Annual Report The creative bank that best fulfills the dreams of the region and customers it serves. Former head office of San-in Godo Bank

Transcription

1 Annual Report 2017 The creative bank that best fulfills the dreams of the region and customers it serves Former head office of San-in Godo Bank

2 C O N T E N T S Profile 1 Message from the President 2 Consolidated Financial Highlights 4 Medium-Term Management Plan 6 Initiatives in Business Support Activities 8 Initiatives to Energize our Organization 9 Initiatives to Protect the Environment 9 Regional Support Activities 10 Corporate Governance System 11 Risk Management System 12 Consolidated Balance Sheets 13 Consolidated Statements of Income 14 Consolidated Statements of Comprehensive Income 15 Consolidated Statements of Changes in Net Assets 16 Consolidated Statements of Cash Flows 18 Notes to the Consolidated Financial Statements 19 Independent Auditor s Report 43 Corporate Data 44

3 Profile The San-in Godo Bank was established in 1941 through a merger of equals between Yonago Bank of Tottori Prefecture and Matsue Bank of Shimane Prefecture. The Bank traces its origins to the founding of the Tsuwano 53rd National Bank in Shimane Prefecture in Although the location of the founding of the Bank makes the San-in region of western Honshu (Tottori and Shimane prefectures) its primary service area, its operations extend into the neighboring Sanyo region (Hiroshima and Okayama prefectures) and Hyogo Prefecture. The Bank maintains branches in Tokyo and Osaka and overseas representative offices in Dalian, Shanghai and Bangkok. Area of Operations and Overview of the Bank CHINA Bangkok Dalian Shanghai THAILAND JAPAN Tokyo Osaka San-in Region Corporate Data (As of March 31, 2017) Date of Establishment Paid-in Capital Number of Employees Number of Off ices July 1, ,705 million 1,995 Domestic Branches (including Head Off ice) 88 Sub-branches (including 25 agencies) 73 Total 161 Overseas Representative Off ices 3 (Dalian, Shanghai, Bangkok) Overseas representative offices Okinoshima Matsue: Head Of f ice Tottori Tottori 51 branches Shimane 62 branches Hiroshima Hiroshima 5 branches Okayama 5 branches Okayama Hyogo 9 branches Kobe San-in Region Sanyo Region 1

4 Message from the President We aim to create a business model that grows with customers by providing high-quality customer-facing services. Management Philosophy The creative bank that best fulfills the dreams of the region and customers it serves The San-in Godo Bank CS Declaration We will always be helpful to our customers. We will always show gratitude to our customers. We will always serve our customers with a smile. October 2017 Fumio Ishimaru President and Representative Director 2

5 San-in Godo Bank reported steady profits year on year thanks to your support FY2016 was the first year to see a full impact on our banking operations from the Bank of Japan s negative interest rate policy. Despite those tough financial conditions, we reported net income on par with the level in the previous fiscal year. Net interest income declined due to a drop in interest rates on loans, but that was offset by the active marketing of business support services to corporate customers, stepped-up consulting-based sales tailored to the lifestyles of retail customers, and a more diverse strategy in securities investment. We would like to thank everyone in the region, especially our customers, whose support and patronage helped us to deliver another year of steady profits. Building a sustainable business model focused on customers Our current Medium-term Management Plan is centered on the concept of shifting to a new business model based on relationship banking. Our goal is to build a sustainable business model by responding to customers' various business challenges and needs, underpinned by relationships of trust. In FY2017, we will rigorously apply the idea of customers first to accelerate activities in this area. We also want to be a powerful bank that can contribute to the region. We aim to do that by providing high-quality services that create a positive cycle of growth and development for customers, as well as San-in Godo Bank. Taking relationship banking to a new level Two years ago we launched one person-one company support system for corporate customers. Using the knowhow gained from that service, we are improving our consulting capabilities to provide customized business support services for all corporate customers, aiming to help them tackle and overcome challenges in their business operations, such as providing support to expand sales channels and facilitate business successions. We also launched a new finance lease brokerage service in April 2017, offering customers a choice of products handled by consolidated subsidiary San-in General Lease. In financing operations, we began providing special loan products to corporate customers in July With these loans, we can offer more flexible repayment terms in line with the funding needs and cash flow position of customers by building a more detailed picture of their operations. In this way, we are creating systems that enable us to provide highly customized solutions for customer needs to take relationship banking to a new level, drawing on the resources of the whole Group to provide a comprehensive menu of financial services. Enhancing our ability to offer services in tune with customer lifestyles We plan to reinforce consulting-based sales aimed at retail customers to offer proposals tailored to their specific needs and life plans. San-in Godo Bank already provides retail customers with a broad lineup of services, such as asset management, loans and credit cards. In FY2017, we extended this support by opening four Gogin Insurance Plazas in Shimane and Tottori prefectures through an alliance with HOKEN NO MADOGUCHI GROUP INC., an insurance retailing company. The plazas are open on weekends for customers who do not have time to come in on weekdays, and the medical insurance product lineup has been expanded to include a wider range of protection-oriented insurance products optimized for different lifestyles. We are also working with Gogin Securities to address various asset portfolio needs, aiming to play our part, however small, in creating richer lives for retail customers. Developing highly convenient financial services At San-in Godo Bank, we believe it is our duty as a regional financial institution to provide to the local markets of Shimane and Tottori prefectures, quality financial services on par with those available in major urban markets. In FY2017, we are continuing to actively improve convenience for customers. Specifically, we are maximizing our current branch network, while also building our presence in new channels, such as launching mobile branches and upgrading online banking services. The financial sector is seeing rapid advances in technology, driven by the emergence of FinTech and other trends. We plan to harness this new technology to deliver even greater convenience for customers, aiming to become a bank that plays a deeper role in their lives. We look forward to your continued support and encouragement in the year ahead. 3

6 Consolidated Financial Highlights Years ended March 31, 2015, 2016 and 2017 Millions of yen U.S. dollars (Note) For the Year: Total income 93,825 91,517 90,758 $836,304 Total expenses 73,458 69,866 68, ,764 Profit before income taxes 20,366 21,651 22, ,531 Profit attributable to owners of the Bank 13,399 12,911 12, ,431 Cash dividends paid during the year 2,372 2,151 1,763 21,142 Profit per share ( /$) Cash dividends per share ( /$) At year-end: Total assets 5,411,472 5,160,556 4,782,030 $48,234,887 Deposits and NCDs 3,944,762 3,868,638 3,779,265 35,161,440 Loans and bills discounted 2,798,238 2,589,659 2,427,644 24,941,955 Securities 1,920,658 1,860,333 1,756,928 17,119,689 Total net assets 352, , ,710 3,145,075 Capital adequacy ratio 14.85% 15.68% 15.71% - Note: U.S. dollar amounts are translated from Japanese yen, for convenience only, at = U.S.$1, the exchange rate prevailing at March 31, Profit Attributable to Owners of the Bank (Millions of yen) 15,000 12,000 9,000 6,000 3,000 12, billion (up 0.4 billion) 12,911 13,399 Total Assets (Millions of yen) 6,000,000 4,000,000 2,000,000 5,411.4 billion (up billion) 4,782,030 5,160,556 5,411, Deposits and NCDs (Millions of yen) 4,000,000 3,000,000 2,000,000 1,000,000 3,944.7 billion (up 76.1 billion) 3,779,265 3,868,638 3,944,762 Loans and Bills Discounted (Millions of yen) 3,000,000 2,000,000 1,000,000 2,798.2 billion (up billion) 2,427,644 2,589,659 2,798,

7 Status of Safety and Soundness Capital adequacy ratio Non-consolidated basis (domestic standards) 14.30% Capital adequacy ratio This is one of the representative indices measuring the soundness of a bank. Banks under Japanese Standards are required to maintain a ratio of 4% or higher. (%) Rating (Non-consolidated basis): highly rated for safety by rating agencies A2 Moody s Japan K.K. (Moody s) A+ Rating & Investment Information, Inc. (R&I) AA- (long-term deposit rating) (Issuer rating) (Long-term issuer rating) Japan Credit Rating Agency, Ltd. (JCR) We are rated at A2 for long-term deposits by Moody s Japan K.K. (Moody s), at A+ for issuer rating by Rating & Investment Information, Inc. (R&I) and at AA- for longterm issuer rating by Japan Credit Rating Agency, Ltd. (JCR), respectively. Rating This is one of the representative indices indicating the credibility and safety of a company, which is objectively evaluated by an impartial third party institution to determine whether the principal and interest of deposits and bonds are paid as promised and the degree of evaluation is shown as a simple code. Economic Environment in the San-in Region Shimane Tottori Total Total population 690 thousand 570 thousand 1,260 thousand Gross prefectural product 2.4 trillion 1.8 trillion 4.2 trillion Shipment value of manufactured goods 1,056.7 billion billion 1,737.1 billion Number of business establishments 35,971 26,533 62,504 In Tottori and Shimane prefectures, the market share of the bank for deposits balances of all banks, shinkin banks and Japan Post Bank, etc., is 46.8%. *Banks, shinkin banks, credit cooperatives and Japan Post Bank having branches in the San-in region (research by the bank) Market Share in the San-in region Share of deposits (As of March 31, 2017) Share of loans (As of March 31, 2017) 46.8% San-in 55.7% Godo Bank 46.8% In Tottori and Shimane prefectures, the market share of the bank for loans balances of all banks and shinkin banks, etc., is 55.7%. San-in Godo Bank 55.7% *Banks, shinkin banks and credit cooperatives having branches in the San-in region (research by the bank) 5

8 Medium-Term Management Plan (Duration: Fiscal ) Management philosophy The creative bank that best fulfills the dreams of the region and customers it serves Our code of conduct We will establish a new business model that boosts added value for corporate clients and makes lives richer for retail customers, while also increasing the profits of San-in Godo Bank. Establish a sustainable business model Leverage our consulting capabilities Upgrade our skills and actively take risks Boost added value for corporate clients Make lives richer for retail customers San-in Godo Bank Relationships based on trust Customers Value created in the form of fees, commissions and interest Term of Plan What we aim at Key Initiatives Our current three-year Medium- Term Management Plan runs from FY2015 to FY2017. All executives and regular employees in the Sanin Godo Group are working toward the plan s goals. We aim at the establishment of a sustainable business model that boosts added value for corporate clients and makes lives richer for retail customers, while also increasing the profits of San-in Godo Bank. We will continue to pursue a deeper relationship of trust and understand management issues and needs of clients and utilize consulting capabilities from the standpoint of clients. 6

9 Performance Targets Item FY2016 Results Final year (FY2017) Targets 1. Net core banking profit 23.3 billion 27.0 billion or more Profitability benchmarks 2. Net income 13.3 billion 15.0 billion or more 3. Fees and commissions 5.5 billion 8.4 billion or more 4. Fee and commission ratio (gross core banking profit base) 9.21% 12.5% or higher Efficiency benchmark 5. OHR (gross core banking profit base) 61.29% Less than 60% Capital efficiency indicator Financial health benchmark 6. ROE (ROE (average balance of net asset basis)) 3.83% (4.69%) 4.3% or higher (5.0% or higher) 7. Capital adequacy ratio 14.30% Approx. 15% *All figures on a non-consolidated basis Key Initiatives Enhance earnings growth driven by relationship banking Support to regenerate regional areas Strengthen securities investment Reinforce the operating base Implement CSR Boost added value for corporate clients 1. Establish a business model that provides support for companies 2. Upgrade our skills and actively take risks Make lives richer for retail customers 3. Strengthen our ability to propose asset management services (link up with securities subsidiary) 4. Accelerate growth in the credit card business 5. Step up initiatives in loans to individuals Revitalize local economies Diversify securities investment 1. Revitalize operations and boost employee satisfaction 2. Reassign strategic personnel 3. Increase convenience for customers and boost operational efficiency 4. Reinforce internal management systems 5. Reinforce cooperation across the Group 6. Implement an appropriate capital policy and return profits to shareholders Implement social and environmental programs 7

10 Initiatives in Business Support Activities Establishing a business model based on relationship banking Our vision for the business support model We have built a branch network covering the San-in, Sanyo and Hyogo / Osaka regions. Using this network, we have created a business matching support network, provided head office support to the bank branches and promoted alliances with external experts and institutions. We are currently focusing on personnel development to enhance the skills of our employees, aiming to give them the ability to appropriately evaluate the operations and growth potential of customer businesses so that we can better understand the challenges they face and their Shimane and Tottori Prefectures Leverage our high share of banking transactions to offer comprehensive financial services needs. Using that information, we then develop, propose and implement solutions that add more value to their businesses. By generating revenue from those services, such as fees and interest on loans, we plan to establish a sustainable business model that drives growth in the bank s earnings. In addition, we aim to help regenerate the region by stimulating the local economy through partnerships with industry, academia and the government. Specifically, we will help to create new local industries and promote and support the agricultural, forestry and fisheries sector to improve the competitiveness of industry in the San-in and Sanyo regions. Shimane Tottori Sanyo, Hyogo / Osaka Expand our sales network in promising growth markets Develop business support services that link both regions Hiroshima Okayama Hyogo / Osaka Grow earnings through relationship banking Contribute to the sustainable growth of local communities Increase added value Interest and fees Customers Build trust San-in Godo Bank Leverage consulting capabilities to help companies increase added value Provide risk funding based on rigorous business evaluation 8

