THE HOKKOKU BANK A n n u a l R e p o r t

Transcription

1 THE HOKKOKU BANK A n n u a l R e p o r t

2 BANK PROFILE FINANCIAL HIGHLIGHTS As of March 31 3,500,000 3,000,000 3,135,693 ($26,562,414) 3,009,764 2,789,412 ($23,629,072) 2,702,163 2,500,000 2,000,000 2,072,984 2,049,125 ($17,560,220) 1,500,000 1,000, ,869 ($6,386,014) 743, , ,202 ($1,848,386) 211,382 Hokkoku Bank is a regional financial institution centered in lshikawa prefecture, on the Sea of Japan coast in central Honshu, Japan's main island. The Bank s headquarters is in Kanazawa, the region's largest city. Its business is concentrated in the prefectures of lshikawa, Toyama, and Fukui, known collectively as Hokuriku. Hokkoku Bank branches cover this entire region, complemented by offices in the major Japanese cities of Tokyo, Osaka, Nagoya and Kyoto. As of March 31 80,000 60,000 40,000 Assets 78,418 ($664,279) Loans and Bills Discounted 74,418 Securities and Trading Securities Deposits Shareholders' Equity Hokkoku Bank was created by the merger of three lshikawa prefecture banks in 1943, and has grown steadily ever since. Today it is widely regarded as one of the most financially sound of Japan's 64 regional banks,with the closest ties to local communities and residents. 20,000 Income 4,315 ($36,552) 12,852 Income before Income Taxes and Minority Interests 3,125 ($26,471) 6,102 Net Income Hokkoku Bank began handling foreign exchange business in 1961; in the ensuing 45 years, it has continued to expand its correspondent bank network and formed tieups with banks around the world. The Bank's overseas offices help our clients track international financial trends and support their overseas activities. As of March 31,, the Bank and its consolidated subsidiaries had 127 branch(123 in Hokuriku) and 9 subsidiaries, 1,926 employees, total assets of 3,135,693 million (US$26,562 million), and total shareholders equity of 173,197 million(us$1,467 million). U.S. dollar amounts are translated at the rate of =$1.00 CONTENTS A Message to our Shareholders Management Policies Report of Independent Auditors Consolidated Financial Statements Board of Directors and Auditors Offices and Subsidiaries FORWARDLOOKING STATEMENTS This annual report contains certain forwardlooking statements about Hokkoku Bank's future, including outlooks, plans, forecasts, results, etc. All such forwardlooking statements are the result of judgments predicated upon information available to the Bank at the time of the Annual Report's publication. Unknown risks and uncertainties may in the future cause actual results to differ significantly from any projections presented in the Bank's Annual Report. Such risks and uncertainties include, but are not limited to, economic conditions in which the Bank must do business, pressures from competitive activities, changes in laws and/or regulations, development of new products and elimination of old ones, and fluctuation of exchange rates. 1

3 A MESSAGE TO OUR SHAREHOLDERS Thank you for your support of Hokkoku Bank. continuing support and guidance. First of all, I would like to express my heartfelt sympathy July to those who were affected by the Noto Peninsula earthquake that occurred in March, and hope for their earliest possible recovery from the disaster. I invite you to read through the Hokkoku Bank Disclosure Document, which we have prepared to deepen understanding of the Bank among our stakeholders. We have been working on a mediumterm business plan entitled Three Steps Up 2009 Cherishing Tradition while Championing Innovation since April In Tateki Ataka President accordance with this plan, we are aiming to improve our three attributes of speed, quality and. This will help to establish a customercentered approach among our employees as part of our corporate culture, and will establish a relationship of trust with our stakeholders. We will work together with our staff to implement our plan and contribute to the development of the local community, while ensuring sound management of the bank. In all these endeavors, we would be grateful for your 2

4 MANAGEMENT POLICIES Speeding Up as the First Step Towards Innovation We launched a mediumterm business plan entitled Three Steps Up 2009 Cherishing Tradition while Championing Innovation for the three years from April 2006 to March In accordance with the three basic policies set out in the plan, customercentered approach, earning trust in the region and ensuring job satisfaction for our employees, we plan to improve our three attributes of speed, quality and. In the last fiscal year, we focused on speeding up. We worked on speeding up our response to customers; replying to inquiries, providing advice, replying to applications for loans, and business decisions. As a result of our efforts over the course of one year, Hokkoku Bank is said to have changed, and our processing takes less time than before. Nurturing of Human Resources for Highquality Service In the second year of the plan, we aim to offer highquality service for CS (customer satisfaction). In order to meet this target, we will nurture our human resources, improve their skills and compliance awareness, and speed up operation. Our customers have diversified service needs in addition to the basic ones such as deposits, currency exchange and loans. For example, for corporate customers, we offer support for public stock offering, M&A and business succession, Defined Contribution Pension Plan, and so on, as solutions for secure business management and development. As for individual customers, we offer highlevel advice as financial professionals, including support for financial operations and asset management. Bank staff are required to have not only wideranging financial knowledge, but also a sense for understanding customers vague ideas and cultural accomplishments as partners who can be relied on. We have sent our employees to New York, Singapore, Shanghai and other overseas financial centers to gain professional skills and a global outlook. Our customers have been exempt from afterhours and holiday ATM bank charge since April and will be completely free from ATM bank charge on FIT Net ATMs through tieup with The Fukui Bank and First Bank of Toyama beginning in October. This is the first such attempt by regional banks in Japan. We will place new ATMs with biometric recognition functions in almost all of our branches (approx. 450 units) by March We have launched multione cards that combine the functions of cash cards, credit cards and loan cards. In addition, we will provide various innovative services such as asset management seminars for pensioners. Support to Local Communities and Contribution to Society Regional communities are facing serious problems such as exodus of people to metropolitan areas, regional differences, low birthrate and aging of society. These problems are serious for the future development of local banks. We have been engaged in various activities that have contributed to society, particularly activities related to culture, education, sports and the environment. Donations to the Ishikawa Child Support Foundation are one such example. We will continue to contribute to the development of regional communities through our services and provision of information. In so doing, we aim to serve as a reliable bridge to a prosperous future. We would like to promote mutual understanding with our customers, based on our long history of business operation and sound management. Free Afterhours ATM Fees 3

