THE KAGOSHIMA BANK, LTD.
and consolidated subsidiaries
Consolidated Financial Statements for the
Year Ended March 31, 2014, and
Independent Auditor’s Report2THE KAGOSHIMA BANK, LTD. and Subsidiaries
Consolidated Balance Sheet
March 31, 2014
Millions of Yen
Thousands of
U.S. Dollars
2014 2013 2014
Assets
Cash and due from banks (Notes 4 and 18) \ 168,429 \ 88,936 $ 1,636,505
Call loans and bills bought (Note 18) 21,613 21,631 210,000
Monetary receivables bought 9,086 9,945 88,291
Trading securities (Notes 5 and 18) 178 181 1,739
Money held in trust (Note 6) 9,484 7,500 92,150
Investment securities (Notes 5, 11, and 18) 1,149,563 1,160,444 11,169,483
Loans and bills discounted
(Notes 7, 17, and 18) 2,425,898 2,272,324 23,570,724
Foreign exchange assets (Note 8) 2,919 1,358 28,370
Lease receivables and investments in leases
(Note 11) 22,627 19,846 219,853
Other assets (Note 11) 17,316 25,651 168,252
Tangible fixed assets (Notes 9 and 10) 55,454 54,847 538,811
Intangible fixed assets (Note 9) 6,645 8,590 64,567
Asset for retirement benefits (Note 14) 7,086 68,850
Deferred tax assets (Note 20) 517 611 5,029
Customers' liabilities for acceptances and
guarantees (Note 15) 27,631 26,153 268,474
Allowance for doubtful accounts (Note 18) (34,488) (31,218) (335,101)
Total assets \ 3,889,964 \ 3,666,804 $ 37,796,002
See accompanying Notes to Consolidated Financial Statements.3Millions of Yen
Thousands of
U.S. Dollars
2014 2013 2014
Liabilities and Equity
Liabilities:
Deposits (Notes 11, 12, and 18) \ 3,291,756 \ 3,144,798 $ 31,983,646
Negotiable certificates of deposit (Note 18) 91,165 68,867 885,792
Call money and bills sold (Note 18) 53,466 20,785 519,500
Payables under securities lending
transactions (Note 11) 20,800 32,745 202,107
Borrowed money (Notes 11, 13, and 18) 76,941 44,185 747,585
Foreign exchange liabilities (Note 8) 55 23 540
Other liabilities 23,591 22,940 229,221
Accrued bonuses to directors and audit &
supervisory board members 50 56 493
Provision for retirement benefits
(Note 14) 1,122
Liability for retirement benefits (Note 14) 1,498 14,562
Provision for directors’ and audit &
supervisory board members’ retirement 649 868 6,311
Provision for reimbursement of deposits 452 586 4,398
Provision for contingent losses 238 240 2,314
Deferred tax liabilities (Note 20) 4,544 8,309 44,152
Deferred tax liabilities for land revaluation
(Notes 2(g) and 20) 8,255 8,312 80,215
Acceptances and guarantees (Note 15) 27,631 26,153 268,474
Total liabilities 3,601,100 3,379,993 34,989,315
Equity (Notes 16 and 22):
Common stock, no par value;
Authorized: 800,000,000 shares
I ssued: 210,403,655 shares in 2014 and 2013 18,130 18,130 176,163
Capital surplus 11,216 11,216 108,983
Retained earnings 205,571 197,702 1,997,389
Treasury stock, at cost, 562,775 shares in
2014 and 538,735 shares in 2013 (371) (355) (3,607)
Accumulated other comprehensive
income
Unrealized gains on available-for-sale
securities (Note 5) 31,813 35,656 309,104
Deferred losses on derivatives under hedge
accounting (196) (295) (1,906)
Land revaluation surplus (Note 2(g)) 14,259 14,363 138,554
Defined retirement benefit plans (1,165) (11,327)
Total 279,258 276,419 2,713,353
Minority interests 9,605 10,392 93,333
Total equity 288,864 286,811 2,806,686
Total liabilities and equity \ 3,889,964 \ 3,666,804 $ 37,796,002
See accompanying Notes to Consolidated Financial Statements.4THE KAGOSHIMA BANK, LTD. and Subsidiaries
Consolidated Statement of Income
Year Ended March 31, 2014
Millions of Yen
Thousands of
U.S. Dollars
2014 2013 2014
Income:
Interest income and dividends:
Interest on loans and discounts \ 37,147 \ 37,959 $ 360,940
Interest and dividends on securities 9,663 10,050 93,890
Other interest income 130 85 1,266
Total interest income and dividends 46,941 48,095 456,096
Fees and commissions 11,669 11,442 113,385
Other operating income 16,412 16,110 159,469
Gain on negative goodwill (Note 3) 1,398 13,586
Other income 4,019 2,716 39,053
Total income 80,441 78,364 781,590
Expenses:
Interest expenses:
Interest on deposits 1,203 1,219 11,692
Interest on borrowings and rediscounts 258 158 2,514
Interest on payables under securities lending
transactions 29 90 283
Other interest expenses 687 776 6,678
Total interest expenses 2,178 2,244 21,169
Fees and commissions 2,901 2,754 28,193
Other operating expenses 12,388 12,808 120,368
General and administrative expenses 40,602 41,083 394,505
Provision of allowance for doubtful accounts 5,056 3,874 49,129
Other expenses 1,482 2,068 14,400
Total expenses 64,609 64,834 627,766
Income before income taxes and minority interests 15,831 13,530 153,824
Income taxes:
Current 6,632 6,193 64,445
Deferred (1,060) (1,089) (10,300)
Total income taxes (Note 20) 5,572 5,104 54,144
Net income before minority interests 10,258 8,426 99,679
Minority interests in net income 605 639 5,880
Net income \ 9,653 \ 7,786 $ 93,798
Yen U.S. Dollars
Per-share information:
Net income - basic (Note 22) \ 46.00 \ 37.10 $ 0.44
Cash dividends applicable to the year 9.00 9.00 0.08
See accompanying Notes to Consolidated Financial Statements.5THE KAGOSHIMA BANK, LTD. and Subsidiaries
Consolidated Statement of Comprehensive Income
Year Ended March 31, 2014
Millions of Yen
Thousands of
U.S. Dollars
2014 2013 2014
NET INCOME BEFORE MINORITY
INTERESTS
\ 10,258 \ 8,426 $ 99,679
OTHER COMPREHENSIVE INCOME (Note 21):
Unrealized gains (losses) on available-for-sale
securities (3,826) 15,640 (37,175)
Deferred gains on derivatives under hedge
accounting 98 65 960
Total other comprehensive income (loss) (3,727) 15,705 (36,215)
COMPREHENSIVE INCOME \ 6,531 \ 24,131 $ 63,463
TOTAL COMPREHENSIVE INCOME
ATTRIBUTABLE TO :
Owners of the parent \ 5,909 \ 23,431 $ 57,418
Minority interests 622 700 6,044
See accompanying Notes to Consolidated Financial Statements.6THE KAGOSHIMABANK, LTD. and Subsidiaries
Consolidated Statement of Changes in Equity
Year Ended March 31, 2014
Millions ofYen
Accumulated Other Comprehensive Income
Outstanding
Number of
Shares of
Common
Stock
Common
Stock
Capital
Surplus
Retained
Earnings
Treasury
Stock
Unrealized
Gains
(Losses) on
Available
for-sale
Securities
Deferred Gains
(Losses) on
Derivatives
under Hedge
AccountingLandRevaluation
Surplus
Defined
Retirement
BenefitPlans Total
Minority
Interests
Total
Equity
BALANCE,APRIL 1, 2012 210,403,655 \ 18,130 \ 11,216 \ 191,243 \ (338) \ 20,076 \ (360) \ 14,820 \ 254,789 \ 9,698 \ 264,488
Netincome 7,786 7,786 7,786
Cash dividends, 9円.00 per share (1,784) (1,784) (1,784)
Purchases of treasurystock (34,877 shares) (17) (17) (17)
Disposals of treasury stock(707 shares) (0) 0 0 0
Reversal of land revaluation surplus 456 456 456
Net change in the year 15,579 65 (456) 15,187 693 15,881
BALANCE, MARCH 31, 2013 210,403,655 18,130 11,216 197,702 (355) 35,656 (295) 14,363 276,419 10,392 286,811
Netincome 9,653 9,653 9,653
Cash dividends, 9円.00 per share (1,888) (1,888) (1,888)
Purchases of treasurystock (24,525 shares) (16) (16) (16)
Disposals of treasurystock (485shares) (0) 0 0 0
Reversalof land revaluation surplus 103 103 103
Netchange in the year (3,843) 98 (103) (1,165) (5,013) (786) (5,800)
BALANCE, MARCH 31, 2014 210,403,655 \ 18,130 \ 11,216 \ 205,571 \ (371) \ 31,813 \ (196) \ 14,259 \ (1,165) \ 279,258 \ 9,605 \ 288,864
Thousands ofU.S. Dollars
Accumulated Other Comprehensive Income
Common
Stock
Capital
Surplus
Retained
Earnings
Treasury
Stock
Unrealized
Gains
(Losses) on
Available
for-sale
Securities
Deferred Gains
(Losses) on
Derivatives
under Hedge
AccountingLandRevaluation
Surplus
Defined
Retirement
BenefitPlans Total
Minority
Interests
Total
Equity
BALANCE, MARCH 31, 2013 $ 176,163 $ 108,983 $ 1,920,937 $ (3,455) $ 346,444 $ (2,866) $ 139,559 $ 2,685,766 $ 100,975 $ 2,786,741
Netincome 93,798 93,798 93,798
Cash dividends, 0ドル.08 per share (18,351) (18,351) (18,351)
Purchases of treasurystock (24,525 shares) (155) (155) (155)
Disposals of treasurystock (485shares) (0) 3 3 3
Reversalof land revaluation surplus 1,005 1,005 1,005
Netchange in the year (37,339) 960 (1,005) (11,327) (48,713) (7,641) (56,354)
BALANCE, MARCH 31, 2014 $ 176,163 $ 108,983 $ 1,997,389 $ (3,607) $ 309,104 $ (1,906) $ 138,554 $ (11,327) $ 2,713,353 $ 93,333 $ 2,806,686
See accompanying Notes to Consolidated Financial Statements.7THE KAGOSHIMA BANK, LTD. and Subsidiaries
Consolidated Statement of Cash Flows
Year Ended March 31, 2014
Millions of Yen
Thousands of
U.S. Dollars
2014 2013 2014
Cash flows from operating activities:
Income before income taxes and minority interests \ 15,831 \ 13,530 $ 153,824
Adjustments for:
Depreciation and amortization
Impairment losses
Gain on negative goodwill
5,160116(1,398)
5,49424850,140
1,135
(13,586)
Increase in allowance for doubtful accounts 3,269 2,905 31,769
Interest income and dividends recognized on statement
of income ( 46,941) (48,095) (456,096)
Interest expenses recognized on statement of income 2,178 2,244 21,169
Net gain on sales or maturities of investment securities (3,207) (1,276) (31,163)
Increase in loans and bills discounted (153,574) (68,431) (1,492,173)
Increase in deposits 146,958 46,382 1,427,890
Increase in negotiable certificates of deposit 22,298 15,887 216,658
Increase in borrowed money 32,756 24,465 318,270
Decrease (increase) in due from banks 113 (39) 1,101
Decrease (increase) in call loans and bills purchased 876 (9,707) 8,520
Increase in call money and bills sold 32,681 13,963 317,546
Decrease in payables under securities lending
transactions (11,944) (23,218) (116,055)
Interest and dividends received 48,720 49,548 473,377
Interest paid (2,276) (2,547) (22,119)
Increase in lease receivables and investments in leases (2,780) (282) (27,017)
Other, net (6,945) (6,402) (67,487)
Subtotal 81,893 14,667 795,705
Income taxes paid (6,952) (5,884) (67,548)
Net cash provided by operating activities 74,941 8,783 728,157
Cash flows from investing activities:
Purchases of investment securities (375,664) (520,003) (3,650,063)
Proceeds from sales or maturities of investment securities 388,230 493,750 3,772,159
Net change in money held in trust (2,000) 2,464 (19,432)
Purchases of tangible fixed assets (2,990) (2,146) (29,051)
Proceeds from sales of tangible fixed assets 209 511 2,038
Purchases of intangible fixed assets (1,208) (1,084) (11,746)
Purchase of investments in subsidiaries (3) (29)
Net cash provided by (used in) inves ting
activities
6,573 (26,507) 63,874
Cash flows from financing activities:
Dividends paid (1,888) (1,786) (18,353)
Other, net (34) (36) (337)
Net cash used in financing activities (1,923) (1,822) (18,690)
Effect of exchange rate changes on cash and cash
equivalents 13 21 131
Net increase (decrease) in cash and cash equivalents 79,605 (19,526) 773,472
Cash and cash equivalents at beginning of year 87,940 107,466 854,450
Cash and cash equivalents at end of year (Note 4) \ 167,545 \ 87,940 $ 1,627,923
See accompanying Notes to Consolidated Financial Statements.8THE KAGOSHIMA BANK, LTD. and Subsidiaries
Notes to Consolidated Financial Statements
1. Basis of Presenting Consolidated Financial Statements
The accompanying consolidated financial statements of THE KAGOSHIMA BANK, LTD. (the
"Bank") and subsidiaries (together, the "Group") have been prepared in accordance with the
provisions set forth in the Japanese Financial Instruments and Exchange Act and its related
accounting regulations and the Enforcement Regulation for the Banking Law of Japan and in
accordance with accounting principles generally accepted in Japan, which are different in certain
respects as to the application and disclosure requirements of International Financial Reporting
Standards.