11 Initiatives to Energize our Organization Creating an organization that allows all employees to realize their potential in line with their personalities and lifestyles Empowering women and older employees Creating more opportunities for women and older employees We aim to create a more fulfilling workplace environment by giving motivated and skilled female and older employees more opportunities to excel. Personnel systems will be adjusted to reflect the skills, performance, roles and responsibilities of employees in order to boost motivation and support career development. Actively promoting women to management positions Under our current Medium-term Management Plan and our action plan to empower women, we are actively promoting female employees to management roles. Our goal is to increase the ratio of women in managerial positions to more than 20% by March 31, Ratio of women in managerial positions (%) Diversity San-in Godo Bank actively hires people with disabilities and gives them roles based on their capabilities. Our aim is to support local communities by helping people with disabilities become more independent. Initiatives at Gogin Challenged Matsue Since 2007, we have supported and operated a business office, Gogin Challenged Matsue, providing a selfreliant work environment for the mentally challenged. Employees at Gogin Challenged Matsue produce artwork that is printed on bank hand towels, coasters, etc. The bank presents to customers these practical pieces of artwork as novelty gifts April 2015 April 2016 April 2017 April 2018 (Target) Initiatives to Protect the Environment Implementing various initiatives to protect and nurture the global environment and nature for future generations. Activities to save energy and resources and promote recycling We are progressively introducing energy-efficient and environmentally friendly equipment, such as energyefficient air conditioners, LED lighting, solar power generation systems, electric vehicles and hybrid vehicles. We are also working to raise employee awareness about the importance of saving energy in order to reduce the bank s energy consumption. Discarded documents are recycled as toilet paper and other waste is recycled into solid fuel pellets. (kl) 5,000 4,000 Energy Consumption (crude oil equivalent) 4,567 4,498 4,238 3,860 Forest Conservation Activities San-in Godo Bank has been running a hands-on forest conservation program called Gogin Kibo-no-Mori (Gogin Forest of Hope) since Twice a year, executives, employees and their families visit forests to carry out conservation activities, supported by tree planting programs run by Shimane and Tottori prefectures. In October 2016, to mark the program s 10th anniversary, the number of areas in the San-in region covered by the program was increased from four to six (three each in Shimane and in Tottori prefectures). 3,000 2,000 1,000 0 FY2013 FY2014 FY2015 FY2016 *Based on report submitted to Ministry of Economy, Trade and Industry 9

12 Regional Support Activities Youth Education Helping to educate the region s future leaders Initiatives by private school Shofukan GOGIN SHIMANE Cultural Promotion Foundation opened a private school, Shofukan, which provides educational activities for local youth. Aiming at developing human resources who will play active roles in society with high aspirations for the future, Shofukan provides integrated education from elementary school students to adults. Contributing to Communities and Society Communicating positive messages to the next generation entrusted with our future Gogin One Grain of Wheat Association This association was set up in 1981 to mark Sanin Godo Bank s 40th anniversary. To express our gratitude to the region, Gogin Group executives and employees provide ongoing charitable donations and organize fund-raising activities through the association. Promoting Sports Energizing the region through sports promotion Gogin Women s Badminton Team San-in Godo Bank established the Gogin Women s Badminton Team in 1993 to promote sports in Shimane Prefecture. The team is actively working to make the San-in region a leading area for badminton by running training sessions for elementary and junior high school students three times each week and by participating in regional sports events. The Small Kindness Movement In 1997, the bank became an administrative office of the Small Kindness Movement and set up the San-in Chapter of the movement. The chapter s members include Sanin Godo Bank executives and employees, as well as many people from companies, public agencies and schools in the San-in region. The movement, which aims to create a society where small acts of kindness become a habit for everyone, runs numerous activities such as campaigns to keep Japan free of litter and garbage. 10

13 Corporate Governance System Basic Policy about Corporate Governance System The Bank strives for reinforcement and enhancement of corporate governance in order to establish a sound and highly transparent management system, appropriately responding to changes in the financial environment. Specifically, in order to reinforce the checks and balances function of the Board of Directors and better respond to changes in the business environment flexibly and swiftly, Outside Directors are appointed, the term of a Director is set at one year and management responsibility of Directors is regularly reviewed and clarified. In order to separate decision-making in the management and operation execution supervising function and operation execution function and to clarify authority and responsibility, the Bank introduced an Executive Officer system in June In addition, the Bank established the Executive Committee, etc., in an effort to improve efficiency of its management system. Corporate Governance System General Meeting of Shareholders Board of Directors Audit Board of Corporate Auditors Eight Directors (out of which three are Outside Directors) Report Five Corporate Auditors (out of which three are Outside Auditors) Accounting Auditor Executive Committee Auditor support staff Report Headquarters Sales Offices Audit Internal Audit Department (Reports directly to directors) Collaboration Group Companies Audit Board of Directors The Board of Directors comprised of eight Directors (out of which three are Outside Directors), makes important decisions on management and supervises execution of duties of Directors and Executive Officers. The Board of Directors meeting is held regularly every month and an Extraordinary Board of Directors meeting is held as appropriate to respond to urgent matters. The Corporate Auditors may attend the Board of Directors meetings and express their opinions from time to time if necessary. Board of Corporate Auditors The Bank has established a Board of Auditors comprised of five Corporate Auditors (out of which three are Outside Auditors). Corporate Auditors monitor and examine whether internal controls of the Bank are working properly based on an audit of the execution of duties of the Directors in accordance with the audit policy and plan developed by the Board of Corporate Auditors. Executive Committee The Executive Committee comprised of the Chief Executive Officer; Deputy Chief Executive Officer; Senior Managing Executive Officers and Managing Executive Officers, is flexibly held from time to time as a consultation organ on important management matters and a resolution organ of the matters delegated by the Board of Directors. Audit Department The Bank has established an Internal Audit Department, which reports directly to the Board of Directors and is independent of the operation execution departments. The Internal Audit Department conducts audits of overall activities of the operation execution departments based on the internal audit policy and plan approved by the Board of Directors and regularly reports to the Board of Directors and the Board of Corporate Auditors the audit results and the matters to be indicated, etc. Accounting Auditor Ernst & Young ShinNihon LLC serves as the bank s Accounting Auditor. (As of July 1, 2017) 11

14 Risk Management System Basic Concept of Risk Management Risks faced by banks have become more complicated in line with liberalization and globalization of finance, development of financial tools such as derivatives, and advanced and diversified needs of customers. While opportunities for financial institutions are expanding, it has become more important for banks to determine risk precisely and manage such risk effectively. We set risk management as the most important issue in maintaining the stability and soundness of management and have established a risk management system with our board of directors placed at the top. Specifically, we classify risk management as credit risk, market risk, liquidity risk and operational risk and assign respective departments in charge of management of each. Risk Management System Board of Directors Executive Committee Loan Review (Compliance and Risk Management Dept.) Board of Corporate Auditors Emergency Countermeasures Headquarters (Head: President) (Risk Management Committee) Credit Risk Management Committee (Compliance and Risk Management Dept.) ALM Committee (Compliance and Risk Management Dept.) Operational Risk Management Committee (Compliance and Risk Management Dept.) Compliance Committee (Compliance and Risk Management Dept.) [Audit Department] Internal Audit Dept. (Risk Management Department) Compliance and Risk Management Dept. Integrated Risk Management Operational Risk Administration: Compliance and Risk Management Dept. (Department in Charge of Risk Management) [Type of Risk] Compliance and Risk Management Dept. Credit Risk Compliance and Risk Management Dept. Market Risk Money and Capital Markets Dept. Liquidity Risk Operations Administration Dept. Clerical Affairs Risk Systems Dept. System Risk Management Planning Dept. Event Risk Personnel Dept. Personnel Risk Compliance and Risk Management Dept. Legal Compliance Risk Secretariat: Management Planning Dept. Emergency [Operation and Sales Departments] Headquarters, Sales Off ices and Group Companies indicates the system managing various risks by integration through measuring risks by unified metrics as VaR indicates the lines of reporting risk management status of the department in charge indicates the line of giving instruction from the top in case of emergency (As of July 1, 2017) Loan Review In order to precisely comprehend the status of credit risks, we regularly hold loan review meetings to report the details of credit portfolios and discuss details. Credit Risk Management Committee We established a Credit Risk Management Committee to conduct consultations and review of various measures for credit risk management, analysis and review of credit risks status and have strived to enhance and reinforce the credit risk management system. ALM Committee For the purpose of general management of assets and liabilities held by the bank, we hold ALM Committee meetings every month to secure stable profits by risk control corresponding to the management vitality (capital adequacy). Operational Risk Management Committee We regularly hold Operational Risk Management Committee meetings in order to precisely comprehend the status of operational risks for appropriate risk control through identification and assessment of risks and review of risk reducing measures based on monitored results. Emergency Countermeasures Headquarters We have established Emergency Countermeasures Headquarters for the purpose of responding quickly to the first report of occurrence of an emergency and determine, give instruction and carry out emergency countermeasures. 12

15 Consolidated Balance Sheets THE SAN-IN GODO BANK, LTD. AND CONSOLIDATED SUBSIDIARIES As of March 31, 2016 and Assets: Cash and due from banks (Notes 14 and 16) 586, ,638 $ 4,934,824 Call loans and bills purchased 27,718 36, ,149 Debt purchased 8,981 9,744 86,852 Trading securities (Note 17) ,996 Money held in trust (Note 19) 6,497 3,996 35,618 Securities (Notes 5, 16, 17 and 18) 1,860,333 1,920,658 17,119,689 Loans and bills discounted (Notes 4, 7 and 16) 2,589,659 2,798,238 24,941,955 Foreign exchange 5,615 4,317 38,479 Lease receivables and investments in lease assets (Notes 5 and 15) 25,282 25, ,642 Other assets (Note 5) 30,683 41, ,045 Tangible fixed assets (Notes 8 and 9): 38,251 36, ,533 Buildings 13,489 12, ,438 Land 21,058 20, ,774 Construction in process Others 3,703 2,939 26,196 Intangible fixed assets: 2,187 1,901 16,944 Software 1,908 1,622 14,457 Others ,486 Deferred tax assets (Note 23) ,584 Customers liabilities for acceptances and guarantees (Note 6) 18,113 16, ,330 Reserve for possible loan losses (39,870) (38,109) (339,682) Reserve for devaluation of securities (107) (127) (1,132) Total assets 5,160,556 5,411,472 $ 48,234,887 Liabilities: Deposits (Notes 5 and 16) 3,868,638 3,937,562 $ 35,097,263 Negotiable certificates of deposit 7,200 64,176 Call money and bills sold 31,550 29, ,996 Payables under repurchase agreements (Note 5) 34, ,998 Cash collateral received under securities lending (Notes 5 and 16) 278, ,793 3,661,583 Borrowed money (Notes 5 and 16) 458, ,342 4,548,908 Foreign exchange Other liabilities (Note 25) 101,041 89, ,831 Reserve for bonuses to employees 1,054 1,066 9,501 Net defined benefit liability (Note 21) 12,742 12, ,614 Reserve for stock benefits Reserve for directors and corporate auditors retirement benefits Reserve for reimbursement of deposits ,306 Reserve for contingencies ,487 Reserve under special laws Deferred tax liabilities (Note 23) 13,503 5,704 50,842 Deferred tax liabilities for land revaluation excess (Note 8) 2,376 2,363 21,062 Acceptances and guarantees (Note 6) 18,113 16, ,330 Total liabilities 4,786,828 5,058,625 $ 45,089,803 Net assets (Note 29): Common stock: Authorized 495,021,000 shares in 2016 and 2017 Issued and outstanding - 159,227,472 shares in 2016 and 156,977,472 shares in ,705 20,705 $ 184,552 Capital surplus 15,516 21, ,578 Retained earnings 247, ,590 2,287,102 Treasury stock, at cost - 640,197 shares in 2016 and 1,113,381 shares in 2017 (629) (851) (7,585) Total shareholders equity 283, ,825 2,654,648 Net unrealized gain on other securities (Note 17) 75,089 55, ,241 Net deferred gain (loss) on hedging instruments (43) Land revaluation excess (Note 8) 3,001 2,970 26,472 Remeasurements of defined benefit plans (Note 21) (5,944) (5,194) (46,296) Total of accumulated other comprehensive income 72,102 53, ,757 Subscription rights to new shares (Note 22) ,189 Non-controlling interests 18,098 1,287 11,471 Total net assets 373, ,846 $ 3,145,075 Total liabilities and net assets 5,160,556 5,411,472 $ 48,234,887 See accompanying notes to consolidated financial statements. 13

16 Consolidated Statements of Income THE SAN-IN GODO BANK, LTD. AND CONSOLIDATED SUBSIDIARIES Years Ended March 31, 2016 and Income: Interest income: 62,326 63,202 $ 563,347 Interest on loans and discounts 33,630 32, ,674 Interest and dividends on securities 24,798 26, ,709 Other interest income 3,897 3,586 31,963 Fees and commissions 11,646 10,911 97,254 Other operating income 15,489 15, ,422 Other income 2,055 4,518 40,270 Total income 91,517 93, ,304 Expenses: Interest expenses: 8,219 9,045 80,622 Interest on deposits and NCDs 5,203 5,001 44,576 Interest on call money and bills sold ,064 Interest on payables under repurchase agreements 236 2,103 Interest on securities lending with cash collateral 788 2,127 18,958 Interest on borrowed money ,137 Other interest expenses 1, ,763 Fees and commissions 3,579 3,823 34,076 Other operating expenses 12,365 18, ,779 General and administrative expenses 40,678 41, ,501 Provision for reserve for possible loan losses 3,295 Other expenses (Note 10) 1,726 1,209 10,776 Total expenses 69,866 73, ,764 Profit before income taxes 21,651 20, ,531 Income taxes (Note 23): 8,252 6,595 58,784 Current 7,724 6,163 54,933 Deferred ,850 Profit 13,398 13, ,747 Profit attributable to non-controlling interests ,306 Profit attributable to owners of the Bank 12,911 13,399 $ 119,431 See accompanying notes to consolidated financial statements. 14

17 Consolidated Statements of Comprehensive Income THE SAN-IN GODO BANK, LTD. AND CONSOLIDATED SUBSIDIARIES Years Ended March 31, 2016 and Profit 13,398 13,771 $ 122,747 Other comprehensive income: Net unrealized gain (loss) on other securities 11,177 (20,117) (179,311) Net deferred gain on hedging instruments Land revaluation excess 125 Remeasurements of defined benefit plans (1,242) 750 6,685 Total other comprehensive income (Note 11) 10,101 (19,286) (171,904) Comprehensive income 23,499 (5,514) $ (49,148) Comprehensive income attributable to owners of the Bank 22,947 (5,844) $ (52,090) Comprehensive income attributable to non-controlling interests ,932 See accompanying notes to consolidated financial statements. 15

