ANNUAL REPORT 2014

Profile
The Higo Bank is a regional bank whose main busi-

Kumamoto Prefecture is also home to many

ness base is Kumamoto Prefecture in central Kyushu.

new industries. In an effort to develop these indus-

Possessing a varied sweep of natural beauty, includ-

tries, the Bank supports entrepreneurs and local

ing the volcano Mt. Aso, which boasts the world’s

companies in new fields through the Kumamoto

largest caldera, and the scenic Amakusa area with its

Prefecture Business Promotion Support Center,

120 islands of widely varying sizes, the prefecture iswhich was established in 1996 in cooperation withhome to thriving agricultural, forestry, and fisheries

the Kumamoto prefectural government and otherindustries. In particular, the prefecture’s agriculturalorganizations.

industry boasts a level of output that is among the

The Bank’s consolidated subsidiary, Higin CapitalCo., Ltd., cooperates with this and other organiza-

highest in Japan.
Kumamoto Prefecture has become an attractive

tions to enable the Higo Bank Group to provide

location for numerous highly competitive, cutting-comprehensive support that matches the growthedge industries from throughout the world. Notably,

stages of local companies.

Kumamoto Prefecture boasts leading production

In addition to our main work of banking opera-

and research facilities in the field of semiconductors.

tions, we lend our support to such organizations

The support Kumamoto is lending to these impor-as The District Economics Research Institute oftant industries is expected to contribute greatly to

Kumamoto Area, which conducts surveys of andthe area’s development in the near future.

makes comprehensive proposals for revitalizing the

In March 2011, the Kyushu Shinkansen Line went

regional economy.

into full operation. In addition, Kumamoto City

The Bank has continued to be active in support-

became an ordinance-designated city in April 2012,

ing cultural events such as concerts and art exhibits

giving it greater authority and access to financial

as well as in promoting environmental conservation

resources. Against this backdrop, redevelopment

efforts centered on groundwater through its sup-projects are currently being implemented in the area

port of the public interest incorporated foundation,

surrounding Kumamoto Station and the center ofFoundation for the Preservation of Green and Water

Kumamoto City in order to enhance the city’s func-

Resources in the Province of Higo. Looking ahead,tions. In addition, Kumamoto Prefecture’s rapid tran-

the Bank will make every possible effort to partici-

sit network, including expressways and high-grade

pate in a wide range of social contribution activities.

trunk highways, is being progressively upgraded.

Contents
Profile ........................................................................................ 1
Message from the President ................................................ 2
Management Policy .............................................................. 3
Results (Non-Consolidated) .................................................5
Excellent Financial Indicators ............................................. 6

Environmental Initiative ...................................................... 8
Corporate Data ...................................................................... 9Service Network .................................................................. 10
Financial Section ................................................................ 111
The Higo Bank, Ltd. Annual Report 2014

Message from the President

This annual report was prepared to give the reader a deeper understanding of the Higo Bank. Herein are summarized the Bank’s management policies, its most recent performance, the initiatives being taken to achieve
its various strategies, and other related topics. I hope that after reading it you will come away with a better
understanding of the Higo Bank.
In fiscal 2013, ended March 31, 2014, with a corporate earnings recovery buoyed by the government’s
economic and fiscal management to quickly overcome deflation and achieve economic recovery, alongwith monetary easing by the Bank of Japan, the Japanese economy continued on a moderate recovery track,showing signs of a moderate increase in production and a recovery in capital investment. Moreover, consumer spending stabilized after bottoming out and there was last-minute demand up to the end of the fiscal
year prior to the consumption tax rate increase.
Meanwhile, Kumamoto Prefecture’s economy continued to steadily recover on the back of a substantial
increase in public-sector investment, consumer spending stabilizing after bottoming out, a modest recovery
of production in the prefecture’s manufacturing industries, and also last-minute demand before the consumption tax rate increase.
Amid these circumstances, in the second phase of our Fifth Medium-term Management Plan, we took
steps to expand and fortify transactions with customers under the theme of “Co-creating value with customers – Providing optimal financial services.”
In fiscal 2014, the second phase of the Fifth Medium-term Management Plan, we capped off the year withan enormous effort by all executives and employees to meet the expectations of our customers with the aimof becoming a banking group that will contribute to the entire region.
We hope that our shareholders will continue to favor us with their support and encouragement in our
future endeavors.
July 2014

Takahiro Kai, President
2
The Higo Bank, Ltd. Annual Report 2014

Management Policy
Fifth Medium-term Management Plan
In the continuing harsh environment that surrounds financial institutions, we must understandthings from the customers’ perspective and come up with the most appropriate and timely measures so that our relationship of trust with the customer is further strengthened.
In recognition of this, from April 2012, the Bank launched the second phase of its Fifth
Medium-term Management Plan under the theme of “Co-creating value with customers —Providing optimal financial services.” “We will raise customer value and the Group’s corporate
value by getting customers to utilize the Group’s diverse financial capabilities and services.

Second Phase Theme
Co-creating value with customers — Providing optimal financial services
The Bank will put an improved “customer first” principle into practice by providing optimal financial services
based on customer needs and through the customer and Bank’s co-creation of value.

Plan Period
The Five Years from April 1, 2010 to March 31, 2015
In light of the opening of the Kyushu Shinkansen Line and Kumamoto becoming a designated city by government ordinance, we forecast a major turnaround for Kumamoto over the medium to long term. This requiresa management plan that is based on a long-term vision. Therefore, we have decided to implement our planover a five-year period, divided into two phases, Phase 1 (two years) and Phase 2 (three years).

3
The Higo Bank, Ltd. Annual Report 2014

Management Policy

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

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

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

Basic Strategy
1. Expand profit opportunities to stabilize periodic profits and losses
2.	Strengthen operation and risk management capabilities to raise management quality
3.	Strengthen the Group’s organizational operation capacity and human resources capability

Financial Targets (Fiscal 2014)
1. Core targets
Gross businessprofitOperatingincomeNonConsolidated
net income

Consolidated
ROA (net
net income income basis)¥59.5 billion ¥20.6 billion ¥11.0 billion ¥11.7 billion

0.26%

Tier I ratio

OHR

Consolidated/
NonConsolidated
ratio

13.0%

65.3%

1.06 times

2. Sub-targets
Increase in total funds undermanagement

Ratio of non-performing loans+¥300.0 billion

2.37%* Total funds under management: The total balance of deposits and balance of assets under management is the Bank’s own indicator.

4
The Higo Bank, Ltd. Annual Report 2014

Results (Non-Consolidated)
Deposits and Loans
Deposits
Total deposits increased ¥102 billion, or 2.7%, to ¥3,832
billion. The term-end balance of negotiable certificatesof deposit stood at ¥277 billion. As a result, the term-end
balance of deposits, including negotiable certificates ofdeposit, stood at ¥4,109 billion, up ¥161 billion, or 4.1%.
Deposits

Balance at term end (Unit: ¥ billion)

4,000
3,500

3,408

3,590

3,507

3,729

3,832

Loans
The term-end balance of loans and bills discounted
increased ¥80.3 billion, or 3.2%, to ¥2,573 billion.

Loans

2,573

2,600

2,493

2,400
2,260

3,000

2,200

2,500

2,000

2,000
2009
Fiscal

2010

2011

2012

2013

Balance at term end (Unit: ¥ billion)

2,326

1,800
2009
Fiscal

2010

2,383

2011

2012

2013

Earnings
Net business profit
Net business profit decreased ¥6.3 billion year on year, to¥18.6 billion due to a decline in interest income, a shift in
the general reserve for possible loan losses from reversal
to provision, and other factors.

Net business profit

Balance at term end (Unit: ¥ billion)

25.0
20.0

20.4

21.3

23.3

24.9

Net income
Net income increased ¥6.2 billion, to ¥11.4 billion due toan extraordinary gain and other factors.

Net income

12.0
18.6

10.8

10.7

2010

2011

11.3

11.4

2012

2013

10.0
8.0

15.0

Balance at term end (Unit: ¥ billion)

6.7

6.0
10.0

4.0

5.0
0
2009
Fiscal

2.0
2010

2011

2012

2013

0
2009
Fiscal5
The Higo Bank, Ltd. Annual Report 2014

Excellent Financial Indicators
Higo Bank has an Excellent Reputation as a Financially Sound Bank Carrying Few
Non-Performing Loans
Disclosure of Claims under the Financial Reconstruction Law (non-consolidated)
As of March 31, 2014 (billions of yen)

Loans to borrowers under bankruptcy
proceedings and equivalent loans
Loans at risk
Loans requiring caution
Subtotal
Normal loans
Total

Loan
balance

Coverage by collateraland guarantees

Reserve forpossible loan losses

Coverage
ratio

4.5
42.5
11.9
58.9
2,531.2
2,590.1

3.0
28.6
5.4
37.1

1.4
10.3
2.2
14.1

100.00%91.85%
65.04%
87.06%

Note: Figures have been rounded down to the nearest ¥100 million.
Fractions in the coverage ratios up to 0.04 have been rounded
down, and from 0.05 upward have been rounded up.

Higo Bank carries a total of ¥58.9 billion in non-performing
loans for which disclosure is mandatory under the Financial
Reconstruction Law, accounting for 2,28% of its total loans andclaims — a low level for a Japanese regional bank. Of these nonperforming loans, 87.06% are covered by collateral, guarantees,
and the reserve for possible loan losses, providing a sufficient buffer for the Bank. On a consolidated basis, the Bank carries a total of¥60.7 billion in nonperforming loans, accounting for 2.32% of thecredit portfolio.

Explanation of terms
Loans to borrowers under bankruptcy proceedings andequivalent loans
This category indicates loans to borrowers undergoing bankruptcy proceedings or corporate rehabilitation, or loans toborrowers in a state of virtual bankruptcy.
Loans at riskThis category indicates loans to borrowers who, while not yet ina state of bankruptcy, are suffering from a severe deteriorationin financial conditions and are very likely to be unable to repay
outstanding loans.
Loans requiring caution
This category indicates loans for which no repayments, including payments of interest, have been made for 3 months or
more, or whose repayment conditions have been eased.

6
The Higo Bank, Ltd. Annual Report 2014

Loans requiring caution: 0.18%
Loans at risk: 1.64%
Loans to borrowers underbankruptcy proceedings
and equivalent loans: 0.46%
Total 2.28%
Normal assets: 97.72%

Excellent Financial Indicators

One of the Highest Capital Ratios Among Japan’s Regional Banks
The capital ratio is the ratio of a bank’s regulatory capital (capitalstock, retained earnings and other items) to total risk-weighted
assets, including loans, marketable securities and others. This
figure is important for banks as an indicator of their financial
soundness.
As of March 31, 2014, Higo Bank’s capital ratio was 12.83%
based on domestic standards. This is one of the highest ratios ofany regional bank in Japan, and is far above the 4% standard forcapital adequacy under the Prompt Corrective Action measures.

Capital Ratio
14(Unit: %)13.34%

13.07%

12.83%

12
10
8
6* With effect from the term ended March 2007, capital adequacy calculations
have been made in line with the new Basel II standards relating to banks’regulatory capital. The new standards allow banks to adopt more sophisticated methods for calculating capital adequacy. The Bank has employed thestandardized approach for the calculation of the credit risk amount and thebasic indication approach for the calculation of the operational risk amount.

Domestic
Standards
4%

4
2
0

Fiscal 2012

Fiscal 2011

* Risk-weighted assets are calculated by multiplying assets and the credit equivalents of off-balance-sheet transactions by a risk factor that varies dependingon the credit quality of each asset.

Basel II

Fiscal 2013
Basel III

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

(Long-term credit rating: as of March 31, 2014)❖ Moody’s Japan ............................................................... A1❖ Standard & Poor’s Ratings Japan ............................. A❖ Rating and Investment Information, Inc. .......... A+* A top-class regional bank in Kyushu, with high standards among thedomestic banks.

Moody’s Credit Rating
Aaa

Aa1

Aa2

Aa3

Higo Bank
A1

A2

A3

Baa1 Baa2 Baa3

Ba1

Ba2

Ba3

B1

B2

—

C

BBB–

BB+

BB

BB–

B+

—

C

S&P Credit Rating
AAA

AA+

AA

AA–

A+

Higo BankA

A–

BBB+ BBB

7The Higo Bank, Ltd. Annual Report 2014

Environmental Initiative
Acquisition of ISO 14001 Certification
In 2004, The Higo Bank became the first financial institution in Kyushu to acquire ISO
14001 certification, an international standard covering environment-related matters.
The Bank is also tackling environmental measures through bank operations, including
reducing our consumption of electricity, water and office paper, and selling productsthat support environmental measures.