5 REPORT OF INDEPENDENT AUDITORS 4

6 CONSOLIDATED BALANCE SHEETS The Hokkoku Bank, Ltd. and Consolidated Subsidiaries Year ended March 31, Assets Cash and due from banks (Notes 10 and 12) Call loans Monetary receivables bought Trading securities Money trusts (Note 8) Securities (Notes 7 and 12) Loans and bills discounted (Note 6) Foreign exchange Other assets (Note 12) Premises and equipment Tangible fixed assets (Note 11 and 12) Intangible fixed assets Deferred tax assets (Note 16) Customers' liabilities for acceptances and guarantees Reserve for possible loan losses assets 49, ,362 13, , ,438 2,072,984 2,143 19,683 64,379 2,915 10,944 27,543 (34,850) 3,135,693 (Millions of Yen) ,632 35,403 6, , ,763 2,049,125 2,247 18,852 66,160 10,086 28,417 (32,782) 3,009,764 U.S Dollars) (Notes 2) $ 420,110 1,146, ,585 3, ,057 6,382,371 17,560,226 18, , ,358 24,699 92, ,316 (295,218) 26,562,415 Liabilities: Deposits (Note 12) Call money Guarantee deposit received under securities lending transactions (Note 12) Borrowed money Foreign exchange Bonds Other liabilities Reserve for bonuses Reserve for directors bonuses Reserve for employees retirement benefits (Note 18) Deferred tax liabilities arising from revaluation of land(notes 9 and 16) Goodwill Acceptances and guarantees liabilities 2,789,412 18,669 10,520 6, ,000 22, ,192 5, ,543 2,917,490 2,702,163 1,368 14,185 5, , ,240 5,408 28,417 2,792,836 23,629, ,151 89,120 51, , ,091 7, ,454 45,293 2, ,316 24,714,026 Net assets: Common stock Capital surplus Retained earnings Treasury stock stockholders equity Net unrealized gains on other securities Net deferred gains on hedging instruments Land revaluation excess (Note 9) valuation and translation adjustments Minority interests net assets liabilities and net assets 26,673 11, ,571 (2,285) 173,197 34, ,964 40,205 4, ,202 3,135, ,954 95,201 1,165,365 (19,364) 1,467, ,766 1,294 50, ,583 40,647 1,848,388 $26,562,415 Minority interests in consolidated subsidiaries Stockholders' equity (Note 13): Common stock, without par : Authorized582,500 thousand shares lssued346,401 thousand shares Capital surplus Retained earnings Land revaluation excess (Note 9) Net unrealized gains on other securities Treasury stock stockholders' equity liabilities,minority interests and stockholders' equity 5,545 26,673 11, ,561 5,957 32,188 (1,290) 211,382 3,009,764 See accompanying notes to consolidated financial statements 5

7 CONSOLIDATED STATEMENTS OF INCOME AND RETAINED EARNINGS The Hokkoku Bank, Ltd. and Consolidated Subsidiaries Income interest income on: Interest on loans and discounts Interest and dividends on securities Other interest income Fees and commissions Other operating income Other income income 49,456 39,305 9, ,422 12,228 4,310 78,418 Year ended March 31, 2006 (Millions of Yen) 46,470 37,533 8, ,842 11,459 5,646 74,418 U.S Dollars) (Notes 2) $ 418, ,958 84,370 1, , ,584 36, ,279 Expenses Interest expense on: Deposits Borrowings and rediscounts Other Fees and commissions Other operating expenses General and administrative expenses Other expenses (Note 14) expenses 5,087 3,018 1, ,042 11,864 35,192 19,915 74,102 2, ,355 1,873 10,556 34,595 11,682 61,566 43,097 25,571 9,527 7,998 17, , , , ,720 Income before income taxes minority interests Income taxes (Note 16) Current Deferred Minority interests in earnings of consolidated subsidiaries Net income 4,315 1,624 (82) 1,542 (351) 3,125 12,852 7,254 (1,112) 6, ,102 36,559 13,762 (700) 13,062 (2,980) $ 26,477 Retained earnings Balance at biginning of the year 135, ,221 Add: Reversal of land revaluation excess Deduct: Cash dividends Bonuses to directors and statutory auditors Retirement of treasury stock Balance at end of the year 1,014 2, ,539 5, ,561 Amounts per share: Net assets Net income , See accompanying notes to consolidated financial statements 6

8 CONSOLIDATED STATEMENTS OF CHANGES IN NET ASSETS The Hokkoku Bank, Ltd. and Consolidated Subsidiaries For the Year Ended March,31, Millions of Yen Shareholders' equity Valuation and translation adjustments Common stock Capital surplus Retained earnings Treasury stock shareholders' equity Net unrealized gains on other securities Net deferred gains on Hedging instruments Land revaluation excess valuation and translation adjustments Minority interests net assets Balance at March,31, ,673 11, ,561 (1,290) 173,235 32,188 5,957 38,146 5, ,928 Changes during fiscal year Cash dividends paid (2,057) (2,057) (2,057) Bonuses to directors and corporate auditors (52) (52) (52) Net income 3,125 3,125 3,125 Purchase of treasury stock (51) (1,001) (1,053) (1,053) Disposal of treasury stock Land revaluation excess (6) (6) (6) Net changes of items other than shareholders' equity 1, ,059 (747) 1,312 changes during fiscal year (51) 1,009 (995) (37) 1, ,059 (747) 1,274 Balance at March,31, 26,673 11, ,571 (2,285) 173,197 34, ,964 40,205 4, ,202 Common stock Capital surplus Shareholders' equity Retained earnings Treasury stock shareholders' equity Thousands of U.S. Dollars Valuation and translation adjustments Net unrealized gains on other securities Net deferred gains on hedging instruments Land revaluation excess valuation and translation adjustments Minority interests net assets Balance at March,31,2006 $ 225,954 $ 95,637 $ 1,156,814 $ (10,928) $ 1,467,478 $ 272,667 $ $ 50,469 $ 323,137 $ 46,979 $ 1,837,594 Changes during fiscal year Cash dividends paid (17,429) (17,429) (17,429) Bonuses to directors and corporate auditors (441) (441) (441) Net income 26,477 26,477 26,477 Purchase of treasury stock (436) (8,483) (8,920) (8,920) Disposal of treasury stock Land revaluation excess (54) (54) (54) Net changes of items other than shareholders' equity 16,098 1, ,446 (6,332) 11,114 changes during fiscal year (436) 8,551 (8,436) (320) 16,098 1, ,446 (6,332) 10,793 Balance at March,31, $ 225,954 $ 95,201 $ 1,165,365 $ (19,364) $ 1,467,157 $ 288,766 $ 1,294 $ 50,523 $ 340,583 $ 40,647 $ 1,848,388 See accompanying notes to consolidated financial statements 7