In preparing these consolidated financial statements, certain reclassifications and rearrangements
have been made to the consolidated financial statements issued domestically in order to present
them in a form, which is more familiar to readers outside Japan. In addition, certain
reclassifications have been made in the 2013 consolidated financial statements to conform to the
classifications used in 2014. Japanese yen figures less than a million yen are rounded down to the
nearest million yen, except for per share data.
The consolidated financial statements are stated in Japanese yen, the currency of the country in
which the Bank is incorporated and operates. The translations of Japanese yen amounts into U.S.
dollar amounts are included solely for the convenience of readers outside Japan and have been
made at the rate of 102円.92 to 1,ドル the approximate rate of exchange at March 31, 2014. Such
translations should not be construed as representations that the Japanese yen amounts could be
converted into U.S. dollars at that or any other rate.
2. Summary of Significant Accounting Policies
(a) Principles of consolidation
The accompanying consolidated financial statements include the accounts of the Bank and its
subsidiaries. The number of consolidated subsidiaries as of March 31, 2014 and 2013, is seven.
Under the control or influence concept, those companies in which the Bank, directly or indirectly,
is able to exercise control over operations are to be fully consolidated.
One unconsolidated subsidiary was dissolved on February 24, 2014. As a result, there were no
unconsolidated subsidiaries as of March 31 2014.
All significant intercompany balances and transactions have been eliminated in consolidation.
All material unrealized profit included in assets resulting from transactions within the Group is
also eliminated.
Fiscal year-ends of all subsidiaries are at the end of March.9(b) Business Combinations
In October 2003, the Business Accounting Council (the "BAC") issued a Statement of Opinion,
"Accounting for Business Combinations," and in December 2005, the Accounting Standards Board
of Japan (the "ASBJ") issued ASBJ Statement No. 7, "Accounting Standard for Business
Divestitures" and ASBJ Guidance No. 10, "Guidance for Accounting Standard for Business
Combinations and Business Divestitures." The accounting standard for business combinations
allowed companies to apply the pooling-of-interests method of accounting only when certain
specific criteria are met such that the business combination is essentially regarded as a
uniting-of-interests. For business combinations that do not meet the uniting-of-interests criteria,
the business combination is considered to be an acquisition and the purchase method of accounting
is required. This standard also prescribes the accounting for combinations of entities under
common control and for joint ventures.
In December 2008, the ASBJ issued a revised accounting standard for business combinations, ASBJ
Statement No. 21, "Accounting Standard for Business Combinations." Major accounting changes
under the revised accounting standard are as follows: (1) The revised standard requires accounting
for business combinations only by the purchase method. As a result, the pooling-of-interests
method of accounting is no longer allowed. (2) The previous accounting standard required
research and development costs to be charged to income as incurred. Under the revised standard,
in-process research and development costs (IPR&D) acquired in the business combination are
capitalized as an intangible asset. (3) The previous accounting standard provided for a bargain
purchase gain (negative goodwill) to be systematically amortized over a period not exceeding 20
years. Under the revised standard, the acquirer recognizes the bargain purchase gain in profit or
loss immediately on the acquisition date after reassessing and confirming that all of the assets
acquired and all of the liabilities assumed have been identified after a review of the procedures used
in the purchase price allocation.
(c) Cash and cash equivalents
Cash and cash equivalents in the consolidated statement of cash flows are composed of cash on
hand and due from the Bank of Japan.
(d) Trading securities
Trading securities are stated at fair value at the fiscal year-ends. Related gains or losses, both
realized and unrealized, are included in current earnings. Accrued interest on trading securities is
included in other assets. The cost of trading securities is mainly determined by the
moving-average method.
(e) Investment securities
Debt securities for which the Group has the positive intent and ability to hold to maturity are stated
at amortized cost. Marketable securities are carried at fair value as available-for-sale securities,
with the net unrealized gains or losses reported in a separate component of equity, net of applicable
income taxes. Available-for-sale securities whose fair valuescannot be reliably determined are
stated at the moving average cost. For other-than-temporary declines in fair value, securities are
reduced to net realizable value by a charge to income. Accrued interest on securities is included
in other assets. Funds entrusted to trust banks for securities (included in "Money held in trust") of
the Bank are stated at fair value.10(f) Derivatives and hedge accounting
The Bank uses swaps, forward and option contracts, and other types of derivative contracts.
These derivative instruments are used for trading purposes to generate revenues and fee income,
and to hedge exposures arising from fluctuations in interest and foreign exchange rates.
Derivatives are carried at fair value, with the unrealized and realized gains and losses recorded in
current earnings.
(1) Hedging against interest rate changes
The Bank applies deferred hedge accounting based on the rules of the Japanese Institute of
Certified Public Accountants (the "JICPA") Industry Audit Committee Report No. 24, "Accounting
and Auditing Treatments on the Application of Accounting Standards for Financial Instruments in
the Banking Industry" for interest rate derivatives to manage interest rate risk from various
financial assets and liabilities as a whole.
Under this rule, the effectiveness of cash flow hedges is assessed based on the correlation between
a base interest rate index of the hedged cash flow and that of the hedging instrument.
(2) Hedging against currency fluctuations
The Bank applies deferred hedge accounting based on the rules of the JICPA Industry Audit
Committee Report No. 25, "Treatment for Accounting and Auditing of Application of Accounting
Standard for Foreign Currency Transaction in Banking Industry" for funding swap transactions and
currency swap transactions related to lending or borrowing in different currencies.
Pursuant to the rules, the Bank assesses the effectiveness of funding swap transactions and
currency swap transactions executed for the purpose of offsetting the risk of changes in currency
exchange rates by verifying that there are foreign-currency monetary claims and debts
corresponding to the foreign-currency positions.
(g) Tangible fixed assets
(1) Tangible fixed assets are stated at cost less accumulated depreciation.
Tangible fixed assets of the Bank are depreciated using the declining-balance method over the
following estimated useful lives of the assets, except for buildings acquired on or after April 1,
1998, which have been depreciated using the straight-line method.
Buildings 19 to 50 years
Other 2 to 20 years
Tangible fixed assets of the subsidiaries are principally depreciated by the straight-line method
over the estimated useful lives of the assets.
(2) Land revaluation
Under the "Law of Land Revaluation," the Bank elected a onetime revaluation of its own-use land
to a value based on real estate appraisal information as of March 31, 1998.
The resulting land revaluation surplus is stated as a component of equity, and represents the total
of unrealized appreciation of land, net of income taxes, as a component of equity. There was no
effect on the consolidated statement of income. Continuous readjustment is not permitted unless
the land value subsequently declines significantly such that the amount of the decline in value
should be removed from the land revaluation surplus account and related deferred tax liabilities.
At March 31, 2014 and 2013, the difference in the carrying values of land used for the banking
business after reassessment of the current fair value of such land at the respective year-ends
amounted to 15,376円 million (149,404ドル thousand) and 14,592円 million.11(h) Intangible fixed assets
Intangible fixed assets mainly consisted of computer software developed or obtained for internal
use and are amortized using the straight-line method over the estimated useful lives, mainly five
years.
(i) Long-lived assets
The Group reviews its long-lived assets for impairment whenever events or changes in
circumstances indicate the carrying amount of an asset or asset group may not be recoverable.
An impairment loss would be recognized if the carrying amount of an asset or asset group exceeds
the sum of the undiscounted future cash flows expected to result from the continued use and
eventual disposition of the asset or asset group. The impairment loss would be measured as the
amount by which the carrying amount of the asset exceeds its recoverable amount, which is the
higher of the discounted cash flows from the continued use and eventual disposition of the asset or
the net selling price at disposition.
(j) Allowance for doubtful accounts
The allowance for doubtful accounts of the Bank is established to cover future credit losses in
accordance with the internal rules for self-assessment of asset quality.
The allowance for doubtful accounts is calculated in accordance with the Bank’s internal rules
based on the "Practical Guidelines for Audits of the Self-Assessment of Assets of Financial
Institutions Including Banks, Write-Down and Allowance for Doubtful Accounts" (Report No. 4 of
the Ad Hoc Committee for the Audit of Banks, etc., of JICPA).
