HOKKOKU BANK ANNUAL REPORT

Transcription

1 A N N U A L R E P O R T HOKKOKU BANK ANNUAL REPORT

2 BANK PROFILE FINANCIAL HIGHLIGHTS 3,600,000 3,513,777 ($34,140,866) 3,487,404 3,161,969 ($30,722,596) 3,151,712 3,000,000 2,400,000 2,350,504 ($22,838,173) 2,322,999 1,800,000 1,200, ,444 ($8,680,960) 886, , ,438 ($2,170,987) 218,492 Hokkoku Bank is a regional financial institution centered in Ishikawa prefecture, on the Sea of Japan coast in central Honshu, Japan's main island. The Bank s headquarters is in Kanazawa, the region's largest city. Its business is concentrated in the prefectures of Ishikawa, Toyama, and Fukui, known collectively as Hokuriku. Hokkoku Bank branches cover this entire region, complemented by offices in the major Japanese cities of Tokyo, Osaka, and Nagoya. 100,000 80,000 60,000 40, ,576 69,315 ($646,873) Hokkoku Bank was created by the merger of three Ishikawa prefecture banks in 1943, and has grown steadily ever since. Today it is widely regarded as one of the most financially sound of Japan's 64 regional banks, with the closest ties to local communities and residents. Hokkoku Bank began handling foreign exchange business in 1961; in the ensuing 53 years, it has continued to expand its correspondent bank network and formed tie-ups with banks around the world. The Bank s overseas offices help our clients track international financial trends and support their overseas activities. As of March 31, 2014, the Bank had 103 branches (including 1 sub-branch), 1,835 employees, and on a consolidated basis, total assets of 3,513,777 million (US$34,140 million) and total shareholders equity of 180,620 million (US$1,754 million). (*The number of branches is as of July 31, 2014) 20, ,486 ($150,472) 11,458 7,855 ($76,327) 6, CONTENTS A Message to Our Shareholders 2 Corporate Philosophy and Medium-term Business Plan 3 Report of Independent Auditors 4 Consolidated Financial Statements 5 Board of Directors and Auditors 24 Offices and Subsidiaries 24 FORWARD-LOOKING STATEMENTS This annual report contains certain forward-looking statements about Hokkoku Bank's future, including outlooks, plans, forecasts, results, etc. All such forward-looking statements are the result of judgments predicated upon information available to the Bank at the time of the Annual Report's publication. Unknown risks and uncertainties in the future may cause actual results to differ significantly from any projections presented in the Bank's Annual Report. Such risks and uncertainties include, but are not limited to, economic conditions in which the Bank must do business, pressures from competitive activities, changes in laws and/or regulations, development of new products and elimination of old ones, and fluctuation of exchange rates. 1

3 A MESSAGE TO OUR SHAREHOLDERS I would like to express my sincere gratitude for your valued patronage of Hokkoku Bank. We have prepared this Annual Report 2014 which presents our business results for the fiscal year ended March 31, 2014, as well as the Bank s recent undertakings. It will be greatly appreciated if you would read through it. There is growing expectation of an economic recovery in the domestic economy amid strong performance in the foreign currency and stock markets, growth in corporate results mainly for large companies, and improvement in consumer sentiment, thanks to the economic policies of the Abe administration known as Abenomics. Despite uncertainty about the outlook for the future due to factors including the hike in the consumption tax rate and the unstable situation in neighboring countries in Asia, our regional economy is continuing on a mild recovery track as improvement is seen in personal consumption, export trends, and the employment environment. Under these circumstances, the Bank has entered the third year of the medium-term business plan QCS S, the year in which we will bring the plan to a finish. Positioning this as the year to see it through, the Bank aims to establish the Hokkoku brand as a familiar and beloved name for the people in the region. To this end, we will base our efforts on customer-oriented service and enhancing customer satisfaction through communicating smiles, while aiming to further improve the speed and quality we have been working on so far. Tateki Ataka President This is a time of major turning points both for the region, which is awaiting the opening of the Hokuriku Shinkansen in Kanazawa next spring, and for the Bank, which will relocate its head office to Kanazawa Ekinishi in November of this year and update its core IT system in January of next year. All officers and employees of the Bank will be even more strongly united as we continue to maintain sound business operations while striving toward the further development of our regional communities. We would be grateful for your continuing support and guidance for the Bank. July

4 CORPORATE PHILOSOPHY AND MEDIUM-TERM BUSINESS PLAN Trust a bridge to a fruitful regional future Enrich interactions and build up growth in the region We shall: Deeply understand the regional society, economy, culture, and life. Provide comprehensive information and financial services. Lead regional activities in various aspects. Achieve trust and become a guide toward a fruitful future for the region. Hokkoku Bank s regional communities: We offer services tailored to the unique characteristics and needs of all areas in which our business infrastructure is located. The three Hokuriku prefectures of Toyama, Fukui, and especially Ishikawa, where our headquarters is located, are our most important regional communities. Medium-Term Business Plan QCS S Q...Quality Make further improvements to quality C...Cost Continue to reduce costs and use funds where they are truly needed S...Speed Make further improvements to speed S...Smile Make further improvements to customer satisfaction Provide thorough services through smiles, on top of highlevel hospitality and beautification of our banks, the fundamental elements of the service industry Basic theme We take customer satisfaction improvement and customer-oriented service as our basic theme. Through communications with a smile, we will act in the manner of a partner worthy of the trust of the region and its citizens as it faces all types of challenges with a constant awareness of (1) quality, (2) speed, and (3) cost. Basic strategy (1) Enhancing relationship banking (2) Improving quality and speed (3) Reducing costs (4) Implementing risk management and compliance Target management benchmarks March 2014 (Actual) March 2015 (Target) Net profits from core business 16.6 billion 18.0 billion or more OHR* 64.19% % Tier 1 ratio 12% or more Duration April 2012 to March 2015 (three years) NPL ratio 3.23% % Credit cost ratio 0.07% % * OHR (overhead ratio): A benchmark indicating efficiency or productivity, obtained by dividing expenses by gross profits. The value becomes smaller as efficiency or productivity improves. 3

5 REPORT OF INDEPENDENT AUDITORS 4

6 CONSOLIDATED BALANCE SHEETS The Hokkoku Bank, Ltd. and Consolidated Subsidiaries As of March 31 (Millions of Yen) (Thousands of U.S. Dollars) Assets: (Note 2) Cash and due from banks (Notes 7 and 11) 160,303 77,445 $ 1,557,552 Call loans and bills bought (Note 7) 15, , ,744 Monetary receivables bought 4,682 5,601 45,500 Trading securities (Note 8) ,250 Money held in trusts (Note 9) 15,077 25, ,500 Securities (Notes 7, 8 and 13) 893, ,272 8,676,709 Loans and bills discounted (Notes 6 and 7) 2,350,504 2,322,999 22,838,173 Foreign exchanges 2,743 2,469 26,656 Lease receivables and investment in leased assets (Note 17) 22,812 21, ,655 Other assets (Note 13) 12,033 12, ,923 Tangible fixed assets (Notes 10 and 12) 37,368 33, ,083 Intangible fixed assets 7,589 3,834 73,746 Deferred tax assets (Note 20) 3,198 5,780 31,074 Customers' liabilities for acceptances and guarantees 17,544 18, ,467 Reserve for possible loan losses (28,835) (29,465) (280,173) Total assets 3,513,777 3,487,404 $ 34,140,866 Liabilities: Deposits (Notes 7 and 13) 3,049,886 3,011,013 29,633,562 Negotiable certificates of deposit (Note 7) 112, ,699 1,089,034 Call money and bills sold 12, ,000 Guarantee deposit received under securities lending transactions (Notes 7 and 13) 49,517 35, ,125 Borrowed money (Notes 13 and 14) 7,665 27,555 74,475 Foreign exchanges Other liabilities 24,277 23, ,886 Reserve for bonuses ,652 Reserve for employees' retirement benefits (Note 21) 7,493 Reserve for directors' retirement benefits Net defined benefit liability (Note 21) 12, ,662 Deferred tax liabilities arising from revaluation of land (Note 10) 2,952 3,354 28,689 Acceptances and guarantees 17,544 18, ,467 Total liabilities 3,290,339 3,268,911 $ 31,969,878 Net assets: Common stock 26,673 26, ,171 Capital surplus 11,289 11, ,691 Retained earnings 142, ,510 1,388,183 Treasury stock (215) (197) (2,090) Total shareholders' equity (Note 15) 180, ,276 1,754,956 Net unrealized gains on available-for-sale securities (Note 8) 34,030 31, ,645 Net deferred losses on hedging instruments (277) (399) (2,701) Land revaluation surplus (Note 10) 3,514 4,243 34,143 Remeasurements of defined benefit plans (3,197) (31,070) Total accumulated comprehensive income 34,068 35, ,018 Subscription rights to shares (Note 16) ,091 Minority interests 8,534 7,403 82,921 Total net assets 223, ,492 2,170,987 Total liabilities and net assets 3,513,777 3,487,404 $ 34,140,866 See accompanying notes to consolidated financial statements. 5

7 CONSOLIDATED STATEMENTS OF INCOME The Hokkoku Bank, Ltd. and Consolidated Subsidiaries Year ended March 31 (Millions of Yen) (Thousands of U.S. Dollars) Income (Note 2) Interest income on: 41,522 43,317 $ 403,441 Interest on loans and discounts 31,710 33, ,107 Interest and dividends on securities 9,781 9,915 95,036 Other interest income Fees and commissions 10,520 10, ,215 Other operating income 9,878 13,535 95,982 Other income 4,655 2,305 45,233 Total income 66,576 69, ,873 Expenses Interest expense on: 1,368 2,314 13,293 Deposits 986 1,931 9,589 Borrowings and rediscounts Other ,062 Fees and commissions 2,683 2,472 26,076 Other operating expenses 9,034 8,631 87,785 General and administrative expenses 31,782 32, ,804 Other expenses (Note 18) 6,220 12,205 60,440 Total expenses 51,089 57, ,401 Income before income taxes and minority interests 15,486 11, ,472 Income taxes (Note 20): Current 4,154 4,780 40,370 Deferred 2,831 (1,216) 27,515 6,986 3,564 67,886 Net income before minority interests 8,499 7,894 82,586 Minority interests in earnings of consolidated subsidiaries ,258 Net income 7,855 6,994 $ 76,327 (Yen) ( U.S. Dollars) Amounts per share (Note 23) (Note 2) Net assets $ 6.64 Net income See accompanying notes to consolidated financial statements. CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME The Hokkoku Bank, Ltd. and Consolidated Subsidiaries Year ended March 31 (Millions of Yen) (Thousands of U.S. Dollars) (Note 2) Net income before minority interests 8,499 7,894 $ 82,586 Other comprehensive income (Note 19) Net unrealized gains on available-for-sale securities 2,744 5,828 26,668 Net deferred gains on hedging instruments ,181 Total other comprehensive income 2,866 5,916 27,849 Comprehensive income 11,366 13,810 $ 110,436 Total comprehensive income attributable to: Owners of the parent 10,224 12,783 $ 99,341 Minority interests 1,141 1,026 11,094 See accompanying notes to consolidated financial statements. 6

