Payment. Net income per share after full dilution

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1 Financial Report for Fiscal Year Ended March 31, 2017 [Japanese GAAP] (Non-consolidated) May 8, 2017 Name of Listed Company ZENKOKU HOSHO Co., Ltd. Listed Stock Exchange Tokyo Code Number 7164 URL Representative (Title) President & Representative Director (Name) Eiji Ishikawa Contact Director and General Manager, (Title) Management Headquarters (Name) Yuichi Aoki (Phone) Expected Date of Regular Expected Date of Dividend June 16, 2017 Shareholders Meeting Payment June 19, 2017 Expected Date for Submitting Securities Report June 20, 2017 Preparation of Analyst Meeting Supplemental Data: Yes Analyst Meeting Held: Yes (for Institutional Investors and Security Analysts) (Figures less than one million yen omitted) 1. Business Results for Fiscal Year 2016 (April 1, 2016 to March 31, 2017) (1) Operating Results (Percentages represent changes from same period in previous year) Operating revenue Operating income Ordinary income Net income Million yen % Million yen % Million yen % Million yen % FY , , , , FY , , , , Net income per share Net income per share after full dilution Return on equity Return on assets Ratio of operating income to operating revenue Yen Yen % % % FY FY (Reference) Equity in earnings/losses of affiliates FY2016: million yen FY2015: million yen (2) Financial Position Total assets Net assets Shareholders equity ratio Net assets per share Million yen Million yen % Yen FY ,352 90, , FY ,520 74, , (Reference) Shareholders equity FY2016: 90,058 million yen; FY2015: 74,056 million yen (3) Cash Flow Situation Cash flows from operating activities Cash flows from investing activities Cash flows from financing activities Cash and cash equivalents at end of year Million yen Million yen Million yen Million yen FY ,968 6,880 3,786 76,402 FY ,082 2,323 3,304 40, Dividend Payment Annual dividend per share Ratio of Dividend 1st 2nd 3rd Payout ratio dividends to Year end paid (total) quarter-end quarter-end quarter-end Annual net assets Yen Yen Yen Yen Yen Million yen % % FY , FY , FY2017 (forecast)

2 3. Forecast of Business Results for the Fiscal Year Ending March 31, 2018 (April 1, 2017 to March 31, 2018) (Percentages represent changes from same period in previous year) Operating revenue Operating income Ordinary income Net income Net income per share Million yen % Million yen % Million yen % Million yen % Yen 1st six-month period 15, , , , Full year 38, , , , * Notes (1) Change in accounting policies, change in accounting estimates and retrospective restatement (i) Changes in accounting policies due to revisions of accounting standards : Yes (ii) Changes of accounting policies other than (i) above (iii) Changes in accounting estimates : No : No (iv) Retrospective restatement (Note) For details, please refer to Changes in accounting policies on page 18 of the Attached Documents. : No (2) Number of shares outstanding (Common stock) (i) Number of shares outstanding at the end of the period (including treasury stock) (ii) Number of treasury stocks at the end of the period (iii) Average number of shares outstanding during the period Year ended March 31, 2017 Year ended March 31, 2017 Year ended March 31, ,860,980 shares 99,957 shares 68,761,034 shares Year ended March 31, 2016 Year ended March 31, 2016 Year ended March 31, ,860,980 shares 99,890 shares 68,760,762 shares (Note) ZENKOKU HOSHO s shares held by the Employee Stock Ownership Plan (J-ESOP) of 99,650 shares as of March 31, 2017 and 99,650 shares as of March 31, 2016 are included in treasury stocks. * These (non-consolidated) financial results are outside the scope of audit. * Explanation on appropriate use of forecasts of performance and other special items The forward-looking statements in this document concerning forecasting of performance and etc. are based on currently available information and assumptions considered by ZENKOKU HOSHO to be reasonable. The actual performance may be significantly different from the forecast due to various factors. For the assumptions used as a basis for forecast of performance and important matters when using the forecast of performance, please refer to Future Outlook on page 4 of the Supplemental Data.

3 Table of Contents of Attached Documents 1. Overview of Business Results, etc (1) Overview of Business Results for FY (2) Overview of Financial Position for FY (3) Overview of Cash Flows for the Fiscal Year under Review... 3 (4) Future Outlook... 4 (5) Basic Policy for Profit Distribution and Dividends for FY2016 and FY (6) Risk Factors in Business... 4 (7) Material Events Regarding Assumption of a Going Concern Situation of the Corporate Group Management Policies... 8 (1) Basic Management Policies... 8 (2) Targeted Management Index... 8 (3) Medium to Long-Term Management Strategies... 8 (4) Issues to Be Addressed... 8 (5) Others, Material Events for Management Basic Rationale for Selection of Accounting Standards Non-consolidated Financial Statements (1) Non-consolidated Balance Sheets (2) Non-consolidated Statements of Income (3) Statement of change in equity (4) Non-consolidated Statements of Cash Flows (5) Notes to Non-consolidated Financial Statements (Notes on Going Concern Assumption) (Significant Accounting Policies) (Change in accounting policies) (Additional information) (Notes to Non-consolidated Balance Sheets) (Notes to Non-consolidated Statement of Change in Equity) (Notes to Non-consolidated Statements of Cash Flows) (Financial Instruments) (Securities) (Retirement benefits) (Stock Options) (Tax effect accounting) (Segment Information) (Equity in earnings/losses of affiliates, etc.) (Per share information) (Significant subsequent events) Other Information (1) Status of production, orders, and sales (2) Changes in officers

4 1. Overview of Business Results, etc. (1) Overview of Business Results for FY2016 During the fiscal year ended March 31, 2017, the Japanese economy continued on a moderate recovery, with sustained improvements in employment and income conditions alongside signs of recovery in corporate earnings and a steady stream of consumer spending, despite a sense of uncertainty about overseas economic trends. Regarding the housing market, signs of recovery were seen with the number of new housing starts exceeding that of the previous fiscal year, due mainly to the effects of the Negative Interest Rate Policy adopted by the Bank of Japan and government policies designed to support housing acquisitions. In the housing loan market, competition to acquire customers has continued to be intense among financial institutions against the backdrop of low-level housing loan rates. In such a business environment, we have implemented various measures with the focus on expansion of the credit guarantee business, utilization of a comprehensive risk management system and enhancement of the corporate value. For the expansion of the credit guarantee business, we have exerted our efforts to enhance the utilization rate of our credit guarantee products through existing partnering financial institutions, and increased the number of new contracts with prospective partnering financial institutions. As for the enhancement of utilization rate of our credit guarantee products through existing partnering financial institutions, we worked to expand relationships by continuously planning and holding presentation sessions and study sessions on our credit guarantee products and administrative procedures, as well as following up such sessions with visiting activities. In addition, we launched initiatives aiming for the development and implementation of our application data linkage system with financial institutions. In addition, we implemented again our reputed campaign and supported sales efforts to acquire housing loans. As for increasing the number of new contracts with prospective partnering financial institutions, we actively performed marketing activities to acquire partnering financial institutions that handle external credit guarantee products in demand, and as a result, signed new contracts with 18 financial institutions, including five banks, two Shinkin banks, nine JA cooperatives, and two labour banks during the during the fiscal year ended March 31, As for the utilization of a comprehensive risk management system, we conducted continuous monitoring by quantifying major risks such as credit risks, market risks and operational risks, in order to appropriately manage risks in accordance with the movements and changes in the risk amount. For enhancement of the corporate value, we worked to develop a vigorous corporate culture through promoting the reform of working styles and considering the introduction of new personnel system, etc., and to reinforce and enhance the functions of the internal control system. As a result of such efforts, we recorded operating revenue of 35,918 million (up 12.5% year-onyear), operating income of 28,139 million (up 12.0% year-on-year), ordinary income of 29,001 million (up 10.3% year-on-year), and net income of 19,530 million (up 13.5% year-on-year), thus achieving record-high levels of operating revenue, operating income, ordinary income and net income. As we operate in a single segment of the credit guarantee business, figures by segment are omitted. (2) Overview of Financial Position for FY2016 At March 31, 2017, total assets amounted to 263,352 million, up 11.8% from the end of the previous fiscal year. Current assets totaled 196,872 million, up 11.6% from the end of the previous fiscal year, due to an increase in cash and deposits, despite of a decrease in securities. Non-current assets totaled 66,479 million, up 12.4% from the end of the previous fiscal year, due to increases in long-term time deposits and investment securities. Total liabilities amounted to 173,202 million, up 7.3% from the end of the previous fiscal year. Current liabilities totaled 27,609 million, up 2.0% from the end of the previous fiscal year, due to increases in unearned revenue and income taxes payable, despite of a decrease in provision for loss 2

