solely for the convenience of readers outside Japan, certain items in the original Japanese financial statements have been reclassified
for presentation.
As permitted by the Financial Instruments and Exchange Law, amounts of less than one million yen have been omitted by theCompany.
Consequently, the totals shown in the accompanying consolidated financial statements (both in yen and U.S. dollars) do not necessarily
agree with the sum of the individual amounts.
The amounts in U.S. dollars are included solely for the convenience of readers outside Japan. A rate of ¥110.71= U.S.$ 1.00, theexchange rate on 31st March, 2021, has been used in translation. The translation is not intended to imply that the assets and liabilities
which originated in yen have been or could be readily converted, realized or settled in U.S. dollars at the above or any other rate.
In the consolidated financial statements, “—” is used to denote “nil” and “0” is used to denote rounding down to zero.

2. Summary of Significant Accounting Policies(1) Scope of Consolidation
The consolidated financial statements include the accounts of the Company and its consolidated subsidiaries.
The number of consolidated and non-consolidated subsidiaries for the years ended 31st March, 2021 and 2020 is as follows:
2021

2020

i) Number of consolidated subsidiaries:77ii) Number of non-consolidated subsidiaries:

42(2) Application of Equity Method
The number of non-consolidated subsidiaries and affiliates, which are accounted for by the equity method, for the years ended 31st
March, 2021 and 2020 is as follows:
2021

2020

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

42iv) Number of affiliates not accounted for by the equity method:00(3) Fiscal Years of Consolidated Subsidiaries
The closing dates of consolidated subsidiaries are the same as the closing date for the consolidated financial statements.
(4) Trading Account Assets and Liabilities
Transactions that seek gains on short-term fluctuations and arbitrage in interest rates, currency prices, market prices of financial
instruments (trading transactions) are recognized on a trade date basis. They are recorded as trading assets or trading liabilities on the
consolidated balance sheets and gains or losses on these transactions are recorded in trading income or trading expenses on the
consolidated statements of income.
The Company’s consolidated subsidiaries engaged in the banking business value securities, monetary claims, etc. held for trading
purpose at the market price prevailing at the balance sheet date. Derivatives, such as futures and option transactions, are stated at theamount assuming that they were terminated or settled at the balance sheet date.
Trading income and expenses include interest income or expenses as well as changes in unrealized gains or losses on securities,
monetary claims and derivative financial products during the fiscal year.

See accompanying Notes to Consolidated Financial Statements.

54

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Notes to Consolidated Financial Statements

Notes to Consolidated Financial Statements

value of the loan (“direct write-off”). The amounts of such direct write-offs at 31st March, 2021 and 2020 were ¥9,590 million ($86,623(5) Securities
Securities held to maturity are carried at amortized cost using the straight-line method with cost determined by the moving averagemethod. Investments in non-consolidated subsidiaries not accounted for by the equity method are valued at cost determined by thethousand) and ¥9,517 million, respectively.
Other consolidated subsidiaries record a general reserve for possible loan losses by applying the historical loan-loss ratio observed

moving average method. In principle, securities available for sale are carried at fair value with cost of sales determined by the moving

over specific periods, and record a specific reserve for certain loans at the estimated uncollectible amount based on assessment of

average method. However, securities available for sale, for which it is extremely difficult to determine the fair value, are valued at costeach borrower’s ability to repay.

determined by the moving average method.
The difference between the acquisition cost and the carrying amount of securities available for sale, representing unrealized gains
and losses, is recognized as unrealized gains (losses) on securities available for sale, net of taxes, and included directly in net assets.
Securities held as components of individually managed money trusts whose principal objective is investments in securities are stated
at fair value.

(11) Reserve for Devaluation of Securities
In order to provide for a loss on investments, the Company and its consolidated subsidiaries estimate the amount deemed necessary
based on a review of financial position, etc. of the companies issuing securities or golf club membership.
(12) Reserve for Retirement Benefits for Directors and Corporate Auditors(6) Derivatives
Derivatives held or written are stated at fair value.
(7) Tangible Fixed Assets (excluding leased assets)
Tangible fixed assets of the Company and its consolidated subsidiaries engaged in the banking business are depreciated by the
declining-balance method; however, buildings (excluding facilities attached to buildings) acquired on or after 1st April, 1998 aredepreciated by the straight-line method. The useful lives for buildings and equipment are as follows:
Buildings:

3 to 60 years

Equipment:

2 to 20 years

Tangible fixed assets of other consolidated subsidiaries are depreciated mainly using the declining-balance method.
(8) Intangible Fixed Assets (excluding leased assets)
Intangible fixed assets are amortized using the straight-line method. Software for internal use is amortized based on the estimated usefullife determined by the Company and its consolidated subsidiaries (5 years).

Reserve for retirement benefits for directors and corporate auditors is provided at the amount that would be paid in accordance with
the internally established rule at the balance sheet date if they were retired on that date.
(13) Reserve for Reimbursement of Deposits
Reserve for reimbursement of deposits is provided for possible losses on the future claims for withdrawal of the deposits, which wasderecognized, at an amount deemed necessary based on the estimates of the consolidated subsidiaries engaged in the banking
business.
(14) Reserve for Other Contingent Losses
Reserve for other contingent losses is provided for possible losses on loans under the shared responsibility system with the Credit
Guarantee Corporation as well as for possible losses resulting from other contingencies not covered by the other reserves, at an
amount deemed necessary based on the estimates of the future possible payments by the Company and its consolidated subsidiaries.
(15) Reserve under the Special Laws
Reserve under the special laws is a legal reserve for financial instruments exchange, which is provided for possible losses arising from

(9) Leased Assets
The tangible and intangible fixed assets capitalized under the finance lease transactions entered into on and after 1st April, 2008 where
ownership of leased assets is not transferred to lessees are depreciated by the straight-line method over the lease term with their residual
value of zero.
(10) Reserve for Possible Loan Losses
Major consolidated subsidiaries record the reserve for possible loan losses as follows:
For loans to insolvent customers who are undergoing bankruptcy or special liquidation, etc. (hereinafter, “borrowers underbankruptcy proceedings”) or who are in a similar financial condition although not yet in bankruptcy (hereinafter, “borrowers substantiallyin bankruptcy”), the reserve for possible loan losses is provided at the full amount of the book value of such loans after deducting theamount of direct write-offs (as defined below), and excluding the amounts deemed collectible from sale of the collateral pledged andthe guarantees that are deemed recoverable.
For the unsecured and unguaranteed portion of loans to customers not presently in the above circumstances, but with a highprobability of becoming so (hereinafter “customers with high probability of becoming insolvent”), the reserve for possible loan losses isprovided at the amounts deemed necessary after deduction of the estimated realizable value of collateral and guarantees based on thecustomer’s overall financial condition.
For loans to borrowers with a rescheduled or restructuring plan, which exceed a certain amount, the discounted cash flow (DCF)

the purchase or sale of securities or other securities-related trading activities by the Company’s consolidated subsidiary engaged in the
securities business at an amount estimated pursuant to Article 46, Item 5 of the Financial Instruments and Exchange Law as well as
Article 175 of the Cabinet Office Ordinance relating to the financial instruments services.
(16) Accounting for Retirement Benefits
For the consolidated subsidiaries engaged in the banking business, the retirement benefit obligation for employees is attributed to eachperiod by the benefit formula method.
Actuarial gain/loss is amortized using the straight-line method mainly over a period of 10 years following the year it arises, which iswithin the average remaining years of service of the current employees.
For other consolidated subsidiaries, liability for retirement benefits and retirement benefit expenses are calculated using thesimplified method, which assumes the retirement benefit obligation to be equal to the benefits payable if all eligible employees voluntarily
terminated their employment at fiscal year end.
(17) Foreign Currency Translation
Foreign currency-denominated assets and liabilities are translated into Japanese yen primarily at the exchange rate prevailing at thebalance sheet date.

method is applied to provide for doubtful accounts, if cash flows from collection of principal and receipts of interest can be reasonably
estimated. Under the DCF method a reserve for possible loan losses is provided at the difference between the cash flows discounted
by the original interest rate and the carrying value of the loan.
For other loans, the reserve for possible loan losses is provided mainly at an anticipated amount of losses over the next one or(18) Accounting for Leases
Finance lease transactions which were initially engaged by the consolidated subsidiaries prior to 1st April, 2008 where there is notransfer of ownership are accounted for by the same method as applicable to ordinary operating lease contracts.

three years. The anticipated amount of losses was calculated by obtaining the loss rate based on the mean for a certain period of
actual loss rates calculated from actual losses for one or three years and then by making necessary adjustments in accordance with
future projections and other factors.
Regarding each loan, the Credit Review Office, which is independent of the operating divisions, reviews the operating divisions’evaluation of each loan for collectibility based on self-assessment standards.
For loans to borrowers under bankruptcy proceedings and borrowers substantially in bankruptcy that are secured by collateral andguarantees, the unrecoverable portion of such loans is determined by subtracting the estimated recoverable amounts from the disposalof the collateral and the amounts deemed recoverable from the guarantors. The unrecoverable amount is written off directly against the56

Nishi-Nippon Financial Holdings GroupINTEGRATED REPORT 2021

(19) Hedge Accountingi) Hedge accounting for interest rate risks
The consolidated subsidiaries engaged in the banking business apply the deferred method as hedge accounting for interest raterisks of certain financial assets and liabilities by using the individual hedging, which directly matches hedged items and hedging
instruments.
With regard to hedging transactions to offset fluctuations in the fair value of fixed-rate bonds classified as available-for-salesecurities, in accordance with operational rules concerning hedge accounting, hedged items are distinguished by identical type of

Nishi-Nippon Financial Holdings GroupINTEGRATED REPORT 2021

57

Notes to Consolidated Financial Statements

Notes to Consolidated Financial Statements

bonds and interest rate swaps are used as hedging instruments. Since significant terms related to those hedged items and hedging
instruments are nearly identical, such hedging transactions are deemed highly effective in terms of evaluation of hedge effectiveness.
No evaluation is performed for hedge effectiveness of qualifying interest rate swaps accounted for by the special treatment, as it

assessment of debtor companies and the amount to be collected in the cash flow estimation method.
Details of each assumption are as follows:i) Future outlook of debtors’ business in the assessment of debtor companies
The future outlook of debtors’ business is determined by evaluating the repayment situation, financial position, businessis ascertained that the criteria for the special treatment are continually met.

performance, etc., of each debtor.

ii) Hedge accounting for foreign exchange rate risk
The consolidated subsidiaries engaged in the banking business apply the deferred method as hedge accounting for foreign exchangeii) Period when the economy is stagnant due to the spread of COVID-19

risks of various foreign currency-denominated financial assets and liabilities in accordance with the “Accounting and Auditing

Under the assumption that the impact will continue to be felt into the following fiscal year (year ending 31st March, 2022),

Treatment for Accounting for Foreign Currency Transactions in Banking Industry” (JICPA Industry-specific Committee Practical¥4,742 million ($42,832 thousand) is reserve for possible loan losses by reviewing the assessment of specified debtor

Guideline No. 25 of 8th October, 2020).

companies in consideration of recent business performance, the possible impact of COVID-19 on their future businessperformance, etc.

The consolidated subsidiaries treat foreign exchange swap transactions as hedging instruments for the purpose of the hedge of
foreign currency-denominated financial assets and liabilities, and the subsidiaries test hedge effectiveness by matching the foreigniii) Future transition in the assessment of debtor companies and the amount to be collected in the cash flow estimation

currency swap position as hedging instruments with the related foreign currency-denominated financial assets and liabilities asmethodhedged items.

The future transition in the assessment of debtor companies and the amount to be collected are set by evaluating eachdebtor based on their repayment situation and future plans.

iii) Internal contract
For internal contracts, the consolidated subsidiaries engaged in the banking business manage the foreign currency swaps that are(3) Possible impact on consolidated financial statements for the following fiscal year

designated as hedging instruments in accordance with the strict criteria for external transactions stipulated in the JICPA Industry-

All of the key assumptions are surrounded by uncertainty. As such, a change in the assumptions based on which the original

specific Committee Practical Guideline No. 25. Therefore, the subsidiaries either recognizes gains or losses that arise from such

estimates were made can have a material impact on reserve for possible loan losses on consolidated financial statements for

currency swaps as earnings or defers them, rather than eliminating them.

the following fiscal year.
(26) Accounting Standards Issued but Not Yet Effective(20) Amortization of Goodwill
Goodwill is amortized using the straight-line method over five years.
(21) Cash and Cash Equivalents in the Consolidated Statement of Cash Flows
Cash and Cash Equivalents in the consolidated statement of cash flows are composed of cash and due from central bank.

“Accounting Standard for Revenue Recognition” (ASBJ Statement No. 29 of 31st March, 2020)“Implementation Guidance on Accounting Standard for Revenue Recognition” (ASBJ Guidance No. 30 of 26th March, 2021)
Overview
This is a comprehensive accounting standard for revenue recognition. Specifically, the accounting standard establishes thefollowing five-step model that will apply to revenue from customers:
Step 1: Identify the contract(s) with a customer.

(22) Accounting Treatment for Consumption Taxes
The tax excluded method is used as the accounting treatment for consumption taxes and local consumption taxes for the Company

Step 2: Identify the performance obligations in the contract.

and its consolidated subsidiaries.

Step 3: Determine the transaction price.
Step 4: Allocate the transaction price to the performance obligations in the contract.
Step 5: Recognize revenue when (or as) the entity satisfies a performance obligation.

(23) Application of the Consolidated Tax Payment System
The Company and some of its consolidated subsidiaries have adopted the consolidated tax payment system, where the Company isdesignated as a parent company.

Scheduled date of adoption
The Company plans to adopt the above-mentioned accounting standard and implementation guidance from the beginning of
the fiscal year ending 31st March, 2022.

(24) Accounting principles and procedures when related accounting standards are not clear
Gains/losses from cancellation/redemption of investment trusts are recorded under “Interest and dividends on securities,” provided,

Impact of the adoption of the accounting standard and implementation guidance

however, that the amount of interim dividends from investment trusts is recorded in “Loss on redemption of bonds” under “Other

The Company is currently evaluating the effect of the adoption of this accounting standard and implementation guidance on its

operating expenses” if such is negative overall.

consolidated financial statements.

Because the amount of interim dividends from investment trusts was negative overall for the fiscal year under review, we posted¥92 million ($835 thousand) in “Loss on redemption of bonds” under “Other operating expenses.”“Accounting Standard for Fair Value Measurement” (ASBJ Statement No. 30 of 4th July, 2019)“Implementation Guidance on Accounting Standard for Fair Value Measurement” (ASBJ Guidance No. 31 of 4th July, 2019)(25) Significant accounting estimates“Accounting Standard for Financial Instruments” (ASBJ Statement No. 10 of 4th July, 2019)

Reserve for possible loan losses:“Implementation Guidance on Disclosures about Fair Value of Financial Instruments” (ASBJ Guidance No. 19 of 31st March, 2020)

Amount recorded on the consolidated financial statements for the fiscal year under review:<At 31st March, 2021>

Overview
Millions of yen

Thousands of
U.S. dollars¥44,068$398,056

Reserve for possible loan losses

In order to increase comparability with provisions of international accounting standards, the “Accounting Standard for Fair
Value Measurement” and “Implementation Guidance on Accounting Standard for Fair Value Measurement” (hereinaftercollectively, the “Fair Value Measurement Accounting Standard, Etc.”) have been developed to serve as guidance, etc. on

Information about the content of significant accounting estimates concerning disclosure items identified:measurements of fair value.

(1) Calculation method

The Fair Value Measurement Accounting Standard, Etc. is applicable to the fair value of the following item:

For the calculation method of reserve for possible loan losses, see “(10) Reserve for Possible Loan Losses,” under the “Summaryof Significant Accounting policies.”(2) Key assumptions• Financial instruments as in the “Accounting Standard for Financial Instruments.”
Also, the “Implementation Guidance on Disclosures about Fair Value of Financial Instruments” has been revised to include
notes on the breakdown of financial instruments by the level of their fair value, etc.