18 Consolidated Statements of Changes in Net Assets THE SAN-IN GODO BANK, LTD. AND CONSOLIDATED SUBSIDIARIES THE SAN-IN GODO BANK, LTD. AND CONSOLIDATED SUBSIDIARIES Shareholders' equity Total shareholders' equity Years Ended March 31, 2016 and 2017 Common stock Capital surplus Retained earnings Treasury stock Net assets as of April 1, ,705 15, ,697 (766) 273,152 Dividends (2,151) (2,151) Profit attributable to owners of the Bank 12,911 12,911 Purchases of treasury stock (1,464) (1,464) Sales of treasury stock (28) Cancellation of treasury stock (1,277) 1,277 Transfer from land revaluation excess Net changes of items other than shareholders' equity Total changes during the year 9, ,853 Net assets as of April 1, ,705 15, ,413 (629) 283,006 Dividends (2,372) (2,372) Profit attributable to owners of the Bank 13,399 13,399 Purchases of treasury stock (2,189) (2,189) Sales of treasury stock (38) Cancellation of treasury stock (1,842) 1,842 Transfer from land revaluation excess Changes in ownership interests arising from transactions with non-controlling interests 5,865 5,865 Net changes of items other than shareholders' equity Total changes during the year 5,865 9,176 (222) 14,819 Balance as of March 31, ,705 21, ,590 (851) 297,825 Net unrealized gain on other securities Accumulated other comprehensive income Net deferred gain (loss) on Remeasurements hedging Land of instruments revaluation defined excess benefit plans Total accumulated other comprehensive income Subscription rights to new shares Noncontrolling interests Total net assets Years Ended March 31, 2016 and 2017 Net assets as of April 1, ,977 (85) 3,138 (4,701) 62, , ,710 Dividends (2,151) Profit attributable to owners of the Bank 12,911 Purchases of treasury stock (1,464) Sales of treasury stock 295 Cancellation of treasury stock Transfer from land revaluation excess 263 Net changes of items other than shareholders' equity 11, (137) (1,242) 9,772 (146) ,163 Total changes during the year 11, (137) (1,242) 9,772 (146) ,017 Net assets as of April 1, ,089 (43) 3,001 (5,944) 72, , ,728 Dividends (2,372) Profit attributable to owners of the Bank 13,399 Purchases of treasury stock (2,189) Sales of treasury stock 86 Cancellation of treasury stock Transfer from land revaluation excess 30 Changes in ownership interests arising from transactions with non-controlling interests 5,865 Net changes of items other than shareholders' equity (19,640) 80 (30) 750 (18,838) (51) (16,810) (35,700) Total changes during the year (19,640) 80 (30) 750 (18,838) (51) (16,810) (20,881) Balance as of March 31, , ,970 (5,194) 53, , ,846 16

19 Shareholders' equity Total shareholders' equity Year Ended March 31, 2017 Common stock Capital surplus Retained earnings Treasury stock Net assets as of April 1, 2016 $ 184,552 $ 138,301 $2,205,303 $ (5,606) $2,522,559 Dividends (21,142) (21,142) Profit attributable to owners of the Bank 119, ,431 Purchases of treasury stock (19,511) (19,511) Sales of treasury stock (338) 1, Cancellation of treasury stock (16,418) 16,418 Transfer from land revaluation excess Changes in ownership interests arising from transactions with non-controlling interests 52,277 52,277 Net changes of items other than shareholders' equity Total changes during the year 52,277 81,789 (1,978) 132,088 Balance as of March 31, 2017 $ 184,552 $ 190,578 $2,287,102 $ (7,585) $2,654,648 Net unrealized gain on other securities Accumulated other comprehensive income Net deferred gain (loss) on Remeasurements hedging Land of instruments revaluation defined excess benefit plans Total accumulated other comprehensive income Subscription rights to new shares Noncontrolling interests Total net assets Year Ended March 31, 2017 Net assets as of April 1, 2016 $669,302 $(383) $26,749 $(52,981) $642,677 $4,643 $161,315 $3,331,205 Dividends (21,142) Profit attributable to owners of the Bank 119,431 Purchases of treasury stock (19,511) Sales of treasury stock 766 Cancellation of treasury stock Transfer from land revaluation excess 267 Changes in ownership interests arising from transactions with non-controlling interests 52,277 Net changes of items other than shareholders' equity (175,060) 713 (267) 6,685 (167,911) (454) (149,835) (318,210) Total changes during the year (175,060) 713 (267) 6,685 (167,911) (454) (149,835) (186,121) Balance as of March 31, 2017 $494,241 $320 $26,472 $(46,296) $474,757 $4,189 $11,471 $3,145,075 See accompanying notes to consolidated financial statements. 17

20 Consolidated Statements of Cash Flows THE SAN-IN GODO BANK, LTD. AND CONSOLIDATED SUBSIDIARIES Years Ended March 31, 2016 and Cash flows from operating activities: Profit before income taxes 21,651 20,366 $ 181,531 Depreciation 2,708 2,664 23,745 Loss on impairment of fixed assets ,165 Increase (decrease) in reserve for possible loan losses 2,322 (1,760) (15,687) Increase (decrease) in reserve for devaluation of securities Increase (decrease) in reserve for bonuses to employees (7) Increase (decrease) in net defined benefit liability 1,147 (219) (1,952) Increase (decrease) in reserve for stock benefits Increase (decrease) in reserve for directors and corporate auditors retirement benefits (19) 7 62 Increase (decrease) in reserve for reimbursement of deposits (22) 7 62 Increase (decrease) in reserve for contingencies Interest and dividend income (62,326) (63,202) (563,347) Interest expenses 8,219 9,045 80,622 Net (gain) loss on securities transactions (1,591) 2,401 21,401 Net (gain) loss on money held in trust Net foreign exchange (gain) loss (167) (222) (1,978) Net (gain) loss on disposals of fixed assets 108 (47) (418) Net (increase) decrease in loans and bills discounted (162,015) (208,579) (1,859,158) Net increase (decrease) in deposits 90,873 68, ,341 Net increase (decrease) in negotiable certificates of deposit (1,500) 7,200 64,176 Net increase (decrease) in borrowed money 120,481 52, ,496 Net (increase) decrease in due from banks (exclusive of the Bank of Japan) (742) (1,424) (12,692) Net (increase) decrease in call loans 63,000 (9,187) (81,887) Net increase (decrease) in call money 26,062 32, ,776 Net increase (decrease) in cash collateral received under securities lending 121, ,403 1,180,167 Net (increase) decrease in foreign exchange assets (2,460) 1,298 11,569 Net increase (decrease) in foreign exchange liabilities (5) 1 8 Interest and dividends received 62,833 63, ,594 Interest paid (7,866) (8,657) (77,163) Others 12,699 (20,290) (180,853) Subtotal 295,375 79, ,487 Income taxes paid (9,447) (8,195) (73,045) Net cash provided by (used in) operating activities 285,927 71, ,441 Cash flows from investing activities: Purchases of securities (242,515) (323,276) (2,881,504) Proceeds from sales of securities 37, ,517 1,065,308 Proceeds from redemption of securities 98, , ,332 Increase in money held in trust (1,002) (8,931) Decrease in money held in trust 483 3,419 30,475 Purchases of tangible fixed assets (1,386) (845) (7,531) Purchases of intangible fixed assets (572) (580) (5,169) Proceeds from sales of tangible fixed assets ,175 Proceeds from sales of intangible fixed assets 0 0 Net cash provided by (used in) investing activities (107,246) (90,520) (806,845) Cash flows from financing activities: Purchases of treasury stock (1,464) (1,759) (15,678) Proceeds from sales of treasury stock Dividends paid (2,151) (2,372) (21,142) Dividends paid to non-controlling shareholders (14) (6) (53) Purchases of interest in subsidiaries that do not result in change in scope of consolidation (10,838) (96,603) Net cash provided by (used in) financing activities (3,629) (14,976) (133,487) Effect of changes in exchange rates on cash and cash equivalents (2) (0) (0) Net increase (decrease) in cash and cash equivalents 175,049 (34,317) (305,882) Cash and cash equivalents at the beginning of the year 409, ,225 5,207,460 Cash and cash equivalents at the end of the year (Note 14) 584, ,907 $4,901,568 See accompanying notes to consolidated financial statements. 18

21 Notes to the Consolidated Financial Statements THE SAN-IN GODO BANK, LTD. AND CONSOLIDATED SUBSIDIARIES 1. Basis of Preparation The accompanying consolidated financial statements of The San-in Godo Bank, Ltd. (the Bank ) and consolidated subsidiaries (together, the Group ) are prepared on the basis of accounting principles generally accepted in Japan, the Companies Act of Japan and the Banking Act of 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 Act of Japan. In preparing the accompanying consolidated financial statements, certain reclassifications have been made in the consolidated financial statements issued for domestic purposes in order to present them in a form which is more familiar to readers outside 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 Act, amounts less than one million yen have been omitted. Consequently, the totals shown in the accompanying consolidated financial statements (both in yen and U.S. dollars) do not necessarily agree with the sum of the individual amounts. The U.S. dollar amounts presented in the accompanying consolidated financial statements are included solely for convenience and should not be construed as representations that yen amounts have been, or could in the future be, converted into U.S. dollars. The rate of to U.S. $1, prevailing at the end of March 2017, has been used to translate the yen amounts in the accompanying financial statements into U.S. dollar amounts. 2. Summary of Significant Accounting Policies (a) Scope of Consolidation (i) Consolidated subsidiaries The consolidated financial statements include the accounts of the Group, after elimination of all significant inter-company transactions, balances, and unrealized profits. The number of consolidated subsidiaries as of March 31, 2016 and 2017 was 13 and 11, respectively. (ii) Unconsolidated subsidiaries The number of unconsolidated subsidiaries due to less materiality as of March 31, 2016 and 2017 was 9. These unconsolidated subsidiaries are not accounted for by the equity method, but stated at cost determined by the moving average method. (iii) Balance sheet date of subsidiaries The fiscal year-end of all the consolidated subsidiaries is March 31. (b) Trading Securities Trading securities are carried at fair value with unrealized gains or losses recognized in earnings. Cost of trading securities sold is determined by the moving average method. (c) Securities Securities other than trading securities are classified and accounted for as follows: (i) Debt securities which the Bank has the positive intent and ability to hold to maturity are carried at amortized cost computed by the straight-line method. The cost of securities sold is determined by the moving average method. (ii) Other securities are generally carried at fair value based on market prices at the balance sheet date with unrealized gains or losses, net of applicable income taxes, included directly in net assets. However, certain other securities, of which fair value is extremely difficult to determine, are carried at cost. Cost of securities sold is determined by the moving average method. (iii) Securities included in money held in trust for the purpose of securities trading are carried at fair value with unrealized gains or losses recognized in earnings. (iv) Securities included in money held in trust for the purpose other than securities trading and investment in held to maturity securities are carried at fair value with unrealized gains or losses, net of applicable income taxes, included directly in net assets. (d) Derivatives Derivative financial instruments are stated at fair value. (e) Depreciation of Tangible Fixed Assets Buildings are depreciated using the straight-line method, while the declining-balance method is used for equipment. The estimated useful lives of major tangible fixed assets are as follows: Buildings to 50 years Equipment... 5 to 15 years Depreciation of tangible fixed assets of the consolidated subsidiaries is computed primarily by the straight-line method over the estimated useful lives of respective assets. (f) Depreciation of Intangible Fixed Assets Intangible fixed assets are depreciated by the straight-line method. Acquisition costs of software intended for internal use are capitalized and depreciated on the straight-line basis over the estimated useful lives (mainly 5 years). 19

