Financial Section Consolidated Balance Sheets · THE HIROSHIMA BANK, LTD. AND CONSOLIDATED...

HIROSHIMA BANK ANNUAL REPORT 2015 19

Consolidated Balance SheetsFinancial Section

THE HIROSHIMA BANK, LTD. AND CONSOLIDATED SUBSIDIARIESAs of March 31, 2014 and 2015

Millions of yenMillions of

U.S. dollars (Note1)

2014 2015 2015ASSETS

Cash and due from banks (Notes 3, 4, 13 and 20) ¥ 197,940 ¥ 427,769 $ 3,560

Call loans and bills purchased (Note 20) 13,989 20,722 172

Financial receivables purchased (Notes 4 and 20) 4,702 6,564 55

Trading assets (Notes 3, 4 and 20) 12,589 18,558 154

Money held in trust (Notes 5 and 20) 156 156 1

Securities (Notes 3, 4, 7, 11 and 20) 1,986,123 2,135,659 17,772

Loans and bills discounted (Notes 6, 8 and 20) 4,804,602 5,102,855 42,464

Foreign exchanges 8,059 6,285 52

Other assets (Note 7) 29,889 27,466 229

Tangible fixed assets (Note 3) 85,297 84,798 706

Intangible fixed assets (Note 3) 8,103 8,750 73

Net defined benefit assets 34,395 57,454 478

Deferred tax assets (Notes 3 and 17) 6,654 835 7

Customers’ liabilities for acceptances and guarantees (Note 11) 45,870 54,970 457

Reserve for possible loans losses (Note 3) (32,798) (35,807) (298)

Total assets ¥7,205,576 ¥7,917,039 $65,882

LIABILITIES AND NET ASSETSLiabilities:

Deposits (Notes 7 and 20) ¥6,351,566 ¥6,793,662 $56,534

Call money and bills sold (Note 20) 38,009 28,406 236

Payables under repurchase agreements — 88,861 740

Deposits received for bonds lending/borrowing transactions (Notes 7 and 20) 192,120 250,963 2,088

Trading liabilities (Note 3) 10,345 16,284 136

Borrowed money (Notes 7, 9 and 20) 99,724 150,960 1,256

Foreign exchanges 900 135 1

Bonds (Notes 10 and 20) 50,000 20,000 167

Due to trust account 58 47 0

Other liabilities 40,984 36,573 304

Net defined benefit liabilities 23 38 0

Reserve for executive retirement benefits (Note 3) 22 36 0

Reserve for reimbursement of dormant deposits (Note 3) 1,304 1,413 12

Reserve for point loyalty programs (Note 3) 63 100 1

Deferred tax liabilities (Note 17) — 24,324 202

Deferred tax liabilities for land revaluation reserve (Note 3) 16,075 14,062 117

Acceptances and guarantees (Note 11) 45,870 54,970 458

Total liabilities ¥6,847,068 ¥7,480,843 $62,252

Net Assets (Notes 3 and 12):Common stock:

Authorized – 2,000,000,000 shares

Issued – 625,266,342 shares ¥ 54,573 ¥ 54,573 $ 454

Capital surplus 30,635 30,704 256

Retained earnings 221,787 240,990 2,005

Common stock in treasury (1,754) (1,416) (12)

Total stockholders’ equity 305,242 324,851 2,703

Net unrealized holding gains on securities available for sale 26,122 65,661 546

Net deferred losses on hedging instruments, net of tax (1,447) (1,125) (9)

Land revaluation reserve, net of tax (Note 3) 26,040 27,344 228

Foreign currency translation adjustments (0) — —

Remeasurements of defined benefit plans 2,262 19,080 159

Total accumulated other comprehensive income 52,977 110,960 924

Stock acquisition rights (Note 21) 287 383 3

Total net assets 358,507 436,195 3,630

Total liabilities and net assets ¥7,205,576 ¥7,917,039 $65,882 See notes to consolidated financial statements.

HIROSHIMA BANK ANNUAL REPORT 201520

THE HIROSHIMA BANK, LTD. AND CONSOLIDATED SUBSIDIARIESYears ended March 31, 2014 and 2015


Consolidated Statements of Income

Consolidated Statements of Comprehensive Income


U.S. dollars (Note 1)

2014 2015 2015Income:Interest income:

Interest on loans and discounts ¥ 66,293 ¥ 65,072 $ 541 Interest and dividends on securities 18,228 15,555 129 Other interest income 1,206 2,355 20

Fees and commissions 25,779 27,243 227 Other operating income 18,974 11,757 98 Other income 13,335 9,370 78

Total income 143,817 131,355 1,093

Expenses:Interest expenses:

Interest on deposits 4,313 3,813 32 Interest on borrowings and rediscounts 3,305 2,170 18 Other interest expenses 1,218 1,756 15

Fees and commissions 9,139 9,190 76 Other operating expenses 19,553 11,672 97 General and administrative expenses (Note 21) 56,080 55,464 462 Other expenses 11,463 5,639 47

Total expenses 105,074 89,707 746 Income before income taxes 38,742 41,647 347 Income taxes (Notes 3 and 17):

Current 9,041 7,141 60 Deferred 6,033 7,942 66

Income before minority interests 23,666 26,563 221 Minority interests 784 — —Net income ¥ 22,882 ¥ 26,563 $ 221

Yen U.S. dollars (Note 1)

Amounts per share of common stock (Note 12):Net assets ¥576.88 ¥700.89 $5.83 Net income 36.88 42.74 0.36 Diluted net income 36.82 42.67 0.36 Cash dividends applicable to the year 8.00 9.00 0.07

See notes to consolidated financial statements.



2014 2015 2015Income before minority interests ¥23,666 ¥26,563 $221 Other comprehensive income (Note 22):

Net unrealized holding gains on securities available for sale 311 39,549 329 Net deferred gains (losses) on hedging instruments, net of tax 426 322 3 Land revaluation reserve, net of tax — 1,757 14 Foreign currency translation adjustments 0 0 0 Remeasurements of defined benefit plans — 16,817 140 Share of other comprehensive income of affiliated companies accounted for by equity method 0 (10) (0)

Comprehensive income (Note 22) ¥24,406 ¥85,000 $707 Attributable to (Note 22):

Shareholders of parent ¥23,621 ¥85,000 $707 Minority interest 784 — —

See notes to consolidated financial statements.



Consolidated Statements of Changes in Net Assets

Millions of yen

2014Stockholders’ equity

Item Common stock Capital surplus Retained earningsCommon stock

in treasuryTotal

stockholders’ equity

Balance at the beginning of year ¥54,573 ¥30,635 ¥202,865 ¥(2,204) ¥285,869

Cumulative effects of changes in accounting policies —

Restated balance 54,573 30,635 202,865 (2,204) 285,869

Changes of items during the period

Dividends from surplus (4,031) (4,031)Net income 22,882 22,882

Purchase of common stock in treasury (10) (10)

Disposal of common stock in treasury (19) 461 441

Reversal of land revaluation reserve 91 91

Net changes of items other than stockholders’ equity

Total changes of items during the period — — 18,922 450 19,373Balance at the end of year ¥54,573 ¥30,635 ¥221,787 ¥(1,754) ¥305,242

Millions of yen

2014Accumulated other comprehensive income

Item

Net unrealized holding gains on securities available for

sale

Net deferred losses on hedging

instruments, net of tax

Land revaluation

reserve, net of tax

Foreign currency

translation adjustments

Remeasurements of defined

benefit plans

Total accumulated

other comprehensive

income

Stock acquisition

rightsMinority interests

Total net assets

Balance at the beginning of year ¥25,809 ¥(1,874) ¥26,132 ¥(0) ¥ — ¥50,067 ¥241 ¥30,172 ¥366,351

Cumulative effects of changes in accounting policies —

Restated balance 25,809 (1,874) 26,132 (0) — 50,067 241 30,172 366,351


Dividends from surplus (4,031)Net income 22,882

Purchase of common stock in treasury (10)

Disposal of common stock in treasury 441

Reversal of land revaluation reserve 91

Net changes of items other than stockholders’ equity 312 426 (91) 0 2,262 2,910 45 (30,172) (27,216)

Total changes of items during the period 312 426 (91) 0 2,262 2,910 45 (30,172) (7,843)Balance at the end of year ¥26,122 ¥(1,447) ¥26,040 ¥(0) ¥2,262 ¥52,977 ¥287 ¥ — ¥358,507


Millions of yen



in treasuryTotal


Balance at the beginning of year ¥54,573 ¥30,635 ¥221,787 ¥(1,754) ¥305,242

Cumulative effects of changes in accounting policies (2,534) (2,534)

Restated balance 54,573 30,635 219,253 (1,754) 302,707


Dividends from surplus (5,280) (5,280)Net income 26,563 26,563


Disposal of common stock in treasury 68 358 427



Total changes of items during the period — 68 21,736 337 22,143Balance at the end of year ¥54,573 ¥30,704 ¥240,990 ¥(1,416) ¥324,851

Millions of yen


Item


sale



Land revaluation

reserve, net of tax

Foreign currency



benefit plans

Total accumulated

other comprehensive

income

Stock acquisition


Total net assets

Balance at the beginning of year ¥26,122 ¥(1,447) ¥26,040 ¥ (0) ¥ 2,262 ¥ 52,977 ¥287 ¥— ¥358,507

Cumulative effects of changes in accounting policies (2,534)

Restated balance 26,122 (1,447) 26,040 (0) 2,262 52,977 287 — 355,972


Dividends from surplus (5,280)Net income 26,563




Net changes of items other than stockholders’ equity 39,538 322 1,303 0 16,817 57,983 95 — 58,078

Total changes of items during the period 39,538 322 1,303 0 16,817 57,983 95 — 80,222Balance at the end of year ¥65,661 ¥(1,125) ¥27,344 ¥— ¥19,080 ¥110,960 ¥383 ¥— ¥436,195


Millions of U.S. dollars (Note 1)



in treasuryTotal


Balance at the beginning of year $454 $255 $1,846 $(15) $2,540

Cumulative effects of changes in accounting policies (21) (21)

Restated balance 454 255 1,825 (15) 2,519


Dividends from surplus (44) (44)Net income 221 221


Disposal of common stock in treasury 1 3 4



Total changes of items during the period — 1 180 3 184Balance at the end of year $454 $256 $2,005 $(12) $2,703

Millions of U.S. dollars (Note 1)


Item


sale



Land revaluation

reserve, net of tax

Foreign currency



benefit plans

Total accumulated

other comprehensive

income

Stock acquisition


Total net assets

Balance at the beginning of year $217 $(12) $217 $ (0) $ 19 $441 $2 $— $2,983

Cumulative effects of changes in accounting policies (21)

Restated balance 217 (12) 217 (0) 19 441 2 — 2,962


Dividends from surplus (44)Net income 221




Net changes of items other than stockholders’ equity 329 3 11 0 140 483 1 — 484

Total changes of items during the period 329 3 11 0 140 483 1 — 668Balance at the end of year $546 $ (9) $228 $— $159 $924 $3 $— $3,630