Key assumptions include: i) Future outlook of debtors’ business in the assessment of debtor companies; ii) Period when theeconomy is stagnant due to the spread of the novel coronavirus disease <COVID-19>; and iii) Future transition in the

Scheduled date of adoption
The Company plans to adopt the above-mentioned accounting standard and implementation guidance from the beginning of
the fiscal year ending 31st March, 2022.

58

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Notes to Consolidated Financial Statements

Notes to Consolidated Financial Statements

Impact of the adoption of the accounting standard and implementation guidance
The Company is currently evaluating the effect of the adoption of this accounting standard and implementation guidance on its
consolidated financial statements.

5. Loans and Bills Discounted
Loans and bills discounted at 31st March, 2021 and 2020 consisted of the following:Thousands of
U.S. dollars

Millions of yen(27) Changes in methods of representation• Application of the Accounting Standard for Disclosure of Accounting Estimates
From the consolidated financial statements at the end of the fiscal year under review, we applied the Accounting Standard forDisclosure of Accounting Estimates (ASBJ Statement No. 31, 31st March, 2020) and added notes on significant accounting
estimates to the consolidated financial statements, provided, however, that the notes do not describe the content pertaining to theprevious fiscal year in accordance with the transitional handling as specified in the note in Paragraph 11 of said standard.
(28) Additional information

2021

2020

Bills discounted*¥17,915¥23,764$161,821

Loans on notes

178,913

232,460

1,616,059

Loans on deed

68,999,434

2021

7,638,927

6,548,871

Overdraft

708,189

749,047

6,396,798

Total¥8,543,946¥7,554,143$77,174,113*• Application of the Accounting Standard for Accounting Policy Disclosures, Accounting Changes and Error Corrections
From the consolidated financial statements at the end of the fiscal year under review, we applied the Accounting Standard forBills discounted are recorded as cash lending / borrowing transactions in accordance with the “Accounting and Auditing Treatments for Application of AccountingStandard for Financial Instruments in Banking Industry” (JICPA Industry-specific Committee Practical Guideline No. 24). The consolidated subsidiaries engaged in thebanking business have right to sell or collateralize such bills at its discretion. Total face value of commercial bills and bills of exchange acquired through discounting
amounted to ¥18,172 million ($164,149 thousand) and ¥24,249 million at 31st March, 2021 and 2020, respectively.

Accounting Policy Disclosures, Accounting Changes and Error Corrections (ASBJ Statement No. 24, 31st March, 2020).
Accordingly, we disclose “accounting principles and procedures when related accounting standards are not clear.”

Non-performing loans included in the loans at 31st March, 2021 and 2020 consisted of the following:Thousands of
U.S. dollars

Millions of yen• Tax effect accounting for the transition from the Consolidated Taxation System to the Group tax Sharing System

2020

2021

In order to determine the amounts of deferred tax assets and deferred tax liabilities with respect to a transition to the Group Tax

2021

Sharing System which was created in the “Act on Partial Revision of the Income Tax Act, Etc.” (Act No. 8 of 2020) andLoans to legally bankrupt entities**¥4,128¥4,283$37,287

corresponding revisions made to the Nonconsolidated Taxation System, the Company and some of its consolidated subsidiaries

Delinquent loans***

105,266

97,045

950,833

do not apply the provisions in paragraph (44) of the “Implementation Guidance on Tax Effect Accounting” (ASBJ Guidance No. 28

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

128

873

1,161

of 16th February, 2018), but do follow the provisions in the Income Tax Act, Etc. before the revision pursuant to paragraph (3) ofLoans with altered lending conditions*****

34,762

26,200313,999¥144,286¥128,403$1,303,282

the “Practical Solution on the Treatment of Tax Effect Accounting for the Transition from the Consolidated Taxation System to theGroup Tax Sharing System” (ASBJ Practical Solution No. 39 of 31st March, 2020)**

3. Trading Account Assets
Trading account assets at 31st March, 2021 and 2020 consisted of the following:Thousands of
U.S. dollars

Millions of yen

2020

2021

Trading securities¥131¥1,385$1,184

Other trading assets

—

—

—

¥131

¥1,385$1,184

2021

Total

Total

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

6. Assets Pledged as Collateral
Assets pledged as collateral by the Company and its consolidated subsidiaries at 31st March, 2021 and 2020 consisted of the following:Thousands of
U.S. dollars

2021

2020

Japanese government bonds¥365,537¥212,516$3,301,758

Japanese municipal bonds

332,141

261,087

3,000,104

Corporate bonds (including government-guaranteed bonds)*

259,233

312,426

2,341,550

Stock**

142,409

107,457

1,286,330

Other securities***

407,512404,387

3,680,898¥1,506,834¥1,297,874$13,610,642

Total

2021

* Corporate bonds included bonds offered through private placement. The guarantee obligation of Nishi-Nippon City Bank for such private placement bonds at 31st
March, 2021 and 2020 were ¥17,386 million ($157,040 thousand) and ¥17,550 million, respectively.
** Stock included stock of affiliates of ¥802 million ($7,246 thousand) and ¥759 million at 31st March, 2021 and 2020, respectively.
*** Other securities included investments in non-consolidated subsidiaries of ¥163 million ($1,474 thousand) and ¥200 million at 31st March, 2021 and 2020, respectively.

INTEGRATED REPORT 2021

2021

Assets pledged as collateralMillions of yen

Nishi-Nippon Financial Holdings Group

2020

2021

Securities at 31st March, 2021 and 2020 consisted of the following:

60

Thousands of
U.S. dollars

Millions of yen

4. Securities
Cash and due from banks
Securities

¥35

¥35

$323

1,059,343

849,233

9,568,634

Loans

1,456,647

915,137

13,157,328

Total¥2,516,027¥1,764,407$22,726,287

Deposits¥16,917¥17,974$152,810

Call money and bills sold

39,30039,000$354,981

Payables under repurchase agreements

194,294

207,019

1,754,981

Guarantee deposits received under securities lending transactions

41,135

89,108371,556

1,434,420

988,684

12,956,559

Liabilities secured by the above assets

Borrowed money

Nishi-Nippon Financial Holdings GroupINTEGRATED REPORT 2021

61

Notes to Consolidated Financial Statements

Notes to Consolidated Financial Statements

Other than the items shown above, the following items were pledged as collateral for foreign exchange transactions and/or as substitutes
for initial margin on futures at 31st March, 2021 and 2020:
Thousands of
U.S. dollars

Millions of yen

2020

2021

$10,312

Thousands of
U.S. dollars

Millions of yen

Thousands of
U.S. dollars

Millions of yen

2020

2021

2021

¥16

¥22

$152

5,753

6,179

51,9701,852

Domestic exchange settlement account*
Accrued income

Additionally, the following was included in other assets at 31st March, 2021 and 2020:

Cash collateral paid for financial instruments

Other assets at 31st March, 2021 and 2020 consisted of the following:

2021¥2,643¥1,141

Securities

9. Other Assets

Income tax refund receivable, etc.

205—

Prepaid expenses

460

227

4,157

2021

2020

2021

Financial derivative products

4,661

5,014

42,104¥46,683¥45,300$421,672

Cash collateral paid for financial instruments

46,68345,300421,672

2,270

2,295

20,511

Other

57,78532,169521,951¥115,565¥88,913$1,043,861

Deposits included in other assets

Total* Domestic exchange settlement account represents unsettled debit balances arising from inter-bank domestic exchange transfers.

7. Contracts for Commitment Lines of Credit
Contracts for commitment lines of credit related to overdraft agreements and loan credit facilities represent a promise on a lending bank at a
specified credit limit, to a customer upon request for funds, unless there is a violation of the contractual conditions.
The aggregate amounts under commitment contracts not yet drawn down at 31st March, 2021 and 2020 are as follows:

10. Tangible Fixed Assets
Tangible fixed assets at 31st March, 2021 and 2020 consisted of the following:Thousands of
U.S. dollars

Millions of yen

2021

2020

2021

Aggregate amount under commitment contracts not yet drawn down

¥2,194,895¥2,123,441$19,825,630

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

2,109,259

2,053,257

19,052,113

As many of these contracts expire without the right to extend the loans being exercised, the aggregate total of the undrawn amount
does not necessarily affect the future cash flows of the Company and its consolidated subsidiaries. Many of these contracts have

2021

2020

2021

Land

¥74,282¥75,412$670,960

Buildings

32,491

33,512

293,484

354

398

3,206

Construction in progressin financial conditions, a need to secure their credit, or other similar reasons. In addition to obtaining necessary collateral (real estate,

391

261

3,534

10,031

10,062

90,612¥117,551¥119,647$1,061,797

Leased assets
Other tangible fixed assets

stipulations that allow the consolidated subsidiaries to turn down a loan request or reduce the amount of the credit line if there is a change

Thousands of
U.S. dollars

Millions of yen

Total* The amounts of accumulated depreciation for tangible fixed assets at 31st March, 2021 and 2020 were ¥65,657 million ($593,054 thousand) and ¥65,722 million,
respectively.

securities, etc.) at the time the contract is entered into, the consolidated subsidiaries assess the condition of the customer’s business
operations, and analyze other information, based on internal procedures and standards. If necessary, the contract is reviewed and revised,or additional steps are taken to secure the credit extended to the customer.

The accelerated depreciation entry amounts for tangible fixed assets at 31st March, 2021 and 2020 are as follows:
Thousands of
U.S. dollars

Millions of yen

2020

2021

8. Foreign Exchange

2021¥6,646¥6,629$59,885

Foreign exchange assets and liabilities at 31st March, 2021 and 2020 consisted of the following:Thousands of
U.S. dollars

Millions of yen

2020

2021

11. Deposits

2021

Assets:Foreign exchange bills bought

¥257

¥485

$2,328Foreign exchange bills receivable

129

168

1,174

Deposits at 31st March, 2021 and 2020 consisted of the following:

Due from foreign banks (their accounts)

—

—

—

2021

2020

Due from foreign banks (our accounts)

10,687

13,752

96,532Current deposits¥444,207¥393,134$4,012,347¥11,074¥14,407$100,034

Ordinary deposits

6,078,238

5,255,681

54,902,344

¥5

¥13

$47

Total
Liabilities:

Deposits at notice

Foreign exchange bills sold
Foreign exchange bills payable
Total

Time deposits

Nishi-Nippon Financial Holdings GroupINTEGRATED REPORT 2021

2021

17,528

14,581

158,327

2,603,150

2,684,690

23,513,235
1,702,833

205

104

1,854

Negotiable certificates of deposit

188,520

349,475

¥210

¥118

$1,901Other deposits

152,364

133,483

1,376,251¥9,484,009¥8,831,047$85,665,340

Total

62

Thousands of
U.S. dollars

Millions of yen

Nishi-Nippon Financial Holdings GroupINTEGRATED REPORT 2021

63

Notes to Consolidated Financial Statements

Notes to Consolidated Financial Statements

12. Bonds

Capital stock during the year ended 31st March, 2020 consisted of the following:

Bonds at 31st March, 2021 and 2020 consisted of the following:Thousands of
U.S. dollars

Millions of yen

2020

2021

1st April, 2019

Capital stock

Issued shares

Millions of yen

166,596,955¥50,000——

Increase

2021

Bonds:

Decrease*

0.87% Japanese yen callable subordinated bonds due 2025
Total

Common stock—¥10,000—

31st March, 2020—

¥10,000—* The decrease of 4,000,000 shares is due to retirement of treasury shares.

4,000,000—

162,596,955¥50,000

16. Treasury Stock

13. Borrowed Money

Treasury stock during the year ended 31st March, 2021 consisted of the following:

The weighted average interest rates on borrowed money is 0.00% at 31st March, 2021.

Common stock

The aggregate annual maturity amounts within five years of borrowed money after 31st March, 2021 are as follows:
Millions of yen

Thousands of
U.S. dollars

Year ending 31st March
2022¥807,025$7,289,543

2023

160,281

1,447,755

2024

175,278

1,583,222

2025

295,0882,665,418

2026

4

40

Treasury stock

Number of shares

Millions of yen

Thousands of
U.S. dollars

1st April, 2020

13,035,479(¥9,868)($89,137)

Increase*

1,408,448(1,004)(9,071)

Decrease*

3,000,593

2,275

20,55031st March, 2021

11,443,334(¥8,597)($77,658)* The increase of 1,408,448 shares is due to acquisition of treasury shares of 1,402,500 and purchase of fractional shares of 5,948.
The decrease of 3,000,593 shares is due to retirement of treasury shares of 3,000,000 and sale of fractional shares of 593.

Treasury stock during the year ended 31st March, 2020 consisted of the following:
Common stock

Treasury stock

Number of shares

Millions of yen

1st April, 2019

14,346,763(¥10,896)

Increase*

2,689,162(2,005)Decrease*

4,000,462

3,033

31st March, 2020

13,035,479(¥9,868)

14. Other Liabilities
Other liabilities at 31st March, 2021 and 2020 consisted of the following:Thousands of
U.S. dollars

Millions of yen

2020

2021

2021

¥36

¥32

$329

Accrued income taxes

1,420

4,342

12,828

Accrued expenses

6,739

8,070

60,872

Unearned income

3,263

2,548

29,481

Financial derivative products

9,238

7,565

83,451

17. Revaluation of Premises AccountLease obligations

411

264

3,713

Based on the Law Concerning Land Revaluation (Law No. 34, promulgated on 31st March, 1998), the consolidated subsidiaries engaged in

Cash collateral received for financial instruments

595

310

5,374

the banking business have revalued land used for business purposes.

Domestic exchange settlement account* The increase of 2,689,162 shares is due to acquisition of treasury shares of 2,681,800 and purchase of fractional shares of 7,362.
The decrease of 4,000,446 shares is due to retirement of treasury shares of 4,000,000 and sale of fractional shares of 446.

813

804

7,351

The deferred taxes on revaluation differences are presented in the account, “Deferred tax liabilities on revaluation of premises” in the

Others85,12976,023768,941

liabilities of the consolidated balance sheet. The amount of revaluation differences, net of tax, is presented as “Revaluation of premises, net

Total¥107,648¥99,962$972,344

of taxes” in net assets.

Asset retirement obligations

The differences at 31st March, 2021 and 2020 are not presented as the aggregate market value of land subject to revaluation exceeded
the book value after revaluation.

15. Capital Stock
18. Other Interest Income

Capital stock during the year ended 31st March, 2021 consisted of the following:
Common stock

1st April, 2020
Increase
Decrease*
31st March, 2021
* The decrease of 3,000,000 shares is due to retirement of treasury shares.