5 on guarantees. Non-current liabilities amounted to 145,592 million, up 8.4% from the end of the previous fiscal year, due to an increase in long-term unearned revenue. Total net assets totaled 90,149 million, up 21.6% from the end of the previous fiscal year, due to an increase in retained earnings. (3) Overview of Cash Flows for the Fiscal Year under Review At March 31, 2017, cash and cash equivalents ( funds ) stood 76,402 million, up 36,062 million from the end of the previous fiscal year, due to increases of 32,968 million in operating activities and 6,880 million in investing activities, and a decrease of 3,786 million in financing activities. (Cash flows from operating activities) Net cash provided by operating activities amounted to 32,968 million. The main positive factors included income before income taxes of 28,501 million, an increase in long-term unearned revenue of 11,241 million, while the main negative factors included income taxes paid of 8,098 million. (Cash flows from investing activities) Net cash provided by investing activities amounted to 6,880 million. The main positive factors included proceeds from withdrawal of time deposits of 121,450 million, proceeds from sales and redemption of securities of 14,070 million, and proceeds from sales and redemption of investment securities of 4,757 million, while the main negative factors included payments into time deposits of 113,950 million, purchase of investment securities of 10,456 million, and purchase of securities of 9,000 million. (Cash flows from financing activities) Net cash used in financing activities amounted to 3,786 million. The decrease was mainly due to the outflow of cash dividends paid of 3,786 million. (Reference) Trends in cash flow indicators Year ended March 31, 2013 Year ended March 31, 2014 Year ended March 31, 2015 Year ended March 31, 2016 Year ended March 31, 2017 Shareholders equity ratio (%) Shareholders equity ratio on market value basis (%) Ratio of interest-bearing debt to cash flow (%) Interest coverage ratio (times) Shareholders equity ratio: Shareholders equity/total assets Shareholders equity ratio on market value basis: Market capitalization/total assets Ratio of interest-bearing debt to cash flow: Interest-bearing debt/cash flow Interest coverage ratio: Cash flow/interest expense (Notes) 1. Market capitalization was calculated by: multiplying the closing price at the end of the fiscal year 3

6 by the number of outstanding shares at the end of the fiscal year. 2. Ratio of interest-bearing debt to cash flow and interest coverage ratio were not provided, because ZENKOKU HOSHO did not have any interest-bearing debts or interest expenses paid. (4) Future Outlook The Japanese economy is expected to recover moderately with continued improvements in corporate earnings and employment and income situations, backed by various economic stimulus measures. However, there is a concern that effects of overseas political developments and economic uncertainties, etc. may put downward pressure on the Japanese economy. In the housing market, the market is expected to remain robust on the back of the continuation of low-level housing loan rates, and extension of measures aiming at expansion of housing investment, such as tax breaks on housing loans. Under these forecasted economic circumstances, we have developed a new medium-term management plan Best route to With the aim of building up a leading position in the housing loan guarantee business, we will endeavor to take on various challenges. ZENKOKU HOSHO forecasts an operating revenue of 38,230 million (up 6.4% year-on-year), an operating income of 28,790 million (up 2.3% year-on-year), an ordinary income of 29,570 million (up 2.0% year-on-year), and a net income of 20,350 million (up 4.2% year-on-year) for the fiscal year ending March 31, (5) Basic Policy for Profit Distribution and Dividends for FY2016 and FY2017 ZENKOKU HOSHO considers that the profit distribution to its shareholders is one of the important aspects of its business. Its basic dividend policy is to pay stable, continuous cash dividends based on comprehensive consideration of the entire business, while securing internal reserves to maintain a solid financial foundation. Based on the above policy, ZENKOKU HOSHO plans to pay an annual dividend of 62 per share for fiscal year For fiscal year 2017, it plans to pay an annual dividend of 74 per share by taking into account the forecast of business results, the stability of dividend payments, and the dividend payout ratio. (6) Risk Factors in Business Among risk factors in our businesses, the following is a summary of those risk factors that may significantly affect investors decisions. After recognizing these risk factors, we take necessary measures to prevent risk from occurring and will promptly and appropriately respond to such an event, if it occurs. The forward-looking statements in this section are based on judgments by ZENKOKU HOSHO as of the end of fiscal year 2016, unless otherwise indicated. (i) Influence of the External Environment, such as Economy, Interest Rates, and Trends in the Housing Market We are engaged in the credit guarantee services business in which we conclude guarantee entrustment agreements with housing loan borrowers and act as a joint and several guarantor for such housing loan borrowers who borrow from financial institutions. Our business may be affected by the sentiments of housing loan borrowers who wish to conclude guarantee entrustment agreements with us, the trend of market interest rates and housing starts, the reform of the tax system including revisions to the consumption tax and taxes related to real estate, and the declining population in Japan. Thus, a decline in home-purchasing sentiment, a rise in housing loan interest rates, and a shrink in the housing loan market may influence our business results. 4

7 (ii) Credit Risks a. Subrogation Because of the nature of our business, we are required to repay debts to financial institutions on behalf of our customers when they become insolvent. We therefore conduct strict credit checks and delinquency management to prevent our customers from defaulting on loans. In accordance with our rigorous credit evaluation standards, a decision maker and a person in charge of credit evaluation with knowledge and experience to make appropriate credit judgment determine each applicant s qualification for credit, after comprehensively evaluating the available quantitative and qualitative information. We have established a credit evaluation system that enables the right person to makes credit judgments according to the degree of credit risk. Under this system, the Credit Evaluation Department evaluates and makes judgment on loans with high credit risks. Regarding delinquency management, we conduct credit management by collaborating with partnering financial institutions at the early stage of delinquency to reduce the number of claims for subrogation. We promptly determine the credit status of our customers, set out a policy on how to deal with individual cases, and offer advice to our customers in encouraging them to resume repayment on their loans. However, the significant deterioration of the business environment in Japan and overseas, a rise in interest rates, and the termination of the SME Financing Facilitation Act may affect repayment of housing loans by our customers, increasing the number of claims for subrogation. b. Provision for Loss on Guarantees and Allowance for Doubtful Accounts Based on the standards relating to our self-evaluation and provision for depreciation and allowances, we post provision for loss on guarantees for credit guarantees before subrogation and allowance for doubtful accounts for right to reimbursement after subrogation. This is posted for the expected amount of loss calculated by taking into account circumstances of the customer, status of integrity and past loan loss ratio for a fixed period as well as the expected unrecoverable amount after eliminating recoverability; however, in the case where actual bad debts exceed the estimation of the expected loss or where the value of securities decline, there is the possibility that expenses related to credit may increase due to accumulation of allowance for doubtful accounts and other factors. (iii) Market-Related Risks a. Risk Related to Fluctuations in Interest Rates To appropriately control assets under management that correspond to liabilities incurred related to the acceptance of guarantee, we build a portfolio of bonds by keeping the following points in mind: aiming at building a ladder portfolio in which we invest in bonds with different maturity dates in roughly equal proportion; and paying attention to a balance between interest rate fluctuation risk and the duration (remaining period) of our liabilities that we are owed on behalf of loan borrowers according to the market environment. In a phase of declining interest rates, the investment yield is lower than before when reinvesting the proceeds from bonds that are redeemed or repaid before the original maturity by issuers who try to lock in lower interest rates or redeemed at maturity. Consequently, the average investment yield declines. Since we receive most of our housing loan guarantee fees in a lump sum upon conclusion of guarantee entrustment agreements with housing loan borrowers, a decline in the investment yield may affect our long-term business operating capabilities. In a phase of rising interest rates, the investment yield rises, improving the returns from our 5

8 portfolio, while the present value of bonds are declining, potentially giving a negative impact on our net assets. b. Credit Risk We hold financial products, such as securities (including bonds) and time deposits. A decline in bond prices due to a downgrade of credit rating, nonperformance of obligations by bond issuers (default) and failure of financial institutions whose bonds are held within our investment portfolio may affect our operating results and financial situation. c. Risk Related to Fluctuations in Foreign Exchange Rates Securities held by us include securities whose prices may decline in accordance with the trend in the foreign exchange market. A decline in securities prices may cause a deterioration in the valuation of securities held by us, resulting in losses due to impairment charges. d. Risk Related to Fluctuations in Stock Prices Securities held by us include marketable stocks. A decline in stock prices may cause the impairment loss of stocks or evaluation loss on stocks. (iv) Liquidity Risks We manage guarantee exposure and receivables from claims and build a portfolio of assets with the aim of maintaining sufficient liquidity to cope with possible claims for subrogation and refunds of unearned guarantee fees accompanied with prepayment of housing loans subject to our guarantee entrustment agreements in the future. If the number of claims for subrogation increases due to a sudden economic contraction, our current assets will decrease. In such case, we may be forced to cancel or dispose of other assets in adverse conditions. (v) System Risks Since the most part of our guarantee services are systematized, we install appropriate security measures across our entire system to prevent our normal business from coming to a halt in the event of a failure of a computer system or related equipment, line disturbances, and other malfunctions. However, if it becomes difficult to continue stable operation of our systems due to a software glitch or illegal access from outside, we may lose credibility and see the number of new applications for our guarantee services decrease. (vi) Risks Related to Information Leakage We hold a great deal of personal information. To prevent the leakage of personal information from occurring, we prepare regulations and detailed rules related to the protection of personal information and ensure these regulations and rules are observed by our employees through intensive education. In the event that personal information is leaked due to our computer system being hacked into by a malicious third party or human error, or an accident caused by one or more of our directors or employees or our subcontractor, we may suffer a serious loss of credibility. Such an incident may affect our operating results and financial situation. (vii) Processing Risks We ensure all employees handle paperwork in accordance with various rules and the operational manual to prevent a decline in the quality of our services due to inaccurate paperwork, an accident, or fraud. We also try to create an efficient business processing system that causes less human error by systematizing our operations. However, inappropriate paperwork due to a fraud or an error may cause a loss to us. 6