Consolidated Statements of Cash Flows



2014 2015 2015Cash flows from operating activities:

Income before income taxes ¥ 38,742 ¥ 41,647 $ 347 Adjustments to reconcile income before income taxes to net cash provided by operating activities:

Depreciation of premises, equipment and others 4,196 4,058 34 Impairment losses of fixed assets 588 689 6 Negative goodwill — (2,517) (21)Equity in earnings of affiliates (753) (757) (6)Net change in reserve for possible loan losses (13,130) 674 6 Net change in net defined benefit assets (4,814) (27,018) (225)Net change in net defined benefit liabilities (45) (0) (0)Net change in reserve for executive retirement benefits 1 (5) (0)Net change in reserve for reimbursement of dormant deposits 55 109 1 Net change in reserve for point loyalty programs (4) 0 0 Interest income (85,728) (82,983) (691)Interest expense 8,837 7,740 64 Net losses on securities transactions 678 (569) (5)Net losses on dispositions of fixed assets 62 65 0 Net losses on step acquisition — 430 4 Net change in trading assets 2,996 (5,968) (50)Net change in trading liabilities (2,867) 5,939 49 Net change in loans (159,438) (297,543) (2,476)Net change in deposits 254,759 337,678 2,810 Net change in negotiable certificates of deposits (34,844) 112,397 935 Net change in borrowed money excluding subordinated loans (26,538) 78,235 651 Net change in due from banks other than from the BANK OF JAPAN 10,155 (68) (1)Net change in call loans and bills bought 3,915 (6,969) (58)Net change in call money and bills sold 4,314 79,258 660 Net change in deposits received for bonds lending/borrowing transactions 50,693 58,843 490 Net change in foreign exchanges (assets) (3,459) 1,773 15 Net change in foreign exchanges (liabilities) 549 (764) (6)Net change in straight corporate bonds (20,000) (20,000) (166)Interest received 91,162 90,875 756 Interest paid (14,120) (8,187) (68)Other – net (19,148) (8,299) (69)

Subtotal 48,078 317,116 2,639 Income taxes paid (10,949) (10,643) (89)

Total adjustments 37,129 306,473 2,550 Net cash provided by operating activities 75,871 348,120 2,897

Cash flows from investment activities:Purchases of securities (2,162,195) (1,716,267) (14,282)Proceeds from sales of securities 2,133,723 1,550,566 12,903 Proceeds from maturity of securities 76,366 92,666 771 Increase in money held in trust (1) (1) (0)Decrease in money held in trust 1 1 0 Purchases of tangible fixed assets (3,381) (1,944) (16)Purchases of intangible fixed assets (1,966) (2,796) (23)Proceeds from sales of tangible fixed assets 209 47 0 Proceeds from liquidation of subsidiaries — 737 6 Purchase of investment in subsidiaries resulting in change in scope of consolidation — 0 0

Net cash used in investing activities 42,754 (76,989) (641)

Cash flows from financing activities:Repayments of subordinated loans (29,000) (27,000) (224)Redemption of subordinated bonds and bonds with stock subscription rights — (10,000) (83)Payment to minority interests (30,000) — —Dividends paid (4,044) (5,279) (44)Dividends paid to minority interests (957) — —Purchase of treasury stock (10) (20) (0)Proceeds from sales of treasury stock 379 389 3 Payment of lease liabilities (80) (73) (1)

Net cash used in financing activities (63,713) (41,983) (349)

Effect of foreign exchange rate changes on cash and cash equivalents 0 (10) (0)Net change in cash and cash equivalents 54,913 229,136 1,907 Cash and cash equivalents at the beginning of year 140,487 195,401 1,626 Cash and cash equivalents at the end of year (Note 13) ¥ 195,401 ¥ 424,537 $ 3,533 See notes to consolidated financial statements.


THE HIROSHIMA BANK, LTD. AND CONSOLIDATED SUBSIDIARIESMarch 31, 2014 and 2015

Notes to Consolidated Financial Statements

1 Basis of presenting consolidated financial statements

The accompanying consolidated financial statements of the Hiroshima Bank, Ltd. (the “Bank”) and its consolidated subsidiaries have been prepared in accordance with the provisions set forth in the Japanese Financial Instruments and Exchange Law and its related accounting regulations, and in conformity with accounting principles generally accepted in Japan (“Japanese GAAP”), which are different in certain respects as to application and disclosure requirements of International Financial Reporting Standards.

The accompanying consolidated financial statements have been restructured and translated into English (with some expanded descriptions) from the consolidated financial statements of the Bank prepared in accordance with Japanese GAAP and filed with the appropriate Local Finance Bureau of the Ministry of Finance as required by the Financial Instruments and Exchange Law. Some supplementary information included in the statutory Japanese language consolidated financial statements, but not required for fair presentation, is not presented in the accompanying consolidated financial statements.

The Bank maintains its accounting records in Japanese yen, the currency in which the Bank is incorporated and operates. In preparing the accompanying consolidated financial statements and notes thereto, Japanese yen figures less than one million yen have been rounded down to the nearest million yen, except for per share data, in accordance with the Financial Instruments and Exchange Law and Enforcement Regulation concerning Banking Law of Japan. Therefore, total or subtotal amounts shown in the accompanying consolidated financial statements and notes thereto do not necessarily agree with the sums of individual amounts. The translations of the Japanese yen amounts into U.S. dollars are included solely for the convenience of readers, using the prevailing exchange rate at March 31, 2015, which was ¥120.17 to U.S.$1.00. The convenience translations should not be construed as representations that the Japanese yen amounts have been, could have been, or could in the future be, converted into U.S. dollars at this or any other rate of exchange.

2 Principles of consolidation

The consolidated financial statements include the accounts of the Bank and 6 subsidiaries. The Bank includes the accounts of several companies which are less than 50% owned in the accompanying consolidated financial statements in the case that the Bank has control over these companies through cross-shareholdings, transfer of management, and provision of debt guarantees and loans. All significant intercompany balances and transactions have been eliminated.

Investments in 20% to 50% owned companies are carried at cost adjusted for equity in undistributed earnings or losses since acquisition (the equity method). The Bank also applies the equity method for investments in certain companies which are less than 20% owned in the case that the Bank is able to exercise significant influence over these companies.

The consolidated financial statements do not include the accounts of a subsidiary because the total assets, total income, net income, retained earnings and total accumulated other comprehensive income of the subsidiary would not have had a material effect on the consolidated financial statements.

Investment in the unconsolidated subsidiary was stated at cost. If the equity method of accounting had been applied to the investments in the subsidiary, the effect on the accompanying consolidated financial statements would not be material.

Consequently, the consolidated financial statements include the account of the Bank and its subsidiaries and affiliated companies (six subsidiaries and three affiliated companies).

As of March 31, 2015, the fiscal year ending dates are March 31 for 6 subsidiaries.

3 Significant accounting policies

Trading assets and trading liabilitiesThe Bank adopted mark-to-market accounting for trading assets and trading liabilities including securities, financial receivables and financial derivatives for trading purpose. Trading assets and trading liabilities are recorded on a trade date basis, and revenues and expenses related to trading securities transactions are also recorded on a trade date basis. Securities and financial receivables for trading purpose are stated at market or fair value at the balance sheet date. Financial derivatives such as futures and option transactions are stated at a deemed settlement amount at the balance sheet date. Unrealized gains or losses incurred by the mark-to-market method are charged to income.


SecuritiesAll companies are required to examine the intent of holding each security and classify those securities as (a) securities held for trading purposes (hereafter, “trading securities”), (b) debt securities intended to be held to maturity (hereafter, “held-to-maturity debt securities”), (c) equity securities issued by subsidiaries and affiliated companies, and (d) for all other securities that are not classified in any of the above categories (hereafter, “available-for-sale securities”).

Trading securities are stated at fair market value. Gains and losses realized on disposal and unrealized gains and losses from market value fluctuations are recognized as gains or losses in the period of the change. Held-to-maturity debt securities are stated at amortized cost. Equity securities issued by subsidiaries and affiliated companies which are not consolidated or accounted for using the equity method are stated at moving-average cost. Available-for-sale securities with available fair market values are stated at fair market value. Unrealized gains and unrealized losses on these securities are reported, net of applicable income taxes, as a separate component of net assets. Realized gains and losses on sale of such securities are computed using moving-average cost.

Securities available-for-sale for which fair value cannot be reliably determined are carried at cost determined by the moving average method.

Debt securities with no available fair market value are stated at amortized cost, net of the amount considered not collectible. Other securities with no available fair market value are stated at moving-average cost.

If the market value of held-to-maturity debt securities, equity securities issued by subsidiaries and affiliated companies not consolidated or accounted for by the equity method, and available-for-sale securities declines significantly, such securities are stated at fair market value and the difference between fair market value and the carrying amount is recognized as loss in the period of the decline. If the fair market value of equity securities issued by unconsolidated subsidiaries and affiliated companies not on the equity method is not readily available, such securities should be written down to net asset value with a corresponding charge in the income statement in the event net asset value declines significantly. In these cases, such fair market value or the net asset value will be the carrying amount of the securities at the beginning of the next year.

When market values of available-for-sale securities with fair market values decline by 50% or more of the acquisition

cost at the balance sheet date, the Bank writes down such securities to the fair market values and records the related write-downs as loss in its consolidated statement of income. When market values of available-for-sale securities with fair market value decline by 30% or more but less than 50% of the acquisition cost, write-downs to the fair market values may be recognized for certain issuers based on evaluation of issuers’ debtor classification. The Bank devaluated the securities other than securities held for trading purposes and recognized a loss of ¥34 million (¥1 million for equity securities and ¥33 million for bonds) as for the year ended March 31, 2014.

Derivatives and hedge accountingCompanies are required to state derivative financial instruments at fair value and to recognize changes in the fair value as gains or losses unless derivative financial instruments are used for hedging purposes.

(1) Hedging against interest rate fluctuationsThe Bank applies deferred hedge accounting pursuant to the treatment regulated by “Treatment for Accounting and Auditing of Application of Accounting Standard for Financial Instruments in Banking Industry (JICPA Industry Audit Committee Report No. 24)” to hedge transactions such as interest rate swaps entered into to mitigate interest rate risk arising from financial assets and liabilities. The Bank assessed the hedge’s effectiveness by considering the adequacy of offsetting movement of the fair value by the changes in interest rates through classifying the hedged items such as loans and borrowed money and the hedging transactions such as interest rate swaps by their maturity.

(2) Hedging against foreign currency fluctuationsThe Bank applies deferred hedge accounting to hedge transactions such as currency swaps and foreign exchange swaps entered into to mitigate foreign exchange risk arising from foreign-currency-denominated financial assets and liabilities.