64

Nishi-Nippon Financial Holdings GroupINTEGRATED REPORT 2021

Capital stock

Other interest income for the years ended 31st March, 2021 and 2020 consisted of the following:

Issued shares

Millions of yen

Thousands of
U.S. dollars

162,596,955¥50,000$451,630———

3,000,000——

159,596,955¥50,000$451,630

Thousands of
U.S. dollars

Millions of yen

2020

2021

2021

Interest on call loans and bills bought

¥2

¥16

$21

Interest on deposits with banks

546

164

4,935

Others

1,362

1,478

12,305

Total¥1,911¥1,660$17,261

Nishi-Nippon Financial Holdings GroupINTEGRATED REPORT 2021

65

Notes to Consolidated Financial Statements

Notes to Consolidated Financial Statements

19. Other Operating Income

23. General and Administrative Expenses

Other operating income for the years ended 31st March, 2021 and 2020 consisted of the following:

General and administrative expenses for the years ended 31st March, 2021 and 2020 consisted of the following:Thousands of
U.S. dollars

Millions of yen

2020

2021

2021

2020

2021

¥31,300¥31,641$282,725

2,321

1,454

20,966

54

50

493

Depreciation

5,729

5,692

51,751

Rental expenses

3,008

3,076

27,1732021

Gains on foreign exchange transactions

¥589

¥740

$5,322

Salaries and allowances

Gains on sale of bonds

3,997

2,936

36,108

Employee retirement benefits

Others

386

318

3,487

Retirement benefits for directors and corporate auditors

Total¥4,972¥3,995$44,918

20. Other Income

Thousands of
U.S. dollars

Millions of yen

Taxes

5,596

5,549

50,552Others33,261

34,843

300,438

Total¥81,272¥82,308$734,101

Other income for the years ended 31st March, 2021 and 2020 consisted of the following:Thousands of
U.S. dollars

Millions of yen

2020

2021

24. Other Expenses

2021¥2,059¥3,945$18,600

Gains on money held in trust

14

12

128

Equity in earnings of affiliates

86

101

785

Gains on disposition of fixed assets

401

1,900

3,626

Recoveries of written-off claims

239

97

2,160

Provision for possible loan losses¥6,218¥3,843$56,170

Rental income on land and buildings

538

412

4,860

Losses on write-offs of claims

1,989

2,220

17,968Others

246

487

2,229

Losses on sale of stock and other securities

94

5

854

Total

¥3,585¥6,958$32,390

Losses on devaluation of stock and other securities

18

1,735

163

Losses on disposition of tangible fixed assets

436

422

3,942

Impairment losses

818

1,046

7,397

Losses on sale of loans

1,105

8

9,989

Others

1,764

1,453

15,713

Total¥12,446¥10,734$112,427

Gains on sale of stock and other securities

21. Other Interest Expenses
Other interest expenses for the years ended 31st March, 2021 and 2020 consisted of the following:Thousands of
U.S. dollars

Millions of yen

2020

2021

2021

Thousands of
U.S. dollars

Millions of yen

2020

2021

Other expenses for the years ended 31st March, 2021 and 2020 consisted of the following:

2021

Bonds

¥61

¥87

$558

Others

133

861

1,202

Total

¥194

¥948

$1,76022. Other Operating Expenses
Other operating expenses for the years ended 31st March, 2021 and 2020 consisted of the following:Thousands of
U.S. dollars

Millions of yen

2020

2021
¥846

¥100

$7,647

Losses on redemption of bonds

336

256

3,038

Losses on devaluation of bonds

88

—

796

Expenses for derivatives other than trading derivatives

584

1,327

5,277

¥1,855¥1,684$16,760

Total

66

2021

Losses on sale of bonds

Nishi-Nippon Financial Holdings GroupINTEGRATED REPORT 2021

Nishi-Nippon Financial Holdings GroupINTEGRATED REPORT 2021

67

Notes to Consolidated Financial Statements

Notes to Consolidated Financial Statements

25. Other Comprehensive Income

Future lease payments of finance leases which are accounted for as operating leases at 31st March, 2021 and 2020 are as follows:

follows:

2020

2021
Thousands of
U.S. dollars

Millions of yen

2020

2021

Thousands of
U.S. dollars

Millions of yen

Reclassification adjustments and tax effects related to other comprehensive income for the years ended 31st March, 2021 and 2020 are as

2021

Future finance lease payments

2021

Net unrealized gains on securities available for sale:

Due within one year

¥32

¥73

Due after one year

79

112

720

¥112

¥185

$1,012

Total

$292

Amount arising during the year

¥30,557(¥7,360)$276,010

Reclassification adjustments(4,350)(6,558)(39,298)

Amount before tax effect

26,206(13,918)

236,711

Tax effect(7,876)

3,738(71,148)¥18,329(¥10,179)$165,562

Amount arising during the year¥32(¥3,218)$290

Reclassification adjustments

562

864

5,085

Amount before tax effect595(2,354)

5,375

Total lease payments during the year

¥32

¥77

$292

32

77

292

Net unrealized gains on securities available for saleNote: The amount of the future finance lease payments at the end of the year includes an interest element as the total future finance lease payments are not significant
to the balance of tangible fixed assets at the end of the year.

Total lease payments during the year and the amount equivalent to depreciation expenses for the years ended 31st March, 2021 and2020 are as follows:

Net deferred gains (losses) on hedging instruments:

Thousands of
U.S. dollars

Millions of yen

2020

2021

2021

(181)

718

(1,639)The amount equivalent to depreciation expenses *¥413(¥1,636)$3,735* The amount equivalent to depreciation expenses was calculated using the straight-line method with no residual value over the lease term.

Amount arising during the year

¥13,117(¥5,596)$118,485

Reclassification adjustments

2,328

1,461

21,032

Amount before tax effect

15,445(4,134)

139,517

Tax effect
Net deferred gains (losses) on hedging instruments
Retirement benefits liability adjustments(4,710)1,260(42,552)

Retirement benefits liability adjustments¥10,735(¥2,873)$96,965

Total other comprehensive income¥29,478(¥14,689)$266,263

Tax effect(2) Operating leases
Future lease payments required under operating leases that are non-cancelable at 31st March, 2021 and 2020 are as follows:
Thousands of
U.S. dollars

Millions of yen

2020

2021

2021

Future operating lease payments
Due within one year

¥263

¥270

$2,381

Due after one year

422

435

3,820

¥686

¥705

$6,202Total

26. Lease Transactions(1) Finance leases
Information on finance lease transactions which are accounted for as operating leases at 31st March, 2021 and 2020 is summarized asfollows:
Thousands of
U.S. dollars

Millions of yen

2021

2020

2021

Total

Total

Total

Policies for financial instruments
Nishi-Nippon Financial Holdings, Inc. Group (the “Group”) is engaged in the financial service business, with a primary focus on
manages and raises funds, taking into account market conditions and balancing duration. To conduct these businesses, the¥1,867$8,767¥970¥1,867$8,767¥858¥1,682$7,755¥858¥1,682$7,755¥112¥185$1,012Loans, which comprise 70% of the Group’s total assets, are primarily made to domestic corporations and individuals and are

¥112

¥185

$1,012

exposed to credit risks resulting from non-performance of contracts. Should the creditworthiness of major borrowers deteriorate, theAmounts equivalent to carrying value
Tangible fixed assets

i)

¥970

Amounts equivalent to accumulated depreciation
Tangible fixed assets(1) Matters related to status of financial instrumentsbanking businesses such as deposits, loans, securities, and domestic and foreign currency exchange businesses. The Group

Amounts equivalent to acquisition cost
Tangible fixed assets

27. Financial Instruments

Company comprehends the risks arising from all of its assets and liabilities, including off-balance-sheet transactions, through theproper controls over these risks, and builds reasonable and effective portfolios. Thus the Company operates a comprehensive asset
and liability management (ALM) system with the aim of maximizing and stabilizing its profits.
In addition, some of the Company’s consolidated subsidiaries are engaged in banking, credit card, credit guarantee services,credit management, restructuring support services, claims servicing businesses and financial instruments and exchange services.
ii) Types of financial instruments and related risks

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

value of collateral sharply decline, or other unanticipated problems arise, it could cause an increase in the cost of credit such as an
unexpected write-off or rise in reserve for possible loan losses. Moreover, considering the relative weight of the invested assets, theimpact of any such problems could be substantial and could have a negative effect on the financial position and performance of theGroup.
Securities are mainly stocks, debt securities, and investment trusts and are exposed to the credit risk of each issuer and the riskof interest rate fluctuation. Stocks that are marketable are exposed to price volatility risks that a decline in their market prices cause
impairment losses and valuation losses on the stocks. Debt securities are also subject to price volatility risks that an increase in themarket interest rates following economic recovery may cause valuation losses on the securities.
Borrowed money and bonds are exposed to liquidity risks that, if some problems arise in cash management due to deteriorationin financial positions at the Group, the Group is forced to raise funds at higher interest rates than usual, market transactions are

68

Nishi-Nippon Financial Holdings GroupINTEGRATED REPORT 2021

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69

Notes to Consolidated Financial Statements

suspended as a result of market turmoil, or it is forced to make transactions at a drastically unfavorable price than usual, it could
impact future operations of the Group.
Derivative transactions include interest rate swaps, forward exchange transactions, currency swaps, and currency options. These

Notes to Consolidated Financial Statements(d) Risk management for derivative transactions
The Group’s derivative transactions are entered into using operational rules prepared in accordance with the Group’s internal
regulations. The rules stipulate the scope of derivative usage, authorization, responsibility, procedure, credit line, loss-cut rule, andderivatives are utilized primarily as hedging instruments to manage and mitigate the market risks of on-balance-sheet assets andreporting system. Each business line is responsible for each relevant risk management and for reporting to management, including

liabilities. In addition, some of the derivative transactions in trading operations are used for the purpose of making profits throughthe ALM Committee, on a monthly basis.

short-term fluctuations in the market rates, arbitrage transactions and others. Hedge transactions consist mainly of interest rate
swaps as a hedge against interest rate fluctuation risks arising from loans with fixed interest rates, and forward exchange transactionsiv) Supplementary explanation of the estimated fair value of financial instruments

and currency options as a hedge against exchange rate fluctuation risks arising from foreign currency-denominated assets and

The fair value of financial instruments includes the value based on the market price as well as a reasonably estimated value in caseliabilities. The Company assesses the hedge effectiveness based on the difference between accumulated changes in cash flows ofthere is no market price. Because various assumptions are used in the estimation of the fair value, the fair value may vary when

hedged items and hedging instruments. However, no evaluation is performed for the hedge effectiveness of qualifying interest rate

different assumptions are used.

swaps accounted for by the special treatment under the Accounting Standard for Financial Instruments, as it is ascertained that suchderivatives continually meet the criteria for special treatment. Risks related to these derivatives transactions include the market risk of(2) Estimated fair value of financial instruments

a potential loss in the fair value of financial instruments or portfolios resulting from fluctuations in interest rates, foreign exchange

Carrying value of financial instruments in the consolidated balance sheets at 31st March, 2021 and 2020 and their fair values andrates, stock prices and other factors as well as the credit risk of a potential loss in the value of a transaction due to default byvaluation differences are as follows. Non-listed stocks and others whose fair value is extremely difficult to be estimated are excluded fromcounterparties to the contracts.

the table below (refer to Note 2).

iii) Risk management system for financial instruments(a) Credit risk management<At 31st March, 2021>

Recognizing the credit risk as our highest priority, the Group is working on strengthening controls over the credit risk in accordanceMillions of yen

with the Group’s credit risk management policy and credit policy.
The Group applies its strict standards to the screening of individual credit extension, and credits that exceed certain thresholds
are reviewed further by specialized staff in its Credit Supervision Division. In this way, the Group is working to maintain thesoundness of its assets.
Regarding its loan portfolios, the Group tries to diversify risks to ensure that there is no concentration on any particular

Valuationdifferences

Carrying value

Fair value¥1,738,761¥1,738,827¥66

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

industrial sectors or customers, through its systems of credit risk quantification and portfolio management by sector based on the

Held-to-maturity securities

15,971

16,341369

credit rating system.

Available-for-sale securities

1,469,229

1,469,229—

iii) Loans and bills discounted

8,543,946

In addition, in order to properly carry out write-offs and set provisions, the Group conducts self-assessments of its assets anduses an independent audit department to constantly monitor the status of the self-assessment procedures and adequacy of write-

Reserve for possible loan losses*

offs and provisions.
Total assets(b) Market risk management
The Group clearly separates the department responsible for conducting market transactions (front office) from the department
responsible for business administration (back office). Furthermore, the division which is independent from the market divisions has
been put in charge of risk management (middle office) to monitor conditions of the market transactions and their compliance withthe market risk-related regulations. The Group thus has a system of mutual controls among offices.
In addition, the Group is working to achieve stable profits by improving its management methods through a variety oftechniques for measuring risks such as VaR (Value at Risk) and BPV(Basis Point Value) methods, and by establishing a maximum
acceptable level for market risks and controlling the risks within the certain acceptable range.
(Quantitative information on market risks)(42,647)
8,501,298

8,610,739

109,440¥11,725,261¥11,835,138¥109,877

Liabilities:¥9,484,009¥9,484,241¥231ii) Call money and bills sold208,128

208,128—iii) Payables under repurchase agreements

194,294

194,294—iv) Guarantee deposits received under securities lending transactions

41,135

41,135—v) Borrowed money

1,437,688

1,431,487(6,200)Total liabilities¥11,365,255¥11,359,286(¥5,969)¥—i) Deposits

Derivatives**

The measured quantity of market risks of the Group as a whole at 31st March, 2021 and 2020 were ¥53,172 million ($480,289

Hedge accounting not applied

¥100

¥100

thousand) and ¥30,369 million, respectively.

Hedge accounting applied(2,315)(2,315)—(¥2,215)(¥2,215)¥—

Financial instruments of the consolidated subsidiaries engaged in the banking business which are subject to the measurement

Total derivatives

include loans, deposits, securities and derivatives. The Group measures market risks using historical VaR method with anobservation period of five years, a confidence interval of 99% and a holding period of 6 months.
The Group performs backtesting, which compares VaR calculated by the model with actual performance (gain or loss). Basedon the results of the testing, we believe that the risk measurement model which we use captures market risks with sufficientaccuracy. However, since VaR measures market risks at a certain probability which is statistically calculated, it is not always
possible for the model to capture market risks in situations where market conditions change drastically.
(c) Liquidity risk management
The Group recognizes the liquidity risk as one of the most significant risks, because there are concerns over potential businessfailures and systemic risks when the liquidity risk rises. The Group provides against the liquidity risks by ensuring an adequate
reserve for outstanding claims and developing a contingency plan that assumes various scenarios.
As for the day-to-day cash management of the Group, a system of mutual controls among divisions has been put into place.
As a part of this system, the divisions responsible for the Group’s day-to-day cash management raise and manage marketable
funds, while the divisions responsible for managing the liquidity risk monitor the Group’s cash position. In this way, the Group
maintains a fluid and stable cash position.

70

Nishi-Nippon Financial Holdings GroupINTEGRATED REPORT 2021

Nishi-Nippon Financial Holdings GroupINTEGRATED REPORT 2021

71

Notes to Consolidated Financial Statements

Notes to Consolidated Financial Statements(Note 1) Methods for estimating the market value of financial instruments

Thousands of U.S. dollars
Valuationdifferences

Carrying value

Fair value$15,705,549$15,706,150$601

Held-to-maturity securities

144,259

147,601

3,341

Available-for-sale securities

13,270,977

13,270,977—

Assets:i)

Assets:Because the fair value of due from banks that does not have stated maturity approximates its carrying value, the carrying value isi) Cash and due from banks

treated as the fair value. The fair value of due from banks that has stated maturity is based on the present value of the totals by
maturity bucket discounted by the interest rate that would be applied if similar deposits were placed. As the fair value of due fromii) Securities:

Reserve for possible loan losses*

as the fair value.
The fair value of stocks is based on their market price on the stock exchange, while the fair value of debt securities is based on the(385,215)
76,788,898

77,777,433

988,535$105,909,684$106,902,163$992,479$85,665,340$85,667,428$2,088ii) Call money and bills sold1,879,942

1,879,942—

iii) Payables under repurchase agreements

1,754,981

1,754,981—

371,556

371,556—

Total assets

banks with a short-term original contractual maturity (one year or less) approximates its carrying value, its carrying value is treatedii) Securities

77,174,113

iii) Loans and bills discounted

Reference Prices (Yields) for OTC Bond Transactions published by the Japan Securities Dealers Association, the price quoted by
the correspondent financial institutions or the value reasonably calculated by the Group. The fair value of investment trusts is basedon the announced reference price or the price quoted by the correspondent financial institutions. The fair value of foreign securities

Liabilities:i) Depositsiv) Guarantee deposits received under securities lending transactionsv) Borrowed money

12,986,074

12,930,065(56,008)

Total liabilities$102,657,894$102,603,974($53,920)

is based on the price quoted by the correspondent financial institutions or the financial information vendors.
The fair value of private placement bonds with the Company’s own guarantee is based on the present value of future cash
flows discounted by the market interest rate adjusted for credit risk.
Notes concerning securities by each carrying purpose are presented in “28. Securities” of “Notes to Consolidated Financial
Statements.”iii) Loans and bills discountBecause loans and bills discounted with floating interest rates reflect market interest rates in a short period of time, the fair value of

Derivatives**

such loans approximates their carrying value as long as the credit standing of the borrower has not changed significantly since

Hedge accounting not applied
Hedge accounting applied
Total derivatives

$903

$903

$—

origination. Thus, the carrying value of such loans is treated as the fair value. The fair value of loans and bills discounted with fixed(20,918)(20,918)—

interest rates is based on the present value of the total amount of principal and interest categorized by the type of loans, internal($20,014)($20,014)$—

rating and term, discounted by the market interest rate adjusted for credit risk. Because the fair value of loans with a short-term
contractual maturity (one year or less) approximates their carrying value, the carrying value is treated as the fair value.