8 CONSOLIDATED STATEMENTS OF CHANGES IN NET ASSETS Common stock The Hokkoku Bank, Ltd. and Consolidated Subsidiaries Capital surplus Millions of Yen Shareholder's equity Retained earnings Treasury stock Total shareholders' equity Balance at April 1, ,673 11, ,165 (253) 171,875 Cash dividends (1,944) (1,944) Net income 6,994 6,994 Transfer from retained earnings to capital surplus 3,236 (3,236) Purchase of treasury stock (3,194) (3,194) Disposal of treasury stock (0) Cancellation of treasury stock (3,236) 3,236 Reversal of land revaluation surplus 1,531 1,531 Net changes in items other than shareholders' equity Total changes during the year 3, ,401 Balance at March 31, ,673 11, ,510 (197) 175,276 Cash dividends (2,049) (2,049) Net income 7,855 7,855 Transfer from retained earnings to capital surplus 1,175 (1,175) Purchase of treasury stock (1,224) (1,224) Disposal of treasury stock (13) Cancellation of treasury stock (1,161) 1,161 Reversal of land revaluation surplus Net changes in items other than shareholders' equity Total changes during the year 5,360 (17) 5,343 Balance at March 31, ,673 11, ,871 (215) 180,620 Net unrealized gains on available-forsale securities Millions of Yen Accumulated other comprehensive income Net deferred losses on hedging instruments Land revaluation surplus Remeasurements of defined benefit plans Total accumulated other comprehensive income Subscription rights to shares Minority interests Balance at April 1, ,081 (487) 5,775 31, , ,777 Cash dividends (1,944) Net income 6,994 Transfer from retained earnings to capital surplus Purchase of treasury stock (3,194) Disposal of treasury stock 13 Cancellation of treasury stock Reversal of land revaluation surplus 1,531 Net changes in items other than shareholders' equity 5, (1,531) 4, ,016 5,314 Total changes during the year 5, (1,531) 4, ,016 8,715 Balance at March 31, ,783 (399) 4,243 35, , ,492 Cash dividends (2,049) Net income 7,855 Transfer from retained earnings to capital surplus Purchase of treasury stock (1,224) Disposal of treasury stock 32 Cancellation of treasury stock Reversal of land revaluation surplus 729 Net changes in items other than shareholders' equity 2, (729) (3,197) (1,559) 29 1,130 (398) Total changes during the year 2, (729) (3,197) (1,559) 29 1,130 4,945 Balance at March 31, ,030 (277) 3,514 (3,197) 34, , ,438 Total net assets See accompanying notes to consolidated financial statements. 7

9 Common stock Thousands of U.S. Dollars (Note 2) Shareholder's equity Capital surplus Retained earnings Treasury stock Total shareholders' equity Balance at March 31, 2013 $ 259,171 $ 109,691 $ 1,336,095 $ (1,919) $ 1,703,039 Cash dividends (19,915) (19,915) Net income 76,327 76,327 Transfer from retained earnings to capital surplus 11,416 (11,416) Purchase of treasury stock (11,899) (11,899) Disposal of treasury stock (132) Cancellation of treasury stock (11,284) 11,284 Reversal of land revaluation surplus 7,091 7,091 Net changes in items other than shareholders' equity Total changes during the year 52,087 (170) 51,916 Balance at March 31, 2014 $ 259,171 $ 109,691 $ 1,388,183 $ (2,090) $ 1,754,956 Net unrealized gains on available-forsale securities Thousands of U.S. Dollars (Note 2) Accumulated other comprehensive income Net deferred losses on hedging instruments Land revaluation surplus Remeasurements of defined benefit plans Total accumulated other comprehensive income Subscription rights to shares Minority interests Balance at March 31, 2013 $ 308,813 $ (3,882) $ 41,235 $ $ 346,166 $ 1,800 $ 71,932 $ 2,122,939 Cash dividends (19,915) Net income 76,327 Transfer from retained earnings to capital surplus Purchase of treasury stock (11,899) Disposal of treasury stock 312 Cancellation of treasury stock Reversal of land revaluation surplus 7,091 Net changes in items other than shareholders' equity 21,831 1,181 (7,091) (31,070) (15,147) ,988 (3,868) Total changes during the year 21,831 1,181 (7,091) (31,070) (15,147) ,988 48,048 Balance at March 31, 2014 $ 330,645 $ (2,701) $ 34,143 $ (31,070) $ 331,018 $ 2,091 $ 82,921 $ 2,170,987 Total net assets See accompanying notes to consolidated financial statements. 8

10 CONSOLIDATED STATEMENTS OF CASH FLOWS The Hokkoku Bank, Ltd. and Consolidated Subsidiaries Year ended March 31 (Millions of Yen) (Thousands of U.S. Dollars) Cash flows from operating activities (Note 2) Income before income taxes and minority interests 15,486 11,458 $ 150,472 Adjustments to reconcile income before income taxes and minority interests to net cash provided by operating activities: Depreciation and amortization 2,321 2,457 22,558 Losses on impairment 1,261 2,496 12,255 Increase (decrease) in reserve for possible loan losses (630) 3,973 (6,122) Increase (decrease) in reserve for bonuses (19) (26) (193) Increase (decrease) in employees' retirement benefits 774 Increase (decrease) in net defined benefit liability 5,336 51,849 Increase (decrease) in directors' retirement benefits (2) (11) (23) Increase (decrease) in reserve for reimbursement of deposits Increase (decrease) in reserve for losses on refund of interest (14) (35) (141) Increase (decrease) in reserve for customer service points Accrued interest and dividend income (41,522) (43,317) (403,441) Accrued interest expenses 1,368 2,314 13,293 Losses (gains) on investment securities, net (339) (1,523) (3,294) Losses (gains) on money trusts (127) (243) (1,238) Foreign exchange losses (gains), net (4,939) (4,636) (47,989) Losses (gains) on disposal of fixed assets (171) 81 (1,663) Decrease (increase) in loans and bills discounted (27,514) (57,623) (267,334) Increase (decrease) in deposits 10,256 54,954 99,656 Decrease (increase) in due from banks (exclusive of the Bank of Japan) (408) 24 (3,969) Decrease (increase) in call loans and others 86,456 (25,345) 840,035 Increase (decrease) in call money and others (7,426) 20,469 (72,159) Increase (decrease) in guarantee deposit received under securities lending transactions 14,101 (593) 137,010 Decrease (increase) in trading account assets (254) 139 (2,472) Decrease (increase) in foreign exchange assets (274) 92 (2,665) Increase (decrease) in foreign exchange liabilities 29 (3) 288 Decrease (increase) in lease receivables and investment in leased assets (1,757) (383) (17,078) Interest and dividends received 32,612 33, ,870 Interest paid (2,441) (5,087) (23,717) Other, net (3,342) 1,212 (32,474) Subtotal 78,073 (4,588) 758,588 Income taxes paid, net of refund (4,816) (3,623) (46,798) Net cash provided by (used in) operating activities 73,257 (8,211) 711,790 Cash flows from investing activities Purchases of securities (305,399) (304,834) (2,967,347) Proceeds from sales of securities 95, , ,205 Proceeds from redemption of investment securities 210, ,657 2,047,990 Increase in money held in trusts (5,000) Decrease in money held in trusts 9,949 2,000 96,670 Interests and dividends received on investments 12,240 11, ,936 Purchases of tangible fixed assets (6,496) (2,037) (63,121) Purchases of intangible fixed assets (4,067) (1,857) (39,523) Proceeds from sales of tangible fixed assets ,371 Payment on discharge of asset retirement obligation (51) (504) Net cash provided by (used in) investing activities 12,420 34, ,676 Cash flows from financing activities Cash dividends paid (2,046) (1,942) (19,883) Dividends paid to minority interests (10) (10) (106) Purchases of treasury stock (1,224) (3,194) (11,899) Proceeds from sales of treasury stock Net cash provided by (used in) financing activities (3,249) (5,133) (31,577) Effect of exchange rate changes on cash and cash equivalents Net increase (decrease) in cash and cash equivalents 82,449 21, ,105 Cash and cash equivalents at beginning of year 76,959 55, ,764 Cash and cash equivalents at end of year (Note 11) 159,409 76,959 $ 1,548,870 See accompanying notes to consolidated financial statements. 9

11 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS The Hokkoku Bank, Ltd. and Consolidated Subsidiaries For the years ended March 31, 2014 and Basis of Presentation The accompanying consolidated financial statements of The Hokkoku Bank, Ltd. (the Bank ) and consolidated subsidiaries are prepared on the basis of accounting principles generally accepted in Japan, which are different in certain respects as to the application and disclosure requirements of International Financial Reporting Standards, and are compiled from the consolidated financial statements prepared by the Bank as required by the Financial Instruments and Exchange Law of Japan. In addition, the notes to the consolidated financial statements include information which is not required under accounting principles generally accepted in Japan, but is presented herein as additional information. As permitted by the Financial Instruments and Exchange Law, amounts of less than one million yen have been rounded down. As a result, the totals shown in the accompanying consolidated financial statements (both in yen and do not necessarily agree with the sums of the individual amounts. 2. U.S. Dollar Amounts The Bank maintains its records and prepares its financial statements in yen. Amounts in U.S. dollars are presented solely for the convenience of readers outside Japan. The rate of = U.S. $1.00, the rate of exchange in effect on March 31, 2014 has been used in conversion. The conversion should not be construed as a meaning that yen could be converted into U.S. dollars at the above or any other rate. 3. Summary of Significant Accounting Policies a. Principles of consolidation The accompanying consolidated financial statements include the accounts of the Bank and its 5 subsidiaries at March 31, 2014 and All significant inter-company accounts and transactions have been eliminated in consolidation. Ishikawa Small Business Revitalization Fund Investment Limited Liability Partnership is not consolidated, nor accounted for under the equity method, since the materiality in terms of assets, ordinary profit, share of its income and its retained earnings is less important and its non-consolidation will not prevent reasonable judgments regarding the Group s financial position and operating results. b. Trading account securities Trading account securities are stated at fair value at the end of the year, and the related cost of sales is determined by the moving average method. c. Securities Held-to-maturity securities are stated at amortized cost (straight-line method) using the moving average method. Stocks in unconsolidated subsidiaries which are not accounted for by the equity method are stated at cost using the moving average method. Available-for-sale securities are stated in principle at fair value based on the market value as of year-end (cost of securities sold is calculated using the moving average method). However, those securities whose fair value is extremely difficult to be determined are stated at cost using the moving average method. The net unrealized gains or losses on available-for-sale securities are included directly in net assets. Securities invested as assets in trust in separately managed money trusts for the principal purpose of securities investment are stated at fair value. d. Derivative financial instruments Derivatives are stated at fair value. e. Tangible fixed assets Tangible fixed assets are carried at cost less accumulated depreciation. Depreciation of tangible fixed assets of the Bank is computed by the declining-balance method. The useful lives of buildings and equipment are summarized as follows. Buildings 10 to 50 years Others 3 to 20 years Depreciation of tangible fixed assets of the consolidated subsidiaries is computed primarily by the declining-balance method over the estimated useful lives of the respective assets. Depreciation of assets held under finance leases which do not transfer ownership of the leased assets to the lessee is computed by the straight-line method over the lease terms of the respective assets. The salvage value for depreciation purpose is determined based on the lease contracts. f. Intangible fixed assets Amortization of intangible fixed assets of the Bank is computed by the straight-line method. Acquisition costs of software to be used internally are capitalized and amortized by the straight-line method primarily over a useful life of five years. g. Reserve for possible loan losses The reserve for possible loan losses of the Bank is provided as detailed below in accordance with the internal rules for providing reserves for possible loan losses: For claims to debtors who are legally bankrupt (as a result of bankruptcy special liquidation, etc.) or who are substantially bankrupt, a reserve is provided based on the amount of the claims, on the net amount expected to be collected by the disposal of collateral, or as a result of the execution of a guarantee. For claims to debtors who are not currently bankrupt, but are likely to become bankrupt, a reserve is provided according to the amount considered necessary based on an overall solvency assessment of the amount of the claim, on the net amount expected to be collected by the disposal of collateral, or as a result of the execution of guarantee. In addition, for claims to such significant debtors exceeding a certain credit amount that are possible to estimate reasonably cash flows from collection of principals and receipt of interest, a reserve is provided according to the difference between the amount of related cash flows discounted by the original contract interest rate before restructuring the loans and its carrying book value. For other claims, a reserve is provided based on the Bank s past loan-loss experience. All claims are assessed by the Business Section (at the branches and the related head office divisions) based on the Bank s internal rules for the self-assessment of asset quality. The Corporate Audit Department, which is independent of the Business Section, subsequently conducts audits of such assessments. The reserves of the consolidated subsidiaries are provided for general claims at an amount based on the actual historical rate of loan losses and for specific claims (from potentially bankrupt customers, etc.) at an estimate of the amounts deemed uncollectible based on the respective assessments. For collateralized or guaranteed claims from debtors who are legally or substantially bankrupt, the amounts of the claims deemed uncollectible in excess of the estimated value of the collateral or guarantees have been written off in aggregate amounts at 50,929 million ($494,850 thousand) and 52,543 million as of March 31, 2014 and 2013, respectively. h. Bonuses to employees The reserve for bonuses to employees, is provided at the estimated amount to be attributed to the current fiscal year. 10