The Bank applies the hedge accounting pursuant to “Treatment of Accounting and Auditing Concerning Accounting for Foreign Currency Transactions in Banking Industry (JICPA Industry Audit Committee Report No. 25)” to currency swap transactions and foreign exchange swap transactions for the purpose of funds lending and borrowing in different currencies. The Bank assesses the hedge’s effectiveness by confirming that the positions of hedge instruments (currency swap and foreign exchange swap transactions) do not exceed the corresponding foreign-currency-denominated financial receivables and debts as hedged items.


(3) Exceptional treatmentFor some assets and liabilities, the Bank defers recognition of gains or losses resulting from changes in fair value of derivative financial instruments until the related losses or gains on the hedged items are recognized. Also, if interest rate swap contracts are used as a hedge and meet certain hedging criteria, the net amount to be paid or received under the interest rate swap contract is added to or deducted from the interest on the assets or liabilities for which the swap contract was executed.

Tangible fixed assets (except for lease assets)Tangible fixed assets except for land utilized for business operations are stated at cost less accumulated depreciation. Accumulated impairment losses are deducted from acquisition costs.

The Bank and its consolidated subsidiaries depreciate their tangible fixed assets under the declining-balance method over their estimated useful lives. Estimated useful lives of major items are as follows: Buildings: 22–50 years Others: 3–20 years

Pursuant to the Law concerning Revaluation of Land (the “Law”), land for business operations as of March 31, 1998 was revalued at fair value. According to the Law, the Bank is not permitted to revalue the land at any time even in case that the fair value of the land declines. Such unrecorded revaluation loss as of March 31, 2014 and 2015 was ¥32,437 million and ¥31,714 million ($264 million), respectively.

Accumulated depreciation for tangible assets, recognized as for the fiscal year ended March 31, 2014 and 2015, amounted to ¥45,733 million and ¥46,779 million ($389 million), respectively.

Intangible fixed assets (except for lease assets)Intangible fixed assets are amortized using the straight-line method. Software utilized by the Bank is amortized over the period in which it is expected to be utilized (mainly five or ten years in 2014 and 2015).

Lease assetsLease assets in “Tangible fixed assets” or “Intangible fixed assets” of the finance leases other than those that transfer the ownership of leased property to the lessees is computed under the straight-line method over the lease term with zero residual value unless residual value is guaranteed by the corresponding lease contracts.

Reserve for possible loan lossesFor loans to insolvent customers who are undergoing bankruptcy or other collection proceedings or in a similar financial condition, the reserve for possible loan losses is provided in the full amount of such loans, excluding the portion that is estimated to be recoverable due to available security interests or guarantees.

For the unsecured and unguaranteed portions of loans to customers not presently in the above circumstances, but for which there is a high probability of so becoming, the reserve for possible loan losses is provided for estimated unrecoverable amounts determined after evaluating the customer’s overall financial conditions.

For other loans, the reserve for possible loan losses is provided based on the Bank’s actual rate of loan losses in the past.

Consolidated subsidiaries provide the reserve for possible loan losses mainly based on the actual rate of loan losses in the past.

All branches and the credit supervision department evaluate all loans in accordance with the self-assessment rule, and their evaluations are audited by the asset audit section, which is independent from branches and the credit supervision department, and the evaluations are revised as required based on the audits.

Secured and guaranteed loans which are for insolvent borrowers or in a similar financial condition are disclosed based on the amount of loans net of amounts estimated not to be collected through disposition of collateral or through execution of guarantees. Such amounts directly set off against those loans at March 31, 2014 and 2015 were ¥29,629 million and ¥14,932 million ($124 million), respectively.

Employees’ severance and retirement benefitsThe liabilities and expenses for severance and retirement benefits were determined based on the amounts actuarially calculated using certain assumptions.

The Bank and its consolidated subsidiaries provided allowance for employees’ severance and retirement benefits at March 31, 2014 and 2015 based on the estimated amounts of projected benefit obligation and the fair value of the plan assets at those dates. Actuarial gains and losses were recognized in expenses using the straight-line method over 14 years, which was not longer than the average of the estimated remaining service lives, commencing with the following period. Prior service costs were recognized in the consolidated statements of income as incurred.


In calculating the projected benefit obligation, the straight-line method is used to attribute the expected benefit attributable to the respective fiscal year. Prior service costs were recognized in the consolidated statements of income as incurred.

Actuarial gains and losses were recognized in expenses using the straight-line method over 14 years, which was not longer than the average of the estimated remaining service lives, commencing with the following period.

Net transition obligation was recognized in the consolidated statements of income for the year ended March 31, 2001.Certain consolidated subsidiaries adopt the simplified method for the calculation of net defined benefit liability and expenses for severance and retirement benefits.

Reserve for executive retirement benefitsReserve for executive retirement benefits is provided for payment of retirement benefits to directors, corporate auditors and other executive officers, in the amount deemed accrued at the fiscal year-end based on our internal regulations.

Reserve for reimbursement of dormant depositsReserve for reimbursement of dormant deposits which were derecognized as liabilities under certain conditions is provided for the possible losses on the future claims of withdrawal.

Reserve for point loyalty programsReserve for point loyalty program is provided for the estimated expenses based on an estimate of the future usage of points. Points are granted to credit card holders through card usage under the point loyalty program which is designed to promote card usage.

Foreign currency translationThe consolidated financial statements of the Bank are maintained in Japanese yen. Assets and liabilities denominated in foreign currencies are translated into Japanese yen at the exchange rates prevailing at the balance sheet dates.

Income taxesIncome taxes consist of corporation, enterprise and inhabitants taxes. The provision for income taxes is computed based on the pretax income of the Bank and each of its consolidated subsidiaries with certain adjustments required for consolidation and tax purposes. The asset and liability approach is used to recognize deferred tax assets and liabilities for loss carryforwards and the expected future tax consequences of temporary differences between the carrying

amounts and the tax bases of assets and liabilities.

Valuation allowances are recorded to reduce deferred tax assets based on the assessment of the realizability of the tax benefits.

Consumption tax National and local consumption taxes of the Bank and its consolidated domestic subsidiaries are accounted for using the tax-excluded method.

Consolidated statements of cash flows and cash equivalentsIn preparing the consolidated statements of cash flows, cash and due from the BANK OF JAPAN are considered to be cash and cash equivalents.

Amounts per share Net assets per share is calculated by dividing net assets by the number of common stocks outstanding at the year end (excluding “treasury stock”).

Net income per share is calculated by dividing net income attributable to the stockholders by the average number of common stocks outstanding during the year (excluding “treasury stock”).

Cash dividends per share represent the actual amounts declared as applicable to the respective years.

ReclassificationsCertain amounts in the 2014 consolidated financial statements have been reclassified to conform with the 2015 presentation.

Accounting ChangeAccounting Standard for Retirement Benefits (ASBJ Statement No. 26, May 17, 2012)The Bank has applied Accounting Standard for Retirement Benefits (ASBJ Statement No. 26, May 17, 2012) (hereinafter, the “Accounting Standard”) and Guidance on Accounting Standard for Retirement Benefits (ASBJ Guidance No. 25, March 26, 2015) (hereinafter, the “Guidance”), in terms of regulations stipulated in the text of the Accounting Standard, Paragraph 35 and the Guidance, Paragraph 67, beginning with the fiscal year ended March 31, 2015. We have reviewed the calculation methods of retirement benefit obligations and service costs, changed the method of attributing the expected retirement benefits to periods of service from a straight-line basis to a benefit formula basis, and changed the method of determining the discount rate from the method using the discount rate based on the


average period up to the estimated timing of the benefit payment and to the method using different discount rates according to the estimated timing of each benefit payment.

The Accounting Standard and the Guidance have been applied in accordance with the transitional treatment stipulated in the Accounting Standard, Paragraph 37, and the amount of financial impact resulting from the change in the calculation method of retirement benefit obligations and service costs was added to or deducted from retained earnings at the beginning of the fiscal year ended March 31, 2015.

As a result of adoption of the revised accounting standard, net defined benefit assets decreased ¥3,960 million ($33 million) and retained earnings decreased ¥2,534 million ($21 million) at the beginning of the fiscal year ended March 31, 2015. Income before income taxes for the fiscal year ended March 31, 2015 increased ¥428 million ($4 million).

Practical Solution on Transaction of Delivering the Company’s Own Stock to Employees, etc., through TrustsThe Bank has applied Practical Solution on Transaction of Delivering the Company’s Own Stock to Employees, etc., through Trusts (ASBJ Practical Solution No. 30, March 26, 2015). In accordance with the transitional treatment stipulated in Paragraph 20, the Bank has applied the conventional accounting policies.

Additional informationTransaction of Delivering the Company’s Own Stock to Employees, etc., through Trusts(1) OutlineThe board of directors of the Bank, at the meeting held on May 13, 2011, approved a resolution to introduce and “ESOP Trust” utilizing an employee stock ownership association as an incentive plan for employees.

The Bank has established a trust account with employees enrolled in the Bank Employees’ Shareholdings Association (hereinafter, “the Association”) who also satisfy certain conditions as the beneficiaries. The trust account will acquire the amount of the Bank stocks the Association is expected to obtain over the next five years, and then apportion the stocks for sale to the Association on a certain date each month. In the event the trust account has accrued a gain as a result of the stock price rising when it is dissolved, the employees who are the beneficiaries will receive a monetary dividend prorated according to the ratio they contributed to the Association. In the event the trust account has incurred a loss on transfer of shares as a result of the stock price falling and is dissolved with a net overdraft, the Bank will reimburse

the overdraft owed to the trust bank in accordance with a guarantee clause in the monetary overdraft loan agreement, at no extra cost to the employees.

(2) Information on the Company’s Own Stock held by the trust

1. Book value held by the trust is ¥598 million ($5 million).2. The Company’s own stock held by the trust is recorded as common stock in treasury in net assets.3. The number of the Company’s own stock held by the trust was 2,434 thousand and 1,685 thousand as of March 31, 2014 and 2015 and the average number of the Company’s own stock held by the trust was 2,901 thousand and 2,036 thousand for the years ended March 31, 2014 and 2015.

4 Securities

(1) Trading account securities included in “Trading assets,” certificates of deposit with banks included in “Cash and due from banks,” and trust beneficiary rights included in “Financial receivables purchased,” which are separately reported from “Securities” in the consolidated balance sheets, are included in this section.

