Shiga Bank Annual Report 2017

表紙表紙［本誌］［本誌］

SHIGASHIGA BANKBANK ANNUALANNUAL REPORTREPORT 20172017 YearYear ended ended March March 31, 31, 2017 2017

発行 2017年7月発行 2017年7月編集滋賀銀行総合企画部広報室編集滋賀銀行総合企画部広報室〒520-8686〒520-8686 大津市浜町大津市浜町 1番 1番 38 38号号電話電話 077(521)2202 077(521)2202 http://http:// www.shigagin.com www.shigagin.com Contents

Top Message •••••••••••••••••••••••••••••••• 04

Financial / Non-ﬁnancial Highlights •••••• 12

Trends in major business performance indicators, etc. (consolidated) ••••••••••••• 15

Five Challenges

1. Challenge to regional revitalization ••• 22

2. Challenge to strengthening top line ••• 30

3. Challenge to increasing productivity ••• 38

4. Challenge to constructing a robust management foundation •••••• 42

5. Challenge to a strategic CSR ••••••••••• 50

Financial Section ••••••••••••••••••••••••••• 60

Editorial Policy

Shiga Bank has compiled the integrated report SHIGA BANK ANNUAL REPORT 2017. This report links financial information to non-financial information, such as the Management Principles, environmental, social and governance (ESG) information by reference to the framework proposed by International Integrated Reporting Council (IIRC). It serves as an integrated review of measures for creation of sustainable value for the Bank and in regional communities. This report serves also as disclosure materials (briefing documents of status of operations and assets) pursuant to Article 21 of the Banking Act. The reader is recommended, when using this document for disclosure purposes, to refer also to “Financial Data, Basel III, Column 3 of SHIGA BANK ANNUAL REPORT 2017” (viewable over the counter at Bank branches and on our website (http://www.shigagin.com). (Japanese only)

Cautionary Statement with Respect to Forward-Looking Statements Mutual prosperity with the regional community This material contains statements regarding future earnings forecasts and targets, etc. relating to CSR Charter (Management Principles) the Bank. These statements are based on information available at the time of compilation of these As a bank that advances hand-in-hand with (Instituted in April 2007) society, in order to win customer confidence and materials and forecasts or certain conditions (assumptions) that could affect business performance. meet customer expectations, we maintain a They are not guarantees of future performance of the Bank, and involve various risks and sound and enterprising bank and work for the The Shiga Bank has its own motto of “Be tough on uncertainties. development of regional communities. ourselves, kind to others and serve society,” which forms the starting point for corporate social Mutual prosperity with all employees Respecting the human rights and individuality responsibility (CSR). As a member of society, the of each and every executive and regular employee, we will build a satisfying workplace, Bank will work for mutual prosperity with society. Pro le (As of March 31, 2017, on non-consolidated) and turn our bank into “Clean Bank Shigagin.” The Bank’s motto carries on the “Sampo yoshi” Corporate Name: THE SHIGA BANK, LTD. Deposits (including negotiable certificates of philosophy, a management philosophy embraced Head Office: 1-38, Hamamachi, Otsu, Shiga deposits): ¥4,617.4 billion 520-8686, Japan Loans: ¥3,472.4 billion Harmonious coexistence with the environment by Merchants in the Omi region of central Japan, Established: October 1, 1933 Common Stock: ¥33.0 billion The social mission of our company, which is which means to bring happiness to three sides: Total Assets: ¥5,517.3 billion Employees: 2,125 headquartered next to Lake Biwa, is environ- Offices and Branches: 137 (including 18 agents) being good for the seller, the buyer, and society. mental management. We are committed to protection of the global environment and the building of a sustainable society. Contents

Top Message •••••••••••••••••••••••••••••••• 04

Financial / Non-ﬁnancial Highlights •••••• 12

Trends in major business performance indicators, etc. (consolidated) ••••••••••••• 15

Five Challenges

1. Challenge to regional revitalization ••• 22

2. Challenge to strengthening top line ••• 30

3. Challenge to increasing productivity ••• 38

4. Challenge to constructing a robust management foundation •••••• 42

5. Challenge to a strategic CSR ••••••••••• 50

Financial Section ••••••••••••••••••••••••••• 60

Editorial Policy

SHIGA BANK ANNUAL REPORT 2017 01 Measures to modernize the The History of The philosophy of the Shiga Bank Bank’s management Environmental management CSR Charter, the Bank’s motto which carries For the development of the regional Aiming to reconcile environmental and on the “Sampo yoshi” philosophy communities economic needs

The Shiga Bank was born in 1933 through the merger of the We believe that the ultimate role of the management of a Bank The Bank sees CSR as the role of the Bank as a corporate citizen the 133rd National Bank (Hyakusanjusan Bank), which prided itself is to “take on risk.” For us, this means the risk assumed on behalf in fostering sustainable growth of society. The Bank has been Shiga on “sound management,” and the Hachiman Bank, which of the development of the regional communities. To contribute developing CSR activities based on the three key concepts of emphasized a culture of “enterprise.” Since then we have forged to the development of regional communities, the Bank is “environment,” “welfare,” and “culture.” By implementing ahead with ful lling our mission of helping business partners pioneering measures to modernize its management through “environmental management” which contributes to the and local communities to ourish. The “Sampo yoshi” manage- adoption of an “in-house corporate credit ratings system,” creation of a sustainable society through “ nance,” the life ment philosophy, embraced by merchants in the Omi region of “pricing system,” and Basel II’s Foundation Internal Ratings blood of the economy, the Bank has taken measures to central Japan, was upheld through our motto of “being tough Based-Approach (FIRB). reconcile the twin imperatives of safeguarding the “environ- Bank on ourselves, kind to others and serving society.” The Bank has ment” and providing “ nance.” made this motto and the “CSR Charter (Management Principles)” the starting point for our activities.

●May 1991 New York Representative Oce was promoted to New York Branch 1991(closed down in 1998) ●September 1993 Hong Kong Representative Oce was promoted to Hong Kong Branch ●April 1998 Launch of “∞ (Mugen) Net” on trial basis ●December 1998 Commenced “In-house corporate credit ratings system” ● February 1999 Launch of “Pricing system” operations on trial basis ●August 2010 Established the “policies for ● ●October 1933 Established the Shiga Bank, Ltd. October 1999 Established the “Environment Committee” and the “Environmental 2010biodiversity preservation” Policy” ●February 2012 Opened Bangkok Representative 1933●October 1938 Opened Kyoto Branch ●December 1999 Launch of “DBM (Database Marketing)” operations Oce ●April 2013 Established the “Regional Promo- tion Oce” ●October 1977 Listed stocks on the Osaka Securities ●June 2014 Established the “ICT Strategy Oce” 1977Exchange (the Second Section) and ● December 2015 Commenced the “Ratings Simula- the Kyoto Stock Exchange (moved to tion Service (Ratings SS)” the First Section of the Osaka ●April 2016 Started the 6th Medium-Term ●May 1951 Commenced foreign Securities Exchange in March 1979) Business Plan 1951 exchange business

●March 2000 Acquired ISO 14001 Certi cation ●2000July 2000 Commenced Shigagin New Business Forum “Saturday School for Entrepreneur- ship” ●October 2001 Became the rst commercial bank in Japan to sign the United Nations Environment Programme (“UNEP”) Statement by Financial Institutions ●April 2003 Established “Shigagin Nonohana Prize,” an incentive system through industri- ●August 1984 Established the Shigagin al-academic cooperation 1984Welfare Fund ●December 2003 Opened Shanghai Representative Oce ●October 1987 Listed stocks on the Tokyo ●April 2004 Established “CSR Committee” and “CSR Oce” Stock Exchange (the First ●December 2005 Established Shiga Bank Principles for Lake Biwa (PLB) and commenced “PLB Section) rating” ●March 1988 Opened New York Representa- ●January 1966 Announced the ● tive Oce March 2007 Basel II’s Foundation Internal Ratings Based-Approach (FIRB) was approved by 1966 Bank’s motto ●July 1988 The new head oce building the Financial Services Agency was completed ●April 2007 Established the “CSR Charter” and the “Code of Conduct” ●March 1941 Opened Osaka Branch ●May 1989 Opened Hong Kong Represen- ●August 2007 Commenced “Shigagin Ratings Communication Service (Ratings CS)” tative Oce ● 1941● July 2008 Became the rst nancial institution to be certi ed as “Eco-First Enterprise” July 1946 Opened Tokyo Branch ●July 2008 Held the rst “Eco Business Matching Fair” ●November 2009 Commenced “biodiversity rating (PLB rating BD)”

02 SHIGA BANK ANNUAL REPORT 2017 MeasuresMeasures to tomodernize modernize the the TheThe History History of of TheThe philosophy philosophy of ofthe the Shiga Shiga Bank Bank Bank’sBank’s management management EnvironmentalEnvironmental management management CSRCSR Charter, Charter, the theBank’s Bank’s motto motto which which carries carries For Forthe thedevelopment development of the of theregional regional AimingAiming to reconcile to reconcile environmental environmental and and on theon the“Sampo “Sampo yoshi” yoshi” philosophy philosophy communitiescommunities economiceconomic needs needs

The ShigaThe Shiga Bank Bank was bornwas born in 1933 in 1933 through through the merger the merger of the of the We believeWe believe that thethat ultimate the ultimate role ofrole the of management the management of a Bank of a Bank The BankThe Bank sees seesCSR asCSR the as role the ofrole the of Bank the Bank as a corporate as a corporate citizen citizen thethe 133rd133rd National National Bank Bank (Hyakusanjusan (Hyakusanjusan Bank), Bank), which which prided prided itself itself is to “takeis to “take on risk.” on risk.”For us, For this us, means this means the risk the assumed risk assumed on behalf on behalf in fosteringin fostering sustainable sustainable growth growth of society. of society. The Bank The Bank has been has been ShigaShiga on “soundon “sound management,” management,” and theand Hachiman the Hachiman Bank, Bank, which which of theof development the development of the of regional the regional communities. communities. To contribute To contribute developingdeveloping CSR activitiesCSR activities based based on the on three the three key concepts key concepts of of emphasizedemphasized a culture a culture of “enterprise.” of “enterprise.” Since Since then thenwe have we have forged forged to theto development the development of regional of regional communities, communities, the Bank the Bank is is “environment,”“environment,” “welfare,” “welfare,” and “culture.” and “culture.” By implementing By implementing aheadahead with withful lling ful lling our mission our mission of helping of helping business business partners partners pioneeringpioneering measures measures to modernize to modernize its management its management through through “environmental“environmental management” management” which which contributes contributes to the to the and localand localcommunities communities to ourish. to ourish. The “Sampo The “Sampo yoshi” yoshi” manage- manage- adoptionadoption of an of “in-house an “in-house corporate corporate credit credit ratings ratings system,” system,” creationcreation of a sustainable of a sustainable society society through through “ nance,” “ nance,” the life the life mentment philosophy, philosophy, embraced embraced by merchants by merchants in the in Omi the regionOmi region of of “pricing“pricing system,” system,” and Baseland Basel II’s Foundation II’s Foundation Internal Internal Ratings Ratings bloodblood of the of economy, the economy, the Bank the Bank has taken has taken measures measures to to centralcentral Japan, Japan, was upheldwas upheld through through our motto our motto of “being of “being tough tough Based-ApproachBased-Approach (FIRB). (FIRB). reconcilereconcile the twin the twinimperatives imperatives of safeguarding of safeguarding the “environ- the “environ- Bank Bank on ourselves,on ourselves, kind kindto others to others and servingand serving society.” society.” The Bank The Bank has has ment”ment” and providingand providing “ nance.” “ nance.” mademade this motto this motto and theand “CSR the “CSRCharter Charter (Management (Management Principles)”Principles)” the starting the starting point point for our for activities. our activities.