12 i. Directors retirement benefits The reserve for directors retirement benefits is recorded at an estimated amount to be required to be paid if all directors retired at the balance sheet date. j. Reserve for reimbursement of deposits The reserve for reimbursement of deposits is recorded at an estimated amount to be required to reimburse the customers claims on the derecognized sleeping deposit accounts. k. Reserve for loss on refund of interest The reserve for loss on refund of interest is recorded by a certain consolidated subsidiary to provide for the customers claims to refund the interest exceeding the maximum limit of interest rate stipulated by the Maximum Interest Rate Law based on the past experience of refund. l. Reserve for customer service points The reserve for customer service points is recorded at an estimated amount based on the future expected payment resulting from the customers use of points granted to contractors of Hokkoku Point Service and credit card members based on the point system incorporated to promote the use of such services and credit cards. m. Retirement benefit plans In calculating retirement benefit obligations, the straight-line basis is used as a method of attributing expected retirement benefits to the period up to the end of this fiscal year. Treatments of prior service cost and actuarial gains or losses are as follows: Prior service cost is amortized by the straight-line method over a certain period (10 years) which falls within the average remaining years of service of the employees when incurred. Actuarial gains or losses are amortized in the following years after incurred by the straight-line method over a certain period (10 years) that falls within the average remaining years of service of the employees. n. Foreign currency translations Foreign currency assets and liabilities are translated into Japanese yen equivalents primarily using the applicable rate of exchange effective at the balance sheet date. o. Leases As lessor, all finance leases which transfer ownership of the leased assets to the lessee are recognized as lease receivables, and all finance leases which do not transfer ownership of the leased assets to the lessee are recognized as investment in leased assets. Investment in leased assets recorded at April 1, 2008, when the revised accounting standard for lease transactions was adopted, was stated at the reasonable cost less accumulated depreciation at March 31, 2008 pursuant to the paragraph 81 of Implementation Guidance No.16, Implementation Guidance on Accounting Standard for Lease Transactions issued on March 30, If these lease transactions had been retroactively accounted for as ordinary sale transactions pursuant to paragraph 80 of the Guidance, income before income taxes and minority interests would have increased by 76 million ($739 thousand) and 152 million for the years ended March 31, 2014 and 2013, respectively. Finance lease revenue and related cost of revenue are recorded when the lease payment is received. p. Hedge accounting Hedging interest rate risk The Bank applied the deferral method to account for financial instruments that hedge the interest rate risk on financial assets and liabilities of the Bank, as provided in the Accounting and Auditing with Regard to Foreign Currency Transactions in the Banking Industry (The Japanese Institute of Certified Public Accounts Industry Audit Committee Report No. 24, hereinafter JICPA Industry Audit Committee Report No. 24 ). The hedge effectiveness is assessed by grouping and specifying hedged items including deposits and loans and hedging instruments including interest rate swaps by certain period. The interest rate swaps of certain consolidated subsidiaries which qualify for hedge accounting and meet specific matching criteria are not remeasured at market value but the differential paid or received under the swap agreements are recognized and included in interest expenses or income. Hedging foreign exchange risk The Bank applies the deferral method to account for derivative instruments that hedge the foreign exchange risk on various foreign-currency financial assets and liabilities, as provided in the Accounting and Auditing with Regard to Foreign Currency Transactions in the Banking Industry (The Japanese Institute of Certified Public Accounts Industry Audit Committee Report No. 25, hereinafter JICPA Industry Audit Committee Report No. 25 ). The hedge effectiveness of these currency-swap transactions, exchangeswap transactions and similar instruments to hedge the foreign exchange risks of foreign-currency financial assets or liabilities is assessed by comparing the foreign currency position of the hedged assets or liabilities with that of the hedging instruments. q. Consumption taxes Transactions subject to national and local consumption taxes are recorded at amounts exclusive of consumption taxes. Nondeductible consumption taxes levied on the purchase of premises and equipment are charged to income when incurred. r. Cash and cash equivalents For the purpose of reporting cash flows, cash and cash equivalents consist of cash and due from the Bank of Japan. 4. Changes in Accounting Policies Accounting Standard for Retirement Benefits The Bank has applied Accounting Standard for Retirement Benefits (ASBJ Statement No. 26, May 17, 2012) (hereinafter, the Accounting Standard ) and Guidance on Accounting Standard for Retirement Benefits (ASBJ Statement No. 25, May 17, 2012) (hereinafter, the Guidance ) beginning with the end of this fiscal year (excluding regulations stipulated in the text of the Accounting Standard, Paragraph 35 and the Guidance, Paragraph 67) and has recorded the difference between defined benefit obligations and plan assets as Net Defined Benefit Liability from the end of this fiscal year. The Accounting Standard and the Guidance have been applied in accordance with the transitional treatment stipulated in the Accounting Standard, Paragraph 37, and unrecognized net actuarial gain or loss and unrecognized prior service cost, after adjusting for tax effect, have been recorded as remeasurements of defined benefit plans in accumulated other comprehensive income. As a result of this, 12,830 million ($124,662 thousand) of Net Defined Benefit Liability has been recorded at the end of this fiscal year. Deferred Tax Assets increased by 1,750 million ($17,003 thousand) and Accumulated Other Comprehensive Income decreased by 3,197 million ($31,070 thousand). The effect of this change on per share information is noted in Note New Accounting Standards Not Yet Adopted (1) Accounting Standard for Retirement Benefits (issued on May 17, 2012) and related guidance (a) Outline The accounting standard has been revised in light of improving financial reporting and trend toward international convergence, mainly on (i) changes in accounting methods for unrecognized net actuarial gain or loss and unrecognized prior service cost, (ii) enhancement of disclosure items, and (iii) changes in calculation methods for defined benefit obligations and service cost. (b) Date of application The Bank intends to adopt (iii) from the fiscal year beginning on April 1, (c) Effects of adoption of the accounting standard As a result, retained earnings at April 1, 2014 intend to decrease by 813 million ($7,906 thousand). 11