For claims to borrowers who are legally bankrupt and virtually bankrupt, an allowance has been
provided based on the net of amounts exceeding the expected collectible amounts through the
disposal of collateral or execution of guarantees. For claims to borrowers who are possibly
bankrupt, an allowance has been provided for the loan losses at the amounts considered to be
necessary based on an overall solvency assessment of the borrowers, after deducting the amount
expected to be collected through the disposal of collateral or execution of guarantees. For claims
to large-lot borrowers who are classified as "Need attention," whose loans are classified as
restructured loans and whose future cash flows of principal and interest are reasonably estimated,
an allowance is provided for as the difference between the present value of expected future cash
flows discounted at the contracted interest rate and the carrying amount of the claims. In cases
where it is difficult to reasonably estimate future cash flows, an allowance is provided based on the
estimated credit losses within the remaining loan terms calculated by the Bank. For other claims,
the allowance is provided based on historical loan-loss retio.
All claims are assessed by the Bank’s operating divisions in accordance with the Bank’s internal
rules for the self-assessment of asset quality. The inspection division, which is independent from
operating divisions, conducts audits of these assessments.
Regarding the subsidiaries, a general allowance for loan losses is provided in the amount deemed
necessary based on the historical loan-loss ratio, and the allowance for specific claims is provided
in the amount deemed uncollectible based on the respective assessments.
(k) Accrued bonuses to directors and audit & supervisory board members
Bonuses to directors and audit & supervisory board members are accrued at the end of the year to
which such bonuses are attributable.12(l) Retirement and Pension Plans
The Bank has a defined benefit corporate pension fund plan and a retirement lump-sum grant plan
of unfunded, and introduced a cash balance plan in the corporate pension fund plan. Some of
subsidiaries have a retirement lump-sum grant system. The amount of liability for employees’
retirement benefit is determined based on the projected benefit obligations and the pension assets
at the balance sheet date. Prior service cost is amortized using the straight-line method over 10
years. Net actuarial gain or loss is amortized using the declining-balance method over 10 years
commencing from the next fiscal year of occurrence.
In May 2012, the ASBJ issued ASBJ Statement No. 26, "Accounting Standard for Retirement
Benefits" and ASBJ Guidance No. 25, "Guidance on Accounting Standard for Retirement
Benefits," which replaced the accounting standard for retirement benefits that had been issued by
the Business Accounting Council in 1998 with an effective date of April 1, 2000, and the other
related practical guidance, and were followed by partial amendments from time to time through
2009.
(a)Under the revised accounting standard, actuarial gains and losses and past service costs that are
yet to be recognized in profit or loss are recognized within equity (accumulated other
comprehensive income), after adjusting for tax effects, and any resulting deficit or surplus is
recognized as a liability (liability for retirement benefits) or asset (asset for retirement benefits).
(b)The revised accounting standard does not change how to recognize actuarial gains and losses
and past service costs in profit or loss. Those amounts are recognized in profit or loss over a
certain period no longer than the expected average remaining service period of the employees.
However, actuarial gains and losses and past service costs that arose in the current period and
have not yet been recognized in profit or loss are included in other comprehensive income, and
actuarial gains and losses and past service costs that were recognized in other comprehensive
income in prior periods and then recognized in profit or loss in the current period shall be treated
as reclassification adjustments (see Note 14).
(c)The revised accounting standard also made certain amendments relating to the method of
attributing expected benefit to periods and relating to the discount rate and expected future salary
increases.
This accounting standard and the guidance for (a) and (b) above are effective for the end of annual
periods beginning on or after April 1, 2013, and for (c) above are effective for the beginning of
annual periods beginning on or after April 1, 2014, or for the beginning of annual periods
beginning on or after April 1, 2015, subject to certain disclosure in March 2015, both with earlier
application being permitted from the beginning of annual periods beginning on or after April 1,
2013. However, no retrospective application of this accounting standard to consolidated financial
statements in prior periods is required.
The Bank applied the revised accounting standard and guidance for retirement benefits for (a) and
(b) above effective March 31, 2014. As a result, asset for retirement benefits of 7,086円 million
(68,850ドル thousand) and liability for retirement benefits of 1,498円 million (14,562ドル thousand) were
recorded as of March 31, 2014. In addition, deferred tax assets increased by 87円 million (846ドル
thousand), deferred tax liabilities decreased by 548円 million (5,333ドル thousand), and accumulated
other comprehensive income decreased by 1,165円 million (11,327ドル thousand).
(m) Provision for directors’ and audit & supervisory board members’ retirement benefits
Provision for directors’ and audit & supervisory board members’ retirement benefits, which are
provided for payments of retirement benefits to them, are recorded in the amount deemed accrued
at the consolidated balance sheet date based on the estimated amount of benefits.13(n) Provision for reimbursement of deposits
Provision for reimbursement of deposits that were derecognized as liabilities under certain
conditions is provided for possible losses on future claims of withdrawal based on the historical
reimbursement experience.
(o) Provision for contingent losses
Provision for contingent losses is provided for possible losses from contingent events related to the
enforcement of the "responsibility-sharing system," and is calculated by estimation of future
burden charges and other payments to the Credit Guarantee Corporations.
(p) Leases
Lease revenue and lease costs are recognized when lease payments are made.
(q) Foreign currency translation
Assets and liabilities denominated in foreign currencies are mainly translated into Japanese yen at
the exchange rates at the balance sheet date. Revenues and expenses are translated at the
exchange rates at transaction dates. Gains or losses resulting from foreign currency translation
are included in the net income.
(r) Per-share information
Basic net income per share is computed by dividing net income available to common shareholders
by the weighted-average number of common shares outstanding for the period.
Cash dividends per share presented in the accompanying consolidated statement of income are
dividends applicable to the respective years, including dividends to be paid after the end of the
year.
(s) Income taxes
The provision for income taxes is computed based on the pretax income included in the
consolidated statement of income. The asset and liability approach is used to recognize deferred
tax assets and liabilities for the expected future tax consequences of temporary differences between
the carrying amounts and the tax bases of assets and liabilities. Deferred taxes are measured by
applying currently enacted tax laws to the temporary differences.
A valuation allowance is provided for any portion of the deferred tax assets if it is considered more
likely than not that they will not be realized.
(t) New accounting pronouncements
Accounting standard for retirement benefits−On May 17, 2012, the ASBJ issued ASBJ
Statement No. 26, "Accounting Standard for Retirement Benefits," and ASBJ Guidance No. 25,
"Guidance on Accounting Standard for Retirement Benefits," which replaced the Accounting
Standard for Retirement Benefits that had been issued by the Business Accounting Council in 1998
with an effective date of April 1, 2000, and the other related practical guidance, and were followed
by partial amendments from time to time through 2009.14Major changes are as follows:
(a) Treatment in the balance sheet
Under the current requirements, actuarial gains and losses and past service costs that are yet to be
recognized in profit or loss are not recognized in the balance sheet, and the difference between
retirement benefit obligations and plan assets (hereinafter, "deficit or surplus"), adjusted by such
unrecognized amounts, is recognized as a liability or asset.
Under the revised accounting standard, actuarial gains and losses and past service costs that are yet
to be recognized in profit or loss shall be recognized within equity (accumulated other
comprehensive income), after adjusting for tax effects, and any resulting deficit or surplus shall be
recognized as a liability (liability for retirement benefits) or asset (asset for retirement benefits).
(b) Treatment in the statement of income and the statement of comprehensive income
The revised accounting standard does not change how to recognize actuarial gains and losses and
past service costs in profit or loss. Those amounts would be recognized in profit or loss over a
certain period no longer than the expected average remaining service period of the employees.
However, actuarial gains and losses and past service costs that arose in the current period and have
not yet been recognized in profit or loss shall be included in other comprehensive income and
actuarial gains and losses and past service costs that were recognized in other comprehensive
income in prior periods and then recognized in profit or loss in the current period shall be treated as
reclassification adjustments.
(c) Amendments relating to the method of attributing expected benefit to periods and relating to the
discount rate and expected future salary increases
The revised accounting standard also made certain amendments relating to the method of attributing
expected benefit to periods and relating to the discount rate and expected future salary increases.
This accounting standard and the guidance for (a) and (b) above are effective for the end of annual
periods beginning on or after April 1, 2013, and for (c) above are effective for the beginning of
annual periods beginning on or after April 1, 2014, or for the beginning of annual periods beginning
on or after April 1, 2015, subject to certain disclosure in March 2015, both with earlier application
being permitted from the beginning of annual periods beginning on or after April 1, 2013.
However, no retrospective application of this accounting standard to consolidated financial
statements in prior periods is required.
The Bank applied to the revised accounting standard for (a) and (b) above effective March 31, 2014,
and expects to apply (c) above from on April 1, 2014, and is in the process of measuring the effects
of applying the revised accounting standard for (c) above in the future applicable periods.
3. Business Combinations
On March 26, 2014, the Bank acquired additional shares of KAGOSHIMA HOSYO SERVICE Co.,
Ltd., which has been a consolidated subsidiary, owned by minority shareholders in exchange for
cash in the amount of 3円 million (29ドル thousand) to strengthen the governance through changing the
capital structure of this company.
The Bank accounted for this transaction as a transaction with minority shareholders pursuant to
ASBJ Statement No. 21, "Accounting Standard for Business Combinations," and ASBJ Guidance
No. 10, "Guidance on Accounting Standard for Business Combinations and Business Divestitures"
issued on September 13, 2013.