●May● 1991May 1991 New York New RepresentativeYork Representative Oce Oce was promoted was promoted to New to YorkNew BranchYork Branch 19911991(closed(closed down down in 1998) in 1998) ●September●September 1993 1993 Hong Hong Kong Kong Representative Representative Oce Oce was promoted was promoted to Hong to Hong Kong Kong BranchBranch ●April● April1998 1998 Launch Launch of “∞ of(Mugen) “∞ (Mugen) Net” onNet” trial on basis trial basis ●December●December 1998 1998 Commenced Commenced “In-house “In-house corporate corporate credit credit ratings ratings system” system” ● ● FebruaryFebruary 1999 1999 Launch Launch of “Pricing of “Pricing system” system” operations operations on trial on basis trial basis ●August●August 2010 2010 Established Established the “policies the “policies for for ● ● ●October●October 1933 1933 Established Established the Shiga the Shiga Bank, Bank, Ltd. Ltd. OctoberOctober 1999 1999 Established Established the “Environment the “Environment Committee” Committee” and the and “Environmental the “Environmental 20102010biodiversitybiodiversity preservation” preservation” Policy”Policy” ●February●February 2012 2012 Opened Opened Bangkok Bangkok Representative Representative 1933●October1933●October 1938 1938 Opened Opened Kyoto Kyoto Branch Branch ●December●December 1999 1999 Launch Launch of “DBM of “DBM (Database (Database Marketing)” Marketing)” operations operations OceOce ●April● April2013 2013 Established Established the “Regional the “Regional Promo- Promo- tion Oce”tion Oce” ●October●October 1977 1977 Listed Listed stocks stocks on the on Osaka the Osaka Securities Securities ●June● June2014 2014 Established Established the “ICT the Strategy “ICT Strategy Oce” Oce” 19771977ExchangeExchange (the Second (the Second Section) Section) and and ● ● DecemberDecember 2015 2015 Commenced Commenced the “Ratings the “Ratings Simula- Simula- the Kyotothe Kyoto Stock Stock Exchange Exchange (moved (moved to to tion Servicetion Service (Ratings (Ratings SS)” SS)” the Firstthe SectionFirst Section of the of Osaka the Osaka ●April● April2016 2016 Started Started the 6th the Medium-Term 6th Medium-Term ●May● 1951May 1951 Commenced Commenced foreign foreign SecuritiesSecurities Exchange Exchange in March in March 1979) 1979) BusinessBusiness Plan Plan 1951 1951 exchangeexchange business business

●March●March 2000 2000 Acquired Acquired ISO 14001 ISO 14001 Certi cation Certi cation ●2000July●2000 2000July 2000 Commenced Commenced Shigagin Shigagin New BusinessNew Business Forum Forum “Saturday “Saturday School School for Entrepreneur- for Entrepreneur- ship”ship” ●October●October 2001 2001 Became Became the rst the commercial rst commercial bank bankin Japan in Japan to sign to thesign United the United Nations Nations EnvironmentEnvironment Programme Programme (“UNEP”) (“UNEP”) Statement Statement by Financial by Financial Institutions Institutions ●April● April2003 2003 Established Established “Shigagin “Shigagin Nonohana Nonohana Prize,” Prize,” an incentive an incentive system system through through industri- industri- ●August●August 1984 1984 Established Established the Shigagin the Shigagin al-academical-academic cooperation cooperation 19841984WelfareWelfare Fund Fund ●December●December 2003 2003 Opened Opened Shanghai Shanghai Representative Representative Oce Oce ●October●October 1987 1987 Listed Listed stocks stocks on the on Tokyo the Tokyo ●April● April2004 2004 Established Established “CSR “CSRCommittee” Committee” and “CSR and “CSROce” Oce” StockStock Exchange Exchange (the First (the First ●December●December 2005 2005 Established Established Shiga Shiga Bank BankPrinciples Principles for Lake for LakeBiwa Biwa(PLB) (PLB)and commenced and commenced “PLB “PLB Section)Section) rating”rating” ●March●March 1988 1988 Opened Opened New YorkNew Representa-York Representa- ●January●January 1966 1966 Announced Announced the the ● ● tive Ocetive Oce MarchMarch 2007 2007 Basel BaselII’s Foundation II’s Foundation Internal Internal Ratings Ratings Based-Approach Based-Approach (FIRB) (FIRB) was approved was approved by by 1966 1966 Bank’sBank’s motto motto ●July● 1988July 1988 The new The headnew headoce oce building building the Financialthe Financial Services Services Agency Agency was completedwas completed ●April● April2007 2007 Established Established the “CSR the “CSRCharter” Charter” and the and “Code the “Code of Conduct” of Conduct” ●March●March 1941 1941 Opened Opened Osaka Osaka Branch Branch ●May● 1989May 1989 Opened Opened Hong Hong Kong Kong Represen- Represen- ●August●August 2007 2007 Commenced Commenced “Shigagin “Shigagin Ratings Ratings Communication Communication Service Service (Ratings (Ratings CS)” CS)” tativetative Oce Oce ● ● 1941● 1941● July 2008July 2008 Became Became the rst the nancial rst nancial institution institution to be to certi ed be certi ed as “Eco-First as “Eco-First Enterprise” Enterprise” July 1946July 1946 Opened Opened Tokyo Tokyo Branch Branch ●July● 2008July 2008 Held Heldthe rst the “Eco rst Business“Eco Business Matching Matching Fair” Fair” ●November●November 2009 2009 Commenced Commenced “biodiversity “biodiversity rating rating (PLB rating(PLB rating BD)” BD)”

SHIGA BANK ANNUAL REPORT 2017 03 “ Creation of shared values” ̶Developing the future for all stakeholders̶

The Shiga Bank’s mission is deeply rooted in the sustainable merchants in the Omi region of central Japan, which means to development and realization of prosperous living for regional bring happiness to three sides: the seller, the buyer and communities and business partners to develop the future for society. The Bank has made this motto the starting point for all stakeholders. CSR, and has established the “CSR Charter (Management The Shiga Bank was born in 1933 through the merger of Principles)” to pursue mutual prosperity with the “regional the 133rd National Bank (Hyakusanjusan Bank), which prided community,” “all employees,” and “the environment.” In today’s itself on “sound management,” and the Hachiman Bank, which terms, this means creation of shared values, that is, resolving emphasized a culture of “enterprise.” The Bank dates back to social issues (social value) and enhancing our client’s 1877, truly a history of one century and forty years. Over that corporate competitiveness (economic value) at the same time, we have always forged ahead with local communities. time. Our motto and CSR Charter (Management Principles) “Being tough on ourselves, kind to others and serving form a code of conduct for all employees of the Bank as well society.” The motto of the Shiga Bank upholds the spirit of as embody our vision. “Sampo yoshi” management philosophy, embraced by

Sustainability is a big business opportunity

In future years, explosive population growth is expected, Against this backdrop, in September 2015, the centered on the developing countries. This will bring not only “Transforming our world: the 2030 Agenda for Sustainable serious problems such as food and water shortages, depletion Development” was unanimously adopted by the 193 member of energy resources and destruction of the environment, but states of the United Nations. Incorporated into this are 17 also growing inequality and expansion of regional conflicts as Sustainable Development Goals (SDGs) and 169 specific globalization progresses. Meanwhile, Japan now faces a targets, to be achieved by the international community by period of entrenched population decline. A mountain of 2030 as a matter of priority to ensure a sustainable society. problems is piling up in front of us, including the changing Each country is sounding alarms about the need for global demographic profile due to the rising dependency ratio sustainability and is showing a tireless commitment to its (fewer children and more elderly people), the decline in the realization. I believe that the achievement of sustainability is number of productive population and deepening disparities not just a shared value of the world, but also a major business between regions due the extreme concentration of opportunity for us. ContributingContributing toto aa population in metropolitan areas as well as the rebuilding of state finances.

sustainablesustainable societysociety throughthrough TTransforming ourselves into a provider of comprehensive financial and information services

We expect the policy of “quantitative and qualitative and the long-term vision of “The Regional Bank that innovates monetary easing with negative interest rates,” the so-called the future.” For us, offering conventional banking services is “creation“creation ofof sharedshared values”values” negative interest rate policy introduced in January 2016, to be not the most important thing, but rather developing high continued for the moment. It is also clear that the business value-added businesses that are deeply rooted in the local environment for financial institutions is set to become more community. In other words, we will identify the various issues difficult, as interest margins shrink amid intensified of our customers and latent needs that they themselves were competition with other sectors and needs for compliance unaware of, and deliver targeted, high-quality solutions to with artificial intelligence, financial technology and other those issues. This is the business model—that of a challenges arise. However, we see precisely this kind of “comprehensive financial and information services”—that we Shojiro Takahashi scenario as a major opportunity to make a great leap forward, are transforming ourselves into. We are committed to building through generation of new innovation and enhancement of a sustainable society through creation of shared values with President corporate value. business partners. The Bank has started the 6th Medium-Term Business Plan in April 2016 with the main theme of “Change & Challenge”

04 SHIGA BANK ANNUAL REPORT 2017 “ Creation of shared values” ̶Developing the future for all stakeholders̶

Sustainability is a big business opportunity

SHIGA BANK ANNUAL REPORT 2017 05 Growth image of the Bank [Business model]

“ Sustainable development Three Changes and Five Challenges”

Basic strategies are the Three Changes and Five Challenges. The third change is “improving the cost structure.” Aiming Through day-to-day interaction with customers, we aim to be a more robust institution, we are committed to radical to be the “first communication bank” that responds fastest and structural reform that leaves no stone unturned, to boost the in the most friendly and immediate way, by prioritizing management efficiency of the whole Shigagin Group. Creation of shared values customer consultation. (The borrowed English “fa-suto” The “Five Challenges” are (1) challenge to regional implies both the meanings of first and fast). revitalization, (2) challenge to strengthening top line, (3) The second change is “speeding up the pace of challenge to increasing productivity, (4) challenge to management.” Under the slogan “faster, more boldly,” we plan constructing a robust management foundation, and (5) The Regional Bank that innovates to speed up all stages between decision-making and challenge to a strategic CSR. the future “The Regional Bank” execution, and ensure that decisions are resolutely carried out no matter what it takes.