13 (2) The revision of Accounting Standard for Business Combinations (issued on September 13, 2013) and related guidance (a) Outline The accounting standard has been revised mainly on (i) the treatment of a change in the parent company s ownership interest in a subsidiary in the case where the parent company continues to control the subsidiary upon additionally acquiring the shares of the subsidiary or other cases, (ii) the treatment of acquisition cost, (iii) the treatment of the transitional accounting, and (iv) the presentation of net income and the change in presentation from minority interests to noncontrolling interests. (b) Scheduled Date of Application The Bank is scheduled to apply this accounting standard after revision from the beginning of the fiscal year starting on April 1, (c) Effect of Application of this accounting standard The effect of the application of this accounting standard is under consideration. 6. Loans and Bills Discounted Loans to borrowers under bankruptcy procedures and delinquent loans totaled 5,829 million ($56,641 thousand) and 70,968 million ($689,546 thousand), respectively, at March 31, 2014, and 6,636 million and 75,004 million, respectively, at March 31, A loan is placed on non-accrual status when substantial doubt as to the collectability of its principal and interest is judged to exist, if payment is post due for a certain period of time, or for other reasons. Loans to borrowers in bankruptcy represent non-accrual loans, after the charge-offs of loans deemed uncollectible, to borrowers who are legally bankrupt as defined in Article 96, Paragraph 1, Subparagraph 3 and 4 of Enforcement Ordinance of the Corporation Income Tax Law. Delinquent loans are non-accrual loans other than loans to borrowers in bankruptcy or loans on which interest payments have been deferred in order to assist the restructuring of the borrowers. Loans past due for 3 months or more totaled 348 million ($3,381 thousand) and 104 million at March 31, 2014 and 2013, respectively. Loans past due for 3 months or more are those whose principal or interest payments are 3 months or more past due but are not included in loans to borrower under bankruptcy procedures or delinquent loans. Restructured loans totaled 1,054 million ($10,245 thousand) and 660 million at March 31, 2014 and 2013, respectively. Restructured loans are those who on which the Bank has granted certain concessions, such as a reduction at the contractual interest rate or principal amount or a deferral of interest/principal payments, in order to assist the restructuring of the borrowers. Excluded from restructured loans are loans to borrowers under bankruptcy procedures, other non-accrual loans, and loans past due for 3 months or more. The total of loans to borrowers under bankruptcy procedures, other non-accrual loans, loans past due for 3 months or more and restructured loans amounted to 78,200 million ($759,815 thousand) and 82,405 million at March 31, 2014 and 2013, respectively. Bills discounted are accounted for as financial transactions in accordance with Treatment of Accounting and Auditing in Applying Accounting Standards for Financial Instruments in the Banking Industry issued by the JICPA. The Bank has the right to sell or re-pledge the banker s acceptance bills, commercial bills discounted, documentary bills and foreign exchange bought without restrictions. The face value of banker s acceptance bills, commercial bills, documentary bills and foreign exchange bought at a discount was 16,222 million ($157,623 thousand) and 20,130 million as of March 31, 2014 and 2013, respectively. Overdraft agreements and loan commitments are agreements under which the Bank and its consolidated subsidiaries are obliged to extend loans up to a prearranged limit unless the customer is in breach of contract. The loan commitments not yet drawn down at March 31, 2014 and 2013 totaled 472,397 million ($4,589,948 thousand) and 494,213 million, respectively; 461,483 million ($4,483,905 thousand) of which, at March 31, 2014 (2013: 483,595 million), was related to agreements whose contractual terms were for one year or less or which were unconditionally cancelable at any time. As the majority of these agreements expire without the right to extend the loans being exercised, the undrawn commitment balance does not affect the future cash flows of the Bank or of its consolidated subsidiaries. These agreements usually include provisions which stipulate that the Bank and its consolidated subsidiaries have the right either to refuse the execution of the loans or to reduce the contractual commitments when there is a change in the borrower s financial condition, or when additional assurance of the financial soundness and creditworthiness of a borrower is necessary, or when other unforeseen circumstances arise. The Bank and its consolidated subsidiaries take various measures to protect their credit. Such measures include obtaining real estate or securities as collateral at the time of entering into the agreements, monitoring a customer s business on a regular basis in accordance with established internal procedures, and amending the loan commitment agreements when necessary. 7. Financial Instruments and Related Disclosures 1. Policy on financial instruments The Group provides financial services such as banking business and leasing business. Major banking business includes lending services, bills discounting and fund management through dealing and underwriting Japanese government bonds, municipal bonds and available-for-sale securities. On the other hand, the fund is raised mainly by taking deposits and negotiable certificates of deposit and also by issuance of bonds, call money and others according to necessities. The Group conducts asset and liability management (ALM) and manages the risks identifying various types of risk exposures associated with the banking business, since the Group holds financial assets and liabilities exposed to the market risk of fluctuation of interest rates. As part of the risk management, the Group utilizes derivative transactions. 2. Contents and risk of financial instruments Financial assets held by the Group mainly consist of loans to corporate and individual customers which are exposed to credit risk arising from nonperformance of the customers. In addition, the loan balances are concentrated to Ishikawa prefecture where the head office of the Bank is located and accordingly, the changes in the economic circumstances of the region may have a great impact on the credit risk. Securities mainly consist of Japanese government bonds, municipal bonds, corporate bonds and equity securities that are classified as available-for-sale securities. These securities are exposed to credit risk of issuers and market risks of fluctuation in interest rates, market prices and foreign exchange rates for bonds denominated in foreign currencies. On the other hand, financial liabilities consist of mainly deposits and negotiable certificates of deposit, bonds, call money and others. With respect to bonds and call money, the Bank may be forced to raise fund under unfavorable conditions and accordingly, significantly increase funding costs in case that fund raising capacity of the Bank significantly declined under certain circumstances such as significant deterioration of financial positions of the Bank. Derivative transactions consist of hedging activities performed as part of ALM against market risks (interest rate risk and foreign exchange risk) associated with assets and liabilities held by the Group and transactions to respond to customers diversified needs for hedging against the risks of customers. The Bank applies hedge accounting for interest rate swaps and currency swaps employed by the Bank for hedging purposes and periodically verifies the effectiveness of hedging activities assessing if the correlation between hedging instruments and hedged items of assets and liabilities is appropriate, and also if the market risks of interest rates and foreign exchange rates are offset by hedging instruments. 12

14 3. Risk management system for financial instruments Credit risk management: The Group has established and operates a credit control system consisting of credit review by individual transaction, internal credit rating, self-assessment, major account credit control, measurement of risk volume and measures on problem loans in accordance with credit risk control policies, credit policies, lending operation rules and control policies and procedures on credit risks. These credit controls are performed by the Loan-Screening Department, the Loan Control Department and the credit investigation sections of the consolidated subsidiaries as well as the operating offices and periodically subject to authorization by and reported to the Board of Directors, where appropriate. In addition, the Audit Department audits the status of credit risk controls. Credit risk associated with the issuers of securities and counterparty risk associated with cash transactions and derivative transactions are controlled by periodically identifying credit information and fair values by the Market Finance Division and the International Division. Market risk management: (1) Interest rate risk The Bank funds loans and securities mainly with deposits taken, but holds long-term and short-term interest rate gaps arising from the timing difference in the maturities repricing deposits and loans. Accordingly, the Management Administration Division monitors the risk exposures by establishing risk limits based on the integrated risk control policy and integrated risk control rule and reports to the ALM Committee and the Board of Directors. In addition, the general planning department and Management Administration Division monitor the interest rate risk based on the interest rate sensitivity analysis, gap analysis, ladder analysis and outlier approach and report to the ALM Committee on a regular basis. The Bank also enters into interest rate swap contracts to hedge the interest rate fluctuation risk. (2) Foreign exchange risk The Bank holds, in part, foreign currency denominated assets and liabilities. These foreign currency denominated assets and liabilities are appropriately hedged using currency swaps and other, whereby their exposures to the foreign exchange risk are controlled. (3) Price fluctuation risk The Group controls the price fluctuation risk associated with equity securities and investment trusts in accordance with the integrated risk management policies and procedures to control the exposures within the Bank s risk tolerance while securing appropriate earnings. Among these, the Bank established limits for transactions which require risk controls. Moreover, the middle office of the Market Finance Division, in cooperation with the Management Administration Division, is monitoring the volume of risk exposures and verifying compliance with the operating limit. In addition, the Management Administration Division specifies risks and implements measurement and analysis of those risks and stress tests. Such information is reported to the ALM Committee and Board of Directors on a regular basis and where appropriate. (4) Derivative transactions With respect to derivative transactions, the Bank established internal rules defining the authority and hedge policies and credit lines by counterparty. Front offices that enter into the contacts, back offices that conduct reconciliation procedures and controls the credit lines and the divisions that assess the effectiveness of hedges are separated so that the internal control functions effectively. (5) Quantitative information related to market risk Main financial instruments which are exposed to interest rate risk or stock price fluctuation risk are Loans and bills discounted, Securities, Deposits, Bonds, Derivatives and etc. The Bank adopts the variance covariance method (holding period: half a year, confidence interval: 99.0%, observation period: refer to table 1) in computing the VaR with respect to interest rate or stock price related instruments. Interest rate related VaR and stock price related VaR of the Bank amounted to 15,918 million ($154,663 thousand) and 33,913 million ($329,508 thousand) as of March 31, 2014 and 10,043 million and 27,761 million as of March 31, 2013, respectively. With respect to the measurement of interest rate risk exposure of liquid deposits, the Bank adopts deposit internal models. The Bank implements back-testing to compare the VaR computed by the model with actual profit and loss in the securities and confirms that the measurement model in use captures the market risk with sufficient precision, since the frequency that actual losses exceeded VaR was one time (none in 2013) in the interest rate risk of debt securities during 250 business days and only three times (one time in 2013) in the stock price fluctuation risk as a result of back-testing implemented at the end of March However, the risk under certain abnormal market fluctuations may not be captured, since the VaR is measured under a definite probability of incidence statistically computed based on historical market fluctuations. In addition, VaR is a statistical value computed based on the assumptions and it is not intended to estimate maximum amount of losses. (Table 1) Observation period in computing the risk exposed to each instrument Instruments Observation period Debt securities in JPY 720 business days Debt securities in foreign currency 1,200 business days Loans, deposits, etc. 720 business days Equity securities 500 business days 4. Supplementary explanation on the fair value of financial instruments The fair value of financial instruments comprises the value determined based on the quoted market price and the valuation calculated on a reasonable basis where no market price is available. Fair value of financial instruments The following table summarizes the carrying amount, fair value and difference of financial instruments as of March 31, 2014 and 2013; Note that equity securities whose fair value is difficult to determine are not included in the table (see Note 2 below). 13

15 March 31, 2014 Millions of yen Carrying amount Fair value Difference Cash and due from banks 160, ,303 Call loans and bills bought 15,308 15,308 Securities: Held-to-maturity securities Available-for-sale securities 888, ,527 Loans 2,350,504 Reserve for possible loan losses (*1) (27,306) 2,323,197 2,345,686 22,488 Total assets 3,387,717 3,410,208 22,490 Deposits 3,049,886 3,049, Negotiable certificates of deposit 112, ,085 1 Guarantee deposit received under 49,517 49,517 securities lending transactions Total liabilities 3,211,487 3,211, Derivative transactions (*2) To which hedge accounting is not applied 3 3 To which hedge accounting is applied (799) (799) Total derivative transactions (796) (796) March 31, 2014 Thousands of U.S. dollars Carrying amount Fair value Difference Cash and due from banks $1,557,552 $1,557,552 $ Call loans and bills bought 148, ,744 Securities: Held-to-maturity securities 3,696 3, Available-for-sale securities 8,633,186 8,633,186 Loans 22,838,173 Reserve for possible loan losses (*1) (265,321) 22,572,851 22,791, ,504 Total assets 32,916,031 33,134, ,523 Deposits 29,633,562 29,634, Negotiable certificates of deposit 1,089,034 1,089, Guarantee deposit received under 481, ,125 securities lending transactions Total liabilities 31,203,721 31,204, Derivative transactions (*2) To which hedge accounting is not applied To which hedge accounting is applied (7,773) (7,773) Total derivative transactions (7,741) (7,741) March 31, 2013 Millions of yen Carrying amount Fair value Difference Cash and due from banks 77,445 77,445 Call loans and bills bought 100, ,846 Securities: Held-to-maturity securities Available-for-sale securities 881, ,742 Loans 2,322,999 Reserve for possible loan losses (*1) (28,161) 2,294,838 2,323,417 28,579 Total assets 3,355,402 3,383,988 28,585 Deposits 3,011,013 3,011, Negotiable certificates of deposit 140, ,700 0 Guarantee deposit received under securities lending transactions 35,416 35,416 Total liabilities 3,187,129 3,187, Derivative transactions (*2) To which hedge accounting is not applied (152) (152) To which hedge accounting is applied (765) (765) Total derivative transactions (918) (918) (*1) A general reserve for possible loan losses and a specific reserve for possible loan losses corresponding to loans are deducted. (*2) Derivative transactions recorded under other assets and other liabilities are presented on a net basis. (Note 1) Computation method for fair value of financial instruments Assets Cash and due from banks: With respect to due from banks without maturities, the carrying amount is presented as the fair value approximates the carrying amount. With respect to due from banks with maturities, the carrying amount is presented as the fair value as the fair value approximates the carrying amount. Call loans and bills bought: The carrying amount is presented as the fair value as the residual maturity is less than one year and the fair value approximates the carrying amount, since the remaining maturity is short (less than one year). Securities: The fair value of equity securities is determined using the market price at the exchanges and the fair value of debt securities is determined using the price presented by Japan Securities Dealers Association ( JSDA ) or the price obtained from the financial institutions. The fair value of investment trusts is determined using the published standard quotation. The fair value of private bonds guaranteed by the Bank is calculated adding the credit risk to the market interest rate corresponding to the residual maturities. Loans: The fair value of loans with variable interest rates is presented using the carrying amount as the fair value approximates the carrying amount, as long as the credit situation of the borrowers does not vary significantly after executing the loans, since they reflect the market interest rates due to their short-term nature. The fair value of loans with fixed rates is computed, by discounting the aggregate value of principal and interest at the interest rate assumed if the same loans were newly executed, for each category of type of loans, internal ratings and maturities. As for the loans whose maturity is less than one year, the carrying amount is presented as the fair value as the fair value approximates the carrying amount. With respect to receivables from legally bankrupt borrowers, substantially bankrupt borrowers and likely to become bankrupt borrowers, the fair value approximates the carrying amount, net of a reserve for possible loan losses and such amount is presented as the fair value. With respect to loans whose repayment term is not determined because of the characteristics that the loans are limited within the amount of pledged assets, the carrying amount is presented as the fair value as the fair value is expected to approximate the carrying amount considering the expected repayment term and pricing conditions. Liabilities Deposits and negotiable certificates of deposits: With respect to on-demand deposits, the payment obligation when demanded at the balance sheet date, which is the carrying amount, is deemed to be the fair value. The fair value of time deposits is computed using the present value by discounting future cash flows for each category of certain period. The interest rate to be applied when a new deposit is taken is used as the discount rate. Regarding deposits whose residual maturity is less than one year, the carrying amount is presented as the fair value as the fair value approximates the carrying amount. Guarantee deposit received under securities lending transactions: The carrying amount is presented as the fair value as the fair value approximates the carrying amount, since the remaining maturity is short (less than one year). Derivative transactions Derivative transactions comprise interest rate related transactions (interest rate swaps, etc.) and currency related transactions (currency options, currency swaps, etc.) and the fair value of derivatives is determined using the value computed using the discounted present value or option pricing models. 14