The Bank recognized a gain on negative goodwill of 1,398円 million (13,586ドル thousand) arising
from the transaction, since the acquisition cost of the subsidiary shares from minority shareholders
was lower than the decreased amount of minority interests (Note 2(b)).154. Cash and Cash Equivalents
A reconciliation of the cash and cash equivalents balances on the consolidated statement of cash
flows and the cash and due from banks balances on the consolidated balance sheet was as follows:
Millions of Yen
Thousands of
U.S. Dollars
2014 2013 2014
Cash and due from banks \ 168,429 \ 88,936 $ 1,636,505
Less: due from banks other than
the Bank of Japan (883) (996) (8,582)
Cash and cash equivalents \ 167,545 \ 87,940 $ 1,627,923
5. Trading Securities and Investment Securities
At March 31, 2014 and 2013, trading securities consisted of the following:
Millions of Yen
Thousands of
U.S. Dollars
2014 2013 2014
National government bonds \ 11 \ 17 $ 111
Local government bonds 167 164 1,627
Total \ 178 \ 181 $ 1,739
At March 31, 2014 and 2013, investment securities consisted of the following:
Millions of Yen
Thousands of
U.S. Dollars
2014 2013 2014
National government bonds \ 316,057 \ 468,816 $ 3,070,901
Local government bonds 71,854 89,623 698,158
Corporate bonds 574,794 450,453 5,584,866
Equity securities 74,754 68,612 726,331
Other 112,103 82,938 1,089,224
Total \ 1,149,563 \ 1,160,444 $ 11,169,483
At March 31, 2014 and 2013, carrying amounts of trading securities and the related net unrealized
gains or losses included in current earnings were as follows:
Millions of Yen
Thousands of
U.S. Dollars
2014 2013 2014
Carrying
amounts
Unrealized
gains
Carrying
amounts
Unrealized
gains
Carrying
amounts
Unrealized
gains
Trading securities \ 178 \ 0 \ 181 \ 0 $ 1,739 $ 316At March 31, 2014 and 2013, gross unrealized gains and losses for available-for-sale securities
with fair value were as follows:
Milli ons of YenCostGross
unrealized
gains
Gross
unrealized
losses Fair value
At March 31, 2014:
Bonds:
National government bonds \ 309,380 \ 6,676 \ \ 316,057
Local government bonds 70,465 1,388 71,854
Corporate bonds 568,631 6,196 (32) 574,794
Equity securities 39,464 33,219 (311) 72,372
Other 108,085 1,970 (474) 109,581
Total \ 1,096,027 \ 49,451 \ (818) \ 1,144,660
Milli ons of YenCostGross
unrealized
gains
Gross
unrealized
losses Fair value
At March 31, 2013:
Bonds:
National government bonds \ 456,007 \ 12,809 \ \ 468,816
Local government bonds 87,366 2,257 89,623
Corporate bonds 442,537 7,990 (74) 450,453
Equity securities 37,276 29,832 (829) 66,280
Other 79,047 2,653 (93) 81,606
Total \ 1,102,235 \ 55,542 \ (997) \ 1,156,780
T housands of U.S. DollarsCostGross
unrealized
gains
Gross
unrealized
losses Fair value
At March 31, 2014:
Bonds:
National government bonds $ 3,006,026 $ 64,874 $ $ 3,070,901
Local government bonds 684,662 13,495 698,158
Corporate bonds 5,524,982 60,204 (319) 5,584,866
Equity securities 383,447 322,771 (3,023) 703,195
Other 1, 050,193 19,141 (4,613) 1,064,721
Total $ 10,649,313 $ 480,485 $ (7,955) $ 11,121,841
At March 31, 2014 and 2013, net unrealized gains on available-for-sale securities, net of applicable
income taxes and minority interests, recorded in a separate component of equity on the
accompanying consolidated balance sheet were as follows:
Millions of Yen
Thousands of
U.S. Dollars
2014 2013 2014
Unrealized gains \ 48,632 \ 54,545 $ 472,530
Less: applicable income taxes (16,707) (18,793) (162,332)
Less: minority interests portion (112) (95) (1,093)
Net unrealized gains in equity \ 31,813 \ 35,656 $ 309,10417During the years ended March 31, 2014 and 2013, the Group sold available-for-sale securities and
recorded gains of 5,504円 million (53,486ドル thousand) and 4,191円 million, respectively, and losses of
1,861円 million (18,082ドル thousand) and 2,861円 million, respectively, on the accompanying
consolidated statement of income.
6. Money Held in Trust
At March 31, 2014 and 2013, the carrying amounts and unrealized gains of money held in trust
were as follows:
(a) Money held in trust for trading
Millions of Yen
Thousands of
U.S. Dollars
2014 2013 2014
Carrying amounts \ 9,484 \ 7,500 $ 92,150
Unrealized gains recognized in income 105 0 1,020
(b) Money held in trust held to maturity
None.
(c) Other money held in trust (money held in trust other than held for trading or held to maturity)
None.
7. Loans and Bills Discounted
At March 31, 2014 and 2013, loans and bills discounted consisted of the following:
Millions of Yen
Thousands of
U.S. Dollars
2014 2013 2014
Bills discounted \ 12,904 \ 15,624 $ 125,386
Loans on notes 148,493 152,770 1,442,809
Loans on deeds 1,968,129 1,813,217 19,122,907
Overdrafts 296,370 290,712 2,879,620
Total \ 2,425,898 \ 2,272,324 $ 23,570,724
The loans and bills discounted include "loans to borrowers in bankruptcy" totaling 4,623円 million
(44,920ドル thousand) and 5,000円 million as of March 31, 2014 and 2013, respectively, as well as
"past due loans" totaling 24,278円 million (235,895ドル thousand) and 26,990円 million as of March 31,
2014 and 2013, respectively. "Loans to borrowers in bankruptcy" are loans to borrowers who are
legally bankrupt and are placed on nonaccrued status. "Past due loans" include loans classified as
"possible bankruptcy" and "virtual bankruptcy" under the Bank’s self-assessment guidelines and
are loans on which accrued interest income is not recognized, excluding loans to bankrupt
borrowers and loans on which interest payments are deferred in order to support the borrower’s
recovery from financial difficulties.
In addition to "past due loans", certain other loans classified as "Need attention" under the Bank’s
self-assessment guidelines include "accruing loans contractually past due for three months or
more," which are loans on which the principal and/or interest is three months or more past due but
exclude "loans to borrowers in bankruptcy" or "past due loans." There was no "accruing loans
contractually past due for three months or more" as of march 31, 2014 and 2013.
"Restructured loans" are loans where the Bank has restructured lending conditions, such as by a
reduction of the original interest rate, forbearance of interest payments, principal repayments, or18renunciation of claims to support the borrowers’ reorganization, but exclude "loans to borrowers in
bankruptcy," "past due loans," and "accruing loans contractually past due for three months or
more." The outstanding balances of "restructured loans" as of March 31, 2014 and 2013, were
42,188円 million (409,915ドル thousand) and 25,683円 million, respectively.
Total amount of assets, which consisted of "loans to borrowers in bankruptcy," "past due loans,"
"accruing loans contractually past due for three months or more" and "restructured loans" as of
March 31, 2014 and 2013, were 71,090円 million (690,732ドル thousand) and 57,675円 million,
respectively. The allowance for doubtful accounts is not deducted from the amounts of loans
shown in the above.
Bills discounted are treated as secured lending transactions. As of March 31, 2014 and 2013, the
Bank had the right by contract or custom to sell or repledge bills discounted and foreign exchange
bills bought, and their total face value was 12,906円 million (125,399ドル thousand) and 15,626円
million, respectively.
8. Foreign Exchange
At March 31, 2014 and 2013, foreign exchanges assets and liabilities consisted of the following:
Millions of Yen
Thousands of
U.S. Dollars
2014 2013 2014
Assets:
Due from banks \ 2,720 \ 1,159 $ 26,436
Foreign bills of exchange purchased 1 2 12
Foreign bills of exchange receivable 197 196 1,921
Total \ 2,919 \ 1,358 $ 28,370
Liabilities:
Foreign bills of exchange sold \ 29 \ 7 $ 287
Foreign bills of exchange payable 26 15 253
Total \ 55 \ 23 $ 540
9. Tangible Fixed Assets and Intangible Fixed Assets
At March 31, 2014 and 2013, the major classifications of tangible fixed assets and intangible fixed
assets consisted of following:
Millions of Yen
Thousands of
U.S. Dollars
Tangible fixed assets 2014 2013 2014
Buildings \ 36,536 \ 35,939 $ 354,999
Land 36,774 36,966 357,313
Construction in progress 71 17 691
Other 16,622 15,313 161,504
Less: accumulated depreciation
90,004 88,237 874,508
(34,550) (33,390) (335,697)
Total \ 55,454 \ 54,847 $ 538,811
Intangible fixed assets
Software \ 6,492 \ 8,437 $ 63,085
Other 152 153 1,481
Total \ 6,645 \ 8,590 $ 64,5671910. Fixed Asset Impairment Losses
The bank wrote down the carrying amounts to the recoverable amounts and recognized impairment
losses for the years ended March 31, 2014 and 2013, as follows:
Purpose
of use
Area Type
Millions ofYenThousands of
U.S. Dollars
2014 2013 2014
In use Kagoshima Land and buildings \ 59 \ 160 $ 575
Not in use Kagoshima Land and buildings 52 69 508
Not in use
Outside of
Land and buildings
Kagoshima 5 17 51
Total \ 116 \ 248 $ 1,135
The Bank groups assets by branch, which is a minimum unit for managerial accounting. The Bank
treats each consolidated subsidiary as a unit for asset grouping.
The recoverable value is calculated based on the real estate appraisal value less the estimated cost of
disposal.
11. Assets Pledged
At March 31, 2014 and 2013, assets pledged as collateral were as follows:
Millions of Yen
Thousands of
U.S. Dollars
2014 2013 2014
Investment securities \ 298,134 \ 336,862 $ 2,896,761
Investment in leases 1,417 1,977 13,769
Other 2, 267 3,037 22,032
At March 31, 2014 and 2013, the liabilities related to the above pledged assets were as follows:
Millions of Yen
Thousands of
U.S. Dollars
2014 2013 2014
Deposits \ 27,106 \ 10,853 $ 263,371
Borrowed money 73,439 41,596 713,554
Payables under securities lending
transaction 20,800 32,745 202,107
In addition to the above, investment securities totaling 19,604円 million (190,479ドル thousand) and
19,656円 million at March 31, 2014 and 2013, respectively, were pledged as collateral for the
settlement of exchange, derivatives, and other transactions.2012. Deposits
At March 31, 2014 and 2013, deposits consisted of the following:
Millions of Yen
Thousands of
U.S. Dollars
2014 2013 2014
Demand deposits \ 1,973,399 \ 1,885,867 $ 19,174,106
Time deposits 1,276,172 1,234,559 12,399,650
Other 42,184 24,371 409,879
Total \ 3,291,756 \ 3,144,798 $ 31,983,646
13. Borrowed Money
At March 31, 2014, the annual maturities of borrowed money, which were due through March
2019 with an weighted-average annual interest rate of 0.16%, were as follows:
Years ending March 31,
Millions ofYenThousands of
U.S. Dollars
2015 \ 12,462 $ 121,086
2016 1,912 18,585
2017 61,307 595,682
2018 856 8,317
2019 392 3,808
Total \ 76,930 $ 747,479
Apart from borrowed money, lease obligations are included in other liabilities.
At March 31, 2014, the annual maturities of lease obligations, which were due through March
2019 with an weighted-average annual interest rate of 2.07%, were as follows:
Years ending March 31,
Millions ofYenThousands of
U.S. Dollars
2015 \ 12 $ 117
2016 11 109201720182019Total \ 23 $ 226
14. Retirement and Pension Plans
The retirement benefits systems of the Bank consist of a defined benefit corporate pension fund
plan and a retirement lump-sum grant system of unfunded.
The Bank introduced a cash balance plan in the corporate pension fund plan, and pays a pension or
lump sum that has been funded on the basis of length of service and professional qualifications and
age. In addition, the Bank pays a lump sum based on length of service or factors such as the
professional qualifications of the constant. A retirement benefit trust was set up on the corporate pension fund plan.
Some of subsidiaries have a retirement lump-sum grant system.