A vigorous The Innovating human group that emphasizes Regional the future interpersonal Bank relations

A self-su cient, robust Becoming an Further deepening relationship banking institution that will organization that based on the concept of mutual prosperity, a shape the future of the enables maximized tradition that we have long carried on, and region self-realization (making aiming to be a “regional bank among dreams come true) by regional banks” that emphasizes giving free rein to the face-to-face contact and individuality and ability meetings of minds of individual bank employees

Comprehensive nancial and information service provider

1 Responding Challenge to more promptly regional to customer revitalization needs 5 2 Challenge to Challenge to a strategic strengthening CSR Five top line Three Challenges Changes Progress in the 6th Medium-Term Business Plan Speeding up Improving With the end of the first year of the 6th Medium-Term opportunities. (Page 23) We have also signed an agreement the pace of the cost 4 3 Challenge to Challenge to Business Plan, we are facing headwinds as we build up results. for business cooperation with West Japan Railway Company management structure constructing a robust increasing To meet our “challenge to regional revitalization,” we are and Farm Alliance Management Co., Ltd. with the purpose of management productivity foundation promoting bank financing that does not depend unduly on reinvigorating regional economies and industry through collateral and guarantees, based on our “business development of agriculture. At the same time, we are taking assessments,” which evaluate future viability based on analysis measures for regional revitalization through encouragement of sector trends and the client’s business. Regarding the of sustainable farming and the development of regional Moriyama rose branding project, in partnership with local agriculture, through measures such as the launch of the “GAP Potential governments, government and local financial institutions, we accreditation support plan,” a main-business support loan Social issues were involved from the first stages in building a Dutch-style facility for producers who have acquired international needs glasshouse for rose cultivation. It took three years for the agricultural certification such as GLOBAL G.A.P. We are the first construction of the glasshouse which was completed in regional bank in the Kinki region to offer such a facility. CSR Charter (Management Principles) January 2017. Looking ahead, we expect this project to (Page 32) and the motto generate related businesses and create new employment

06 SHIGA BANK ANNUAL REPORT 2017 Growth image of the Bank [Business model]

“ Sustainable development Three Changes and Five Challenges”

A vigorous The Innovating human group that emphasizes Regional the future interpersonal Bank relations

Comprehensive nancial and information service provider

SHIGA BANK ANNUAL REPORT 2017 07 Business strategies through ve challenges

To meet the “challenge to strengthening top line,” we aim clients of their respective strengths and weaknesses To address our “challenge to constructing a robust adopted the in-house corporate credit ratings system and to strengthen non-interest income by contributing to based on analysis of the client’s past financial condition, management foundation,” we are taking measures to moved quickly to adopt the Foundation Internal Ratings enhanced customer corporate value and development of and the Ratings Simulations Service (Ratings SS), in which substantively strengthen corporate governance through Based-Approach (FIRB), in measures to achieve more regional communities by leveraging our financial the Bank aims to improve corporate value by forecasting vigorous discussion at the Board of Directors. sophisticated risk management. Additionally, the Bank has In the strong belief that the mission of the regional taken measures to improve the transparency of business intermediary functions, with strengthened consulting and sharing details of future financial position based on financial institutions is to take on risk for the development of planning and to generate revenue opportunities by functions and sound but aggressive risk-taking. The Bank client business strategy. (Page 24) As a result, final-year the regional communities, the Bank has taken measures to introducing a “risk appetite framework,” while taking measures is developing a solutions business geared to problem- targets for corporate-customer fees and commissions in strengthen its financial position. In addition, the Bank has to ensure management that can control risk. (Page 43) solving by using channels such as the Ratings Communi- the 6th Medium-Term Business Plan (from April 2016 to ication Service (Ratings CS), in which the Bank informs March 2019) were achieved in the first year. (Page 31)

Creation of new business models Improving capital 1 adequacy Challenge to regional revitalization Increasing loans and bills Initiatives for discounted regional Improving revitalization 5 2 pro t margins Challenge to a Challenge to strategic CSR strengthening top line

Overhauling branch operations Creation of growth industries Expanding ICT Business assessment 4 3 infrastructure Challenge to constructing Challenge to a robust increasing management productivity foundation

Risk appetite framework Ratings Communication Service Active risk-taking Ratings Simulation Service

To meet the “challenge to a strategic CSR,” we have and sports equipment, to schools. This is an initiative aimed at To meet the “challenge to increasing productivity,” we are new remittance and settlement services using blockchain developed initiatives that contribute to resolution of social realizing a sustainable society by adopting the “Shiho yoshi” implementing measures to ensure enhanced customer technology. (Page 39) issues by creating shared values with our customers and approach, that is, a philosophy that further incorporates local convenience and efficient business management by In addition, we converted some consolidated subsidiaries regional communities through our main business. For companies into the “Sampo yoshi” philosophy of merchants in considering the creation of new financial services by utilizing into wholly owned subsidiaries this year. Through this move, example, in 2014, we became the first regional bank in the the Omi region of central Japan. ICT and FinTech and strengthening the role of indirect (non we aimed to enhance productivity by speeding up the Kinki region to begin handling “CSR private placement bonds.” By May 2017, these private placement bonds had been face-to-face) channels as well as adopting an omni-channel Group’s decision-making processes and strengthening To commemorate an entity’s issuance of CSR private issued 230 times, in a total amount of ¥20.3 billion. This strategy. governance, enabling us to provide comprehensive financial placement bonds, an amount equivalent to 0.2% of the total allowed the Bank to donate goods equivalent to ¥30.32 During the current fiscal year, we decided to take part in services as an integrated Group. (Page 40) issue price will be contributed by the Bank to donate items million to a total of 182 organizations. (Page 51) the Japan Bank Consortium, to deepen our exploration of that support children’s learning and growth, such as books

08 SHIGA BANK ANNUAL REPORT 2017 Business strategies through ve challenges

Risk appetite framework Ratings Communication Service Active risk-taking Ratings Simulation Service

SHIGA BANK ANNUAL REPORT 2017 09 Numerical targets for the 6th Medium-Term Business Plan and the results as of March 31, 2017

Items Targets for the year ended March 31, 2019 Results for the year ended March 31, 2017 uture prospects and issues Total deposit assets (end of year balance) (total deposits + investment trust + F public bond + nancial instruments intermediary) ¥5,000.0 billion ¥4,825.7 billion Total loans (end of year balance) ¥3,500.0 billion ¥3,472.4 billion Looking ahead, we expect to see a deepening impact on the The second point is improvement of profitability. Share of loans made within Shiga Prefecture real economy from the dependency ratio issue and Corporate-customer fees and commissions greatly surpassed 50% (excluding Shoko Chukin Bank and some other nancial institutions) 47.81%* population decline. We also expect significant changes in our targets in the 6th Medium-Term Business Plan but remain Reduction in greenhouse gas emissions (an average 30% reduction compared to scal year 2006 over the three years from scal year 2016 to scal year 2018) 30% 30.87% social and economic structure against a background of inadequate as a proportion of overall earnings. The Bank’s technological innovation including progress in the Internet of policy is to further use our consulting functions to build up * Figures as of September 2016 Things (IoT) and artificial intelligence (AI). Amid these non-interest income. revolutionary developments, the Bank faces a wide range of Third is the improvement of productivity. In the year Long-term benchmark challenges (long-term benchmarks in a time-frame unrelated to the 6th Medium-Term Business Plan) challenges. At the moment, our efforts are focused on the ended March 31, 2017, we trimmed the total expenses by ¥1.0 following three priority issues. billion year-on-year to ¥41.4 billion through a cost-cutting Items Long-term benchmark challenges Results for the year ended March 31, 2017 First is the strengthening of our consulting functions. In drive that left no stone unturned, but the OHR deteriorated by addition to acquiring specialist knowledge and building up 2.42% to 72.39%. Looking ahead, we believe it will take some Return on equity ROE 5.0% or more 6.20% external networks, we will foster human resources that can time to improve the OHR, given our planned forward-looking OHR Less than 65% 72.39% create shared values with our customers based on a investments in system infrastructure. However, we will thorough-going customer orientation. improve productivity through overhauling the roles of our branches and streamlining administration. Earnings results for the fiscal year ended March 31, 2017: Favorable performance of both loans and deposits

Though net income (non-consolidated) in the fiscal year substantially the increase in the average balance of deposits ended March 31, 2017 decreased by ¥0.8 billion year-on-year during the period of ¥87.1 billion, but also marked a record to ¥13.9 billion due primarily to the impact of negative high for the last 10 years in terms of a single-year increase. interest rate policies, we were able to record our second- The total capital ratio (consolidated) increased by 0.22% highest earnings after last year’s record performance. year-on-year to 16.67%, easily clearing the uniform Deposits and loans both performed well, with deposits, international standards. The parent-only total of including negotiable certificates of deposits, as of March 31, risk-monitored loans decreased by ¥8.2 billion year-on-year 2017 increasing by ¥187.3 billion year-on-year to ¥4,617.4 to ¥57.6 billion, and accounted for 1.66% of total loans and billion and loans increasing by ¥204.9 billion year-on-year to bills discounted, a decrease of 0.35%. Due mainly to a ¥3,472.4 billion. In particular, the average balance of loans decrease in the yield on loans amid prolonged low interest and bills discounted during the period increased by ¥207.4 rates, interest income decreased by ¥1.1 billion year-on-year billion year-on-year, principally on financing for small and to ¥48.3 billion. medium-sized enterprises. This not only surpassed

Returns to shareholders With “mutual prosperity with the regional community” as a making payment of dividends as great as possible according pillar, the Bank works to secure the health and transparency of to performance trends. For fiscal year 2016, to respond to the management while aiming to enrich internal reserves and support of our shareholders, the Bank added special strengthen the financial structure in preparation for a dividends of ¥1 to ordinary dividends of ¥7 for a total amount management environment that will be increasingly harsh and of dividends for the full year of ¥8 per share. future investment. The Bank also has a basic policy of continuing to provide stable dividends to shareholders while Contributing to a sustainable society through Earnings forecasts for the year ending March 31, 2018 “creation of shared values” For the year ending March 31, 2018, we expect earnings to primarily with system development costs for software and decline, due in part to increased credit costs associated uncertain prospects for the Japanese economy. Since our founding, the Bank has held the belief that without For future business management, what is needed is development of the regional community, we cannot develop creation of shared values, that is, resolving social issues (social (Millions of yen) ourselves either. In this spirit, we have contributed to the value) and enhancing our client’s corporate competitiveness Non-consolidated Consolidated growth of the regional community. Emphasizing the impact (economic value) at the same time. Looking ahead, Shiga Items Forecast for the year ending Results for the year ended Year-on-year Forecast for the year ending Results for the year ended Year-on-year of environmental issues on sustainability of society, we have Bank is fully committed to realizing a sustainable society by March 31, 2018 March 31, 2017 dierence March 31, 2018 March 31, 2017 dierence also responded quickly in the areas of environmental creating shared values for all of our stakeholders, including Ordinary income 13,500 19,230 (5,730) 15,500 21,231 (5,731) management and environmental finance. regional communities, business partners, shareholders, and employees. I look forward for the continued understanding Net income* 10,000 13,939 (3,939) 11,000 14,895 (3,895) and support of all stakeholders in this endeavor. * Net income attributable to owners of parent for columns under “Consolidated.”