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

Regarding loans to borrowers under bankruptcy proceedings, borrowers substantially in bankruptcy and customers with highprobability of becoming insolvent, since the fair value of such loans approximates their carrying value after deducting the reservefor possible loan losses, which is calculated based on the present value of estimated future cash flows or the estimated amounts<At 31st March, 2020>

collectible from the sale of collateral and guarantees, the carrying value is treated as the fair value.
Millions of yen
Carrying value

Fair value

With respect to loans and bills discounted that have no due date because of special attributes such as limiting the borrowings
Valuationdifferences

to the amounts secured by collateral, because it is assumed that the fair value approximates the carrying value from the estimatedrepayment period and interest rate conditions, the carrying value is treated as the fair value.

Assets:¥1,714,664¥1,714,664¥—

Held-to-maturity securities

30,89031,391500

Available-for-sale securities

1,250,168

1,250,168—iii) Loans and bills discounted

7,554,143i) Cash and due from banksii) Securities:

Reserve for possible loan losses*

Liabilities:i)

Deposits
For demand deposits, the amount which would be paid if its repayment were demanded on the consolidated balance sheet date(carrying value) is deemed to be the fair value. The fair value of time deposits is based on the discounted present value of the future
cash flows categorized by term. The discount rate is the interest rate that would be applied when new deposits were taken.

(39,649)

Because the fair value of those with a short-term original contractual maturity (one year or less) approximates their carrying value,

7,514,494

7,611,837

97,343¥10,510,216¥10,608,060¥97,843¥8,831,047¥8,831,254¥206

Since call money and bills sold, payables under repurchase agreements and guarantee deposits received under securities lendingii) Call money and bills sold

39,00039,000—transactions have short-term original contractual maturity (one year or less) and their fair value approximates the carrying value, theiii) Payables under repurchase agreements

207,019

207,019—iv) Guarantee deposits received under securities lending transactions

89,108

89,108—v) Borrowed money

994,175

982,652(11,522)¥10,160,350¥10,149,033(¥11,316)

¥82

¥82

¥—

(2,631)(2,631)—(¥2,549)(¥2,549)¥—

Total assetsi) Deposits

Total liabilities
Derivatives**
Hedge accounting not applied
Hedge accounting applied
Total derivatives* The general reserve for possible loan losses and the specific reserve for possible loan losses, which correspond to loans and bills discounted, have been deducted.
** Derivative transactions recorded in Other assets and Other liabilities are presented in total. The value of assets and liabilities arising from derivative transactions isshown at net value, and with the amount in parentheses representing net liability position.

Nishi-Nippon Financial Holdings Groupthe carrying value is treated as the fair value.
ii) 	Call money and bills sold, iii) Payables under repurchase agreements, and iv) Guarantee deposits received under securities lendingtransactions

Liabilities:

72

Cash and due from banks

INTEGRATED REPORT 2021

carrying value is treated as the fair value.
v) Borrowed money
Because borrowed money with floating interest rates reflects market interest rates in a short period of time and the credit standingof the Company and its consolidated subsidiaries has not changed significantly since the borrowing, the fair value of suchborrowed money is deemed to approximate the carrying value. Therefore, the carrying value is treated as the fair value. The fairvalue of borrowed money with fixed interest rates is based on the present value of the total amount of principal and interest of theborrowed money categorized by term, discounted by the market interest rate adjusted for credit risk. Because the fair value ofborrowed money with a short-term original contractual maturity (one year or less) approximates its carrying value, the carrying
value is treated as the fair value.
Derivative transactions:
Derivative transactions are presented in “30. Derivatives” of “Notes to Consolidated Financial Statements.”

Nishi-Nippon Financial Holdings GroupINTEGRATED REPORT 2021

73

Notes to Consolidated Financial Statements

Notes to Consolidated Financial Statements(Note 2) Financial instruments whose fair value is extremely difficult to be estimated are as stated below.

<At 31st March, 2020>

They are not included in “Assets: ii) Available-for-sale securities” presented in “Estimated fair value of financial instruments.”
Millions of yen

Non-listed stocks

2021

2020

2021

Due from banks¥18,605¥13,766$168,055

Securities:

Due in1 year or lessDue from
1 year to 3 years¥1,587,998

¥—

¥—

¥—

¥—

¥—

3,050

27,349Held-to-maturity securities

15,00010,000

6,000

—

—

—

¥16,816$195,404

Government bonds

15,00010,000

6,000

—

—

—

Municipal bonds

—

—

—

—

—

—

Corporate bonds

—

—

—

—

—

—

(Note 3) Repayment schedules for monetary claims and securities with stated maturity at 31st March, 2021 and 2020

188,058

224,129

278,840

165,708

219,135

41,991Government bonds

75,50038,00026,000—40,000—

Municipal bonds

5,784

9,965

49,25088,290105,462—

Corporate bonds

77,816

131,878

43,721

35,103

19,679—Others28,95844,286

159,868

42,31453,994

41,991

Securities available for sale with maturity

Loans and bills discounted<At 31st March, 2021>

Total

Millions of yen
Due from
Due from
Due from
3 years to 5 years 5 years to 7 years 7 years to 10 years

Due after
10 years

1,506,272

1,257,250

990,159

746,609828,5812,037,048¥3,297,330¥1,491,379¥1,274,999¥912,317¥1,047,717¥2,079,039

Note: Excluded from Loans and bills discounted are ¥101,332 million relating to those whose repayment is not reasonably estimable because the debtors areborrowers under bankruptcy proceedings, borrowers substantially in bankruptcy, or customers with high probability of becoming insolvent and ¥86,889 million
relating to those that do not have contractual maturity.

Due in1 year or lessDue from
1 year to 3 years¥1,630,402

¥—

¥—

¥—

¥—

¥—

Held-to-maturity securities—

16,000————Government bonds—

16,000————

Municipal bonds

—

—

—

—

—

—

Corporate bonds

—

—

—

—

—

—

Others

—

—

—

—

—

—

84,253245,349

275,884

210,410

308,750

135,226

Deposits

Government bonds

13,00033,00018,0005,000

183,000

97,000

Municipal bonds

4,860

37,515

121,988

114,578

50,093—

Corporate bonds

54,679119,373

21,78538,73921,938—Others

11,71455,461

114,110

52,09253,71938,226

Guarantee deposits received under
securities lending transactions

41,1352,091,900

1,295,872

1,106,892

829,239

963,135

2,073,284

Borrowed money

807,025¥3,806,555¥1,557,222¥1,382,777¥1,039,649¥1,271,886¥2,208,511¥10,425,914¥568,614

Due in1 year or lessDue from
1 year to 3 years

Securities:

Securities available for sale with maturity

Loans and bills discounted
Total(Note 4) Repayment schedules for bonds, borrowed money and other interest-bearing debts at 31st March, 2021 and 2020
<At 31st March, 2021>
Millions of yen
Due in1 year or lessDue from
1 year to 3 years¥9,175,332¥233,055¥61,967¥7,147¥6,507¥0Call money and bills sold208,128

—

—

—

—

—

Payables under repurchase agreements

194,294

—

—

—

—

—

—

—

—

—

—

335,559

295,0928

1—¥357,060¥7,156¥6,509¥0

Total

Due from banks

Due from
1 year to 3 years$14,726,782$—

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

$—

$—

$—

Due after
10 years$—

Securities:$2,105,095$559,731$64,559$58,778

$0

—

—

—

—

—

Payables under repurchase agreements

1,754,981

—

—

—

—

—
—

—

—

—

—

Government bonds—

144,521

—

—

—

—

Guarantee deposits received under
securities lending transactions

Municipal bonds

—

—

—

—

—

—

Borrowed money

Corporate bonds

—

—

—

—

—

—

—

—

—

—

—

—

2,216,146

2,491,958

1,900,552

2,788,824

1,221,450

Government bonds

117,423

298,076

162,586

45,163

1,652,967

876,162

Municipal bonds

43,898338,858

1,101,873

1,034,943

452,470—

Corporate bonds

493,896

1,078,254

196,782

349,914198,160—

Others105,811

500,957

1,030,714

470,531

485,226

345,287

Loans and bills discounted
Total

18,895,314

11,705,109

9,998,125

7,490,190

8,699,622

18,727,167$34,383,126$14,065,777$12,490,084$9,390,743$11,488,447$19,948,617

Due after
10 years

1,879,942

144,521761,030

Due from
Due from
Due from
3 years to 5 years 5 years to 7 years 7 years to 10 years$82,877,176—

OthersDue after
10 years

Call money and bills sold

Deposits

Held-to-maturity securities

Securities available for sale with maturity

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

Thousands of U.S. dollars

Thousands of U.S. dollars
Due in1 year or lessDue after
10 years

3,027

Notes: 1. Because non-listed stocks have no market price and because it is extremely difficult to estimate their fair value, they are not subject to the fairvalue disclosure.
2. In the years ended 31st March, 2021 and 2020, impairment losses of ¥1 million ($15 thousand) and ¥285 million were recorded for non-listed
stocks, respectively.
3. Investments in partnerships whose fair value is extremely difficult to be estimated because the partnership’s assets are non-listed stocks, etc. are
not subject to the fair value disclosure.

Due from banks

Due from
Due from
Due from
3 years to 5 years 5 years to 7 years 7 years to 10 years¥21,633

Investments in partnerships
Total

Millions of yen

Thousands of
U.S. dollars

Total

371,556

—

—

—

—

7,289,543

3,030,977

2,665,458

80

15

—

$94,173,199$5,136,073$3,225,189$64,639$58,793$0Note: Demand deposits are included under “Due in 1 year or less.”

Note: Excluded from Loans and bills discounted are ¥109,034 million ($984,864 thousand) relating to those whose repayment is not reasonably estimable because
the debtors are borrowers under bankruptcy proceedings, borrowers substantially in bankruptcy, or customers with high probability of becoming insolvent and¥74,587 million ($673,718 thousand) relating to those that do not have contractual maturity.

74

Nishi-Nippon Financial Holdings GroupINTEGRATED REPORT 2021

Nishi-Nippon Financial Holdings GroupINTEGRATED REPORT 2021

75

Notes to Consolidated Financial Statements

Notes to Consolidated Financial Statements<At 31st March, 2020><At 31st March, 2020>
Millions of yen
Due in1 year or lessDue from
1 year to 3 years

Millions of yen

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

Due after
10 years

Carrying value

Valuationdifferences

Fair value¥8,517,105¥238,164¥61,753¥6,446¥7,577—

Call money and bills sold

39,000

—

—

—

—

—

Government bonds¥30,890¥31,391¥500

Payables under repurchase agreements

207,019

—

—

—

—

—

Municipal bonds

—

—

—

Corporate bonds

—

—

—

30,89031,391500

Others

—

—

—

Total

¥30,890¥31,391¥500

Deposits

Guarantee deposits received under
securities lending transactions

89,108

—

—

—

—

—

Borrowed money

103,058

550,651

340,42335

5—¥8,955,291¥788,816¥402,177¥6,481¥7,583—

Total

Bonds:

Note: Demand deposits are included under “Due in 1 year or less.”ii) Securities whose carrying value exceeds their fair value<At 31st March, 2021>

28. Securities

None(1) Trading securities and commercial papers (including those included in “Trading account assets”)

2020

2021
Holding gains (losses) recognized in income(¥0)<At 31st March, 2020>

Thousands of
U.S. dollars

Millions of yen

None

2021
(¥1)

($4)

(3) Available-for-sale securities (including negotiable due from banks included in “Cash and due from banks”)i)<At 31st March, 2021>(2) Held-to-maturity securities
i)

Securities whose carrying value exceeds their acquisition cost
Millions of yen

Securities whose fair value exceeds their carrying value<At 31st March, 2021>
Millions of yen
Carrying value

Valuationdifferences

Fair value¥15,971¥16,341

Acquisition cost

¥112,859¥34,060¥78,799
861

Bonds:
Government bonds

98,274

97,412¥369

Municipal bonds

105,396105,219

176

Corporate bonds

216,625

215,0091,616

420,296

417,642

2,654

Bonds:
Government bonds

StocksValuationdifferences

Carrying value

Municipal bonds

—

—

—

Corporate bonds

—

—

—

15,971

16,341

369

Others283,370

263,100

20,269Others

—

—

—

Total

¥816,526¥714,803¥101,723

Total¥15,971¥16,341¥369
Thousands of U.S. dollars

Thousands of U.S. dollars
Carrying value

Valuationdifferences

Fair value

Acquisition cost

$1,019,417$307,652$711,764
7,777

Bonds:

Bonds:
Government bonds
Municipal bonds
Corporate bonds

76

StocksValuationdifferences

Carrying value$144,259$147,601$3,341Government bonds

887,670879,892———

Municipal bonds

952,006

950,408

1,597

Corporate bonds

1,956,696

1,942,095

14,6003,796,373

3,772,397

23,976———144,259

147,601

3,341

Others———Others2,559,576

2,376,486

183,090

Total$144,259$147,601$3,341

Total$7,375,367$6,456,536$918,830

Nishi-Nippon Financial Holdings GroupINTEGRATED REPORT 2021

Nishi-Nippon Financial Holdings GroupINTEGRATED REPORT 2021

77

Notes to Consolidated Financial Statements

Notes to Consolidated Financial Statements<At 31st March, 2020>(4) Available-for-sale securities sold for the years ended 31st March, 2021 and 2020 are as follows:<At 31st March, 2021>

Millions of yen
Carrying value

StocksAcquisition cost

Millions of yen

Valuationdifferences¥76,698¥27,109¥49,589

156,409

155,029

1,379

Proceeds
from sale

StocksBonds:
Government bonds

Gains

Losses

¥190

¥280

¥—

Bonds:

Municipal bonds

32,56932,424145

Government bonds

13,146—(267)

Corporate bonds

275,333

273,092

2,241

Municipal bonds

—

—

—

464,311

460,5453,765

Corporate bonds

95

1

—

13,241

1(267)

Others305,668

282,955

22,712

Total¥846,678¥770,610¥76,068

Others59,414

5,754

(578)

Total

¥72,846¥6,036(¥846)

ii) Securities whose acquisition cost exceeds their carrying value<At 31st March, 2021>

Thousands of U.S. dollars
Millions of yen
Valuationdifferences

Proceeds
from sale

Gains

LossesCarrying value

Acquisition cost

¥10,944¥12,981(¥2,036)

Government bonds

251,292

252,880(1,587)

Municipal bonds

Municipal bonds

226,744

227,232(487)

Corporate bonds

Corporate bonds

42,60742,733(126)

520,644522,845(2,200)

Others536,664

51,981(5,229)Others121,113

124,339(3,225)

Total$657,990$54,529($7,647)

Total¥652,703¥660,166(¥7,463)

StocksBonds:

Stocks$1,721$2,532$—

118,746—(2,417)

—

—

—

858

15

—

119,604

15(2,417)

Bonds:
Government bonds<At 31st March, 2020>
Thousands of U.S. dollars

Millions of yen
Valuationdifferences

Carrying value

Acquisition cost

$98,857$117,254($18,397)

Government bonds

2,269,828

2,284,167(14,339)

Municipal bonds

2,048,098

2,052,497(4,399)Corporate bonds

384,853

385,994(1,141)

4,702,780

4,722,660(19,880)

StocksBonds:

Proceeds
from sale

Gains

Losses¥4,444¥3,945(¥5)

Government bonds

7,052

127

—

Municipal bonds

2,300

16

(0)

Corporate bonds

20,475252(4)29,828396(4)StocksBonds:

Others

1,093,972

1,123,110(29,138)

Others47,983

2,540

(96)

Total

$5,895,610$5,963,025($67,415)

Total¥82,256¥6,882(¥105)<At 31st March, 2020>(5) Devaluation of securities
Securities other than trading securities (excluding securities whose fair value is extremely difficult to be estimated) are devalued to the fairMillions of yen
Valuationdifferences

Carrying value

Acquisition cost

¥16,991¥19,574(¥2,583)

Government bonds

25,21725,219(2)

Municipal bonds

228,518

229,149(631)

Corporate bonds

37,09337,143(50)

290,828

291,511(683)

StocksBonds:

value, and the difference between the acquisition cost and the fair value is treated as the loss for the fiscal year (“devaluation”), if the fairvalue (primarily the closing market price at the consolidated balance sheet date) has significantly deteriorated compared with theacquisition cost (including amortized cost) unless it is deemed that there is a possibility of a recovery in the fair value.
The amount of devaluation was ¥104 million($944 thousand), of which ¥16 million($147 thousand) for stocks and ¥88 million($796
thousand) for bonds, for the year ended 31st March,2021.
The amount of devaluation was ¥1,450 million ($13,329 thousand), for stocks for the year ended 31st March, 2020.
The criteria for determining whether the fair value of a security has “significantly deteriorated” are outlined as follows:

Others

95,668100,416(4,748)

1. The fair value is 50% or less of the acquisition cost, or

Total¥403,489¥411,503(¥8,014)

2.	The fair value exceeds 50% but is 70% or less of the acquisition cost and the security meets certain conditions such as the quoted
market price for a certain period in the past and financial conditions of the issuer.