9 (viii) Legal and Compliance Risks We are subject to various laws and regulations governing our business. We try to comply with these laws and regulations. If we fail to honor them, we will lose credibility. Such an incident may affect our operating results and financial position. In addition, there is the possibility that these laws and regulations may be revised or abolished, or new laws and regulations enacted in the future. Such an incident may affect our operating results and financial position. (ix) Reputational Risks If negative reports questioning the soundness of the financial industry appear in newspapers or messages slandering the financial industry are posted on a website s bulletin boards and such reports or messages spread, our reputation among customers and market players may be damaged. Such an incident may affect both our credibility and business. (x) Risks Related to Deferred Tax Assets Since the amount of deferred tax assets are calculated based on various estimates, including the assumption on future taxable income, the actual amounts may be significantly different from such calculations. If a limit is set on the amount of deferred tax assets that we can book due to the revision of accounting standards in the future and we come to a conclusion based on the estimate of taxable income in the future that we are not able to recover a part of deferred tax assets, the amount of deferred tax assets may be decreased. Such a case may affect our financial position and operating results. (xi) Disaster Risks We operate our business across Japan and have our head office, sales hubs, and a back office subsidiary in Tokyo. If a disaster should occur across a geographically wide area, including Tokyo, or a disaster occurs in a specific geographic area centering on Tokyo, our directors and employees, offices and other facilities may suffer extensive damage. If guarantee fees, which we gain as a distributing agent of life insurance companies for group life insurances, a factor for an increase in operating revenue peculiar to our fourth quarter of the fiscal year, decrease because of the death of many people caused by the occurrence of a large-scale disaster and the spread of infection, our business capability, financial position, and operating results may suffer damage. (xii) Risks Related to Revision of Rules and Systems We operate our business in accordance with the current laws and regulations, rules, policies and accounting standards. A revision of systems in the future, such as new regulations or changes to accounting standards, including the standards for booking of allowances, may affect our business capability, financial position, and operating results. (7) Material Events Regarding Assumption of a Going Concern Not applicable. 7

10 2. Situation of the Corporate Group The ZENKOKU HOSHO Group consists of two companies: ZENKOKU HOSHO Co., Ltd. and Zenkoku Business Partner, K.K., a non-consolidated subsidiary. The Group conducts credit guarantee services business, in particular for housing loans. ZENKOKU HOSHO Co., Ltd. is engaged in a single business, credit guarantee services. Zenkoku Business Partner, K.K. performs operations related to information systems and clerical operations in the credit guarantee service business under contract to ZENKOKU HOSHO Co., Ltd. 3. Management Policies (1) Basic Management Policies Under our management philosophy, Helping customers realize their dreams and happiness by offering the highest-quality guarantee instruments and services to all customers who need credit guarantees, and contributing to the development of regional communities through our credit guarantee service business, we aim to raising our corporate value and achieve long-term development and the growth of our business by implementing managerial measures from the standpoint of all stakeholders. (2) Targeted Management Index Since we believe that expanding credit guarantee services for housing loan borrowers will lead to a rise in our corporate value, we attach importance to the outstanding guarantee exposure and the number of new guarantees granted as our targeted management index. (3) Medium to Long-Term Management Strategies Regarding the environment surrounding ZENKOKU HOSHO, the new housing market is expected to shrink on a long-term basis due to a decline in the population and the number of households in association with the falling birthrate and aging population. On a medium-term basis, however, we anticipate the number of new housing starts sustained at the current level and an invigorated secondhand housing/house renovation market. Taking such a business environment into account, we have developed a medium-term management plan Best route to 2020 for the three years from fiscal year 2017 to fiscal year With the slogan Contribute to the development of communities and build up a leading position as a housing loan guarantee provider, by taking full advantage of the business foundation and networks established to date, we will implement various measures based on the three basic policies of i) expansion of the business scale, ii) enhancement of the corporate value and iii) expansion of business domains (long-term issue), under this medium-term management plan. (4) Issues to Be Addressed Based on the basic policies set in the medium-term management plan, we will address the following issues to ensure sustained growth and stable profits in the future. [Expansion of the business scale] We recognize that, in order to expand our business scale continuously, it is essential to enhance the utilization rate of our credit guarantee products with the existing partnering financial institutions, which exceeds 730, as well as increase the number of contracts with new partnering financial institutions. In particular, for partnering banks which handle large volumes of housing loans, we will strive to further deepen relationships by providing unrivaled excellent services utilizing our nationwide network of 13 business bases and accelerating efforts to increase added value including the application data linkage with financial institutions. Moreover, for accepting loan guarantee granted by other credit guarantee companies, we will continue to collect information about it and identify needs. Furthermore, in order to deal with the increase in volume of operation, we will work to improve 8

11 operational efficiency by reviewing the business processes and promoting the systematization. [Enhancement of the corporate value] Our outstanding balance of credit guarantees exceeds 10 trillion, and we recognize that our social responsibilities as a listed credit guarantee company are progressively increasing. We will continue to make efforts to establish a robust financial base as a credit guarantee company, improve shareholder returns, develop a vigorous corporate culture through promoting the reform of working styles, and reinforce and enhance the functions of the internal control system, as well as improve operational efficiency through the systemization of operations, all of which are undertaken in order to increase the corporate value. [Expansion of Business Domains (long-term issue)] We believe that the housing loan guarantee business, which is our core business, is expected to continue to grow steadily; however, in light of the external environment surrounding the Company over the long term, such as the declining population, we recognize that it is essential to consider new businesses that would generate synergetic effects with the housing loan guarantee business. We will consider new businesses that will leverage the Company s strengths such as a network of partnering financial institutions, an extensive database accumulated for more than 35 years, and operational expertise in housing loan credit evaluation and management. (5) Others, Material Events for Management Not applicable. 4. Basic Rationale for Selection of Accounting Standards ZENKOKU HOSHO is not globally conducting business development or fund-raising, and it is the Company s policy to prepare financial statements in accordance with Japanese GAAP for the time being. For adoption of IFRS, we will take into consideration internal and external circumstances and respond appropriately. 9

12 5.Non-consolidated Financial Statements (1) Non-consolidated Balance Sheets FY2015 As of March 31,2016 FY2016 As of March 31,2017 (Unit: million yen) Assets Current assets Cash and deposits 149, ,852 Right to reimbursement 11,989 11,481 Securities 7,077 4,822 Money held in trust 10,291 10,058 Accounts receivable - other Prepaid expenses Deferred tax assets 3,870 3,372 Other Allowance for doubtful accounts 6,802 6,355 Total current assets 176, ,872 Non-current assets Property, plant and equipment Buildings Accumulated depreciation Buildings, net Vehicles Accumulated depreciation Vehicles, net Tools, furniture and fixtures Accumulated depreciation Tools, furniture and fixtures, net Land 4 4 Total property, plant and equipment Intangible assets Software Software in progress - 57 Other 3 3 Total intangible assets Investments and other assets Investment securities 50,374 54,053 Shares of subsidiaries and associates 9 9 Long-term time deposits 6,000 10,000 Long-term prepaid expenses Prepaid pension cost 5 14 Deferred tax assets 1,451 1,159 Other Total investments and other assets 58,527 65,919 Total non-current assets 59,143 66,479 Total assets 235, ,352 10

13 FY2015 As of March 31,2016 FY2016 As of March 31,2017 (Unit: million yen) Liabilities Current liabilities Unearned revenue 13,476 14,552 Deposits received Accounts payable - other Income taxes payable 4,357 4,701 Provision for bonuses Provision for loss on guarantees *1 8,006 *1 7,079 Provision for shareholder benefit program Other 8 11 Total current liabilities 27,071 27,609 Non-current liabilities Long-term unearned revenue 134, ,543 Provision for stocks payment Total non-current liabilities 134, ,592 Total liabilities 161, ,202 Net assets Shareholders' equity Capital stock 10,684 10,684 Capital surplus Legal capital surplus Total capital surpluses Retained earnings Legal retained earnings 2,055 2,055 Other retained earnings Reserve for loss on guarantees 43,900 57,300 Retained earnings brought forward 17,287 19,630 Total retained earnings 63,242 78,985 Treasury shares Total shareholders' equity 74,278 90,021 Valuation and translation adjustments Valuation difference on available-for-sale securities Total valuation and translation adjustments Subscription rights to shares Total net assets 74,112 90,149 Total liabilities and net assets 235, ,352 11