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

8
The Higo Bank, Ltd. Annual Report 2014

Corporate Data
Established: July 25, 1925
Total Assets: ¥4,479.1 billion
Deposits: ¥3,832.3 billion
Loans and Bills Discounted: ¥2,573.4 billion
Capital Stock: ¥18.1 billion

Organization

Capital Ratio: 12.83% (domestic standards)
Number of Employees: 2,249
Number of Offices: 123(Head Office and 118 domestic branches, 4 sub-branches and1 overseas representative office)(As of March 31, 2014)(As of July 1, 2014)

GENERAL MEETING OF SHAREHOLDERS
SECRETARIAT
GENERAL PLANNING DIVISIONFINANCIAL MARKETS DIVISION
BUSINESS PROMOTION DIVISION
BUSINESS DEVELOPMENT DIVISIONPUBLIC INSTITUTIONS DIVISIONLOAN MANAGEMENT DIVISION
BRANCHESOPERATIONS ADMINISTRATION DIVISION
IT MANAGEMENT DIVISIONPERSONNEL DIVISIONGENERAL ADMINISTRATION DIVISIONCOMPLIANCE AND RISK MANAGEMENT DIVISIONINTERNAL AUDIT DIVISION
AUDITORS’ OFFICEBOARD OF DIRECTORSMANAGEMENT COMMITTEE

BOARD OF
AUDIT & SUPERVISORY
BOARD MEMBERS

Directors, Corporate Auditors & Executive Officers
Representative Director and President
Representative Directors andSenior Managing Executive Officers
Directors and Managing Executive Officers
Directors and Senior Executive Officers
Outside director
Permanent Audit & Supervisory Board Member
Standing Audit & Supervisory Board Member
Outside Audit & Supervisory Board Members
Senior Executive Officers
Executive Officers

Principal Shareholders(As of June 25, 2014)

Takahiro Kai
Shiichiro Shimoyama

Toyonori Ueno

Yusuke Okazaki
Tsutomu Tajima
Masaki Masudo
Masaaki Eguchi
Yoshihiro Iwamoto
Terunobu Maeda
Toshiro Kunitake
Masaaki Kimura
Hiroaki Ishihara
Eiichi Eto

Tsuyoshi Mogami
Satoshi Tsuchiyama

Junichi Nishimoto

Toshio Manabe

Yoshihiro Kataoka

Hitoshi Yamaki
Shigeru Motoyama
Masaaki Ookushi

Tooru Hayashida
Yoshinori Oono

(As of March 31, 2014)

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

BRANCHSUPPORT CENTER
CENTRALIZEDAFFAIRS CENTER

Number of shares(thousand)
11,621
7,938
7,858
7,578
6,869
5,864
5,371
3,854
3,433
3,392
63,780Equity stake
(%)
5.03
3.44
3.40
3.28
2.97
2.54
2.32
1.67
1.48
1.46
27.64

9
The Higo Bank, Ltd. Annual Report 2014

Service Network
Head OfficeForeign Exchange Offices

13-5, Koyamachi 1-chome, Chuo-ku,
Kumamoto 860-8615
Phone: (096) 325-2111

Corporate Banking Division
Nihon Seimei Kumamoto Bldg 1/2F,
5-1 Karashimacho Chuo-ku,
Kumamoto 860-0804
Phone: (096) 326-8642

Operations Administration
Division
13-5, Koyamachi 1-chome, Chuo-ku,
Kumamoto 860-8615
Phone: (096) 326-8646
Facsimile: (096) 326-8027

Tokyo Branch
Muromachi Higashi Mitsui Bldg 17F,
2-1, Nihombashi Muromachi 2-chome
Chuo-ku, Tokyo 103-0022
Phone: (03) 3277-1589
Osaka Branch
NM Plaza Midosuji 6F,
6-3, Awaji-cho 3-chome,
Chuo-ku, Osaka 541-0047
Phone: (06) 6208-6551
Fukuoka Branch
8-1, Daimyo 2-chome,
Chuo-ku, Fukuoka 810-0041
Phone: (092) 741-7935
Kagoshima Branch
1-3, Yamanokuchicho,
Kagoshima 892-0844
Phone: (099) 223-7221

10
The Higo Bank, Ltd. Annual Report 2014

Suidocho Branch
3-31, Kamitoricho,
Chuo-ku, Kumamoto 860-0845
Phone: (096) 352-3111
Tamana Branch
548, Takase, Tamana 865-0025
Phone: (0968) 73-2151
Ozu Branch213-1, Muro, Ozumachi 869-1235
Phone: (096) 293-3131
Matsubase Branch920-1, Matsubase Matsubasemachi,Uki, 869-0502
Phone: (0964) 32-1121
Yatsushiro Branch
3-25, Honmachi 2-chome,
Yatsushiro 866-0861
Phone: (0965) 32-3171
Amakusa Branch
6-1, Minamishinmachi,
Amakusa 863-0031
Phone: (0969) 22-2151

The Higo Bank, Ltd. and its Consolidated Subsidiaries

Consolidated Balance Sheet

March 31, 2014

Millions of yen

ASSETS:Cash and due from banks (Notes 3 and 16)..............................................................
Call loans and bills bought...................................................................................................
Monetary claims purchased................................................................................................
Trading assets (Notes 4, 16 and 17)................................................................................
Money held in trust (Note 5)...............................................................................................
Securities (Notes 4, 8 and 16)..............................................................................................
Loans and bills discounted (Notes 6, 9 and 16).......................................................
Foreign exchange assets.......................................................................................................
Lease receivables and investment assets (Note 8)................................................
Other assets...................................................................................................................................
Fixed assets (Note 7).................................................................................................................
Intangible assets (Note 7).....................................................................................................
Asset for retirement benefits (Note 10)........................................................................
Deferred tax assets (Note 14)..............................................................................................
Customers’ liabilities for acceptances and guarantees......................................
Reserve for possible loan losses (Note 16).................................................................
Total assets..............................................................................................................................

LIABILITIES AND EQUITY:
Liabilities:
Deposits (Notes 8 and 16).....................................................................................................
Borrowing under securities lending transactions (Note 8)..............................
Trading liabilities (Note 17)..................................................................................................
Borrowed money (Note 8)....................................................................................................
Other liabilities.............................................................................................................................
Reserve for employees’ retirement benefits (Note 10).......................................
Liability for retirement benefits (Note 10)...................................................................
Reserve for contingent losses.............................................................................................
Reserve for repayments for dormant deposits........................................................
Reserve for loss of head office rebuilding...................................................................
Deferred tax liabilities (Note 14)........................................................................................
Deferred tax liabilities related to land revaluation................................................
Acceptances and guarantees.............................................................................................
Total liabilities........................................................................................................................
Equity (Note 11):
Common stock
authorized, 482,858,000 shares;
issued, 230,755,291 shares in 2014 and 231,755,291 shares in 2013....
Capital surplus..............................................................................................................................
Retained earnings (Note 19)................................................................................................
Treasury stock at cost, 228,794 shares in 2014 and204,365 shares in 2013.........................................................................................................
Accumulated other comprehensive income:Unrealized gains (losses) on available-for-sale securities (Note 4).......
Deferred gains (losses) on derivatives under hedge accounting.........
Excess of land revaluation.............................................................................................
Defined retirement benefit plans (Note 10).......................................................
Total accumulated other comprehensive income.................................
Minority interests in consolidated subsidiaries.......................................................
Total equity.............................................................................................................................
Total liabilities and equity..............................................................................................

2014

2013

¥ 248,161
14,225
860
1,066
4,943
1,571,717
2,556,401
5,200
23,621
26,64347,252
6,728
333
420
11,122(20,349)¥4,498,349¥  173,516
7,819
1,097
1,325
4,969
1,556,765
2,477,055
5,480
20,89730,16846,417
6,369¥4,106,069
33,797361
14,07833,900

8,250
423
801

532
11,481(20,359)¥4,323,536¥3,944,920
29,126
210
11,10626,098
8,305

Thousands of
U.S. dollars (Note 1)2014$ 2,411,212
138,216
8,356
10,36548,032
15,271,254
24,838,724
50,526
229,516
258,871459,12165,377
3,236
4,081
108,069(197,716)$43,707,245$39,895,739
328,384
3,514
136,788329,384

80,161
4,116
7,785

6,285
5,451
11,1224,220,541

497
713
281
10,631
5,508
11,481
4,048,881

61,06852,969108,069
41,007,983

18,1288,133
209,304

18,128
8,133
199,981

176,145
79,0272,033,662

(119)

(111)

(1,163)38,849(3,390)5,639(2,110)38,9883,372
277,808¥4,498,349

44,153(4,426)
5,743

377,475(32,941)
54,798(20,510)
378,822
32,7682,699,262$43,707,245

See notes to consolidated financial statements.

11
The Higo Bank, Ltd. Annual Report 2014

45,4703,051
274,655¥4,323,536

The Higo Bank, Ltd. and its Consolidated Subsidiaries

Consolidated Statement of Income
Year ended March 31, 2014

Millions of yen

Thousands of
U.S. dollars (Note 1)
2014

2014

2013

¥36,523
15,757449
11,13943
18,803$354,875
153,106
4,368
108,231425
182,696

3,291
86,008¥37,872
16,712302
11,03347
16,7381,885
3,490
88,082

Expenses:
Interest on deposits..................................................................................................................
Other interest expenses.........................................................................................................
Fees and commissions expenses.....................................................................................
Trading expenses.......................................................................................................................
Other operating expenses....................................................................................................
General and administrative expenses...........................................................................
Losses on impairment of long-lived assets................................................................
Other expenses (Note 13).....................................................................................................
Total expenses......................................................................................................................

1,637
3,264
3,682
0
14,14540,050141
3,319
66,243

1,668
2,483
3,547
6
11,94140,051513
6,145
66,35815,91331,71835,7849
137,445
389,140
1,378
32,251
643,642

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

19,764

21,723

192,040

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

8,169
(550)
12,145319¥11,826

6,547
1,171
14,004294¥13,710

79,381(5,348)118,007
3,101$114,905

Income:Interest on loans and discounts........................................................................................
Interest and dividends on securities..............................................................................
Other interest income.............................................................................................................
Fees and commissions income.........................................................................................
Trading income...........................................................................................................................
Other operating income........................................................................................................
Gain on negative goodwill...................................................................................................
Other income (Note 12).........................................................................................................
Total income..........................................................................................................................

Yen

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

¥51.089.50

See notes to consolidated financial statements.

12
The Higo Bank, Ltd. Annual Report 2014

31,978
835,683

U.S. dollars¥58.96
9.00

$0.49
0.09

The Higo Bank, Ltd. and its Consolidated Subsidiaries

Consolidated Statement of Comprehensive Income

Year ended March 31, 2014

2014

2013

Thousands of
U.S. dollars (Note 1)
2014¥12,145¥14,004$118,007(5,301)
1,036(51,510)
10,070(4,264)¥ 7,880

14,828(2,053)(9)12,764¥26,768(41,439)$ 76,567¥ 7,559
321¥26,460308$ 73,448
3,119Millions of yen

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

13
The Higo Bank, Ltd. Annual Report 2014

The Higo Bank, Ltd. and its Consolidated Subsidiaries

Consolidated Statement of Changes in Equity
Year ended March 31, 2014

Thousands

Balance at April 1, 2012...............................................................
Net income............................................................................................
Cash dividends, ¥9.00 per share...............................................
Purchase of treasury stock...........................................................
Disposal of treasury stock.............................................................
Cancellation of treasury stock...................................................
Increase due to increase in consolidated
subsidiaries — treasury stock..................................................
Decrease due to decrease in affiliates accounted
for by equity method — treasury stock...........................
Reversal of excess of land revaluation..................................
Net change in the year..................................................................
Balance at March 31, 2013........................................................
Net income............................................................................................
Cash dividends, ¥9.00 per share...............................................
Purchase of treasury stock...........................................................
Disposal of treasury stock.............................................................
Cancellation of treasury stock...................................................
Reversal of excess of land revaluation..................................
Net change in the year..................................................................
Balance at March 31, 2014........................................................

Millions of yen

Outstanding
number ofshares ofcommon stock

Commonstock

CapitalsurplusRetainedearnings

Treasurystock

232,564¥18,128¥8,133¥188,829
13,710(2,097)¥ (90)(1,020)
86

(6)
(543)

(85)

(567)
39
543
(39)

5

2
88

231,550

18,128

8,133

199,981
11,826(2,083)(1,025)
(0)
(523)
103
230,526¥18,128¥8,133¥209,304

(111)

(532)
0
523

¥(119)

Millions of yen
Accumulated other comprehensive income
Deferred
Unrealized
gains (losses) on gains (losses) on
available-for-sale derivatives underhedge accounting
securities

Balance at April 1, 2012...............................................................
Net income............................................................................................
Cash dividends, ¥9.00 per share...............................................
Purchase of treasury stock...........................................................
Disposal of treasury stock.............................................................
Cancellation of treasury stock
Increase due to increase in consolidated
subsidiaries — treasury stock..................................................
Decrease due to decrease in affiliates accounted
for by equity method — treasury stock...........................
Reversal of excess of land revaluation..................................
Net change in the year..................................................................
Balance at March 31, 2013........................................................
Net income............................................................................................
Cash dividends, ¥9.00 per share...............................................
Purchase of treasury stock...........................................................
Disposal of treasury stock.............................................................
Cancellation of treasury stock...................................................
Reversal of excess of land revaluation..................................
Net change in the year..................................................................
Balance at March 31, 2014........................................................

¥29,348¥(2,373)

Excess oflandrevaluation

Total
Minority
Definedaccumulated other interests incomprehensive consolidated
retirement
incomebenefit plans
subsidiaries¥5,832¥32,808¥2,087

Total
equity¥249,898
13,710(2,097)
(567)
33

(39)

14,804
44,153(2,053)(4,426)

(88)
5,743

(5,303)¥38,849

1,036¥(3,390)(103)¥5,639See notes to consolidated financial statements.

14
The Higo Bank, Ltd. Annual Report 2014¥(2,110)¥(2,110)

12,66145,470964
3,051(6,481)¥38,988320¥3,3722
88
13,625
274,655
11,826(2,083)(532)
0
103(6,161)¥277,808

The Higo Bank, Ltd. and its Consolidated Subsidiaries

Consolidated Statement of Changes in Equity
Year ended March 31, 2014

Thousands of U.S. dollars (Note 1)

Balance at March 31, 2013........................................................
Net income............................................................................................
Cash dividends, $0.09 per share...............................................
Purchase of treasury stock...........................................................
Disposal of treasury stock.............................................................
Cancellation of treasury stock...................................................
Reversal of excess of land revaluation..................................
Net change in the year..................................................................
Balance at March 31, 2014........................................................

Commonstock

CapitalsurplusRetainedearnings

Treasurystock$176,145$79,027$1,943,079
114,905(20,247)$(1,079)(5,173)
4
5,084

(0)
(5,084)
1,009$176,145$79,027$2,033,662$(1,163)

Thousands of U.S. dollars (Note 1)
Accumulated other comprehensive income

Balance at March 31, 2013........................................................
Net income............................................................................................
Cash dividends, $0.09 per share...............................................
Purchase of treasury stock...........................................................
Disposal of treasury stock.............................................................
Cancellation of treasury stock...................................................
Reversal of excess of land revaluation..................................
Net change in the year..................................................................
Balance at March 31, 2014........................................................