16 (Note 2) The following table summarizes financial instruments whose fair value is extremely difficult to estimate: Note that these instruments are not included in the table above regarding the fair value of financial instruments. Carrying amount (Thousands of Unlisted equity securities (*1) (*2) 3,866 3,819 $ 37,566 Investment in partnership ,260 Total 4,099 3,999 $ 39,827 (*1) The fair value of unlisted equity securities is not disclosed, since there is no market price and it is extremely difficult to estimate the fair value (*2) The Bank recognized loss on impairment of 15 million ($151 thousand) and 2 million on unlisted equity securities for the years ended March 31, 2014 and 2013, respectively. (Note 3) Maturity of financial assets and securities with contractual maturities at March 31, 2014 March 31, 2014 Due in one year or less Due after one year through three years Millions of yen Due after three years through five years Due after five years through seven years Due after seven years through ten years Due after ten years Due from banks 122,662 Call loans and bills bought 15,308 Securities: Held-to-maturity debt securities 380 Bonds 380 Available-for-sale securities with contractual maturities: 121, , , ,663 97,002 15,000 Japanese government bonds 24,000 75,500 88,200 99,800 4,000 15,000 Municipal bonds 44,959 34,831 45,267 15,737 55,864 Corporate bonds 41,270 51,006 36,500 19,125 37,138 Other 11,413 13,487 45,386 Loans (*) 669, , , , , ,656 Total 929, , , , , ,656 March 31, 2014 Due in one year or less Due after one year through three years Thousands of U.S. dollars Due after three years through five years Due after five years through seven years Due after seven years through ten years Due after ten years Due from banks $ 1,191,821 $ $ $ $ $ Call loans and bills bought 148,744 Securities: Held-to-maturity debt securities 3,696 Bonds 3,696 Available-for-sale securities with contractual maturities: 1,181,921 1,698,650 2,092,441 1,308, , ,744 Japanese government bonds 233, , , ,685 38, ,744 Municipal bonds 436, , , , ,799 Corporate bonds 400, , , , ,843 Other 110, , ,986 Loans (*) 6,509,696 4,969,011 3,565,906 2,347,480 1,951,657 3,193,322 Total $ 9,035,880 $ 6,667,662 $ 5,658,348 $ 3,655,906 $ 2,894,166 $ 3,339,066 (*) Loans from legally bankrupt, substantially bankrupt and likely to become bankrupt borrowers which are not expected to be repaid amounting to 13,333 million ($129,554 thousand) are not included. Loans whose payment term is not determined amounting to 17,655 million ($171,543 thousand) are not included. (Note 4) Maturity of bonds and interest bearing liabilities at March 31, 2014 Millions of yen March 31, 2014 Due in one Due after one Due after three Due after five Due after seven year or less year through years through years through years through Due after ten three years five years seven years ten years years Deposits (*) 2,298, ,297 64,248 Negotiable certificates of deposits 110,419 1,663 Guarantee deposit received under securities lending transactions 49,517 Total 2,457, ,961 64,248 Thousands of U.S. dollars March 31, 2014 Due after one Due after three Due after five Due after seven Due in one Due after ten year through years through years through years through year or less years three years five years seven years ten years Deposits (*) $ 22,328,445 $ 2,752,598 $ 624,258 $ $ $ Negotiable certificates of deposits 1,072,866 16,167 Guarantee deposit received under securities lending transactions 481,125 Total $ 23,882,437 $ 2,768,766 $ 624,258 $ $ $ (*) On-demand deposits are included under Due in one year or less. 8. Securities (1) Trading account securities Net holding gain or loss resulting from revaluation of trading account securities to fair value included in earnings for the years ended March 31, 2014 and 2013 were 0 million ($8 thousand) and 0 million, respectively. (2) Held-to-maturity securities which have a readily determinable fair value The carrying value and fair value of held-to-maturity securities which have a readily determinable fair value and the related unrealized gain or loss at March 31, 2014 and 2013 are summarized as follows: March 31, 2014 Carrying value Fair value Difference Gain Loss Corporate bonds Total Carrying value March 31, 2014 Fair value Difference Gain Loss (Thousands of Corporate bonds $ 3,696 $ 3,715 $ 19 $ 19 $ Total $ 3,696 $ 3,715 $ 19 $ 19 $ Carrying value March 31, 2013 Fair value Difference Gain Loss Corporate bonds Total

17 (3) Available-for-sale securities which have a readily determinable fair value The acquisition cost and carrying value of available-for-sale securities which have a readily determinable fair value and the related unrealized gain or loss at March 31, 2014 and 2013 are summarized as follows: March 31, 2014 Carrying value Acquisition cost Difference Gain Loss Stock 77,588 41,142 36,446 36, Debt securities 709, ,355 14,437 14, Others 102, , , Total 889, ,631 51,775 52,791 1,015 Carrying value March 31, 2014 Acquisition cost Difference Gain Loss (Thousands of Stock $ 753,875 $ 399,753 $ 354,122 $ 357,856 $ 3,734 Debt securities 6,896,550 6,756, , ,585 1,306 Others 991, ,644 8,667 13,495 4,828 Total $ 8,641,736 $ 8,138,668 $ 503,068 $ 512,938 $ 9,869 Carrying value March 31, 2013 Acquisition cost Difference Gain Loss Stock 68,889 40,558 28,330 29, Debt securities 736, ,116 18,442 18, Others 77,213 75,985 1,227 1, Total 882, ,661 48,000 49,175 1,174 Securities excluding trade account securities, whose fair value is available, are written down to the fair value if the fair value has significantly declined compared with the acquisition cost and such decline is not considered to be recoverable. The difference between the acquisition cost and the fair value is recognized as a loss on impairment. No loss on impairment was recognized for the year ended March 31, The related loss on impairment amounted to 370 million, consisting of 370 million of stock for the year ended March 31, The criteria for determining if such decline is significant are as follows: Securities whose fair value is 50% or less than the acquisition cost are necessarily written down and securities whose fair value is between 50% and 70% of the acquisition cost are written down when the market price is considered to be non-recoverable within one year, taking into consideration the trend of the market price and operating performances of the issuing entities. The components of unrealized gain on available-for-sale securities recorded under net assets at March 31, 2014 and 2013 are as follows: (Thousands of Unrealized gain on available-for-sale securities 51,775 48,000 $ 503,068 Deferred tax liabilities (16,905) (15,875) (164,260) 34,870 32,125 $ 338,808 Attributable to minority interests (840) (342) (8,162) Unrealized gain on available-for-sale securities, net of tax 34,030 31,783 $ 330,645 Available-for-sale securities sold during the years ended March 31, 2014 and 2013 are summarized as follows: (Thousands of Proceeds from sales 94, ,290 $ 921,331 Gain on sales 1,628 4,453 15,820 Loss on sales 690 2,348 6, Money Held in Trusts Money held in trusts for investment purposes (Thousands of Amount recorded in the consolidated balance sheets 15,077 25,070 $ 146,500 Unrealized gain (loss) included in profit and loss for the fiscal year (22) 87 (214) 10. Revaluation of Land Pursuant to the Law Concerning the Revaluation of Land (the Law ), land used for the Bank s business operations was revalued on March 31, The excess of the revalued aggregate market value over the total book value (carrying amount) before revaluation was included in shareholders equity at the net amount of the related tax effect at March 31, The corresponding income taxes were included in liabilities at March 31, 1999 as deferred taxes arising from revaluation of land. The revaluation of the land was determined based on the official prices published by the Commissioner of the National Tax Authority in accordance with Article 2, Paragraph 4 of the Enforcement Ordinance Concerning Land Revaluation, with certain necessary adjustments. The difference between the total fair value of land for business operation purposes, which was revalued in accordance with Article 10 of the Law, and the total book value of the land after the revaluation was 8,301 million ($80,659 thousand) and 9,200 million at March 31, 2014 and 2013, respectively. 11. Cash Flows A reconciliation between cash and due from banks in the consolidated balance sheets at March 31, 2014 and 2013 and cash and cash equivalents in the consolidated statements of cash flows for the years then ended is as follows: (Thousands of Cash and due from banks 160,303 77,445 $ 1,557,552 Due from banks other than the Bank of Japan (893) (485) (8,682) Cash and cash equivalents 159,409 76,959 $ 1,548, Accumulated Depreciation and Deferred Gains on Tangible Fixed Assets Accumulated depreciation totaled 34,276 million ($333,039 thousand) and 34,272 million at March 31, 2014 and 2013, respectively. Deferred gains on tangible fixed assets deducted for tax purposes at March 31, 2014 and 2013 were 3,118 million ($30,304 thousand) and 3,118 million, respectively. 13. Assets Pledged Assets pledged as collateral at March 31, 2014 and 2013 were as follows: (Thousands of Pledged assets: Securities 153, ,403 $ 1,494,110 Other assets ,219 Liabilities secured by the above assets: Deposits 66,235 38,426 $ 643,558 Guarantee deposit received under securities lending transactions 49,517 35, ,125 Borrowed money 20,000 In addition, securities of 32,014 million ($311,060 thousand) and 31,177 million at March 31, 2014 and 2013 were pledged as collateral for settlement of exchange and Futures transactions. Included in other assets were guarantee deposits of 153 million ($1,487 thousand) and 179 million at March 31, 2014 and 2013, respectively. 16