10 SHIGA BANK ANNUAL REPORT 2017 Numerical targets for the 6th Medium-Term Business Plan and the results as of March 31, 2017

SHIGA BANK ANNUAL REPORT 2017 11 Shiga Bank’s earnings results Financial Highlights As of March 31, 2017, unless otherwise indicated

Deposits Total balance of deposit assets Gross operating income Net operating income (average balance during the period) (total deposits + investment trusts + public Loans and bills discounted including negotiable certi cates of deposits bonds + nancial instruments intermediary) (average balance during the period)

(billion of yen) (billion of yen) (billion of yen) (billion of yen) (billion of yen) 65 20 4,500 4,467.1 5,000 3,500 18.9 18.4 4,379.9 4,825.7 3,331.6 62.8 4,278.4 16.4 16.2 4,222.8 4,621.6 4,644.1 3,124.2 61.3 15.8 4,508.1 15 4,114.5 4,500 4,444.4 3,000 2,950.0 60.6 2,848.2 60 59.3 4,000 2,752.5

57.2 4,000 2,500 10 4,467.14,467.14,467.14,467.1billion of yen 55 3,500 4,825.74,825.74,825.74,825.7billion of yen 3,331.63,331.63,331.63,331.6 billion of yen 57.2billion of yen 5 15.8billion of yen 3,500 2,000

0 0 0 0 0 2013 2014 2015 2016 2017 2013 2014 2015 2016 2017 2013 2014 2015 2016 2017 2013 2014 2015 2016 2017 2013 2014 2015 2016 2017

Status of Income before income taxes Net income Balance of loans to SMEs, etc. risk management loans Expenses/OHR

Risk management loans Ratio to balance of total loans and bills discounted Total expenses OHR (billion of yen) (billion of yen) (billion of yen) (billion of yen) Risk management loans (%) (billion of yen) Total expenses (%) 25 15 14.7 2,500 100 5 46 100 13.9 90.4 22.2 90 12.5 2,310.9 85.5 20.8 57.657.657.657.6billion of yen 44 billion of yen 41.441.441.441.4 90 20 19.2 2,174.6 80 4 43.2 43.0 42.9 17.4 71.7 42.4 10.1 2,054.9 70 10 65.9 42 80 2,000 1,965.8 1,989.4 41.4 15 60 3.19 57.6 3 12.5 2.92 50 40 72.36 70 68.89 70.18 69.97 72.39 10 40 2.34 2 5 4.8 billion of yen 2.01 38 OHROHR 60 billion of yen 2,310.92,310.92,310.92,310.9 30 Ratio to balance of total loans 1,500 and bills discounted 1.66 5 13.9 20 1 billion of yen 36 72.3972.3972.3972.39 % 50 19.2 10 1.661.661.661.66% 0 0 0 0 0 0 0 2013 2014 2015 2016 2017 2013 2014 2015 2016 2017 2013 2014 2015 2016 2017 2013 2014 2015 2016 2017 2013 2014 2015 2016 2017

Deposits Loans and bills discounted Gain (loss) on valuation of Yield on loans and bills discounted, Capital ratio Ratings deposits and securities (share within Shiga Prefecture) (share within Shiga Prefecture) available-for-sale securities Japan Credit Rating Rating and Investment Yield on loans and bills discounted Yield on securities Yield on deposits, etc. Total capital ratio Agency, Ltd. (JCR) Information, Inc. (R&I) Total capital ratio (%) (billion of yen) (%) Common Equity Tier 1 capital ratio A+ A+ 1.8 200 18.0 Others A high level of certainty High creditworthiness 1.58 16.67% 16.45 16.67 to honor the ﬁnancial supported by a few 7.88 obligations excellent factors 1.6 1.46 15.94 Yield on loans and Others 162.6 165.4 16.0 1.37 bills discounted AAA 1.4 1.27 21.15 Shinkin banks 14.80 150 145.8 AA+ % and credit unions 14.14 AA 1.2 1.14 Shiga Bank 17.87 Shiga Bank 14.0 AA－ 14.46 A+ 1.0 13.28 Japan Credit Rating A Rating and Investment Yield on securities Shinkin banks 103.0 12.0 A－ 45.07% % 100 Agency, Ltd. (JCR) Information, Inc. (R&I) 0.8 0.93 0.91 0.92 0.93 and credit unions 48.05 BBB+ 11.82 1.00% 16.43 82.5 BBB 0.6 City banks 10.0 10.50 Common Equity Tier 1 capital ratio BBB－ BB+ 2.36 Second-tier 0.4 9.44 BB Yield on deposits, etc. City banks Second-tier regional banks 50 14.46% A+ BB－ A+ Other 8.0 2.31 regional banks 15.31 165.4165.4165.4165.4 billion of yen B+ 1.2 regional banks 0.07 0.06 0.05 0.05 11.82 B 0.03% Other 8.53 ・ 0 regional banks 0 6.0 ・・ 2013 2014 2015 2016 2017 3.21 2013 2014 2015 2016 2017 2013 2014 2015 2016 2017 C * JAPAN POST BANK Co., Ltd. and The Shoko Chukin Bank, * JAPAN POST BANK Co., Ltd., The Shoko Chukin Bank, Ltd., D Ltd. are excluded. and Japan Finance Corporation are excluded.

12 SHIGA BANK ANNUAL REPORT 2017 Shiga Bank’s earnings results Financial Highlights As of March 31, 2017, unless otherwise indicated

0 0 0 0 0 2013 2014 2015 2016 2017 2013 2014 2015 2016 2017 2013 2014 2015 2016 2017 2013 2014 2015 2016 2017 2013 2014 2015 2016 2017

Status of Income before income taxes Net income Balance of loans to SMEs, etc. risk management loans Expenses/OHR

SHIGA BANK ANNUAL REPORT 2017 13 Non- nancial Highlights Trends in major business performance indicators, etc. (consolidated) As of March 31, 2017, unless otherwise indicated

FY2012 FY2013 FY2014 FY2015 FY2016 Trends in electricity usage Reduction in greenhouse gas emissions (From April 1, 2012 to (From April 1, 2013 to (From April 1, 2014 to (From April 1, 2015 to (From April 1, 2016 to March 31, 2013) March 31, 2014) March 31, 2015) March 31, 2016) March 31, 2017)

Ordinary revenue Millions of yen 88,815 88,290 88,499 95,844 90,151 (Thousand kWh) Reduction in CO2 in scal 2016 20,000 Income before income taxes Millions of yen 14,357 19,531 24,576 22,535 21,231 17,861 17,777 16,775 Net income attributable to owners of the parent Millions of yen 5,544 11,027 13,675 15,508 14,895 16,180 15,640 2,713.9t 15,000 Comprehensive income Millions of yen 21,086 25,058 63,162 (1,465) 31,484 Year-on-year dierence Millions of yen Rate of reduction Net assets 267,535 292,466 349,851 346,714 374,246 Total assets Millions of yen 4,662,055 4,777,483 4,996,976 5,025,426 5,539,561 10,000 30.87% Net assets per share Yen 998.62 1,091.45 1,324.63 1,310.98 1,425.41 (3.3%) Net income per share Yen 21.00 41.79 51.87 59.57 57.21 5,000 Diluted net income per share Yen —— 41.78 51.68 52.73 50.61 Capital ratio % 5.65 6,02 6.90 6.79 6.69 0 % FY2012 FY2013 FY2014 FY2015 FY2016 ROE 2.18 3.99 4.32 4.52 4.18 Target: An average 30% reduction compared to scal 2006 over the three years from scal 2016 to scal 2018 Price-earnings ratio Times 30.57 13.40 11.56 7.95 9.98 Cash ow from operating activities Millions of yen 76,969 96,812 55,568 (133,403) 286,223 Cash ow from investing activities Millions of yen (44,354) 98,842 (46,447) 66,781 (352) Cash ow from nancing activities Millions of yen (1,599) (11,604) (10,324) (1,700) (3,967) Number of employees with Financial Millions of yen Number of customers approved for PLB Green purchasing rate Planning Grade 1 certi cation Cash and cash equivalents, end of year 72,798 256,862 255,680 187,348 469,250 (As of May 31, 2017) (paper) (As of May 31, 2017) Number of employees 2,530 2,508 2,479 2,468 2,401 [Excluding average number of Persons 10,826 temporary employees] 〔1,187〕〔1,215〕〔1,235〕〔1,247〕〔1,226〕 Customer ratio 58.0% 99.70% 156 persons

Trends in environmental accounting data – reconciling environmental and economic needs Shiga Bank Principles for Lake Biwa (PLB)

14 SHIGA BANK ANNUAL REPORT 2017 Non- nancial Highlights Trends in major business performance indicators, etc. (consolidated) As of March 31, 2017, unless otherwise indicated

Ordinary revenue Millions of yen 88,815 88,290 88,499 95,844 90,151 (Thousand kWh) Reduction in CO2 in scal 2016 20,000 Income before income taxes Millions of yen 14,357 19,531 24,576 22,535 21,231 17,861 17,777 16,775 Net income attributable to owners of the parent Millions of yen 5,544 11,027 13,675 15,508 14,895 16,180 15,640 2,713.9t 15,000 Comprehensive income Millions of yen 21,086 25,058 63,162 (1,465) 31,484 Year-on-year dierence Millions of yen Rate of reduction Net assets 267,535 292,466 349,851 346,714 374,246 Total assets Millions of yen 4,662,055 4,777,483 4,996,976 5,025,426 5,539,561 10,000 30.87% Net assets per share Yen 998.62 1,091.45 1,324.63 1,310.98 1,425.41 (3.3%) Net income per share Yen 21.00 41.79 51.87 59.57 57.21 5,000 Diluted net income per share Yen —— 41.78 51.68 52.73 50.61 Capital ratio % 5.65 6,02 6.90 6.79 6.69 0 % FY2012 FY2013 FY2014 FY2015 FY2016 ROE 2.18 3.99 4.32 4.52 4.18 Target: An average 30% reduction compared to scal 2006 over the three years from scal 2016 to scal 2018 Price-earnings ratio Times 30.57 13.40 11.56 7.95 9.98 Cash ow from operating activities Millions of yen 76,969 96,812 55,568 (133,403) 286,223 Cash ow from investing activities Millions of yen (44,354) 98,842 (46,447) 66,781 (352) Cash ow from nancing activities Millions of yen (1,599) (11,604) (10,324) (1,700) (3,967) Number of employees with Financial Millions of yen Number of customers approved for PLB Green purchasing rate Planning Grade 1 certi cation Cash and cash equivalents, end of year 72,798 256,862 255,680 187,348 469,250 (As of May 31, 2017) (paper) (As of May 31, 2017) Number of employees 2,530 2,508 2,479 2,468 2,401 [Excluding average number of Persons temporary employees] 〔1,187〕〔1,215〕〔1,235〕〔1,247〕〔1,226〕 (Notes) 1. Figures do not include consumption and local taxes payable by the Bank and its consolidated subsidiaries. 2. For fiscal 2012,“Diluted net income per share” is not recorded because no potentially dilutive shares had been issued. 10,826 3. The capital adequacy ratio is calculated exclusive of assets at the end of the fiscal year under review (total of net assets – share subscription rights – non-controlling interests, all at the end of the term). Customer ratio 58.0% 99.70% 156 persons 4. Number of employees excludes seconded staff, and the figures in parentheses are the average numbers of contracted and temporary employees during the term.