9 BANK CONSOLIDATED PROFILE STATEMENTS OF CASH FLOWS The Hokkoku Bank, Ltd. and Consolidated Subsidiaries Cash flows from operating activities Income before income taxes and minority interests Adjustments to reconcile income before income taxes and minority interests to net cash provided by operating activities: Depreciation and amortization Impairment losses Amortization of goodwill on consolidation Reserve for possible loan losses Provision for bonus reserve Provision for directors bonus reserve Provision for employees retirement benefits Accrued interest and dividend income Accrued interest expense Loss on investment securities, net Loss on money trusts Foreign exchange gain, net Loss on disposal of premises and equipment Loss on disposal of fixed assets Increase in loans Increase in deposits Decrease in due from banks (exclusive of the Bank of Japan) Increase in call loans and others Increase in call money and others Decrease in guarantee deposit received under securities lending transactions Decrease in trading account assets Decrease in foreign exchange assets Increase (decrease) in foreign exchange liabilities Increase by issue and redemption of common corporate bonds Interest and dividends received Interest paid Bonuses paid to officers Other, net Subtotal Income taxes paid Net cash provided by (used in) operating activities 4,315 12, (136) 2,067 (4) 54 (48) (49,456) 5,087 (1,855) (152) (1,647) 174 (23,874) 87,249 19,949 (106,838) 17,472 (3,665) ,000 38,023 (3,602) (59) (1,013) 9,893 (8,726) 1,166 Year ended March 31, 2006 (Millions of Yen) 12,852 10,323 2,115 (2,640) (16) (22) (46,470) 2,858 (3,336) (83) (3,735) 244 (27,614) 25, (13,133) 1,567 (4,541) (56) 37,478 (2,727) (58) 1,561 (8,758) (4,377) (13,136) U.S. Dollars) (Note 2) $ 36, ,117 3,665 (1,152) 17,516 (41) 461 (410) (418,949) 43,097 (15,715) (1,289) (13,956) 1,477 (202,239) 739, ,992 (905,030) 148,009 (31,046) 1, , ,095 (30,516) (502) (8,585) 83,807 (73,922) 9,884 Cash flows from investing activities Purchases of securities Sales of securities Redemption of investment securities Increase in money held in trust Interest and dividends received on investments Purchases of premises and equipment Purchases of tangible fixed assets Purchases of intangible fixed assets Sales of premises and equipment Sales of tangible fixed assets Purchases of subsidiaries stocks Net cash (used in) provided by investing activities (193,129) 101,695 84,539 (9,000) 10,640 (11,773) (898) 464 (699) (18,160) (157,388) 67, ,803 9,640 (11,752) ,687 (1,635,994) 861, ,133 (76,238) 90,132 (99,732) (7,614) 3,938 (5,923) (153,839) Cash flows from Financing activities Increase by issue of subordinated bonds Cash dividends paid Cash dividends paid to minority interests Purchases of treasury stock Sales of treasury stock Net cash provided by (used in) financing activities Effect of exchange rate changes on cash and cash equivalents Net increase in cash and cash equivalents Cash and cash equivalents at beginning of year Cash and cash equivalents end of year (Note 10) See accompanying notes to consolidated financial statements. 15,000 (2,056) (14) (33) 5 12,900 5 (4,088) 53,393 49,305 (2,081) (15) (3,467) 2 (5,561) 28 (980) 54,374 53, ,064 (17,418) (126) (285) , (34,633) 452,297 $ 417,663 8