18 14. Borrowed Money The details of borrowed money at March 31, 2014 and 2013 were as follows: (Thousands of Borrowed money 7,665 27,555 $74,475 Due from April 2014 through December 2018 Average interest rate: 0.66% p.a. Annual maturities of borrowed money are as follows: Year ending March 31 (Thousands of ,630 $54, , , , ,020 Total 7,665 $74, Shareholders Equity Japanese banks are subject to the Banking Law and the Corporate Law. The Corporate Law requires that all shares of common stock be issued with no par value and at least 50% of the amount paid of new shares is required to be recorded as common stock and the remaining net proceeds as additional paid-in capital, which is included in capital surplus. The Corporate Law permits Japanese companies, upon approval of the Board of Directors, to issue shares to existing stockholders without consideration by way of a stock split. Such issuance generally does not give rise to changes within the stockholders accounts. The Banking Law provides that an amount at least 20% of the aggregate amount of cash dividends and certain other appropriations of retained earnings associated with cash outlays applicable to each period shall be appropriated as a legal reserve (a component of retained earnings) until such reserve and additional paid-in capital equals 100% of common stock. The amount of total additional paid-in capital and legal reserve that exceeds 100% of common stock may be available for dividends by resolution of the stockholders after transferring such excess in accordance with the Corporate Law. In addition, the Corporate Law permits the transfer of a portion of additional paid-in capital and legal reserve to the common stock by resolution of the Board of Directors. The Corporate Law allows Japanese companies to purchase treasury stock and dispose of such treasury stock upon resolution of the Board of Directors. The aggregate purchased amount of treasury stock cannot exceed the amount available for future dividends plus the amount of common stock, additional paid-in capital or legal reserve that could be transferred to retained earnings or other capital surplus other than additional paid-in capital upon approval of such transfer at the annual general meeting of shareholders. Dividends are approved by the stockholders at a meeting held subsequent to the fiscal year to which the dividends are applicable. Interim dividends may also be paid upon resolution of the Board of Directors, subject to certain limitations imposed by the Corporate Law. The movements of outstanding shares and cash dividends during the years ended March 31, 2014 and 2013 are as follows: (a) Number of outstanding shares and treasury stock For the year ended March 31, 2014 Type of shares Balance at beginning of year Increase during the year Decrease during the year Balance at end of year Issued stock: Common stock 317,401,974 2,800, ,601,974 Treasury stock: Common stock 610,467 2,818,525 2,910, ,694 For the year ended March 31, 2013 Type of shares Balance at beginning of year Increase during the year Decrease during the year Balance at end of year Issued stock: Common stock 327,401,974 10,000, ,401,974 Treasury stock: Common stock 849,879 9,805,603 10,045, ,467 (b) Dividends paid to the shareholders during the year: For the year ended March 31, 2014 Date of resolution Jun. 27, 2013 Nov. 8, 2013 Resolution by General meeting of shareholders Board of Directors Type of shares Common stock Common stock Total dividends 950 millions ($9,234 thousand) 1,099 millions ($10,681 thousand) For the year ended March 31, 2013 Date of resolution Jun. 28, 2012 Nov. 9, 2012 Resolution by General meeting of shareholders Board of Directors Type of shares Common stock Common stock Total dividends 979 millions 964 millions Dividends per share 3.00 ($0.029) 3.50 ($0.034) Dividends per share Date of record Mar. 31, 2013 Sep. 30, 2013 Date of record 3.00 Mar. 31, Sep. 30, 2012 Effective date Jun. 27, 2013 Dec. 5, 2013 Effective date Jun. 28, 2012 Dec. 5, 2012 Dividends applicable to the year ended March 31, 2014, but not recorded in the accompanying consolidated financial statements, since the effective date is subsequent to the current fiscal year: Date of resolution Jun. 27, 2014 Resolution by General meeting of shareholders Type of shares Common stock Total dividends 1,099 millions ($10,681 thousand) Dividends per share 3.50 ($0.034) Date of record Mar. 31, 2014 (Above cash dividends are distributed from retained earnings.) Effective date Jun. 30, Stock Options On July 29, 2013, the Bank granted stock options to its directors and executive officers. 1. The related cost of 61 million ($600 thousand) and 53 million was charged to income for the years ended March 31, 2014 and 2013, respectively. 2. The stock options outstanding as of March 31, 2014 are as follows: Stock Option 2009 Stock Option 2010 Stock Option 2011 Stock Option 2012 Stock Option 2013 Stock Option Persons granted 9 directors and 6 officers 9 directors and 6 officers 9 directors and 8 officers 9 directors and 7 officers 11 directors and 6 officers Number of options (common shares) granted 183, , , , ,500 Date of grant Aug. 24, 2009 Jul. 26, 2010 Aug. 1, 2011 Jul. 23, 2012 Jul. 29, 2013 Exercise price Exercise period From Aug. 25, 2009 to Aug. 24, 2034 From Jul. 27, 2010 to Jul. 26, 2035 From Aug. 2, 2011 to Aug. 1, 2036 From Jul. 24, 2012 to Jul. 23, 2037 From Jul. 30, 2013 to Jul. 29, 2038 Vesting conditions and eligible service period have not been determined. 17

19 The stock option activity is as follows: 2009 Stock 2010 Stock 2011 Stock 2012 Stock 2013 Stock Option Option Option Option Option Shares Shares Shares Shares Shares Non-vested: April 1, 2013-Outstanding 200,800 Granted 210,500 Forfeited Vested 200,800 March 31, 2014-Outstanding 210,500 Vested: April 1, 142, Outstanding 162, ,300 Vested 200,800 Exercised 29,200 29,400 25,400 25,600 Forfeited March 31, 113, Outstanding 132, , ,200 Price information of 2009, 2010, 2011, 2012 and 2013 Stock Option is as follows: 2009 Stock 2010 Stock 2011 Stock 2012 Stock 2013 Stock Option Option Option Option Option (Yen) Exercise price Average share price at the time of exercise Fair appraisal price at the date of grant Stock 2010 Stock 2011 Stock 2012 Stock 2013 Stock Option Option Option Option Option (U.S. dollar) Exercise price $ 0.00 $ 0.00 $ 0.00 $ 0.00 $ 0.00 Average share price at the time of exercise Fair appraisal price at the date of grant Estimation method of fair appraisal value of stock options Black-Scholes option pricing model is used to measure fair value. The assumptions and estimation methods used to measure fair value of 2013 Stock Option are as follows: 2013 Stock Option Volatility of stock price (Note 1) % Estimated remaining outstanding period (Note 2) 3.8 years Estimated dividend (Note 3) 6 per share Interest rate with risk free (Note 4) 0.206% Notes: 1. Volatility of stock price is computed based on the actual stock prices during the period corresponding to estimated remaining outstanding period of 3.8 years. 2. Remaining outstanding period is estimated by assuming the difference between the average retirement age of the retired directors and executive officers who retired in the past and current average age of the present directors and executive officers. 3. Actual dividend for the year ended March 31, Yield of Japanese government bonds corresponding to the estimated remaining outstanding period. 4. Estimation method of vested number of stock options The Bank adopted the method to reflect only actual forfeited number, since it is difficult to estimate the number to be forfeited in future on a reasonable basis. 17. Leases As lessee: a. Finance leases The Bank and consolidated subsidiaries have tangible fixed assets, mainly consisting of vehicles, under finance lease arrangements which do not transfer ownership of the leased assets to the lessee. The leased assets are depreciated on a straight-line method over respective lease periods with the salvage value determined in the agreements or otherwise nil. b. Operating leases The following table presents the schedule of future minimum lease payments under non-cancellable operating leases at March 31, 2014 and 2013: (Thousands of Due within one year $ 755 Due after one year ,107 Total $ 1,863 As lessor: a. Finance leases Maturities of lease receivables and investments in leased assets at March 31, 2014 are as follows: Year ending March 31 Lease receivables Investments in leased assets (Thousands of Investments Lease in leased receivables assets ,146 $ 4,133 $ 69, ,522 4,146 53, ,001 3,625 38, ,593 2,915 25, ,301 1,633 12, and thereafter ,385 Total 1,732 21,222 $ 16,836 $ 206,201 b. Operating leases The following table presents the schedule of future minimum lease payments under non-cancellable operating leases at March 31, 2014: (Thousands of Due within one year 110 $ 1,070 Due after one year 416 4,049 Total 527 $ 5, Loss on Impairment The Bank recognized loss on impairment of 1,261 million ($12,255 thousand) and 2,496 million on the following asset group for the years ended March 31, 2014 and 2013, respectively: The loss on impairment of the Bank is recognized by grouping the areas under control of the area management (or branches if not under control of the area management) for operating branches and by grouping assets for idle assets. Headquarters, office centers, dormitories, welfare facilities, etc. are treated as common use assets because they do not generate independent cash flows. The consolidated subsidiaries are treated as a group for one company in principle. For the following operating branches and idle assets among above tangible fixed assets, their carrying amounts are reduced to the respective recoverable amounts and the reduced amounts are recorded under Other expenses in the consolidated statements of income. Year ended March 31, 2014 Location Main use Asset type (Millions of yen) (Thousands of Ishikawa Pref. 3 operating branches Land 1,078 $ 10,482 3 operating branches Buildings idle assets Land idle assets Buildings Outside 1 idle asset Land Ishikawa Pref. 1 idle asset Buildings Total 1,261 $ 12,255 18

20 In the assessment of loss on impairment, the recoverable amount is computed using the net selling value or the value in use. The net selling value is determined mainly based on the real estate appraisal value and in case of using the value in use, any discount rate is not considered as the estimated use period is short. Year ended March 31, 2013 Location Main use Asset type (Millions of yen) Ishikawa Pref. 7 operating branches Land 2,331 4 operating branches Buildings idle assets Land 59 Outside 1 operating Ishikawa Pref. branch Buildings 14 Total 2,496 In the assessment of loss on impairment, the recoverable amount is computed using the net selling value or the value in use. The net selling value is determined mainly based on the real estate appraisal value and the value in use is determined by discounting future cash flows at 4.2%. 19. Other Comprehensive Income The components of other comprehensive income for the years ended March 31, 2014 and 2013 were as follows: (Thousands of Reclassification adjustments to net income: Net unrealized gains on available-for-sale securities: Gain incurred during the year 4,150 10,159 $ 40,326 Reclassification adjustment to net income (375) (1,516) (3,647) Amount before tax effect 3,775 8,643 36,679 Net deferred gains on hedging instruments: Gain incurred during the year ,842 Reclassification adjustment to net income Amount before tax effect ,846 Total amount before tax effect 3,965 8,781 38,525 Tax effect (1,098) (2,865) (10,675) Total other comprehensive income 2,866 5,916 $ 27,849 (Thousands of Tax effect on other comprehensive income: Net unrealized gains on available-for-sale securities: Amount before tax effect 3,775 8,643 $ 36,679 Tax effect (1,030) (2,814) (10,010) Amount after tax effect 2,744 5,828 26,668 Net deferred gains on hedging instruments: Amount before tax effect ,846 Tax effect (68) (50) (664) Amount after tax effect , Income Taxes The major components of deferred tax assets and liabilities at March 31, 2014 and 2013 are summarized as follows: (Thousands of Deferred tax assets: Reserve for possible loan losses 18,647 21,207 $ 181,188 Reserve for employee s retirement benefits 2,738 Net defined benefit liability 4,564 44,351 Depreciation of real estate ,489 Unrealized loss on writedown of equity securities 2,378 2,418 23,112 Other 3,689 3,959 35,849 Subtotal 30,257 31, ,991 Valuation allowance (9,903) (9,332) (96,223) Total deferred tax assets 20,354 21, ,767 Deferred tax liabilities: Unrealized gain on available-for-sale securities (16,905) (15,875) (164,260) Other (250) (245) (2,433) Total deferred tax liabilities (17,156) (16,120) (166,693) Net deferred tax assets 3,198 5,780 $ 31,074 A reconciliation of the statutory tax rate applicable to the Bank and its consolidated subsidiaries to the effective tax rate for the years ended March 31, 2014 and 2013 is presented as follows: Statutory tax rate 37.8% 37.8% Reconciliation: Nondeductible permanent differences, such as entertainment expenses Non taxable permanent differences, such as dividend income (2.5) (2.6) Per capita residents taxes Valuation allowance 4.3 (7.5) Reduction of deferred tax assets due to tax rates change 4.0 Other Effective tax rate 45.1% 31.1% Adjustments of deferred tax assets and liabilities due to a change in the corporate income tax rate: Act for Partial Revision of Income Tax Act, etc. (Act No. 10, 2014) proclaimed on March 31, 2014 will repeal the Special Recovery Tax from the year beginning on or after April 1, As a result, the effective statutory tax rate used in computing deferred tax assets and liabilities has been reduced from 37.75% to 35.37% for the temporary differences expected to be eliminated in the year beginning on April 1, As a result, deferred tax assets, net of deferred tax liabilities, decreased by 539 million ($5,239 thousand) and income taxes deferred increased by 518 million ($5,033 thousand). 21. Retirement Benefit Plans The Bank has defined retirement benefit plans, i.e., welfare pension fund plans, defined contribution pension plans and lump-sum payment plans, covering substantially all employees who are entitled to lump-sum or annuity payments, the amounts of which are determined by reference to their basic rates of pay, length of service, and the conditions under which termination occurs. The consolidated subsidiaries have lump-sum payment plans. The Bank transferred a portion related to future services to defined contribution pension plans in February