Trends in environmental accounting data – reconciling environmental and economic needs Shiga Bank Principles for Lake Biwa (PLB)

(Millions of yen) Number of employees who Hiring rate for people FY2006 FY2007 FY2008 FY2009 FY2010 FY2011 FY2012 FY2013 FY2014 FY2015 Women managers ratio Environmental Investment amount 215 134 671 49 31 36 43 12 20 59 have taken childcare leave with disabilities preservation costs Expenses amount 132 224 380 332 299 288 282 270 261 290 General Manager and Deputy General Manager Male Female (Persons) Assistant General Manager Sub-Assistant General Manager (Persons) Environmental Greenhouse gas (CO2) emissions (t-CO2) 8,792 8,982 8,812 7,132 6,714 6,452 8,297 7,255 6,873 6,710 200 100 preservation bene ts Total in FY2016 Balance of environmental nancing products 68,658 79,084 85,258 82,750 93,030 90,222 126,343 147,814 168,689 185,819 180 172 166 171 168 86 Interest income from environmental 160 82 (38) (100) 33 313 453 468 366 339 313 322 160 20 18 17 80 nancing products 13 20 2.331% Revenues Fees and commissions, etc. from sale of 140 82 persons Economic bene ts eco-related business matching funds 1 43 5 4 14 14 13 48 48 50 61 61 from environmental Reduced 120 61 58 60 60 expenses Reduced energy expenses 13 (35) 14 32 8 21 16 (51) 28 30 53 52 60 preservation 100 47 66 Total (24) (92) 52 350 475 503 396 336 390 402 80 19.76% 40 Scope: Shiga Bank (non-consolidated) Method of compilation: With reference to “Environmental Accounting Guidelines 2005” published by the Ministry of the Environment 60 … 53 51 *Note In fiscal 2012, 1) and 2) were revised, and in fiscal 2013, 3) was revised. 91 93 90 47 40 86 88 20 1) Solar power generation-related financing was recorded due to the feed-in tariff system for renewable energy. 26 2) Energy-saving, environment-friendly houses have been increasing, and for recording purposes, partial revisions have been made to eligibility criteria for eco- and 20 16 1 earthquake-resistant housing loans. 0 0 3) In line with the rising CO2 emission coefficients at electric power companies, calculations use fixed emission coefficients using values as of base year 2006 to duly re- FY2012 FY2013 FY2014 FY2015 FY2016 FY2012 FY2013 FY2014 FY2015 FY2016 flect activities to reduce CO2 emissions.

SHIGA BANK ANNUAL REPORT 2017 15 Corporate Governance

Basic views on corporate governance

As a regional bank headquartered in Shiga Prefecture, the Bank has a (1) Respect shareholder rights and safeguard shareholder equality motto which carries on “Sampo yoshi” philosophy, a management philosophy embraced by Merchants in the Omi region of central Japan, (2) Cooperate appropriately with stakeholders which means to bring happiness to three sides: being good for the seller, the buyer, and society. The Bank made the motto “Be tough on (3) Duly disclose information, including non- nancial data, ourselves, kind to others and serve society” the starting point for and ensure transparency and fairness of decision-making corporate social responsibility (CSR), making eﬀort to realize mutual prosperity with the “regional community,” “all employees,” and the (4) Create an environment for allowing appropriate levels of “environment” as in the Bank’s Management Principles. For the purposes risk-taking by management team members of ensuring sustainable growth and improvement in corporate value for the Bank over the medium and long term, we will expand and (5) Contribute to sustainable growth and the medium and long term improvement constantly upgrade our corporate governance standards based on the in corporate value, by prioritizing dialogue with shareholders following basic views.

Internal control system status

At the Bank, in accordance with Companies Act and the Regulations for Directors. As detailed below, the Bank has a system to ensure appropri- Enforcement of the Companies Act, the fundamental policy of our ate practices in the execution of its daily business. internal control structure was discussed and determined by the Board of

Response to internal control reporting system

According to the Internal Control Reporting System provided in the The Bank Group, in order to improve the reliability of its end-of-year Financial Instruments and Exchange Law, listed companies are obliged ﬁnancial reporting, established an Internal Controls & Asset Assessment to submit an “Internal Control Report,” after receiving external audits and Group in its Assets & Liabilities Managing Department to plan, supervise conducting self-evaluation of the validity of internal control systems, to and evaluate the internal controls reports. ensure appropriate disclosure on ﬁnancial matters.

Timely and appropriate disclosure

We have made every eﬀort to establish more transparent management disclosed in a fair, appropriate and timely manner, Shiga Bank and improve communications with customers, shareholders, and established its “Regulations on the Disclosure of Management Informa- regional communities by positively and fairly disclosing management tion” and a system overseen by the General Planning Department. and other information. With the aim of ensuring that information is

16 SHIGA BANK ANNUAL REPORT 2017 Shiga Bank’s corporate governance system (as of the end of June 2017) is shown in the chart below.

General Meeting of Stockholders

Appointment/dismissal Appointment/dismissal Appointment/ dismissal Audit & Inspection Meeting of Audit & Board of Directors Supervisory Board Members

Oce of Audit & Coordination Supervisory Board Coordination Members

Executive Committee Audit & Inspection Accounting Auditors

CSR Committee Internal Audit Brie ng Sessions

Compliance Committee Coordination

ALM Committee Internal Audit & Audit & Inspection Dept. Inspection

Headquarters Branches

Company Organizations (as of the end of June 2017)

1. Board of Directors The Board of Directors, with 13 members, including two from outside the Bank, meets once a month in principle. At the meetings, decisions are made on important business matters for conduct business. Audit & Supervisory Board Members attend all such meetings to monitor the performance of Directors.

2. Meeting of Audit & Supervisory Board Members Meeting of Audit & Supervisory Board Members has four Audit & Supervisory Board Members, including two from outside the Bank. The Board meets once a month, in principle. Audit & Supervisory Board Members also attend other important meetings, including those of the Board of Directors and Executive Committee, as well as internal audit briefing sessions. They also audit the performance of Directors in their duties through ongoing examination of the Bank’s business performance and financial position. Audit & Supervisory Board Members and Account- ing Auditors hold regular meetings. Through these and other platforms, they maintain close partnership relations and exchange opinions and information. Audits are duly carried out in partnership with internal audit offices.

3. Executive Committee The Executive Committee consists of the Chairman, President, Deputy President, Senior Managing Directors, and Managing Directors. It meets as necessary to make swift decisions about overall operations, including investment plans, new product development, business structural changes and monitoring the risk environment. Important items related to the execution of business are submitted to the Board of Directors.

4. Internal Audit System Seeking to conduct its business in a sound and appropriate manner, the Bank established the Audit & Inspection Department to undertake internal audits. The Department performs audits of the Bank’s branches to ensure that their internal control mechanisms are functioning properly and effectively, in accordance with annual internal audit plans approved each year by the Board of Directors. The internal Audit briefing sessions meets as a rule once a month with the attendance of the management team including the President of the Bank, and holds discussions on reported audit findings and on the status, problem points and issues of departments and branches subject to auditing. This ensures that risk is minimized, administrative duties are carried out reliably and business management is appropriate.

SHIGA BANK ANNUAL REPORT 2017 17 Systems to ensure the most appropriate work practices and outline of the operational status of the systems (as of the end of March 2017)