78

Nishi-Nippon Financial Holdings GroupINTEGRATED REPORT 2021

Nishi-Nippon Financial Holdings GroupINTEGRATED REPORT 2021

79

Notes to Consolidated Financial Statements

Notes to Consolidated Financial Statements(6) Unrealized gains/losses on securities available for sale

Thousands of U.S. dollars

The components of the unrealized gains/losses on securities available for sale at 31st March, 2021 and 2020 are as follows:

Contract value
Type of transactions<At 31st March, 2021>

Total

Over one year

Unrealized
gain (loss)

Fair value

Over-the-counter transactions:
Millions of yen

Thousands of
U.S. dollars

Revaluation difference¥94,260$851,414

Deferred tax liability(28,538)(257,778)

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

65,721

593,636(483)(4,367)——¥65,238$553,725

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

Interest rate swaps:
Receive-fixed and pay-floating$287,780$287,780

Receive-floating and pay-fixed

287,780

287,780(5,299)(5,299)——$1,861$1,861

Total$7,160$7,160Notes: 1. The above transactions are marked to market and unrealized gains/losses are included in the consolidated statement of income.
2. Calculation of fair value is based on the discounted cash flows and others.

<At 31st March, 2020>
Millions of yen
Contract value<At 31st March, 2020>

Type of transactions
Millions of yen

Revaluation difference¥68,053

Deferred tax liability(20,352)

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

47,701

Amount corresponding to the parent’s share of net unrealized gains on available-for-sale securities owned
by affiliates

Unrealized
gain (loss)

Fair value

Interest rate swaps:
Receive-fixed and pay-floating¥31,965¥31,965

Receive-floating and pay-fixed

31,96531,965

(670)

(670)

—

—

¥172

¥172

Total

¥842

¥842

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

—¥47,032

Unrealized gains on securities available for sale, net of taxes

Over one year

Over-the-counter transactions:(669)

Amount corresponding to non-controlling interests

Totalii) Currency related transactions<At 31st March, 2021>

29. Money Held in Trust

Millions of yen
Contract value

Money held in trust at 31st March, 2021 and 2020 are as follows:

Type of transactions
Thousands of
U.S. dollars

Millions of yen

2020

2021

Over one year

Unrealized
gain (loss)

Fair value

Over-the-counter transactions:
Currency swaps

2021

Total

¥67,903¥17,485

(¥17)

(¥17)

Forward foreign:

Money held in trust for investment purposes—¥4,973Carrying value

Sell

5,671

—

(217)

(217)

—

Buy

4,245

—

129

129
423

—

—

Unrealized gains/losses$44,926

Currency option:

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

¥6,300¥5,370$56,905

Sell

72,47644,260(1,564)

Carrying value

6,300

5,370

56,905

Buy

72,47644,260

1,564

42

—

—

—

—

—

(¥105)¥360

Unrealized gains/losses

Total

Thousands of U.S. dollars
Contract value

30. Derivatives

Type of transactions(1) Derivative transactions to which hedge accounting is not appliedand 2020, to which hedge accounting is not applied. The amounts of the contract value are not necessarily indicative of the actual

Interest related transactions
Millions of yen
Contract value
Total

Over one year

Fair value

Unrealized
gain (loss)

Interest rate swaps:
Receive-fixed and pay-floating¥31,860¥31,860

Receive-floating and pay-fixed

31,86031,860

(586)

(586)

—

—

¥206

¥206

Nishi-Nippon Financial Holdings GroupINTEGRATED REPORT 2021

$157,943($157)($157)

Sell

51,224—(1,968)(1,968)Buy

38,348

—

1,169

1,169

Sell

654,651

399,789(14,128)

3,822

Buy

654,651

399,789

14,128386——($957)$3,251

Total

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

Over-the-counter transactions:80$613,348

Currency swaps

Currency option:<At 31st March, 2021>

Total

Unrealized
gain (loss)

Fair value

Forward foreign:market risk of derivative transactions.

Type of transactions

Over one year

Over-the-counter transactions:

Summarized below are the contract value or the notional principal and the fair value of the derivative transactions at 31st March, 2021

i)

Total

¥792

¥792

Nishi-Nippon Financial Holdings GroupINTEGRATED REPORT 2021

81

Notes to Consolidated Financial Statements

Notes to Consolidated Financial Statements<At 31st March, 2020><At 31st March, 2020>
Millions of yen

Millions of yen
Contract value
Type of transactions

Total

Over one year

Unrealized
gain (loss)

Fair value

Over-the-counter transactions:¥65,005

Currency swaps¥24,066

(¥74)

(¥74)

Forward foreign:
Sell

7,509

225

(115)

(115)

Buy

5,076

130

99

99

Sell

75,276

46,641(2,365)23

Buy75,276

46,641

2,365

516

—

—

(¥90)

¥449

Contract value

Hedge accounting
methodType of transactions

Hedged item

Principle hedge
accounting method

Interest rate swaps:

Available-forsale securities

Special treatment forinterest rate swaps

Interest rate swaps:

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

Total

Loans and bills
discounted,
and deposits¥33,502¥33,502

155,808

114,408

—

—

—

—

Interest rate options
Total

Currency option:

Total

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

(¥2,642)(Note 2)(¥2,642)

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

ii) Currency related transactions<At 31st March, 2021>(2) Derivative transactions to which hedge accounting is applied

Millions of yen

Summarized below are the contract value or the notional principal and the fair value of the derivative transactions at 31st March, 2021
and 2020, to which hedge accounting is applied. The amounts of the contract value are not necessarily indicative of the actual market
risk of derivative transactions.
i)Fair valueOver one year

Contract value

Hedge accounting
methodPrinciple hedge
accounting method

Interest related transactions

Fair value

Type of transactions

Hedged item

Total

Forward foreign

Securities denominated inforeign currencies¥12,293¥—(¥260)——(¥260)

Total

Over one year

<At 31st March, 2021>
Millions of yen
Hedge accounting
methodThousands of U.S. dollars

Contract value
Type of transactions

Hedged item

Principle hedge
accounting method

Interest rate swaps:

Available-forsale securities

Special treatment forinterest rate swaps

Interest rate swaps:

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

Loans and bills
discounted,
and deposits

TotalOver one year

¥34,081¥34,081

112,780

43,944————

Fair value(¥2,054)

Total(Note 2)(¥2,054)

Contract value
Hedged item

Principle hedge
accounting method

Interest rate swaps:

Available-forsale securities

Special treatment forinterest rate swaps

Interest rate swaps:

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

Total

Loans and bills
discounted,
and deposits

Principle hedge
accounting method

Total

Over one year

Fair value

Type of transactions

Hedged item

Total

Over one year

Forward foreign

Securities denominated inforeign currencies$111,044$—($2,356)——($2,356)

Notes: 1. The deferred method is applied as hedge accounting in accordance primarily with “Accounting and Auditing Treatment for Accounting for Foreign
Currency Transactions in Banking Industry”(JICPA Industry-specific Committee Practical Guideline No. 25).
2. Calculation of fair value is based on the discounted cash flows and others.

<At 31st March, 2020>

Thousands of U.S. dollars

Type of transactions

Hedge accounting
methodTotal

Interest rate options

Hedge accounting
methodContract value

Millions of yen
Fair value$307,847$307,847($18,561)

1,018,697

396,928(Note 2)

—

—

—

—

Contract value

Hedge accounting
methodPrinciple hedge
accounting method

Hedged item

Total

Forward foreign

Securities denominated inforeign currencies¥18,745

¥—

¥10

—

—

¥10

Total

($18,561)

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

Fair value

Type of transactions

Over one year

Notes: 1. The deferred method is applied as hedge accounting in accordance primarily with “Accounting and Auditing Treatment for Accounting for Foreign
Currency Transactions in Banking Industry” (JICPA Industry-specific Committee Practical Guideline No. 25).
2. Calculation of fair value is based on the discounted cash flows and others.

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

82

Nishi-Nippon Financial Holdings GroupINTEGRATED REPORT 2021

Nishi-Nippon Financial Holdings GroupINTEGRATED REPORT 2021

83

Notes to Consolidated Financial Statements

Notes to Consolidated Financial Statements

The consolidated subsidiaries may also pay additional retirement benefits that are not subject to actuarial calculation.

iv) Components of retirement benefit expenses for the years ended 31st March, 2021 and 2020

As of 31st March, 2021, the lump-sum payment plans have been adopted by 6 consolidated subsidiaries. The corporate pension

Thousands of
U.S. dollars

Millions of yen

fund plans have been adopted by 2 consolidated subsidiaries. The defined contribution plan has been adopted by 1 consolidated

2020

2021

subsidiary.

2021

For the lump-sum payment plans that certain consolidated subsidiaries have adopted, liability for retirement benefits and retirement

Service cost

¥2,177¥2,201

benefit expenses are calculated using the simplified method which assumes the retirement benefit obligation to be equal to the benefits

Interest cost

89

89

807

payable if all the eligible employees voluntarily terminated their employment at fiscal year end.

Expected return on plan assets(2,529)(2,595)(22,846)

Amortization of unrecognized actuarial gain and loss

2,328

1,461

21,032

255

296

2,307

¥2,321¥1,454$20,966(2) Defined benefit plans

Othersi)	Reconciliation between the balances of retirement benefit obligation at the beginning and end of the year for the years ended 31st
March, 2021 and 2020
Thousands of
U.S. dollars

Millions of yen

2021

2020

2021

¥75,297¥75,580$680,136

Service cost

2,323

2,349

20,988Interest cost

89

89

807

Actuarial gain and loss

265

1,315

2,398

Retirement benefit obligation at beginning of the year

Retirement benefits paid

(4,028)(4,036)———¥73,948¥75,297$667,946

OthersRetirement benefit obligation at end of the year

(36,384)

Retirement benefit expenses$19,665

Notes: 1. Contributions by employees to corporate pension funds, etc. have been deducted from the service cost.
2. Retirement benefit expenses of consolidated subsidiaries that have adopted the simplified method are reported in total under “Service cost.”v)	Items recorded in retirement benefits liability adjustments included in other comprehensive income (gross of income tax effects) for
the years ended 31st March, 2021 and 2020
Thousands of
U.S. dollars

Millions of yen

Actuarial gain and loss

2021

2020

2021

¥15,445(¥4,134)$139,517vi)	Items recorded in retirement benefits liability adjustments included in accumulated other comprehensive income (gross of income tax
effects) at 31st March, 2021 and 2020ii) 	Reconciliation between the balances of plan assets at the beginning and end of the year for the years ended 31st March, 2021 andThousands of
U.S. dollars

Millions of yen

Unrecognized actuarial gain and loss

2021

2020

2021

(¥5,405)(¥20,851)($48,828)

2021

2020

2021

Plan assets at beginning of the year

¥76,869¥78,878$694,330

Expected return on plan assets

2,529

2,595

22,846

Actuarial gain and loss

13,383(4,280)120,883

Contributions by employer

734

1,816

6,630

Bonds

24%

30%

Contributions by employees

146

147

1,323

Stocks60%

53%(2,421)(2,287)(21,868)

Cash and deposits

0%

0%

—

—

—

Others16%

17%¥91,241¥76,869$824,146

Total

100%

100%

Retirement benefits paid
OthersPlan assets at end of the yeariii)	Reconciliation between the balances of retirement benefit obligation and plan assets at the end of the year and the amounts of theliability and asset for retirement benefits recognized in the consolidated balance sheets at 31st March, 2021 and 2020
Thousands of
U.S. dollars

Millions of yen

2021

2020

2021

Retirement benefit obligation (funded)¥73,483¥74,815$663,751

Fair value of plan assets(91,241)(76,869)(824,146)(17,757)(2,053)(160,395)

464

482

4,195

(¥17,292)(¥1,571)($156,199)

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

Thousands of
U.S. dollars

Millions of yen

2021

84

Thousands of
U.S. dollars

Millions of yen

2020

2020

vii) Matters concerning plan assets
1) Percentages of each main category of the total plan assets at 31st March, 2021 and 2020 are as follows:
2020

2021

* Retirement benefit trusts established for the corporate pension plans accounted for 28% and 24% of the total plan assets at 31st March, 2021 and 2020,
respectively. Retirement benefit trusts established for the lump-sum payment plans accounted for 20% and 20% of the total plan assets at 31st March, 2021 and2020, respectively.

2) The expected long-term rate of return on plan assets has been estimated by taking into account the current and expected
allocation of the plan assets and the current and anticipated long-term rate of return on diverse assets that constitute the plan
assets.
viii) Assumptions for actuarial calculation
Major assumptions for actuarial calculation as of 31st March, 2021 and 2020
2021

2020

1) Discount rates:

0.117% (principally)

0.117% (principally)

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

3.30% (principally)

3.30% (principally)

3) Expected rate of pay increase:

2.81% (principally)

3.04% (principally)

2021(3) Defined contribution plans

Liability for retirement benefits¥477¥3,708$4,315

Asset for retirement benefits(17,770)(5,279)(160,515)

Contributions of ¥0 million ($1 thousand) and ¥0 million have been made to the defined contribution plan by the consolidated subsidiary

Net liability (asset) for retirement benefits in the balance sheet(¥17,292)(¥1,571)($156,199)

for the years ended 31st March, 2021 and 2020, respectively.

Nishi-Nippon Financial Holdings GroupINTEGRATED REPORT 2021

Nishi-Nippon Financial Holdings GroupINTEGRATED REPORT 2021

85

Notes to Consolidated Financial Statements

Notes to Consolidated Financial Statements

32. Income Taxes

33. Asset Retirement Obligations

The tax effect of temporary differences and tax loss carryforwards that give rise to the deferred tax assets and liabilities at 31st March, 2021

Information on asset retirement obligations is as follows:

and 2020 are as follows:
Thousands of
U.S. dollars

Millions of yen

Asset retirement obligations that are recorded in the consolidated balance sheet(1) Outline of asset retirement obligations

2021

2020

2021

Reserve for possible loan losses¥14,771¥14,272$133,421

Liability for retirement benefits

2,820

7,479

25,475

Accumulated depreciation

1,971

2,067

17,808

142

133

1,284

6,837

8,947

61,758An asset retirement obligation is calculated by first estimating the period of expected use of the asset, which is the relevant building’s

Sub-total

26,54232,900239,746

depreciation period (principally 39 years), and then discounting the value of the relevant liability using the government bond’s market rate

Valuation allowance(6,767)(7,496)(61,126)(principally 2.304%) that matches said depreciation period as the discount rate.