Extra retirement benefits may be paid up on the retirement of employees of the Bank and
subsidiaries.21Year Ended March 31, 2014
(1) The changes in defined benefit obligation for the year ended March 31, 2014, were as
follows:
Millions of Yen
Thousands of
U.S. Dollars
Balance at beginning of year \ 23,711 $ 230,386
Service cost 855 8,312
Interest cost 331 3,217
Actuarial losses (575) (5,588)
Benefits paid (1,272) (12,360)
Balance at end of year \ 23,050 $ 223,966
(Note)
All subsidiaries use the simplified method. The retirement benefit costs are recognized
as "service cost."
(2) changes in plan assets for the year ended March 31, 2014, were as follows:
Millions of Yen
Thousands of
U.S. Dollars
Balance at beginning of year \ 25,568 $ 248,428
Expected return on plan assets 127 1,241
Actuarial gains 2,183 21,218
Contributions from the employer 1,929 18,748
Benefits paid (1,171) (11,382)
Balance at end of year \ 28,637 $ 278,254
(3) Reconciliation between the liability recorded in the consolidated balance sheet and the
balances of defined benefit obligation and plan assets
Millions of Yen
Thousands of
U.S. Dollars
Funded defined benefit obligation \ (21,551) $ (209,403)
Plan assets 28,637 278,254
7,086 68,650
Unfunded defined benefit obligation (1,498) (14,562)
Net asset arising from defined benefit
obligation \ 5,587 $ 54,288
Millions of Yen
Thousands of
U.S. Dollars
Liability for retirement benefits \ (1,498) $ (14,562)
Asset for retirement benefits 7,086 68,650
Net asset arising from defined benefit
obligation \ 5,587 $ 54,28822(4) The components of net periodic benefit costs for the year ended March 31, 2014, were as
follows:
Millions of Yen
Thousands of
U.S. Dollars
Service cost \ 855 $ 8,312
Interest cost 331 3,217
Expected return on plan assets (127) (1,241)
Recognized actuarial losses 1,008 9,795
Amortization of prior service cost 7 76
Net periodic benefit costs \ 2,074 $ 20,159
(5) Accumulated other comprehensive income on defined retirement benefit plans as of March
31, 2014
Millions of Yen
Thousands of
U.S. Dollars
Unrecognized prior service cost \ 675 $ 6,561
Unrecognized actuarial losses 1,126 10,946
Total \ 1,801 $ 17,508
(6) Plan assets
a. Components of plan assets
Plan assets consisted of the following:
Debt investments 29%
Equity investments 29
General account assets of life insurance companies 28
Others 14
Total 100%
(Note)
Total pension assets include the retirement benefit trust of 17%.
b. Method of determining the expected rate of return on plan assets
The e xpected rate of return on plan assets is determined based on the investment yield
average of the past five years, in consideration of the long-term rates of return and the
allocation of expected pension assets at present and in the future.
(7) Assumptions used for the year ended March 31, 2014, were set forth as follows:
Discount rate 1.5%
Expected rate of return on plan assets
Defined benefit pension plan 0.5
The retirement benefit trust 0.523Year Ended March 31, 2013
The provision for retirement benefits at March 31, 2013, consisted of the following:
Milli ons of Yen
Projected benefit obligation \ (23,711)
Fair value of plan assets 25,568
Unrecognized prior service cost 683
Unrecognized actuarial loss 4,893
Net liability 7, 433
Prepaid pension expense 8,555
Provision for retirement benefits \ (1,122)
The components of net periodic benefit costs for the year ended March 31, 2013, are as follows:
Milli ons of Yen
Service cost \ 819
Interest cost 403
Expected return on plan assets (213)
Amortization of prior service cost (209)
Recognized actuarial loss 1, 200
Net periodic benefit costs \ 2,000
Assumptions used for the year ended March 31, 2013, are set forth as follows:
Discount rate 1.4%
Expected rate of return on plan assets
Defined benefit pension plan 0.5%
The retirement benefit trust 2.5%
Amortization period of prior service cost 10 years
Recognition period of actuarial gain/loss 10 years
15. Acceptances and Guarantees
The Bank provides guarantees for the liabilities of its customers for payments of loans or other
liabilities to other financial institutions. As a contra account, "Customers’ liabilities for
acceptances and guarantees" are shown as assets on the accompanying consolidated balance sheet
indicating the Bank’s right of indemnity from the customers.
16. Equity
Japanese banks are subject to the Banking Law and the Companies Act of Japan (the "Companies
Act"). The significant provisions in the Banking Law and the Companies Act that affect financial
and accounting matters are summarized below:24(a) Dividends
Under the Companies Act, companies can pay dividends at any time during the fiscal year in
addition to the year-end dividend upon resolution at the shareholders’ meeting. For companies
that meet certain criteria such as (1) having a Board of Directors, (2) having independent auditors,
(3) having an Audit & Supervisory Board , and (4) the term of service of the directors is prescribed
as one year rather than two years of normal term by its articles of incorporation, the Board of
Directors may declare dividends (except for dividends-in-kind) at any time during the fiscal year if
the company has prescribed so in its articles of incorporation. The Bank meets all the above
criteria.
The Companies Act permits companies to distribute dividends-in-kind (noncash assets) to
shareholders subject to certain limitations and additional requirements.
Semiannual interim dividends may also be paid once a year upon resolution by the Board of
Directors if the articles of incorporation of the company so stipulate. The Companies Act and the
Banking Law provide certain limitations on the amounts available for dividends or the purchase of
treasury stock.
(b) Increases/decreases and transfer of common stock, reserve, and surplus
The Banking Law requires that an amount equal to 20% of dividends must be appropriated as a
legal reserve (a component of retained earnings) or as additional paid-in capital (a component of
capital surplus) depending on the equity account charged upon the payment of such dividends until
the aggregate amount of the legal reserve and additional paid-in capital equals 100% of capital
stock. Under the Companies Act, the total amount of additional paid-in capital and legal reserve
may be reversed without limitation. The Companies Act also provides that capital stock, legal
reserve, additional paid-in capital, other capital surplus, and retained earnings can be transferred
among the accounts under certain conditions upon resolution of the shareholders.
(c) Treasury stock and treasury stock acquisition rights
The Companies Act also provides for companies to purchase treasury stock and dispose of such
treasury stock by resolution of the Board of Directors. The amount of treasury stock purchased
cannot exceed the amount available for distribution to the shareholders, which is determined by
specific formula. Under the Companies Act, stock acquisition rights are presented as a separate
component of equity. The Companies Act also provides that companies can purchase both
treasury stock acquisition rights and treasury stock. Such treasury stock acquisition rights are
presented as a separate component of equity or deducted directly from stock acquisition rights.
17. Loan Commitments
Contracts for overdraft facilities and loan commitment limits are contracts that the Bank makes
with customers up to prescribed limits in response to customers’ loan applications as long as there
is no violation of any condition in the contracts. The amount of unused commitments at March
31, 2014 and 2013, was 634,160円 million (6,161,680ドル thousand) and 602,182円 million,
respectively, and the amount of unused commitments whose original contract terms are within one
year or unconditionally cancelable at any time at March 31, 2014 and 2013, was 625,400円 million
(6,076,567ドル thousand) and 597,142円 million, respectively.
Since many of these commitments expire without being drawn upon, the unused amount does not
necessarily represent a future cash requirement. Most of these contracts have conditions that
allow the Bank to refuse customers’ loan applications or decrease the contract limits for legitimate
reasons (e.g., changes in financial situation, deterioration in customers’ creditworthiness). At the
inception of the contracts, the Bank obtains real estate, securities, etc., as collateral if considered to
be necessary. Subsequently, the Bank performs a periodic review of customers’ business results
based on internal rules and takes necessary measures to reconsider conditions in the contracts
and/or require additional collateral and guarantees.2518. Financial Instruments and Related Disclosures
(a) Policy on financial instruments
The main business of the Group is banking operations, which consist of deposit-taking and lending
services, securities investment, etc. Additionally, the Group provides other financial services, such
as leasing services.
Accordingly, the Bank holds financial assets and liabilities that are subject to interest rate
fluctuations and conducts Asset-Liability Management ("ALM") in order to minimize any
unfavorable impacts from interest rate fluctuations. The Bank also conducts derivative transactions
as part of ALM.
(b) Nature and extent of risks arising from financial instruments
The main financial instruments that the Group has are as follows:
The Group provides loans mainly to domestic corporations and individual customers. Loans are
exposed to credit risk, which represents losses on defaults caused by a deterioration in a borrower’s
financial condition. Moreover, fixed interest rate loans are exposed to interest rate risks.
The Group holds securities, such as national government bonds, local government bonds, corporate
bonds and equity securities. These securities are exposed to interest rate risks, market price risks,
foreign exchange risks and credit risks.
The Bank handles deposits and negotiable certificates of deposit from customers. These deposits
are exposed to interest rate risks.
Call money is exposed to liquidity risk, which may lead the Bank to face difficulties in raising
necessary funds under certain circumstances.
The Group conducts derivative transactions mainly to manage market risks of loans and securities,
etc., and partly applies hedge accounting to them.
(c) Risk management for financial instruments
(1) Credit risk management
As a basis of credit risk management, the Bank periodically monitors the debtors’ financial status.
This checking system is called the "Monitoring System of Customers."
The Bank has established a "Lending Policy" to advance the credit risk control systems for
individual accounts and to enhance the effectiveness of these credit portfolio management
measures. In addition, the Bank assists debtors, which have problems in their financial conditions
and guides their management in financial aspects.
To enhance its risk management system, the Bank has established a system of checks and balances
in its credit risk management operations by separating the Corporate Risk Management Department
from the Credit & Investment Planning Department. In addition, regarding business loans, the
Corporate Risk Management Department is responsible for measuring credit risks and planning a
credit rating system.26Corporate credit rates are decided by the Monitoring System of Customers with a financial support
system "Key Man." The Monitoring System of Customers gives corporate credit rates with
internal standards based on actual financial or nonfinancial conditions and decides the credit rating
classification, lending policies, and lending rates according to the corporate credit rates.
The Credit Risk Management Department reports the management situation of the credit portfolio
to the Risk Management Committee and the ALM Committee regularly or as needed, and the
agenda is reported to the Board of Directors.
Regarding credit examinations and lending judgment on individual transactions, the Bank
establishes a "Lending Policy," which determines the basic lending policies, individual lending
criterion and, to prevent the concentration of lending, conducts credit examinations in accordance
with the policy.
(2) Market risk management
The Bank recognizes the importance of appropriate market risk management to attain its purpose.
Therefore, its basic policy is to understand the market risk situation precisely and to take and
manage appropriate business risks by establishing an appropriate market risk management system
that enables it to manage and take certain market risks.
The Bank has separated its departments into the market division (front office), the office
management division (back office), and the risk management division (middle office) and has
established an effective mutual monitoring system.
Moreover, the Bank conducts strict operational management with retention limits, Value at Risk
("VaR") limits, and loss limits, which are decided by the Executive Board on a semiannual basis.