1. Systems to ensure the most appropriate work practices Compensation for employees who act as assistants to Audit & Supervisory Board Members in the performance of their duties is decided in consultation with the meeting of the Audit & Supervisory As a regional bank headquartered in Shiga Prefecture, the Bank has a motto which carries on “Sampo Board. yoshi” philosophy, a management philosophy embraced by merchants in the Omi region of central Under Bank policy, employees who assist Audit & Supervisory Board Members perform their duties Japan, which means to bring happiness to three sides: the seller, the buyer, and society. We uphold the in line with directions given by the Audit & Supervisory Board Members. spirit of this tradition through our motto of “being tough on ourselves, kind to others and serving society,” and made this the starting point for corporate social responsibility (CSR), making efforts to (7) A system to facilitate reporting to the Audit & Supervisory Board Members of the Bank by the realize mutual prosperity with the “regional community,” “all employees,” and the “environment” as in the Directors and employees of the Bank and the Directors, the Audit & Supervisory Board Bank’s Management Principles. Based on this approach, the following (Internal Control System) structure Members, and employees of subsidiaries (including those who are receive reports from the has been put in place to ensure the most appropriate work practices of the Bank Group. Moreover, in above-mentioned officials), an auxiliary system for reports to other Audit & Supervisory Board order for the Bank Group to flexibly change its operational system in line with changes in the business environment, it will review the following systems as needed. Members, a system to ensure the effective execution of any audit carried out by the Audit & Supervisory Board Members, and a system to ensure that persons who make reports do not receive disadvantageous treatment as a result of making such reports (1) A system to ensure that Directors of the Bank and its subsidiaries are executing their duties in accordance with the laws and regulations as well as the Bank Group’s Articles of Incorporation and a system to ensure that employees of the Bank The Audit & Supervisory Board Members of the Bank also attend important meetings of each Group and its subsidiaries are executing their duties in accordance with the laws and regulations as well as the Bank Group’s company to gain a clear picture of the Bank Group’s business status and to ensure the effectiveness of Articles of Incorporation Audit & Supervisory Board Members in the performance of their duties. Audit & Supervisory Board Members of the Bank likewise hold regular meetings to exchange We have established a Groupwide integrated compliance program, under which companies of the opinions with Representative Directors of the Bank. Group has established compliance frameworks, rules, and educational and training programs. As the To ensure reporting to Audit & Supervisory Board Members, the Bank also has in place a system overall coordinating office for compliance, the Bank’s Assets & Liabilities Managing Department provides whereby Audit & Supervisory Board Members are included in the circulars of requests for managerial advice and guidance as needed in the establishment of compliance frameworks at Group companies, decision and other important reporting materials compiled by group companies. compilation of regulations and education and training of employees. The Bank Group has set up an internal reporting system (compliance helpline) that can be used by The General Planning Department of the Bank and the subordinate offices form a clear picture of all employees of the group companies, for reporting of issues to the Bank’s Audit & Supervisory Board day-to-day compliance at Group companies, and when necessary provide advice and guidance. Members. No prejudicial measures may be taken against anybody on grounds of their making use of The Bank’s Audit & Supervisory Board Members and Audit & Inspection Dept. carry out audits for the this facility. purpose of contributing to sound and proper banking operations at the Group. Also in place is an internal reporting system (compliance helpline) for use by all employees of the Group. (8) Matters related to policies on advance payments, the reimbursement of expenses incurred in The Bank Group has established a system to eliminate and resolutely cut off any relations with the execution of duties of the Bank’s Audit & Supervisory Board Members, expenses incurred antisocial forces that threaten the order and security of civil society. in relation to the execution of other duties, or the disposal of debts If Audit & Supervisory Board Members make requests to the Bank for advance payments for expenses in (2) A system to store and maintain information related to the Bank’s Directors and the execution of relation to the execution of their duties based on the Article 388 of the Companies Act, the Bank shall their duties promptly pay the relevant expenses, except in cases where the relevant expenses are not necessary for the execution of the duties of the Audit & Supervisory Board Members. The Bank ensures appropriate document management by following its “Administrative Guidance Outline” regarding methods of storage and management of important documents and data, comprising the minutes of meetings of the Board of Directors, Executive Committee, and other documents from 2. Outline of the operational status of the systems to ensure the meetings of importance to business operations. most appropriate work practices (3) A system to ensure that regulations related to risk management of the Bank and its The outline of the operational status of the systems to ensure the most appropriate work practices subsidiaries are being followed during the fiscal year ended March 31, 2017 (from April 1, 2016 to March 31, 2017) is as follows: The Bank has compiled a basic set of Risk Management Rules. Based on this, the Bank has established specific management systems for each major category of risk and designated the Assets & Liabilities (1) Compliance system Managing Department as the unit in charge of overall risk management. This ensures comprehensive The Bank follows a compliance program compiled every six months and worked to raise awareness of risk management. Important matters relating to risk management are subject to agenda discussion and employees related to relief for victims of remittance fraud, management of customer information and reporting at the Board of Directors meeting. prevention of money laundering. With regard to risk management of Group companies, based on the Risk Management Rules, the In preparation for an amendment of the Act on Prevention of Transfer of Criminal Proceeds, the General Planning Department of the Bank ensures appropriate management of each category of risk in Bank has also revised “Suspicious transaction notification” and “Verification at the time of transaction”. partnership with the affected departments. Based on the reports from Group companies, or the findings of monitoring, etc., the General Planning Department forms a clear idea of risk situations, and if it considers that such risk could impact (2) Risk management system the management of the Bank, measures are in place for their reporting to the Executive Committee or if Based on the Bank’s “Risk Management Rules,” a resolution is passed at the Board of Directors’ meeting necessary, the Board of Directors. held semiannually regarding “Polices on Capital Management and Risk Management,” which relate to management of specific risk associated with strategic targets. (4) A system to ensure that the Directors of the Bank and its subsidiaries execute their duties in an The ALM Committee meets eight times a year and confirms the risk status in each category and a effective manner quarterly report is also submitted to the Board of Directors on matters relating to various regulatory To ensure the effective performance of duties by Directors, the Group has clarified what items should be benchmarks for meeting capital adequacy requirements and matters of status of at-risk amounts. subject to resolution by the Board of Directors meeting under the “Board of Directors Regulations.” The Executive Committee, comprising Executive Directors is vested with dealing with the detail of the (3) A system to ensure that the Directors execute their duties in an effective manner matters to be decided by the Board of Directors of the Bank and with daily operational decision-making. To ensure efficiency, duties are assigned to the Executive Directors based on their field of At the Bank, a regular meeting of the Board of Directors is held 12 times a year and an Executive responsibility. Committee, entrusted with decision-making regarding the details of resolutions of the Board of By setting consolidated-basis business targets in the Medium-Term Business Plan, we are working to Directors and regarding day-to-day administrative operations, is held 69 times. improve efficiency on a Groupwide basis. Executive Directors of the Bank have specific duties and areas of competence allocated to them based on a division of responsibility, for greater efficiency. (5) A reporting system on the matters related to the execution of duties of the Directors of the Bank’s subsidiaries to the Bank and auxiliary system to ensure that the Shiga Bank Group, (4) A system to ensure the most appropriate work practices in the Bank Group consisting of the parent Bank and its subsidiaries uses the most appropriate work practices in the execution of their business The Representative Directors of the Group companies attend the Bank branch and section managers’ meeting and CSR Committee meeting. To ensure that operations are carried out appropriately across the Group, internal management treats A meeting of presidents of affiliated companies attended by Executive Directors and the Group as a single entity, and the same unified standards have been set Groupwide for legal and Representative Directors is held, and discussions are held to clarify management issues and develop regulatory compliance and risk management. responses measures. The Bank Group has defined “Management and Operational Regulations for Affiliates,” and aims to In addition, operational audits are carried out by Audit & Supervisory Board Members of the Bank create a cross-organizational integrated management system for compliance, customer protection, risk and the Audit & Inspection Department at each Group company as part of measures to create a system management and other issues. ensuring propriety in performance of operations across the Bank Group. The Representative Directors of Group companies attend the branch and section managers’ meeting, CSR Committee, and other important meetings. Regular operational audits are also carried out by the Bank’s Audit & Supervisory Board Members (5) Performance of duties by Audit & Supervisory Board Members and Audit & Inspection Dept. into Group companies. The Audit & Supervisory Board Members carry out audits based on auditing plans compiled at the Group companies are required to report on certain matters if so demanded by the Bank, in addition Meeting of Audit & Supervisory Board. The audit and inspection offices and accounting auditors to releasing quarterly financial and business statements and year-end results reports. proactively and regularly exchange opinions and information (under the “three-pillar” audit system), enhancing the effectiveness of auditing. (6) Matters related to the employees in the event that the Bank’s Audit & Supervisory Board The Audit & Supervisory Board Members proactively exchange opinions with Representative Members request the appointment of employees of the Bank to assist in their tasks, matters Directors on a regular basis. related to the independence of such employees from the Directors, and matters related to ensuring the effectiveness of the instructions of the Audit & Supervisory Board Members with regard to the employees The Bank creates permanent posts for employees independent from Executive Directors, who assist the Audit & Supervisory Board Members in the performance of their duties, ensuring adequate mechanisms are in place for performance of duties by Audit & Supervisory Board Members.

18 SHIGA BANK ANNUAL REPORT 2017 Message from the Outside Director

Motoko Tsujita Director

Against a backdrop of dramatic change in the socio-economic For sustainable development of the overall regional economy—in structure of regional communities, the role expected of regional banks other words, for regional revitalization—one priority is development of is changing enormously. The decline of regional communities is a mechanisms that encourage corporate “metabolism” spanning critical issue that places management pressure on regional banks as regeneration or closure of established businesses, start-ups, and well. I believe that regional communities and regional banks have a creation of new businesses. As a rule, it is said that around half of all shared destiny, and the slogan upheld by Shiga Bank to become “the start-ups fail within 20 years. The corporate survival rate is low, and Regional Bank that innovates the future” embodies the firm conviction there is also a feast-and-famine cycle in major industries that serve as of all employees to contribute to the development of regional the driving force for regional economies. Regional banks are now also communities in order to open up the future of themselves as well. expected to outline the future profile of the regional economy, One of the roles expected of regional banks is providing support develop strategies, and serve as command towers creating systems for for the companies that underpin the regional economy. We support their realization. This should overlap heavily with the image of “the their growth by providing finance within certain risk tolerance Regional Bank” that we are promoting. parameters, and by liaising closely with their managements, so as to Shiga is one of the leading manufacturing prefectures in Japan. It fully appreciate the problems that they face and provide appropriate is home to clusters of plants and research institutes of major advice and problem-solving proposals. manufacturers, mid-sized research and development-type companies, The Bank upholds the “Sampo yoshi (being good for the seller, the and SMEs with significant technological capabilities. The question is buyer, and society)” philosophy embraced by merchants in the Omi how can this excellent manufacturing profile be leveraged? What region of central Japan, and from early on, the Bank has prioritized changes will arise in the industries of Shiga Prefecture due to the longer-term relationships with business partners and worked to advent of new technologies: the Internet of Things, big data, and improve the management at companies by using our proprietary artificial intelligence? How will the prefecture foster industries with “In-house Corporate Credit Ratings System.” We also have a track-record strong growth prospects, such as the environmental and energy stretching back many years in providing finance based on evaluation sectors, medicine and healthcare, tourism, and agriculture? In these of a clients’ business and growth potential, rather than depending regional economy sectors, there is a vast amount of highly detailed unduly on collateral and guarantees—as the Japanese financial information concerning the financial position, technological regulatory authorities have recently recommended. We have created a capabilities, and trading relationships of local companies. The strengths range of support options corresponding to the various stages of a of the Bank— accumulation of detailed data including the financial company’s development, from start-up through growth and maturity, position, technical capability, and transactional relationships of local and have developed support and intermediary services in areas such companies, its team of talent that understands economic and as business matching, overseas expansion, business succession and industrial trends, its purview ranging beyond prefectural and urban M&As. Customer-rooted finance is a major strength of the Bank, and it administrative divisions and into Asian markets, where we have also strengthens our own profitability, through expansion of loans to offices—are clear. The Bank needs not only to meet requests for SMEs and increased income from fees and commissions. support from concerned parties such as local governments and However, well-versed professionals capable of giving sophisticated economic organizations, but must build up the potential of the whole advice are indispensable for corporate productivity improvement and regional economy by taking a leading position, engaging with value creation. For us too, it is an urgent task to foster and secure partners, bringing intellectual resources to bear and applying hard specialist talent. We need to further strengthen our partnerships with work. external experts and specialist institutions. Even without consulting If we repeatedly overhaul the way we do things to better respond corporate management, we are also strongly expected to discern the to companies and regional communities, the value of such companies true needs of a company at an early stage, treat customer issues as our and the whole regional community will certainly improve. As “the own issues, and provide comprehensive follow-up. Regional Bank that innovates the future,” we will work to create new financial service businesses rooted in the community.