22 Notes to the Consolidated Financial Statements THE SAN-IN GODO BANK, LTD. AND CONSOLIDATED SUBSIDIARIES (g) Depreciation of Leased Assets Leased assets included in tangible or intangible fixed assets under the finance lease arrangements which do not transfer ownership of the leased assets to the lessee are depreciated by the straight-line method over the respective lease periods without residual values or with predetermined residual values in the lease contracts. (h) Reserves (i) Reserve for possible loan losses The Bank makes reserve for possible loan losses based on Guidelines for Auditing Self-Assessment of Assets, Write-Offs and Loan Loss Provisions of Banks and Other Financial Institutions issued by the Japanese Institute of Certified Public Accountants ( JICPA ) (JICPA Bank Auditing Special Committee Report No. 4, issued on July 4, 2012). A reserve is provided for Normally Performing Loans and Loans to Borrowers under Close Observation based on the ratio of loan losses computed based on the default ratio sustained over specific periods in the past. A reserve is also provided for Loans to Borrowers with Bankruptcy Imminent. In such cases, the anticipated proceeds from the sales of collateral pledged against such loans and the amounts expected to be recovered from guarantors of the loans are first subtracted from the book value of the loans. A reserve is then provided in the amount deemed necessary. A reserve is maintained at the book value of Loans to Borrowers under Bankruptcy Proceedings or Loans to Borrowers Substantially in Bankruptcy after deducting the anticipated proceeds from the sale of collateral pledged against such loans and the amounts expected to be recovered from the guarantors of the loans. If a borrower of loans with altered lending conditions is bankruptcy imminent or under close observation, whose loan balance is more than a certain amount and the Bank can reasonably estimate the borrower s future cash flows, a reserve is maintained at book value after deducting estimated future cash flows discounted by the loan rate before any restructuring to provide relief to borrowers by reducing interest rates. All loans are reviewed by the asset review divisions, with cooperation from the relevant business divisions based on the Bank s internal rules for self-assessment of assets. With respect to the reserves for possible loan losses of the consolidated subsidiaries, the amounts deemed necessary are provided based on the actual default ratios in the past. In cases where there is more concern about the failure of the obligor, amounts deemed uncollectible are provided in the reserve. (ii) Reserve for devaluation of securities A reserve for devaluation of securities is provided in the amount necessary to cover possible losses on investments in securities, which is determined based on assessment of the financial position of the companies issuing the securities. (iii) Reserve for bonuses to employees A reserve for bonuses to employees is provided in the amount accrued during the year, which is calculated based on the estimated amount of future bonus payment to employees. (iv) Reserve for stock benefits A reserve for stock benefits is provided in the estimated amount of future stock payments to the Bank s directors and executive officers. (v) Reserve for directors and corporate auditors retirement benefits A reserve for directors and corporate auditors retirement benefits is provided in the estimated amount of future retirement payments to directors and corporate auditors of the Bank s subsidiaries. (vi) Reserve for reimbursement of deposits A reserve for reimbursement of deposits is provided in the estimated amount of future claims for payments of deposits not accounted for as liability. (vii) Reserve for contingencies A reserve for contingencies is provided in the estimated amount of future loss arising from contingencies other than events described above. (viii) Reserve under special laws A reserve under special laws is a financial instruments transaction liability reserve which is provided for contingent loss resulting from security-related accident and is calculated by a consolidated subsidiary in accordance with Article 46-5 of the Financial Instruments and Exchange Act and Article 175 of the Cabinet Office Ordinance Regarding Financial Instruments Businesses. (i) Employees Retirement Benefits Net defined benefit liability is recognized based on the estimated amounts of the projected retirement benefit obligations and assets of the existing pension plans. For determination of projected retirement benefit obligations, the benefit formula basis is used as a method of attributing expected benefit to each period. Unrecognized prior service cost is amortized by the straight-line method over the specific years (10 years) within the average remaining years of service of the eligible employees. Actuarial gains or losses are amortized from the next year after incurrence by the straight-line method over the specific years (10 years) within the average remaining years of service of the eligible employees. Certain consolidated subsidiaries record net defined benefit liability and net retirement benefit expense using the simplified method whereby the projected retirement benefit obligations are estimated at the amount that would be payable if the eligible employees would have been retired voluntarily at the balance sheet date. 20

23 (j) Foreign Currency Transactions Assets and liabilities denominated in foreign currencies are translated into Japanese yen using primarily applicable rate of exchange effective at the balance sheet date. Assets and liabilities denominated in foreign currencies of consolidated subsidiaries are translated into Japanese yen using the exchange rate at the respective balance sheet date. (k) Hedge Accounting (i) Hedge of interest rate risk The Bank hedges the interest rate risk arising from the Bank s financial assets and liabilities by individually matching interest rate swaps with fixed-interest rate loans. The Bank applies the deferral method of hedge accounting, under which gains or losses on derivatives are deferred until maturity of the hedged transactions, or the special treatment for interest rate swaps, under which the differential paid or received under the swap agreements are recognized and included in interest expenses or income. (ii) Hedge of foreign exchange risk In accordance with the general provisions of the Accounting and Auditing Treatment of Foreign Exchange Transactions for the Banking Industry (JICPA Industry Audit Committee Report No. 25, issued on July 29, 2002), the Bank applies the deferral method to account for derivative instruments which hedge the foreign exchange risk on financial assets and liabilities denominated in foreign currency. The effectiveness of these transactions to hedge the foreign exchange risks of financial assets or liabilities denominated in foreign currencies is assessed by comparing the foreign currency position of the hedged assets or liabilities with that of the hedging instruments. In addition, in order to hedge foreign exchange risks of foreign-currency denominated securities, except for debt securities, the Bank applies fair value hedges as comprehensive hedges on such conditions that the hedged securities are specified in advance and these securities are not more than the hedging spot and forward liabilities denominated in foreign currencies. (l) Consumption Taxes Transactions subject to consumption taxes including the local consumption tax are recorded at amount exclusive of consumption taxes. (m) Cash and Cash Equivalents For the purpose of the consolidated statements of cash flows, cash and cash equivalents are defined as cash and due from the Bank of Japan. 3. Additional Information (1) Adoption of Implementation Guidance on Recoverability of Deferred Tax Assets The Group adopted Implementation Guidance on Recoverability of Deferred Tax Assets issued by the Accounting Standard Board of Japan ( ASBJ ) (ASBJ Guidance No. 26, issued on March 28, 2016) from the fiscal year beginning on April 1, (2) Transaction to provide shares of the Bank to executives through a trust The Bank introduced a stock-based remuneration system called Board Benefit Trust ( BBT ) for the Bank s directors and executive officers ( Executives ) in order to encourage contribution to mid-term business results and expanding corporate value. (a) Overview of the transaction The Bank distributes certain points to subjected Executives each fiscal year based on the Stock Benefit Rules for Executives stipulated by the Bank. When Executives retire, the Bank, in accordance with the accumulated points, provides both the shares of the Bank and money corresponding to the market value of the shares of the Bank. The Bank s shares and money are acquired by the trust. The Bank's shares and money in the trust are managed separately. (b) The Bank s shares in the trust The Bank s shares in the trust is recognized as treasury stock in net assets at carrying amount of the trust. As of March 31, 2017, the treasury stock in the trust was 430 million ($3,832 thousand) and the number of those shares was 599 thousand. 4. Loans and Bills Discounted The aggregate amount of loans and bills discounted as of March 31, 2016 and 2017 include the following risk managed loans Loans to borrowers under bankruptcy proceedings (*1) 2,015 1,849 $ 16,480 Non-accrual past due loans (*2) 47,177 43, ,489 Loans past due for three months or more (*3) 90 Loans with altered lending conditions (*4) 16,413 12, ,423 Total 65,696 57,823 $ 515,402 (*1) Loans for which circumstances apply as stated in the Tax Law among non-accrual loans (excluding loan write-offs) for which payments of outstanding principal or interest have not been received for a substantial period or which have arisen for other reasons. (*2) Loans for which payments of outstanding principal or interest have not been received for a substantial period, excluding 21

24 Notes to the Consolidated Financial Statements THE SAN-IN GODO BANK, LTD. AND CONSOLIDATED SUBSIDIARIES loans to borrowers under bankruptcy proceedings and loans for which interest payments have been rescheduled with the objective of assisting these borrowers in business restructuring. (*3) Loans for which payments of principal or interest have not been received for a period of three months or more from the next day of the due date, and which are not included in loans to borrowers under bankruptcy proceedings or non-accrual past due loans. (*4) Loans which are restructured to provide relief to borrowers by reducing interest rates, rescheduling interest and principal payments, or waiving the claims on borrowers. Such loans exclude loans to borrowers under bankruptcy proceedings, non-accrual past due loans and loans past due for three months or more. Discounted bills are accounted for as financing transactions in accordance with Accounting and Auditing Treatment of Financial Instruments for the Banking Industry (JICPA Industry Audit Committee Report No. 24, issued on February 13, 2002). As of March 31, 2016 and 2017, the face value of discounted bills which can be sold or repledged by the Bank amounted to 12,339 million and 11,564 million ($103,075 thousand), respectively. These discounted bills include banker s acceptances, commercial bills, documentary bills and bills purchased in connection with foreign exchange transactions. 5. Assets Pledged The amount of assets pledged as collateral as of March 31, 2016 and 2017 are as follows: Assets pledged as collateral: Securities 837,409 1,010,317 $9,005,410 Lease receivables and investments in lease assets 9,230 12, ,940 Other assets 1, ,472 Liabilities secured by the above assets: Deposits 71,089 83, ,189 Payables under repurchase agreements 34, ,998 Cash collateral received under securities lending 278, ,793 3,661,583 Borrowed money 455, ,087 4,519,894 Other than the items presented above, securities of 44,327 million and 44,169 million ($393,698 thousand), and other assets of 17 million and 9,517 million ($84,829 thousand) as of March 31, 2016 and 2017, respectively, were held as collateral for transactions such as settlement transactions or in lieu of margins of futures transactions. Other assets included guarantee deposits of 440 million and 459 million ($4,091 thousand) as of March 31, 2016 and 2017, respectively. 6. Customers Liabilities for Acceptances and Guarantees All contingent liabilities arising from acceptances and guarantees are recorded in Acceptances and guarantees. A contra account, Customers liabilities for acceptances and guarantees, is shown on the asset side representing the Bank s right to indemnify from its customers. 7. Overdraft Agreements and Loan Commitments Overdraft agreements and loan commitments are agreements under which the Group is obliged to extend loans up to a prearranged limit, provided there is no violation of condition in the contracts. The loan commitments not yet drawn down as of March 31, 2016 and 2017 totaled 748,180 million and 804,949 million ($7,174,872 thousand), respectively, of which 724,455 million and 781,266 million ($6,963,775 thousand), respectively, were 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 being drawn down, the unused commitment balance does not necessarily affect the future cash flows of the Bank or of its consolidated subsidiaries. These agreements usually include provisions which stipulate that the Group has the right either to refuse the execution of the loans or to reduce the contractual commitments when there is a change in the financial condition, when additional assurance of the financial soundness and creditworthiness of a borrower is necessary, or when other unexpected events occur. The Group takes various measures to protect their credit. Such measures include obtaining real estate or securities as collateral at the time of 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. 8. Land Revaluation Excess On March 31, 1998, the Bank revalued its land used for business purposes based on the Law Concerning Land Revaluation (Law No. 34, promulgated on March 31, 1998). As a result of this revaluation, the revaluation difference, net of the applicable tax effect, has been recorded as land revaluation excess in net assets. The tax effect has been recorded as Deferred tax liability for land revaluation excess in liabilities. The difference between the fair value of land used for business purposes revalued as stipulated under Article 10 of the Law Concerning Land Revaluation and the book value of such land after revaluation as of March 31, 2016 and 2017 resulted in unrealized loss of 8,869 million and 9,140 million ($81,468 thousand), respectively. The revaluation method as stated in Article 3-3 of the Law Concerning Land Revaluation: The value of land is evaluated using the method as stipulated in Article 2-4 of the Ordinance Implementing the Law Concerning Land Revaluation (Government Ordinance No. 119, promulgated on March 31, 1998), to make reasonable adjustments on the prices calculated through such a way as the Commissioner of the National Tax Administration established 22

25 and officially announced so as to compute the official notice prices as provided in Article 16 of the Law Concerning Public Notification of Land Prices, in combination with the prices estimated by real estate appraisers as stipulated in Article 2-5 of the abovementioned ordinance. 9. Accumulated Depreciation and Deferred Revenue on Tangible Fixed Assets Accumulated depreciation of tangible fixed assets was 48,983 million and 48,925 million ($436,090 thousand) as of March 31, 2016 and 2017, respectively. Deferred revenue of tangible fixed assets was 1,379 million and 1,345 million ($11,988 thousand) as of March 31, 2016 and 2017, respectively. There was no deferred revenue on tangible fixed assets incurred for the years ended March 31, 2016 and Other Expenses For the year ended March 31, 2016, other expenses included loss on impairment of fixed assets of 725 million, loss on write-offs of loans of 27 million, loss on write-offs of stocks of 190 million, and loss on sales of loans of 40 million. For the year ended March 31, 2017, other expenses included loss on impairment of fixed assets of 243 million ($2,165 thousand), loss on write-offs of loans of 29 million ($258 thousand), loss on write-offs of stocks of 6 million ($53 thousand), and loss on sales of loans of 76 million ($677 thousand). 11. Other Comprehensive Income Reclassification adjustment and tax effect of other comprehensive income for the years ended March 31, 2016 and 2017 are as follows: Net unrealized gain (loss) on other securities: Amount incurred during the year 15,698 (31,333) $ (279,285) Reclassification adjustment (1,723) 2,619 23,344 Amount before tax effect 13,975 (28,713) (255,931) Tax effect (2,798) 8,595 76,611 Net unrealized gain (loss) on other securities 11,177 (20,117) (179,311) Net deferred gain on hedging instruments: Amount incurred during the year 1,856 2,585 23,041 Reclassification adjustment (1,794) (2,469) (22,007) Amount before tax effect ,033 Tax effect (20) (35) (311) Net deferred gain on hedging instruments Land revaluation excess: Amount incurred during the year Reclassification adjustment Amount before tax effect Tax effect 125 Net land revaluation excess 125 Remeasurements of defined benefit plans: Amount incurred during the year (2,891) (636) (5,668) Reclassification adjustment 1,266 1,717 15,304 Amount before tax effect (1,625) 1,081 9,635 Tax effect 382 (330) (2,941) Net remeasurements of defined benefit plans (1,242) 750 6,685 Total other comprehensive income 10,101 (19,286) $ (171,904) 23