19,77525,403

178,620

The Company and its consolidated subsidiaries recognize asset retirement obligations for restoration obligations resulting from real

Deferred tax assets:

estate lease agreements such as those of the Group branch offices and commercial fixed-term leasehold agreements. The Company

Loss carryforwards for tax purposes
OthersTotal deferred tax assets

and its consolidated subsidiaries also recognize asset retirement obligations pertaining to obligations to remove hazardous substancesused in some of their branch offices in accordance with the Ordinance on Prevention of Health Impairment due to Asbestos.
(2) Method for calculating the value of asset retirement obligations(3) Changes in total asset retirement obligations for the years ended 31st March, 2021 and 2020

Deferred tax liabilities:(1)

Reserve fund for deferred income of fixed assets

(1)

(11)

(23)

(23)

(213)

(3,647)(3,647)(32,947)

Asset retirement obligations

(60)

(62)

(542)

Capital gain adjustments(1,081)(1,081)(9,773)

(98)

(94)

(888)

(28,229)(20,352)(254,982)

(1)

(2)

(11)

Total deferred tax liabilities(33,143)(25,266)(299,369)

Net deferred tax assets (liabilities)(¥13,368)¥137($120,749)

Unrealized losses on securities attributable to partition of corporation, net
Gains on establishment of a retirement benefit trust

Share of retained earnings of affiliates accounted for by the equity method
Unrealized gains on securities available for sale, net
Others

The reconciliation between the statutory tax rate and the effective tax rate reflected in the consolidated statement of income for the year
2021
30.5%

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

0.5

Non-taxable dividend income and others(0.8)

Inhabitant tax on per capita basis

0.4

Increase in valuation allowance(2.8)

Others0.3

Effective tax rate

28.1%

2020

2021

2021

¥804

¥778

$7,263

Increase due to acquisition of tangible fixed assets

6

102

58

Adjustment for passage of time

10

11

99

Decrease due to fulfillment of asset retirement obligation

7

88

70

¥813

¥804

$7,351

Balance at beginning of the year

Balance at end of the year

34. Business Segment Information(1) Segment Informationi)

ended 31st March, 2021 is as follows:

Thousands of
U.S. dollars

Millions of yen

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

ii) Method for calculating the amount of ordinary income, profit or loss, assets, liabilities and other items
The accounting policies of reported business segments are the same as those described in “2. Summary of Significant Accounting

The reconciliation between the statutory tax rate and the effective tax rate reflected in the consolidated statement of income for the year
ended 31st March, 2020 is not presented since the difference between those rates was not more than 5% of the statutory tax rate.

86

Nishi-Nippon Financial Holdings GroupINTEGRATED REPORT 2021

Policies”. The segment income is reported on an ordinary income basis. In addition, internal ordinary income among segments isbased on the same transaction terms as used in ordinary transactions with third parties.

Nishi-Nippon Financial Holdings GroupINTEGRATED REPORT 2021

87

Notes to Consolidated Financial Statements

Notes to Consolidated Financial Statementsiii) Ordinary income, profit or loss, assets, liabilities and other items by reportable segments<In 2020><In 2021>

Millions of yen
Millions of yen
Reportable segment
Banking

Other

Total

Reportable segment
Banking
Adjustments

Consolidated

Ordinary income

Other

Total

Adjustments

Consolidated¥141,698

Ordinary income
Ordinary income from third party customers¥129,080¥12,618¥141,698¥—Internal ordinary income among segments

1,114

11,578

12,692(12,692)—

130,194

24,196

154,391(12,692)

141,698

Ordinary income from third party customers¥122,757¥12,192¥134,949¥—¥134,949

Internal ordinary income among segments

1,328

10,17911,508(11,508)—

124,085

22,372

146,457(11,508)

134,949

Segment profit

23,402

10,63534,037(5,320)28,71621,167

10,02331,191(4,427)

26,763

Segment assets

10,809,840

487,068

11,296,908(474,143)

10,822,765

Segment assets

12,054,300

489,276

12,543,576(468,009)

12,075,567

Segment liabilities

10,300,831

80,144

10,380,976(66,968)

10,314,007

Segment liabilities

11,506,845

79,340

11,586,186(61,525)

11,524,660

Other items
Depreciation

5,468

223

5,692

—

5,692

Depreciation

5,526

202

5,729

—

5,729

Interest and dividend income

96,446

7,859

104,306(5,681)

98,624

Interest expenses

7,325

143

7,468

(118)

7,349

Increase in tangible and intangible fixed assets

4,133

260

4,394

—

4,394

Total ordinary income
Segment profit

Other items
Interest and dividend income

92,1596,568

98,727(4,637)

94,090Interest expenses

2,052

125

2,178

(113)

2,064

Increase in tangible and intangible fixed assets

4,748

84

4,833

—

4,833

Adjustments

Consolidated

Thousands of U.S. dollars
Reportable segment
Banking

Other

Total

Ordinary income

Total ordinary income

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

(2) Related Information

Ordinary income from third party customers$1,108,821$110,127$1,218,948$—$1,218,948

Internal ordinary income among segments

11,99891,950103,948(103,948)—

1,120,819

202,078

1,322,897(103,948)

1,218,948

191,198

90,538281,736(39,995)

241,741

Segment assets

108,881,768

4,419,439

113,301,207(4,227,341)

109,073,866

Segment liabilities

103,936,822

716,653

104,653,476(555,734)

104,097,741

Depreciation

49,9201,830

51,751—51,751

Interest and dividend income

832,437

59,330891,768(41,885)

849,882

Interest expenses

18,543

1,135

19,678(1,026)

18,651

Increase in tangible and intangible fixed assets

42,892765

43,658—43,658

Total ordinary income
Segment profit

Ordinary income by services:<In 2021>
Millions of yen
Loan

Ordinary income from third party customers¥87,683

Other items

Securities¥17,924

Other

Total

¥29,341¥134,949

Thousands of U.S. dollars

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

Ordinary income from third party customers

Loan

Securities

Other

Total

$792,006$161,907$265,034

Loan

Securities$1,218,948

Note: Ordinary income is presented instead of net sales.

<In 2020>
Millions of yen

Ordinary income from third party customers¥88,413¥22,549

Other

Total

¥30,735¥141,698

Note: Ordinary income is presented instead of net sales.

(3) Impairment Losses on Tangible Fixed Assets by Reportable Segments<In 2021>
Millions of yen
Reportable segment
Banking

Impairment losses

Other

¥818

Total

¥—

¥818

Thousands of U.S. dollars
Reportable segment
Banking

Impairment losses

88

Nishi-Nippon Financial Holdings GroupINTEGRATED REPORT 2021

Other

$7,397

Nishi-Nippon Financial Holdings Group

Total

$—

$7,397

INTEGRATED REPORT 2021

89

Notes to Consolidated Financial Statements

Notes to Consolidated Financial Statements<In 2020>

Basis for net assets per share as of 31st March, 2021 and 2020 are as follows:
Millions of yen
Reportable segment
Banking

Other

¥627

Impairment losses

Total

¥419

¥1,046

Net assets

2021

2020

¥550,906¥508,758$4,976,124

8,114

7,544

73,296

8,114

7,544

73,296

542,792

501,214

4,902,828

Items to be deducted from net assets
Non-controlling interests(4) Amortization and Balance of Goodwill by Reportable Segments

Net assets attributable to common stock<In 2021>

Other

2021

SharesMillions of yen
Reportable segment
Banking

Thousands of
U.S. dollars

Millions of yen

Total

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

2021

2020

148,153,621

149,561,476

Goodwill
Amortization of goodwill

¥—

¥—

¥—

Balance at end of the year

¥—

¥—

¥—

Basis for profit (loss) attributable to owners of parent per share for the years ended 31st March, 2021 and 2020 are as follows:
Thousands of
U.S. dollars

Millions of yen

Reportable segment
Banking

Other

Total

Profit (loss) attributable to owners of parent¥18,088¥20,222———18,08820,222

163,387

Items not attributable to common stock

Amortization of goodwill

$—

$—

$—

Balance at end of the year

$—

$—

$—

Profit (loss) attributable to owners of parent available for shareholders of common stock<In 2020>$163,387

SharesAverage number of shares of common stock outstanding during the year

2021

2020

149,450,688

151,678,187*	Diluted profit (loss) attributable to owners of parent per share for the years ended 31st March, 2021 and 2020 was not presented because the Company and its
consolidated subsidiaries had no dilutive shares during the years.

Millions of yen
Other

2021

Basis:

Goodwill

Reportable segment
Banking

2020

2021

Thousands of U.S. dollars

Total

Goodwill
Amortization of goodwill

¥—

¥283

¥283

Balance at end of the year

¥—

¥—

¥—

38. Cash Dividends
Cash dividends paid during the years ended 31st March, 2021 and 2020 are as follows:<In 2021>

35. Related Party Transactions
There are no related party transactions to report for the years ended 31st March, 2021 and 2020.

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

Millions of yen

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

Types

Millions of yen

Thousands of
U.S. dollars

Cut-off date

Effective date

26th June, 2020
Ordinary General Meeting of Shareholders

Cash dividends(¥17.5 per share)¥2,617$23,644

31st March,2020

29th June,2020

6th November, 2020
Meeting of Board of Directors

Cash dividends(¥15.0 per share)¥2,243$20,266

30th September,2020

10th December,
2020

Resolution

2021

2020

2021

¥1,738,761¥1,714,664$15,705,549(5,693)(4,325)(51,426)¥1,733,067¥1,710,338$15,654,122<In 2020>
Types

Millions of yen

Cut-off date

Effective date

27th June, 2019
Ordinary General Meeting of Shareholders

Resolution

Cash dividends(¥17.5 per share)¥2,66431st March,2019

28th June,2019

6th November, 2019
Meeting of Board of Directors

Cash dividends(¥12.5 per share)¥1,90330th September,2019

10th December,
2019

39. Subsequent Event
The following appropriation of earned surplus for the year ended 31st March, 2021 was approved at the shareholders’ meeting held on

37. Per Share Information

29th June, 2021:
Yen

2021
Net assets per share at end of the year
Profit (loss) attributable to owners of parent per share*

90

Nishi-Nippon Financial Holdings GroupINTEGRATED REPORT 2021

U.S. dollars

2020

2021

¥3,663.71¥3,351.22$33.092

121.03133.32

1.093

Resolution

29th June, 2021
Ordinary General Meeting of Shareholders

Types

Millions of yen

Thousands of
U.S. dollars

Cash dividends(¥15.0 per share)¥2,222$23,644

Cut-off date

Effective date

31st March,2021

30th June,
2021

Nishi-Nippon Financial Holdings GroupINTEGRATED REPORT 2021

91

Quarterly Information (Unaudited)

Non-Consolidated Balance Sheet (Unaudited)

Nishi-Nippon Financial Holdings, Inc. and Subsidiaries

The Nishi-Nippon City Bank, Ltd.

Year ended 31st March, 2021

31st March, 2021 and 2020
Millions of yen
First Quarter
from 1st April, 2020
to 30th June, 2020

Ordinary income

Second Quarter

from 1st April, 2020
from 1st April, 2020
to 30th September, 2020 to 31st December, 2020

Fourth Quarter
from 1st April, 2020
to 31st March, 2021

¥33,920¥66,456¥101,744¥134,949

Profit (loss) before income taxes

7,875

13,79425,60625,898

Profit (loss) attributable to owners of parent

5,381

9,444

17,372

18,088

2021

2020

2021

Cash and due from banks¥1,710,262¥1,700,704$15,448,131

Call loans and bills bought¥30,000

43,189$270,978

131

1,385

1,184

Assets:Trading account assets
Money held in trust

11,273

5,370

101,831

Securities

1,489,922

1,287,828

13,457,888

Fourth Quarter

Loans and bills discounted

8,318,793

7,341,274

75,140,398

from 1st April, 2020
to 31st March, 2021

Foreign exchange assets

11,074

14,407100,034

Other assets

102,551

80,447926,311

Tangible fixed assets

113,463

115,389

1,024,868

YenFirst Quarter
from 1st April, 2020
to 30th June, 2020

Profit (loss) attributable to owners of parent per share¥35.98

Second Quarter

Third Quarter

from 1st April, 2020
from 1st April, 2020
to 30th September, 2020 to 31st December, 2020

¥63.15¥116.16¥121.03

Yen
First Quarter
from 1st April, 2020
to 30th June, 2020

Profit (loss) attributable to owners of parent per share¥35.98

Second Quarter

Third Quarter

from 1st July, 2020
from 1st October, 2020
to 30th September, 2020 to 31st December, 2020

¥27.16

Thousands of
U.S. dollars

Millions of yen

Third Quarter¥53.01

Fourth Quarter
from 1st January, 2021
to 31st March, 2021

¥4.80

Intangible fixed assets

2,998

3,077

27,081

Prepaid pension cost

23,276

23,103

210,251

Customers’ liabilities for acceptances and guarantees

14,60017,954

131,884

Reserve for possible loan losses(38,432)(34,703)(347,144)

Reserve for devaluation of securities
Total assets

(458)

(454)

(4,144)¥11,789,458¥10,598,974$106,489,555

Liabilities and Net assets:
Thousands of U.S. dollars
First Quarter
from 1st April, 2020
to 30th June, 2020

Ordinary income

Second Quarter

Third Quarter

from 1st April, 2020
from 1st April, 2020
to 30th September, 2020 to 31st December, 2020

Liabilities:
Fourth Quarter

Deposits¥9,262,757¥8,639,546$83,666,853

from 1st April, 2020
to 31st March, 2021

Call money and bills sold208,128

39,0001,879,942

Payables under repurchase agreements

194,294

207,019

1,754,981$306,393$600,273$919,014$1,218,948

Profit (loss) before income taxes

71,135124,599

231,294

233,933

Profit (loss) attributable to owners of parent

48,60985,310156,922

163,387

from 1st April, 2020
to 30th June, 2020

Profit (loss) attributable to owners of parent per share$0.32

Second Quarter

Third Quarter

from 1st April, 2020
from 1st April, 2020
to 30th September, 2020 to 31st December, 2020

$0.57

$1.04

from 1st April, 2020
to 30th June, 2020

Profit (loss) attributable to owners of parent per share$0.32

Second Quarter

Third Quarter

from 1st July, 2020
from 1st October, 2020
to 30th September, 2020 to 31st December, 2020

$0.24

$0.47

41,135

89,108371,556

1,419,110

988,441

12,818,270
1,901

210

118

Bonds

—

10,000—Borrowed money from trust account

3,205

835

28,951

Fourth Quarter

Other liabilities

75,92072,201

685,761

from 1st April, 2020
to 31st March, 2021

Reserve for employee retirement benefits

212

224

1,919

Reserve for reimbursement of deposits

1,129

1,577

10,205Reserve for other contingent losses

1,220

1,380

11,025

Deferred tax liabilities

15,6697,708

141,535

Deferred tax liabilities on revaluation of premises

14,476

14,660130,760

Acceptances and guarantees

14,60017,954

131,884

11,252,071

10,089,776

101,635,550

85,74585,745774,506

85,68485,684

773,950

Legal reserve

61

61

555

Reserve for deferred capital gains

2

2

25

Unappropriated retained earnings

275,004

264,335

2,484,003

Total shareholders’ equity

446,498

435,829

4,033,041

Net unrealized gains on securities available for sale, net of taxes

62,72445,263566,561

Net deferred gains (losses) on hedging instruments, net of taxes(1,428)(1,841)(12,898)

Revaluation of premises, net of taxes

29,592

29,946

267,301

90,88873,368820,963$1.09

U.S. dollars
First Quarter

Borrowed money
Foreign exchange liabilities

U.S. dollars
First Quarter

Guarantee deposits received under securities lending transactions

Fourth Quarter
from 1st January, 2021
to 31st March, 2021

$0.04

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

Total valuation and translation adjustments
Total net assets
Total liabilities and net assets

537,386

509,197

4,854,005¥11,789,458¥10,598,974$106,489,555

See accompanying Notes to Non-Consolidated Financial Statements.

92

Nishi-Nippon Financial Holdings GroupINTEGRATED REPORT 2021

Nishi-Nippon Financial Holdings GroupINTEGRATED REPORT 2021

93

Non-Consolidated Statement of Income (Unaudited)

Non-Consolidated Statement of Changes in Net Assets (Unaudited)

The Nishi-Nippon City Bank, Ltd.