SHIGA BANK ANNUAL REPORT 2017 19 Directors and Executive O cers (as of June 27, 2017)

Directors

Chairman Yoshio Daido Representative Director and President Shojiro Takahashi Outside Director Hajime Yasui

April 1972 Joined the Bank April 1979 Joined the Bank April 1975 Joined the Bank of Japan May 2000 General Manager of Credit Supervision Dept. June 2006 General Manager of Business Promotion Dept. March 2003 Retired from the Bank of Japan June 2001 Director and General Manager of Credit Supervision Dept. April 2003 Director, ChuoAoyama Audit Corporation June 2008 Director and General Manager of Business July 2006 Director, Financial Assurance Division, PricewaterhouseCoopers Aarata LLC June 2002 Director and General Manager of Business Promotion Dept. Promotion Dept. July 2007 Manager of Risk Regulatory Advisory and June 2003 Managing Director and General Manager of Business Promotion Dept. Chief of PricewaterhouseCoopers Aarata Institute June 2009 Director and General Manager of Kyoto Branch June 2004 Managing Director April 2008 Chief of PricewaterhouseCoopers Aarata Institute, June 2011 Managing Director PricewaterhouseCoopers Aarata LLC April 2006 Senior Managing Director January 2014 Advisor of Integrated Financial Services Promotion Division and Chief of June 2007 Deputy President June 2014 Senior Managing Director PricewaterhouseCoopers Aarata Institute, PricewaterhouseCoopers Aarata LLC June 2008 President June 2015 Deputy President January 2014 President and Representative Director, Yasui Associates Co., Ltd. (current position) June 2014 Outside Audit & Supervisory Board Member, the Bank (current position) April 2016 Chairman (current position) April 2016 President (current position) July 2014 Advisor, PricewaterhouseCoopers Aarata LLC July 2014 Advisor, Japan Business Assurance Co., Ltd. (current position) June 2017 Outside Director, the Bank (current position) Senior Managing Director Etsuo Imai Managing Director Kazuyoshi Hayashi

April 1979 Joined the Bank April 1980 Joined the Bank June 2006 General Manager of Kusatsu Branch June 2010 General Manager of Assets & Liabilities June 2009 Director and General Manager of Credit Managing Dept. Supervision Dept. June 2011 Director and General Manager of Assets & Liabilities Audit & Supervisory Board Members June 2011 Director and General Manager of Kyoto Branch Managing Dept. June 2013 Managing Director June 2014 Managing Director (current position) June 2016 Senior Managing Director (current position) Audit & Supervisory Board Member Yukio Nishizawa Audit & Supervisory Board Member Masato Hasegawa

April 1978 Joined the Bank April 1981 Joined the Bank June 2007 General Manager of General Planning Dept. April 2010 General Manager of Administration Dept. June 2008 Director and General Manager of General June 2012 Director and General Manager of Audit & Planning Dept. Inspection Dept. Managing Director Yasunaga Ono Managing Director Iwao Wakabayashi June 2009 Managing Director June 2016 Audit & Supervisory Board Member April 1980 Joined the Bank April 1983 Joined the Bank June 2014 Audit & Supervisory Board Member (current position) June 2009 General Manager of Financial Markets Dept. June 2013 General Manager of Business Promotion Dept. (current position) June 2014 Director and General Manager of Business June 2011 Director and General Manager of Financial Promotion Dept. Markets Dept. June 2015 Managing Director (current position) June 2016 Managing Director (current position)

Outside Audit & Supervisory Board Member Satoshi Nishikawa Outside Audit & Supervisory Board Member Yasuhito Matsui

April 1971 Joined the Ministry of Finance April 2000 Registered as a Lawyer July 1998 Deputy Director-General of the Financial Bureau April 2000 Joined Karasuma Law Oﬃce in charge of Tobacco and Salt Industries January 2005 Registered as a lawyer in New York State June 2000 Retired from the Ministry of Finance April 2005 Resigned from Karasuma Law Oﬃce July 2000 Director, Urban Development Corporation May 2005 Joined Miyake & Partners Managing Director and General Manager of Kyoto Branch Motohiro Nishi Managing Director Takahiro Saito (currently Urban Renaissance Agency) May 2009 Appointed Partner, Miyake & Partners April 1982 Joined the Bank April 1983 Joined the Bank June 2004 Director & Vice President, Nagoya Stock Exchange, Inc. (current position) June 2009 Managing Director, SHiDAX CORPORATION May 2012 Registered as a Patent Attorney June 2011 General Manager of Business Promotion Dept. February 2014 General Manager of Credit Supervision Dept. June 2012 Outside Audit & Supervisory Board Member, June 2017 Outside Audit & Supervisory Board Member, June 2013 Director and General Manager of Osaka Branch June 2014 Director and General Manager of Credit the Bank (current position) the Bank (current position) April 2016 Director and General Manager of Kyoto Branch Supervision Dept. June 2016 Managing Director and General Manager of June 2017 Managing Director (current position) Kyoto Branch (current position)

Executive O cers

Director and Manager of Head O ce Business Dept. Masaru Morimoto Director and General Manager of Tokyo Branch Masayoshi Kitagawa Tetsuya Konishi Hiroyuki Nakajima Masato Takemura

April 1981 Joined the Bank April 1984 Joined the Bank General Manager of General Manager of General Manager of Credit Supervision Dept. June 2011 General Manager of Osaka Branch June 2015 General Manager of Business Promotion Dept. Personnel Aairs Dept. Computer System Dept. and Counselor of June 2012 Director and General Manager of Osaka Branch June 2016 Director and General Manager of Business ICT Strategy O ce, June 2013 Director and General Manager of Kyoto Branch Promotion Dept. (current position) General Planning Dept. April 2016 Director and General Manager of Head Oﬃce June 2017 Director and General Manager of Tokyo Branch Business Dept. (current position) (current position)

Director and General Manager of General Planning Dept. Shinya Kubota Outside Director Motoko Tsujita Kazuo Aoki Koji Kawaguchi Katsumi Horiuchi April 1986 Joined the Bank April 1988 Joined The Yomiuri Shimbun, Osaka General Manager of General Manager of General Manager of Osaka Branch April 2013 General Manager of Moriyama Branch June 1998 Retired from The Yomiuri Shimbun, Osaka Financial Markets & Business Promotion Dept. International Dept. June 2015 General Manager of General Planning Dept. April 2006 Associate Professor, Faculty of Economics, Ryukoku University June 2017 Director and General Manager of General April 2014 Professor, Faculty of Economics, Ryukoku University Planning Dept. (current position) (current position) June 2015 Outside Director, the Bank (current position)

20 SHIGA BANK ANNUAL REPORT 2017 Directors and Executive O cers (as of June 27, 2017)

Directors

Chairman Yoshio Daido Representative Director and President Shojiro Takahashi Outside Director Hajime Yasui

Outside Audit & Supervisory Board Member Satoshi Nishikawa Outside Audit & Supervisory Board Member Yasuhito Matsui

Executive O cers

Director and Manager of Head O ce Business Dept. Masaru Morimoto Director and General Manager of Tokyo Branch Masayoshi Kitagawa Tetsuya Konishi Hiroyuki Nakajima Masato Takemura

SHIGA BANK ANNUAL REPORT 2017 21 Finance Items that correspond to benchmarks benchmark for nancial intermediary function Challenge to regional revitalization

Declining birthrate, aging population, Issues and depopulating society Creation of growth industries Advancement of globalization Local branding

regional Main theme the Bank Sustainable development of business should aim for clients and regional community Regional vitalization Resolution of social issues revitalization

Creating the future of the region together — nancing and solutions based on “business assessments” The Bank aims to ensure shared prosperity with regional communities as laid down in our CSR Charter and will work to ensure regional revitalization Developing regional economies by and a sustainable society by providing ﬁnancing and solutions based on “business assessments.*”

* Business assessments tapping the strength of the region Due evaluation of business portfolio and growth potential at companies without depending unduly on ﬁnancial data, collateral or guarantees. We form a full understanding of our business customers by taking a multifaceted perspective that includes the business philosophy and the strengths and weaknesses of the business, as well as visions and action plans for the future.

the weather. It is possible to harvest high-quality roses round the year. Regional revitalization through Moriyama Roses Another advantage is reduced use of agricultural chemicals thanks to rigorous air-conditioning management to keep out harmful insects. It appears suddenly in Moriyama, a huge glasshouse. In this This also opened up the prospect of edible roses and other possibilities glasshouse, one of Japan’s largest with an area of 18,720 square meters envisaged by the “Sixth industry” policy. and a height of 7 meters, a riot of beautiful roses bloom. The operator The Bank has supported this concept from the planning stage. We of this facility is the largest rose-cultivation company in the prefecture, judged that by creating a regional brand out of Moriyama Roses, it Kunieda Co., Ltd. would be possible to boost employment and tourism and so vitalize The Bank provided financing for the construction of this the region. The Bank held multiple dialogues with Kunieda to achieve glasshouse based on a “business assessment,” since it was expected this. that this will significantly lead to developing Moriyama Rose as a local For construction funding, the Bank teamed up with local brand. authorities and financial institutions. The Bank recognized the future Moriyama is a leading rose-producing area of Japan. Today, the and growth prospects of the business, supported as it is by the industry faces a range of issues, including a decline in the number of company’s expertise in agriculture, the know-how and technology it producers due to aging population, a fall in quality associated with has built up, and its marketing channels and provided financing based weather factors and a decline in the production volume. To solve these on our “business assessments.” problems, Kunieda, which considers itself a guardian of Japan’s Looking ahead, we will continue to contribute to regional horticulture and agriculture, decided to construct a giant glasshouse revitalization by providing multifaceted advice that leverages not only using cutting-edge systems, drawing on the expertise of the the Bank’s financial resources but also its business know-how and Netherlands, a leading rose producing country. networks. In this system, temperature, atmospheric pressure, amount of sunshine, and other variables are controlled and are not dependent on

Overall view of the glass house

22 SHIGA BANK ANNUAL REPORT 2017 Finance Items that correspond to benchmarks benchmark for nancial intermediary function Challenge to regional revitalization

Declining birthrate, aging population, Issues and depopulating society Creation of growth industries Advancement of globalization Local branding Challenge to regional revitalization

● Profound business assessment ● Support for business creation and development of new businesses, 1 ● Regional Economic Innovation Cycle Saturday School for Entrepreneurship, and Nonohana Support Group Initiatives ● ABL (asset based lending) ● Demonstrating consulting functions (business succession, M&A, etc.) Challenge to ● Crowdfunding ● Industry-academic-government cooperation regional Main theme the Bank Sustainable development of business should aim for clients and regional community Regional vitalization Resolution of social issues revitalization

Overall view of the glass house

SHIGA BANK ANNUAL REPORT 2017 23 Providing solutions tailored to corporate development stages

Finance Demonstrating consulting functions and providing diversiﬁed methods of ﬁnancing benchmark

Business matching New Business Support Loan Private placement bonds, Shigagin Growth Strategy Fund, etc. syndicated loan, etc. Business succession, asset succession, and M&A Crowdfunding Large-scale subsidies, etc. Shigagin Hometown Investment Fund, etc. Period of Growth operational period stability Startup Period of recession period 11,458 customers 1,518 customers ¥1,428.1 billion Business ¥186.1 billion 828 customers Relaunch launch 1,528 customers stage ¥93.1 billion ¥57.9 billion

1,410 customers No. of borrowers and balance of loans, by stage of corporate development (as of March 2017) ¥131.1 billion

To demonstrate our consulting function, we provide a wide range of ﬁnancing options corresponding to the development stage of the customer. In particular, we aim to create a virtuous circle that can grow together with customers by emphasizing problem-solving through supporting customers in their main business.