(2) The following tables summarize acquisition costs, book values and fair values of securities with available fair values as of March 31, 2014 and 2015:

a) Trading securities:

Millions of yenMillions of U.S. dollars

2014 2015 2015

Amount of net unrealized gains included in the consolidated statements of income ¥(2) ¥1 $0


b) Available-for-sale securities:At March 31, 2014

Millions of yen

Fair value exceeding cost: Book valueAcquisition

cost

Gross unrealized

gain

Equity Securities ¥ 65,974 ¥ 34,817 ¥31,157Bonds: 1,268,032 1,258,442 9,589

National government bonds 982,921 979,213 3,707Local government bonds 139,777 136,498 3,278Bonds 145,333 142,730 2,602

Others 165,403 158,959 6,444Subtotal ¥1,499,410 ¥1,452,219 ¥47,191

Fair value not exceeding cost:

Equity Securities ¥ 24,156 ¥ 27,742 ¥ (3,585)Bonds: 165,317 165,693 (375)

National government bonds 145,401 145,667 (266)Local government bonds 3,103 3,108 (5)Bonds 16,812 16,917 (104)

Others 288,176 291,609 (3,433)Subtotal 477,651 485,046 (7,394)Total ¥1,977,062 ¥1,937,266 ¥39,796

At March 31, 2015Millions of yen


cost

Gross unrealized

gain

Equity Securities ¥ 101,975 ¥ 49,388 ¥52,587Bonds: 1,310,313 1,298,124 12,189

National government bonds 1,031,173 1,024,497 6,675Local government bonds 137,293 134,725 2,568Bonds 141,846 138,900 2,945

Others 543,628 509,149 34,479Subtotal ¥1,955,917 ¥1,856,662 ¥99,255


Equity Securities ¥ 12,433 ¥ 13,012 ¥ (579)Bonds: 124,381 124,803 (421)

National government bonds 103,474 103,790 (315)Local government bonds 7,708 7,747 (38)Bonds 13,197 13,265 (67)

Others 33,835 36,607 (2,772)Subtotal 170,650 174,424 (3,773)Total ¥2,126,568 ¥2,031,086 ¥95,482

Millions of U.S. dollars


cost

Gross unrealized

gain

Equity Securities $ 849 $ 411 $438Bonds: 10,904 10,802 102

National government bonds 8,581 8,525 56Local government bonds 1,143 1,121 22Bonds 1,180 1,156 24

Others 4,523 4,237 286Subtotal $16,276 $15,450 $826


Equity Securities $ 103 $ 108 $ (5)Bonds: 1,035 1,039 (4)

National government bonds 861 864 (3)Local government bonds 64 65 (0)Bonds 110 110 (1)

Others 282 305 (23)Subtotal 1,420 1,452 (32)Total $17,696 $16,902 $794

(3) Total sales of available-for-sale securities sold at March 31, 2014 and 2015 were as follows:


TypeProceeds

from sales

Total amount of gains on

sales

Total amount of losses on

sales

Equity Securities ¥ 23,294 ¥ 1,447 ¥ 1,005Bonds: 1,485,466 7,010 7,550

National government bonds 1,428,046 6,233 7,194Local government bonds 36,950 531 127Bonds 20,469 245 227

Others 629,042 11,765 12,261Total ¥2,137,803 ¥20,223 ¥20,817


TypeProceeds

from sales


sales


sales

Equity Securities ¥ 6,253 ¥ 425 ¥ 162Bonds: 803,292 1,510 3,200

National government bonds 781,811 1,358 3,195Local government bonds 4,549 13 3Bonds 16,932 139 2

Others 731,496 10,478 8,476Total ¥1,541,042 ¥12,415 ¥11,839


TypeProceeds

from sales


sales


sales

Equity Securities $ 52 $ 3 $ 1Bonds: 6,685 13 27

National government bonds 6,506 12 27Local government bonds 38 0 0Bonds 141 1 0

Others 6,087 87 71Total $12,824 $103 $99


5 Money held in trust

(1) Money held in trust classified as trading purposeThere was no money held in trust classified as trading purpose for the years ended March 31, 2014 and 2015.

(2) Money held in trust classified as held-to-maturityThere was no money held in trust classified as held-to-maturity for the years ended March 31, 2014 and 2015.

(3) Other money held in trust Millions of yen

Year ended March 31, 2014

Carrying amountFair

valueNet unrealized

gain (loss)Unrealized

gainUnrealized

loss

Other money held in trust ¥156 ¥156 ¥— ¥— ¥—

Millions of yen


Carrying amountFair

valueNet unrealized


gainUnrealized

loss

Other money held in trust ¥156 ¥156 ¥— ¥— ¥—



Carrying amountFair

valueNet unrealized


gainUnrealized

loss

Other money held in trust $1 $1 $— $— $—*1. Consolidated balance sheet amount is calculated using market prices at the fiscal year end.*2. “Unrealized gain” and “Unrealized loss” are breakdowns of “Net unrealized gain (loss)” respectively.

6 Loans and bills discounted

(1) Doubtful loans of loans and bills discounted at March 31, 2014 and 2015 were as follows:


2014 2015 2015

Non-accrual loans:Loans to borrowers under bankruptcy proceedings ¥ 1,700 ¥ 1,430 $ 12Other delinquent loans 54,303 75,673 630

Accrual loans past due three months or more 2,534 2,149 18Restructured loans, including loans to supported companies 32,350 16,691 139

The Bank does not accrue interest on loans to borrowers under bankruptcy proceedings and other delinquent loans, which are classified based on the results of self-assessment.

(2) Bills discounted are accounted for as financial transactions in accordance with “Treatment for Accounting and Auditing of Application of Accounting Standard for Financial Instruments in Banking Industry (Industry Audit Committee Report No. 24),” issued by JICPA. The Bank and its consolidated banking subsidiaries have rights to sell or pledge commercial bills discounted and foreign bills of exchange purchased without

restrictions, and their total face amounts were ¥26,582 million and ¥26,938 million ($224 million) at March 31, 2014 and 2015, respectively.

7 Assets pledged

At March 31, 2014 and 2015, the following assets were pledged as collateral for certain liabilities of the Bank and subsidiaries.


2014 2015 2015

Securities ¥483,592 ¥615,750 $5,123Other assets 18 18 0

The collateral was pledged to secure:


2014 2015 2015

Deposits ¥ 1,495 ¥ 1,507 $ 13Payables under repurchase agreements — 88,861 739Deposits received for bonds lending/ borrowing transactions 192,120 250,963 2,088Borrowed money 25,010 111,976 932


In addition, securities not included in the above schedules were pledged as collateral for operating transactions, such as exchange settlements. These securities amounted to ¥64,599 million and ¥64,579 million ($537 million) at March 31, 2014 and 2015, respectively.

Security deposits, included in other assets, amounted to ¥2,420 million and ¥2,743 million ($23 million) at March 31, 2014 and 2015, respectively, and deposits for financial instruments amounted to ¥300 million ($2 million) at March 31, 2015.

Bills rediscounted are accounted for as financial transactions in accordance with “Treatment for Accounting and Auditing of Application of Accounting Standard for Financial Instruments in Banking Industry (Industry Audit Committee Report No. 24),” issued by JICPA, and the total face amount of commercial bills discounted and foreign exchanges purchased that have been pledged were ¥4 million and ¥36 million ($0 million) at March 31, 2014 and 2015, respectively.

8 Commitment line

Commitment line contracts on overdrafts and loans are the contracts, under which the Bank lends to customers up to the prescribed limits in response to customers’ application of loan as long as there is no violation of any condition in the contracts. The unused amount within the limits totaled ¥1,445,307 million and ¥1,534,987 million ($12,773 million) relating to these contracts at March 31, 2014 and 2015, respectively. Among them, the amounts of unused commitment of which term of contracts is less than one year or revocable at any time totaled ¥1,386,120 million and ¥1,463,686 million ($12,180 million) as of March 31, 2014 and 2015, respectively.

Since many of these commitments expire without being drawn down, the unused amount does not necessarily represent a future cash requirement. Most of these contracts have conditions that the Bank and its consolidated subsidiaries can refuse customers’ applications for loans or decrease the contract limits with proper reasons (e.g., changes in financial situation, deterioration in customers’ creditworthiness). At the inception of contracts, the Bank and its consolidated subsidiaries obtain real estate, securities, etc., as collateral if considered to be necessary. Subsequently, the Bank and its consolidated subsidiaries perform periodic review of the customers’ business results based on internal rules, and take necessary measures to reconsider conditions in contracts and require additional collateral and guarantees.

9 Borrowed money

Borrowed money including subordinated loans totaled ¥53,000 million and ¥26,000 million ($216 million) at March 31, 2014 and 2015, respectively.

•• Bonds

Bonds including subordinated bonds totaled ¥10,000 million at March 31, 2014.

•• Privately-placed bonds

The amount guaranteed by banking subsidiaries to privately-placed bonds (stipulated by Article 2-3 of Financial Instruments and Exchange Law) in “Securities” was ¥35,072 million and ¥36,427 million ($303 million) at March 31, 2014 and 2015, respectively.

•• Net assets

Under the Company Law of Japan, the entire amount of the issue price of shares is required to be accounted for as capital, although a company may, by resolution of its board of directors, account for an amount not exceeding one-half of the issue price of the new shares as additional paid-in capital, which is included in capital surplus.

The Banking Law of Japan provides that an amount equal to at least 20% of cash dividends and other cash appropriations shall be appropriated and set aside as a legal earnings reserve until the total amount of legal earnings reserve and additional paid-in capital equals 100% of common stock. The legal earnings reserve and additional paid-in capital may be used to eliminate or reduce a deficit by resolution of the stockholders’ meeting or may be capitalized by resolution of the Board of Directors. On condition that the total amount of legal earnings reserve and additional paid-in capital remains being equal to or exceeding 100% of common stock, they are available for distributions or certain other purposes by the resolution of the stockholders’ meeting. Legal earnings reserve is included in retained earnings in the accompanying financial statements.

The maximum amount that the Bank can distribute as dividends is calculated based on the unconsolidated financial statements of the Bank in accordance with the Company Law of Japan.


In accordance with the customary practice in Japan, the appropriations are not accrued in the financial statements for the period to which they relate, but are recorded in the subsequent accounting period in which the stockholders’ approval has been obtained. Retained earnings at March 31, 2015 include the amount representing the year-end cash dividend of ¥3,109 million ($26 million), ¥5.00 ($0.04) per share, which was approved at the stockholders’ meeting held on June 25, 2015.

•• Cash and cash equivalents

The reconciliation of cash and due from banks in the consolidated balance sheets and cash and cash equivalents in the consolidated statements of cash flows at March 31, 2014 and 2015, was as follows:


2014 2015 2015

Cash and due from banks ¥197,940 ¥427,769 $3,560Foreign currency deposits with banks (2,539) (3,231) (27)Cash and cash equivalents ¥195,401 ¥424,537 $3,533

•• Lease transactions

(1) Finance Leases:Tangible fixed assets in lease assets mainly consisted of branches. The depreciation method of lease assets is shown in “3. Significant accounting policies.”

Finance leases other than those that transfer the ownership of the leased property to the lessees which commenced in fiscal years beginning prior to April 1, 2008 are accounted for in a similar way to operating leases.

A summary of assumed amounts of acquisition cost, accumulated depreciation and net book value of such leases at March 31, 2014 and 2015 was as follows:


Acquisition cost

Accumulated depreciation

Net book value

Tangible fixed assets ¥2 ¥2 ¥0Total ¥2 ¥2 ¥0


Acquisition cost


Net book value

Tangible fixed assets ¥— ¥— ¥—Total ¥— ¥— ¥—


Acquisition cost


Net book value

Tangible fixed assets $— $— $—Total $— $— $—

Future minimum lease payments excluding interests at March 31, 2014 and 2015 were as follows:


2014 2015 2015

Due within one year ¥0 ¥— $—Due after one year — — —Total ¥0 ¥— $—

Total lease expenses for the years ended March 31, 2014 and 2015 were ¥0 million and ¥0 million ($0 million), respectively.