21 Year Ended March 31, The changes in defined benefit obligation for the year ended March 31, 2014 are as follows: (Thousands of Balance at beginning of year 29,786 $ 289,418 Service cost 473 4,599 Interest cost 492 4,785 Actuarial gains or losses 314 3,055 Benefits paid (1,647) (16,005) Balance at end of year 29,420 $ 285, The changes in plan assets for the year ended March 31, 2014 are as follows: (Thousands of Balance at beginning of year 15,994 $ 155,405 Expected return on plan assets 319 3,108 Actuarial gains or losses 660 6,415 Contributions from the employer 555 5,398 Benefits paid (940) (9,136) Balance at end of year 16,589 $ 161, Reconciliation between the net defined benefit liability recorded in the consolidated balance sheet and the balances at end of year of defined benefit obligation and plan assets (Thousands of Funded defined benefit obligation 20,473 $ 198,922 Plan assets (16,589) (161,190) 3,883 37,731 Unfunded defined benefit obligation 8,946 86,930 Net liability recorded in the consolidated balance sheet 12,830 $ 124,662 (Thousands of Net defined benefit liability 12,830 $ 124,662 Net liability recorded in the consolidated balance sheet 12,830 $ 124, The components of retirement benefit expenses for the year ended March 31, 2014 are as follows: (Thousands of Service cost 473 $ 4,599 Interest cost 492 4,785 Expected return on plan assets (319) (3,108) Amortization of actuarial gains or losses 1,096 10,653 Amortization of prior service cost (91) (886) Retirement benefit expenses 1,651 $ 16, The components of remeasurements of defined benefit plans (before deducting tax effect) as of March 31, 2014 are as follows: (Thousands of Unrecognized prior service cost 1,521 $ 14,783 Unrecognized net actuarial gain or loss (6,469) (62,857) Total (4,947) $ (48,073) 6. Plan assets (1) The components of plan assets are as follows: General account 50% Stock 22% Debt securities 17% Other 11% Total 100% Note: Total plan assets include 9% of retirement benefit trust established on corporate pension plans. (2) Method of determining the long-term expected rate of return on plan assets The long-term expected rate of return on plan assets is determined considering the long-term rates of return which are expected currently and in the future from the various components of the plan assets. 7. Assumptions used for the year ended March 31, 2014, were set forth as follows: Discount rate 1.7% Long-term expected rate of return on plan assets 2.0% 8. Defined contribution plans The amount of the required contribution to the defined contribution plan of the Bank was 293 million ($2,849 thousand). Year Ended March 31, 2013 Reserve for retirement benefits at March 31, 2013 consisted of the following: Retirement benefit obligation (29,786) Plan assets at fair value 15,994 Unfunded retirement benefit obligation (13,792) Unrecognized actuarial loss 7,911 Unrecognized past service liabilities (1,612) Net amount (7,493) Reserve for employees retirement benefits (7,493) The components of retirement benefit expenses for the year ended March 31, 2013 are as follows: Service cost 779 Interest cost 500 Expected return on plan assets (375) Amortization of past service liabilities 21 Amortization of actuarial loss 1,359 Other 48 Retirement benefit expense 2,333 Notes: 1. Employees contribution to welfare pension fund plans is deducted. 2. Retirement benefit expenses of consolidated subsidiaries which adopt the short-cut method are included in Service cost in a lump. 3. Other represents payment of contribution to the defined contribution pension plans. The assumptions applied are as follows: Discount rate 1.7% Expected rate of return on plan assets 2.5% 22. Derivatives The Bank enters into interest rate swaps to hedge interest rate risk associated with deposits, loans and holding debt securities and currency swaps and foreign exchange forward contracts to hedge foreign exchange risk associated with certain assets and liabilities denominated in foreign currencies. In addition, to respond to the customers hedging needs related with their interest rate risk and foreign exchange risk, the Bank enters into derivative contracts including interest rate swaps, currency swaps, foreign exchange forward contracts and currency options. These transactions are covered by the reversing trades to avoid market risk. The effectiveness of these hedging activities is assessed and verified on a regular basis. 20

22 Derivative contracts to which hedge accounting is not applied: With respect to derivatives to which hedge accounting is not applied, contract amount or notional principal amount defined in the contract, fair value, revaluation gain or loss and calculation method of fair value by transaction type as of March 31, 2014 and 2013 are as follows: Note that contract amount does not represent the market risk exposure of the derivative transactions. (1) Interest rate derivatives Millions of Yen 2014 Contract amount Over one Total year Fair value Valuation gain(loss) March 31 OTC transactions: Interest rate swaps Receivable fixed rate/ Payable floating rate Receivable floating rate/ Payable fixed rate (6) (6) Total (6) (6) Thousands of U.S. dollars 2014 Contract amount Over one Total year Fair value Valuation gain (loss) March 31 OTC transactions: Interest rate swaps Receivable fixed rate/ Payable floating rate $ 369 $ $ 1 $ 1 Receivable floating rate/ Payable fixed rate 3,602 2,153 (65) (65) Total $ (64) $ (64) Millions of Yen 2013 Contract amount Over one Total year Fair value Valuation gain (loss) March 31 OTC transactions: Interest rate swaps Receivable fixed rate/ Payable floating rate Receivable floating rate/ Payable fixed rate (12) (12) Total (11) (11) Notes: 1. Above transactions are stated at fair value and unrealized gain/ (loss) is recorded in the consolidated statements of income. 2. Fair value is determined using the discounted present value. (2) Currency derivatives Contract amount Millions of Yen 2014 March 31 Over one Valuation Total year Fair value gain (loss) OTC transactions: Currency swaps (43) (43) Forward contracts on Sold 2,862 (14) (14) foreign exchange Bought 1, Currency options Sold 14,535 13,853 (823) (20) Bought 14,535 13, Total 9 79 Contract amount Thousands of U.S. dollars 2014 March 31 Over one Valuation Total year Fair value gain (loss) OTC transactions: Currency swaps $ 6,731 $ 6,731 $ (419) $ (419) Forward contracts on Sold 27,813 (144) (144) foreign exchange Bought 17, Currency options Sold 141, ,606 (8,001) (198) Bought 141, ,606 8,416 1,289 Total $ 96 $ 771 Contract amount Millions of Yen 2013 March 31 Over one Valuation Total year Fair value gain (loss) OTC transactions: Currency swaps 103 (9) (9) Forward contracts on Sold 3,097 (174) (174) foreign exchange Bought 2, Currency options Sold 8,766 8,663 (789) (118) Bought 8,766 8, Total (141) (125) Notes: 1. Above transactions are stated at fair value and unrealized gain/ (loss) is recorded in the consolidated statements of income. 2. Fair value is determined using the discounted present value. Derivative contracts to which hedge accounting is applied: With respect to derivatives to which hedge accounting is applied, contract amount or notional principal amount defined in the contract, fair value and calculation method of fair value by transaction type and by hedge accounting method as of March 31, 2014 and 2013 are as follows: Note that contract amount does not represent the market risk exposure of the derivative transactions. (1) Interest rate related derivatives Hedge accounting method Normal method Hedge accounting method Normal method Hedge accounting method Normal method March 31, 2014 Millions of Yen Contract amount due after one year Transaction type Major hedged item Contract amount Fair value Interest rate swaps: Receivable fixed rate / Payable floating rate Loans and deposits. Receivable floating rate/ 10,796 8,757 (481) Payable fixed rate Total (480) March 31, 2014 Thousands of U.S. dollars Contract amount due after one year Transaction type Major hedged item Contract amount Fair value Interest rate swaps: Receivable fixed rate / $ 6,801 $ 6,801 $ 5 Loans and Payable floating rate deposits. Receivable floating rate/ 104,902 85,086 (4,677) Payable fixed rate Total $ (4,671) March 31, 2013 Millions of Yen Contract amount due after one year Transaction type Major hedged item Contract amount Fair value Interest rate swaps: Receivable fixed rate / (0) Loans and Payable floating rate deposits. Receivable floating rate/ 16,071 10,796 (670) Payable fixed rate Total (671) Notes: 1. Gain/loss on above contacts is deferred until maturity of the hedged items as the normal method in accordance with the Accounting and Auditing with Regard to Adoption of Accounting Standard for Financial Instruments in the Banking Industry (JICPA Industry Audit Committee Report No.24) 2. Fair value is determined using the discounted present value. 21