Deferred
Unrealized
gains (losses) on gains (losses) on
available-for-sale derivatives underhedge accounting
securities

Excess oflandrevaluation

Total
Minority
Definedaccumulated other interests inretirement
comprehensive consolidated
benefit plansincomesubsidiaries$429,004$(43,012)$55,808$441,800$29,653(51,528)$377,475

10,070$(32,941)(1,009)$54,798(62,977)$378,822

3,114$32,768

See notes to consolidated financial statements.

15
The Higo Bank, Ltd. Annual Report 2014$(20,510)$(20,510)

Total
equity$2,668,627
114,905(20,247)(5,173)
4
1,009(59,863)$2,699,262

The Higo Bank, Ltd. and its Consolidated Subsidiaries

Consolidated Statement of Cash Flows
Year ended March 31, 2014

2014

2013

Thousands of
U.S. dollars (Note 1)2014¥ 19,764¥ 21,723$ 192,040(4,961)
3,976
141(11,614)3,897
513(1,885)(1,052)(18)(48,203)
38,632
1,378

Millions of yen

Operating activities:
Income before income taxes and minority interests..............................................
Adjustments for:
Income taxes paid.....................................................................................................................
Depreciation and amortization.........................................................................................
Losses on impairment of long-lived assets................................................................
Gain on negative goodwill...................................................................................................
Decrease in reserve for possible loan losses.............................................................
Decrease in reserve for employees’ retirement benefits...................................
Decrease in asset for retirement benefits...................................................................
Increase in liability for retirement benefits.................................................................
(Decrease) increase in reserve for contingent losses...........................................
Increase in reserve for repayments for dormant deposits................................
(Decrease) increase in reserve for loss of head office rebuilding.................
Interest and dividend income............................................................................................
Interest expenses.......................................................................................................................
Gains on securities.....................................................................................................................
(Gains) losses on money held in trust...........................................................................
Net decrease in trading assets...........................................................................................
Net increase in loans and bills discounted.................................................................
Net increase in deposits.........................................................................................................
Net increase (decrease) in borrowed money(excluding subordinated borrowings).......................................................................
Net decrease in due from banks(excluding deposits paid to the Bank of Japan)...................................................
Net (increase) decrease in call loans and others....................................................
Net increase in borrowing under securities lending transactions..............
(Increase) decrease in lease receivables and investment assets..................
Interest received.........................................................................................................................
Interest paid...................................................................................................................................
Other..................................................................................................................................................
Total adjustments...............................................................................................................
Net cash provided by operating activities..........................................................
Investing activities:
Payments for purchases of securities............................................................................
Proceeds from sales of securities.....................................................................................
Proceeds from redemption of securities.....................................................................
Payments for increase in money held in trust.........................................................
Proceeds from decrease in money held in trust.....................................................
Payments for purchases of fixed assets........................................................................
Proceeds from sales of fixed assets.................................................................................
Payments for purchases of intangible assets............................................................
Purchases of investments in subsidiaries resulting in change inscope of consolidation.........................................................................................................
Net cash used in investing activities.......................................................................

(10)

(105)

544
27
(73)
88
(281)
(52,731)
4,902(3,765)(1)
400(80,307)
161,14825
145
107(54,886)
4,151
(0)
20
172
(108,194)
165,901

5,286
263
(718)
857
(2,734)(512,350)
47,631(36,585)(13)
3,893(780,289)
1,565,767

2,971(1,579)28,872

8,627(6,167)4,670(2,724)56,558(4,966)(9,608)78,45898,22325,354
99,602
8,717
540
57,032(4,454)(16,711)
165,786
187,51083,823(59,925)
45,382(26,470)549,543(48,253)(93,360)
762,322954,362(644,531)
516,849
120,840(6,262,451)
5,021,855
1,174,116

17(3,150)43(2,401)(560,469)
250,593
147,887(20)
0(6,739)1,480(2,249)(12,332)(3,002)(172,519)

173(30,613)425(23,331)(119,826)

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

(2,079)(0)(532)
0(2,611)(2,093)(567)
41(2,619)(20,200)(4)(5,173)
4(25,374)

Foreign currency translation adjustments on cash and cash equivalents....
Net increase in cash and cash equivalents........................................................................
Cash and cash equivalents at beginning of year...........................................................
Cash and cash equivalents at end of year (Note 3)......................................................

(6)
83,272
142,590¥225,862(3)
12,367130,222¥142,590(62)
809,100
1,385,445$2,194,545

See notes to consolidated financial statements.
16
The Higo Bank, Ltd. Annual Report 2014

The Higo Bank, Ltd. and its Consolidated Subsidiaries

Notes to Consolidated Financial Statements

Year ended March 31, 2014

1. Basis of Presentation of Consolidated Financial Statements
The accompanying consolidated financial statements of The Higo Bank, Ltd. (the “Bank”) and its consolidated subsidiaries(together, the “Group”) have been prepared in accordance with the provisions set forth in the Japanese Financial Instruments
and Exchange Act, its related accounting regulations and the Enforcement Regulation for the Banking Law of Japan (the“Banking Law”), and in accordance with accounting principles generally accepted in Japan, which are different in certain
respects as to application and disclosure requirements of International Financial Reporting Standards.
In preparing these consolidated financial statements, certain reclassifications and rearrangements have been made to theconsolidated financial statements issued domestically in order to present them in a form which is more familiar to readers
outside Japan. In addition, certain reclassifications have been made in the 2013 financial statements to conform to the classifications used in 2014.
Amounts of less than ¥1 million and $1 thousand have been omitted. As a result, the totals shown in the financial statements
and notes thereto do not necessarily agree with the sum of the individual account balances.
The consolidated financial statements are stated in Japanese yen, the currency of the country in which the Bank isincorporated and operates. The translations of Japanese yen amounts into U.S. dollar amounts are included solely for theconvenience of readers outside Japan and have been made at the rate of ¥102.92 to $1, the approximate rate of exchange
at March 31, 2014. Such translations should not be construed as representations that the Japanese yen amounts could be
converted into U.S. dollars at that or any other rate.

2. Summary of Significant Accounting Policies
a. Consolidation
The consolidated financial statements include the accounts of the Bank and its seven significant subsidiaries as of March 31,
2014 and 2013, respectively. The fiscal periods of all consolidated subsidiaries end on March 31.
Under the control or influence concept, those companies in which the Bank, directly or indirectly, is able to exercise control
over operations are fully consolidated.
Investments in remaining unconsolidated subsidiaries and an affiliated company are stated at cost. If the equity method of
accounting had been applied to the investment in this company, the effect on the accompanying consolidated financial
statements would not be material.
All significant intercompany balances and transactions have been eliminated in consolidation. All material unrealized profit
included in assets resulting from transactions within the Group is eliminated.

b. Business combinations
In October 2003, the Business Accounting Council (the “BAC”) issued a Statement of Opinion, “Accounting for Business
Combinations,” and in December 2005, the ASBJ issued ASBJ Statement No. 7, “Accounting Standard for Business
Divestitures” and ASBJ Guidance No. 10, “Guidance for Accounting Standard for Business Combinations and Business
Divestitures.” The accounting standard for business combinations allowed companies to apply the pooling of interests
method of accounting only when certain specific criteria are met such that the business combination is essentially regarded
as a uniting-of-interests. For business combinations that do not meet the uniting-of-interests criteria, the business combination is considered to be an acquisition and the purchase method of accounting is required. This standard also prescribes theaccounting for combinations of entities under common control and for joint ventures.
In December 2008, the ASBJ issued a revised accounting standard for business combinations, ASBJ Statement No. 21,“Accounting Standard for Business Combinations.” Major accounting changes under the revised accounting standard are as
follows: (1) The revised standard requires accounting for business combinations only by the purchase method. As a result,the pooling of interests method of accounting is no longer allowed. (2) The current accounting standard accounts for the17
The Higo Bank, Ltd. Annual Report 2014

The Higo Bank, Ltd. and its Consolidated Subsidiaries

Notes to Consolidated Financial Statements
Year ended March 31, 2014

research and development costs to be charged to income as incurred. Under the revised standard, in-process researchand development (IPR&D) acquired in the business combination are capitalized as an intangible asset. (3) The previous
accounting standard provided for a bargain purchase gain (negative goodwill) to be systematically amortized over a period
not exceeding 20 years. Under the revised standard, the acquirer recognizes the bargain purchase gain in profit or loss
immediately on the acquisition date after reassessing and confirming that all of the assets acquired and all of the liabilities
assumed have been identified after a review of the procedures used in the purchase price allocation.

c. Cash and cash equivalents
Cash and cash equivalents in the consolidated statements of cash flows are composed of cash on hand and due from the
Bank of Japan.

d. Foreign currency translation
The Bank maintains its accounting records in Japanese yen. Foreign currency assets and liabilities are translated into
Japanese yen at the exchange rates prevailing on the balance sheet date.

e. Trading assets/liabilities and trading income/expenses
Trading transactions intended to take advantage of short-term fluctuations and arbitrage opportunities in interest rates,
currency exchange rates, market prices of securities and related indices are recognized on a trade date basis and recorded in
Trading assets or Trading liabilities on the consolidated balance sheet. Income or expenses generated on the relevant tradingtransactions are recorded in Trading income or Trading expenses on the consolidated statement of income.
Securities and other monetary claims held for trading purposes are stated at fair value at the consolidated balance sheet
date. Derivative financial products, such as swaps, forward contracts and option transactions, are stated at their fair values,
assuming that such transactions were terminated and settled at the consolidated balance sheet date.
Trading income and Trading expenses include the interest received and interest paid during the fiscal year, the gains orlosses resulting from any change in the value of securities and other monetary claims between the beginning and the end of
the fiscal year and the gains or losses resulting from any change in the value of financial derivatives between the beginningand the end of the fiscal year, assuming they were settled at the end of the fiscal year.

f. Financial instrumentsi ) Securities
Held-to-maturity debt securities are stated at amortized cost as determined by the moving average method. Available-forsale securities with market quotations are stated at the market prices prevailing on the balance sheet date. Cost of sales ofsuch securities is determined by the moving average method. Net unrealized gains or losses on these securities, net of taxes,
are reported in a separate component of equity. Available-for-sale securities, the market quotations of which are extremely
difficult to obtain are stated at cost as determined by the moving average method. For other than temporary declines infair value, securities are reduced to net realizable value by a charge to income. Securities included in money held in trusts
managed separately, the primary objective of which is to invest, are stated at market prices. In addition, investments inunconsolidated subsidiaries and an affiliated company that are not accounted for by the equity method are stated at cost
determined by the moving average method.
ii) Derivatives
Derivatives other than those designated as “Trading assets and Trading liabilities” (see (e) Trading assets/liabilities andTrading income/expenses) are stated at fair value, with changes in fair value included in net profit or loss for the period inwhich they arise, except for derivatives that are designated as “hedging instruments” (see iii) Hedge accounting below).
iii) Hedge accountinga) Hedge of interest rate risks
The Bank applies deferral hedge accounting to hedges of interest rate risk associated with financial assets and liabilities inaccordance with the Industry Audit Committee Report No. 24, “Accounting and Auditing Treatments on the Application

18
The Higo Bank, Ltd. Annual Report 2014

The Higo Bank, Ltd. and its Consolidated Subsidiaries

Notes to Consolidated Financial Statements
Year ended March 31, 2014of Accounting Standards for Financial Instruments in the Banking Industry,” issued by the Japanese Institute of Certified
Public Accountants (“the JICPA”). Specific matching criteria are not measured at fair value, but the net payments orreceipts under the swap agreements are recognized and included in interest expenses or income.
b) Hedge of foreign currency exchange risks
The Bank applies the deferral method of hedge accounting for hedges of the risks arising from financial assets andliabilities due to the fluctuation of foreign exchange rates which is described in “Treatment for Accounting and Auditingof Application of Accounting Standard for Foreign Currency Transactions in Banking Industry” (the JICPA Industry Audit
Committee Report No. 25). The Bank assesses the effectiveness of hedging instruments executed for reducing the risk ofchanges in currency exchange rates with currency swaps or foreign exchange swaps, by verifying that there exist foreign
currency positions of the hedging instruments corresponding to the foreign currency monetary assets and liabilities to behedged.

g. Fixed assets and intangible assetsi) Fixed assets and intangible assets are stated at cost less accumulated depreciation
Depreciation of fixed assets owned by the Group is computed by the declining-balance method while the straight-line
method is applied to buildings acquired after April 1, 1998. The range of useful lives is principally from 20 to 50 years forbuildings and from 5 to 20 years for other fixed assets.
Amortization of intangible assets owned by the Group is computed by the straight-line method over the estimated useful livesof the assets. Cost of computer software obtained for internal use is amortized over the estimated useful lives of five years.
ii) Land revaluation
Under the “Law of Land Revaluation,” the Bank elected a one-time revaluation of its own-use land to a value based on realestate appraisal information as of March 31, 1999.
The resulting excess of land revaluation represents unrealized appreciation of land and is stated, net of income taxes, as acomponent of equity. There was no effect on the statement of income. Continuous readjustment is not permitted unlessthe land value subsequently declines significantly such that the amount of the decline in value should be removed from theexcess of land revaluation account and related deferred tax liabilities.
The carrying amount of the land after the above one-time revaluation exceeded the fair value by ¥11,737 million ($114,046
thousand) and ¥11,661 million as of March 31, 2014 and 2013, respectively.

h. Long-lived assets
The Group reviews its long-lived assets for impairment whenever events or changes in circumstance indicate the carrying
amount of an asset or asset group may not be recoverable. An impairment loss would be recognized if the carrying amountof an asset or asset group exceeds the sum of the undiscounted future cash flows expected to result from the continued
use and eventual disposition of the asset or asset group. The impairment loss would be measured as the amount by which
the carrying amount of the asset exceeds its recoverable amount, which is the higher of the discounted cash flows from thecontinued use and eventual disposition of the asset or the net selling price at disposition.

i. Reserve for possible loan losses
Reserve for possible loan losses is provided as follows:i ) The reserve for claims on debtors who are legally or substantially bankrupt is provided based on the amount remaining after
deducting the amount expected to be collected through the disposal of collateral or through the execution of guarantees.
ii) T he reserve for claims on debtors who are not currently legally bankrupt but are likely to become bankrupt is provided at
the amount considered necessary after due consideration of the results of a solvency assessment. The solvency assessment
identifies the amounts expected to remain after deducting the amounts expected to be collected through the disposal ofcollateral or through the execution of guarantees.