10 BANK NOTES PROFILE TO CONSOLIDATED FINANCIAL BANK STATEMENTS PROFILE 1. Basis of Presentation The accompanying consolidated financial statements of The Hokkoku Bank, Ltd. (the "Bank") and consolidated subsidiaries are prepared on the basis of accounting principles generally accepted in Japan, which are different in certain respects as to the application and disclosure requirements of international Financial Reporting Standards, and are compiled from the consolidated financial statements prepared by the Company as required by the Securities and Exchange Law of Japan. In addition, the notes to the consolidated financial statements include information which is not required under accounting principles generally accepted in Japan but is presented herein as additional information. As permitted by the Securities and Exchange Law, amounts of less than one million yen have been rounded down. As a result, the totals shown in the accompanying consolidated financial statements (both in yen and do not necessarily agree with the sums of the individual amounts. 2. U.S. Dollar Amounts The Bank maintains its records and prepares its financial statements in Yen. Amounts in U.S. dollars are presented solely for the convenience of readers outside Japan. The rate of =U.S.$1.00, the rate of exchange in effect on March 31,, has been used in conversion. The conversion should not be construed as meaning that yen could be converted into U.S. dollars at the above or any other rate. 3. Summary of Significant Accounting Policies a. Principles of consolidation The accompanying consolidated financial statements include the accounts of the Bank and its six subsidiaries at March 31,. All significant intercompany accounts and transactions have been eliminated in consolidation. b. Trading securities Trading securities are stated at market at the end of the year, and the related cost of sales is determined by the moving average method. c. Securities Securities are classified into three categories: trading securities, heldtomaturity debt securities, and other securities (availableforsale securities). Trading securities are carried at market and heldtomaturity debt securities are carried at amortized cost. Other securities that have a readily determinable fair are carried at market with any changes in unrealized holding gain or loss, and net amounts of the applicable income taxes, included directly in shareholders' equity. Other securities which do not have a readily determinable fair are carried at cost or amortized cost. Cost of securities sold is determined by the moving average method. Securities invested as assets in trust in separately managed money trusts for the principal purpose of securities investment are carried at market. d. Derivative financial instruments Derivatives are stated at fair market. e. Tangible fixed assets Tangible fixed assets are carried at cost less accumulated depreciation. Depreciation of tangible fixed assets of the Bank is computed by the decliningbalance method. The useful lives of buildings and equipment are summarized as follows: Buildings 10 to 50 years Equipment 3 to 15 years Depreciation of tangible fixed assets of the consolidated subsidiaries is computed primarily by the decliningbalance method over the estimated useful lives of the respective assets. Depreciation of assets held under finance leases are computed by the straightline method over the lease terms of the respective assets. f. Longlived assets In August 2002, the Business Accounting Council(BAC) issued a Statement of Opinion,Accounting for Impairment of Fixed Assets, and in October 2003 the ASBJ issued ASBJ Guidance No.6, Guidance for Accounting Standard for Impairment of Fixed Assets. These pronouncements were effective for fiscal years beginning on or after April 1, 2005 with early adoption permitted for fiscal years ending on or after March 31, The Group adopted the accounting standard for impairment of fixed assets as of April 1, The Bank reviews its longlived assets for impairment whenever events or changes in circumstance indicate the carrying amount of an asset or asset group may not be recoverable. An impairment loss would be recognized if the carrying amount of an asset or asset group exceeds the sum of the undiscounted future cash flows expected to result from the continued use and eventual disposition of the asset or asset group. The impairment loss would be measured as the amount by which the carrying amount of the asset exceeds its recoverable amount,which is the higher of the discounted cash flows from the continued use and eventual disposition of the asset or the net selling price at disposition. As a result of the adoption of this new accounting standard, impairment loss on longlived assets relating to land and buildings to be disposed of in the amount of 2,112 million was recognized and the effect of this was to decrease income before income taxes and minority interests for the year ended March 31, 2006 by the same amount. The Bank reviewed its longlived assets for impairment as of the yaer ended March 31, and, as a result, recognized an impairment loss of 432 million ($3,665 thousand). g. Intangible fixed assets Amortization of intangible fixed assets of the Bank is computed by the straightline method. Acquisition costs of software to be used internally are capitalized and amortized by the straightline method primarily over a useful life of five years. h. Deferred assets Bond issuance costs are charged to income as incurred. i. Foreign currency transactions Foreign currency assets and liabilities are translated into Japanese yen equivalents primarily using the applicable rate of exchange effective at the balance sheet date. j. Reserve for possible loan losses A reserve for possible loan losses of the Bank is provided as detailed below in accordance with the internal rules for providing reserves for possible loan losses: For claims to debtors who are legally bankrupt (as a result of bankruptcy special liquidation, etc.) or who are substantially bankrupt, a reserve is provided based on the amount of the claim, on the net amount expected to be collected by the disposal of collateral, or as a result of the execution of a guarantee. For claims to debtors who are not currently bankrupt, but are likely to become bankrupt, a reserve is provided according to the amount considered necessary based on an overall solvency assessment of the amount of the claim, on the net amount expected to be collected by the disposal of collateral, or as a result of the execution of a guarantee. For other claims, a reserve is provided based on the Bank's past loanloss experience. All claims are assessed by the Business Section(at the branches and the related head office divisions) based on the Bank's internal rules for the selfassessment of asset quality. The Corporate Audit Department, which is independent of the Business Section, subsequently conducts audits of such assessments, and a reserve is provided based on the audit results. The reserves of the consolidated subsidiaries are provided for general claims at an amount based on the actual historical rate of loan losses and for specific claims (from potentially bankrupt customers, etc.) at an estimate of the amounts deemed uncollectible based on the respective assessments. For collateralized or guaranteed claims from debtors who are legally or substantially bankrupt, the amounts of the claims deemed uncollectible in excess of the estimated of the collateral or guarantees have been written off in aggregate amounts at 49,098 million ($415,911 thousand) and 46,666 million as of March 31, and 2006, respectively. k. Bonuses to directors and corporate auditors Prior to the fiscal year ended March 31,2006,bonuses to directors and corporate auditors were accounted for as a reduction of retained earnings in the fiscal year following approval at the general shareholders meeting. The ASBJ issued a new accounting standard for bonuses to directors and corporate auditors on November 29,2005. Under the new accounting standard,bonuses to directors and corporate auditors must be expensed and are no longer allowed to be directly charged to retained earnings. This accounting standard is effective for fiscal years ending on or after May 1,2006. The companies must accrue bonuses to directors and corporate auditors at the year end to which such bonuses are attributable. The Bank adopted the new accounting standard for bonuses to directors and corporate auditors from the year ended March 31,. The effect of adoption of this accounting standard was to decrease income before income taxes and minority interests for the year ended March 31, by 54 million ($461 thousand). l. Employees retirement benefits The Bank and its consolidated subsidiaries have defined employees retirement benefit plans, which consist of corporate pension fund plans and welfare pension fund plans ("WPFP") and lumpsum payment plans, and cover almost all of their employees. Reserves for employees retirement benefits are provided mainly at an amount calculated based on the retirement benefit obligation and the fair of the pension plan assets at balance sheet dates, as adjusted for unrecognized actuarial gain or loss and unrecognized prior service cost. As the plan assets at fair exceeded the retirement benefit obligation adjusted for the actuarial gain or loss, the excess was presented as prepaid pension costs in the consolidated balance sheet at March 31,. Past service liabilities are amortized by the straightline method over a certain period (10 years) which falls within the average remaining years of service of the employees when incurred. Actuarial gain and loss are amortized in the years following the straightline method over a period (generally 10 years) that falls within the average remaining years of service of the active participants in the plans. m. Leases Noncancelable leases are accounted for as operating leases regardless of whether such leases are classified as operating or finance leases, except that leases that stipulate the transfer ownership of the leased property to the lessee are accounted for as finance leases. 9

