Hokuhoku Financial Group, Inc. Annual Report 2019 Annual Report 2019 Year ended March 31, 2019 Hokuhoku Financial Group, Inc. Company outline (as of March 31, 2019) Company name: Hokuhoku Financial Group, Inc. Date of establishment: September 26, 2003 Location of head office: 1-2-26 Tsutsumicho-dori, Toyama City Purpose of business: Management and control of subsidiaries and affiliates and ancillary and related business Capital: ¥70,895 million Shares issued and outstanding: Common stock ……………………… 132,163,014 Preferred stock (Type 5) …………… 107,432,000 Exchange listings: ‌Tokyo Stock Exchange (First Section) Sapporo Securities Exchange This document contains forward-looking statements. Statements of this kind do not constitute guarantees of future performance, as factors such as changes in the operating environment may cause actual performance to differ. The figures stated in this document are, in principle, rounded down to the nearest whole unit. CONTENTS Profile ……………………………………………………………………… 1 Message from the Management ………………………………………… 2 Medium-Term Management Plan ……………………………………… 4 Performance Highlights ………………………………………………… 6 Characteristics of Our Main Business Area …………………………… 10 Hokuhoku Financial Group SDGs Declaration and Key CSR Activity Themes …… 12 Realization of sustainable community …………………………………… 13 Improving financial literacy in the region ………………………………… 16 Building a sound and resilient management foundation ……………… 17 CORPORATE GOVERNANCE ……………………………………… 17 MEASURES FOR COMPLIANCE …………………………………… 20 MEASURES FOR RISK MANAGEMENT …………………………… 22 Improving convenience for all customers ……………………………… 28 Ensuring good work environment leading to better productivity ……… 29 Consolidated Financial Statements Consolidated Balance Sheet ………………………………………… 30 Consolidated Statement of Income ………………………………… 31 Consolidated Statement of Comprehensive Income ……………… 31 Consolidated Statement of Changes in Equity ……………………… 32 Consolidated Statement of Cash Flows …………………………… 34 Notes to Consolidated Financial Statements ……………………… 35 Independent Auditor’s Report …………………………………………… 63 Non-consolidated Financial Statements The Hokuriku Bank, Ltd. Non-consolidated Balance Sheet (Unaudited) …………………… 64 Non-consolidated Statement of Income (Unaudited) …………… 65 The Hokkaido Bank, Ltd. Non-consolidated Balance Sheet (Unaudited) …………………… 66 Non-consolidated Statement of Income (Unaudited) …………… 67 Corporate Information …………………………………………………… 68 Outline of Subsidiaries — Hokuriku Bank ……………………………… 69 Outline of Subsidiaries — Hokkaido Bank ……………………………… 70 Directors …………………………………………………………………… 71 简单的本集团中文简要…………………………………………………… 72 Profile The operations of the Hokuhoku Financial Group Since its establishment in 1877, Hokuriku Bank has extend beyond the limits of a single district. developed an extensive network of branches throughout Our extensive network is outlined below. the Hokuriku district. On account of trade through the Hokuriku district …………………………… 150 branches Kitamae-bune or “Northbound Ships,” branches extended Toyama prefecture …………………………… 92 branches to the major cities of Hokkaido, enabling the bank to Ishikawa prefecture ………………………… 36 branches meet customers’ needs. The Hokkaido Bank, which was Fukui prefecture ……………………………… 22 branches established in 1951, has developed a network of branches Hokkaido …………………………………… 161 branches throughout Hokkaido, and built a firm business structure Three major metropolitan areas ………… 16 branches centered on individuals and small and medium-sized Tokyo and Yokohama ……………………… 9 branches enterprises. Nagoya ……………………………………… 3 branches The Hokuriku Bank, Ltd. and The Hokkaido Bank, Ltd. Osaka and Kyoto …………………………… 4 branches underwent management integration in September 2004 to form the Hokuhoku Financial Group Inc., which today oper- Others (Sendai, Niigata, Nagano, Takayama) … 4 branches ates a super-regional financial network that encompasses Overseas …………………………………… 9 offices the Hokuriku region, Hokkaido, and Japan’s three major New York Representative Office (Hokuriku Bank) metropolitan areas (Tokyo, Osaka, and Nagoya areas). Yuzhno-Sakhalinsk Representative Office (Hokkaido Bank) Vladivostok Representative Office (Hokkaido Bank) London Representative Office (Hokuriku Bank) Singapore Representative Office (Hokuriku Bank) Comprehensive business alliance Bangkok Representative Office (Hokuriku Bank) May 2002 between Dalian Representative Office (Hokuriku Bank) Hokuriku Bank and Hokkaido Bank Shanghai Representative Office (Hokuriku Bank) Shenyang Representative Office (Hokkaido Bank) Agreement on full integration of (As of June 30, 2019) May 2003 management of Hokuriku Bank and Hokkaido Bank London Vladivostok Yuzhno Shenyang Sakhalinsk New York September Hokugin Financial Group, Inc. Dalian 