19
The Higo Bank, Ltd. Annual Report 2014

The Higo Bank, Ltd. and its Consolidated Subsidiaries

Notes to Consolidated Financial Statements
Year ended March 31, 2014iii) T he reserve for claims on debtors other than the above is provided based on the loan-loss rates calculated using theactual historical loss experience during a certain period in the past.
All claims are assessed by the branches and credit supervision divisions based on the internal rules for the self-assessmentof assets. The asset examination division, which is independent from the branches and credit supervision divisions,
examines these self-assessments, and the reserve is provided based on the examination results.
With respect to the claims with collateral or guarantees on debtors who are legally or substantially bankrupt, estimateduncollectible amounts have been directly charged off against claims. The charge off amounted to ¥3,627 million ($35,242
thousand) and ¥2,462 million for the years ended March 31, 2014 and 2013, respectively.

j. Bonuses to directors and audit & supervisory board members
Bonuses to directors and audit & supervisory board members are accrued at the end of the year to which such bonuses are
attributable.

k. Retirement and pension plans
The Bank has a cash-balance type pension plan and a defined benefit corporate pension plan (fund type). The consolidated
subsidiaries have unfunded retirement benefit plans. The amount of liability for employees’ retirement benefit is determinedbased on the projected benefit obligations and the pension assets at the balance sheet date. Past service cost is amortizedusing the straight-line method over ten years. Net actuarial gain or loss is amortized using the straight-line method over ten
years commencing from the next fiscal year of occurrence.
In May 2012, the ASBJ issued ASBJ Statement No. 26, “Accounting Standard for Retirement Benefits” and ASBJ Guidance No.
25, “Guidance on Accounting Standard for Retirement Benefits,” which replaced the accounting standard for retirement
benefits that had been issued by the BAC in 1998 with an effective date of April 1, 2000, and the other related practical guidance, and were followed by partial amendments from time to time through 2009.
(a) U nder the revised accounting standard, actuarial gains and losses and service costs that are yet to be recognized in profit
or loss are recognized within equity (accumulated other comprehensive income), after adjusting for tax effects, andany resulting deficit or surplus is recognized as a liability (liability for retirement benefits) or asset (asset for retirement
benefits).
(b) T he revised accounting standard does not change how to recognize actuarial gains and losses and past service costs in
profit or loss. Those amounts are recognized in profit or loss over a certain period no longer than the expected averageremaining service period of the employees. However, actuarial gains and losses and past service costs that arose in thecurrent period and have not yet been recognized in profit or loss are included in other comprehensive income andactuarial gains and losses and past service costs that were recognized in other comprehensive income in prior periods
and then recognized in profit or loss in the current period shall be treated as reclassification adjustments (see Note 2.t).
(c) T he revised accounting standard also made certain amendments relating to the method of attributing expected benefit
to periods and relating to the discount rate and expected future salary increases.
This accounting standard and the guidance for (a) and (b) above are effective for the end of annual periods beginning on orafter April 1, 2013, and for (c) above are effective for the beginning of annual periods beginning on or after April 1, 2014, orfor the beginning of annual periods beginning on or after April 1, 2015, subject to certain disclosure in March 2015, both withearlier application being permitted from the beginning of annual periods beginning on or after April 1, 2013. However, noretrospective application of this accounting standard to consolidated financial statements in prior periods is required.
The Bank applied the revised accounting standard and guidance for retirement benefits for (a) and (b) above, effective March
31, 2014. As a result, asset for retirement benefits of ¥333 million ($3,236 thousand) and liability for retirement benefits of¥8,250 million ($80,161 thousand) were recorded as of March 31, 2014, and deferred tax liabilities for the year ended March
31, 2014, decreased by ¥1,151 million ($11,190 thousand) and accumulated other comprehensive income for the year ended
March 31, 2014, decreased by ¥2,110 million ($20,510 thousand).

20
The Higo Bank, Ltd. Annual Report 2014

The Higo Bank, Ltd. and its Consolidated Subsidiaries

Notes to Consolidated Financial Statements
Year ended March 31, 2014

l. Reserve for contingent losses
Under the joint responsibility system with governmental credit guarantee organizations, reserve for contingent losses isprovided for possible future payments to the organizations in an amount deemed necessary based on estimated losses in
the future.

m. Reserve for repayments for dormant deposits
Reserve for repayments for dormant deposits is provided for possible losses on future withdrawal of inactive deposits which
had been recognized as income.

n. Reserve for loss of head office rebuilding
The Bank made a reserve to cover estimated losses arising from the rebuilding of the head office of the Bank.

o. Leases
Revenues and cost of revenues of finance lease transactions are recognized when lease payments are made.

p. Per share information
The computation of basic net income per share is based on the weighted average number of shares of common stock
outstanding during the year. The average number of common shares used in the computation was 231,521 thousand sharesand 232,528 thousand shares for the years ended March 31, 2014 and 2013, respectively.
Diluted net income per share is not disclosed for the years ended March 31, 2014 and 2013, because there are no potential
common shares.
Cash dividends per share presented in the accompanying consolidated statements of income are dividends applicable to
the respective years including dividends to be paid after the end of the year.

q. Income taxes
The provision for income taxes is computed based on the pretax income included in the consolidated statements of income.
The asset and liability approach is used to recognize deferred tax assets and liabilities for the expected future tax consequences of temporary differences between the carrying amounts and the tax bases of assets and liabilities. Deferred taxes aremeasured by applying currently enacted tax laws to the temporary differences.

r. Appropriations of retained earnings
Appropriations of retained earnings at each year end are reflected in the consolidated financial statements for the following
year upon shareholders’ approval.

s. Accounting changes and error corrections
In December 2009, the ASBJ issued ASBJ Statement No. 24, “Accounting Standard for Accounting Changes and Error
Corrections” and ASBJ Guidance No. 24, “Guidance on Accounting Standard for Accounting Changes and Error Corrections.”
Accounting treatments under this standard and guidance are as follows:(1) Changes in Accounting Policies
When a new accounting policy is applied following revision of an accounting standard, the new policy is applied retrospectively unless the revised accounting standard includes specific transitional provisions, in which case the entity shall comply
with the specific transitional provisions.
(2) Changes in Presentation
When the presentation of financial statements is changed, prior-period financial statements are reclassified in accordancewith the new presentation.

21
The Higo Bank, Ltd. Annual Report 2014

The Higo Bank, Ltd. and its Consolidated Subsidiaries

Notes to Consolidated Financial Statements
Year ended March 31, 2014

(3) Changes in Accounting Estimates
A change in an accounting estimate is accounted for in the period of the change if the change affects that period only, and isaccounted for prospectively if the change affects both the period of the change and future periods.
(4) Corrections of Prior-Period Errors
When an error in prior-period financial statements is discovered, those statements are restated.

t. New accounting pronouncements
Accounting Standard for Retirement Benefits — On May 17, 2012, the ASBJ issued ASBJ Statement No. 26, “AccountingStandard for Retirement Benefits” and ASBJ Guidance No. 25, “Guidance on Accounting Standard for Retirement Benefits,”
which replaced the Accounting Standard for Retirement Benefits that had been issued by the Business Accounting Council
in 1998 with an effective date of April 1, 2000, and the other related practical guidance, and were followed by partial amendments from time to time through 2009.
Major changes are as follows:(a) Treatment in the balance sheet
Under the current requirements, actuarial gains and losses and past service costs that are yet to be recognized in profit orloss are not recognized in the balance sheet, and the difference between retirement benefit obligations and plan assets(hereinafter, “deficit or surplus”), adjusted by such unrecognized amounts, is recognized as a liability or asset.
Under the revised accounting standard, actuarial gains and losses and past service costs that are yet to be recognized in
profit or loss shall be recognized within equity (accumulated other comprehensive income), after adjusting for tax effects,
and any resulting deficit or surplus shall be recognized as a liability (liability for retirement benefits) or asset (asset for
retirement benefits).
(b) Treatment in the statement of income and the statement of comprehensive income
The revised accounting standard does not change how to recognize actuarial gains and losses and past service costs in
profit or loss. Those amounts would be recognized in profit or loss over a certain period no longer than the expected
average remaining service period of the employees. However, actuarial gains and losses and past service costs that arosein the current period and have not yet been recognized in profit or loss shall be included in other comprehensive income
and actuarial gains and losses and past service costs that were recognized in other comprehensive income in priorperiods and then recognized in profit or loss in the current period shall be treated as reclassification adjustments.
(c) A mendments relating to the method of attributing expected benefit to periods and relating to the discount rate andexpected future salary increases
The revised accounting standard also made certain amendments relating to the method of attributing expected benefit
to periods and relating to the discount rate and expected future salary increases.
This accounting standard and the guidance for (a) and (b) above are effective for the end of annual periods beginning on orafter April 1, 2013, and for (c) above are effective for the beginning of annual periods beginning on or after April 1, 2014, orfor the beginning of annual periods beginning on or after April 1, 2015, subject to certain disclosure in March 2015, both withearlier application being permitted from the beginning of annual periods beginning on or after April 1, 2013. However, noretrospective application of this accounting standard to consolidated financial statements in prior periods is required.
The Bank applied the revised accounting standard for (a) and (b) above effective March 31, 2014, and expects to apply (c)above from April 1, 2014, and is in the process of measuring the effects of applying the revised accounting standard for (c)above in future applicable periods.
Accounting Standards for Business Combinations and Consolidated Financial Statements—On September 13, 2013, the
ASBJ issued revised ASBJ Statement No. 21, “Accounting Standard for Business Combinations,” revised ASBJ Guidance No. 10,“Guidance on Accounting Standards for Business Combinations and Business Divestitures,” and revised ASBJ Statement No.
22, “Accounting Standard for Consolidated Financial Statements.”

22
The Higo Bank, Ltd. Annual Report 2014

The Higo Bank, Ltd. and its Consolidated Subsidiaries

Notes to Consolidated Financial Statements
Year ended March 31, 2014

Major accounting changes are as follows:
Transactions with noncontrolling interest
A parent’s ownership interest in a subsidiary might change if the parent purchases or sells ownership interests in its
subsidiary. The carrying amount of minority interest is adjusted to reflect the change in the parent's ownership interest in its
subsidiary while the parent retains its controlling interest in its subsidiary. Under the current accounting standard, any difference between the fair value of the consideration received or paid and the amount by which the minority interest is adjusted
is accounted for as an adjustment of goodwill or as profit or loss in the consolidated statement of income. Under the revised
accounting standard, such difference shall be accounted for as capital surplus as long as the parent retains control over its
subsidiary.
Presentation of the consolidated balance sheet
In the consolidated balance sheet, “minority interest” under the current accounting standard will be changed to “noncontrolling interest” under the revised accounting standard.
Presentation of the consolidated statement of income
In the consolidated statement of income, “income before minority interest” under the current accounting standard will bechanged to “net income” under the revised accounting standard, and “net income” under the current accounting standard
will be changed to “net income attributable to owners of the parent” under the revised accounting standard.
Provisional accounting treatments for a business combination
If the initial accounting for a business combination is incomplete by the end of the reporting period in which the businesscombination occurs, an acquirer shall report in its financial statements provisional amounts for the items for which theaccounting is incomplete. Under the current accounting standard guidance, the impact of adjustments to provisionalamounts recorded in a business combination on profit or loss is recognized as profit or loss in the year in which themeasurement is completed. Under the revised accounting standard guidance, during the measurement period, which shallnot exceed one year from the acquisition, the acquirer shall retrospectively adjust the provisional amounts recognized at
the acquisition date to reflect new information obtained about facts and circumstances that existed as of the acquisition
date and that would have affected the measurement of the amounts recognized as of that date. Such adjustments shall berecognized as if the accounting for the business combination had been completed at the acquisition date.
Acquisition-related costs
Acquisition-related costs are costs, such as advisory fees or professional fees, which an acquirer incurs to effect a businesscombination. Under the current accounting standard, the acquirer accounts for acquisition-related costs by including
them in the acquisition costs of the investment. Under the revised accounting standard, acquisition-related costs shall be
accounted for as expenses in the periods in which the costs are incurred.
The above accounting standards and guidance for “transactions with noncontrolling interest,” “acquisition-related costs” and“presentation changes in the consolidated financial statements” are effective for the beginning of annual periods beginningon or after April 1, 2015. Earlier application is permitted from the beginning of annual periods beginning on or after April 1,
2014, except for the presentation changes in the consolidated financial statements. In case of earlier application, all accounting standards and guidance above, except for the presentation changes, should be applied simultaneously. Either retrospective or prospective application of the revised accounting standards and guidance for “transactions with noncontrollinginterest” and “acquisition-related costs” is permitted. In retrospective application of the revised standards and guidance for“transactions with noncontrolling interest” and “acquisition-related costs,” accumulated effects of retrospective adjustments
for all “transactions with noncontrolling interest” and “acquisition-related costs” which occurred in the past shall be reflected
as adjustments to the beginning balance of capital surplus and retained earnings for the year of the first-time application.
In prospective application, the new standards and guidance for “transactions with noncontrolling interest” and “acquisitionrelated costs” shall be applied prospectively from the beginning of the year of the first-time application. The changes inpresentation shall be applied to all periods presented in financial statements containing the first-time application of therevised standards and guidance.
23
The Higo Bank, Ltd. Annual Report 2014

The Higo Bank, Ltd. and its Consolidated Subsidiaries

Notes to Consolidated Financial Statements
Year ended March 31, 2014

The revised standards and guidance for “provisional accounting treatments for a business combination” is effective for abusiness combination which will occur on or after the beginning of annual periods beginning on or after April 1, 2015. Earlier
application is permitted for a business combination which will occur on or after the beginning of annual periods beginningon or after April 1, 2014.
The Bank expects to apply the revised accounting standards and guidance from the beginning of the annual period
beginning on April 1, 2015, and is in the process of measuring the effects of applying the revised accounting standards andguidance in future applicable periods.