26 Notes to the Consolidated Financial Statements THE SAN-IN GODO BANK, LTD. AND CONSOLIDATED SUBSIDIARIES 12. Shares Issued The number of shares issued and changes during the years ended March 31, 2016 and 2017 are summarized as follows: Year ended March 31, 2016 shares Treasury stock Common stock issued Beginning of the year 1, ,527 Increase during the year (*2) 1,324 Decrease during the year (*2) 1,748 (*1) 1,300 End of the year ,227 (*1) The decrease in common stock issued is due to cancellation of treasury stock. (*2) 1,300 thousand shares were purchased from the market, and 24 thousand shares were purchased for claims by the shareholders who owned less than the trade unit. The decrease in treasury stock is due to cancellation of treasury stock of 1,300 thousand shares, execution of stock options of 446 thousand shares and claims for purchase by the shareholders who owned less than the trade unit of 1 thousand shares. Year ended March 31, 2017 shares Treasury stock Common stock issued Beginning of the year ,227 Increase during the year (*3) 2,850 Decrease during the year (*3) 2,377 (*1) 2,250 End of the year (*2) 1, ,977 (*1) The decrease in common stock issued is due to cancellation of treasury stock. (*2) The Bank s stock held by the Board Benefit Trust (BBT) of 599 thousand shares were included in the treasury stock at the end of the year. (*3) 2,250 thousand shares were purchased from the market by the Bank, 599 thousand shares were purchased from the market by the Board Benefit Trust (BBT), and 1 thousand shares were purchased for claims by the shareholders who owned less than the trade unit. The decrease in treasury stock is due to cancellation of treasury stock of 2,250 thousand shares, execution of stock options of 127 thousand shares and claims for purchase by the shareholders who owned less than the trade unit of 0 thousand shares. 13. Dividends Year ended March 31, 2016 Dividends paid during the year are summarized as follows: Resolution The general shareholders meeting on June 24, 2015 The board of directors on November 12, 2015 Total dividends Dividend of which base date belonged to the year is summarized as follows: Resolution The general shareholders meeting on June 23, 2016 Year ended March 31, 2017 Dividend per share Base date Effective date 1,435 million 9.0 March 31, 2015 June 25, million 4.5 September 30, 2015 December 4, 2015 Total dividend Dividends paid during the year are summarized as follows: Dividend per share Base date Effective date 1,665 million 10.5 March 31, 2016 June 24, 2016 Resolution Total dividends Dividend per share Base date Effective date The general shareholders meeting 1,665 million 10.5 on June 23, 2016 $14,840 thousand $ 0.09 March 31, 2016 June 24, 2016 The board of directors on 707 million 4.5 November 11, 2016 $ 6,301 thousand $ 0.04 September 30, 2016 December 9, 2016 (*) Total dividend resolved by the board of directors on November 11, 2016 includes 2 million ($17 thousand) of dividend to the shares held by Board Benefit Trust (BBT). Dividend of which base date belonged to the year is summarized as follows: Resolution Total dividend Dividend per share Base date Effective date The general shareholders meeting 1,642 million 10.5 on June 22, 2017 $14,635 thousand $ 0.09 March 31, 2017 June 23, 2017 (*) Total dividend resolved by the board of directors on June 22, 2017 includes 6 million ($53 thousand) of dividend to the shares held by Board Benefit Trust (BBT). 24

27 14. Reconciliation of Cash and Cash Equivalents Reconciliation between cash and due from banks in the consolidated balance sheets as of March 31, 2016 and 2017 and cash and cash equivalents in the consolidated statements of cash flows for the years then ended are as follows: Cash and due from banks 586, ,638 $4,934,824 Deposits to banks excluding the Bank of Japan (2,306) (3,730) (33,247) Cash and cash equivalents 584, ,907 $4,901, Lease Transactions As a Lessee Tangible fixed assets and intangible fixed assets include finance lease assets (mainly ATMs, information system and software) of which ownership do not transfer to the lessee. As a Lessor Summary of investments in lease assets as of March 31, 2016 and 2017 are as follows: Gross lease receivables 24,960 25,184 $ 224,476 Expected residual values 1,800 1,894 16,882 Unearned interest income (1,478) (1,651) (14,716) Investments in lease assets 25,282 25,427 $ 226,642 Maturities of gross lease receivables for finance leases as of March 31, 2017 are as follows: Year ending March ,072 $ 71, ,401 57, ,684 41, ,111 27, ,634 14, and thereafter 1,280 11,409 Total 25,184 $ 224, Financial Instruments and Related Disclosures Disclosure of Financial Instruments (1) Policy on financial instruments The Group provides financial services including banking services such as deposit-taking, lending services and others. Accordingly, the Group is exposed to the risk of fluctuation of values and earnings of financial assets and liabilities resulting from changes in interest rates (interest rate risk) and the risk that the Group may suffer losses on collection of principal and interest on loans due to bankruptcy or deterioration of performances of counterparties (credit risk). In addition, the Group is exposed to price fluctuation risk associated with equity securities in addition to interest rate risk and credit risk for securities investment operations. The Group conducts comprehensive Asset and Liability Management (ALM) aiming at appropriate risk management and maximization of earnings and, as part of ALM, employs derivative transactions. (2) Nature and risk of financial instruments Financial assets held by the Group principally consist of loans to domestic customers, which are exposed to interest rate risk and credit risk arising from nonperformance of contractual obligations. The Group holds securities principally consisting of debt securities and equity securities which are classified into trading securities, held-to-maturity securities and other (available-for-sale) securities depending on the holding purposes. They are exposed to credit risk of issuers, interest rate risk and price fluctuation risk. Financial liabilities held by the Group principally consist of deposits accepted from domestic customers, which are exposed to interest rate risk. Borrowed money is exposed to liquidity risk that the Group may not be able to settle on the maturity date when the Group might not be able to utilize the market under certain environments. Derivative transactions consist of forward foreign exchange contracts, currency swaps and currency options as currency related derivatives and interest rate swaps and interest rate futures as interest rate related derivatives. Interest rate swaps and forward foreign exchange contracts which qualify for hedge accounting and meet internal policy as to the application of hedge accounting are accounted for under hedge accounting. Derivative transactions which do not meet requirements as hedge accounting are exposed to interest rate risk, price fluctuation risk, credit risk and etc. 25

28 Notes to the Consolidated Financial Statements THE SAN-IN GODO BANK, LTD. AND CONSOLIDATED SUBSIDIARIES (3) Risk management system for financial instruments Credit risk management Credit risk management of the Group consists of Strict review and control on individual transactions (micro base credit risk management), Portfolio management and appropriate administration through credit risk quantification (macro base credit risk management) and Strict self-assessment and appropriate write-offs and provision based on Internal rating system. With respect to control system on the volume of risk, status of self-assessment, internal rating, write-offs and provision, status on measurement of risk with VaR, etc., status of concentration of credit risk, status of profitability on lending and status on doubtful accounts are reported to the Loan Review (executive management meeting), the Credit Risk Control Committee and the ALM Committee on a regular basis and, if necessary, discussed in the executive management meeting. The Bank allocates capital to the credit risk exposure and monitors it to balance the volume of risk within the extent of the capacity (capital). Market risk management (a) Qualitative information on market risk management With respect to market risk management, the Bank identifies and controls the volume of risk using real risk subtracted holding gain or loss and realized gain or loss from VaR for internal management purpose. The Bank allocates capital to the market risk exposure and monitors it to balance the volume of risk within the extent of the capacity (capital). In addition to daily monitoring and controls of the real risk and VaR, the monthly ALM committee discusses and determines the means of appropriate risk control. (b) Quantitative information on market risk management (i) Risk related to securities The Bank, in principle, utilizes the historical simulation method in calculating VaR of securities held. The volume of risk associated with products for which market value is not readily available is calculated by applying a certain factor to acquisition costs, etc. VaR is calculated on a daily basis using the following assumptions: holding period of 60 days (120 days for strategic shares), confidence level of 99%, and time horizon of one year. As of March 31, 2017, the volume of VaR was 80,550 million ($717,978 thousand) and the volume of real risk was 3,039 million ($27,087 thousand). The Bank verifies the effectiveness of the VaR model by comparing VaR and daily gains and losses. However, VaR calculates the volume of market risk with certain probability level which is statistically calculated based on the historical market changes, and it may not capture risks under extremely unusual situation where market environment changes drastically. (ii) Interest rate risk related to financial instruments other than securities The Bank utilizes the delta method in calculating VaR of financial instruments exposed to interest rate risk such as deposits and loans, except securities, and the core deposit internal model for liquid deposit. The volume of risk related to loans with embedded option is calculated by applying a certain factor to outstanding balance. VaR is calculated on a monthly basis using the following assumptions: holding period of 60 days, confidence level of 99%, and time horizon of one year. The volume of interest rates risk related to deposits and loans as of March 31, 2017 was (31,682) million ($(282,395) thousand). For risk calculation of financial instruments other than securities, an increase in subject interest rates as of the fiscal year end would result in an in overall value; therefore, the volume of risk is calculated as negative value for internal management purpose. However, VaR calculates the volume of market risk with certain probability level which is statistically calculated based on the historical interest rates changes, and it may not capture risks under extremely unusual situation where interest rate environment changes drastically. Liquidity risk management related to fund raising With respect to liquidity risk management, the Bank controls the risk using limits on fund gap on a daily basis and also prepares forecast and actual results of cash management on a monthly basis and verifies the variance against the plan. Furthermore, the Bank prepares a contingency plan which contains organization plans and measures for emergency. The Bank holds sufficient high liquid debt securities such as government bonds and other high liquid assets and has established effective system against liquidity risk. (4) Supplementary explanation about fair values of financial instruments The fair value of financial instruments includes, in addition to the value determined based on the market price, the value calculated on a reasonable basis if no market price is available. Since certain assumptions are used in calculating the value, the result of such calculation may vary if different assumptions are used. 26

29 Disclosure of Fair Values of Financial Instruments The carrying amount, the fair value and the difference between these values as of March 31, 2016 and 2017 are as follows: Note that securities of which fair value is extremely difficult to determine, such as unlisted equity securities, are not included in the following table (See Note 2 below). As of March 31, 2016 Carrying amount Fair value Difference Cash and due from banks 586, ,531 Securities: Held-to-maturity debt securities 33,223 33, Other securities 1,812,333 1,812,333 Loans and bills discounted 2,589,659 Reserve for possible loan losses (*1) (37,382) 2,552,276 2,633,931 81,655 Total assets 4,984,365 5,066,054 81,688 Deposits 3,868,638 3,872,056 3,417 Cash collateral received under securities lending 278, ,390 Borrowed money 458, ,124 6 Total liabilities 4,605,147 4,608,571 3,423 Derivative transactions (*2): To which hedge accounting is not applied 1,638 1,638 To which hedge accounting is applied (757) (757) Total derivative transactions As of March 31, 2017 Carrying amount Fair value Difference Cash and due from banks 553, ,638 Securities: Held-to-maturity debt securities 42,079 41,871 (207) Other securities 1,862,298 1,862,298 Loans and bills discounted 2,798,238 Reserve for possible loan losses (*1) (35,669) 2,762,568 2,832,452 69,883 Total assets 5,220,585 5,290,260 69,675 Deposits 3,937,562 3,940,110 2,547 Cash collateral received under securities lending 410, ,793 Borrowed money 510, ,346 4 Total liabilities 4,858,698 4,861,251 2,552 Derivative transactions (*2): To which hedge accounting is not applied To which hedge accounting is applied (1,168) (1,168) Total derivative transactions (1,065) (1,065) As of March 31, 2017 Carrying amount Fair value Difference Cash and due from banks $ 4,934,824 $ 4,934,824 $ Securities: Held-to-maturity debt securities 375, ,215 (1,845) Other securities 16,599,500 16,599,500 Loans and bills discounted 24,941,955 Reserve for possible loan losses (*1) (317,933) 24,624,012 25,246, ,898 Total assets 46,533,425 47,154, ,044 Deposits 35,097,263 35,119,975 22,702 Cash collateral received under securities lending 3,661,583 3,661,583 Borrowed money 4,548,908 4,548, Total liabilities 43,307,763 43,330,519 22,747 Derivative transactions (*2): To which hedge accounting is not applied To which hedge accounting is applied (10,410) (10,410) Total derivative transactions $ (9,492) $ (9,492) $ (*1) General and specific reserves for possible loan losses corresponding to loans are deducted. (*2) Derivative transactions include derivatives recorded in other assets and other liabilities. Assets and liabilities arising from derivative transactions are shown on a net basis, and net liabilities are stated with parentheses. 27

30 Notes to the Consolidated Financial Statements THE SAN-IN GODO BANK, LTD. AND CONSOLIDATED SUBSIDIARIES (Note 1) Determining the fair value of financial instruments Assets: Cash and due from banks The carrying amount is presented as the fair value since the fair value approximates the carrying amount because these are without maturity or the remaining maturity is short (less than one year). Securities For equity securities, the fair value is determined using the price at the exchange. The fair value of debt securities is determined using firstly the published market price by the Japan Securities Dealers Association, secondly the computed price by the information vendors or thirdly the quoted price by the brokers. The fair value of investment trusts is determined using firstly the published standard quotation price or secondly the quoted price by the brokers. For privately placed bonds guaranteed by the Bank, the fair value is determined based on the present value of the aggregated principal and interest discounted at an interest rate assumed if the same issue were underwritten. Loans and bills discounted For loans with variable interest rates, the carrying amount is presented as the fair value since the fair value approximates the carrying amount, unless the creditworthiness of the borrower has changed significantly since the loan origination. For loans with fixed interest rates, the fair value is determined based on the present value of the principal and interest aggregated by the type of loans, internal ratings, collaterals and maturities discounted at an interest rate assumed if the new loans were made. For loans with short remaining maturity (less than one year), the carrying amount is presented as the fair value since the fair value approximates the carrying value. For receivables due from bankrupt, substantially bankrupt or bankruptcy imminent borrowers, loan loss provisions are estimated based on expected future cash flows or the expected amount to be collected from collaterals and guarantees. Therefore, carrying amount of those items, net of related loan loss provisions, is presented as the fair value. The fair value of interest rate swap contracts which are accounted for combined with the loans as hedged items under the hedge accounting is included in the fair value of the corresponding loans. Liabilities: Deposits For demand deposits, the amount payable on demand as of the balance sheet date (i.e., the carrying amount) is considered to be the fair value. The fair value of time deposit is determined using the discounted present value of future cash flows grouped by types of deposits and maturity lengths. The discount rate used is the interest rate that would be applied to newly accepted deposits. For deposits whose remaining maturity is short (less than one year), the carrying amount is presented as the fair value since the fair value approximates the carrying amount. Cash collateral received under securities lending The carrying amount is presented as the fair value since the fair value approximates the carrying amount because the remaining contractual term is short (less than one year). Borrowed money For borrowed money with variable interest rates reflecting the market interest rates in a short-term period, the carrying amount is presented as the fair value since the fair value approximates the carrying amount. For borrowed money with fixed interest rates, the fair value is determined using the present value discounted at an interest rate assumed if the new borrowing were made. For borrowed money with short contractual term (less than one year), the carrying amount is presented as the fair value since the fair value approximates the carrying amount. Derivative transactions: The fair value of derivatives is described in note 20. Derivatives. (Note 2) Securities whose fair value is extremely difficult to determine as of March 31, 2016 and Unlisted equity securities (*1) (*2) 2,721 2,446 $ 21,802 Investment in partnerships (*3) 5,627 7,011 62,492 Others 6,427 6,822 60,807 Total 14,776 16,280 $ 145,110 (*1) The fair value of unlisted equity securities is not disclosed since it is extremely difficult to identify their fair value. (*2) The Group recognized impairment losses on unlisted equity securities in an amount of 47 million and 6 million ($53 thousand) for the years ended March 31, 2016 and 2017, respectively. (*3) The fair value of investment in partnerships whose assets consist of securities such as unlisted equity securities whose fair value is extremely difficult to identify is not disclosed. 28