Assumed depreciation expenses for the years ended March 31, 2014 and 2015 amounted to ¥0 million and ¥0 million ($0 million), respectively. Assumed depreciation is calculated using the straight-line method over the lease term of the respective assets.

The difference between the minimum lease payments and the acquisition costs of the lease assets represents interest expenses. The allocation of such interest expenses over the lease term is computed using the effective interest method. Interest expenses for the years ended March 31, 2014 and 2015 amounted to ¥0 million and ¥0 million ($0 million), respectively.


•• Derivative transactions

Derivative transactions to which hedge accounting is not applied

Contracted amount (including notional principal amount), fair value and unrealized gains or losses of financial derivatives at

March 31, 2014 and 2015 were as follows:

Interest related:

Year ended March 31, 2014Millions of yen

Contracted amount Fair value

Unrealized gains (losses)Type Over one year

Items not traded on exchanges Interest rate swap*:Receive fixed, pay variable ¥234,000 ¥196,130 ¥ 3,889 ¥ 3,889Receive variable, pay fixed 233,604 195,913 (2,927) (2,927)Receive variable, pay variable 9,900 7,000 35 35

Other contracts*:Sell 81,435 — (82) 197Buy 81,384 — 82 82

Total ¥ — ¥ — ¥ 997 ¥ 1,277




Items not traded on exchanges Interest rate swap*:Receive fixed, pay variable ¥209,658 ¥185,136 ¥ 3,967 ¥ 3,967Receive variable, pay fixed 209,238 184,845 (3,027) (3,027)Receive variable, pay variable 7,000 1,800 14 14

Other contracts*:Sell 73,684 — (124) 22Buy 73,647 — 124 124

Total ¥ — ¥ — ¥ 954 ¥ 1,101




Items not traded on exchanges Interest rate swap*: Receive fixed, pay variable $1,745 $1,541 $ 33 $ 33

Receive variable, pay fixed 1,741 1,538 (25) (25)Receive variable, pay variable 58 15 0 0

Other contracts*:Sell 613 — (1) 0Buy 613 — 1 1

Total $ — $ — $ 8 $ 9* The unrealized gains or losses on interest rate swap and other contracts are recognized in the consolidated statements of income.

Currency related:Year ended March 31, 2014

Millions of yen



Items not traded on exchanges Currency swap* ¥1,235,699 ¥952,861 ¥ 393 ¥ 3,645Forward foreign exchange contracts*:

Sell 41,058 8,405 (1,760) (1,760)Buy 36,299 8,261 1,827 1,827

Currency option*:Sell 127,641 62,624 (4,938) 3,403Buy 127,641 62,624 4,938 (2,341)

Total ¥ — ¥ — ¥ 460 ¥ 4,775





Items not traded on exchanges Currency swap* ¥1,006,163 ¥856,092 ¥ 323 ¥ 2,786Forward foreign exchange contracts*:

Sell 48,303 7,642 (2,288) (2,288)Buy 43,824 7,270 2,253 2,253

Currency option*:Sell 127,628 70,521 (2,895) 3,294Buy 127,628 70,521 2,895 (2,441)

Total ¥ — ¥ — ¥ 288 ¥ 3,604




Items not traded on exchanges Currency swap* $8,373 $7,124 $ 2 $ 23Forward foreign exchange contracts*:

Sell 402 64 (19) (19)Buy 365 60 19 19

Currency option*:Sell 1,062 587 (24) 27Buy 1,062 587 24 (20)

Total $ — $ — $ 2 $ 30* The unrealized gains or losses on currency swap, forward foreign exchange contracts and currency option are recognized in the consolidated statements of income.

Derivative transactions to which hedge accounting is appliedThe notional principal amount and fair value of financial derivatives at March 31, 2014 and 2015 were as follows:

Interest related:Year ended March 31, 2014

Millions of yen

Method of hedge accounting

Contracted amount

Type Main hedge items Over one year Fair value

Deferral method Interest rate swap Loans and bills discounted and securities available-for-sale (bonds)Receive variable, pay fixed ¥ 49,744 ¥ 42,674 ¥(2,038)

Exceptional treatment of interest rate swap

Interest rate swap Loans and bills discountedReceive variable, pay fixed ¥141,087 ¥133,087 Note 3

Other contracts Loans and bills discountedBuy 1,000 1,000

Total ¥ — ¥ — ¥(2,038)



Contracted amount


Deferral method Interest rate swap Loans and bills discounted and securities available-for-sale (bonds)Receive variable, pay fixed ¥ 41,777 ¥ 33,570 ¥(1,444)


Interest rate swap Loans and bills discountedReceive variable, pay fixed ¥123,541 ¥111,154 Note 3

Other contracts Loans and bills discountedBuy 1,000 1,000

Total ¥ — ¥ — ¥(1,444)




Contracted amount


Deferral method Interest rate swap Loans and bills discounted and securities available-for-sale (bonds)Receive variable, pay fixed $ 348 $279 $(12)


Interest rate swap Loans and bills discountedReceive variable, pay fixed $1,028 $925 Note 3

Other contracts Loans and bills discountedBuy 8 8

Total $ — $ — $(12)Notes: 1. As for interest rate swaps shown above, deferred hedge accounting is applied in accordance with the JICPA Industry Audit Committee Report No. 24. 2. Calculation or quotation of fair value of the above derivatives are based on observable market prices, present value method or option pricing models, etc. 3. Interest rate swaps which meet specific matching criteria are accounted for as a component of hedged loans and bills discounted. Therefore, the fair value of those

interest swaps is included in the fair value of loans and bills discounted in fair value information shown in Note 20 “Financial Instruments and related disclosures.”

Currency related:Year ended March 31, 2014

Millions of yen


Contracted amount


Deferral method Forward foreign exchange contracts

Loans and bills discounted in foreign currencies ¥92,637 ¥— ¥(224)

Total ¥ — ¥— ¥(224)



Contracted amount


Deferral method Currency swap Loans and bills discounted in foreign currencies

¥36,125 ¥36,125 ¥ (496)Forward foreign exchange contracts 84,351 — (1,022)Total ¥ — ¥ — ¥(1,499)



Contracted amount


Deferral method Currency swap Loans and bills discounted in foreign currencies

$301 $301 $ (4)Forward foreign exchange contracts 702 — (8)Total $ — $ — $(12)

Notes: 1. As for currency swaps shown above, deferred hedge accounting is applied in accordance with the JICPA Industry Audit Committee Report No. 25. 2. The fair values are calculated primarily by using the discounted cash flow method.


•• Employees’ severance and retirement benefits

For the years ended March 31, 2014 and 2015Change in projected benefit obligation


2014 2015 2015

Projected benefit obligation, beginning of the year ¥43,475 ¥41,160 $342Cumulative effect of changes in accounting policies — 3,960 33Service costs—benefits earned during the year 1,015 1,033 9Interest cost on projected benefit obligation 868 308 3Actuarial differences incurred (1,705) 126 1Benefits paid (2,610) (2,893) (24)Other 118 170 1

Projected benefit obligation at the end of the year ¥41,160 ¥43,867 $365

Change in plan assets


2014 2015 2015

Plan assets, beginning of the year ¥74,736 ¥ 75,533 $629Expected return on plan assets 2,989 3,021 25Actuarial differences incurred (612) 24,035 200Contribution by the business owner 411 710 6Benefits paid (2,100) (2,124) (18)Other 108 107 1

Plan assets at the end of the year ¥75,533 ¥101,283 $843

The adjustment of the ending balances of projected benefit obligation and plan assets to net defined benefit liability and net defined benefit assets


2014 2015 2015

Funded projected benefit obligation ¥ 41,137 ¥ 43,829 $ 365Plan assets (75,533) (101,283) (843)

(34,395) (57,454) (478)Unfunded projected benefit obligation 23 38 0

Net on balance sheet ¥(34,372) ¥ (57,415) $(478)


2014 2015 2015

Net defined benefit liability ¥ 23 ¥ 38 $ 0Net defined benefit asset (34,395) (57,454) (478)

Net on balance sheet ¥(34,372) ¥(57,415) $(478)

Severance and retirement benefit expenses


2014 2015 2015

Service costs—benefits earned during the year ¥ 1,015 ¥ 1,033 $ 8Interest cost on projected benefit obligation 868 308 3Expected return on plan assets (2,989) (3,021) (25)Amortization of actuarial differences 693 615 5Severance and retirement benefit expenses calculated by simplified method 8 2 0Other 0 — —

Severance and retirement benefit expenses ¥ (402) ¥(1,061) $ (9)

Remeasurements of defined benefit plans


2014 2015 2015

Actuarial differences ¥— ¥24,523 $204Actuarial differences ¥— ¥24,523 $204

Remeasurements of defined benefit plans


2014 2015 2015

Unrecognized actuarial differences ¥(3,534) ¥(28,058) $(233)Unrecognized actuarial differences ¥(3,534) ¥(28,058) $(233)

Classification of plan assets2014 2015

Bonds 35.2% 28.5%Securities 61.0% 68.3%Cash and due from banks 0.1% 0.1%Other 3.7% 3.1%Plan assets at the end of the year 100% 100%

Assumptions2014 2015

Discount rate 2.0% 1.1%Rates of expected return on plan assets 4.0% 4.0%Expected increase rate in salary 2.9% 2.9%

Defined contribution pension planThe amount required to be contributed by the Bank is ¥297 million and ¥295 million ($2 million) for the years ended March 31, 2014 and 2015.


•• Income taxes

Income taxes in the consolidated statements of income consist of corporation tax, inhabitant taxes and enterprise tax. The statutory tax rate was approximately 36% as of March 31, 2014 and 2015.

Significant components of deferred tax assets as of March 31, 2014 and 2015 were as follows:


2014 2015 2015

Deferred tax assets:Reserve for possible loan losses ¥ 20,626 ¥ 14,428 $ 120Write-down of securities 1,338 1,057 9Depreciation 1,118 983 8Other 5,224 3,715 31Subtotal deferred tax assets 28,307 20,184 168Valuation allowance (2,971) (1,800) (15)Total deferred tax assets 25,336 18,383 153

Deferred tax liabilities:Net defined benefit assets (5,169) (11,850) (98)Gain on securities contributed to employee retirement benefit trust (875) (713) (6)Net unrealized holding gains on securities available for sale (12,636) (29,308) (244)Total deferred tax liabilities (18,682) (41,872) (348)Net deferred tax assets ¥ 6,654 ¥(23,489) $(195)

A reconciliation of the actual effective tax rate with the normal effective statutory tax rate for the fiscal years ended March 31, 2014 and 2015 was not presented as the difference between the actual effective tax rate and the normal effective statutory tax rate was less than 5 percent of the statutory tax rate.