3. Cash and Cash Equivalents
A reconciliation of the cash and cash equivalents balances in the consolidated statements of cash flows and the accountbalances in the consolidated balance sheets was as follows:
2014

2013

Thousands of
U.S. dollars
2014¥248,161(10,010)(10,292)(1,997)¥225,862¥173,516(10,010)(19,702)(1,213)¥142,590$2,411,212(97,260)(100,000)(19,406)$2,194,545

Millions of yen

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

4. Securities
The costs and aggregate fair values of securities at March 31, 2014 and 2013, were as shown in the table below. The amounts
shown in the following tables include trading securities classified as “trading assets” and beneficiary interests in trusts classified as “monetary claims purchased” in addition to “securities” stated in the consolidated balance sheets.
Millions of yen
March 31, 2014

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

Fair value

Cost

Net unrealized
gains (losses)

31,3491,249,319
220,293¥20,781
33,806
4,530

10,256114¥     685
52,131
1,283,126
224,823
10,371¥Millions of yen
March 31, 2013

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

Cost

Net unrealized
gains (losses)

46,774
1,358,637
141,018¥   31,042
1,312,437
135,374¥15,731
46,199
5,644

9,326

8,946

380

Fair value¥    1,086

24
The Higo Bank, Ltd. Annual Report 2014

The Higo Bank, Ltd. and its Consolidated Subsidiaries

Notes to Consolidated Financial Statements
Year ended March 31, 2014

March 31, 2014

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

Thousands of U.S. Dollars
Net unrealized
Fair value
Costgains (losses)$     6,663
506,528
12,467,220
2,184,447$   304,604
12,138,742
2,140,430$201,923
328,477
44,017100,772

99,655

1,117

The information of available-for-sale securities which were sold for the years ended March 31, 2014 and 2013, was as follows:
March 31, 2014

Proceeds

Millions of yen
Realized gains

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

¥  6,570
478,463
29,648¥514,682¥1,473
3,903
258¥5,635

March 31, 2013

Proceeds

Millions of yen
Realized gains

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

¥  5,076
231,179
13,313¥249,569¥  433
2,592
91¥3,116

March 31, 2014

Proceeds

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

$

63,836
4,648,884
288,075$5,000,797

Realized losses¥(70)(1,518)(275)¥(1,865)

Realized losses¥(2,100)(32)(118)¥(2,251)

Thousands of U.S. Dollars
Realized gains
Realized losses$14,31337,931
2,510$54,754$   (686)(14,758)(2,679)$(18,124)

The impairment losses on available-for-sale equity securities for the years ended March 31, 2014 and 2013, were zero and¥854 million, respectively.
Net unrealized gains (losses) on available-for-sale securities for the years ended March 31, 2014 and 2013, consisted of thefollowing:
2014

2013

Thousands of
U.S. dollars
2014¥59,119(20,253)(15)¥38,849¥67,575(23,408)(13)¥44,153$574,418(196,789)(153)$377,475

Millions of yen

Valuation differences:
Available-for-sale securities...........................................................................
Deferred tax liabilities........................................................................................
Minority interests..................................................................................................
Net unrealized gains (losses) on available-for-sale securities..........

25
The Higo Bank, Ltd. Annual Report 2014

The Higo Bank, Ltd. and its Consolidated Subsidiaries

Notes to Consolidated Financial Statements
Year ended March 31, 2014

5. Money Held in TrustThe carrying amounts and unrealized gains (losses) of money held in trust, as of March 31, 2014 and 2013, were as follows:
Money held in trust held for trading
2014

2013

Thousands of
U.S. dollars
2014¥4,94320¥4,96931$48,032
200

Millions of yen

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

6. Loans and Bills Discounted
Loans and bills discounted as of March 31, 2014 and 2013, included the following:
2014

2013

Thousands of
U.S. dollars
2014¥   336
46,691
46
11,885¥58,959¥   542
48,705203
14,420¥63,872$  3,266
453,667455
115,478$572,868

Millions of yen

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

Bankruptcy loans represent non-accrual loans to borrowers who are legally bankrupt as defined in Article 96-1-3 and 4 of theJapanese Tax Law Enforcement Regulation (Article 97 of 1965 Cabinet Order).
Past due loans represent non-accrual loans other than bankruptcy loans and loans for which payments of interest are
deferred in order to assist or facilitate the restructuring of borrowers in financial difficulties.
Loans past due for three months or more include loans for which payments of principal or interest are delinquent by threemonths or more, as calculated from the day following the contracted payment date, but do not include bankruptcy loans or
past due loans.
Restructured loans represent loans on which contracts were amended in favor of borrowers (e.g., reduction of or exemption
from stated interest, deferral of interest payments, extension of maturity dates, renunciation of claims) in order to assist or
facilitate the restructuring of borrowers in financial difficulties, but do not include bankruptcy loans, past due loans or loans
past due for three months.
Loans include discounted bills amounting to ¥14,005 million ($136,081 thousand) and ¥15,868 million as of March 31, 2014
and 2013, respectively. The Bank is entitled, without limitation, to sell or pledge these discounted bills.

7. Fixed Assets and Intangible Assets
Fixed assets as of March 31, 2014 and 2013, consisted of the following:
2014

2013

Thousands of
U.S. dollars
2014¥ 8,641
27,863
4,305
6,441¥47,252¥ 9,201
27,693
3,626
5,896¥46,417$ 83,966
270,732
41,83762,585$459,121

Millions of yen

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

26
The Higo Bank, Ltd. Annual Report 2014

The Higo Bank, Ltd. and its Consolidated Subsidiaries

Notes to Consolidated Financial Statements
Year ended March 31, 2014

Accumulated depreciation at March 31, 2014 and 2013, amounted to ¥36,090 million ($350,668 thousand) and ¥37,420
million, respectively.
As of March 31, 2014 and 2013, deferred gains for tax purposes amounted to ¥3,487 million ($33,885 thousand) and ¥3,487
million, respectively.
The Bank reviews its long-lived assets for impairment continuously. For the year ended March 31, 2014, the Bank did notrecognize significant impairment losses. As of March 31, 2013, the Bank recognized impairment losses of ¥513 million forcertain branches and idle fixed assets due to the carrying amount of the assets exceeding its recoverable amount, and thecarrying amount of the relevant assets was written down to the recoverable amount.
The Bank principally groups operating assets by branch office, which is the minimum unit for management accounting andidle fixed assets are individually assessed for impairment.
The recoverable amount of operating assets is measured at the valuation of the assets using the valuation techniques of areal estate appraiser less estimated costs to dispose.
Intangible assets as of March 31, 2014 and 2013, consisted of the following:
2014

2013

Thousands of
U.S. dollars
2014¥6,559169¥6,728¥6,198171¥6,369$63,730
1,646$65,377

Millions of yen

Software............................................................................................................................
Other...................................................................................................................................
Total..............................................................................................................................

8. Assets Pledged
Assets pledged as collateral were as follows:
2014

2013

Thousands of
U.S. dollars
2014¥67,085
4,551
1,036¥72,673¥63,6905,030
1,196¥69,917$651,823
44,223
10,069$706,116

Millions of yen

Securities...........................................................................................................................
Lease receivables and investment assets.....................................................
Other...................................................................................................................................
Total..............................................................................................................................
Liabilities related to the above assets pledged were as follows:

2014

2013

Thousands of
U.S. dollars
2014¥25,455
33,797
4,916¥12,541
29,126
5,602$247,335
328,384
47,767

Millions of yen

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

In addition, securities totaling ¥127,852 million ($1,242,254 thousand) and ¥129,325 million were pledged as collateral forsettlement of exchange as of March 31, 2014 and 2013, respectively.

9. Commitment Line Agreements Related to Overdrafts and Loans
Commitment line agreements relating to overdrafts and loans represent agreements to allow customers to extend
overdrafts or loans up to agreed amounts at the customer’s request as long as no violation against the conditions of theagreements exists.

27
The Higo Bank, Ltd. Annual Report 2014

The Higo Bank, Ltd. and its Consolidated Subsidiaries

Notes to Consolidated Financial Statements
Year ended March 31, 2014

Unused commitment lines under such agreements were as follows:
2014

2013

Thousands of
U.S. dollars
2014¥631,007
27,704¥658,712¥617,609
20,724¥638,333$6,131,050
269,183$6,400,233

Millions of yen

Original maturity is within one year or
the Bank can cancel at any time without any penalty......................
Other...................................................................................................................................
Total..............................................................................................................................

The amount of unexercised commitment lines does not necessarily affect the future cash flows of the Group because mostof such agreements are terminated without being exercised. Most of these agreements have provisions, which stipulate that
the Group may deny extending loans or decrease the commitment line when there are certain changes in financial markets,
certain issues in securing loans and other reasons. The Group requests collateral in the form of premises or securities as
deemed necessary upon providing such commitments. In addition, the Group monitors the financial condition of customers
in accordance with its internal rules on a regular basis (semi-annually) and takes necessary measures including revisiting theterms of commitments and other means to prevent credit losses.

10. Liability for Retirement Benefits
The Bank has a cash-balance type pension plan and a defined benefit corporate pension plan (fund type). The consolidated
subsidiaries have unfunded retirement benefit plans.
Year ended March 31, 2014
(1) The changes in defined benefit obligation for the year ended March 31, 2014, were as follows:

Balance at beginning of year...........................................................................................................................
Current service cost........................................................................................................................................
Interest cost.........................................................................................................................................................
Actuarial (gains) losses..................................................................................................................................
Benefits paid........................................................................................................................................................
Balance at end of year..........................................................................................................................................

Millions of yen
2014

Thousands of
U.S. dollars
2014¥39,465
1,209
391
(524)
(2,113)¥38,428$383,453
11,756
3,808(5,095)(20,538)$373,383

Millions of yen
2014

Thousands of
U.S. dollars
2014¥30,896617(3)
581(1,580)¥30,511$300,199
6,003
(37)
5,645
(15,351)$296,459(2) The changes in plan assets for the year ended March 31, 2014, were as follows:

Balance at beginning of year...........................................................................................................................
Expected return on plan assets...............................................................................................................
Actuarial gains (losses)..................................................................................................................................
Contributions from the employer.........................................................................................................
Benefits paid........................................................................................................................................................
Balance at end of year..........................................................................................................................................

28
The Higo Bank, Ltd. Annual Report 2014

The Higo Bank, Ltd. and its Consolidated Subsidiaries

Notes to Consolidated Financial Statements
Year ended March 31, 2014(3) R econciliation between the liability recorded in the consolidated balance sheet and the balances of defined benefit
obligation and plan assets
Millions of yen
2014

Thousands of
U.S. dollars
2014¥30,178(30,511)
(333)
8,250
¥ 7,917$293,222(296,459)(3,236)80,161$ 76,924

Millions of yen
2014

Thousands of
U.S. dollars
2014¥8,250(333)¥7,917$80,161(3,236)$76,924

Funded defined benefit obligation.............................................................................................................
Plan assets....................................................................................................................................................................
Unfunded defined benefit obligation........................................................................................................
Net liability (asset) arising from defined benefit obligation..................................................

Liability for retirement benefits......................................................................................................................
Asset for retirement benefits............................................................................................................................
Net liability (asset) arising from defined benefit obligation..................................................

(4) The components of net periodic benefit costs for the year ended March 31, 2014, were as follows:
Millions of yen
2014

Thousands of
U.S. dollars
2014¥1,209
391
(617)
(597)
1,299
0
¥1,686$11,756
3,808(6,003)(5,801)
12,622
7$16,389

Service cost.................................................................................................................................................................
Interest cost................................................................................................................................................................
Expected return on plan assets......................................................................................................................
Amortization of prior service cost.................................................................................................................
Recognized actuarial (gains) losses..............................................................................................................
Other...............................................................................................................................................................................
Net periodic benefit costs..........................................................................................................................

(5) Accumulated other comprehensive income on defined retirement benefit plans as of March 31, 2014
Millions of yen
2014

Thousands of
U.S. dollars
2014¥ (646)
3,909¥3,262$ (6,284)
37,986$31,701

Unrecognized prior service cost....................................................................................................................
Unrecognized actuarial (gains) losses........................................................................................................
Total..........................................................................................................................................................................
(6) Plan assets(a) Components of plan assets
Plan assets consisted of the following:

2014

Debt investments....................................................................................................................................................
Equity investments.................................................................................................................................................
General account of life insurance companies............................................................................................
Others.............................................................................................................................................................................
Total..........................................................................................................................................................................

26%
13
46
15
100%

(b) Method of determining the expected rate of return on plan assets
The expected rate of return on plan assets is determined considering distribution of plan assets currently and in the
future, investment performance of the past 10 years and the long-term rates of return which are expected currently andin the future from the various components of the plan assets.

29
The Higo Bank, Ltd. Annual Report 2014

The Higo Bank, Ltd. and its Consolidated Subsidiaries

Notes to Consolidated Financial Statements
Year ended March 31, 2014

(7) Assumptions used for the year ended March 31, 2014, were set forth as follows:
2014

Discount rate..............................................................................................................................................................
Expected rate of return on plan assets......................................................................................................