14 (2) Non-consolidated Statements of income (Unit: million yen) FY2015 FY2016 Operating revenue Income guarantee fee 31,817 35,765 Other income Total operating revenue 31,918 35,918 Operating expenses Provision for loss on guarantees 1,800 2,676 Provision of allowance for doubtful account Salaries, allowances and bonuses 1,546 1,555 Provision for bonuses Depreciation Other 3,456 3,755 Total operating expenses 6,793 7,778 Operating income 25,125 28,139 Non-operating income Interest income Interest on securities Dividend income Gain on investments in money held in trust Other Total non-operating income 1, Non-operating expenses Loss on investments in money held in trust - 30 Commission fee Other 10 1 Total non-operating expenses Ordinary income 26,303 29,001 Extraordinary loss Loss on sales of investment securities Loss on valuation of investment securities Total extraordinary loss Income before income taxes 26,303 28,501 Income taxes - current 7,678 8,294 Income taxes - deferred 1, Total income taxes 9,098 8,970 Net income 17,204 19,530 12

15 (3) Statement of change in equity Previous fiscal year(from April 1,2015 to March 31,2016) Capital surplus Shareholders' equity Retained earnings (Unit: million yen) Other retained earnings Capital stock Legal capital surplus total capital surpluses Legal retained earnings Reserve for loss on guarantees Retained earnings brought forward Total retained earnings Treasury shares Total shareholder s' equity Balance at beginning of current period 10, ,055 32,100 15,188 49, ,370 Changes of items during period Issuance of new shares exercise of subscription rights to shares Dividends of surplus 3,305 3,305 3,305 Provision of reserve for loss on guarantees 11,800 11, Net income 17,204 17,204 17,204 Purchase of treasury shares Disposal of treasury shares 2 2 Net changes of items other than shareholders' equity Total changes of items during period ,800 2,099 13, ,908 Balance at end of current period 10, ,055 43,900 17,287 63, ,278 valuation and translation adjustments Valuation difference on available-forsale securities Total valuation and translation adjustments Subscription rights to shares Total net assets Balance at beginning of current period ,524 Changes of items during period Issuance of new shares exercise of subscription rights to shares 6 Dividends of surplus 3,305 Provision of reserve for loss on guarantees - Net income 17,204 Purchase of treasury shares Disposal of treasury shares 2 Net changes of items other than shareholders' equity Total changes of items during period ,588 Balance at end of current period ,112 13

16 Current fiscal year(from April 1,2016 to March 31,2017) Capital surplus Shareholders' equity Retained earnings (Unit: million yen) Other retained earnings Capital stock Legal capital surplus total capital surpluses Legal retained earnings Reserve for loss on guarantees Retained earnings brought forward Total retained earnings Treasury shares Total shareholder s' equity Balance at beginning of current period 10, ,055 43,900 17,287 63, ,278 Changes of items during period Issuance of new shares exercise of subscription rights to shares Dividends of surplus 3,787 3,787 3,787 Provision of reserve for loss on guarantees 13,400 13, Net income 19,530 19,530 19,530 Purchase of treasury shares 0 0 Disposal of treasury shares Net changes of items other than shareholders' equity Total changes of items during period ,400 2,343 15, ,743 Balance at end of current period 10, ,055 57,300 19,630 78, ,021 valuation and translation adjustments Valuation difference on available-forsale securities Total valuation and translation adjustments Subscription rights to shares Total net assets Balance at beginning of current period ,112 Changes of items during period Issuance of new shares exercise of subscription rights to shares Dividends of surplus 3,787 Provision of reserve for loss on guarantees - Net income 19,530 Purchase of treasury shares 0 Disposal of treasury shares Net changes of items other than shareholders' equity Total changes of items during period ,036 Balance at end of current period ,149 14

17 (4) Non-consolidated Statements of cash flows (Unit: million yen) FY2015 FY2016 Cash flows from operating activities Income before income taxes 26,303 28,501 Depreciation Increase (decrease) in allowance for doubtful accounts Increase (decrease) in provision for bonuses Increase (decrease) in provision for loss on guarantees 2, Increase (decrease) in provision for shareholder benefit program Increase (decrease) in provision for retirement benefits 50 - Decrease (increase) in prepaid pension costs 5 8 Increase (decrease) in provision for stocks payment Interest and dividend income Loss (gain) on money held in trust Loss (gain) on sales of investment securities Loss (gain) on valuation of investment securities Decrease (increase) in right to reimbursement Increase (decrease) in unearned revenue 960 1,076 Increase (decrease) in accounts payable - other 1, Increase (decrease) in long-term unearned revenue 10,188 11,241 Increase/decrease in other assets/liabilities Subtotal 32,654 40,105 Interest and dividend income received 1, Income taxes paid 7,609 8,098 Net cash provided by (used in) operating activities 26,082 32,968 Cash flows from investing activities Payments into time deposits 123, ,950 Proceeds from withdrawal of time deposits 120, ,450 Purchase of securities 12,000 9,000 Proceeds from sales and redemption of securities 12,670 14,070 Proceeds from cancellation and dividends of money held in trust 10, Purchase of property, plant and equipment Proceeds from sales of property, plant and equipment 3 1 Purchase of intangible assets Purchase of investment securities 6,164 10,456 Proceeds from sales and redemption of investment securities 158 4,757 Proceeds from sales of investments in real estates 48 - Payments for rental of real estate for investment 0 - Proceeds from rental of real estate for investment 0 - Proceeds from absorption-type company split * Net cash provided by (used in) investing activities 2,323 6,880 Cash flows from financing activities Proceeds from issuance of shares resulting from exercise of subscription rights to shares 0 - Purchase of treasury shares - 0 Cash dividends paid 3,304 3,786 Net cash provided by (used in) financing activities 3,304 3,786 Net increase (decrease) in cash and cash equivalents 25,101 36,062 Cash and cash equivalents at beginning of period 15,238 40,339 Cash and cash equivalents at end of period *1 40,339 *1 76,402 15

18 (5) Notes to Non-consolidated Financial Statements (Notes on Going Concern Assumption) There is no relevant information. (Significant Accounting Policies) 1. Valuation standards and methods for securities (1) Held-to-maturity bonds Stated at amortized cost (using the straight-line method). (2) Shares in subsidiaries Stated at cost using the moving-average method. (3) Available-for-sale securities Fair values available Stated at fair value based on the market value, etc., of the closing date (unrealized gains and losses are reported as a separate component of net assets, and cost of sales is computed by the moving-average method). Fair values not available Stated at cost using the moving-average method. 2. Valuation standards and methods for money held in trust for trading purposes Stated at fair value. 3. Depreciation and amortization methods for non-current assets (1) Property, plant and equipment Depreciated under the declining-balance method. However, buildings (excluding building fixtures) acquired on or after April 1, 1998 and building fixtures acquired on or after April 1, 2016 are depreciated under the straight-line method. Major useful lives are as follows: Buildings...3 to 44 years Vehicles...6 years Tools, furniture and fixtures...2 to 20 years (2) Intangible assets Depreciated under the straight-line method (software for internal use is depreciated under the straight-line method based on their estimated useful lives (5 years)). 4. Recording standards for reserves (1) Allowance for doubtful accounts To provide for losses on bad debts, an allowance for rights to reimbursement is recorded as follows, in accordance with the standards for self-assessment provided in advance. The allowance for rights to reimbursement receivable from debtors who are legally bankrupt, such as those in bankruptcy or in special liquidation ( bankrupt borrowers ), or debtors in an equivalent state ( substantially bankrupt borrowers ), is recorded at the full amount of the nonsecured portion after deducting amounts expected to be recovered from the disposal of collateral, etc., from the amount receivable. In addition, the allowance for rights to reimbursement receivable from debtors who are not currently bankrupt but for whom it is deemed that there is a significant possibility of future bankruptcy ( borrowers in danger of bankruptcy ) is recorded at an estimated loss which is deemed necessary upon a comprehensive assessment of the payment ability of each individual debtor that takes into account factors such as the amount collected over a certain period. The said allowance is calculated by deducting amounts expected to be recovered from the disposal of collateral from the amount receivable. The above allowances for all rights to reimbursement are recorded based on the results of an asset assessment conducted by the sales branch or the Screening Management Department in accordance with the standards for self-assessment of assets, and audited by the Internal Audit 16