The middle office reports to directors on a daily basis and to the Risk Management Committee on a
monthly basis on the status of risks of market transactions, such as retention limits, unrealized
gains or losses, Basis Point Value of the securities portfolio, and VaR. The study results of the
Risk Management Committee are reported to the Board of Directors.
The ALM Committee monitors market risks, including interest risk of bank accounting in terms of
comprehensive management of assets and liabilities and studies hedging strategies based on the
financial environment and market forecasts.
(Quantitative information of market risk)
1) Financial instruments held for trading purposes
Concerning trading securities and fund trusts, the Bank has set upper holding limits. As of March
31, 2014 and 2013, the limit of trading securities was 10,000円 million (97,162ドル thousand) and
10,000円 million, respectively, and the limit of fund trusts was 12,000円 million (116,595ドル thousand)
and 14,000円 million, respectively. For trading securities, the Bank has not set an allowable
potential loss amount to trade securities with customers. The Bank holds fund trusts to earn profit
by taking advantage of short-term fluctuations in the market or discrepancies in interest rates,
currency exchange rates, or other market indices in different markets. In order to manage risks,
the Bank has set an allowable potential loss amount for fund trusts, which was 360円 million
(3,497ドル thousand) and 300円 million as of March 31, 2014 and 2013, respectively.272) Financial instruments held for other than trading purposes
(a) Management of interest rate risks
The main financial instruments that are affected by interest rate risks in the Bank are "Loans and
bills discounted," bonds within "Securities," "Deposits," and interest rate swaps of "Derivative
transactions."
The Bank has computed the VaR of these financial assets and liabilities with the
variance-covariance method and uses that method for quantitative analysis of interest rate risk
management. The assumptions for computing VaR are based on a 60-day holding period, 99%
confidence level, and a five-year observation period. The aggregate amount of interest rate risks
(value of estimated record of losses) was 5,400円 million (52,467ドル thousand) and 10,100円 million as
of March 31, 2014 and 2013, respectively. The Bank conducts back-testing to verify the
reliability of VaR by monthly monitoring and analysis. The results support the reliability of the
Bank’s model, which has captured interest rate risks with sufficient accuracy.
The Bank has computed interest rate risks with core deposits estimated by the core deposits
measurement model. In this model, the Bank estimates the amount of core deposits from a shift
of the lower 99th percentile of deposit decrease in the future distribution of demand deposits. The
distribution is computed by a linear regression model and a future interest rate scenario, and the
linear regression model uses the one-month Tokyo Interbank Offered Rate as an explanatory
variable.
The Bank conducts back-testing to verify the reliability of the core deposits measurement model by
comparing core deposits expectations and core deposits actual values, which are measured with the
core deposits measurement model. The results support the reliability of the Bank’s model, which
has captured core deposits movements with sufficient accuracy.
The VaR and the core deposits measurement model represent the amount of interest rate risks and
core deposits arising with a certain probability using a statistical methodology based on historical
interest rate fluctuations and the relationship between interest rate fluctuations and deposit
fluctuations. It may not be able to capture the interest rate risks and movements of core deposits
arising under drastic market movements beyond normal estimates.
(b)Management of market price risks
The Bank uses VaR for quantitative analysis of market price risk of trading securities in
"Securities." The assumptions for computing VaR include a 60-day holding period (regarding a
part of asset, for example, cross-shareholdings is 125 days), a 99% confidence level, and a one-year
observation period. The VaR was 26,100円 million (253,595ドル thousand) and 26,000円 million as of
March 31, 2014 and 2013, respectively.
The Bank conducts research to compare the VaR calculated using the model with gains or losses,
which are assumed to have been incurred when the portfolio was fixed. According to the results
of the research, it is believed that the measurement model used is adequate to capture market risk.
It should be noted that VaR measures the amount of market risk at certain probability levels
statistically calculated based on historical market fluctuations, and therefore, there may be cases
where market risk cannot be captured in such situations when market conditions change
dramatically beyond what was experienced historically.28(3) Liquidity risk management
The financing condition of the Bank is stable because the Bank raises most of its operational funds
by deposits.
The Financing Management Department, which is in the Market Financing Department, monitors
the Bank’s financing conditions on a daily, weekly, and monthly basis and conducts adequate
market funding as needed.
The Risk Management Department, which is independent from the Financing Management
Department, monitors the Bank’s financing conditions on a daily basis, and endeavors to secure
available funding methods, such as preparation of market funding with holding securities to prepare
for contingencies.
The monitoring results of the Bank’s financing conditions and market liquidity risks are reported to
the Risk Management Committee, and the study results of the Risk Management Committee are
reported to the Board of Directors.
(4) Derivative transactions risk management
As for derivative transactions, the basic policy of the Bank is to reduce market risks of loans and
securities.
Market risks and credit risks are inherent in derivative transactions used by the Bank.
Market risks include interest rate risks in interest-related derivative transactions, exchange rate
risks in currency-related derivative transactions, and market price risks in security/bond-related
derivative transactions.
As for credit risks, the Bank handles trades with stock exchanges and only creditable banks and
securities companies, and reduces default risks appropriately by operational limits.
The Bank manages its risks mainly by checking whether the effective derivative transactions are
used to reduce asset and liability risks, such as fluctuations in interest rates and foreign exchange
rates. The basic policy is studied by the ALM Committee, and the transactions and management
are conducted by the Market Financing Department.
(d) Supplementary explanation of matters relating to fair values of financial instruments
Fair values of financial instruments include values based on market prices, and values deemed to be
market prices obtained by a reasonable estimate when financial instruments do not have market
prices. Because certain assumptions are adopted for calculating such values, values may differ
when adopting different assumptions.
(e) Fair values of financial instruments
The following table summarizes the carrying amounts and the fair values of financial instruments
as of March 31, 2014 and 2013, together with their differences. Note that the following table does
not include unlisted equity securities and certain other securities for which fair value is extremely
difficult to determine.29Fair value of financial instruments
Milli ons of Yen
At March 31, 2014 Carrying amount Fair value
Unrealized
gains/losses
Assets
Cash and due from banks \ 168,429 \ 168,429 \
Call loans and bills bought 21,613 21,613
Trading securities 178 178
Investment securities
Available-for-sale securities 1,144,660 1,144,660
Loans and bills discounted 2,425,898
Allowance for doubtful accounts (*1) (32,645)
2,393,253 2,430,161 36,907
Total \ 3,728,135 \ 3,765,042 \ 36,907
Liabilities
Deposits 3,291,756 3,292,230 473
Negotiable certificates of deposit 91,165 91,193 27
Call money and bills sold 53,466 53,466
Borrowed money 76,941 76,944 2
Total \ 3,513,331 \ 3,513,835 \ 504
Derivative transactions (*2)
Hedge accounting is not applied (128) (128)
Hedge accounting is applied (303) (303)
Total \ (431) \ (431) \
Milli ons of Yen
At March 31, 2013 Carrying amount Fair value
Unrealized
gains/losses
Assets
Cash and due from banks \ 88,936 \ 88,936 \
Call loans and bills bought 21,631 21,631
Trading securities 181 181
Investment securities
Available-for-sale securities 1,156,780 1,156,780
Loans and bills discounted 2,272,324
Allowance for doubtful accounts (*1) (29,370)
2, 242,953 2,277,140 34,186
Total \ 3,510,484 \ 3,544,670 \ 34,186
Liabilities
Deposits 3,144,798 3,145,443 644
Negotiable certificates of deposit 68,867 68,882 15
Call money and bills sold 20,785 20,785
Borrowed money 44,185 44,198 13
Total \ 3,278,635 \ 3,279,309 \ 673
Derivative transactions (*2)
Hedge accounting is not applied 140 140
Hedge accounting is applied (455) (455)
Total \ (314) \ (314) \30Thousands of U.S. Dollars
At March 31, 2014 Carrying amount Fair value
Unrealized
gains/losses
Assets
Cash and due from banks $ 1,636,505 $ 1,636,505 $
Call loans and bills bought 210,000 210,000
Trading securities 1,739 1,739
Investment securities
Available-for-sale securities 11,121,844 11,121,844
Loans and bills discounted 23,570,724
Allowance for doubtful accounts (*1) (317,190)
23,253,534 23,612,139 358,605
Total $ 36,223,623 $ 36,582,228 $ 358,605
Liabilities
Deposits 31,983,646 31,988,249 4,602
Negotiable certificates of deposit 885,792 886,062 270
Call money and bills sold 519,500 519,500
Borrowed money 747,585 747,610 24
Total $ 34,136,523 $ 34,141,422 $ 4,898
Derivative transactions (*2)
Hedge accounting is not applied (1,247) (1,247)
Hedge accounting is applied (2,948) (2,948)
Total $ (4,196) $ (4,196) $
(*1) Allowance for doubtful accounts relevant to loans and bills discounted have been deducted.
(*2) Derivatives recorded in "Other assets" and "Other liabilities" are aggregated and shown herein
in total. Derivative instruments are presented as net of assets and liabilities associated withderivative transactions.
(f) Method used for determining the fair value of financial instruments
Assets
(1)Cash and due from banks
Fair values of cash and due from banks that have no maturity dates are approximately equivalent to
carrying amounts.
Regarding cash and due from banks with maturity dates, the fair values are approximately
equivalent to the carrying amounts because of their short maturities (less than one year).
(2)Call loans and bills purchased
Fair values of call loans and bills purchased are approximately equivalent to carrying amounts
because of their short maturities.
(3)Trading securities
For securities, such as bonds that are held for trading, the fair values are measured at the quoted
market prices in bond markets or the quoted prices obtained from financial institutions.31(4)Investment securities
Fair values of stocks are measured at the quoted market prices in stock markets. Fair values of
bonds are mainly measured at the quoted market prices in bond markets or the quoted prices
obtained from financial institutions.
Fair values of investment trusts are measured at the standard prices disclosed publicly.
See Note 5 for information related to securities by holding purpose.
(5)Loans and bills discounted
Because floating-rate loans are immediately affected by the movement of market rates, the fair
values of these loans are equivalent to carrying amounts in cases where the credit risk of debtors
has not significantly changed from the execution of the loans.
Fixed-rate loans are segmented by loan type, internal rating, and period, and their fair value is
determined by discounting the total amount of principal and interest by the assumed interest rate on
new lending of a similar type.
For loans to debtors who are legally bankrupt, virtually bankrupt, and possible bankrupt, an
allowance for doubtful accounts calculated from the current value of expected future cash flows or
from the amount expected to be collected through disposal of collateral or execution of guarantees
is provided. Therefore, the carrying amounts at the consolidated balance sheet date, net of reserve
amounts, are regarded as the fair values.
The carrying amounts of loans and bills discounted that do not have fixed maturities due to loan
characteristics, such as limited loan amounts within the value of pledged assets, approximate fair
value due to their expected repayment periods and interest rate conditions.