11 n. Hedge of foreign exchange risk The Bank applies the deferred method to account for derivative instruments that hedge the foreign exchange risk on various foreigncurrency financial assets and liabilities, as provided for in the Accounting and Auditing with Regard to Foreign Currency Transactions in the Banking Industry (The Japanese Institute of Certified Public Accounts Industry Audit Committee Report No.25, hereinafter JICPA Industry Audit Committee Report No.25 ). The hedge effectiveness of these currencyswap transactions, exchangeswap transactions and similar instruments to hedge the foreign exchange risks of foreigncurrency financial assets or liabilities is assessed by comparing the foreign currency position of the hedged assets or liabilities with that of the hedging instruments. o. Consumption tax and regional consumption tax Transactions subject to national and local consumption taxes are recorded at amounts exclusive of consumption taxes. Consumption tax levied on the purchase of premises and equipment is changed to income when incurred. p. Cash and cash equivalents For the purpose of reporting cash flows, cash and cash equivalents consist of cash and due from the Bank of Japan. 4. Changes in Accounting Policies (1) Accounting standards for presentation of net assets in the balance sheet Effective the year ended March 31,, the Accounting Standards for Presentation of Net Assets in the Balance Sheet (ASBJ Statement No.5 issued by the ASBJ on December 9, 2005) and the Implementation Guidance on Accounting Standards for Presentation of Net Assets in the Balance Sheet (ASBJ Implementation Guidance No.8 issued by the ASBJ on December 9, 2005) have been applied. The amount corresponding to the previous Shareholders' equity is 213,251 million ($1,806,447 thousand). (2) Practical solutions for application of control criteria and influence criteria for investment associations Effective the year ended March 31,, the Practical Solutions for Application of Control Criteria and Influence Criteria for Investment Associations (Practical solutions report No.20 issued by ASBJ on September 8, 2006) have been applied. This change had no impact on the consolidated balance sheet. 5. Changes in Presentation of Account The method for presenting accounts has been changed as described below for the year ended March 31,, in accordance with the Cabinet Office Regulations for Partial Amendment of Enforcement Rules Concerning Detailed Regulations of Mutual Loan Business Law (Cabinet Office Regulations No. 60), issued on April 28, 2006 and applied to accounting for the year starting April 1, 2006 for the revision of the Regulations for Enforcement of the Banking Law (Finance Ministry Regulations No. 10, 1982). (1) Consolidated Balance Sheet a. Loss on deferred hedge, which had been included in the other assets section, and profit on deferred hedge, which had been included in the other debts section, are consolidated into net deferred gains on hedging instruments by balancing out evaluation and exchange differences after deducting the tax benefit amount. b. Minority interests, which had been presented right after the liability section, is included in the net assets section. c. The premises and equipment section is divided into the sections of tangible fixed assets, intangible fixed assets, and other assets. Software, which had been included in the other assets section, is included in the intangible fixed assets section. (2) Consolidated cash flow statement Loss on disposal of property has been changed to loss on disposal of fixed assets etc. in accordance with the change in presentation from premises and equipment to tangible fixed assets, intangible fixed assets, and other assets. Purchases of premises and equipment and sales of premises and equipment have been changed to purchases of tangible fixed assets etc. and sales of tangible fixed assets etc. respectively. 6. Loans and Bills Discounted Loans to borrowers under bankruptcy procedures and delinquent loans totaled 4,309 million ($36,505 thousand) and 82,083 million ($695,331 thousand), respectively, at March 31,, and 4,241 million and 85,379 million respectively, at March 31, A loan is paced on nonaccrual status when substantial doubt as to the collectibility of its principal and interest is judged to exist, if payment is post due for a certain period of time, or for other reasons. Loans to borrowers in bankruptcy represent nonaccrual loans, after the changeoffs of loans deemed uncollectible, to borrowers who are legally bankrupt as defined in Article 96, Paragraph l, Subparagraphs 3 and 4 of Enforcement Ordinance of the Corporation Income Tax Law. Delinquent loans are nonaccrual loans other than loans to borrowers in bankruptcy or loans on which interest payments have been deferred in order to assist the restructuring of the borrowers. Delinquent loans are nonaccrual loans other than loans to borrowers in bankruptcy or loans on which interest payments have been deferred in order to assist the restructuring of the borrowers. Loans past due for three months or more totaled 2,014 million ($17,066 thousand) and 1,452 million at March 31, and 2006, respectively. Loans past due for three months or more are those whose principal or interest payments are three months or more past due but are not included in loans to a borrower under bankruptcy procedures or delinquent loans. Restructured loans totaled 21,425 million ($181,495 thousand) and 29,770 million at March 31, and 2006, respectively. Restructured loans are those for which the Bank has granted certain concessions, such as reduction at the contractual interest rate or principal amount or a deferral of interest/principal payments, in order to assist the restructuring of the borrowers. Excluded from restructured loans are loans to borrowers under bankruptcy under bankruptcy procedures, other nonaccrual loans, and loans past due for three months or more. The total of loans to borrowers under bankruptcy procedures, other nonaccrual loans, loans past due for three months or more and restructured loans amounted to 109,833 million ($930,398 thousand) and 120,843 million at March 31, and 2006, respectively. Bills discounted are accounted for as financial transactions in accordance with Treatment of Accounting and Auditing in Applying Accounting Standards for Financial Instruments in the Banking Industry issued by JICPA. The Bank has the right to sell or repledge the banker's acceptance bills, commercial bills discounted, documentary bills and foreign exchange bought without restrictions. The face of banker's acceptance bills, commercial bills, documentary bills and foreign exchange bought at a discount was 42,079 million ($356,456 thousand) and 40,614 million as of March 31, and 2006, respectively. Overdraft agreements and loan commitments are agreements under which the Bank and its consolidated subsidiaries are obliged to extend loans up to a prearranged limit unless the customer is in breach of contract. The loan commitments not yet drawn down at March 31, and 2006 totaled 460,026 million ($3,896,875 thousand) and 451,530 million, respectively; 448,007 million ($3,795,069 thousand) of which, at March 31, (2006: 441,251 million), was related to agreements whose contractual terms were for one year or less or which were unconditionally cancelable at any time. As the majority of these agreements expire without the right to extend the loans being exercised, the undrawn commitment balance does not affect the future cash flows of the Bank or of its consolidated subsidiaries. These agreements usually include provisions which stipulate that the Bank and its consolidated subsidiaries have the right either to refuse the execution of the loans or to reduce the contractual commitments when there is a change in the borrower's financial condition, or when additional assurance of the financial soundness and creditworthiness of a borrower is necessary, or when other unforeseen circumstances arise. The Bank and its consolidated subsidiaries take various measures to protect their credit. Such measures include obtaining real estate or securities as collateral at the time of entering into agreements, monitoring a customer's business on a regular basis in accordance with established internal procedures, and amending the loan commitment agreements when necessary. 7. Securities (1) Trading securities The carrying of trading securities at March 31, and 2006 and the net holding gain (loss) included in earnings for the years then ended are summarized as follows: Carrying Value Net holding gain (loss) (3) $ 3,