1.1%
2.0%

Year ended March 31, 2013
The liability for retirement benefits as of March 31, 2013, consisted of the following:
Millions of yen
2013

Projected benefit obligations..........................................................................................................................
Plan assets....................................................................................................................................................................
Unrecognized actuarial (gains) losses........................................................................................................
Unrecognized prior service cost....................................................................................................................
Prepaid pension cost............................................................................................................................................
Liability for retirement benefits......................................................................................................................

¥(39,465)
30,896(8,568)
5,729(1,243)(4,083)
4,222¥ (8,305)

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

Net pension expenses related to the retirement benefits for the year ended March 31, 2013, were as follows:
Millions of yen
2013

Service cost.................................................................................................................................................................
Interest cost................................................................................................................................................................
Expected return on plan assets......................................................................................................................
Amortization of prior service cost.................................................................................................................
Amortization of actuarial (gains) losses.....................................................................................................
Other...............................................................................................................................................................................
Net pension expenses...................................................................................................................................

¥1,150
536
(568)
(666)
1,485
0
¥1,937

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

Assumptions used in the calculation of the above information were as follows:
2013

Discount rate..............................................................................................................................................................
Expected rate of return on plan assets......................................................................................................
Method of attributing the projected benefits to periods of services..........................................
Amortization period of prior service cost.................................................................................................
Amortization period of unrecognized actuarial gain/loss.............................................................

30
The Higo Bank, Ltd. Annual Report 2014

1.0%
2.0%
Straight-line basis
10 years
10 years

The Higo Bank, Ltd. and its Consolidated Subsidiaries

Notes to Consolidated Financial Statements
Year ended March 31, 2014

11. Equity
Japanese banks are subject to the Companies Act of Japan (the “Companies Act”) and the Banking Law. The significant provisions in the Companies Act and the Banking Law that affect financial and accounting matters are summarized below:(a) Dividends
Under the Companies Act, companies can pay dividends at any time during the fiscal year in addition to the year-end
dividend upon resolution at the shareholders meeting. For companies that meet certain criteria such as: (1) having theBoard of Directors, (2) having independent auditors, (3) having the Audit & Supervisory Board, and (4) the term of serviceof the directors is prescribed as one year rather than two years of normal term by its articles of incorporation, the Boardof Directors may declare dividends (except for dividends in kind) at any time during the fiscal year if the company hasprescribed so in its articles of incorporation. The Bank meets all the above criteria.
The Companies Act permits companies to distribute dividends-in-kind (non-cash assets) to shareholders subject to acertain limitation and additional requirements.
Semiannual interim dividends may also be paid once a year upon resolution by the Board of Directors if the articles ofincorporation of the company so stipulate. The Companies Act and the Banking Law provides certain limitations on theamounts available for dividends or the purchase of treasury stock.
(b) Increases/decreases and transfer of common stock, reserve and surplus
The Banking Law requires that an amount equal to 20% of dividends must be appropriated as a legal reserve (a component of retained earnings) or as additional paid-in capital (a component of capital surplus) depending on the equity
account charged upon the payment of such dividends until the aggregate amount of legal reserve and additional paid-in
capital equals 100% of common stock. Under the Companies Act, the total amount of additional paid-in common andlegal reserve may be reversed without limitation. The Companies Act also provides that common stock, legal reserve,
additional paid-in capital, other capital surplus and retained earnings can be transferred among the accounts undercertain conditions upon resolution of the shareholders.
(c) T reasury stock and treasury stock acquisition rights
The Companies Act also provides for companies to purchase treasury stock and dispose of such treasury stock byresolution of the Board of Directors. The amount of treasury stock purchased cannot exceed the amount available for
distribution to the shareholders which is determined by a specific formula. Under the Companies Act, stock acquisitionrights are presented as a separate component of equity. The Companies Act also provides that companies can purchaseboth treasury stock acquisition rights and treasury stock. Such treasury stock acquisition rights are presented as a separate
component of equity or deducted directly from stock acquisition rights.

12. Other Income
Other income included gains on sales stocks and other securities in the amount of ¥1,667 million ($16,197 thousand) and¥497 million for the years ended March 31, 2014 and 2013, respectively.

13. Other Expenses
Other expenses included losses on sales stocks and other securities in the amount of ¥154 million ($1,504 thousand) and¥2,105 million for the years ended March 31, 2014 and 2013, and write-off costs of securities in the amount of ¥14 million($141 thousand) and ¥860 million for the years ended March 31, 2014 and 2013, respectively.

31
The Higo Bank, Ltd. Annual Report 2014

The Higo Bank, Ltd. and its Consolidated Subsidiaries

Notes to Consolidated Financial Statements
Year ended March 31, 2014

14. Income Taxes
The Group is subject to Japanese national and local income taxes which, in the aggregate, resulted in a normal effective
statutory tax rate of approximately 37.7% for the years ended March 31, 2014 and 2013.
The tax effects of significant temporary differences and tax loss carryforwards which resulted in deferred tax assets andliabilities as of March 31, 2014 and 2013, were as follows:
Thousands of
U.S. dollars
2014

Millions of yen

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

2014

2013

¥ 7,902¥  7,722
2,932$ 76,786

2,912
990
1,474

1,101
1,530

28,296
9,624
14,331

1,849
2,246
17,376(2,444)
14,9322,416
2,295
17,998(2,587)
15,41017,972
21,824
168,836(23,748)
145,087(20,350)(288)(23,505)(244)(1,490)(197,735)(2,799)(117)(40)(20,797)¥ (5,865)(269)(25,509)¥(10,099)(1,142)(396)(202,074)$ (56,987)

A reconciliation between the normal effective statutory tax rates and the actual effective tax rates reflected in the accompanying consolidated statements of income for the year ended March 31, 2013, was as follows:
2013

Normal effective statutory tax rate...............................................................................................................
Expenses not deductible for income tax purposes....................................................................
Income not taxable for income tax purposes................................................................................
Valuation allowance.......................................................................................................................................
Inhabitant taxes per capita.........................................................................................................................
Gain on negative goodwill.........................................................................................................................
Other-net...............................................................................................................................................................
Actual effective tax rate.......................................................................................................................................

37.7%
0.2
(0.8)
1.8
0.2
(3.3)
(0.3)
35.5%

A reconciliation between the normal effective statutory tax rates and the actual effective tax rates reflected in the accompanying consolidated statement of income for the year ended March 31, 2014, is not disclosed due to immaterial difference.
New tax reform laws enacted in 2014 in Japan changed the normal effective statutory tax rate for the fiscal year beginning on
or after April 1, 2014, from approximately 37.7% to 35.3%. The effect of this change was to decrease deferred tax assets in the
consolidated balance sheet as of March 31, 2014, by ¥5 million ($51 thousand) and to increase deferred tax liabilities in the
consolidated balance sheet as of March 31, 2014, by ¥200 million ($1,949 thousand) and to increase income taxes—deferredin the consolidated statement of income for the year then ended by ¥205 million ($2,000 thousand).

32
The Higo Bank, Ltd. Annual Report 2014

The Higo Bank, Ltd. and its Consolidated Subsidiaries

Notes to Consolidated Financial Statements
Year ended March 31, 2014

15. Leases
As lessee, the minimum rental commitments under noncancelable operating leases at March 31, 2014 and 2013, were as
follows:
Millions of yen

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

2014

2013

¥105
157
¥263

¥41
¥41

Thousands of
U.S. dollars
2014$1,023
1,534$2,557

As lessor, the minimum rental commitments under noncancelable operating leases at March 31, 2014 and 2013, were as
follows:
2014

2013

Thousands of
U.S. dollars
2014

¥ 39
102
¥142

¥ 39
142
¥182

$ 388
995
$1,383

Millions of yen

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

16. Financial Instruments and Related Disclosures(a) B ank policy for financial instruments
The main business of the Bank is procuring funds directly from deposits accepted from individual and corporate customers
and from financial markets including call money markets, and managing such funds in the form of loans and investments
in securities. Moreover, the Bank is engaged in a variety of services related to financial instruments including the trading ofstocks and bonds associated with securities investment, as well as over-the-counter sales of public debt securities.
The Bank’s major means of raising funds are accepting customer deposits (including negotiable certificates of deposit).
Deposits from individual customers in particular form a significant proportion of total deposits. In raising funds, the Bank
actively solicits fixed-term deposits to ensure funding stability. Some funds are raised directly from financial markets using
such means of funding as call money, as well as derivatives including currency swaps and foreign repurchase transactions asa means of raising foreign currency funds.
The Bank’s major means of operating funds is lending, and the following is securities investment such as in stocks andbonds. Loans are primarily provided to small- and medium-sized enterprises (SMEs) and individual customers in Kumamoto
Prefecture, loans are also provided to the public sector and to large corporations outside the Prefecture. Securities investments are primarily investments in Japanese government bonds (JGBs) and public debt securities, the Bank also invests incorporate bonds, stocks, foreign securities and other financial instruments.
As mentioned above, the Bank holds substantial financial assets and liabilities that are subject to fluctuations in interest rates
and prices. To protect itself from the negative effects of the fluctuations, the Bank practices Asset Liability Management (ALM).
In addition, some of the subsidiaries that engage in credit card business and lending activities raise funds from borrowing,
and some of the subsidiaries acquire, hold and sell securities.
(b) Nature and extent of risks arising from financial instrumentsi) Financial assets
The significant proportion of financial assets held by the Group is loans, which are primarily provided to domestic institutions and individual customers. Loans are subject to credit risk, which represents loss on default caused by deteriorated
credit of the borrowers. Additionally, fixed interest rate loans are subject to market risk and their fair value is exposed torisk of fluctuation in market interest rate.
33
The Higo Bank, Ltd. Annual Report 2014

The Higo Bank, Ltd. and its Consolidated Subsidiaries

Notes to Consolidated Financial Statements
Year ended March 31, 2014

The second largest proportion of financial assets held by the Group is securities, which include domestic bonds, stocks,
foreign bonds and investment trusts. Securities held by the Group are subject to market risk, and their fair value is
exposed to risk of fluctuation in variable risk factors including interest rates, stock prices and exchange rates. The Groupis also subject to the liquidity risk and their fair value is exposed to risk of fluctuation in market prices. Some securities,
such as stocks and bonds, are subject to credit risk, which represents loss on default caused by deteriorated credit of theissuers.
ii) Financial liabilities
Deposits and marketable funds procured are subject to liquidity risk, which represents the outflow of deposits and an
inability to raise needed funds caused by deteriorated credit of the Bank, as well as losses caused by having to maketransactions under unfavorable conditions. Some of the Group companies raise funds by borrowing, which are subject toliquidity risk in turn.
In addition, funds procured at fixed interest rates are subject to market risk and their fair value is exposed to risk of fluctuation in market interest rate.
iii) Derivatives
The derivative transactions conducted by the Bank include interest rate swaps and currency swaps. The Bank applies
deferred hedge and specific matching criteria to transactions undertaken as hedges against risk and evaluates hedge
effectiveness on the basis of the market price fluctuation rate and the details of the contract. Derivative transactions are
subject to market risk associated with the deteriorating credit standing of the counterparty and credit risk of default of thecontract and changing risk factors. The consolidated subsidiaries do not undertake derivative transactions.
(c) Risk management for financial instrumentsi) Basic risk management policy
The Bank positions risk management as an important business challenge and enhances organization and system for
managing risk rigorously. By monitoring various types of risk properly and managing risk by responding to changing
financial conditions appropriately, we maintain and enhance the financial soundness of the Group and establish a business foundation.
ii) Risks and the risk management system
To enhance the risk management system, the Bank has instituted “Integrated Risk Management Rules” which define risk
management policies each fiscal year for each type of risk — credit risk, market risk and liquidity risk, and define the risk
management organizations and corresponding authorities. With respect to risk management for operating divisions
such as divisions, sections, offices, branches, and Group companies, each headquarter division assumes functional
responsibility for risk management of each type of risk. The Business Administration Division assumes overall control forrisk management of all banking-related risks and reports on the risk management status to the Board of Directors. In addition, the Internal Audit Division, which is independent of the operating divisions, audits the risk management functions inoperating division and in Business Administration Division and reports the results to the Board of Directors.
iii) Integrated risk management
The Bank manages integrated risk in order to grasp and combine the various types of risks together in an integrated
manner and to manage it so that the overall volume of risk does not get too big for management to handle. In addition,
the Bank has introduced a system for allocating risk capital within the range of shareholders’ equity as a provision against
various types of risks, and is taking steps to ensure management soundness and to raise profitability and efficiency.
a) Credit risk
To enhance credit risk management, at headquarters, the Loan Division and the Loan Administration Division have been
separated from the business promotion division, and have been operating under a system of mutual checks and balances, resulting in rigorous loan assessment and management. In addition, the Loan Division manages loan balances andthe Board of Directors reviews the status of those balances so that loans are not biased to particular regions, businesses,
companies and groups.