Liabilities
(1)Deposits
Fair value of demand deposits is recognized as the payment amount required at the balance sheet
date (i.e., carrying amounts). The fair values of time deposits are calculated by classifying them
on the basis of their terms and by discounting future cash flows. The discount rates used in such
calculations are interest rates used when accepting new deposits.
(2)Negotiable certificates of deposit
Fair values of fixed negotiable certificates of deposit are calculated by classifying them on the basis
of their terms and by discounting future cash flows. The discount rates used in such calculations
are interest rates used when accepting new negotiable certificates of deposit.
(3)Call money and bills sold
Fair values of call money and bills sold are equivalent to carrying amounts because of their short
maturities.
(4)Borrowed money
The carrying amount of borrowed money with floating interest rates approximates fair value
because the market rates are promptly reflected in the floating interest rate, and the credit risks of
the Bank and its subsidiaries have not changed significantly after borrowing. The fair value of
borrowed money with fixed interest rates is determined by discounting future cash flows at the rate
that would be applied for similar new contracts. Fair values of borrowed money with maturities
of less than one year are approximately equivalent to carrying amounts because of their short
maturities.32Derivatives
Please see Note 19 for the fair value of derivatives.
(g) Financial instruments whose fair value cannot be reliably determined
Carrying amount
Millions of Yen
Thousands of
U.S. Dollars
2014 2013 2014
Unlisted stocks (*1) (*2) \ 2,381 \ 2,332 $ 23,137
Investments in partnerships (*3) 2,521 1,331 24,501
Total \ 4,902 \ 3,664 $ 47,638
(*1) Equity securities without a readily available market price are outside the scope of the fair
value disclosure because their fair values cannot be reliably determined.
(*2) During the year ended March 31, 2014, impairment losses on unlisted stocks were not
recognized. During the year ended March 31, 2013, impairment losses of 0円 million on
unlisted stocks were recognized.
(*3) Investments in partnerships, the assets of which comprise equity securities without a readily
available market price, are outside the scope of the fair value disclosure because the fair value
of those investments cannot be reliably determined.
(h) Maturity analysis for financial assets and securities with contractual maturities
Milli ons of Yen
At March 31, 2014
Due in 1 year orLessDue from 1 to 3
years
Due from 3 to 5
years
Due from banks \ 121,829 \ \
Call loans and bills purchased 21,613
Available-for-sale securities 132,052 351,439 344,961
Nati onal government bonds 58,783 54,749 102,734
Local government bonds 8,681 35,766 19,093
Corporate bonds 58,948 230,507 165,944
Other 5, 638 30,415 57,187
Loans and bills discounted (*) 718,315 500,336 380,517
Total \ 993,811 \ 851,776 \ 725,478
Milli ons of Yen
At March 31, 2014
Due from 5 to 7
years
Due from 7 to 10
years Due after 10 years
Due from banks \ \ \
Call loans and bills purchased
Available-for-sale securities 113,227 78,979 36,906
Nati onal government bonds 81,271 18,518
Local government bonds 8,312
Corporate bonds 22,130 60,355 36,906
Other 1, 513 105
Loans and bills discounted (*) 201,090 211,940 385,383
Total \ 314,318 \ 290,920 \ 422,290
(*) Loans and bills discounted to borrowers who are legally bankrupt, virtually bankrupt, and possibly
bankrupt amounting to 28,313円 million are excluded from the table above as of March 31, 2014.33Milli ons of Yen
At March 31, 2013
Due in 1 year orLessDue from 1 to 3
years
Due from 3 to 5
years
Due from banks \ 47,893 \ \
Call loans and bills purchased 21,631
Available-for-sale securities 84,723 300,108 269,218
Nati onal government bonds 36,190 98,253 70,062
Local government bonds 17,684 32,909 20,756
Corporate bonds 26,336 155,566 137,676
Other 4, 511 13,378 40,724
Loans and bills discounted (*) 695,222 449,648 383,407
Total \ 849,470 \ 749,757 \ 652,626
Milli ons of Yen
At March 31, 2013
Due from 5 to 7
years
Due from 7 to 10
years Due after 10 years
Due from banks \ \ \
Call loans and bills purchased
Available-for-sale securities 116,325 197,707 115,447
Nati onal government bonds 77,319 115,240 71,750
Local government bonds 7,828 10,445
Corporate bonds 16,378 70,798 43,697
Other 14,799 1,224
Loans and bills discounted (*) 208,043 178,890 325,808
Total \ 324,369 \ 376,598 \ 441,255
(*)Loans and bills discounted to borrowers who are legally bankrupt, virtually bankrupt, and possibly
bankrupt amounting to 31,303円 million are excluded from the table above as of March 31, 2013.
T housands of U.S. Dollars
At March 31, 2014
Due in 1 year orlessDue from 1 to 3
years
Due from 3 to 5
years
Due from banks $ 1,183,732 $ $
Call loans and bills purchased 210,000
Available-for-sale securities 1,283,060 3,414,684 3,351,739
Nati onal government bonds 571,159 531,958 998,198
Local government bonds 84,350 347,519 185,521
Corporate bonds 572,761 2,239,678 1,612,365
Other 54,789 295,527 555,653
Loans and bills discounted (*) 6,979,361 4,861,415 3,697,215
Total $ 9,656,154 $ 8,276,100 $ 7,048,95434T housands of U.S. Dollars
At March 31, 2014
Due from 5 to 7
years
Due from 7 to 10
years Due after 10 years
Due from banks $ $ $
Call loans and bills purchased
Available-for-sale securities 1,100,153 767,391 358,596
Nati onal government bonds 789,652 179,932
Local government bonds 80,766
Corporate bonds 215,029 586,435 358,596
Other 14,705 1,023
Loans and bills discounted (*) 1,953,854 2,059,273 3,744,500
Total $ 3,054,008 $ 2,826,664 $ 4,103,096
(*)Loans and bills discounted to borrowers who are legally bankrupt, virtually bankrupt, and possibly
bankrupt amounting to 275,104ドル thousand are excluded from the table above as of March 31,
2014.
(i) Scheduled repayment amount after the balance sheet date for borrowed money and other
interest-bearing liabilities
Milli ons of Yen
At March 31, 2014
Due in 1 year orlessDue from 1 to 3
years
Due from 3 to 5
years
Deposits (*) \ 3,182,129 \ 96,999 \ 12,627
Negotiable certificates of deposit 90,815 350
Call money and bills sold 53,466
Borrowed money (*) 12,462 63,220 1,248
Total \ 3,338,874 \ 160,570 \ 13,875
Milli ons of Yen
At March 31, 2014
Due from 5 to 7
years
Due from 7 to 10
years Due after 10 years
Deposits (*) \ 0 \ \
Negotiable certificates of deposit
Call money and bills sold
Borrowed money (*) 6 4
Total \ 6 \ 4 \
Milli ons of Yen
At March 31, 2013
Due in 1 year orlessDue from 1 to 3
years
Due from 3 to 5
years
Deposits (*) \ 3,022,632 \ 110,454 \ 11,710
Negotiable certificates of deposit 68,837 30
Call money and bills sold 20,785
Borrowed money (*) 39,513 3,546 1,110
Total \ 3,151,768 \ 114,031 \ 12,821 Milli ons of Yen
At March 31, 2013
Due from 5 to 7
years
Due from 7 to 10
years Due after 10 years
Deposits (*) \ 0 \ \
Negotiable certificates of deposit
Call money and bills sold
Borrowed money (*) 6 7
Total \ 6 \ 7 \35T housands of U.S. Dollars
At March 31, 2014
Due in 1 year orlessDue from 1 to 3
years
Due from 3 to 5
years
Deposits (*) $ 30,918,476 $ 942,475 $ 122,692
Negotiable certificates of deposit 882,391 3,400
Call money and bills sold 519,500
Borrowed money (*) 121,086 614,267 12,125
Total $ 32,441,454 $ 1,560,144 $ 134,818
T housands of U.S. Dollars
At March 31, 2014
Due from 5 to 7
years
Due from 7 to 10
years Due after 10 years
Deposits (*) $ 1 $ $
Negotiable certificates of deposit
Call money and bills sold
Borrowed money (*) 66 39
Total $ 67 $ 39 $
(*) Regarding deposits, demand deposits are included in deposits with maturity dates of one year
or less. Please see Note 13 for annual maturities of borrowed money.
19. Derivative Instruments
The Bank has entered into various transactions involving derivative instruments in the normal
course of business to meet the financing needs of its customers for risk management, the Bank’s
ALM and as a source of income. These derivative instruments involve, elements of credit and
market risk. The Bank is exposed to credit losses in the event of nonperformance by
counterparties. However, the Bank does not expect nonperformance by its counterparties because
the counterparties to these derivatives are limited to major international financial institutions.
(a) Derivative transactions to which hedge accounting is not applied at March 31, 2014 and 2013
Milli ons of Yen
No tional
principal or
contract
amounts
Contract
amount due
after one
year Fair value
Valuation
gains
(losses)
At March 31, 2014
Over-the-counter
Foreign exchange contracts:
Currency swaps \ 10,904 \ 10,904 \ 9 \ 9
Foreign exchange forward contracts
Forward exchange contracts sold 230 0 0
Forward exchange contracts bought 157 (1) (1)36Milli ons of Yen
No tional
principal or
contract
amounts
Contract
amount due
after one
year Fair value
Valuation
gains
(losses)
At March 31, 2013
Over-the-counter
Foreign exchange contracts:
Currency swaps \ 27,935 \ 27,935 \ 29 \ 29
Foreign exchange forward contracts
Forward exchange contracts sold 174 (3) (3)
Forward exchange contracts bought 157 4 4
T housands of U.S. Dollars
No tional
principal or
contract
amounts
Contract
amount due
after one
year Fair value
Valuation
gains
(losses)
At March 31, 2014
Over-the-counter
Foreign exchange contracts:
Currency swaps $ 105,948 $ 105,948 $ 89 $ 89
Foreign exchange forward contracts
Forward exchange contracts sold 2,238 8 8
Forward exchange contracts bought 1,530 (10) (10)37(b) Derivative transactions to which hedge accounting is applied at March 31, 2014 and 2013
Milli ons of Yen
Hedged item
Contract
amount
Contract
amount due
after one year Fair value
At March 31, 2014
Interest rate contracts:
Interest rate swaps -
receive floating and pay
Fixed
Loans and bills
discounted \ 10,954 \ 10,954 \ (303)
Milli ons of Yen
Hedged item
Contract
amount
Contract
amount due
after one year Fair value
At March 31, 2014
Foreign exchange:
Foreign currency
call loans
Forward contracts sold
\ 21,633 \ \ (3)
Milli ons of Yen
Hedged item
Contract
amount
Contract
amount due
after one year Fair value
At March 31, 2013
Interest rate contracts:
Interest rate swaps -
receive floating and pay
Fixed
Loans and bills
discounted \ 11,907 \ 11,907 \ (455)
Milli ons of Yen
Hedged item
Contract
amount
Contract
amount due
after one year Fair value
At March 31, 2013
Foreign exchange:
Foreign currency
call loans
Forward contracts sold
\ 24,007 \ \ (3)
T housands of U.S. Dollars
Hedged item
Contract
amount
Contract
amount due
after one year Fair value
At March 31, 2014
Interest rate contracts:
Interest rate swaps -
receive floating and pay
Fixed
Loans and bills
discounted $ 106,432 $ 106,432 $ (2,948)38T housands of U.S. Dollars
Hedged item
Contract
amount
Contract
amount due
after one year Fair value
At March 31, 2014
Foreign exchange:
Foreign currency
call loans
Forward contracts sold
$ 210,201 $ $ (32)
The below interest rate swaps that qualify for hedge accounting and meet specific matching criteria
are not remeasured at market value but the differential paid or received under the swap agreements
is recognized and included in interest expense or income. In addition, the fair value of such
interest rate swaps is included in that of the hedged items in Note 18 (i.e., loans and bills
discounted).