23 (2) Currency related derivatives March 31, 2014 Millions of Yen Hedge accounting Major Contract amount method Transaction type hedged item Total Over one year Fair value Normal method Currency swaps: Foreign currency 4,450 denominated 105 (319) securities. Total (319) March 31, 2014 Thousands of U.S. dollars Hedge accounting Major Contract amount method Transaction type hedged item Total Over one year Fair value Normal method Currency swaps: Foreign currency $ 43,239 $ denominated 1,026 $ (3,101) securities. Total $ (3,101) March 31, 2013 Millions of Yen Hedge accounting Major Contract amount method Transaction type hedged item Total Over one year Fair value Normal method Currency swaps: Foreign currency 2,981 denominated 160 (94) securities. Total (94) Notes: 1. Gain/loss on above contacts is deferred until maturity of the hedged items as the normal method in accordance with the Accounting and Auditing with Regard to Foreign Currency Transactions in the Banking Industry (JICPA Industry Audit Committee Report No.25) 2. Fair value is determined using the discounted present value. 23. Per Share Information Net assets per share at March 31, 2014 and 2013 and net income per share for the years then ended is as follows: (Yen) ( Net assets per share $ 6.64 Net income per share-basic Net income per share-diluted Basic information in computing above per share data is as follows: (Thousands of (Net assets per share) Net assets per balance sheets 223, ,492 $ 2,170,987 Amounts to be attributed to subscription rights to shares (215) (185) (2,091) Amounts to be attributed to minority interests (8,534) (7,403) (82,921) Net assets attributed to common stock 214, ,904 2,085,974 Outstanding number of common stocks at end of year 314, ,791 (unit: thousand shares) (Net income per share) Net income per income statements 7,855 6,994 $ 76,327 Net income to be attributed to common stock 7,855 6,994 76,327 Average outstanding number of shares during the year 314, ,431 (unit: thousands shares) (Net income per share-diluted) Increase in common stock (unit: thousand shares) Of which, subscription rights to shares (unit: thousand shares) (Changes in accounting policies) The Bank has applied Accounting Standard for Retirement Benefits (ASBJ Statement No. 26, May 17, 2012) (hereinafter, the Accounting Standard ) and Guidance on Accounting Standard for Retirement Benefits (ASBJ Statement No. 25, May 17, 2012) (hereinafter, the Guidance ) beginning with the end of this fiscal year (excluding regulations stipulated in the text of the Accounting Standard, Paragraph 35 and the Guidance, Paragraph 67) and complied with the transitional treatment stipulated in the Accounting Standard, Paragraph 37. As a result, net assets per share at March 31, 2014 decreased by ($0.09). 24. Segment Information 1. Reportable segments The reportable segments of the Bank are subject to the periodical review by the Board of Directors which is the chief operating decision maker to determine the allocation of management resources and assess performances. The Group consists of the Bank and its 5 consolidated subsidiaries. The Group designs comprehensive strategies concerning financial services including banking and leasing businesses and is engaged in operating activities. Accordingly, the Bank is composed of operating segments by financial services based on the group companies and Banking and Leasing segments are identified as the reportable segments. Banking segment provides customers with banking operations, credit card business, credit guarantee business, business revitalization fund management business and etc. Leasing segment provides customers with leasing business. 2. Calculation method of gross operating income and net operating income Accounting policies adopted by the reportable segments are the same as those described in Note 3 Summary of Significant Accounting Policies, except for the scope of consolidation. Segment profit of the reportable segments is measured based on the figures of ordinary profit and intersegment income is based on the market transaction price in the same manner as income from external customers. 3. Reportable segment information concerning income, profit or loss, assets, liabilities and other items Year ended March 31, 2014 Reportable segments Banking Leasing Total Adjustments Consolidated Total income: External customers 57,143 9,430 66,573 66,573 Intersegments (201) Total 57,312 9,463 66,775 (201) 66,573 Segment profit 16, ,807 (8) 16,798 Segment assets 3,498,577 34,294 3,532,872 (19,094) 3,513,777 Other information Depreciation 2, ,321 2,321 Interest income 41, ,684 (161) 41,522 Interest expenses 1, ,518 (150) 1,368 Increase in tangible and intangible fixed assets 11, ,146 (75) 11,070 Year ended March 31, 2014 Reportable segments Banking Leasing Total Adjustments Consolidated (Thousands of Total income: External customers $ 555,220 $ 91,630 $ 646,850 $ $ 646,850 Intersegments 1, ,959 (1,959) Total 556,864 91, ,809 (1,959) 646,850 Segment profit $ 157,023 $ 6,279 $ 163,303 $ (81) $ 163,222 Segment assets $ 33,993,172 $ 333,219 $ 34,326,391 $ (185,525) $ 34,140,866 Other information Depreciation $ 20,128 $ 2,430 $ 22,558 $ $ 22,558 Interest income 402,985 2, ,014 (1,573) 403,441 Interest expenses 12,782 1,973 14,756 (1,462) 13,293 Increase in tangible and intangible fixed assets 108, ,301 (734) 107,567 22

24 Notes: 1. Total income corresponds to Net Sales of non-banking industries. 2. Adjustments refer to the elimination of intersegment transactions 3. Segment profit is reconciled with ordinary profit. Year ended March 31, 2013 Reportable segments Banking Leasing Total Adjustments Consolidated Total income: External customers 59,915 9,398 69,314 69,314 Intersegments (249) Total 60,120 9,444 69,564 (249) 69,314 Segment profit 13, ,139 (16) 14,123 Segment assets 3,475,107 31,764 3,506,872 (19,468) 3,487,404 Other information Depreciation 2, ,457 2,457 Interest income 43, ,494 (176) 43,317 Interest expenses 2, ,481 (166) 2,314 Increase in tangible and intangible fixed assets 3, ,894 3,894 Other information: Information by service line: Income from external customers Income from external customers Income from external customers Year ended March 31, 2014 Securities Loan investment Lease Other Total 31,656 11,407 9,430 14,079 66,573 Year ended March 31, 2014 Securities Loan investment Lease Other Total (Thousands of $ 307,586 $ 110,837 $ 91,630 $ 136,795 $ 646,850 Loan Year ended March 31, 2013 Securities investment Lease Other Total 33,237 14,470 9,398 12,208 69,314 Information about loss on impairment of long-lived assets by reportable segment: Year ended March 31, 2014 Reportable segments Banking Leasing Total Loss on impairment 1,261 1,261 Year ended March 31, 2014 Reportable segments Banking Leasing Total (Thousands of Loss on impairment $ 12,255 $ $ 12,255 Year ended March 31, 2013 Reportable segments Banking Leasing Total Loss on impairment 2,496 2, Related Party Transactions The related party transactions for the years ended March 31, 2014 and 2013 and related account balances outstanding at March 31, 2014 and 2013 were as follows: Transactions between the Bank and related parties Year ended March 31, 2014 Name Directors and its relatives Hideo Nakashima Kazuyo Nakashima Business Ownership Transaction summary / (%) Title Corporate auditor Wife of Hideo Nakashima 0.30 Loan Guarantee Transaction amount /(Thousands of (11)/$(113) 919/$8,934 Account Loan Balance at end of year /(Thousands of 220/$2,139 Guarantee 137/$1,331 Companies whose majority is owned by directors and /or its relatives Nakashima Co. Ltd. Wholesale of paper products 0.36 Loan 2/$24 Loan 476/$4,625 Year ended March 31, 2013 Name Business Ownership Transaction Transaction Account summary / Title (%) amount Directors and its relatives Hideo Nakashima Kazuyo Nakashima Corporate auditor Wife of Hideo Nakashima 0.30 Loan Guarantee (9) 970 Loan Balance at end of year 231 Guarantee 144 Companies whose majority is owned by directors and /or its relatives Nakashima Co. Ltd. Wholesale of paper products 0.36 Loan (60) Loan 473 Transaction terms and policies: Related party transactions are executed under the same transaction terms as third parties. Transactions between the subsidiary of the Bank and related parties Year ended March 31, 2014 Name Business Ownership Transaction summary / (%) Title Transaction amount /(Thousands of Companies whose majority is owned by directors and /or its relatives Nakashima Co. Ltd. Wholesale of paper products 0.36 Lease 3/$36 Account Lease receivables and investment in leased assets Year ended March 31, 2013 Name Business Ownership Transaction Transaction Account summary / Title (%) amount Companies whose majority is owned by directors and /or its relatives Nakashima Co. Ltd. Wholesale of paper products 0.36 Lease 2 Lease receivables and investment in leased assets Balance at end of year /(Thousands of 10/$98 Balance at end of year Transaction terms and policies: Related party transactions are executed under the same transaction terms as third parties

25 BOARD OF DIRECTORS AND AUDITORS (Representative Director) President Tateki Ataka (Representative Director) Senior Managing Director Shuji Tsuemura (Representative Director) Senior Managing Director Junichi Maeda Senior Managing Director Ryoichi Nakayama Managing Director and Executive Officer Hideaki Hamasaki Managing Director and Executive Officer Akira Nakanishi Director and Executive Officer Tomohiro Ida Director and Executive Officer Hidehiro Yamamoto Director and Executive Officer Kazuya Nakamura Director and Executive Officer Koichi Nakada Director and Executive Officer Kenichi Sakai Standing Corporate Auditor Kunio Hirosaki Standing Corporate Auditor Muneto Yamada Corporate Auditor (Outside) Toshio Yamazaki Corporate Auditor (Outside) Masahiro Kijima Corporate Auditor (Outside) Hideo Nakashima Executive Officer Toshiyuki Konishi Executive Officer Akira Nishita Executive Officer Hiroshi Iwamuro Executive Officer Nobuhiro Torigoe Executive Officer Yuji Kakuchi Executive Officer Nobuhide Akazawa (As of June 30, 2014) OFFICES AND SUBSIDIARIES Head Office 1 Shimotsutsumi-cho, Kanazawa, Ishikawa Japan Tel: +81(76) Foreign Exchange Offices Head Office 1 Shimotsutsumi-cho, Kanazawa, Ishikawa Korinbo Branch 1-1-1, Korinbo, Kanazawa, Ishikawa Kanazawachuo Branch 3-1-1, Hirooka, Kanazawa, Ishikawa Toiyamachi Branch 2-67, Toiyamachi, Kanazawa, Ishikawa Daishoji Branch Ho 7-3, Minami-machi, Daishoji, Kaga, Ishikawa Yamashiro Branch 2-9, Kikyogaoka, Yamashiro-Onsen, Kaga, Ishikawa Komatsu Branch 68 Kyo-machi, Komatsu, Ishikawa Matto Branch Chaya, Hakusan, Ishikawa Nanao Branch 30-1 Ikoma-machi, Nanao, Ishikawa Takaoka Branch Honmaru-machi, Takaoka, Toyama Toyama Branch 5-21 Hon-machi, Toyama Fukui Branch , Chuo, Fukui Osaka Branch 4-4-7, Imabashi, Chuo-ku, Osaka Tokyo Branch Kyobashi, Chuo-ku, Tokyo Nagoya Branch , Marunouchi, Naka-ku, Nagoya, Aichi International Department Head Office 1 Shimotsutsumi-cho, Kanazawa, Ishikawa Tel: +81(76) Swift: HKOKJPJT Overseas Offices Shanghai Representative Office Suite 350, Shanghai Centre 1376 Nanjing West Road, Jingan District, Shanghai, , People's Republic of China Tel: +86(21) Fax: +86(21) Singapore Representative Office 65 Chulia Street #49-08 OCBC Centre, Singapore Tel: Fax: Major Subsidiaries The Hokkoku General Lease Co., Ltd , Katamachi, Kanazawa, Ishikawa The Hokkoku Credit Service Co., Ltd , Katamachi, Kanazawa, Ishikawa The Hokkoku Credit Guarantee Co., Ltd Musashi-machi, Kanazawa, Ishikawa The Hokkoku Management, Ltd Musashi-machi, Kanazawa, Ishikawa The Hokkoku Servicer, Ltd , Katamachi, Kanazawa, Ishikawa (As of July 31, 2014) Branches Ishikawa Toyama Fukui Tokyo Osaka Nagoya Total (As of July 31, 2014) 24