31 (Note 3) Repayment schedule of monetary receivables and securities with contractual maturities as of March 31, 2016 and 2017 Due after one year through three years Due after three years through five years Due after five years through seven years Due after seven years through ten years As of March 31, 2016 Due in one year or less Due after ten years Due from banks 540,553 Securities: 104, , , , , ,721 Held-to-maturity debt securities: 7,690 13,783 10,440 1,310 Government bonds Corporate bonds 7,390 13,368 10,440 1,310 Other securities with maturity: 96, , , , , ,721 Government bonds 45, , , ,000 25, ,000 Municipal bonds 27,177 79,396 47,122 22,847 38,896 4,110 Corporate bonds 11,165 57,541 43,722 17,339 10,141 19,748 Loans and bills discounted 705, , , , , ,907 Total 1,350, , , , , ,629 Due after one year through three years Due after three years through five years Due after five years through seven years Due after seven years through ten years As of March 31, 2017 Due in one year or less Due after ten years Due from banks 506,555 Securities: 160, , , , , ,525 Held-to-maturity debt securities: 6,773 17,034 16,536 1, Government bonds 400 Corporate bonds 6,358 17,034 16,536 1, Other securities with maturity: 153, , , , , ,525 Government bonds 96, , , ,000 40, ,000 Municipal bonds 31,431 72,382 38,083 25,665 40,690 3,000 Corporate bonds 18,923 62,290 22,062 17,734 6,844 28,609 Loans and bills discounted 726, , , , , ,391 Total 1,393, , , , , ,916 Due after one year through three years Due after three years Due after five through five years through years seven years Due after seven years through ten years As of March 31, 2017 Due in one year or less Due after ten years Due from banks $ 4,515,152 $ $ $ $ $ Securities: 1,426,963 3,938,185 2,824,850 2,377,930 2,884,347 1,421,918 Held-to-maturity debt securities: 60, , ,392 13,637 1,782 Government bonds 3,565 Corporate bonds 56, , ,392 13,637 1,782 Other securities with maturity: 1,366,583 3,786,353 2,677,457 2,364,292 2,882,565 1,421,918 Government bonds 860,147 2,192,708 1,640,074 1,515, ,538 1,042,873 Municipal bonds 280, , , , ,688 26,740 Corporate bonds 168, , , ,071 61, ,004 Loans and bills discounted 6,474,988 4,681,335 4,082,841 2,222,221 2,645,966 4,834,575 Total $12,417,113 $8,619,529 $6,907,692 $4,600,151 $5,530,314 $6,256,493 (Note 4) Repayment schedule of borrowed money and other interest bearing liabilities as of March 31, 2016 and 2017 Due after one year through three years Due after three years through five years Due after five years through seven years Due after seven years through ten years As of March 31, 2016 Due in one year or less Due after ten years Deposits (*1) 3,266, ,484 46,983 Cash collateral received under securities lending 278,390 Borrowed money 81, , ,457 Total 3,626, , ,440 29

32 Notes to the Consolidated Financial Statements THE SAN-IN GODO BANK, LTD. AND CONSOLIDATED SUBSIDIARIES Due after one year through three years Due after three years through five years Due after five years through seven years Due after seven years through ten years As of March 31, 2017 Due in one year or less Due after ten years Deposits (*1) 3,406, ,029 52,578 Cash collateral received under securities lending 410,793 Borrowed money 34, , ,305 Total 3,852, , ,883 Due after one year through three years Due after three years Due after five through five years through years seven years Due after seven years through ten years As of March 31, 2017 Due in one year or less Due after ten years Deposits (*1) $30,367,715 $4,260,887 $ 468,651 $ $ $ Cash collateral received under securities lending 3,661,583 Borrowed money 309, ,751 3,345,262 Total $34,339,201 $5,154,639 $3,813,913 $ $ $ (*1) Demand deposits included in Deposits are presented under Due in one year or less. 17. Fair Value of Securities (1) Trading securities Net holding gain (loss) resulting from revaluation of trading securities as of March 31, 2016 and 2017 were 0 million and (2) million ($(17) thousand), respectively. (2) Held-to-maturity securities The carrying value and fair value of held-to-maturity securities and the related unrealized gain (loss) as of March 31, 2016 and 2017 are summarized as follows: As of March 31, 2016 Carrying value Fair value Difference Gains Losses Government bonds Corporate bonds 32,508 32, (60) Others (0) (0) Total 33,223 33, (60) As of March 31, 2017 Carrying value Fair value Difference Gains Losses Government bonds Corporate bonds 41,663 41,455 (208) 46 (254) Others (0) (0) Total 42,079 41,871 (207) 46 (254) As of March 31, 2017 Carrying value Fair value Difference Gains Losses Government bonds $ 3,565 $ 3,565 $ 0 $ 0 $ Corporate bonds 371, ,507 (1,853) 410 (2,264) Others (0) (0) Total $375,069 $373,215 $ (1,845) $410 $ (2,264) (3) Other securities The carrying value and acquisition cost of other securities as of March 31, 2016 and 2017 are summarized as follows: As of March 31, 2016 Carrying value Acquisition cost Difference Gains Losses Equity securities 53,173 34,358 18,814 20,096 (1,281) Debt securities: 1,355,274 1,284,070 71,203 71,218 (15) Government bonds 964, ,989 60,337 60,337 Municipal bonds 226, ,971 6,291 6,306 (14) Corporate bonds 164, ,110 4,573 4,575 (1) Others 403, ,401 18,484 20,410 (1,926) Total 1,812,333 1,703, , ,725 (3,223) 30

33 As of March 31, 2017 Carrying value Acquisition cost Difference Gains Losses Equity securities 54,504 32,913 21,590 23,502 (1,911) Debt securities: 1,278,258 1,226,889 51,369 51,713 (344) Government bonds 902, ,581 44,389 44,389 Municipal bonds 215, ,525 3,571 3,899 (327) Corporate bonds 160, ,783 3,408 3,424 (16) Others 529, ,706 6,829 11,719 (4,890) Total 1,862,298 1,782,509 79,789 86,935 (7,145) Acquisition As of March 31, 2017 Carrying value cost Difference Gains Losses Equity securities $ 485,818 $ 293,368 $192,441 $209,483 $ (17,033) Debt securities: 11,393,689 10,935, , ,941 (3,066) Government bonds 8,048,578 7,652, , ,659 Municipal bonds 1,917,256 1,885,417 31,829 34,753 (2,914) Corporate bonds 1,427,854 1,397,477 30,377 30,519 (142) Others 4,719,983 4,659,114 60, ,456 (43,586) Total $16,599,500 $15,888,305 $711,195 $774,890 $ (63,686) The components of net unrealized gain on other securities are summarized as follows: Gross valuation difference 108,502 79,789 $ 711,195 Deferred tax assets (23) (205) Deferred tax liabilities (32,870) (24,250) (216,151) Net unrealized gain on other securities before adjustment for non-controlling interests 75,632 55, ,821 Non-controlling interests (542) (64) (570) Net unrealized gain on other securities 75,089 55,449 $ 494,241 When the decline in fair value is 50% or more of the carrying value of securities, loss on impairment is recognized at the amount of the decline without exception. When a decline in fair value is less than 50% but 30% or more of the carrying value and one of the following conditions is met, a loss on impairment is recognized: 1) For equity securities or investment trusts, fair value has never been above 70% of the acquisition cost for the past one year, or 2) For equity securities, the company issuing the equity securities has reported negative net assets or has recorded a net loss for the past two consecutive years, or 3) For debt securities, a decline in fair value is attributable to an increase in credit risk, not an increase in the interest rate. For the year ended March 31, 2016, loss on impairment of 143 million was recorded. For the year ended March 31, 2017, there was no loss on impairment of such securities. 18. Held to Maturity and Other Securities Sold Held-to-maturity securities sold during the years ended March 31, 2016 and 2017 are summarized as follows: Cost of sales 500 1,040 $ 9,269 Proceeds from sales 500 1,044 9,305 Gain on sales The securities were sold due to redemption by the issuer during the years ended March 31, 2016 and Other securities sold during the years ended March 31, 2016 and 2017 are summarized as follows: Proceeds from sales 37, ,877 $1,059,604 Gain on sales 2,167 3,385 30,172 Loss on sales 430 5,315 47,374 31

34 Notes to the Consolidated Financial Statements THE SAN-IN GODO BANK, LTD. AND CONSOLIDATED SUBSIDIARIES 19. Money Held in Trust The carrying value of money held in trust for the purpose of securities trading as of March 31, 2016 and 2017 and the related net holding gain (loss) for the years then ended are as follows: Carrying value 6,497 3,996 $ 35,618 Net holding gain (loss) (8) 20. Derivatives Derivatives to which Hedge Accounting is Not Applied With respect to derivatives to which hedge accounting is not applied, contract amount or notional principal, fair value and related gains or losses and calculation method of the fair value are as follows: Note that the contract amount does not represent the market risk exposure associated with the derivative transactions. (1) Currency-related transactions Contract amount As of March 31, 2016 Total Over one year Fair value Gains (losses) Over-the-counter Currency swaps 23,445 20, Forward foreign exchange contracts: Sold 29,279 1,464 1,464 Bought 723 (21) (21) Currency options: Sold 50,730 (928) (130) Bought 50, Total 1,516 1,638 Contract amount As of March 31, 2017 Total Over one year Fair value Gains (losses) Over-the-counter Currency swaps 26,785 19, Forward foreign exchange contracts: Sold Bought 1,033 (0) (0) Currency options: Sold 26,053 (479) 215 Bought 26, (190) Total Contract amount As of March 31, 2017 Total Over one year Fair value Gains (losses) Over-the-counter Currency swaps $238,746 $174,106 $ 686 $ 686 Forward foreign exchange contracts: Sold 5, Bought 9,207 (0) (0) Currency options: Sold 232,222 (4,269) 1,916 Bought 232,222 4,269 (1,693) Total $ 704 $ 918 Notes: 1. Above transactions are stated at fair value and the related gains (losses) are reported in the consolidated statements of income. 2. The fair value is determined using the discounted present value. Derivatives to which Hedge Accounting is Applied With respect to derivatives to which hedge accounting is applied, contract amount or notional principal, fair value and calculation method of the fair value are as follows: Note that the contract amount does not represent the market risk exposure associated with the derivative transactions. 32

35 (1) Interest-related transactions As of March 31, 2016 Contract amount Hedge accounting method Type of derivatives Major hedged items Total Over one year Fair value Special treatment for interest rate swaps Interest rate swaps: Receive-floating/ Pay-fixed Loans 43,323 33,397 (Note 3) Total As of March 31, 2017 Contract amount Hedge accounting method Type of derivatives Major hedged items Total Over one year Fair value Special treatment for interest rate swaps Interest rate swaps: Receive-floating/ Pay-fixed Loans 31,997 20,461 (Note 3) Total As of March 31, 2017 Contract amount Hedge accounting method Type of derivatives Major hedged items Total Over one year Fair value Special treatment for interest rate swaps Interest rate swaps: Receive-floating/ Pay-fixed Loans $285,203 $182,378 (Note 3) Total $ Notes: 1. These transactions are principally accounted for under the deferral hedge method in accordance with JICPA Industry Audit Committee Report No. 24 issued on February 13, The fair value of above transactions is determined using the discounted present value or option pricing models, etc. 3. The fair value of interest rate swaps which qualify for hedge accounting and meet specific matching criteria (special treatment for interest rate swaps) is calculated together with the fair value of loans. Therefore, the fair value of such interest rate swaps is not presented here, but is included in the fair value of loans. (2) Currency-related transactions As of March 31, 2016 Contract amount Hedge accounting method Type of derivatives Major hedged items Total Over one year Fair value Currency swaps 9,014 9, Deposits, call loans, Normal method Forward foreign and call money exchange contracts 271,636 (1,029) Total (757) As of March 31, 2017 Contract amount Hedge accounting method Type of derivatives Major hedged items Total Over one year Fair value Currency swaps 8,975 8, Deposits and Normal method Forward foreign securities exchange contracts 239,602 (1,247) Total (1,168) As of March 31, 2017 Contract amount Hedge accounting method Type of derivatives Major hedged items Total Over one year Fair value Currency swaps $ 79,998 $ 79,998 $ 695 Deposits and Normal method Forward foreign securities exchange contracts 2,135,680 (11,115) Total $ (10,410) Notes: 1. These transactions are principally accounted for under the deferral hedge method in accordance with JICPA Industry Audit Committee Report No. 25 issued on July 29, The fair value is determined using the discounted present value. 33