19 Department, which is independent from the Screening Management Department. In order to provide for losses on bad debts, the allowance for receivables other than that for rights to reimbursement is reported at the estimated unrecoverable amount after considering the recoverability of receivables. (2) Provision for bonuses To provide for the payment of bonuses to employees, provision for bonuses is provided for based on the expected payments calculated by the Company. (3) Provision for loss on guarantees To provide for losses on guarantees, a provision is recorded as follows, in accordance with the standards for self-assessment provided in advance. The provision for debt guarantees for bankrupt borrowers and substantially bankrupt borrowers is recorded at the full amount of the non-secured portion after deducting amounts expected to be recovered from the disposal of collateral, etc., from the amount of debt guarantees. In addition, the provision for debt guarantees for borrowers in danger of bankruptcy is recorded at an estimated loss which is deemed necessary upon a comprehensive assessment of the payment ability of each individual debtor that takes into account factors such as the amount collected over a certain period. The said provision is calculated by deducting amounts expected to be recovered from the disposal of collateral from the amount of debt guarantees. The provision for debt guarantees other than the above is recorded based on historical rates of losses, etc., over a certain period. The above provisions for all debt guarantees are made based on the results of an asset assessment conducted by the sales branch or the Screening Management Department in accordance with the standards for self-assessment of assets, and audited by the Internal Audit Department, which is independent from the Screening Management Department. (4) Provision for shareholder benefit program To provide for the incurrence of expenses based on the shareholder benefit program, a provision is reported based on the amount expected to incur in the next fiscal year. (5) Provision for retirement benefits To provide for employees retirement benefits, an amount recognized to have incurred in the fiscal year under review is recorded as a provision for retirement benefits or prepaid pension costs, based on the projected benefits obligations and plan assets at the end of the fiscal year under review. Furthermore, projected benefits obligations are calculated using the simplified method. (6) Provision for stocks payment To provide for the payment of shares in the Company to employees in accordance with the Stock Payment Regulations, a provision is reported based the projected stock payment obligations at the end of the fiscal year under review. 5. Recording standards for revenue and expenses Income guarantee fee In general, guarantee fees received as a lump sum are recorded as unearned revenue, and in each fiscal year during the guarantee period, revenue is reported based on the declining balance method (a method whereby income guarantee fees are calculated using a certain percentage of the estimated balance of debt guarantees). Additionally, for guarantee fees received each month, income guarantee fees are calculated using a certain percentage of the balance of guarantee obligations at the end of the previous month, and revenues are reported every month. 17

20 6. Scope of capital in the Non-consolidated Statements of Cash Flows Capital comprises cash on hand, deposits available for withdrawal as needed, and short-term investments due for redemption within three months from the date of acquisition, which are easily cashable and are subject to minimal risk of fluctuation in value. 7. Other significant matters on presenting Non-consolidated Financial Statements Accounting for consumption tax Consumption taxes are accounted for by the tax exclusion method. However, of non-deductible consumption taxes relating to assets, those defined as deferred consumption taxes, etc., under the Corporation Tax Act are reported as long-term prepaid expenses and amortized over a 5 year period on a straight-line basis. (Change in accounting policies) In line with the revision of the Corporation Tax Act, Practical Solution on a change in depreciation method due to Tax Reform 2016 (PITF No. 32; June 17, 2016) was applied for the fiscal year under review, and the depreciation method for the building fixtures and structures acquired on or after April 1, 2016 was changed from the declining-balance method to the straight-line method. The impact of this change on operating income, ordinary income and income before income taxes for the fiscal year under review is immaterial. (Additional information) (Application of Implementation Guidance on Recoverability of Deferred Tax Assets) The Company has applied Implementation Guidance on Recoverability of Deferred Tax Assets (Guidance No. 26; March 28, 2016) from the fiscal year under review. (Transactions where the Company s shares are issued to employees, etc., through a fund) (1) Overview of the transaction The Company has introduced the Employee Stock Ownership Plan (J-ESOP) ( the Plan ), which is an incentive plan where shares of the Company are paid to employees, etc., in order to strengthen the link between the Company s share price, business performance, and the treatment of employees, etc. (including employees of the Company along with Directors and employees of the Company s subsidiaries; the same applies below). The Plan also aims to increase the morale and desire of employees, etc., to increase the Company s share price and business performance by sharing the economic effects with shareholders. Under the Plan, the Company will pay shares in the Company to employees, etc., who fulfill certain conditions, based on the Stock Payment Regulations provided in advance by the Company. The Company will grant points to employees, etc., according to their individual degree of contribution and other factors, and pay shares in the Company equivalent to the number of points granted when employees, etc., have acquired the right to receive shares by fulfilling certain conditions. The shares to be paid to employees, etc., including those required in future, are acquired with money held in trust in advance and managed separately as trust assets. (2) Shares in the Company remaining in trust Shares in the Company remaining in the trust are reported under net assets as treasury shares, based on their carrying value in the trust (excluding the amount of any associated expenses). The carrying value of these treasury shares and number of shares were 266 million and 99,650 shares in the previous fiscal year and 266 million and 99,650 shares in the fiscal year under review. 18

21 (Notes to Non-consolidated Balance Sheets) *1. Contingent liabilities The balance of guarantee obligations is as follows. Guarantee obligations for interest in arrears are not included as they cannot be estimated. (Million yen) As of March 31, 2016 As of March 31, 2017 Guarantee obligations for housing loans, etc. 10,000,122 10,890,638 Provision for loss on guarantees 8,006 7,079 Total 9,992,115 10,883,559 (Notes to Non-consolidated Statement of Change in Equity) For the fiscal year ended March 31, Matters concerning issued shares Number of shares Class of shares at beginning of period Increase during period Decrease during period Number of shares at end of period Common shares 68,858,200 2,780-68,860,980 (Note) Outline of reasons for the changes Increase owing to the exercise of stock options 2,780 shares 2. Matters concerning treasury shares Class of shares Number of shares Increase during Decrease during Number of shares at at beginning of period period end of period period Common shares 100,940-1,050 99,890 (Notes) 1. The number of treasury shares at beginning and end of period includes the Company s shares held by the Employee Stock Ownership Plan (J-ESOP) of 100,700 shares and 99,650 shares, respectively. 2. Outline of reasons for the changes Decrease owing to the payment of the Company s shares based on the Employee Stock Ownership Plan (J-ESOP) 1,050 shares 3. Matters concerning subscription rights to shares, etc. Details Subscription rights to shares issued as stock options Type of shares underlying Number of shares at beginning of period Number of shares underlying (shares) Increase during period Decrease during period Number of shares at end of period Balance at end of period Total

22 4. Matters concerning dividends (1) Cash dividends paid Resolution Regular Shareholders Meeting held on June 19, 2015 Class of shares Common shares Total cash dividends 3,305 million Dividend per share Record date Effective date March 31, 2015 June 22, 2015 (Note) The total cash dividends approved by resolution at the Regular Shareholders Meeting held on June 19, 2015 includes 4 million in dividends to the Company s shares held by the Employee Stock Ownership Plan (J-ESOP). (2) Dividends for which the record date falls in the current period, but the effective date falls in the following period Resolution Regular Shareholders Meeting held on June 17, 2016 Class of shares Common shares Dividend resource Retained earnings Total cash dividends 3,787 million Dividend per share Record date March 31, 2016 Effective date June 20, 2016 (Note) The total cash dividends approved by resolution at the Regular Shareholders Meeting held on June 17, 2016 includes 5 million in dividends to the Company s shares held by the Employee Stock Ownership Plan (J-ESOP). For the fiscal year ended March 31, Matters concerning issued shares Number of shares Class of shares at beginning of period Increase during period Decrease during period Number of shares at end of period Common shares 68,860, ,860, Matters concerning treasury shares Class of shares Number of shares Increase during Decrease during Number of shares at at beginning of period period end of period period Common shares 99, ,957 (Notes) 1. The number of treasury shares at beginning and end of period includes the Company s shares held by the Employee Stock Ownership Plan (J-ESOP) of 99,650 shares. 2. Outline of reasons for the changes Increase owing to the purchase of fractional shares 67 shares 20

23 3. Matters concerning subscription rights to shares, etc. Details Subscription rights to shares issued as stock options Type of shares underlyin g Number of shares at beginning of period Number of shares underlying (shares) Increase during period Decrease during period Number of shares at end of period Balance at end of period Total Matters concerning dividends (1) Cash dividends paid Class of Resolution shares Regular Shareholders Meeting held on June 17, 2016 Common shares Total cash dividends 3,787 million Dividend per share Record date Effective date March 31, 2016 June 20, 2016 (Note) The total cash dividends approved by resolution at the Regular Shareholders Meeting held on June 17, 2016 includes 5 million in dividends to the Company s shares held by the Employee Stock Ownership Plan (J-ESOP). (2) Dividends for which the record date falls in the current period, but the effective date falls in the following period Resolution Regular Shareholders Meeting to be held on June 16, 2017 Class of shares Common shares Dividend resource Retained earnings Total cash dividends 4,269 million Dividend per share Record date March 31, 2017 Effective date June 19, 2017 (Note) The total cash dividends approved by resolution at the Regular Shareholders Meeting to be held on June 16, 2017 includes 6 million in dividends to the Company s shares held by the Employee Stock Ownership Plan (J-ESOP). 21