The Nishi-Nippon City Bank, Ltd.

Years ended 31st March, 2021 and 2020

Years ended 31st March, 2021 and 2020
Thousands of
U.S. dollars

Millions of yen

2020

2021

2021

Income:

2020

2021

¥85,745¥85,745$774,506———¥85,745¥85,745$774,506¥85,684¥85,684$773,950

Capital stock

Interest on loans and discounts
Interest and dividends on securities
Other interest income
Trust fees
Fees and commissions
Trading income¥78,091¥78,352$705,367

9,761

14,19588,170

529

206

4,781

0

0

0

23,72725,298214,317

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

—

1

—

Other operating income

4,614

3,872

41,680

Balance at beginning of the year

Other income

3,303

5,915

29,843

Changes during the year

120,027

127,843

1,084,161

Total income

Capital reserve

Total changes during the year
Balance at end of the year

Expenses:———¥85,684¥85,684$773,950¥85,684¥85,684$773,950

Total capital surplus

Interest expenses:
Interest on deposits

774

1,149

6,996

Interest on call money and bills sold

(39)

108

(354)

Interest on payables under repurchase agreements

911

4,120

8,229

Interest on borrowings

241

744

2,178

Interest on guarantee deposits received under securities lending transactions

44

382

402

Other interest expenses

194

948

1,760

15,313

15,961

138,317

Fees and commissions
Trading expenses

4

—

42

1,854

1,684

16,753General and administrative expenses

69,36669,784

626,559

Other expenses

11,137

8,620

100,604

Total expenses

99,804

103,503

901,490

Income before income taxes

20,22324,340182,671

5,229

7,414

47,235

Other operating expenses

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

155

(469)

1,404

5,384

6,944

48,640¥14,838¥17,395$134,031

Balance at beginning of the year
Changes during the year
Total changes during the year
Balance at end of the year——

¥85,684$773,950

¥61

¥61

$555

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

—

—

—

¥61

¥61

$555

¥2

¥3

$26

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

(0)

(0)

(1)

(0)

(0)

(1)

¥2

¥2

$25

¥264,335¥252,405$2,387,636(4,523)(5,537)(40,859)

00

1

14,83817,395134,031

Unappropriated retained earnings
Balance at beginning of the year
Changes during the year
Cash dividends paid
Net income
Reversal of revaluation of premises

353

71

3,194

Total changes during the year

10,668

11,92996,367¥275,004¥264,335$2,484,003

Balance at end of the year

INTEGRATED REPORT 2021—
¥85,684

Earned surplus:

Transfer from reserve for deferred capital gains

Nishi-Nippon Financial Holdings Group

2021
Shareholders’ equity

Interest income:94

Thousands of
U.S. dollars

Millions of yen

Nishi-Nippon Financial Holdings GroupINTEGRATED REPORT 2021

95

The Nishi-Nippon City Bank, Ltd.

Non-Consolidated Balance Sheet (Unaudited)Years ended 31st March, 2021 and 2020

The Bank of Nagasaki, Ltd.

Non-Consolidated Statement of Changes in Net Assets (Unaudited)

31st March, 2021 and 2020
Thousands of
U.S. dollars

Millions of yen

2021

2020

2021

¥264,399¥252,470$2,388,218

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

(4,523)(5,537)(40,859)

Net income

2021

2020

2021

¥38,703¥25,065$349,589

6,758

4,942

61,050263,067

250,072

2,376,186

Other assets

2,348

831

21,21341,851

Assets:Cash and due from banks
Securities
Loans and bills discounted

14,83817,395134,031

Reversal of revaluation of premises

353

71

3,194

Total changes during the year

10,668

11,92996,366¥275,068¥264,399$2,484,584¥435,829¥423,899$3,936,675

Cash dividends paid

(4,523)(5,537)(40,859)

Net income

14,83817,395134,031

353

71

3,194

Liabilities and net assets:
Liabilities:

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

Reversal of revaluation of premises
Total changes during the year
Balance at end of the year

10,668

11,92996,366¥446,498¥435,829$4,033,041

Valuation and translation adjustments
Net unrealized gains on securities available for sale, net of taxes
Balance at beginning of the year

¥45,263¥55,063$408,846

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

17,460(9,799)157,714

Balance at beginning of the year

Total changes during the year
Balance at end of the year

4,700

358

470

3,240

Deferred tax assets

233

316

2,105

Customers’ liabilities for acceptances and guarantees
Reserve for possible loan losses
Reserve for devaluation of securities
Total assets

Deposits

(43)

(43)

(392)

¥315,699¥285,913$2,851,590$2,284,511¥226,149
42,000270,978

Borrowed money

15,600600

140,908

Other liabilities

1,207

1,235

10,903

Reserve for employee retirement benefits

118

199

1,066

Reserve for retirement benefits for directors and corporate auditors

98

85

887

Reserve for reimbursement of deposits

55

53

503

157,714(¥1,841)(¥205)($16,634)

413(1,636)

3,735

413

(1,636)

3,735

Capital stock(¥1,428)(¥1,841)($12,898)

Capital surplus$270,495

169(3,424)30,000$566,561¥30,01714(457)¥252,918(9,799)¥29,94618(379)

Call money and bills sold¥45,263

Revaluation of premises, net of taxes
Balance at beginning of the year

4,633

17,460Changes during the year
Net changes in items other than shareholders’ equity

Tangible fixed assets
Intangible fixed assets¥62,724

Net deferred gains (losses) on hedging instruments, net of taxes

Thousands of
U.S. dollars

Millions of yen

Reserve for other contingent losses

34

49

309

Deferred tax liabilities on revaluation of premises

509

509

4,599

Acceptances and guarantees
Total liabilities

18

14

169

300,559

270,897

2,714,837

6,121

6,121

55,294

Net assets:

Capital reserve

2,000

2,000

18,065

Other capital surplus

2,463

2,463

22,255

Earned surplus

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

(353)

(71)

(3,194)

Legal reserve

210

210

1,902

Unappropriated retained earnings

3,201

3,122

28,919Total shareholders’ equity

13,997

13,918

126,438

44

—

399

1,097

1,097

9,915

(353)

(71)

(3,194)¥29,592¥29,946$267,301

Net unrealized gains on securities available for sale, net of taxes (Note 30)

Total valuation and translation adjustments
Balance at beginning of the year

¥84,875$662,707

Total valuation and translation adjustments

1,141

1,097

10,315

17,520(11,507)

158,256

Total net assets

15,13915,016

136,753

Total liabilities and net assets¥315,699¥285,913$2,851,590

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

Revaluation of premises, net of taxes¥73,368

17,520(11,507)

158,256¥90,888¥73,368$820,963¥509,197¥508,775$4,599,383

See accompanying Notes to Non Consolidated Financial Statements.

Total net assets
Balance at beginning of the year
Changes during the year
Cash dividends paid

(4,523)(5,537)(40,859)

Net income

14,83817,395134,031

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

353

71

3,194

17,520(11,507)

158,256

28,189422

254,622¥537,386¥509,197$4,854,005

See accompanying Notes to Non-Consolidated Financial Statements.

96

Nishi-Nippon Financial Holdings GroupINTEGRATED REPORT 2021

Nishi-Nippon Financial Holdings GroupINTEGRATED REPORT 2021

97

Non-Consolidated Statement of Income (Unaudited)

Non-Consolidated Statement of Changes in Net Assets (Unaudited)

The Bank of Nagasaki, Ltd.

The Bank of Nagasaki, Ltd.

Years ended 31st March, 2021 and 2020

Years ended 31st March, 2021 and 2020
Thousands of
U.S. dollars

Millions of yen

2020

2021

2021

Income:Thousands of
U.S. dollars

Millions of yen

2021

2020

2021

¥6,121¥6,121$55,294

Shareholders’ equity
Capital stock

Interest and dividend income:Interest on loans and discounts¥3,576¥3,685$32,306

Interest and dividends on securities

164

—

1,487

Other interest income

150

215

1,360

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

Fees and commissions

631

634

5,704

Other income

208

212

1,879

Capital surplus:

Total income

4,731

4,747

42,739

Capital reserve

Expenses:

Balance at beginning of the year

—

—

—

¥6,121¥6,121$55,294¥2,000¥2,000$18,065

Changes during the year

Interest expenses:

Total changes during the year

Interest on deposits

60

82

546

Interest on call money and bills sold

Balance at end of the year

(22)

(3)

(202)

Interest on borrowings

0

0

0

Balance at beginning of the year

Other interest expenses

2

2

23

Changes during the year

Fees and commissions

991

1,110

8,955

Other operating expenses

0

—

6

General and administrative expenses

Total changes during the year
Balance at end of the year

3,387

29,899

263

63

2,376

Balance at beginning of the year

Total expenses

4,606

4,642

41,605

Changes during the year

125

104

1,134

$22,255———¥2,463¥2,463$22,255¥4,463¥4,463$40,321——¥4,463$40,321

¥210

¥205

$1,902

Reserve of legal retained earnings

—

5

—

Total changes during the year

—

(18)

(22)

(166)

Earned surplus:

Deferred

64

73

580

Legal reserve

45

50

414

Balance at beginning of the year

¥79

¥54

$719

See accompanying Notes to Non Consolidated Financial Statements.

¥2,463—Current

Net income¥2,463¥4,463

Total changes during the year
Balance at end of the year

Total income taxes—$18,065

Total capital surplus

3,310

Income before income taxes—¥2,000

Other capital surplus

Other expenses

Income taxes—¥2,000Changes during the year

Balance at end of the year

5

—

¥210

¥210

$1,902¥3,122¥3,102$28,199—

Other earned surplus:
Unappropriated retained earnings
Balance at beginning of the year
Changes during the year
Reserve of legal retained earnings—(5)

Cash dividends paid

—

(25)

—

Net income

79

54

719

Reversal of revaluation of premises

—

(4)

—

Total changes during the year

79

19

719

¥3,201¥3,122$28,919¥3,332¥3,307$30,102

Cash dividends paid

—

(25)

—

Net income

79

54

719

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

Reversal of revaluation of premises

—

(4)

—

Total changes during the year

79

24

719

¥3,412¥3,332$30,822

Balance at end of the year

98

Nishi-Nippon Financial Holdings GroupINTEGRATED REPORT 2021

Nishi-Nippon Financial Holdings GroupINTEGRATED REPORT 2021

99

Non-Consolidated Statement of Changes in Net Assets (Unaudited)
The Bank of Nagasaki, Ltd.
Years ended 31st March, 2021 and 2020

Total shareholders’ equity
Balance at beginning of the year
Changes during the year
Cash dividends paid
Net income
Reversal of revaluation of premises
Total changes during the year
Balance at end of the year
Valuation and translation adjustments
Net unrealized gains on securities available for sale, net of taxes
Balance at beginning of the year
Changes during the year
Net changes in items other than shareholders’ equity
Total changes during the year
Balance at end of the year
Revaluation of premises, net of taxes
Balance at beginning of the year
Changes during the year
Net changes in items other than shareholders’ equity
Total changes during the year
Balance at end of the year
Total valuation and translation adjustments
Balance at beginning of the year
Changes during the year
Net changes in items other than shareholders’ equity
Total changes during the year
Balance at end of the year
Total net assets
Balance at beginning of the year
Changes during the year
Cash dividends paid
Net income
Reversal of revaluation of premises
Net changes in items other than shareholders’ equity
Total changes during the year
Balance at end of the year

Independent Auditor’s ReportThousands of
U.S. dollars

Millions of yen

2021

2020

2021

¥13,918¥13,893$125,718—
79—
79¥13,997

(25)
54
(4)
24
¥13,918

—
719
—
719
$126,438

¥—

¥—

$—

44
44
¥44

—
—
¥—

399
399
$399

¥1,097¥1,093$9,915——¥1,0974
4¥1,097——$9,915¥1,097¥1,093$9,91544
44¥1,1414
4¥1,097399
399$10,315¥15,016¥14,986$135,633

—
79
—
44
123
¥15,139

(25)
54
(4)
4
29
¥15,016

—
719
—
399
1,119
$136,753

The Board of Directors
Nishi-Nippon Financial Holdings, Inc.
OpinionWe have audited the accompanying consolidated financial statements of Nishi-Nippon Financial
Holdings, Inc. and its consolidated subsidiaries (the Group), which comprise the consolidatedbalance sheet as at March 31, 2021, and the consolidated statements of income, comprehensive
income, changes in net assets, and cash flows for the year then ended, and notes to the consolidated
financial statements.
In our opinion, the accompanying consolidated financial statements present fairly, in all material
respects, the consolidated financial position of the Group as at March 31, 2021, and its consolidated
financial performance and its consolidated cash flows for the year then ended in accordance withaccounting principles generally accepted in Japan.
Basis for Opinion
We conducted our audit in accordance with auditing standards generally accepted in Japan. Our
responsibilities under those standards are further described in the Auditor’s Responsibilities for
the Audit of the Consolidated Financial Statements section of our report. We are independent of
the Group in accordance with the ethical requirements that are relevant to our audit of theconsolidated financial statements in Japan, and we have fulfilled our other ethical responsibilities
in accordance with these requirements. We believe that the audit evidence we have obtained issufficient and appropriate to provide a basis for our opinion.
Key Audit Matters
Key audit matters are those matters that, in our professional judgment, were of most significancein our audit of the consolidated financial statements of the current period. These matters wereaddressed in the context of the audit of the consolidated financial statements as a whole, and informing the auditor’s opinion thereon, and we do not provide a separate opinion on these matters.

See accompanying Notes to Non-Consolidated Financial Statements.

Notes to Non-Consolidated Financial Statements (Unaudited)
The Nishi-Nippon City Bank, Ltd. and The Bank of Nagasaki, Ltd.
31st March, 2021 and 2020

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

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

100

Nishi-Nippon Financial Holdings GroupINTEGRATED REPORT 2021

Nishi-Nippon Financial Holdings GroupINTEGRATED REPORT 2021

101

Determination of debtor classification in self-assessments of debtors that have formulated
business improvement plans and debtors affected by the COVID-19 pandemic and calculationof the reserve for possible loan losses for debtors for which the cash flow estimation method isappliedDescription of Key Audit Matter

Auditor’s Response

The Group recorded loans and bills discounted We mainly performed the following auditof ¥8,543,946 million and reserve for possible procedures:loan losses of ¥44,068 million on its consolidated (1) Overall proceduresbalance sheet as of March 31, 2021.
・ In order to confirm that the Group’s policies
The Group has as its core subsidiary The
comply with generally accepted corporate
Nishi-Nippon City Bank, Ltd., and is engaged
accounting standards, we considered thein the loan business mainly in Fukuoka. Loans
Group’s self-assessment standards andand bills discounted is a significant part of thewrite-offs and allowances standards withGroup’s business as it accounts forreference to Accounting Standards forapproximately 70% of the total assets on the
Financial Instruments.
consolidated balance sheet, and loan losses
may arise if, for example, the creditworthiness ・ We evaluated whether the Group’s internal
controls ensure the accuracy andof debtors deteriorates or the value of collateralcompleteness of the calculation of the reserve
such as real estate declines.
for possible loan losses, determinations ofAccordingly, the Group records the amount of
the debtor classification and credit ratings
expected losses that won’t be collected as arelevant to such determinations, as well as
reserve for possible loan losses, and the details
debtor information upon which suchof this process are noted in Note 2 “Significant
determinations are made.
Accounting Policies (10) Reserve for Possible
Loan Losses”, and “(25) Significant ・ We selected debtors that formulated highly
feasible drastic business improvement
accounting estimates”.
plans (or reasonable and highly feasible
The reserve for possible loan losses is calculated
business improvement plans) for which
in line with the write-offs and allowanceschange in debtor classification had an
method for each debtor class based on theimpact on the reserve for possible loan
determination of the debtor classification
losses more than a certain amount. We also
through self-assessment.
sampled debtors that were affected by the
The determination of the debtor classification
COVID-19 pandemic from the standpoint
through self-assessment is made by evaluatingof the industry to which they belong or
the relevant debtor's ability to repay loans
their operating results, and debtors forbased on debtor's repayment status, financial
which the cash flow estimation method is
position, business performance, and futureapplied to test management's classification
prospects.
of the sampled debtor.