“Act on Partial Amendment to the Income Tax Act, etc.” (Act No. 9, 2015) was promulgated on March 31, 2015, and the corporate tax rate and other rates have been lowered from the fiscal year beginning on or after April 1, 2015.Due to this change, the effective statutory tax rate used for the calculation of deferred tax assets and deferred tax liabilities has been revised from the previous rate of 36%. The rate of 33% has been applied to the temporary differences, expected to be either deductible, taxable or expired in the fiscal year beginning on April 1, 2015, while the rate of 32% has been applied to the temporary differences, expected to be either deductible, taxable, or expired in or after the fiscal year beginning on April 1, 2016. The effect of this change decreased deferred tax assets by ¥75 million ($1 million), deferred tax liabilities

by ¥3,246 million ($27 million), net deferred losses on hedging instruments by ¥65 million ($1 million), deferred tax liabilities for land revaluation reserve by ¥1,757 million ($15 million) and increased net unrealized holding gains on securities available for sale by ¥3,727 million ($31 million), remeasurements of defined benefit plans by ¥1,122 million ($9 million), deferred income taxes by ¥1,613 million ($13 million) and land revaluation reserve by ¥1,757 million ($15 million).

•• Segment information

Operations of the Bank and its consolidated subsidiaries include appraisal of collateral premises and land, servicing businesses and other businesses, in addition to banking business. As such operations are immaterial, separate segment information is not required to be disclosed for the years ended March 31, 2014 and 2015.

Income by service


2014 2015 2015

Lending ¥ 66,057 ¥ 64,844 $ 539Investment in securities 38,628 28,108 234Fees and commissions 25,779 27,243 227Other 13,319 8,618 72Total ¥143,784 ¥128,816 $1,072

•• Related party transactions

Not disclosed as immaterial

•• Financial instruments and related disclosures

(1) Policy for financial instrumentsThe Bank and its consolidated subsidiaries conduct financial services such as financial instruments transactions, credit guarantees, leasing and credit card services, with banking as their core activity. Among these businesses, core banking operations include fund procurement through deposit-taking and fund management through loans and investment security portfolios. The financial assets and liabilities of the Bank are subject to Asset Liability Management (“ALM,” comprehensive management of assets and liabilities) in such a way as to prevent adverse impact from interest-rate, foreign-exchange and market-value fluctuation.

(2) Nature and extent of risk arising from financial instruments

Loans and bills discounted are primarily provided to domestic


institutional and individual customers, in which the Bank is exposed to customers’ credit risk. Securities primarily consist of stocks, bonds and investment trusts held by the Bank for the purposes of building and maintaining good relationships with customers, sole investment objective and held-to-maturity investment objective.

They are exposed to risk of fluctuation in interest rates and prices in the bond/stock markets and in addition, credit risk arising from downgrading of the issuer’s credit rating. Borrowed money, bonds and commercial papers are exposed to liquidity risk, the risk that the Bank is unable to meet its obligations as they fall due.

The Bank enters into the following derivative transactions, such as currency swaps and forward foreign exchange contracts to meet the financial needs of customers and interest rate swaps for the purpose of optimizing ALM. As part of optimizing ALM, the Bank uses hedge accounting, specifying derivatives such as interest rate swaps as hedging instruments, and loans as hedged items.

(3) Risk management for financial instrumentsCredit risk managementCredit risk is the risk of sustaining losses due to reduction or loss of value of assets due to deteriorating credit circumstances at a borrower.

(Credit screening system)For all major loans made by branches, the Bank has in place a system of rigorous credit-screening carried out by a credit-screening department, which is independent of the sales departments. In addition to establishing teams for each sector, the credit-screening department has established a dedicated team to ensure sounder borrower finances and effective corporate rehabilitation, and also offers support to management trying to improve operational management.

In evaluating a customer application for a loan, the Bank will give a considered response, in line with “The Basic Principles Prescribing Credit” set up by the Board of Directors, turning down any application that runs counter to the law or public morality and taking careful account of profitability and public benefit, in addition to fund use, repayment source, and guarantee and collateral arrangements.

In cases where customers apply for a review of borrowing terms, the Bank will give a considered response taking account of actual circumstances faced by the customer, in line with “The Basic Principles for Facilitation of Finance” set

up by the Board of Directors. Appropriate and prompt credit screening is carried out after joint appraisal of a customer’s needs and concerns—and not just based on a mechanical, uniform judgment informed only by financial statements and other superficial statistics and industry-specific guidelines.

To strengthen and expand the credit-screening system, the Bank seeks to duly appraise the creditworthiness of a given company through case-by-case credit management and takes continuous measures to improve the credit-screening skills of employees by various kinds of training program.

(Risk management using the credit rating system)The Bank has introduced the credit rating system to give an objective overview of credit risk on loans. Based on financial and other data indicating the level of creditworthiness of the borrower, the Bank has divided borrowers into 12 grades, and continuously monitors changes in credit risk. The Bank then carries out credit risk quantification based on these grades, to assess credit risk on loan assets and set baseline interest rates on loans.

The Bank also accumulates and organizes the data necessary for quantification of credit risks, such as the default rate within each grade and extent of asset recovery from customers in default, and uses a highly sophisticated quantification technique to obtain a still more detailed picture of risk-monitored assets.

(Self-assessment of assets)In parallel with the credit rating system, the Bank conducts strict checks into the soundness of loans and other assets through annual assessment. Screening is carried out by particular Bank branches in light of the financial situation faced by the borrower, and the results are checked by the credit-screening department of the Head Office. In addition, the Risk Management Division extracts important information and conducts a rigorous review of screening due process and accuracy, and the Audit Division carries out the process audit. Based on this self-assessment of assets, in cases where there is no realistic prospect of asset recovery, provisions are made to reserve for possible loan losses to cover the entire value of the sum at risk. This provision is then recorded as a loss for the fiscal year under review. In this way the Bank ensures asset soundness on a continuous basis.


Market risk management( i ) Market risk management systemMarket risk which is associated with change in the value of financial instruments from fluctuations in interest rates, securities prices, foreign exchange rates, and other market-related indices, has an effect on our financial performance. The Bank controls market risk to stabilize earnings by endeavoring to improve and strengthen ALM.

Management of trading account riskWith regard to the trading accounts (for securities and off-balance sheet transactions that target short-term gains on sales or purchases, and trading at the behest of customers), the Bank has special management mechanisms in place to guard against risk, since these transactions differ qualitatively from banking account transactions (involving deposits and loans, investment securities, and related transactions). The Bank has set up designated trading accounts, and is strengthening their management using transparent accounting procedures based on fair value.

For proprietary position dealing, the Bank limits the position by complying with strict rules in terms of position limits and loss-cutting measures. For positions and transactions on behalf of customers, the Bank follows a policy of square positions by fully covering them through the interbank market.

(ii) Quantitative information relating to market risk(a) Financial products for trading purposesThe Bank holds securities and derivative transactions including interest-rate and currency swaps as trading-purpose.

To measure the amount of market risk, the Bank adopts VaR (Value at Risk) using the variance-covariance method (observation period: one year; confidence interval: 99.9%; holding period: one day).

As of March 31, 2015, the entire VaR of the Bank was ¥3 million ($0 million).

(b) Financial products held for other than trading-purposeThe Bank holds various products such as loans, securities, deposits, corporate bonds, and derivatives for other than trading-purpose.

To measure the amount of market risk associated with these products, the Bank uses the VaR method using the variance-covariance method (observation period: one year; confidence interval: 99.9%; holding period: six months for strategic equity investments, three months for securities other than strategic equity investments, and one year for others).

The total VaR as of March 31, 2015 was ¥77,839 million ($648 million). Within liquid deposits, the Bank recognizes interest risks related to deposits left in the Bank for long periods without withdrawal, which are allocated each fiscal period as core deposits.

(c) VaR adequacyThe relationship between the VaR calculated with the model and actual gains and losses data is back-tested. The Bank has confirmed that the calculating model used for these measurements captures market risk with the necessary degree of accuracy.

However, because VaR is a method of measuring the amount of market risk in terms of the probability of a certain event happening based on past statistical variation, it cannot be used for assessing risk in a market environment characterized by abnormal change.

Liquidity risk management The Bank has a structure to conduct liquidity measurements and to secure available reserves over the net cumulative outflow forecasted in an emergency situation.

(4) Fair values of financial instrumentsFair values of financial instruments are based on quoted price in active markets. If quoted price is not available, other rational valuation techniques are used.

Since the calculations of the reasonably calculated prices are implemented under certain conditions and assumptions, the result of calculations would differ if such calculations are made under different conditions and assumptions.


Fair values of financial instruments as of March 31, 2014 and 2015 were as follows:

Millions of yen


Carrying amount Fair value Difference

(1) Cash and due from banks ¥ 197,940 ¥ 197,940 ¥ —(2) Call loans and

bills purchased 13,989 13,989 —(3) Financial receivables

purchased 4,702 4,702 —(4) Trading assets*2

Securities held for trading purpose 853 853 —

(5) Money held in trust 156 156 —(6) Securities

Securities being held-to-maturity — — —Securities available-for-sale 1,971,137 1,971,137 —

(7) Loans and bills discounted 4,804,602Reserve for possible loans losses*1 (31,990)

Net 4,772,611 4,887,076 114,464Total assets ¥6,961,391 ¥7,075,855 ¥114,464

(1) Deposit ¥6,185,611 ¥6,186,329 ¥ 717(2) Negotiable certificates of

deposit 165,954 165,991 36(3) Call money and bills sold 38,009 38,009 —(4) Payables under

repurchase agreements — — —(5) Deposits received

for bonds lending/ borrowing transactions 192,120 192,120 —

(6) Borrowed money 99,724 102,118 2,394(7) Bonds 50,000 51,071 1,071Total liabilities ¥6,731,420 ¥6,735,641 ¥ 4,220

Derivative instruments*1, 3

Hedge accounting is not applied 1,328 1,328 —Hedge accounting is applied (2,262) (2,262) —Derivative instruments total ¥ (934) ¥ (934) ¥ —

Millions of yen



(1) Cash and due from banks ¥ 427,769 ¥ 427,769 ¥ —(2) Call loans and

bills purchased 20,722 20,722 —(3) Financial receivables

purchased 6,564 6,564 —(4) Trading assets*2



Securities being held-to-maturity — — —Securities available-for-sale 2,121,542 2,121,542 —

(7) Loans and bills discounted 5,102,855Reserve for possible loans losses*1 (32,628)

Net 5,070,226 5,203,615 133,388Total assets ¥7,647,977 ¥7,781,365 ¥133,388

(1) Deposit ¥6,520,655 ¥6,521,342 ¥ 687(2) Negotiable certificates of

deposit 273,007 273,075 68(3) Call money and bills sold 28,406 28,406 —(4) Payables under

repurchase agreements 88,861 88,861 —(5) Deposits received


(6) Borrowed money 150,960 151,721 760(7) Bonds 20,000 20,792 792Total liabilities ¥7,332,854 ¥7,335,162 ¥ 2,308


Hedge accounting is not applied 1,231 1,231 —Hedge accounting is applied (2,944) (2,944) —Derivative instruments total ¥ (1,712) ¥ (1,712) ¥ —





(1) Cash and due from banks $ 3,560 $ 3,560 $ —(2) Call loans and

bills purchased 172 172 —(3) Financial receivables

purchased 55 55 —(4) Trading assets*2



Securities being held-to-maturity — — —Securities available-for-sale 17,655 17,655 —

(7) Loans and bills discounted 42,464Reserve for possible loans losses*1 (272)

Net 42,192 43,302 1,110Total assets $63,643 $64,753 $1,110

(1) Deposit $54,262 $54,268 $ 6(2) Negotiable certificates of

deposit 2,272 2,272 0(3) Call money and bills sold 236 236 —(4) Payables under

repurchase agreements 740 740 —(5) Deposits received


(6) Borrowed money 1,256 1,262 6(7) Bonds 167 174 7Total liabilities $61,021 $61,040 $ 19


Hedge accounting is not applied 10 10 —Hedge accounting is applied (24) (24) —Derivative instruments total $ (14) $ (14) $ —*1. The amounts only include the general reserve for possible loans losses

and the specific reserve for possible loans losses provided to “Loans and bills discounted.” Reserve for possible loans losses provided to “Derivative instruments” is directly deducted from the carrying amounts due to immateriality.