24 (Notes to Non-consolidated Statements of Cash Flows) *1. Reconciliation between Cash and cash equivalents at end of year and account items listed in the Non-Consolidated Balance Sheets (Million yen) For the fiscal year ended March 31, 2016 For the fiscal year ended March 31, 2017 Cash and deposits 149, ,852 Negotiable deposits included in securities accounts - 1,000 Time deposits with deposit terms of more than three months 108,950 97,450 Cash and cash equivalents 40,339 76,402 *2. Major details of assets and liabilities increased by absorption-type company split Details of the assets and liabilities increased as a result of the absorption-type company split with Seishin Credit Guarantee Co., Ltd. as the split company and the Company as the succeeding company in the previous fiscal year, together with the relationship with proceeds from the absorption-type company split, are as follows. (Million yen) Current assets 524 Current liabilities 80 Non-current liabilities 444 Acquisition cost of acquired businesses 0 Increase in cash and cash equivalents owing 524 to absorption-type company split Net: proceeds from absorption-type company 524 split (Financial Instruments) 1. Matters relating to the status of financial instruments (1) Policy on financial instruments The Company engages in a credit guarantee business centered on a housing loan guarantee business. As the Company engages in these businesses, our policy is to manage guarantee fees received as a lump sum from guarantee consignors from a long-term perspective with an awareness of asset preservation, while following the basic principle of highly safe, certain, and liquid management, and not engaging in high risk transactions. (2) Details of financial instruments and related risks Financial assets held by the Company are mainly cash and deposits received as lump-sum guarantee fees, rights to reimbursement acquired from requests for the performance of debt guarantees, securities, money held in trust and investment securities. Rights to reimbursement are exposed to credit risk from the non-fulfillment of obligations by guarantee consignors, and there is a possibility that obligations may not be fulfilled in accordance with guarantee entrustment agreements owing a difficult business environment or other factors. Money held in trust is mainly invested in domestic bonds, foreign bonds, domestic equities, domestic REITs, and other assets. These assets are exposed to the respective credit risk of the issuer and the risk of fluctuation in market prices. Securities and investment securities are mainly government bonds, public bonds, corporate bonds, and equities, and holdings are divided into held-to-maturity bonds and available-for-sale securities. These assets are exposed to the respective credit risk of the issuer and the risk of fluctuation in 22

25 market prices. (3) Structure for managing risks relating to financial instruments 1) Management of credit risks In the housing loan guarantee business, the Company has developed a structure relating to guarantees, in accordance with screening regulations and guarantee obligations and right to reimbursement management regulations. In screening operations, screening is conducted after a comprehensive evaluation of quantitative and qualitative data by an authorized person or person in charge of screening with the knowledge and experience for an appropriate credit assessment, in accordance with rigorous screening standards. In addition, in cases with high credit risk, screening and approval is conducted by the Screening Division, and thus the Company strives to maintain the soundness of its debt guarantees through the establishment of a screening structure that accommodates the credit risk. The Company strives to suppress credit costs in credit management operations, and its basic policy is to lower the incidence of subrogation, and shorten collection periods of rights to reimbursement and maximize the amount collected. In lowering the incidence of subrogation, the Company coordinates with partner financial institutions and strives to prevent long-term delinquencies by understanding the reasons for the delinquency of first-time delinquent borrowers and offering appropriate advice. In addition, the Company strives to understand the current status and repayment ability of guarantee consignors at an early stage, and responds to changes in terms after determining that there is a possibility of repayment normalization. As a measure for reducing collection periods of rights to reimbursement and maximizing the amount thereof, the Company quickly disposes of properties pledged as collateral in accordance with the status of individual cases, or encourages the voluntary sale thereof. Furthermore, to avoid circumstances where there occurs a possibility that the materialization of risk has an unforeseen impact on the management of the Company, the Company strives to maintain the soundness and stability of management by quantifying credit risk and using advanced credit risk management, calculating provisions, and utilizing it in capital management. The credit risk for securities and investment securities is insignificant, as they are mainly highly rated bonds, etc., in accordance with the Fund Management Regulations. In addition, long-term time deposits and certain investment securities are investments in issuers with high creditworthiness only, and the risk of loss of principal owing to credit risk is insignificant. 2) Management of market risks Market risks for the Company are defined as fluctuations in the value of rights to reimbursement and assets managed, such as securities, which account for a large proportion of assets. As the main source of the Company s assets is guarantee fees received as consideration for guarantees on housing loans, the Company strives to preserve assets and minimize losses by reviewing the asset management policy in accordance with circumstances and strictly enforcing the appropriate disposal of real estate pledged as collateral. Specifically, the Company monitors, analyzes, and verifies the fair value of securities and investment securities, etc., on a daily basis. With regard to the status of the disposal of real estate pledged as collateral, the Company analyzes and verifies the methods of disposal for collateral properties by region (voluntary sale, real estate auction) and collection periods, and reports the respective findings to the Risk Management Committee. (4) Supplementary information on matters relating to the fair value of financial instruments, etc. In addition to the value based on market prices, the fair value of financial instruments also includes a reasonably calculated value in cases when there is no market price. In calculating these values, certain assumptions, etc., are used, so the value may differ if different assumptions, etc., are used. 23

26 2. Matters related to the fair value of financial instruments, etc. The amounts in the Non-consolidated Balance Sheets, fair values, and the differences are as follows. Furthermore, items for which it is recognized that determining the fair values thereof is extremely difficult are not included (Please see (Note 2)). For the fiscal year ended March 31, 2016 (As of March 31, 2016) (Million yen) Amount in Nonconsolidated Balance Sheets Fair value Difference (1) Cash and deposits 149, ,289 - (2) Right to reimbursement 11,989 Allowance for doubtful accounts (*) 6,802 5,187 5,187 - (3) Securities and investment securities 1) Held-to-maturity bonds 43,648 47,480 3,832 2) Available-for-sale securities 13,356 13,356 - (4) Money held in trust 10,291 10,291 - (5) Long-term time deposits 6,000 5, Total assets 227, ,427 3,653 (1) Income taxes payable 4,357 4,357 - Total liabilities 4,357 4,357 - (*)The allowance for doubtful accounts corresponding to rights to reimbursement is excluded. For the fiscal year ended March 31, 2017 (As of March 31, 2017) (Million yen) Amount in Nonconsolidated Balance Sheets Fair value Difference (1) Cash and deposits 172, ,852 - (2) Right to reimbursement 11,481 Allowance for doubtful accounts (*) 6,355 5,125 5,125 - (3) Securities and investment securities 1) Held-to-maturity bonds 47,930 50,860 2,929 2) Available-for-sale securities 10,297 10,297 - (4) Money held in trust 10,058 10,058 - (5) Long-term time deposits 10,000 9, Total assets 256, ,755 2,490 (1) Income taxes payable 4,701 4,701 - Total liabilities 4,701 4,701 - (*)The allowance for doubtful accounts corresponding to rights to reimbursement is excluded. 24

27 (Note 1) Calculation method for the fair value of financial instruments and matters related to securities Assets (1) Cash and deposits As all deposits are short-term, the fair value approximates the carrying value, and thus the fair value is based on the carrying value. (2) Right to reimbursement For rights to reimbursement, as the estimated amount of doubtful receivables is calculated based on the forecast collectable amount of collateral, etc., the fair value approximates the amount in the Non-consolidated Balance Sheets on the closing date less the current estimated amount of doubtful receivables, and thus the fair value is based on this value. (3) Securities and investment securities With regard to the fair value of these items, the fair value of equities is based on the market exchange prices, and the fair value of bonds is based on prices provided by financial institutions. Please see the notes under Securities for notes related to securities by holding category. (4) Money held in trust The fair value of money held in trust is based on prices provided by financial institutions. (5) Long-term time deposits The fair value of long-term time deposits is based on prices provided by financial institutions. Liabilities (1) Income taxes payable As income taxes payable are settled in a short period, the fair value approximates the carrying value, and thus the fair value is based on the carrying value. (Note 2) Amount in the Non-consolidated Balance Sheets of financial instruments for which it is recognized that determining the fair value is extremely difficult (Million yen) Category Fiscal year ended Fiscal year ended March 31, 2016 March 31, 2017 Unlisted shares (*) Partnership investments (*) Shares in subsidiaries (*) 9 9 Total (*) As they do not have market prices and it is recognized that determining the fair values thereof is extremely difficult, they are not subject to the disclosure of fair values. (Note 3) As it is recognized that determining the fair value of guarantee obligations is extremely difficult, notes on their fair value are omitted. 25