102

Nishi-Nippon Financial Holdings GroupINTEGRATED REPORT 2021

In particular, categorizing debtors as Requiring ・ With regard to the determination of the
Caution when the debtor formulates ‘highly
debtor classification, we evaluated datafeasible drastic business improvement plans’
regarding sampled debtors’recent repayment
or ‘reasonable and highly feasible businessstatus, financial position, and business
improvement plans’ requires validation of
performance, by inspecting a set of materials
reasonableness and feasibility of such business
related to the Group's self-assessment,
improvement plans. ‘Highly feasible drastic
such as explanatory materials including abusiness improvement plans’ (or ‘reasonable
description of the business, borrowing andand highly feasible business improvement
repayment status, research materials
plans’) are formulated based on significant
providing an understanding of actualassumptions such as expected future sales,financial position, financial statements,
cost of sales, and expenses of debtors, and are
and the trial balance, in addition, we madeaffected by factors such as changes in theinquiries as necessary of the Credit
operating environment surrounding debtors
Supervision
DivisionandCreditand the outcome of business strategies. As such,
Management Division and evaluated thethe determination of the debtor classification
responses we received.
requires judgement by the Group.
(2) Procedures addressing key audit matters
Additionally, these determinations require ・ To examine
the reasonableness andjudgement by the Group to an even greater
feasibility of highly feasible drastic businessextent in cases where the COVID-19
improvement plans (or reasonable andpandemic has had a significant impact on thehighly feasible business improvementbusiness conditions of the debtor. The Groupplans), we analyzed the trends from past
includes a discussion of the impact of theresults of major income statement items
COVID-19 pandemic in “(25) Significant
such as sales, cost of sales, and expenses
accounting estimates” in Notes 2.
of debtors and compared the assumptions
Further, calculation of the reserve for possible
used in these business improvement plans
loan losses for debtors for which the cash flow
with the actual results to evaluate whether
estimation method is applied relies greatly on
the debtor had historically achieved its
management’s judgment since such calculation
previous business improvement plans. We
is based on significant assumptions, such asalso made inquiries as necessary of the
future transition in debtor classification andCredit Supervision Division and Credit
amounts expected to be collected in the future.
Management Division regarding items
such as progress of business improvement
Accordingly, we have identified determinationplans and evaluated the responses weof debtor classification in self-assessments ofreceived. In addition, we inspected thedebtors that have formulated businesscontact history between the Group and its
improvement plans and debtors affected by the
debtor as well as materials such as minutes
COVID-19 pandemic and calculation of theof meetings and interim trial balances toreserve for possible loan losses for debtors forconfirm and whether there are newwhich the cash flow estimation method isinformation and indications that actual
applied, as a Key Audit Matter.
results of target items set out in business
improvement plans may significantly fallshort of being planned.

Nishi-Nippon Financial Holdings GroupINTEGRATED REPORT 2021

103

・ To examine the recoverability of future
operating results of debtors affected by the
COVID-19 pandemic, we inspectedmaterials regarding the extent of thedeterioration in their business performancecompared from the past operating results
and future actions to be taken by debtors,
and made inquiries as necessary of theCredit Supervision Division and Credit
Management Division and evaluated the
responses we received.
・ Regarding debtors for which the cash flow
estimation method is applied for the
calculation of the reserve for possible loan
losses, in order to confirm whether future
expectations for debtors identified throughself-assessment are reflected in thecalculation of the reserve for possible loan
losses, we agreed future prospect ofdebtor classification and amounts expected
to be collected in the future to supporting
documentation, and made inquiries asnecessary of the Credit Supervision Division
and Credit Management Division about
the latest information and considered theconsistency of the responses we received
with the basis for determination of thereserve for possible loan losses.
Responsibilities of Management and the Audit and Supervisory Committee for theConsolidated Financial Statements
Management is responsible for the preparation and fair presentation of these consolidated
financial statements in accordance with accounting principles generally accepted in Japan, and forsuch internal control as management determines is necessary to enable the preparation of
consolidated financial statements that are free from material misstatement, whether due to fraud
or error.
In preparing the consolidated financial statements, management is responsible for assessing theGroup’s ability to continue as a going concern and disclosing, as required by accounting principles
generally accepted in Japan, matters related to going concern.
The Audit and Supervisory Committee is responsible for overseeing the Group’s financial
reporting process.

104

Nishi-Nippon Financial Holdings GroupINTEGRATED REPORT 2021

Auditor’s Responsibilities for the Audit of the Consolidated Financial Statements
Our objectives are to obtain reasonable assurance about whether the consolidated financial
statements as a whole are free from material misstatement, whether due to fraud or error, and toissue an auditor’s report that includes our opinion. Misstatements can arise from fraud or error
and are considered material if, individually or in the aggregate, they could reasonably be expected
to influence the economic decisions of users taken on the basis of these consolidated financial
statements.
As part of an audit in accordance with auditing standards generally accepted in Japan, we exercise
professional judgment and maintain professional skepticism throughout the audit. We also:・ Identify and assess the risks of material misstatement of the consolidated financial
statements, whether due to fraud or error, design and perform audit procedures responsive tothose risks, and obtain audit evidence that is sufficient and appropriate to provide a basis forour opinion.
・ Consider internal control relevant to the audit in order to design audit procedures that areappropriate in the circumstances for our risk assessments, while the purpose of the audit of
the consolidated financial statements is not expressing an opinion on the effectiveness of theGroup’s internal control.
・ Evaluate the appropriateness of accounting policies used and the reasonableness of accounting
estimates and related disclosures made by management.
・ Conclude on the appropriateness of management’s use of the going concern basis of accounting
and, based on the audit evidence obtained, whether a material uncertainty exists related toevents or conditions that may cast significant doubt on the Group’s ability to continue as agoing concern. If we conclude that a material uncertainty exists, we are required to draw
attention in our auditor’s report to the related disclosures in the consolidated financial
statements or, if such disclosures are inadequate, to modify our opinion. Our conclusions are
based on the audit evidence obtained up to the date of our auditor’s report. However, future
events or conditions may cause the Group to cease to continue as a going concern.
・ Evaluate the overall presentation, structure and content of the consolidated financial
statements, including the disclosures, and whether the consolidated financial statements
represent the underlying transactions and events in a manner that achieves fair presentation inaccordance with accounting principles generally accepted in Japan.
・ Obtain sufficient appropriate audit evidence regarding the financial information of the entities
or business activities within the Group to express an opinion on the consolidated financial
statements. We are responsible for the direction, supervision and performance of the groupaudit. We remain solely responsible for our audit opinion.
We communicate with the Audit and Supervisory Committee regarding, among other matters, theplanned scope and timing of the audit and significant audit findings, including any significant
deficiencies in internal control that we identify during our audit.
We also provide the Audit and Supervisory Committee with a statement that we have compliedwith the ethical requirements regarding independence that are relevant to our audit of the financial
statements in Japan, and to communicate with them all relationships and other matters that may
reasonably be thought to bear on our independence, and where applicable, related safeguards.

Nishi-Nippon Financial Holdings GroupINTEGRATED REPORT 2021

105

From the matters communicated with the Audit and Supervisory Committee, we determine thosematters that were of most significance in the audit of the consolidated financial statements of thecurrent period and are therefore the key audit matters. We describe these matters in our auditor’sreport unless law or regulation precludes public disclosure about the matter or when, in extremelyrare circumstances, we determine that a matter should not be communicated in our report because
the adverse consequences of doing so would reasonably be expected to outweigh the public
interest benefits of such communication.
Interest Required to Be Disclosed by the Certified Public Accountants Act of Japan
Our firm and its designated engagement partners do not have any interest in the Group which is
required to be disclosed pursuant to the provisions of the Certified Public Accountants Act of Japan.
Convenience Translation
The U.S. dollar amounts in the accompanying consolidated financial statements with respect tothe year ended March 31, 2021 are presented solely for convenience. Our audit also included thetranslation of Japanese yen amounts into U.S. dollar amounts and, in our opinion, such translation
has been made on the basis described in Note 1 to the consolidated financial statements.
Ernst & Young ShinNihon LLC
Tokyo, Japan
June 29, 2021

根 津
昌 史
㊞
Masashi Nezu
Designated Engagement Partner
Certified Public Accountant

長 尾
礎 樹
㊞
Motoki Nagao
Designated Engagement Partner
Certified Public Accountant

石 川
琢 也
㊞
Takuya Ishikawa
Designated Engagement Partner
Certified Public Accountant

106

Nishi-Nippon Financial Holdings GroupINTEGRATED REPORT 2021

Nishi-Nippon Financial Holdings GroupINTEGRATED REPORT 2021

107

Organization Chart of Banking Subsidiaries

Outline of Banking Subsidiaries
As ofManagement
31st March, 2021,
the Group has a nationwide network of 175 branches of Nishi-Nippon City Bank, and 23 branches of Bank ofGroup
Philosophy
Nagasaki, and 3 overseas representative offices of Nishi-Nippon City Bank, in Hong Kong, Shanghai, and Singapore.

Aiming high and motivated by pride in our services, we are committed to becoming a leading financial group through our ability
to respond to change and to grow with our customers

The Nishi-Nippon City Bank, Ltd.

GeneralShareholders’ Meeting

Banking

Established

1st December, 1944

Headquarters

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

Number of Employees

3,584

Number of Domestic Offices

175

Corporate Planning Division

Audit and Supervisory
Committee

75

Parent Company

Nishi-Nippon Financial Holdings, Inc. (NNFH’s share of voting rights 100%)(As of 31st March, 2021)

IT Planning & Management Division

Human Resources DivisionCorporate Administration Division
Operations Planning & Management Division
Treasury & Portfolio Investment Division

TREASURY & PORTFOLIOINVESTMENT DIVISION

Treasury & Securities Transaction Division
Board of Directors

Credit Risk Management Division

4th Fl., Nittetsu Nihonbashi Bldg,
13-1, Nihonbashi 1-chome, Chuo-ku, Tokyo
103-0027, Japan
Phone: +81-3-6262-7957
SWIFT: NISIJPJTFax: +81-3-3273-2255

Branches

Board of Directors

Credit Supervision Division
Business Planning Division

英文

Chairman�������������������� Hiromichi Tanigawa
President�������������������� Hideyuki Murakami
Deputy Presidents����������������� Kiyota Takata
Hiroyuki Irie
Hiroyuki Takeo
Representative Exective Director����������� Shigeru Urayama
Exective Director����������������� Masaru Ikeda
Managing Directors���������������� Hideki Nakazuru
Takashige Honda
Kenichi Ozaki
Kenji Morimoto
Kazuhito Shigiyama
Director��������������������� Isao Kubota
Director (Audit
and Supervisory Committee Members)�� Seiji Ino 最小使用サイズ
最小使用サイズ
Michiaki Uriu
(outside)
6mm
6mm
Hiroshi Fujioka (outside)

Executive Committee

Digital Strategy Division
Business Promotion Division
Retail Business DivisionInternational Business Division

TREASURY & SECURITIESTRANSACTION DIVISION

Overseas Representative Offices
Hong Kong Representative Office

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

Shanghai Representative Office
Representative Office
Registered in Singapore
Personal Loan Transaction DivisionCorporate Business Solution Division
Private Banking Division

HONG KONG REPRESENTATIVEOFFICE

Regional Relationship Management Headquarters
Kita-Kyushu General Headquarters

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

Chikuho Regional Headquarters
Chikugo Regional Headquarters(As of 30th June, 2021)

Our logouses theof theCommittee“Sun,” Members
the energy
whichcreates
our future,andDirectors
the vibrantimagein Articleof “Wings.”
Theradiatingwings*Directors/Audit
andmotif
Supervisory
MichiakiUriu andHiroshi Fujioka
are Outsideas prescribed
2 (xv) of theCompanies
Act ofJapan.
symbolize the infinite future. And the color gradation from light to dark orange expresses the Nishi-Nippon Financial HoldingsGroup’s commitment to evolving and transforming itself toward the future.

Kyushu Regional Headquarters
Tokyo Headquarters

The Bank of Nagasaki, Ltd.

Established
Editorial
Policy3-6, Hakata-ekimae 1-chome, Hakata-ku,
Fukuoka 812-0011, Japan
Phone: +81-92-476-2481
SWIFT: NISIJPJTFKK
Fax: +81-92-476-2488

Public Relations Division
Executive Secretariat

Audit and Supervisory
Committee
Members OfficeSincere Relationships, Best Solutions

Business

INTERNATIONAL BUSINESSDIVISION

Compliance Risk Supervisory Division

Number of Correspondent Banks

Meaning behind Our Logo

The Nishi-Nippon City Bank, Ltd.

Internal Audit DivisionCorporate Risk Management Division

Business

Group Brand Slogan

International Network of

The Nishi-Nippon City Bank, Ltd.

Banking
11th November, 1912

Headquarters
Sakaemachi,
Nagasaki
850-8666,
Japan
The Nishi-Nippon
Financial Holdings, Inc. (NNFH) has put3-14,
together
this Integrated
Report2021 in abid to help investors andother stakeholders
understand the initiatives by the NNFH207
Group to sustain business growth and create value. It has been
Number of Employeescompiled
with reference
to theOffices
International Integrated Reporting
Framework issued by the International Integrated Reporting
Numberof Domestic
23
Council Parent(IIRC), bringing
togetherfinancialandnon-financial
information,
includingHoldings,
management
philosophy,
management
plans,
Company
Nishi-Nippon Financial
Inc. (NNFH’s
shareof voting rights
100%)
and ESG (environmental, social, and governance) information.
(As of 31st March, 2021)
Scope of Report
Period covered: April 2020 to March 2021 (Some subsequent information is also included.)
Board of Directors and Audit and Supervisory Board Members
Organizations covered: The Nishi-Nippon Financial Holdings, Inc. and its subsidiaries and affiliates

President�������������������� Ryutaro Kaichi
Tetsuhisa Matsumoto
ManagingStatement
Directors����������������
Cautionary
Regarding Forward-Looking Statements
Naoshi Taguchi
The Report contains statements about the NNFH Group’s future operating
results.
These forward-looking statements are not
Yasuyuki
Shigetomi
a guarantee of future performance but involve risks and uncertainty. Please
noteImamurathat actual results could differ from those
Kiyotaka
Hiroji
MochidaDirectors���������������������
indicated
due to a variety of factors, including changes in the operating
environment.
Toshihiro Takaki
Takashige Honda
Audit and Supervisory Board Members�������� Kenji Miyata
Notes
1. Amounts have been rounded down to the nearest unit in principle.Mitsuru Kawatani (outside)
Junichi Sakaguchi (outside)
of 30th June, 2021)
2. Conversion into U.S, dollars (solely for the convenience of readers outside Japan) has been made at the exchange(Asrateof(As of 30th June, 2021)

SHANGHAI REPRESENTATIVEOFFICE

The Bank of Nagasaki, Ltd.

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

General Shareholder’s Meeting
Board of Auditors
Internal Audit DivisionCorporate Planning Division
Board of Directors

REPRESENTATIVE OFFICEREGISTERED IN SINGAPORE

Human Resource & Corporate
Administration Division

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

Branches
Executive Committee

Credit Supervision Division
Business Management Division
Operations Planning &Management Division(As of 30th June, 2021)*Audit and Supervisory Board Members Mitsuru Kawatani and Junichi Sakaguchi are Outside Audit and Supervisory Board Members as prescribed in Article 2 (xvi) of theCompanies¥110.71
to Act$1.of Japan.

108

Nishi-Nippon Financial Holdings GroupINTEGRATED REPORT 2021

Nishi-Nippon Financial Holdings GroupINTEGRATED REPORT 2021

109

英文

最小使用サイズ

最小使用サイズ

6mm

6mm

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

This brochure is printed on "Kininaru Kami" paper using vegetable oil ink.
"Kininaru Kami" is made from timber thinned from forests in Fukuoka andother parts of the Kyushu Region.

Printed in Japan