*2. Derivative instruments are not included in Trading assets.*3. Derivative instruments recorded in “Trading assets,” “Liabilities,” “Other assets”

and “Other liabilities” are aggregated and shown herein. Assets and liabilities attributable to the derivative contracts are totally offset and the net liability position as a consequence of offsetting would be represented with brackets.

(Note 1) Valuation methodology for financial instrumentsAssets(1) Cash and due from banksThe carrying amounts of due from banks with no maturities approximate fair values because they have no maturity. For due from banks with maturities, the carrying amounts approximate fair value because most of them have short maturities.

(2) Call loans and bills purchasedThe carrying amounts of call loans and bills purchased approximate fair values because most of these instruments have short maturities.

(3) Financial receivables purchasedFinancial receivables purchased which have been divided by priority such as subordinated and preferred interest and which have multiple owners are measured at the quoted price from a third party. The carrying amounts of other financial receivables purchased approximate fair values because most of these instruments have short maturities.

(4) Trading assetsThe fair values of securities held for trading purposes are measured at observable market prices or quoted price from a third party.

(5) Money held in trustThe fair values of money held in trust, which have an external rating, are determined using the discounted cash flow method. The fair values of other money held in trust approximate fair values because most consists of deposits with no maturities.

(6) SecuritiesThe fair values of marketable equity securities are measured at market prices. The fair values of bonds are measured at market prices or quoted price from a third party.

The fair values of investment trusts are measured at the published benchmark price or quoted price from a third party.

The value reasonably estimated for the such bonds was calculated by discounting the estimated future cash flows at the rate derived from yields of Japanese government bonds. The yields of Japanese government bonds and volatility are major variables in pricing.

(7) Loans and bills discountedThe fair values of loans and bills discounted are determined by discounting expected cash flows at the rates that would be applied for the new same contract for each type of loan product, interest, period of time and internal ratings-based classification.

For loans to obligors “legally bankrupt,” “virtually bankrupt” and “possibly bankrupt,” since the reserve is provided based on amounts expected to be collected through the disposal of collateral or execution of guarantees, the net carrying amount as of the consolidated balance sheet date is the reasonable estimate of the fair value of those loans.

Loans with no maturities approximate fair values because most are without concern of collectability.


Liabilities(1) Deposit, (2) Negotiable certificates of depositThe fair values of demand deposits are recognized as the payment at the date of the consolidated balance sheets. The fair values of time deposits are determined by discounting the contractual cash flows at the rates that would be applied for the same, new contracts.

(3) Call money and bills sold, (4) Payables under repurchase agreements, (5) Deposits received for bonds lending/borrowing transactionsThe carrying amounts of call money and bills sold, deposits received for bonds lending/borrowing transactions approximate fair values, because these instruments have short maturities.

(6) Borrowed moneyThe fair values of borrowed money are determined by discounting the contractual cash flows at the rate that would be applied for the same, new contracts. The carrying amounts of borrowed money with short maturities approximate fair values.

(7) BondsThe fair values of bonds are measured at quoted price from a third party.

Derivative instrumentsThe fair values of derivative instruments are measured at the market prices or determined using the discounted cash flow method or option pricing models.

(Note 2) Financial instruments whose fair value cannot be reliably determinedCarrying amount


2014 2015 2015

Equity securities without readily available market price*1, 2 ¥14,985 ¥13,615 $113Other 0 500 4Total ¥14,986 ¥14,116 $117*1. Equity securities without readily available market price are out of the scope of fair value disclosure because their fair value cannot be reliably determined.*2. Impairment loss on equity securities without readily available market price was ¥39 million and ¥0 million ($0 million) for the years ended March 31, 2014 and 2015.

(Note 3) Maturity analysis for financial assets with contractual maturities As of March 31, 2014

Millions of yen

Less than 1 year

More than 1 year less than

3 years

More than 3 years less than

5 years


7 years


10 yearsMore than 10 years

Due from banks ¥114,369 ¥ — ¥ — ¥ — ¥ — ¥ —Call loans and bills purchased 13,989 — — — — —Financial receivables purchased 4,457 — — — — 241Money held in trust 156 — — — — —Securities 121,808 278,697 1,165,920 86,896 57,296 86,623

Held-to-maturity — — — — — —Available-for-sale securities 121,808 278,697 1,165,920 86,896 57,296 86,623

National government bonds 93,300 119,200 805,300 51,100 50,000 —Local government bonds 8,145 50,995 45,899 31,812 750 —Bonds 13,091 29,143 44,897 530 — 70,013Others 7,271 79,359 269,823 3,454 6,546 16,610

Loans and bills discounted* 411,039 568,993 689,461 446,487 508,239 1,536,346Total ¥665,820 ¥847,691 ¥1,855,382 ¥533,384 ¥565,536 ¥1,623,211


As of March 31, 2015Millions of yen

Less than 1 year


3 years


5 years


7 years



Due from banks ¥ 346,314 ¥ — ¥ — ¥ — ¥ — ¥ —Call loans and bills purchased 20,722 — — — — —Financial receivables purchased 6,399 — — — — 165Money held in trust 156 — — — — —Securities 224,457 763,492 547,221 62,832 211,875 82,499

Held-to-maturity — — — — — —Available-for-sale securities 224,457 763,492 547,221 62,832 211,875 82,499

National government bonds 137,000 491,100 351,100 45,000 80,000 4,900Local government bonds 35,733 40,832 51,391 2,050 11,050 —Bonds 19,366 31,690 33,709 420 — 65,353Others 32,357 199,870 111,020 15,361 120,825 12,245

Loans and bills discounted* 408,770 605,712 722,208 451,119 621,771 1,627,486Total ¥1,006,819 ¥1,369,205 ¥1,269,429 ¥513,951 ¥833,647 ¥1,710,151


Less than 1 year


3 years


5 years


7 years



Due from banks $2,882 $ — $ — $ — $ — $ —Call loans and bills purchased 172 — — — — —Financial receivables purchased 53 — — — — 1Money held in trust 1 — — — — —Securities 1,868 6,353 4,554 523 1,763 687

Held-to-maturity — — — — — —Available-for-sale securities 1,868 6,353 4,554 523 1,763 687

National government bonds 1,140 4,087 2,922 375 666 41Local government bonds 298 340 428 17 92 —Bonds 161 263 280 3 — 544Others 269 1,663 924 128 1,005 102

Loans and bills discounted* 3,402 5,041 6,010 3,754 5,174 13,544Total $8,378 $11,394 $10,564 $4,277 $6,937 $14,231* Of loans and bills discounted, the portion whose timing of collection is unforeseeable, such as loans to “legally bankrupt” borrowers, loans to “virtually bankrupt” borrowers

and loans to “possibly bankrupt” borrowers, amounting to ¥56,003 million and ¥77,103 million ($642 million), is not included in the above table as of March 31, 2014 and 2015. Loans that do not have contractual maturity, amounting to ¥588,030 million and ¥588,683 million ($4,899 million), are not included either.


(Note 4) Maturity analysis for interest bearing liabilities as of March 31, 2014 and 2015


Less than 1 year


3 years


5 years


7 years



Deposits* ¥5,764,728 ¥311,849 ¥106,868 ¥ 946 ¥ 1,219 ¥ —Negotiable certificates of deposit 165,789 165 — — — —Call money and bills sold 38,009 — — — — —Payables under repurchase agreements — — — — — —Deposits received for bonds lending/ borrowing transactions 192,120 — — — — —Borrowed money 31,818 7,550 2,405 23,925 10,935 23,089Bonds 20,000 — 20,000 10,000 — —Total ¥6,212,466 ¥319,564 ¥129,273 ¥34,871 ¥12,154 ¥23,089


Less than 1 year


3 years


5 years


7 years



Deposits* ¥6,122,006 ¥261,221 ¥133,266 ¥ 3,101 ¥1,059 ¥ —Negotiable certificates of deposit 270,797 2,210 — — — —Call money and bills sold 28,406 — — — — —Payables under repurchase agreements 88,861 — — — — —Deposits received for bonds lending/ borrowing transactions 250,963 — — — — —Borrowed money 12,394 4,066 104,492 11,671 843 17,491Bonds — 20,000 — — — —Total ¥6,773,430 ¥287,497 ¥237,758 ¥14,773 ¥1,902 ¥17,491


Less than 1 year


3 years


5 years


7 years



Deposits* $50,945 $2,174 $1,109 $ 26 $ 9 $ —Negotiable certificates of deposit 2,253 18 — — — —Call money and bills sold 236 — — — — —Payables under repurchase agreements 740 — — — — —Deposits received for bonds lending/ borrowing transactions 2,088 — — — — —Borrowed money 103 34 870 97 7 146Bonds — 166 — — — —Total $56,365 $2,392 $1,979 $123 $16 $146* Deposits on demand are included in “Less than 1 year.”

•• Stock options

A) The Bank recorded stock option expenses in “General and administrative expenses” of ¥107 million and ¥133 million ($1 million) for the years ended March 31, 2014 and 2015

B) Outline of stock options, size and changes in the year ended March 31, 2015(1) Outline of stock options

Stock options 2012 Stock options 2013 Stock options 2014Persons to whom stock options are granted Directors of the Bank: 10 Directors of the Bank: 10 Directors of the Bank: 10Type and number of shares* Common stock: 450,100 Common stock: 267,400 Common stock: 309,400Date of rights granted July 27, 2012 July 25, 2013 July 30, 2014Condition for vesting Not applicable Not applicable Not applicableEligible service period Not applicable Not applicable Not applicable

Period for exercise of stock optionsFrom July 28, 2012

to July 27, 2042From July 26, 2013

to July 25, 2043From July 31, 2014

to July 30, 2044* The table above presents the number of common stock converted from the stock options.