28 (Note 4) Scheduled redemption amount after the closing date of monetary claims and securities with a maturity Fiscal year ended March 31, 2016 (As of March 31, 2016) (Million yen) Within 1 year Over 1 year but 5 years or less Over 5 years but 10 years or less Over 10 years (1) Cash and deposits 149, (2) Right to reimbursement (*) (3) Securities and investment securities 1) Held-to-maturity bonds Government bonds, local 1,370 5,780 8,200 9,330 government bonds, etc. Corporate bonds 1,700 4,100 10,340 - Other 1,000-1,500-2) Available-for-sale securities Other 3,000 1, (4) Money held in trust 10, (5) Long-term time deposits ,000 Total 166,651 11,876 20,440 15,330 (*) As the scheduled redemption amount of rights to reimbursement cannot be forecast, it is not stated. Fiscal year ended March 31, 2017 (As of March 31, 2017) Within 1 year Over 1 year but 5 years or less Over 5 years but 10 years or less (Million yen) Over 10 years (1) Cash and deposits 172, (2) Right to reimbursement (*) (3) Securities and investment securities 1) Held-to-maturity bonds Government bonds, local 1,420 5,980 8,200 7,710 government bonds, etc. Corporate bonds 400 5,700 13,140 2,000 Other 1,000-1,500-2) Available-for-sale securities Other 2,000 1, (4) Money held in trust 10, (5) Long-term time deposits ,000 Total 187,731 13,640 23,240 19,710 (*) As the scheduled redemption amount of rights to reimbursement cannot be forecast, it is not stated. 26

29 (Securities) 1. Held-to-maturity bonds Fiscal year ended March 31, 2016 (As of March 31, 2016) Fair value exceeds amount in Nonconsolidated Balance Sheets Fair value does not exceed amount in Nonconsolidated Balance Sheets (Million yen) Type Amount in Nonconsolidated Balance Sheets Fair value Difference Government bonds, local government 25,008 28,632 3,623 bonds, etc. Corporate bonds 15,539 15, Other Subtotal 41,048 44,899 3,850 Government bonds, local government bonds, etc. Corporate bonds Other 2,000 1, Subtotal 2,600 2, Total 43,648 47,480 3,832 Fiscal year ended March 31, 2017 (As of March 31, 2017) (Million yen) Type Amount in Nonconsolidated Fair value Difference Balance Sheets Government Fair value bonds, local exceeds amount government 23,584 26,619 3,034 in Nonconsolidated bonds, etc. Corporate bonds 11,539 11, Balance Sheets Other Subtotal 35,124 38,278 3,153 Government Fair value does bonds, local not exceed government amount in Nonconsolidated bonds, etc. Corporate bonds 10,305 10, Balance Sheets Other 2,500 2, Subtotal 12,805 12, Total 47,930 50,860 2, Shares in subsidiaries Fiscal year ended March 31, 2016 (As of March 31, 2016) Shares in subsidiaries ( 9 million recorded in the Non-consolidated Balance Sheets) are not stated, since they do not have market prices and the fair values thereof are deemed to be extremely difficult to determine. Fiscal year ended March 31, 2017 (As of March 31, 2017) Shares in subsidiaries ( 9 million recorded in the Non-consolidated Balance Sheets) are not stated, since they do not have market prices and the fair values thereof are deemed to be extremely difficult to 27

30 determine. 3. Available-for-sale securities Fiscal year ended March 31, 2016 (As of March 31, 2016) (Million yen) Type Amount in Nonconsolidated Balance Sheets Acquisition cost Difference Amount in Nonconsolidated Stock Other 4,035 3, Balance Sheets exceeds Subtotal 4,379 4, acquisition cost Amount in Nonconsolidated Stock 1,568 2, Other 7,408 7, Balance Sheets does not exceed Subtotal 8,977 9, acquisition cost Total 13,356 13, (Note) Unlisted shares ( 156 million recorded in the Non-consolidated Balance Sheets) and partnership investments ( 291 million recorded in the Non-consolidated Balance Sheets) are not included in Available-for-sale securities in the table above, since they do not have market prices and the fair values thereof are deemed to be extremely difficult to determine. Fiscal year ended March 31, 2017 (As of March 31, 2017) (Million yen) Type Amount in Nonconsolidated Balance Sheets Acquisition cost Difference Amount in Nonconsolidated Stock Other Balance Sheets exceeds Subtotal acquisition cost Amount in Nonconsolidated Stock 1,207 1, Other 8,267 8, Balance Sheets does not exceed Subtotal 9,475 9, acquisition cost Total 10,297 10, (Note) Unlisted shares ( 356 million recorded in the Non-consolidated Balance Sheets) and partnership investments ( 291 million recorded in the Non-consolidated Balance Sheets) are not included in Available-for-sale securities in the table above, since they do not have market prices and the fair values thereof are deemed to be extremely difficult to determine. 28

31 4. Available-for-sale securities sold during the fiscal years For the fiscal year ended March 31, 2016 There is no relevant information. For the fiscal year ended March 31, 2017 (Million yen) Type Amount of sales Total gain on sales Total loss on sales Available-for-sale 1, Securities subject to impairment There is no relevant information for the fiscal year ended March 31, Impairment of 380 million was recorded for stock in available-for-sale securities for the fiscal year ended March 31, Impairment loss for securities whose fair market values are available are recorded when the fair values as of the closing date have decreased by 50% or more from the acquisition costs. In cases where the fair values have decreased by 30-50%, an impairment loss is recorded at an amount recognized as necessary in view of the possibility of recovery, etc. For securities without fair values, an impairment loss is recorded if the actual value declines significantly. (Retirement benefits) 1. Overview of adopted retirement benefit plans The Company has accumulating-type defined benefit plans for employees retirement benefits. Under the defined benefit corporate pension plan (accumulating-type plan), the Company pays a lump-sum amount or a pension, based on the employee s years of service, grade, and reason for retiring. Defined benefit corporate pension plans held by the Company calculate provision for retirement benefits (prepaid pension costs) and retirement benefit expenses using the simplified method. 2. Defined benefit plans applying the simplified method (1) Reconciliation of balances of provision for retirement benefits (prepaid pension costs) at beginning and end of period for the plans applying the simplified method (Million yen) For the fiscal year ended March 31, 2016 For the fiscal year ended March 31, 2017 Balance of provision for retirement benefits (prepaid pension costs) at beginning of 50 5 period Retirement benefit expenses Contribution to the plan Balance of provision for retirement benefits (prepaid pension costs) at end of period

32 (2) Reconciliation between balances of projected benefit obligations and plan assets at end of period and prepaid pension costs recorded in the Non-consolidated Balance Sheets (Million yen) For the fiscal year ended March 31, 2016 For the fiscal year ended March 31, 2017 Projected benefit obligations of the accumulating-type pension plan Plan assets Net liabilities and assets recorded in the Non-consolidated Balance Sheets 5 14 Prepaid pension costs 5 14 Net liabilities and assets recorded in the Non-consolidated Balance Sheets 5 14 (3) Retirement benefit expenses Retirement benefit expenses calculated using the simplified method For the fiscal year ended March 31, 2016: 55 million For the fiscal year ended March 31, 2017: 67 million (Stock Options) 1. Expenses recorded and account names relating to stock options (Million yen) For the fiscal year ended March 31, 2016 For the fiscal year ended March 31, 2017 Operating expenses Details, size, and status of changes in stock options (1) Details of stock options First series subscription rights to shares Second series subscription rights to shares Third series subscription rights to shares Resolution date June 20, 2014 June 19, 2015 June 17, 2016 Classification and Four Directors of the Four Directors of the Four Directors of the number of people Company Company Company eligible for grant Type and number of Common stock; 13,350 Common stock; 7,390 Common stock; 9,470 shares to be granted shares shares shares Grant date July 23, 2014 July 22, 2015 July 20, 2016 Vesting conditions There are no vesting conditions attached. There are no vesting conditions attached. There are no vesting conditions attached. Required service There is no required There is no required There is no required period service period defined. service period defined. service period defined. Exercise period From July 24, 2014 to July 23, 2044 From July 23, 2015 to July 22, 2045 From July 21, 2016 to July 20,