34
The Higo Bank, Ltd. Annual Report 2014

The Higo Bank, Ltd. and its Consolidated Subsidiaries

Notes to Consolidated Financial Statements
Year ended March 31, 2014

A credit rating system has been introduced to accurately grasp the creditworthiness of customers and to refine our credit
risk management. Credit rating is a basic credit risk management concept and forms the basis of self-assessment. The
Bank has established an independent self-assessment division that performs audit and is working to enhance its functions
by giving it the ability to perform checks and balances at branches and the Loan Division.
Audits are carried out by our external auditors to confirm that our standards for in-house credit assessment are appropriate, and that such standards are rigorously applied.
b) Market risk
The Bank determines risk acceptance and risk hedge policies in the comprehensive risk control committee and ALM committee based on interest rate forecasts and profit targets through Value at Risk (VaR) method to ensure stable profitability.
In the banking account and trading account, financial instruments influenced by interest rate risks are deposits, loans andbills discounted, bonds and derivatives related to interest rate and financial instruments influenced by price volatility risks
are stocks, mutual funds related to stocks and derivatives related to stocks.
The Bank calculates VaR based on the historical simulation method (a holding period of from 10 days to 6 months, aconfidence interval of 99% and observation period of 5 years). As of March 31, 2014, VaR related to interest rate risks was¥14,283 million ($138,770 thousand) and VaR related to price volatility risks was ¥24,343 million ($236,519 thousand)and as of March 31, 2013, VaR related to interest rate risks was ¥17,494 million and VaR related to price volatility risks was¥21,882 million.
The Bank performs back testing to validate VaR periodically. However, VaR measures the amount of market risk by certain
occurrence probabilities which are statistically calculated based on past market movements. Therefore, there are cases inwhich VaR cannot capture risk under sudden and dramatic changes in market beyond normal circumstances. The Bank
does not apply quantitative analysis to some financial instruments that are small in value and financial instruments heldby the consolidated subsidiaries and affiliated companies.
c) Liquidity risk
Management department of liquidity risk grasps and analyzes the uses of funds on a daily, weekly, and monthly basis, andperforms simulations the sources of funds. In addition, to provide for contingencies, the Bank implements a three-phased
system of cash management, depending on the relative tightness of its cash position, so that it can swiftly respond to any
situation. The Bank has also established action plans and a reporting system.
(d) Supplemental explanation for fair value of financial instruments
Fair values of financial instruments include market prices as well as reasonably calculated prices in cases where there areno market prices available. Since the calculations of the reasonably calculated prices are implemented under certain conditions and assumptions, the result of calculations would differ if such calculations are made under different conditions andassumptions.
(e) Fair values of financial instruments
Fair values and carrying amounts of financial instruments as of March 31, 2014 and 2013, are shown below. Immaterial
accounts in the consolidated balance sheet are not included in the table below. Some instruments, such as unlisted stocks,
whose fair values cannot be reliably determined, are not included in the table below (see Note 16 (e) (Note 2)).

35
The Higo Bank, Ltd. Annual Report 2014

The Higo Bank, Ltd. and its Consolidated Subsidiaries

Notes to Consolidated Financial Statements
Year ended March 31, 2014

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

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

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

Carrying
amountMillions of yen
2014
Fair
value

¥ 248,161¥ 248,161

10,256
1,560,081
2,556,401(19,050)
2,537,350
4,355,850
4,106,069
4,106,069

10,371
1,560,081¥   1142,562,919
4,381,534
4,107,212
4,107,212

25,56825,683
1,142
1,142(3,188)(5,467)¥   (8,656)(3,188)(5,467)¥   (8,656)

Carrying
amountMillions of yen
2013
Fair
value

¥  173,516¥  173,516

8,946
1,546,430
2,477,055(18,686)
2,458,368
4,187,261
3,944,920
3,944,920

9,326
1,546,430¥   380

2,493,337
4,222,611
3,946,378
3,946,378

34,96935,3491,458
1,458(1,993)(6,714)¥    (8,707)(1,993)(6,714)¥   (8,707)

Carrying
amountThousands of U.S. dollars
2014
Fair
value

$ 2,411,212$ 2,411,212

99,65515,158,196
24,838,724(185,102)
24,653,622
42,322,686
39,895,739
39,895,739

100,772
15,158,196$  1,117

24,902,056
42,572,236
39,906,845
39,906,845

248,433
249,550
11,105
11,105(30,980)(53,126)$   (84,107)(30,980)(53,126)$   (84,107)

Net unrealized
gains (losses)

Net unrealized
gains (losses)

Net unrealized
gains (losses)*1. General reserve for possible loan losses and specific reserve for possible loan losses provided to loans and bills discounted are separately
presented in the above table.
*2. Derivatives recorded in Trading assets, Trading liabilities, Other assets and Other liabilities are aggregated and shown herein. Assets andliabilities attributable to the derivative contracts are totally offset and the net liability position as a consequence of offsetting would be
represented with brackets.
36
The Higo Bank, Ltd. Annual Report 2014

The Higo Bank, Ltd. and its Consolidated Subsidiaries

Notes to Consolidated Financial Statements
Year ended March 31, 2014

(Note 1) Valuation method of financial instruments.
Assets(1) Cash and due from banks
With regard to amounts due from banks without maturity and short-term (within one year) due from banks, as these instruments are settled within a short term and their fair value and carrying amounts are nearly identical, their carrying amounts
are assumed as their fair value.
(2) Securities
The fair value of equity securities is determined based on their prices quoted by the stock exchanges. The fair value of bonds
is determined based on their prices quoted by the exchanges or at rates indicated by financial institutions handling thesetransactions for the Bank. The fair value of investment trusts is based on the base value publicly disclosed. In capital investments in investment partnerships, after applying the fair value to those partnership assets that can be measured at fair value,
the equivalent amount of equity in said fair value is recorded at the deemed fair value of the partnership assets. The fair valueof privately placed bonds guaranteed by the Bank is calculated using the same method as described in “(3) Loans and bills
discounted” accounted below. For information pertaining to investment securities by holding purpose, please refer to Note 4.
(3) Loans and bills discounted
As loans bearing floating rates of interest reflect market rates of interest in the short term, unless credit conditions of the lending entity have changed significantly after lending the loans, their fair value and carrying amounts are nearly identical, so theircarrying amounts are assumed as their fair value. Fixed-rate loans are segmented by loan type, internal rating and period, andtheir fair value is determined by discounting the total amount of principal and interest by the interest rate that consists of theswap rate and the credit spread and the assumed interest rate on new lendings of the same type. The fair value of loans lentto entities that are bankrupt, substantially bankrupt or in danger of bankruptcy are determined according to the current valueof expected future cash flows or the amount of collateral that is expected to be recoverable and guarantee amounts that are
determined to be recoverable. As these amounts are nearly identical to the carrying amounts after deducting the allowancefor doubtful accounts, these amounts are assumed as their fair value. For loans that are fully secured by collateral and thathave no specified repayment term, as in terms of their expected repayment periods and interest conditions their fair value
and carrying amounts are nearly identical, their carrying amounts are assumed as their fair value.
Liabilities
Deposits
For demand deposits, fair value is assumed as the amount to be paid when demanded on the balance sheet date (i.e., thecarrying amounts). The fair value of time deposits is determined by segmenting such deposits by term and discounting
future cash flows to their current value. The discount rate used is the rate of interest on new borrowings of the same type.
As the term on deposits is short (within one year), their fair value and carrying amounts are nearly identical, so their carrying
amounts are assumed as their fair value.
Derivatives
The information of the fair value for derivatives is included in Note 17.
(Note 2) Financial instruments whose fair value cannot be reliably determined.
The following instruments are not included in “Assets (2) Securities” in the above table showing the fair value of financial
instruments as of March 31, 2014 and 2013.
Carrying amount

2014

2013

Thousands of
U.S. dollars
2014¥1,373
5¥1,379¥1,383
5¥1,389$13,348
54$13,403

Millions of yen

Unlisted stocks (*1, *2)..............................................................................................
Other (*1)..........................................................................................................................
Total..............................................................................................................................

*1. Fair value of unlisted stocks is exempt from disclosure because they do not have a market price and their fair value cannot be reliably
determined.
*2. The Group wrote off unlisted stocks amounting to ¥14 million ($141 thousand) and ¥9 million for the years ended March 31, 2014 and2013, respectively.
37
The Higo Bank, Ltd. Annual Report 2014

The Higo Bank, Ltd. and its Consolidated Subsidiaries

Notes to Consolidated Financial Statements
Year ended March 31, 2014

(Note 3) Maturity analysis for claims and securities with contractual maturities as of March 31, 2014 and 2013.

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

Over
10 years¥204,842
5,656
5,656

¥  1,756
1,756¥  2,524
2,524¥    161
161¥    158
158

63,528
4,581
34,907
11,926364,842¥638,869

390,468
218,883
50,94546,855
399,619¥791,844

565,670
365,907
66,77765,801
358,973¥927,168

312,798
244,164
24,856
14,739266,609¥579,568

77,28036,918
8,553
18,449285,245¥362,683

1 yearor lessDue from banks.................................................
Securities
Held-to-maturity debt securities.....
Municipal government bonds....
Corporate bonds................................
Available-for-sale securities withmaturity........................................................
Japanese government bonds....
Municipal government bonds....
Corporate bonds................................
Loans and bills discounted (*2)...............
Total...................................................................

Millions of yen
2014
Over 1 year to Over 3 years to Over 5 years to Over 7 years to
3 years
5 years
7 years
10 yearsMillions of yen
2013
Over 1 year to Over 3 years to Over 5 years to Over 7 years to
3 years
5 years
7 years
10 years¥ 69,885
18,484
13,53536,833553,253¥623,139Over
10 years¥134,126
473
117
356

¥  6,182¥  1,852¥    284¥    154

6,182

1,852

284

154

120,283
41,696
27,53638,812377,763¥632,647

167,464
52,284
59,407
34,779408,203¥581,849

389,125
223,46253,30356,634
340,631¥731,609

514,131401,750
64,375
17,383239,900¥754,316

265,530
217,447
13,327
23,035282,319¥548,004

1 yearor lessDue from banks................................................. $1,990,309
Securities
Held-to-maturity debt securities.....
54,957
Corporate bonds................................
54,957Available-for-sale securities withmaturity........................................................
617,259
Japanese government bonds....
44,517
Municipal government bonds....
339,174
Corporate bonds................................
115,880
Loans and bills discounted (*1)............... 3,544,915
Total................................................................... $6,207,441

Thousands of U.S. dollars
2014Over 1 year to Over 3 years to Over 5 years to Over 7 years to
3 years
5 years
7 years
10 years$

17,065
17,065

3,793,902
2,126,730
495,002455,258
3,882,820$7,693,789$

24,532
24,532$   1,564
1,564$   1,535
1,535

5,496,212
3,555,256
648,831639,3433,487,884$9,008,629

3,039,235
2,372,368
241,512143,2092,590,450$5,631,250

750,876
358,709
83,104
179,262
2,771,526$3,523,938¥ 33,394
9,848
15,3118,234
496,981¥530,376Over
10 years$ 679,023
179,601
131,513357,884
5,375,572$6,054,595*1. Of loans and bills discounted, the portion whose timing of collection is unforeseeable, such as loans to “Legally bankrupt” borrowers,
loans to “De facto bankrupt” borrowers and loans to “In danger of bankruptcy” borrowers, amounting to ¥47,027 million ($456,934
thousand), is not included in the above table. Loans that do not have contractual maturity, amounting to ¥280,829 million ($2,728,620
thousand), are not included either.
*2. Of loans and bills discounted, the portion whose timing of collection is unforeseeable, such as loans to “Legally bankrupt” borrowers,
loans to “De facto bankrupt” borrowers and loans to “In danger of bankruptcy” borrowers, amounting to ¥49,248 million, is not includedin the above table. Loans that do not have contractual maturity, amounting to ¥282,006 million, are not included either.
38
The Higo Bank, Ltd. Annual Report 2014

The Higo Bank, Ltd. and its Consolidated Subsidiaries

Notes to Consolidated Financial Statements
Year ended March 31, 2014

(Note 4) Maturity analysis for interest bearing liabilities as of March 31, 2014 and 2013.

1 yearor less

Deposits (*1)........................................................ ¥3,956,072

1 yearor less

Deposits (*1)........................................................ ¥3,775,661

1 yearor less

Deposits (*1)........................................................ $38,438,327

Millions of yen
2014
Over 1 year to Over 3 years to Over 5 years to Over 7 years to
3 years
5 years
7 years
10 years¥129,493¥17,844¥1,274¥1,383

Millions of yen
2013
Over 1 year to Over 3 years to Over 5 years to Over 7 years to
3 years
5 years
7 years
10 years¥147,106¥19,333¥1,313$173,385$12,387Over
10 years¥1,505

Thousands of U.S. dollars
2014Over 1 year to Over 3 years to Over 5 years to Over 7 years to
3 years
5 years
7 years
10 years$1,258,196

Over
10 yearsOver
10 years$13,442*1. Deposits on demand (current deposit, ordinary deposit and deposit at notice) are included in “1 year or less.”

17. Derivative Financial Instruments(a) Derivative financial instruments used by the Bank
The Bank enters into transactions with futures and options on interest rates, currencies, stocks, bonds, commodity, interest
rate swaps and currency swaps.
The Bank executes these derivative transactions in order to manage and hedge the risks associated with interest rate fluctuations and exposure to changes in the market value of assets and liabilities held by the Bank. In addition, the Bank enters into
derivative transactions for trading purposes, within the position and loss limits established by the Bank.
Consolidated subsidiaries in the Group do not enter into derivative transactions.
(b) Risks on derivative transactions
The major risks associated with derivative transactions, which have the potential to materially impact the Bank’s financial
condition, are market risk and credit risk.
Market risk is related to the increase and decrease in the fair value of the positions held by the Bank due to changes in themarket price and interest rates of the underlying assets. Market risk is also subject to changes in liquidity and the volatility ofthe markets. Credit risk refers to possible losses on the positions held by the Bank, which result from a counterparty’s failure
to perform according to the terms and conditions of the contract.
The Bank mainly applies a quantitative measurement method in order to capture market risk. The Bank monitors theoutstanding balance and profit and loss for each type of transaction on a daily basis. In addition, the Bank applies a “Value-atRisk” measurement method to transactions for which it is considered necessary to apply a more sophisticated method. The
Bank manages credit risk by establishing credit limits for counterparties. Reviews of the adequacy of established credit lines
are made on a regular basis and as deemed necessary.
(c) Risk management system of the Bank
The Bank exercises and controls the derivative transactions using limits including position limits, credit limits for each counterparty and stop loss limits in accordance with the Bank’s policy on derivative transactions. Risks quantified are reported
to the department and the director responsible for monitoring the transactions and the board of directors. The front office
function and the back office function are segregated. The middle office is responsible for risk management and monitors
front and back offices’ compliance with regulations and internal rules.