(2) Size and changes of stock optionsa. Number of stock options for the year ended March 31, 2015

Stock options 2012

Stock options 2013

Stock options

2014Non-vested

Previous fiscal year-end outstanding — 267,400 —Granted — — 309,400Forfeited — — —Vested — 267,400 —Outstanding on March 31, 2015 — — 309,400

VestedPrevious fiscal year-end outstanding 365,400 — —Vested — 267,400 —Exercised 80,100 47,600 —Forfeited — — —Exercisable 285,300 219,800 —

b. Price information for the year ended March 31, 2015Yen U.S. dollars

Stock options 2012

Exercise price ¥ 1 $ 0Average exercise price 489 4Fair value at the granted date 223 2

Yen U.S. dollars

Stock options 2013

Exercise price ¥ 1 $ 0Average exercise price 489 4Fair value at the granted date 410 4

Yen U.S. dollars

Stock options 2014

Exercise price ¥ 1 $ 0Average exercise price — —Fair value at the granted date 457 4

C) Valuation technique for fair value of stock optionsStock options granted in the fiscal year ended March 31, 2015 were valued using the Black-Scholes option pricing model and the following principal parameters:

Stock options 2014Expected volatility*1 29.368%Average expected life*2 6.29 yearsExpected dividends*3 ¥8 ($0.07) per shareRisk-free interest rate*4 0.199%*1. Expected volatility is calculated based on the actual stock prices in the period

(from March 2008 to July 2014) corresponding to the average expected life (6.29 years).

*2. The average tenure of the directors who retired in the past is used as the average expected life in the above table.

*3. Actual dividends on common stock for the year ended March 31, 2014.*4. Japanese government bond yield corresponding to the average expected life.

D) Method of estimating number of stock options vestedOnly the actual number of forfeited stock options is reflected because it is difficult to reasonably estimate the number of stock options that will be forfeited in the future.

•• Comprehensive income

Reclassification adjustments and the related tax effects concerning other comprehensive income for the years ended March 31, 2014 and 2015 were as follows:


2014 2015 2015

Net unrealized holding gains (losses) on available-for-sale securities:The amount arising

during the period ¥(1,143) ¥ 56,261 $ 468Reclassification adjustments 639 (575) (5)

Before adjustments for tax effect (504) 55,685 463

The amount of tax effect 815 (16,136) (134)Net unrealized holding

gains (losses) on available-for-sale securities 311 39,549 329

Net deferred losses on hedging instruments, net of taxes:The amount arising

during the period (50) (81) (1)Reclassification adjustments 720 687 6

Before adjustments for tax effect 670 606 5

The amount of tax effect (243) (283) (2)Net deferred losses on

hedging instruments, net of taxes 426 322 3

Land revaluation reserve, net of taxes:The amount arising

during the period — — —Reclassification adjustments — — —

Before adjustments for tax effect — — —

The amount of tax effect — 1,757 14Land revaluation reserve,

net of taxes — 1,757 14Foreign currency translation

adjustments:The amount arising

during the period 0 — —Reclassification adjustments — 0 0

Before adjustments for tax effect 0 0 0

The amount of tax effect — — —Foreign currency

translation adjustments 0 0 0Remeasurements of defined

benefit plans:The amount arising during

the period — 23,908 199Reclassification adjustments — 615 5

Before adjustments for tax effect — 24,523 204

The amount of tax effect — (7,706) (64)Remeasurements of

defined benefit plans — 16,817 140Share of other comprehensive

income of associates accounted for using equity method:The amount arising

during the period 0 0 0Reclassification adjustments — (11) (0)

Share of other comprehensive income of associates accounted for using equity method 0 (10) (0)

Total other comprehensive income ¥ 739 ¥ 58,437 $ 486


•• Business combination

Two affiliated companies, accounted for by the equity method, acquired common stock in treasury on January 28, 2014 and became wholly owned subsidiaries.

A) Outline of business combination(1) Name of the acquired companies and their businessHirogin Guarantee Co., Ltd. (Credit guarantee business for housing loans and others)Hirogin Card Service Co., Ltd. (Credit card business, credit guarantee business for consumer loans and others)

(2) Main reason for business combinationThe Bank aims to strengthen cooperation with Hirogin Guarantee Co., Ltd. and Hirogin Card Service Co., Ltd. and enhance our customers’ satisfaction with our services

(3) Date of business combinationJanuary 28, 2015 (Acquisition date)March 31, 2015 (Deemed acquisition date)

(4) Legal form of business combinationAcquisition of common stock in treasury by the affiliated companies accounted for by equity method

(5) Names of the companies after acquisitionNo change in the companies’ names

(6) Percentage of voting rights acquiredBefore acquisitionHirogin Guarantee Co., Ltd. 28.57%Hirogin Card Service Co., Ltd. 17.99%After acquisitionHirogin Guarantee Co., Ltd. 100%Hirogin Card Service Co., Ltd. 100%

(7) Main reason for decision to acquire the companiesBank acquires majority of voting rights of the acquired companies

B) Period of the acquired companies’ financial results included in the consolidated financial statements

As the deemed acquisition date is March 31, 2015, equity in earnings of affiliates is booked on the consolidated statements of income from April 1, 2014 to March 31, 2015.

C) Acquired cost of the acquired companies(1) Acquired cost of the acquired companiesFair value of Hirogin Guarantee Co., Ltd. as of the acquisition date: ¥1,167 million ($10 million)Fair value of Hirogin Card Service Co., Ltd. as of the acquisition date: ¥1,315 million ($11 million)

(2) Difference between the acquisition cost and the total amount of acquisition cost

Loss on step acquisitionHirogin Guarantee Co., Ltd. ¥255 million ($2 million)Hirogin Card Service Co., Ltd. ¥174 million ($1 million)

D) Allocation of the acquisition cost (1) The amount of assets and liabilities assumed

acceptance date of the business combinationHirogin Guarantee Co., Ltd.


Current assets ¥8,538 $71Non-current assets 825 7Total assets ¥9,364 $78

Current liabilities ¥7,549 $63Non-current liabilities 19 0Total liabilities ¥7,568 $63

Hirogin Card Service Co., Ltd.


Current assets ¥3,523 $29Non-current assets 187 2Total assets ¥3,711 $31

Current liabilities ¥1,411 $12Non-current liabilities 15 0Total liabilities ¥1,426 $12

(2) The amount and cause of negative goodwilla. Negative goodwillHirogin Guarantee Co., Ltd. ¥1,547 million ($13 million)Hirogin Card Service Co., Ltd. ¥969 million ($8 million)

b. The reason of negative goodwillNegative goodwill incurred as net asset value in current value exceeded the acquisition cost.

E) Approximate amounts of impact on the consolidated statements of income for the year ended March 31, 2015, assuming that the business combinations had been completed on the beginning date of the year is omitted as such amounts are insignificant.


THE HIROSHIMA BANK, LTD. As of March 31, 2014 and 2015

Non-Consolidated Balance Sheets


2014 2015 2015ASSETS

Cash and due from banks ¥ 197,940 ¥ 427,145 $ 3,555

Call loans and bills purchased 13,989 20,722 173

Financial receivables purchased 4,702 4,939 41

Trading assets 12,589 18,558 154

Money held in trust 156 156 1

Securities 1,989,145 2,139,431 17,803

Loans and bills discounted 4,804,602 5,102,145 42,458

Foreign exchanges 8,059 6,285 52

Other assets 28,796 23,905 199

Tangible fixed assets 85,278 84,461 703

Intangible fixed assets 8,092 8,731 73

Prepaid pension cost 30,860 29,395 245

Deferred tax assets 8,605 — —

Customers’ liabilities for acceptances and guarantees 45,870 52,204 434

Reserve for possible loans losses (32,700) (33,378) (278)

Reserve for investment losses (4,990) (4,827) (40)

Total assets ¥7,200,997 ¥7,879,877 $65,573

LIABILITIES AND NET ASSETSLiabilities:

Deposits ¥6,354,273 ¥6,803,551 $56,616

Call money and bills sold 38,009 28,406 236

Payables under repurchase agreements — 88,861 740

Deposits received for bonds lending/borrowing transactions 192,120 250,963 2,088

Trading liabilities 10,345 16,284 136

Borrowed money 99,724 150,960 1,256

Foreign exchanges 900 135 1

Bonds 50,000 20,000 167

Due to trust account 58 47 0

Other liabilities 40,784 28,562 238

Reserve for reimbursement of dormant deposits 1,304 1,413 12

Reserve for point loyalty programs 63 63 1

Deferred tax liabilities — 14,686 122

Deferred tax liabilities for land revaluation reserve 16,075 14,062 117

Acceptances and guarantees 45,870 52,204 434

Total liabilities ¥6,849,529 ¥7,470,205 $62,164

Net Assets:Common stock:

Authorized – 2,000,000,000 shares

Issued – 625,266,342 shares 54,573 54,573 454

Capital surplus 30,634 30,703 256

Retained earnings 217,010 233,536 1,943

Common stock in treasury (1,740) (1,402) (12)

Total stockholders’ equity 300,478 317,411 2,641

Net unrealized holding gains on securities available for sale 26,108 65,658 546

Net deferred losses on hedging instruments, net of tax (1,447) (1,125) (9)

Land revaluation reserve, net of tax 26,040 27,344 228

Total valuation and translation adjustments 50,701 91,878 765

Stock acquisition rights 287 383 3

Total net assets 351,468 409,672 3,409

Total liabilities and net assets ¥7,200,997 ¥7,879,877 $65,573


THE HIROSHIMA BANK, LTD. Years ended March 31, 2014 and 2015

Non-Consolidated Statements of Income


2014 2015 2015Income:Interest income:

Interest on loans and discounts ¥ 66,293 ¥ 65,072 $ 541

Interest and dividends on securities 18,390 15,806 132

Other interest income 1,206 2,355 20

Fees and commissions 24,554 26,257 218

Other operating income 18,974 11,757 98

Other income 12,974 6,297 52

Total income 142,394 127,546 1,061

Expenses:Interest expenses:

Interest on deposits 4,313 3,813 32

Interest on borrowings and rediscounts 4,092 2,170 18

Other interest expenses 1,218 1,756 15

Fees and commissions 8,500 8,838 73

Other operating expenses 19,553 11,672 97

General and administrative expenses 55,777 55,134 459

Other expenses 11,452 5,180 43

Total expenses 104,908 88,567 737

Income before income taxes 37,485 38,978 324

Income taxes:Current 8,953 7,049 58

Deferred 6,081 8,042 67

Net income ¥ 22,451 ¥ 23,887 $ 199

Yen U.S. dollars

Amounts per share of common stock:Net assets ¥565.50 ¥658.18 $5.48

Net income 36.18 38.43 0.32

Diluted net income 36.13 38.37 0.32

Cash dividends applicable to the year 8.00 9.00 0.07

Financial Section Consolidated Balance Sheets · THE HIROSHIMA BANK, LTD. AND CONSOLIDATED...

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