33 (2) Size and status of changes in stock options Information is shown for stock options that existed during the fiscal year under review (the fiscal year ended March 31, 2017), and the number of stock options has been converted into the number of shares. 1) Number of stock options First series subscription rights to shares Second series subscription rights to shares Third series subscription rights to shares Resolution date June 20, 2014 June 19, 2015 June 17, 2016 Prior to vesting (shares) End of the previous fiscal year Granted - - 9,470 Expired Vested - - 9,470 Remaining unvested After vesting (shares) End of the previous fiscal 10,570 7,390 - year Vested - - 9,470 Exercised Expired Remaining unvested 10,570 7,390 9,470 2) Unit price information First series subscription rights to shares Second series subscription rights to shares Third series subscription rights to shares Resolution date June 20, 2014 June 19, 2015 June 17, 2016 Exercise price (yen) Average share price at exercise (yen) Fairly assessed value on the grant date (yen) ,313 4,274 3, Method of estimating the fairly assessed value of stock options granted in the fiscal year under review (1) Valuation methodology used Black-Scholes model (2) Major basic figures and method of estimation Share price volatility (Note 1) 44.7% Expected remaining period (Note 2) 8.2 years Expected dividend (Note 3) 55 yen per share Risk-free interest rate (Note 4) 0.33% (Notes) 1. Calculated based on the actual share price from December 19, 2012 to July 11, Calculated based on the expected period of service of the stock option grantees. 3. Actual dividend for the fiscal year ended March 31, The yield on government bonds of a maturity corresponding to the expected remaining period. 4. Method of estimating the number of stock options vested As there are no vesting conditions attached, the number of stock options granted is used as the vested number. 31

34 (Tax effect accounting) 1. Details of deferred tax assets and liabilities by major cause (Million yen) As of March 31, 2016 As of March 31, 2017 Deferred tax assets Allowance for doubtful accounts 1, Accrued enterprise tax Provision for bonuses Provision for loss on guarantees 2,470 2,184 Provision for shareholder benefit program Reguarantee fees 1,266 1,073 Software Software in progress Loss on valuation of investment securities Asset retirement obligations 9 10 Unearned revenue 6 3 Provision for stocks payment Valuation difference on availablefor-sale securities Subscription rights to shares Other Deferred tax assets subtotal 5,435 4,774 Valuation reserve Total deferred tax assets 5,341 4,562 Deferred tax liabilities Prepaid pension costs 1 4 Valuation difference on availablefor-sale securities Other - 2 Total deferred tax liabilities Deferred tax assets, net 5,322 4,531 (Note) Net deferred tax assets for the fiscal years ended March 31, 2016 and 2017 are included in the following items in the Non-consolidated Balance Sheets (Million yen) As of March 31, 2016 As of March 31, 2017 Current assets - Deferred tax assets 3,870 3,372 Non-current assets - Deferred tax assets 1,451 1,159 32

35 2. Details by major item of differences between the statutory effective tax rate and the income tax rate after tax effect accounting As the difference between the statutory effective tax rate and the income tax rate after tax effect accounting is 5% or less of the statutory effective tax rate, description is omitted. (Segment Information) As the Company operates in a single segment of the credit guarantee business, description is omitted. (Equity in earnings/losses of affiliates, etc.) There is no relevant information. (Per share information) For the fiscal year ended March 31, 2016 For the fiscal year ended March 31, 2017 Net assets per share 1, , Basic earnings per share Diluted earnings per share (Notes) 1. The basis for the calculation of basic earnings per share and diluted earnings per share is as follows. For the fiscal year For the fiscal year ended March 31, 2016 ended March 31, 2017 Basic earnings per share Net income (Million yen) 17,204 19,530 Amount not attributable to common shareholders (Million yen) Net income relating to common shares (Million yen) Average number of common shares outstanding during the fiscal year (shares) ,204 19,530 68,760,762 68,761,034 Diluted earnings per share Adjustment for net income (Million yen) - - Increase in number of common shares (shares) (subscription rights to shares included in the above (shares)) Outline of dilutive shares not included in calculation of diluted earnings per share due to lack of dilutive effect 15,694 24,570 (15,694) (24,570) 2. The Company s shares remaining in the Employee Stock Ownership Plan (J-ESOP) and reported as treasury shares under shareholders equity are included in treasury shares that are excluded from the calculation of the average number of shares outstanding during the period when calculating basic earnings per share. They are also included in treasury shares that are excluded from the calculation of the total number of shares outstanding at the end of the period when calculating net assets per share. The average number of these treasury shares that are excluded from the calculation of basic earnings per share was 99,977 shares in the previous fiscal year and 99,650 shares in the - 33

36 fiscal year under review. The total number of these treasury shares that are excluded from the calculation of net assets per share was 99,650 shares in the previous fiscal year and 99,650 shares in the fiscal year under review. (Significant subsequent events) There is no relevant information. 6. Other Information (1) Status of production, orders, and sales There is no relevant information. (2) Changes in officers There is no relevant information. 34

37 Financial Results for the Fiscal Year Ended March 31, 2017 ZENKOKU HOSHO Co., Ltd. May 2017

38 Table of Contents I. Overview of Financial Results P 3 II. Future Prospects P 9 1 for your dream and happiness

39 Summary of Business Results for the Fiscal Year Ended March 31, 2017 The housing market showed signs of recovery mainly in rental houses, including increased numbers of new housing starts compared to the previous fiscal year. We made progress in creating new partnerships, and signed new contracts with a total of 18 financial institutions, including 5 banks, 2 Shinkin banks, 9 JA cooperatives, 2 labour banks. We reached our budget in operating revenue, due to the solid increase of outstanding guarantee exposure. Operating expenses (expenses related to credit services) were lower than the forecast while all income categories were higher than the initial forecasts. 2 for your dream and happiness

40 3 I. Overview of Financial Results

41 Economic Environment Despite a sense of uncertainty about overseas economic trends, the Japanese economy continued on a moderate recovery due to sustained improvements in employment and income conditions as well as signs of recovery in corporate earnings and a steady stream of consumer spending. Signs of recovery were seen in the housing market mainly in rental houses. The number of new housing starts exceeded that of the previous fiscal year, due mainly to the effects of the Negative Interest Rate Policy adopted by the Bank of Japan and government policies designed to support housing acquisitions. In the housing loan market, competition to acquire customers has continued to be intense among financial institutions against the backdrop of low housing loan rates. Unemployment Rate (seasonally adjusted figures) (April, 2015-March, 2017) (unit: %) Number of new housing starts (April, 2015-March, 2017) (seasonally adjusted annual rate) (unit: Number of houses) Source: Labor Force Survey, Ministry of Internal Affairs and Communications Source: Statistics of Housing Starts, Ministry of Land, Infrastructure, Transport and Tourism 4 for your dream and happiness

42 Increase in Number of Partnering Financial Institutions Trend in Number of Partnering Financial Institutions by Category (Unit: Number of Institutions) Banks Shinkin Banks Credit Unions JA JF Labour Bank Others Partnership Market Share by Category /3 2014/3 2013/3 2015/3 2014/3 2016/3 '2016/ /3 As a result of efforts to increase new partners, we concluded contracts with 5 banks, 2 Shinkin banks, 9 JA cooperatives, 2 labour banks. (Unit: Number of Institutions) 11 Partnership 7 22 Rate 80.0% 95.8% 93.5% 41.0% Non-Partners Banks* Shinkin Banks Credit Unions JA Partners * The amount of banks is the sum of Regional Banks, 2nd Tier Regional Banks, The Bank of Tokyo-Mitsubishi UFJ, Ltd., Sumitomo Mitsui Trust Bank, Limited., Resona Bank, Limited, Saitama Resona Bank, Limited and AEON Bank, Ltd. for your dream and happiness

43 Increase in Loan Guarantee Business Number of New Guarantees Received (Unit: Number of Guarantees) Number and Amount of New Guarantees Granted (Unit: Number, 100 million yen) *Number of guarantees of housing loans extended by private financial institutions to individual borrowers *Number of guarantees of housing loans extended by private financial institutions to individual borrowers. Number and amount of new guarantees granted for the fiscal year ended March 2016 do not include loan guarantees succeeded through an absorption-type split. Outstanding Guarantee Exposure (Unit: 100 million yen) Amount Repaid in Subrogation (Unit: 100 million yen) 6 *Outstanding guarantee exposure as of March 2016 and March 2017 include loan guarantees succeeded through an absorption-type split. for your dream and happiness

44 Summary of Business Results for the Fiscal Year Ended March 31, 2017 (P/L) FY2016/3 FY2017/3 Change Initial Forecast Operating revenue 31,918 35, % 33,780 Operating expenses 6,793 7, % 9,540 Expenses related to credit services Provision for loss on guarantees Provision of allowance for doubtful accounts (Unit: Million yen) 1,380 2, % 3,600 1,800 2, % 3, % 320 Other expenses 5,412 5, % 5,940 Operating income 25,125 28, % 24,240 Ordinary income 26,303 29, % 25,140 Points Operating revenue Operating revenue amounted to 35,918 million yen as outstanding guarantee exposure remained steady. Operating expenses Expenses related to credit services increased from the previous fiscal year but were lower than the initial forecast at 2,030 million yen, due to payment for subrogation performing at a low level. As a result, operating expenses amounted to 7,778 million yen. Net income As a result of above situations, net income amounted to 19,530 million yen. Net income 17,204 19, % 17,290 ROE 23.2% 21.7% 19.7% *Initial forecast released on May 8, Revised forecast were published on March 21, for your dream and happiness