36 Notes to the Consolidated Financial Statements THE SAN-IN GODO BANK, LTD. AND CONSOLIDATED SUBSIDIARIES 21. Employees Retirement Benefits The Group has funded and unfunded defined benefit plans and defined contribution plans. Under the defined benefit pension plans (all of which are funded), a lump-sum payment or pension is determined based on the salary and years of service and paid to the eligible employees. Regarding the defined pension benefit plans, cash balance plans are introduced and there is a notional account for each eligible employee which represents funded amount and principal of the pension amount. The balance in the notional account accumulates principal credits, which are determined based on salary level, and interest credits, which are determined based on the 10-year Government bond yields to subscribers. Under the lump-sum payment plans (all of which are unfunded), a lump-sum payment is determined based on the salary and years of service and paid to eligible employees. For lump-sum payment plans maintained by certain consolidated subsidiaries, liability for retirement benefits and retirement benefit expenses are determined by using the simplified method. (1) Defined benefit plans (a) Reconciliation of projected benefit obligations from beginning to ending balances for the years ended March 31, 2016 and Projected benefit obligations at the beginning of the year 40,571 42,667 $ 380,310 Service cost ,663 Interest cost ,255 Actuarial gains or losses incurred 3, Benefits paid (2,235) (2,259) (20,135) Prior service cost incurred Others 8 71 Projected benefit obligations at the end of the year 42,667 41,730 $ 371,958 (b) Reconciliation of plan assets from beginning to ending balances for the years ended March 31, 2016 and Plan assets at the beginning of the year 28,977 29,925 $ 266,735 Expected return on plan assets ,460 Actuarial gains or losses incurred 162 (547) (4,875) Contribution from the Bank 1, ,859 Benefits paid (1,305) (1,442) (12,853) Others Plan assets at the end of the year 29,925 29,207 $ 260,335 (c) Reconciliation of projected benefit obligations and plan assets at end, and net defined benefit liability and assets on the consolidated balance sheets as of March 31, 2016 and Projected benefit obligations of funded plans 31,717 31,151 $ 277,662 Plan assets (29,925) (29,207) (260,335) 1,792 1,943 17,318 Projected benefit obligations of unfunded plans 10,949 10,579 94,295 Net amount of liability 12,742 12,522 $ 111, Net defined benefit liability 12,742 12,522 $ 111,614 Net defined benefit asset Net amount of liability 12,742 12,522 $ 111,614 34

37 (d) Components of net retirement benefit expense for the years ended March 31, 2016 and Service cost $ 8,663 Interest cost ,255 Expected return on plan assets (579) (837) (7,460) Amortization of actuarial gains or losses 1,317 1,769 15,767 Amortization of prior service cost (51) (52) (463) Others (1) (1) (8) Net retirement benefit expense 1,961 2,104 $ 18,753 (e) Components of remeasurements of defined benefit plans (before income taxes) for the years ended March 31, 2016 and Prior service cost (51) (52) $ (463) Actuarial gains or losses (1,574) 1,133 10,098 Total (1,625) 1,081 $ 9,635 (f) Accumulated other comprehensive income for defined retirement benefit plans (before income taxes) as of March 31, 2016 and Unrecognized prior service cost $ 2,941 Unrecognized actuarial gains or losses (8,933) (7,799) (69,515) Total (8,551) (7,469) $ (66,574) (g) Plan assets The component ratio of plan assets as of March 31, 2016 and 2017 are as follows: Bonds 65.46% 66.42% Stocks 10.95% 13.32% Cash and deposits 5.51% 0.12% Others 18.05% 20.12% Total % % Long-term expected rate of return on plan assets is determined by considering the current/future expected allocation of plan assets and expected current/future return from various assets that compose plan assets. (h) Assumptions in accounting for retirement benefits for the years ended March 31, 2016 and Discount rate 0.59% 0.72% Long-term expected rate of return on plan assets 2.00% 2.80% Expected salary increase rate 3.00% 3.00% (2) Defined contribution plans Contribution paid to the plans by the Group during the year ended March 31, 2016 and 2017 were 137 million and 139 million ($1,238 thousand), respectively. 22. Stock Options (1) Operating expenses related to stock option plans for the years ended March 31, 2016 and 2017 were 147 million and 34 million ($303 thousand), respectively. 35

38 Notes to the Consolidated Financial Statements THE SAN-IN GODO BANK, LTD. AND CONSOLIDATED SUBSIDIARIES (2) Contents, volume and activity of the stock options: (a) The stock options outstanding as of March 31, 2017 Stock Option 2008 Stock Option 2009 Stock Option 2010 Stock Option 2011 Stock Option 2012 Stock Option 2013 Stock Option 2014 Stock Option 2015 Stock Option Persons Granted 17 directors 5 corporate auditors 17 directors 5 corporate auditors 17 directors 5 corporate auditors 8 directors 5 corporate auditors 10 executive officers 8 directors 5 corporate auditors 10 executive officers 8 directors 5 corporate auditors 10 executive officers 8 directors 5 corporate auditors 11 executive officers 8 directors 5 corporate auditors 10 executive officers Number of Options Granted 163,500 shares of common stock 180,700 shares of common stock 224,000 shares of common stock 258,000 shares of common stock 281,800 shares of common stock 202,100 shares of common stock 231,800 shares of common stock 122,000 shares of common stock Date of Grant Jul. 25, 2008 Jul. 23, 2009 Jul. 23, 2010 Jul. 26, 2011 Jul. 27, 2012 Jul. 26, 2013 Jul. 25, 2014 Jul. 24, 2015 Vesting Conditions and Service Period N/A N/A N/A N/A N/A N/A N/A N/A Exercise Period From Jul. 26, 2008 to Jul. 25, 2033 From Jul. 24, 2009 to Jul. 23, 2034 From Jul. 24, 2010 to Jul. 23, 2035 From Jul. 27, 2011 to Jul. 26, 2036 From Jul. 28, 2012 to Jul. 27, 2037 From Jul. 27, 2013 to Jul. 26, 2038 From Jul. 26, 2014 to Jul. 25, 2039 From Jul. 25, 2015 to Jul. 24, 2040 (b) The stock option volume and activity (i) Number of stock options (shares) 2008 Stock 2009 Stock 2010 Stock 2011 Stock 2012 Stock 2013 Stock 2014 Stock 2015 Stock Year Ended March 31, 2017 Option Option Option Option Option Option Option Option Non-vested: March 31, 2016 outstanding 23,600 35,700 66, , , , , ,000 Granted Forfeited 1,000 Vested 1,900 2,100 12,700 23,700 25,300 22,900 25,300 13,200 March 31, 2017 outstanding 21,700 33,600 54,100 84, , , , ,800 Vested: March 31, 2016 outstanding Vested 1,900 2,100 12,700 23,700 25,300 22,900 25,300 13,200 Exercised 1,900 2,100 12,700 23,700 25,300 22,900 25,300 13,200 Forfeited March 31, 2017 outstanding (ii) Unit price information 2008 Stock Option 2009 Stock Option 2010 Stock Option 2011 Stock Option 2012 Stock Option 2013 Stock Option 2014 Stock Option 2015 Stock Option Exercise price Average stock price at the time of exercise ,021 1, Fair value at the date of grant , Stock Option 2009 Stock Option 2010 Stock Option 2011 Stock Option 2012 Stock Option 2013 Stock Option 2014 Stock Option 2015 Stock Option Exercise price $ 0.00 $ 0.00 $ 0.00 $ 0.00 $ 0.00 $ 0.00 $ 0.00 $ 0.00 Average stock price at the time of exercise Fair value at the date of grant (3) Estimation method of the vested number of stock options Since it is difficult to estimate the number of forfeiture for the future, only the actual number of forfeited options is reflected. 36

39 23. Income Taxes Income taxes consist of corporation tax, inhabitant tax and enterprise tax. Major components of deferred tax assets and liabilities as of March 31, 2016 and 2017 are summarized as follows: Deferred tax assets: Reserve for possible loan losses 11,769 11,200 $ 99,830 Depreciation 1,137 1,172 10,446 Impairment loss on fixed assets 2,618 2,525 22,506 Write-offs of securities ,989 Net defined benefit liability 3,889 3,820 34,049 Tax loss carry-forwards ,738 Net deferred loss on hedging instruments 19 Others 2,438 2,295 20,456 Subtotal 22,860 21, ,044 Valuation allowances (3,045) (2,880) (25,670) Total deferred tax assets 19,815 19, ,373 Deferred tax liabilities: Reserve for deferred revenue of tangible fixed assets (94) (92) (820) Net unrealized gain on other securities (32,870) (24,250) (216,151) Net deferred gain on hedging instruments (16) (142) Others (47) (56) (499) Total deferred tax liabilities (33,012) (24,416) (217,630) Net deferred tax assets (liabilities) (13,197) (5,414) $ (48,257) A reconciliation of the statutory tax rate to the effective tax rate for the years ended March 31, 2016 and 2017 are as follows: Statutory tax rate 32.82% 30.69% Adjustment: Entertainment and other permanently non-deductible expenses Dividend and other permanently non-taxable income (0.87) (0.57) Changes in valuation allowances 0.30 (0.77) Decrease in deferred tax assets due to change in tax rates 4.42 Others Effective tax rate 38.11% 32.38% 24. Business Combinations and Related Disclosure For the year ended March 31, 2016 Not applicable For the year ended March 31, 2017 Transactions under common control (1) Acquisitions of treasury stock by consolidated subsidiaries (a) Overview of the transactions (i) Name and business of companies concerned with the transactions Name The Gogin System Services Co., Ltd. San-in Economics & Management Institute Co., Ltd. The Gogin Guaranty Co., Ltd. The Gogin Credit Co., Ltd. The San-in General Lease Co., Ltd. Business Others (Data processing, Data transmission service, Centralized monitoring service for ATMs, etc.) Others (Research of finance/economy, Information provision) Others (Credit guarantee service) Others (Credit card and credit guarantee service) Leasing (ii) Date of the transactions Name Date of the transaction The Gogin System Services Co., Ltd. April 5, 2016 San-in Economics & Management Institute Co., Ltd. May 10, 2016 The Gogin Guaranty Co., Ltd. July 29, 2016 The Gogin Credit Co., Ltd. September 21, 2016 The San-in General Lease Co., Ltd. December 12, 2016 and December 13,

40 Notes to the Consolidated Financial Statements THE SAN-IN GODO BANK, LTD. AND CONSOLIDATED SUBSIDIARIES (iii) Legal form of the transactions Acquisition of treasury stock by above five companies from other subsidiaries and non-controlling interests (iv) Company names after the transactions No change (v) Other items regarding overview of the transactions The above five subsidiaries implemented the acquisition of stock (acquisition of treasury stock) held by other than the Bank (other subsidiaries and non-controlling interests), for the purpose to enclose revenue and enhance the group management system by Strengthen Group Alliances, one of the key initiatives stated in the three-year medium-term management plan from FY 2015 to FY As a result of the acquisition, the ratio of voting rights held by the Bank to the four subsidiaries, The Gogin System Services Co., Ltd., San-in Economics & Management Institute Co., Ltd., The Gogin Guaranty Co., Ltd., and The Gogin Credit Co., Ltd., became 100%. The ratio of voting rights owned by the Bank to The San-in General Lease Co., Ltd. became 94.99%. (b) Overview of accounting method applied The transactions are treated as transactions with non-controlling interests under common control in accordance with the ASBJ Statement No. 21, Accounting Standard for Business Combinations and the ASBJ Guidance No. 10, Guidance on Accounting Standard for Business Combinations and Accounting Standard for Business Divestitures both issued on September 13, (c) Additional investment in subsidiaries Acquisition cost and breakdown by consideration Acquisition cost 13,204 million ($ 117,693 thousand) Consideration for the acquisition Cash and due from banks 13,204 million ($ 117,693 thousand) (d) Matters concerning the change in the Bank's equity interest resulted from the transactions with non-controlling interests (i) Reason for the change The acquisition cost of subsidiaries shares from non-controlling interests was lower than the decrease in the non-controlling interests. (ii) Increase in capital surplus resulted from the transactions with non-controlling interests 5,865 million ($ 52,277 thousand) (2) Mergers between consolidated subsidiaries (a) Overview of the combinations (i) Name and business of companies concerned with the combinations Combining company Name The San-in Office Services Co., Ltd. Business Others (Document/voucher preparation and storage service, Centralized processing service of banking business) Combined companies Name The Gogin Staff Services Co., Ltd. The Gogin System Services Co., Ltd. Business Others (Calculation service) Others (Data processing, Data transmission service, Centralized monitoring service for ATMs, etc.) (ii) Date of the business combinations Merger of The San-in Office Services Co., Ltd. and The Gogin Staff Services Co., Ltd. : April 1, 2016 Merger of The San-in Office Services Co., Ltd. and The Gogin System Services Co., Ltd. : July 1, 2016 (iii) Legal form of the business combinations Absorption-type merger between The San-in Office Services Co., Ltd. and The Gogin Staff Services Co., Ltd. Absorption-type merger between The San-in Office Services Co., Ltd. and The Gogin System Services Co., Ltd. (iv) Company name after the combinations The San-in Office Services Co., Ltd. (No change) (v) Other items related to overview of the combinations The purpose was enhancement of group management efficiency. 38