39
The Higo Bank, Ltd. Annual Report 2014

The Higo Bank, Ltd. and its Consolidated Subsidiaries

Notes to Consolidated Financial Statements
Year ended March 31, 2014

Contract amounts or notional principal amounts of derivative financial instruments disclosed represent nominal contract
amounts or the notional principal amounts set up for the calculation of the settlement amounts. Generally, they do not
represent the amounts for which the actual assets are exchanged. These amounts do not represent, by themselves, thevolume of market risk and credit risk related to the underlying derivative financial instruments.
(d) Fair value of derivative financial instruments
Derivative transactions to which hedge accounting was not applied as of March 31, 2014 and 2013i) Interest rate related transactions
There were no interest rate related transactions as of March 31, 2014.

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

Millions of yen
2013
Includingover one
Fair
year
value

¥2,913

Unrealized
gains(losses)

¥(6)

¥(6)

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

ii) Foreign exchange related transactions
Millions of yen
2014
Includingover one
Fair
year
value

Unrealized
gains(losses)¥ 21,374¥13,230¥

143,035
5,117

784
783

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

(3,262)51

15(3,262)51

Unrealized
gains(losses)¥18,690¥18,690¥   28¥   2875,189
1,241

365
364

(2,082)67(2,082)
67

Thousands of U.S. dollars
2014
Includingover one
Fair
year
value

Unrealized
gains(losses)$ 207,676$128,554$   219$   148

1,389,778
49,724

7,627
7,611

(31,702)503(31,702)
503

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

22

Millions of yen
2013
Includingover one
Fair
year
value

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

¥

Notes: 1. Derivative transactions shown above are stated at fair value in the accompanying consolidated financial statements.
2. Calculation or quotation of fair value of above derivatives is based on the discounted present value method, etc.

40
The Higo Bank, Ltd. Annual Report 2014

The Higo Bank, Ltd. and its Consolidated Subsidiaries

Notes to Consolidated Financial Statements
Year ended March 31, 2014

Derivative transactions to which hedge accounting was applied as of March 31, 2014 and 2013i) Interest rate related transactions

Hedgeditem

Millions of yen
2014
Contractual
Includingvalue or notional
over oneprincipal amount
year

Fair
value

Deferred method
Interest rate swaps:
Loans and Bills
discounted
Receive floating and pay fixed.................................... Available-for-salesecurities(Debt securities)
Specific matching criteria
Interest rate swaps:
Receive floating and pay fixed.................................... Loans and Bills
discounted

Hedgeditem¥238,788¥238,093¥(5,239)

107,152

106,152(2,500)Millions of yen
2013
Contractual
Includingvalue or notional
over oneprincipal amount
year

Fair
value

Deferred method
Interest rate swaps:
Loans and Bills
discounted
Receive floating and pay fixed.................................... Available-for-salesecurities(Debt securities)
Specific matching criteria
Interest rate swaps:
Receive floating and pay fixed.................................... Loans and Bills
discounted

Hedgeditem¥181,059¥178,841¥(6,842)

79,66578,875(2,692)Thousands of U.S. dollars
2014
Contractual
Includingvalue or notional
over oneprincipal amount
year

Fair
value

Deferred method
Interest rate swaps:
Loans and Bills
discounted
Receive floating and pay fixed.................................... Available-for-salesecurities(Debt securities)
Specific matching criteria
Interest rate swaps:
Receive floating and pay fixed.................................... Loans and Bills
discounted$2,320,137$2,313,385$(50,909)

1,041,122

1,031,405(24,294)

Notes: 1. As for interest rate swaps shown above, deferred hedge accounting is applied in accordance with JICPA Industry Audit Committee
Report No. 24.
2. Fair values of above derivatives are based on quoted market prices, such as those of the Tokyo Financial Exchange Inc.
3. Calculation or quotation of fair value of above derivatives is based on the discounted present value method or option pricing
models, etc.

41
The Higo Bank, Ltd. Annual Report 2014

The Higo Bank, Ltd. and its Consolidated Subsidiaries

Notes to Consolidated Financial Statements
Year ended March 31, 2014ii) Foreign exchange related transactions
Millions of yen
2014
Contractual
Includingvalue or notional
over oneprincipal amountyear

Hedged
item

Fair
value

Deferred method
Foreign currency
Foreign exchange forward contracts...................... call loans anddue from banks¥24,083¥(228)

Millions of yen
2013
Contractual
Includingvalue or notional
over oneprincipal amountyear

Hedged
item

Fair
value

Deferred method
Foreign currency
Foreign exchange forward contracts...................... call loans anddue from banks¥12,362¥128

Thousands of U.S. dollars
2014
Contractual
Includingvalue or notional
over oneprincipal amountyear

Hedged
item

Fair
value

Deferred method
Foreign currency
Foreign exchange forward contracts...................... call loans anddue from banks$234,002$(2,217)

Notes: 1. As for currency swaps shown above, deferred hedge accounting is applied in accordance with JICPA Industry Audit Committee
Report No. 25.
2. Calculation or quotation of fair value of above derivatives is based on the discounted present value method, etc.

18. Comprehensive Income
The components of other comprehensive income for the years ended March 31, 2014 and 2013, were as follows:
2014

2013

Thousands of
U.S. dollars
2014¥(4,672)(3,783)(8,456)
3,154¥(5,301)¥22,60279
22,682(7,854)¥14,828$(45,402)(36,760)(82,163)
30,652$(51,510)¥ (386)
1,989
1,602
(566)
¥ 1,036¥ (4,633)
1,460(3,173)1,119¥ (2,053)$ (3,753)
19,327
15,574(5,503)$ 10,070¥(4,264)¥     (9)¥     (9)¥12,764$(41,439)

Millions of yen

Unrealized gains (losses) on available-for-sale securities:
Gains arising during the year........................................................................
Reclassification adjustments to profit or loss.....................................
Amount before income tax effect.............................................................
Income tax effect..................................................................................................
Total.......................................................................................................................
Deferred gains (losses) on derivatives under hedge accounting:
Gains arising during the year........................................................................
Reclassification adjustments to profit or loss.....................................
Amount before income tax effect.............................................................
Income tax effect..................................................................................................
Total.......................................................................................................................
Share of other comprehensive income in affiliate:
Gains arising during the year........................................................................
Total.......................................................................................................................
Total other comprehensive income..........................................

42
The Higo Bank, Ltd. Annual Report 2014

The Higo Bank, Ltd. and its Consolidated Subsidiaries

Notes to Consolidated Financial Statements
Year ended March 31, 2014

19. Appropriation of Retained Earnings
The annual shareholders’ meeting, which was held on June 25, 2014, approved the following appropriation of retained
earnings for the year ended March 31, 2014:
Millions of yen
2014

Thousands of
U.S. dollars
2014¥1,152$11,199

Cash dividends (¥5.00 per share)...................................................................................................................

20. Segment Information
Under ASBJ Statement No. 17, “Accounting Standard for Segment Information Disclosures” and ASBJ Guidance No. 20,“Guidance on Accounting Standard for Segment Information Disclosures,” an entity is required to report financial anddescriptive information about its reportable segments. Reportable segments are operating segments or aggregations ofoperating segments that meet specified criteria. Operating segments are components of an entity about which separate
financial information is available and such information is evaluated regularly by the chief operating decision maker in deciding how to allocate resources and in assessing performance. Generally, segment information is required to be reported on
the same basis as is used internally for evaluating operating segment performance and deciding how to allocate resources tooperating segments.
(a) Description of Reportable Segments
The Group's reportable segments are those for which separate financial information is available and regular evaluation by
the Bank's management is being performed in order to decide how resources are allocated among the Group. Therefore,
the Group's reportable segments consist of Banking and Leasing. Banking consists of deposit taking, lending, domestic andforeign exchange transactions and securities trading. Leasing consists of leasing and lending.
(b) M ethods of measurement for the amounts of ordinary income, profit (loss), assets and other items for each reportablesegment
The accounting policies of each reportable segment are consistent with those disclosed in Note 2, “Summary of Significant
Accounting Policies.”(c) Information about ordinary income, profit (loss), assets, and other items is as follows:
Millions of yen
2014
Banking

Reportable Segment
Leasing

Ordinary income:Ordinary income byexternal customers............ ¥ 70,933
Intersegment ordinary
income......................................
289
Total...................................................... ¥ 71,222
Segment profit............................... ¥ 18,674
Segment assets.............................. 4,475,727
Other:
Depreciation.............................
3,786
Interest income......................
52,665Interest expenses..................
4,794
Losses on impairment oflong-lived assets..................
141
Increase in fixed assets
and intangible assets........
5,466

Total

Other

Total

Reconciliations Consolidated¥13,486¥

84,419¥1,585¥

1,115¥14,602¥   879
44,639¥¥1,405
85,825
19,5534,520,367

942¥2,527
¥ 489
8,208

2,347
¥ 88,352¥   20,043
4,528,575¥ (2,347)¥ (2,347)¥ (138)(30,225)

3,872
52,705
5,028

36
177
21

3,909
52,882
5,049

66
(151)
(147)

85
39
233

141
119

5,585

43
The Higo Bank, Ltd. Annual Report 2014

86,004

141
147

5,733

¥

86,004¥¥86,004
19,904
4,498,349
3,976
52,731
4,902
141

(120)

5,612

The Higo Bank, Ltd. and its Consolidated Subsidiaries

Notes to Consolidated Financial Statements
Year ended March 31, 2014

Millions of yen
2013
Banking

Reportable Segment
Leasing

Ordinary income:Ordinary income byexternal customers............ ¥   71,661
Intersegment ordinary
income......................................
1,540
Total...................................................... ¥   73,202
Segment profit............................... ¥   19,277
Segment assets.............................. 4,305,309
Other:
Depreciation.............................
3,587
Interest income......................
54,810Interest expenses..................
4,022
Gain on negative
goodwill....................................
1,885
Losses on impairment oflong-lived assets..................
513
Increase in fixed assets
and intangible assets........
3,385

Total

Other

Total

¥12,899¥   84,561¥1,429¥   85,990

899¥13,799¥   799
38,9182,439¥   87,001¥   20,076
4,344,228

916¥2,346¥  446
7,191

3,356¥   89,347¥   20,523
4,351,419¥ (3,356)¥ (3,356)¥    (86)(27,882)¥   85,990¥   20,436
4,323,536

97
39
256

3,685
54,850
4,279

31
188
23

3,717
55,038
4,302

180
(151)
(151)

3,897
54,8864,151(12)

Reconciliations Consolidated¥   85,990

1,885

1,885

1,885

513

513

513

3,372

(13)

3,359

212

3,571

Thousands of U.S. dollars
2014
Banking

Reportable Segment
Leasing

Ordinary income:Ordinary income byexternal customers............$   689,206
Intersegment ordinary
income......................................
2,813
Total......................................................$   692,019
Segment profit...............................$   181,450
Segment assets.............................. 43,487,446
Other:
Depreciation.............................
36,793
Interest income......................
511,714
Interest expenses..................
46,580Losses on impairment oflong-lived assets..................
1,378
Increase in fixed assets
and intangible assets........
53,111

Total

Other

Total

$131,038$   820,244$15,402$   835,647

10,842$141,880$  8,540
433,727

13,655$   833,900$   189,991
43,921,174

9,154$24,557$ 4,755
79,752

22,810$   858,457$   194,746
44,000,926$ (22,810)$ (22,810)$ (1,349)(293,680)$   835,647$   193,397
43,707,245

835
385
2,273

37,628512,099
48,854

353
1,725
208

37,981
513,825
49,063650(1,474)(1,431)

38,632
512,350
47,631

1,378
1,158

54,270Reconciliations Consolidated$   835,647

1,378
1,436

55,706

1,378(1,175)54,531

Notes: 1. Ordinary income means total income less certain special income included in other income in the accompanying consolidated
statements of income.
2. “Other” consists of other banking related activities such as credit card operations.
3. Segment profit is reflected as an adjustment to ordinary profit in the consolidated statement of income.
4. Reconciliations include items below.
		 a. For the year ended March 31, 2014, the segment profit reconciliations of ¥(138) million ($(1,349) thousand) include eliminationsof intersegment transactions of ¥(139) ($(1,351) thousand).
		 b. For the year ended March 31, 2013, the segment profit reconciliations of ¥(86) million include reconciliations in reserve for possible loan losses of ¥25 million and eliminations of intersegment transactions of ¥(111).
		 c. F or the years ended March 31, 2014 and 2013, reconciliations of segment assets, interest income and interest expenses were
eliminations of intersegment transactions. Reconciliations of depreciation and increase in fixed assets and intangible assets werereconciliations in lease investments assets.

44
The Higo Bank, Ltd. Annual Report 2014

The Higo Bank, Ltd. and its Consolidated Subsidiaries

Notes to Consolidated Financial Statements
Year ended March 31, 2014

Related information(a) Segment information by services
Millions of yen
2014

Ordinary income by external customers............................

Lending

Securities
investment

Leasing

OthersTotal¥36,523¥21,495¥13,374¥14,610¥86,004

Millions of yen
2013

Ordinary income by external customers............................

Ordinary income by external customers............................

Lending

Securities
investment

Leasing

OthersTotal¥37,872¥20,661¥12,811¥14,646¥85,990

Lending

Thousands of U.S. dollars
2014
Securities
investment
Leasing
Others$354,875$208,857$129,951$141,962

Total$835,647

Note: Instead of the net sales of a nonfinancial company, ordinary income is presented.

(b) Segment information by geographic areas
Segment information by geographic areas is not disclosed since over 90% of the total consolidated ordinary income andtangible fixed assets of the Group resides in Japan.
(c) Segment information by major customers
Segment information by major customers is not disclosed since ordinary income by any customer has been fewer than 10%
of total ordinary income.

45
The Higo Bank, Ltd. Annual Report 2014

Independent Auditor’s Report46
The Higo Bank, Ltd. Annual Report 2014

The Higo Bank, Ltd.
13-5, Koyamachi 1-chome, Chuo-ku, Kumamoto 860-8615, Japan
Phone: (096)325-2111
http://www.higobank.co.jp/