12 (2)Heldtomaturity securities which have a readily determinable fair The carrying and fair of heldtomaturity securities which have a readily determinable fair and the related unrealized gain and loss at March 31, and 2006 are summarized as follows: March 31, Carrying Fair Difference Gain Loss Corporate bonds Corporate bonds Corporate bonds (3) Other securities which have a readily determinable fair The acquisition cost and carrying of other securities which have a readily determinable fair and the related unrealized gain and loss at March 31, and 2006 are summarized as follows: March 31, Acquisition Carrying cost Difference Gain Loss Stock Debt securities Others Stock Debt securities Others Stock Debt securities Others The components of unrealized holding gain on other securities recorded under the shareholders equity at March 31, and 2006 are as follows: Unrealized holding gain on other securities Deferred tax liabilities Attributable to minority interests Unrealized holding gain on other securities, net of tax 55,620 (21,265) 34,354 (266) 54,880 (22,206) 32,674 (485) 34,088 32,188 $471,157 (180,136) $291,020 (2,254) $288,766 Other securities sold during the years ended March 31, and 2006 are summarized as follows: Proceeds from sales Gain on sales Loss on sales 18,900 18,835 (64) ,900 18,835 (64) Carrying 101,735 2, March 31, Fair Difference Gain Loss U.S.dollars) $160,101 $159,557 $ (543) $ 198 $ 742 $160,101 $159,557 $ (543) $ 198 $ 742 Carrying March 31, 2006 Fair Difference Gain Loss 15,390 15,191 (198) ,390 15,191 (198) , ,630 93, , ,351 92,761 57,312 (1,278) (413) 67,955 3, ,761 2, , , ,938 55,620 60,382 4,762 Acquisition cost $ 394,014 4,537, ,281 March 31, Carrying Difference Gain Loss U.S.dollars) $ 879,505 4,526, ,781 $ 485,491 (10,834) (3,499) $ 489,296 18,151 4,053 $ 3,805 28,985 7,553 $5,720,616 $6,191,773 $ 471,157 $ 511,502 $ 40,345 Acquisition cost 42, , ,880 March 31, 2006 Carrying Difference Gain Loss 104, , ,973 61,616 (5,828) (907) 61, ,568 1, , ,947 54,880 63,115 8,235 $861,796 19,956 3,855 The carrying of securities which did not have a readily determinable fair at March 31, and 2006 are summarized as follows: Carrying Other securities: Debt securities Unlisted stock 60 9,258 The schedule of the contractual maturities of other securities and heldtomaturity securities at March 31, is summarized as follows: National government bonds Municipal bonds Corporate bonds and debentures Others National government bonds Municipal bonds Corporate bonds and debentures Others 8. Money Trusts Money Trusts for Investment Purposes Amount recorded in the consolidated balance sheets Unrealized gain included in profit and loss for the fiscal year Due in one year or less 9,526 8, ,495 18,068 Due after one Due after five year through years through five years ten years 178,407 49,421 9,018 $ ,432 28, ,013 15,579 18,069 44,178 16,819 1,004 65, , ,259 41,037 Due in one year or less $ 80,697 76,144 $1,511, ,646 $153, Revaluation of Land Pursuant to the Law Concerning the Revaluation of Land (the Law ), land used for the Bank's business operations was red on March 31, The excess of the red aggregate market over the total book (carrying amount) before revaluation was included in shareholders' equity at the net amount of the related tax effect at March 31, The corresponding income taxes were included in liabilities at March 31, 1999 as deferred taxes arising from revaluation of land. The revaluation of the land was determined based on the official prices published by the Commissioner of the National Tax Authority in accordance with Article 2, Paragraph 4 of the Enforcement Ordinance Concerning Land Revaluation, with certain necessary adjustments. The difference between the total fair of land for business operation purposes, which was red in accordance with Article 10 of the abovementioned law, and the total book of the land after the revaluation was 10,796 million ($91,457 thousand) and 10,540 million at March 31, and 2006, respectively. 10. Cash Flows A reconciliation between cash and due from banks in the consolidated balance sheets at March 31, and 2006 and cash and cash equivalents in the consolidated statements of cash flows for the years then ended are as follows: 11. Accumulated Depreciation Accumulated depreciation totaled 78,947 million ($668,766 thousand) and 75,954 million at March 31, and 2006, respectively ,302 85,558 Due after one Due after five year through years through five years ten years $ 214, ,763 (0) Due after ten years 40,032 Due after ten years $ 339, , , , , , ,481 8,509 $ 551,176 $3,253,038 $1,213,548 $ 347,627 Cash and due from banks Negotiable certificates of deposit Due from banks other than the Bank of Japan 49,594 (288) 73,632 (20,000) (238) Cash and cash equivalents 49,305 53,393 $420,110 (2,447) $417,663 11