41 (b) Overview of accounting method applied The combinations are treated as transactions under common control, in accordance with the ASBJ Statement No. 21, Accounting Standard for Business Combinations and the ASBJ Guidance No. 10, Guidance on Accounting Standard for Business Combinations and Accounting Standard for Business Divestitures all of those issued on September 13, Asset Retirement Obligations The Group s asset retirement obligations consist primarily of obligations to remove hazardous material (asbestos) used in construction of the buildings and obligations pursuant to real estate rental agreement to restore the property to its original state. The asset retirement obligations are calculated using the expected useful lives of the buildings of 2 to 39 years and discount rate of 0.00% to 2.26%. Changes of asset retirement obligations during the years ended March 31, 2016 and 2017 are as follows: Balance at the beginning of the year $ 3,315 Increase due to purchase of tangible fixed assets Changes due to the passage of time Decrease due to fulfillment of obligations 12 Balance at the end of the year $ 3, Segment Information The Group has two reportable segments based on the service: Banking and Leasing. Banking is the main segment of the Group and consists of deposit business, loan business, securities investment business, exchange business, etc. Leasing consists of leasing business conducted by The San-in General Lease Co., Ltd., a consolidated subsidiary. The accounting policies applied in calculating ordinary income, profit or loss, assets and liabilities, etc. by segment are generally the same as those described in note 2. Summary of Significant Accounting Policies. The inter-segment income is based on the arm s length price. Ordinary income, profit or loss, assets and liabilities, etc. by segment for the years ended March 31, 2016 and 2017 are as follows: Reportable segments Others Adjustments Year ended March 31, 2016 Banking Leasing Total (Note 2) Total (Note 3) Consolidated Ordinary income: Customers 76,502 13,483 89,985 1,519 91,504 (28) 91,476 Inter-segment ,176 3,023 4,199 (4,199) Total 77,124 14,037 91,161 4,542 95,704 (4,228) 91,476 Segment profit 21, , ,813 (326) 22,486 Segment assets 5,132,848 43,943 5,176,792 18,907 5,195,699 (35,142) 5,160,556 Segment liabilities 4,783,275 30,064 4,813,340 5,015 4,818,355 (31,527) 4,786,828 Other items: Depreciation 2, , ,708 2,708 Interest income 62, , ,693 (366) 62,326 Interest expenses 8, , ,391 (172) 8,219 Extraordinary gains: Gain on disposals of fixed assets Extraordinary losses: Loss on disposals of fixed assets Impairment loss Tax expenses 7, , ,296 (43) 8,252 39

42 Notes to the Consolidated Financial Statements THE SAN-IN GODO BANK, LTD. AND CONSOLIDATED SUBSIDIARIES Reportable segments Others Adjustments Year ended March 31, 2017 Banking Leasing Total (Note 2) Total (Note 3) Consolidated Ordinary income: Customers 77,306 14,637 91,944 1,802 93,746 93,746 Inter-segment 591 1,368 1,959 3,568 5,527 (5,527) Total 77,898 16,005 93,903 5,370 99,273 (5,527) 93,746 Segment profit 19,450 1,936 21,386 1,114 22,501 (1,938) 20,562 Segment assets 5,387,459 45,464 5,432,924 18,515 5,451,440 (39,967) 5,411,472 Segment liabilities 5,048,411 40,879 5,089,291 5,800 5,095,091 (36,466) 5,058,625 Other items: Depreciation 2, , ,664 2,664 Interest income 63, , ,400 (197) 63,202 Interest expenses 8, , ,190 (144) 9,045 Extraordinary gains: Gain on disposals of fixed assets Extraordinary losses: Loss on disposals of fixed assets Impairment loss Tax expenses 5, , ,622 (26) 6,595 Reportable segments Others Adjustments Year ended March 31, 2017 Banking Leasing Total (Note 2) Total (Note 3) Consolidated Ordinary income: Customers $ 689,063 $ 130,466 $ 819,538 $ 16,062 $ 835,600 $ $ 835,600 Inter-segment 5,267 12,193 17,461 31,803 49,264 (49,264) Total 694, , ,999 47, ,864 (49,264) 835,600 Segment profit 173,366 17, ,623 9, ,561 (17,274) 183,278 Segment assets 48,020, ,241 48,426, ,032 48,591,140 (356,243) 48,234,887 Segment liabilities 44,998, ,372 45,363,142 51,698 45,414,840 (325,037) 45,089,803 Other items: Depreciation 19,458 3,306 22, ,745 23,745 Interest income 564, , ,112 (1,755) 563,347 Interest expenses 80,176 1,604 81, ,914 (1,283) 80,622 Extraordinary gains: Gain on disposals of fixed assets Extraordinary losses: 2,442 2, ,451 2,451 Loss on disposals of fixed assets Impairment loss 2,157 2, ,165 2,165 Tax expenses 52,241 4,046 56,297 2,727 59,024 (231) 58,784 Notes: 1. Ordinary income is presented instead of sales of general companies. 2. Others include business segments other than reportable segments such as credit guarantee business and securities services. 3. Adjustments includes as follows: (1) Adjustment for customers ordinary income of (28) million for the year ended March 31, 2016 represents reversal of reserve for possible loan losses of Leasing segment. (2) Adjustments for segment profit of (326) million and (1,938) million ($(17,274) thousand) for the years ended March 31, 2016 and 2017, respectively, represent elimination of inter-segment transactions. (3) Adjustments for segment assets of (35,142) million and (39,967) million ($(356,243) thousand) as of March 31, 2016 and 2017, respectively, represent elimination of inter-segment balances. (4) Adjustments for segment liabilities of (31,527) million and (36,466) million ($(325,037) thousand) as of March 31, 2016 and 2017, respectively, represent elimination of inter-segment balances. (5) Adjustments for interest income of (366) million and (197) million ($(1,755) thousand) for the years ended March 31, 2016 and 2017, respectively, represent elimination of inter-segment transactions. (6) Adjustments for interest expenses of (172) million and (144) million ($(1,283) thousand) for the years ended March 31, 2016 and 2017, respectively, represent elimination of inter-segment transactions. (7) Adjustments for tax expenses of (43) million and (26) million ($(231) thousand) for the years ended March 31, 2016 and 2017, respectively, represent income taxes deferred related to elimination of inter-segment transactions. 40

43 Related Information (1) Information by service Income from customers Loans Securities investment Leasing Others Total Year ended March 31, ,114 28,355 13,483 15,522 91,476 Year ended March 31, ,461 31,306 14,637 14,341 93,746 Securities Income from customers Loans investment Leasing Others Total Year ended March 31, 2017 $ 298,252 $ 279,044 $ 130,466 $ 127,827 $ 835,600 (2) Geographical information (a) Ordinary income As the Group s ordinary income from customers in Japan accounts for over 90% of ordinary income, disclosure by location is omitted. (b) Tangible fixed assets As the Group s tangible fixed assets located in Japan account for over 90% of tangible fixed assets presented in the consolidated balance sheets, disclosure by location is omitted. (3) Information by major customers As no single customer accounts for over 10% of ordinary income, disclosure by major customers is omitted. Information on Impairment Loss on Fixed Assets by Reportable Segment Reportable segments Impairment loss Banking Leasing Total Others Total Year ended March 31, Year ended March 31, Reportable segments Impairment loss Banking Leasing Total Others Total Year ended March 31, 2017 $ 2,157 $ $ 2,157 $ 0 $ 2, Related Party Transactions Transactions with the Bank s directors, corporate auditors, executive officers and their relatives include loans receivable and guarantees. These transactions totaled 2,596 million and 5,341 million ($47,606 thousand) for the years ended March 31, 2016 and 2017, respectively. The balances of the loans receivable from these parties totaled 2,172 million and 2,565 million ($22,863 thousand) at March 31, 2016 and 2017, respectively. The terms of these transactions were determined on an arm s-length basis. 28. Amounts per Share Yen Net assets per share 2, , $ Profit per share: Basic $ 0.76 Diluted The basis for the calculation of net assets per share as of March 31, 2016 and 2017 are summarized as follows: Net assets 373, ,846 $ 3,145,075 Deduction: Subscription rights to shares ,189 Non-controlling interests 18,098 1,287 11,471 Net assets attributable to shares of common stock 355, ,088 3,129,405 Number of shares of common stock outstanding 158, ,864 thousand thousand Regarding the calculation of net assets per share, the shares of the Bank owned by Board Benefit Trust ( BBT ) and recognized as treasury stock(599 thousand shares) are included in the treasury stock and deducted from the number of shares of common stock outstanding as of March 31,

44 Notes to the Consolidated Financial Statements THE SAN-IN GODO BANK, LTD. AND CONSOLIDATED SUBSIDIARIES The basis for the calculation of profit per share for the years ended March 31, 2016 and 2017 are summarized as follows: Profit attributable to owners of the Bank 12,911 13,399 $119,431 Amount not attributable to common shareholders Profit attributable to common shareholders 12,911 13, ,431 Average number of shares of common stock outstanding 159, ,131 thousand thousand Average number of shares of dilutive common stock thousand thousand Regarding the calculation of profit per share, the shares of the Bank owned by Board Benefit Trust ( BBT ) and recognized as treasury stock(300 thousand shares in average number), are included in the treasury stock deducted from the average number of shares of common stock outstanding for the year ended March 31, Shareholders Equity and Net Assets In accordance with the Banking Act of Japan, the Bank has provided a legal reserve by appropriation of retained earnings. The Banking Act of Japan provides that an amount equivalent to at least 20% of the amount to be disbursed as distributions of earnings be appropriated to the legal reserve until the total of such reserve and the capital surplus equals 100% of the common stock. The Act provides that neither additional paid-in capital nor the legal reserve are available for dividends, but both may be used to reduce or eliminate a deficit by resolution of the shareholders or may be transferred to common stock by resolution of the Board of Directors. The Act also provides that if the total amount of additional paid-in capital and the legal reserve exceeds 100% of the amount of common stock, the excess may be distributed to the shareholders either as a return of capital or as dividends subject to the approval at the shareholders meeting. 42

45 43

46 Corporate Data (As of March 31, 2017) Head Office... 10, Uomachi, Matsue, Shimane , Japan Tel: [Management Planning Dept.] SWIFT: SGBKJPJT Date of Establishment... July 1, 1941 Number of Employees... 1,995 Number of Shares Authorized ,021,000 Issued and Outstanding ,977,472 Number of Shareholders... 14,155 Paid-in Capital... 20,705 million Stock Listings... Tokyo Stock Exchange Overseas Representative Offices Dalian Overseas Representative Office 22/F Dalian Senmao Building, 147 Zhongshan Road, Xigang District, Dalian, China P.C.: Tel: Shanghai Overseas Representative Office 15/F Hang Seng Bank Tower, 1000 Lujiazui Ring Road, Pudong New Area, Shanghai Tel: Bangkok Overseas Representative Office 952 Ramaland Building, 13th Floor, Rama IV Road, Suriyawonge, Bangrak, Bangkok 10500, Thailand Tel: Consolidated Subsidiaries Name of Company (As of July 1, 2017) Capital ( million) Equity (%) Line of Business The Matsue Real Estate Co., Ltd Real estate leasing services The Gogin Business Services Co., Ltd Collection, delivery, sorting and safekeeping of cash/ checks; maintenance and management of ATMs The Gogin Agency Co., Ltd Bank agency service The San-in Office Services Co., Ltd Integrated processing associated with deposits, loans, public funds, currency exchanges and account transfer Gogin Securities Co., Ltd. 3, Securities business The San-in Servicing Co., Ltd Bad loan collection The San-in General Lease Co., Ltd Leasing The Gogin Guaranty Co., Ltd Credit guarantee service The Gogin Credit Co., Ltd Credit guarantee service and service for card member stores San-in Economics & Management Institute Co., Ltd The Gogin Capital Co., Ltd Research on the regional economy and development, management consulting and publishing Consulting on the acquisition, safekeeping and sale of securities; corporate diagnosis and management consulting 44

47 Organization Chart (As of July 1, 2017) The San-in Godo Bank General Meeting of shareholders Board of Directors Chairman and Representative Director Outside Directors Executive Officers Head Office Business Dept. Tottori Business Dept. President and Representative Director Representative Directors Directors Executive Committee Directors who also serve as Executive Officers and Managing Executive Officers Executive Officers Regional Headquarters Tottori, Yonago, Iwami, Sanyo, Hyogo-Osaka Domestic Branches Board of Corporate Auditors Corporate Auditors Corporate Auditors (Outside Auditor) Internal Audit Dept. Management Planning Dept. Compliance and Risk Management Dept. Personnel Dept. Business Planning & Promotion Dept. Regional Development Dept. Customer Service Dept. Credit Screening Dept. Money and Capital Markets Dept. Operations Administration Dept. Systems Dept. General Operations Center Subsidiaries The San-in Office Services Co., Ltd. The Gogin Guaranty Co., Ltd. The Matsue Real Estate Co., Ltd. Gogin Securities Co., Ltd. The Gogin Credit Co., Ltd. The Gogin Business Services Co., Ltd. The San-in Servicing Co., Ltd. San-in Economics & Management Institute Co., Ltd. The Gogin Agency Co., Ltd. The San-in General Lease Co., Ltd. The Gogin Capital Co., Ltd. Directors, Corporate Auditors and Executive Officers (As of June 22, 2017) Directors Ichiro Kubota Chairman and Representative Director Fumio Ishimaru President and Representative Director Toru Yamasaki Director and Representative Director Nobuharu Sugihara Director and Representative Director Hiroyoshi Asano Director Hideto Tago Director (Outside Director) Choemon Tanabe Director (Outside Director) Koichiro Fukui Director (Outside Director) Corporate Auditors Ikuo Amano Corporate Auditor Takashi Yoshida Corporate Auditor Michihiro Kawamoto Corporate Auditor (Outside Auditor) Shoichi Imaoka Corporate Auditor (Outside Auditor) Tamaki Adachi Corporate Auditor (Outside Auditor) Executive Officers Fumio Ishimaru President and Chief Executive Officer Toru Yamasaki Senior Managing Executive Officer Nobuharu Sugihara Senior Managing Executive Officer Hiroyoshi Asano Senior Managing Executive Officer Masaya Agawa Managing Executive Officer Yasuhiro Imawaka Managing Executive Officer Mutsuto Seida Managing Executive Officer Tsukasa Obara Managing Executive Officer Hideaki Furuyama Executive Officer Tsukasa Inuyama Executive Officer Yasuharu Yano Executive Officer Tetsuya Anjiki Executive Officer Ichiro Yamane Executive Officer Yoshiaki Yata Executive Officer Yuji Funo Executive Officer 45

48 Front entrance, former head office of San-in Godo Bank About the Cover THE SAN-IN GODO BANK, LTD. Management Planning Department 10, Uomachi, Matsue, Shimane , Japan Tel Fax URL. The cover illustration was created by employees of Gogin Challenged Matsue, a specialist business office operated by San-in Godo Bank to provide work opportunities for the mentally challenged. People who work at Gogin Challenged Matsue mainly produce artwork.