2003 established Shanghai Hokuriku Bank Group comes under Bangkok management of Hokugin Financial Singapore Group Management integration effected through equity swap Hokkaido September Hokuhoku Financial Group, Inc. was 2004 born. Hokuriku district Ishikawa Toyama Fukui Tokyo Osaka Nagoya Three major metropolitan areas Hokuhoku Financial Group, Inc. Annual Report 2019 1 MESSAGE FROM THE MANAGEMENT Left: Eishin Ihori Right: Masahiro Sasahara President Deputy President (concurrently serving as president of (concurrently serving as president of The Hokuriku Bank, Ltd.) The Hokkaido Bank, Ltd.) 2 Hokuhoku Financial Group, Inc. Annual Report 2019 We would like to express our sincere appreciation to all of you for your continued support of Hokuhoku Financial Group, Inc. and its group companies. With respect to the economic environment surrounding the Group, there are opaque elements in both the global economy and the Japanese economy, including trade friction between the United States and China, the Brexit problem, and the decline in exports due to these issues. As a result, the future remains difficult to predict. In the field of finance, the environment has become increasingly challenging and changes are ongoing, including the prolonged low interest rate environment, the population decline and the aging of society, as well as the acceleration of digitaliza- tion. Financial institutions are being forced to reform their conventional business models in order to increase the level of convenience for users and further rationalize management. Aiming to build a new business model that can respond to these changes in the business environment, we have been working on a new Medium-term Management plan “ALL for the Region” from this fiscal year. The Group’s aim is to “Contribute to customers and local communities by providing No.1 financial services and solutions for the egion,r and achieve growth and development together with them.” Toward this goal, the Group has set the basic policies of “Contribution to community development,” “Evolution and change to the future,” and “Exercise the Group’s comprehensive strength,” and the Group will implement a variety of measures to increase corporate value and shareholder value. We ask for your continued support and patronage. July 2019 Eishin Ihori Masahiro Sasahara President Deputy President Hokuhoku Financial Group, Inc. Annual Report 2019 3 MEDIUM-TERM MANAGEMENT PLAN Under the previous Medium-term Management Plan, interest on loans and discounts continued a downward trend due to the decline in interest rates. In addition, interest and dividends on securities declined due to the large redemptions of government bonds, along with other factors. Meanwhile, we worked to reduce expenses through efforts to improve efficiency and productivity. This, along with the solid recovery of the Japanese economy, resulted in lower-than-expected credit-related costs, and consolidated net income thus exceeded our target. The new Medium-Term Management plan “ALL for the Region” positions the three years starting from April 2019 as a “Period during which all employees of the Group evolve in terms of both ‘services that empathize with Face to Face customers’ and ‘digital financial services pursuing convenience’ and in which we will continue to contribute to the local community.” All of the Group’s executives and employees will work as one to become a comprehensive financial services group that contributes to customers and local communities by providing No. 1 financial services and solutions, creates shared value, and achieves growth and development together with them. Outline of the Plan Title ALL for the Region Positioning Period during which all employees of the Group evolve in terms of ˝services closely attracting customers at Face to Face˝ and ˝digital financial services pursuing convenience˝ and will continue to contribute to the local community Basic policies Contribution to • Face problems together and work to provide solutions that contribute to the development of the region and community development customers Creating Evolution and change to • Provide nancial services that capture technological innovation and changes in needs to meet customer common the future expectations values Exercise the group´s • Strengthen group collaboration and establish optimum comprehensive strength business promotion and management system Review of the previous Medium-term Management Plan (Total of 2 banks, consolidated) FY2018 Plan FY2018 Result Ave. balance of deposits (Excluding NCD) ¥10,560.0 billion ¥11,086.8 billion Ave. balance of loans ¥7,760.0 billion ¥8,223.0 billion Core net business profits ¥41.5 billion ¥39.1 billion Net income attributable to owners of the parent ¥23.0 billion ¥24.3 billion (Consolidated)