13 12. Assets Pledged Assets pledged as collateral at March 31, and 2006 were as follows: Pledged assets: Securities Other assets Liabilities secured by the above assets: Deposits Guarantee deposit received under securities lending transactions 50, ,911 10,520 65, ,595 14,185 $427,619 2,133 $626,102 89,120 In addition, securities of 75,804 million ($642,139 thousand) and due from banks of 50 million ($423 thousand) at March 31, and securities of 74,083 million and due from banks of 100 million at March 31, 2006 were pledged as collateral for settlement of exchange and Futures transactions. Included in other assets were guarantee deposits of 278 million ($2,357thousand) and 1,014 million at March 31, and 2006 respectively. 13. Shareholders' Equity In accordance with the Banking Law of Japan, the Bank has provided a legal reserve by appropriation of retained earnings, which is included in retained earnings. The Banking Law 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 Code provides that neither additional paidin capital nor the legal reserve had been available for dividends, but both might 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 Code also provides that if the total amount of additional paidin 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 of the shareholders. 14. Other Expenses Other expenses include provision for bad debts of 13,677 million ($115,858 thousand), a loss on disposal of fixed assets of 179 million ($1,522 thousand), impairment losses of 432 million ($ 3,665 thousand) for the year ended March 31, and provision for possible loan losses of 3,604 million, bad debts of 5,473 million,a loss on disposal of premises and equipment of 78 million and impairment losses of 2,115 million for the year ended March31, Leases Lessee The following pro forma amounts represent the acquisition costs accumulated depreciation and net book of the leased property at March 31, and 2006, which would have been reflected in the consolidated balance sheets if finance lease accounting had been applied to the finance leases currently accounted for as operating leases: Acquisition cost: Machinery and equipment Other assets Accumulated depreciation: Machinery and equipment Other assets Net book : Machinery and equipment Other assets $ 1,759 $ 1,759 $ 1,007 $ 1,007 $ 751 $ 751 The following pro forma amounts represent lease payments,depreciation and interest income for the years ended March 31, and 2006, which would have been reflected in the consolidated statements of income if lease accounting had been applied to the finance leases currently accounted for as operating leases. Lease payments Depreciation Interest expense The following table presents the schedule of future minimum lease payments of the finance leases currently accounted for as operating leases at March 31, : Due within one year Due subsequent to one year The following table presents the schedule of future minimum lease payments of the operating leases at March 31, : Due within one year Due subsequent to one year Lessor The following pro forma amounts represent the acquisition costs,accumulated depreciation and net book of the leased property at March 31, and 2006, which would have been reflected in the consolidated balance sheets if finance lease accounting had been applied to the finance leases currently accounted for as operating leases: Acquisition cost: Machinery and equipment Other assets Accumulated depreciation: Machinery and equipment Other assets Net book : Machinery and equipment Other assets ,507 42,286 8,964 9,135 53,472 51,421 21,801 20,260 4,614 4,643 26,416 24,904 22,705 22,025 4,350 4,492 27,056 26,517 $ $ $ 885 $ $ 1,273 $377,024 75,939 $452,964 $184,683 39,088 $223,772 $192,341 36,850 $229,191 The following pro forma amounts represent lease payments received, depreciation and interest income for the years ended March 31, and 2006, which would have been reflected in the consolidated statements of income if lease accounting had been applied to the finance leases currently accounted for as operating lease: Lease payments received Depreciation Interest income 10,517 9,351 1,192 9,868 8,804 1,151 $ 89,090 79,218 10,098 The following table presents the schedule of future minimum lease payments to be received of the finance leases currently accounted for as operating leases at March 31, : Due within one year Due subsequent to one year 8,231 17,819 26,051 $ 69, ,951 $220,679 12

14 The following table presents the schedule of future minimum lease payments to be received of the operating leases at March 31, : Due within one year Due subsequent to one year Income Taxes The major components of deferred tax assets and liabilities at March 31, and 2006 are summarized as follows: Deferred tax assets: Allowance for possible loan losses Depreciation Reserve for retirement allowances Unrealized loss on writedown of equity securities Other Subtotal: deferred tax assets Valuation allowance : deferred tax assets Deferred tax liabilities: Unrealized gain on other securities Other : deferred tax liabilities Net deferred tax assets 28,696 1,177 2,500 2,257 3,193 37,824 (4,240) 33,584 (21,265) (1,374) (22,639) 28,068 1,254 2,517 2,249 3,512 37,602 (4,144) 33,458 (22,206) (1,165) (23,371) 10,944 10,086 A reconciliation of the statutory tax rate applicable to the Bank and its consolidated subsidiaries to the effective tax rate for the year ended March 31, and 2006 is presented as follows: Statutory tax rate Reconciliation: Nondeductible permanent differences, such as entertainment expenses Nontaxable permanent differences, such as dividend income Per capita residents taxes Valuation allowance Unrecognized amount of unrealized gain tax effect Other Effective tax rate 17. Market Value Information on Derivatives (1) Interest rate transactions Exchangetraded transactions: Interest rate futures Interest rate options Overthecounter transactions: Forward rate agreements Interest rate swaps Receivable fixed rate / payable floating rate Receivable floating rate / payable fixed rate Receivable floating rate / payable floating rate Interest rate options Others Contract amount 1,807 1,307 21,000 March 31, Contract beyond Market one year 1,695 1,195 21,000 $ 727 5,309 $ 6,037 $243,085 9,977 21,178 19,121 27, ,413 (35,919) 284,493 (180,138) (11,643) (191,782) $ 92, % 40.4% 1.5 (12.4) (1.1) 35.7% (9) (1.9) (0.6) % Unrealized gain (loss) (193) 228 (184) Derivatives transactions which qualify as hedges have been excluded from the above table. The market of the contracts is calculated based on the net present of each transaction. (2) Foreign exchange transactions Contract amount March 31, Contract beyond Market one year Unrealized gain (loss) Exchangetraded transactions: Interest rate futures Interest rate options Overthecounter transactions: Forward rate agreements Interest rate swaps Receivable fixed rate / payable floating rate Receivable floating rate / payable fixed rate Receivable floating rate / payable floating rate Interest rate options Others $ 15,309 11, ,890 $ 14,359 10, ,890 $ (78) $ 69 1, (1,641) $ 1,936 $(1,561) Contract amount Contract amount March 31, 2006 Contract beyond Market one year March 31, Contract beyond Market one year Unrealized gain (loss) Exchangetraded transactions: Interest rate futures Interest rate options Overthecounter transactions: Forward rate agreements Interest rate swaps Receivable fixed rate / payable floating rate Receivable floating rate / payable fixed rate Receivable floating rate / payable floating rate Interest rate options Others 1,419 1,419 1,307 1,307 (12) 13 (12) 13 12,000 12, Unrealized gain (loss) Exchangetraded transactions: Currency futures Currency options Overthecounter Currency swaps Forward contracts Currency options: 8,457 3,855 3,584 8, (4) (4) 17 17,065 17,065 16,016 16,016 (1,004) 388 (293) (301)