Milli ons of Yen
Hedged item
Contract
amount
Contract
amount due
after one year Fair value
At March 31, 2014
Interest rate contracts:
Interest rate swaps -
receive floating and pay
Fixed
Loans and bills
discounted \ 36,246 \ 34,360 \
Milli ons of Yen
Hedged item
Contract
amount
Contract
amount due
after one year Fair value
At March 31, 2013
Interest rate contracts:
Interest rate swaps -
receive floating and pay
Fixed
Loans and bills
discounted \ 40,585 \ 40,564 \
T housands of U.S. Dollars
Hedged item
Contract
amount
Contract
amount due
after one year Fair value
At March 31, 2014
Interest rate contracts:
Interest rate swaps -
receive floating and pay
Fixed
Loans and bills
discounted $ 352,184 $ 333,860 $
Fair values are calculated based on the discounted cash flow method or other valuation method.3920. Income Taxes
The Bank and its subsidiaries are subject to Japanese national and local income taxes that, in the
aggregate, resulted in normal effective statutory tax rates of approximately 37.7% for the years
ended March 31, 2014 and 2013.
The tax effects of temporary differences that give rise to a significant portion of deferred tax assets
and liabilities at March 31, 2014 and 2013, were as follows:
Millions of Yen
Thousands of
U.S. Dollars
2014 2013 2014
Deferred tax assets:
Allowance for doubtful accounts \ 11,302 \ 10,194 $ 109,820
Provision for retirement benefits 396
Liability for retirement benefits 529 5,140
Provision for directors’ and audit &
supervisory board members’
retirement benefits 229 307 2,227
Provision for reimbursement of
deposits 159 217 1,552
Depreciation 279 321 2,712
Write-downs of investment securities 1,155 1,114 11,223
Unrealized losses on
available-for-sale securities 289 352 2,808
Losses on impairment of fixed assets
Other
2,216
2,021
2,399
2,200
21,531
19,645
Less, valuation allowance (3,699) (3,897) (35,943)
Subtotal 14,482 13,606 140,719
Deferred tax liabilities:
Unrealized gains on available-for-sale
securities (16,996) (19,145) (165,141)
Asset for retirement benefits (1,268) (12,328)
Other (244) (2,159) (2,372)
Subtotal (18,509) (21,305) (179,842)
Net deferred tax assets (liabilities) \ (4,026) \ (7,698) $ (39,122)
A reconciliation of the differences between the Japanese statutory effective tax rate and the actual
effective tax rate on pretax income reflected in the accompanying consolidated statement of income
for the year ended March 31, 2014, is as follows:
Per centage of
pretax income2014Japanese statutory effective tax rate 37.7 %
Increase (decrease) due to:
Nondeductible expenses 0.7
Nontaxable income (2.4)
Effect of tax rate reduction 1.1
Resident tax per capital levy 0.3
Increase in valuation allowance 0.1
Gain on negative goodwill (3.3)
Other 1.0
Actual effective income tax rate 35.2 %40A reconciliation between the normal effective statutory tax rate for the year ended March 31, 2013,
and the actual effective tax rate reflected in the accompanying consolidated statement of income
was not required under Japanese accounting standards due to immaterial differences.
New tax reform laws enacted in 2014 in Japan changed the normal effective statutory tax rate for
the fiscal year beginning on or after April 1, 2014, from approximately 37.7% to 35.3%. The
effect of this change was to decrease deferred tax assets in the consolidated balance sheet as of
March 31, 2014, by 180円 million (1,750ドル thousand), to increase income taxes deferred in the
consolidated statement of income for the year then ended by the same amount.
21. Other Comprehensive Income
The components of other comprehensive income for the years ended March 31, 2014 and 2013, were
as follows:
Millions of Yen
Thousands of
U.S. Dollars
2014 2013 2014
Unrealized gains (losses) on available-for-sale
securities
Gains (losses) arising during the year \ (2,705) \ 25,161 $ (26,291)
Reclassification adjustments to profit or loss (3,206) (1,276) (31,156)
Amount before income tax effect (5,912) 23,884 (57,447)
Income tax effect 2,086 (8,244) 20,271
Total \ (3,826) \ 15,640 $ (37,175)
Deferred gains (losses) on derivatives under hedge
accounting
Losses arising during the year \ (10) \ (74) $ (99)
Reclassification adjustments to profit or loss 162 174 1,583
Amount before income tax effect 152 100 1,483
Income tax effect (53) (35) (523)
Total \ 98 \ 65 $ 960
Total other comprehensive income \ (3,727) \ 15,705 $ 36,215
22. Per-Share Information
Net income per share, as presented in the consolidated statement of income, is based on the
weighted-average number of common shares outstanding during each year. The weighted-
average number of common shares outstanding for the years ended March 31, 2014 and 2013, was
209,853 thousand and 209,882 thousand, respectively.
23. Subsequent Event
Appropriation of retained earnings
The shareholders of the Bank approved the following appropriations of retained earnings at the
annual general shareholders’ meeting held on June 26, 2014:
Millions of Yen
Thousands of U.S.
Dollars
Cash dividends \ 944 $ 9,1854124. SEGMENT INFORMATION
Under ASBJ Statement No. 17, "Accounting Standard for Segment Information Disclosures" and ASBJ Guidance No. 20, "Guidance on Accounting Standard for Segment Information Disclosures," an entity is required to report financial
and descriptive information about its reportable segments. Reportable segments are operating segments or aggregations of operating segments that meet specified criteria. Operating segments are components of an entity about which
separate financial information is available and such information is evaluated regularly by the chief operating decision maker in deciding how to allocate resources and in assessing performance. Generally, segment information is required
to be reported on the same basis as is used internally for evaluating operating segment performance and deciding how to allocate resources to operating segments.
1. Description of reportable segments
The Group’s reportable segments are those for which separate financial information is available and regular evaluation by the Board of Directors is being performed in order to decide how resources are allocated among the Group.
The Bank concentrates on the banking business, and also conducts other financial services business including leasing. Therefore, the Group’s reportable segments consist of Banking and Leasing.
Banking consists of deposit business, loan business, exchange business, and securities business.
Leasing consists of a leasing business.
2. Methods of measurement for the amounts of ordinary income, profit (loss), assets, and other items for each reportable segment
The accounting policies of each reportable segment are consistent with those disclosed in Note 2, "Summary of Significant Accounting Policies."
3. Information about ordinary income, profit (loss), assets, and other items is as follows.
Millions of Yen2014Reportable segment
Banking Leasing Total Other Total Reconciliations Consolidated
Ordinary income:
External customers \ 65,642 \ 11,817 \ 77,459 \ 1,570 \ 79,030 \ \ 79,030
Intersegment 228 1,022 1,250 546 1,796 (1,796)
Total 65,870 12,839 78,710 2,116 80,827 (1,796) 79,030
Segment profit 13,043 830 13,874 809 14,683 (37) 14,646
Segment assets 3,868,173 33,801 3,901,974 14,644 3,916,619 (26,654) 3,889,964
Other:
Depreciation \ 5,063 \ 74 \ 5,137 \ 22 \ 5,160 \ \ 5,160
Interest income and dividends 46,915 36 46,952 135 47,087 (146) 46,941
Interest expenses 2,242 163 2,405 5 2,410 (232) 2,17842Millions of Yen2013Reportable segment
Banking Leasing Total Other Total Reconciliations Consolidated
Ordinary income:
External customers \ 65,000 \ 11,754 \ 76,754 \ 1,608 \ 78,362 \ \ 78,362
Intersegment 233 1,185 1,418 535 1,954 (1,954)
Total 65,233 12,940 78,173 2,143 80,317 (1,954) 78,362
Segment profit 12,461 890 13,352 813 14,166 (39) 14,126
Segment assets 3,647,465 29,969 3,677,435 14,137 3,691,573 (24,768) 3,666,804
Other:
Depreciation \ 5,264 \ 212 \ 5,477 \ 17 \ 5,494 \ \ 5,494
Interest income and dividends 48,054 36 48,091 158 48,250 (154) 48,095
Interest expenses 2,295 187 2,482 3 2,486 (242) 2,244
Thousands of U.S. Dollars2014Reportable segment
Banking Leasing Total Other Total Reconciliations Consolidated
Ordinary income:
External customers $ 637,802 $ 114,820 $ 752,623 $ 15,259 $ 767,882 $ $ 767,882
Intersegment 2,218 9,930 12,149 5,305 17,455 (17,455)
Total 640,021 124,751 764,772 20,565 785,338 (17,455) 767,882
Segment profit 126,737 8,070 134,808 7,862 142,670 (361) 142,309
Segment assets 37,584,275 328,420 37,912,696 142,292 38,054,988 (258,986) 37,796,002
Other:
Depreciation $ 49,193 $ 726 $ 49,920 $ 220 $ 50,140 $ $ 50,140
Interest income and dividends 455,848 356 456,204 1,314 457,518 (1,422) 456,096
Interest expenses 21,787 1,585 23,373 51 23,425 (2,256) 21,169
Note: 1. The "Other" segment contains business that is not included in these reportable segments, such as guarantee business and credit card business.
2 . Reconciliations were eliminations of intersegment transactions.
3 . Segment profit represents profit which is deducted for certain special income and loss from income before income taxes and minority interests in the accompanying consolidated statement of income.43Related Information for the years ended March 31, 2014 and 2013
Segment information by services
Millions of Yen2014Loan
business
Securities
investment
business
Leasing
business Other Total
Ordinary income from
external customers \ 36,919 \ 15,396 \ 11,629 \ 15,084 \ 79,030
Millions of Yen2013Loan
business
Securities
investment
business
Leasing
business Other Total
Ordinary income from
external customers \ 37,854 \ 14,510 \ 11,639 \ 14,358 \ 78,362
Thousands of U.S. Dollars2014Loan
business
Securities
investment
business
Leasing
business Other Total
Ordinary income from
external customers $ 358,721 $ 149,597 $ 112,999 $ 146,564 $ 767,882