15 Contract amount March 31, Contract beyond one year Market Unrealized gain (loss) Exchangetraded transactions: Currency futures Currency options Overthecounter transactions: Currency swaps $71,646 $69,977 $5,338 $5,338 Forward contracts 32,657 (41) (41) 30, Currency options: 144, ,679 (8,505) (2,485) 144, ,679 3,293 (2,550) Service cost Interest cost Expected return on plan assets Amortization of past service liabilities Amortization of actuarial loss Retirement expenses (478) ,297 The assumptions applied are as follows: Discount rate Expected rate of return on plan assets (423) ,768 $6,282 5,133 (4,056) 998 2,633 $10, % 2.5% 2.5% 2.5% Exchangetraded transactions: Currency futures Currency options Overthecounter transactions: Currency swaps Forward contracts Currency options: Contract amount 11,583 4,333 4,222 14,425 14,425 March 31, 2006 Contract beyond one year Market 11,583 14,425 14, (34) 38 (877) Unrealized gain (loss) 438 (34) 38 (339) (86) 16 Notes: 1.The transactions in this table have been red at the market rate prevailing on the balance sheet date and have been accounted for in the consolidated statements of income. Derivatives which qualify as hedges have been excluded from this table. 2. Calculation of market Market is calculated at discount present, etc. 18. Retirement Benefit Plans The Bank and the consolidated subsidiaries have defined retirement benefit plans,i.e., welfare pension fund plans and lumpsum payment plans, covering substantially all employees who are entitled to lumpsum or annuity payments, the amounts of which are determined by reference to their basic rates of pay, length of service, and the conditions under which termination occurs. The following table sets forth the funded and accrued status of the plans and the amounts recognized in the consolidated balance sheets at March 31, and 2006 for the Bank's and the consolidated subsidiaries' defined retirement benefit plans: 19. Segment Information a. Segment information by category of business for the years ended March 31, 2006 and 2005 is summarized as follows: I. income generated from business with: External customers Internal units Operating expenses Operating income II. Other information assets Depreciation Impairment loss Capital expenditures I. income generated from business with: External customers Internal units expenses incurred Operating expenses Operating income II. Other information assets Depreciation Impairment loss Capital expenditures Year ended March 31, Banking Leasing Combined Eliminations Consolidated 65,242 11,827 77, ,594 62,043 3, ,507 12, ,031 78,101 74,185 3,915 3,126,392 2, ,158 39,055 9, ,200 3,165,447 12, ,358 (1,031) (1,031) (860) (171) (29,754) 77,069 77,069 73,324 3,744 3,135,693 12, ,358 Year ended March 31, Banking Leasing Combined Eliminations Consolidated $552,665 $100,191 $652,856 2, , ,565 30,082 5, , ,857 3,089 8, , ,423 33,172 26,483,625 18,164 1,828 18, ,838 83,953 1,836 86,404 26,814, ,117 3, ,691 (8,738) (8,738) (7,289) (1,449) (252,048) $652, , ,133 31,723 26,562, ,117 3, ,691 Retirement benefit obligation Plan assets at fair Unfunded retirement benefit obligation Unrecognized actuarial loss Unrecognized past service liabilities Net amount Prepaid pension costs Reserve for employees retirement benefits (25,858) 19,931 (5,927) 1, (3,767) 2,425 (6,192) (25,285) 19,155 (6,129) 1,156 1,060 (3,912) 2,328 (6,240) ($219,048) 168,835 (50,212) 10,313 7,987 (31,912) 20,542 $(52,454) I. income generated from business with: External customers Internal units expenses incurred Operating income II. Other information assets Depreciation Impairment loss Capital expenditures Year ended March 31, 2006 Banking Leasing Others Combined Eliminations Consolidated 60, ,940 48,090 12,850 2,994,820 1,150 2,115 2,238 10, ,612 10, ,075 9,170 9,836 1, ,816 1, , ,073 1,296 74,369 60,638 13,730 3,056,138 10,323 2,115 12,075 (1,296) (1,296) (1,266) (30) (46,374) 73,073 73,073 59,372 13,700 3,009,764 10,323 2,115 12,075 The components of retirement benefit expenses for the years ended March 31, and 2006 are outlined as follows: b. Segment information by geographic area has not been disclosed, as over 90% of the total consolidated assets are held within Japan. In addition, segment information related to international operations has not been disclosed, since the income generated from international operations is considered immaterial to the Bank's total consolidated operations. 14