Measures in the Ratings Communication Service and Ratings Simulation Service

Believing that you have to “defend your own castle yourself,” the Bank Finance Ratings Communication Service clients (cumulative total) benchmark was a pioneer among banks in adopting the Foundation Internal Ratings Communication Service clients (No. of customers) Ratings Based-Approach (FIRB) and other measures as a means of Borrowers (No. of customers) increasing the sophistication of its risk management. It has also made 4,500 available its expertise as a FIRB bank for raising management standards 4,153 at clients. Through the “Ratings Communication Service” and the 4,000 3,496 3,502 “Ratings Simulation Service,” the Bank is committed to resolving issues 3,500

and promoting growth by talking and listening to the client over time. 2,953 2,948 3,000 2,805 2,644 Using the “Ratings Communication Service,” the Bank shares 2,476 2,469 2,521 2,500 2,283 2,326 2,231 with its clients their respective “strengths” and “weaknesses” which were 2,109 discovered through the rating process. The service also aims to support 2,000

the clients in building sustainable management infrastructures and 1,500 increasing their corporate value, by working together with them to 1,000 solve their problems and improve their financial condition. 500 By creating a Bank’s unique credit-rating process, the Bank enables simulations of quantitative credit ratings based on predicted future 0 FY2010 FY2011 FY2012 FY2013 FY2014 FY2015 FY2016 financial position. This mechanism is used by our “Ratings Simulation Service,” which was launched in December 2015. In the “Ratings Communication Service,” the Bank translates the business vision of the customer into specifics within the financial statements, and engages in Improvement at customers subject to ongoing Finance Ratings Communication Service benchmark dialogue with the customer about the future of the business through a process of predicting quantitative ratings. Based on what the Bank has Items FY2015 FY2016 learned in this way, we can offer support to business customers for Customers subject to ongoing Ratings Communication Service 1,359 1,341 measures to secure their future. Customers showing improvement 1,042 1,007

24 SHIGA BANK ANNUAL REPORT 2017 Shigagin New Business Support Loan Finance Challenge to regional revitalization Support for Business Creation and benchmark Development of New Businesses The “New Business Support Loan” series (familiarly known as “Sowing Seeds of New Businesses, Cultivating Nonohana Loans) provides funding support needed for entry into new business fields and development of new businesses. So far, over Finance their Buds, and Making Flowers Bloom” benchmark ¥4.0 billion has been invested in a cumulative total of 201 companies. Due to the increasing need for financing for entry into new In order to create new businesses that will lead the future, we started businesses, the amount of loans made in fiscal 2016 was the highest the “Saturday School for Entrepreneurship,” which offers business tips, ever. offers industry-academic-government cooperation support through the new business support network “Nonohana Support Group,” and Shigagin New Business Support Loans made to date (cumulative) offers financing and other services for a wide variety of funding needs through initiatives such as “Shigagin New Business Support Loan” and Amount (millions of yen) Number of instances (instances) “Shigagin Growth Strategy Fund.” 250 4,041 4,000 Fiscal year ended Fiscal year ended 3,440 Items March 31, 2016 March 31, 2017 200 No. of cases of start-ups involving the Bank 57 222 2,894 201 3,000 150 2,475 170 No. of cases of relaunch involving the Bank 32 31 2,251 138 2,000 100 118 Business Forum: Saturday School for 103 Finance 50 1,000 Entrepreneurship benchmark 0 0 The “Saturday School for Entrepreneurship” supports a strong spirit of FY2012 FY2013 FY2014 FY2015 FY2016 entrepreneurship, through lectures by business executives currently active in fields and by experts in support for compilation of business Shigagin new business support network Nonohana Support Group plans, based on themes such as healthcare, regional resources, tourism, AI and IoT. Office of Society-Academia Fiscal 2017’s “Saturday School for Entrepreneurship,” which began Collaboration for Innovation, Shiga Prefecture Kyoto University Promising new businesses in May, will be its eighteenth year. The school will be held on Research & Strategy Promotion Center, Kyoto Industrial Research Saturdays, five times a year. Institute of Technology Center of Shiga Prefecture Research Center for Cooperation with Society, Northeastern Industrial Shiga University Research Center of Shiga Prefecture Pricewaterhouse Research Collaboration and Deloitte Touche Tohmatsu LLC SMBC Nikko Securities Inc. Promotion Center, Shiga Coopers Kyoto Shiga Prefecture University of Medical Science Industrial Support Center Nomura Securities Co., Ltd. Mizuho Securities Co., Ltd. Ant Capital Partners Co., Ltd. Collaborative Research Center, The University Nippon Venture Development of Shiga Prefecture Future Venture Capital Co., Ltd. Capital Co., Ltd. Bank of Japan Inc. University Industry Osaka Small and Medium Business Shiga Economic Advanced Science, Technology Liaison Office, AGP CORPORATION Investment & Consultation Co., Ltd Industrial Association & Management Research Doshisha University Institute of KYOTO (ASTEM) Kansai Head Office, Organization Tokyo Stock Exchange for Small & Medium Enterprises and Research Promotion Center, Regional Innovation, JAPAN Nagahama Institute of Bio-Science and Technology Shigagin The Shigagin Japan Science and Lease Capital Shiga Bank Economic & Cultural Technology Agency (JST) BKC Research Office, Center Co., Ltd. Division of Research, Shigagin Growth Strategy Fund Ritsumeikan Investment Business Limited University Liability Partnership Executive Office Industrial-Academic- Finance Growth and Industrialization Financial-Governmental Shigagin Nonohana Prize Ryukoku Extension of Shiga Agriculture, Forestry Business Promotion and Fisheries Businesses Technical Advisory Board benchmark Center (REC), Investment Business Limited Dept. (Title omitted) Ryukoku University Liability Partnership (As of April 2017) The Nonohana Prize is given to commend initiatives for new businesses produced by “Saturday School for Entrepreneurship” students. In fiscal 2016, we gave individualized support to companies Industrial-Academic-Financial-Governmental Technical Advisory Board entered in alliance with Leave a Nest Co., Ltd. as part of our support for Masashi Yasuda (Professor at Collaborative Research Center, The University of Shiga Prefecture) the customer’s main business through business assessment. Keisuke Makino (Professor Emeritus at Kyoto University) Additionally, we established the “Sponsors’ Prize” with the Yoshihiko Nakatani (Deputy General Manager of Industry-Academia-Government Collaboration Strategy Board, Ritsumeikan University) cooperation of seven listed companies. A total of 42 companies were Masahiro Yoshimoto (Director of Academia-Industry-Government Cooperation entered in the competition and eight companies reached the final Promotion Office, Research & Strategy Promotion Center, Kyoto Institute of Technology) screening after a multiple-stage selection process. Business plans Masataka Fukao (Director of Ryukoku Extension Center (REC), Ryukoku University) were presented by those eight companies and were awarded respective prizes. Finance Cooperative Funds with Regional Economy benchmark Vitalization Corporation of Japan

In April 2014, the Bank and the Regional Economy Vitalization Corporation of Japan founded the “Shigagin Growth Strategy Fund” together. The Bank aims to improve the corporate value of the companies it invests in by making investments in startups as well as small and medium-sized enterprises and providing hands-on support for growth.

SHIGA BANK ANNUAL REPORT 2017 25 Developing regional brand through crowdfunding

The Bank is supporting entrepreneurs via crowdfunding methods to oﬀer new products and services that increase the regional brand attractiveness or use regional resources. In accordance with the areas of need and characteristics, we collaborate with multiple crowdfunding business operators.

Takashima City

Nagamaha City Finest garlic, the blessing of Kohoku

Furosen by Uehara Syuzou Takashima City

Finest saba-zushi (mackerel sushi) from Santoku Otsu City

Restaurant fund directly managed by farms Kyoto City

Funazushi fermented sushi, an exquisite delicacy of Japan’s lake country

Shigagin Hometown Investment Fund

In February 2015, the Bank established the “Shigagin Hometown Investment Fund,” which invests primarily in specified funds Kyoto “SAKE TO SAKANA TO OTOKOMAE-SHOKUDO” established by crowdfunding. The Bank supports crowdfunding, having made five investments using this platform to date in small funds for which the Hometown Investment Fund can be expected to have a “pump-priming” effect. (as of March 31, 2017)

26 SHIGA BANK ANNUAL REPORT 2017 Providing diversiﬁed methods of ﬁnancing Syndicated loan Challenge to regional revitalization

Electronically recorded monetary claims We support client growth by arranging coordinated funding involving large sums and multiple ﬁnancial institutions. ● “Shigagin” Densai Service (commenced from February 2013) Clients With over 5,800 client companies registered as users, the Syndicate Group Bank has handled Densai drawing (accrual records) in 29,000 Arranger (Shiga Bank) instances to date, with a total value of more than ¥120.0 Bank A Bank D billion. Bank B Bank C

Credit payable Credit payable Paying company Supplier Supplier (subcontractor) (sub-subcontractor) Interest subsidy program Sale and delivery Sale and delivery of goods of goods ● “Shiga Health Creation” zone

1) Request for record 2) Request for record Within the zone, we oﬀer interest subsidies of up to 0.7% for of accrual of assignment as long as ﬁve years for companies involved in medical and health management device development and Remittance Automatic remittance commercialization, and in between accounts on the due date! businesses creating

BANK BANK BANK health support services. Financial Financial Financial institution institution institution ● Kyoto Regional Revitalization Comprehensive Special Zone

Within the zone, we offer interest subsidies of up to 0.7% for as long as five years for a business program to develop densai.net Original 1) Record of 2) Record of 3) Record of industrial tourism facilities such as accommodation facilities densai.net Co., Ltd. record accrual assignment payment, etc. [Electronic monetary claim registration organization] and commercial facilities to encourage tourist visits and stays. ● Initiative providing interest subsidies to promote environment-friendly financing

● Densai Factoring Service The Bank has been designated as a financial institution eligible to handle interest subsidies to promote This is a new kind of fund procurement method, an environment-friendly financing, a program being organized independently developed service using Densai. Densai by the Ministry of the Environment. received by the supplier are purchased by the Bank on a Government (Ministry of the Environment) non-recourse basis (= no obligation to buy back). Subsidy grant Japan Environment Association Application for and approval Interest subsidy Status and benefit of grant report/approval Company A 2) Delivery and Company B Shiga Bank billing request Paying company Supplier Environment- Confirmation of friendly Repayment use of funding finance Monitoring Business clients 6) Request for 9) Purchase 10) Settlement purchase charge funds 1) Conclusion of basic agreement (FAX) Payment Payment on Densai Factoring Service Being entrusted with private placement bonds 3) Record of accrual 5) Record of accrual 8) Record of Data submission Notification assignment Because issues of private placement bonds are limited to Notification top-level companies that meet certain creditworthiness criteria, evidence that the issuing entity is a blue chip is Shiga Bank needed. Additionally, it is possible to procure long-term, stable funding, as it is a direct-financing method. 4) Record of accrual 7) Record of assignment Request Request ABL Finance densai.net benchmark By utilizing the Asset Based Lending (ABL) method, the Bank offers flexible funding without real estate collateral or ● Electronic bill purchase service guarantees. Fiscal year ended Fiscal year ended Items Electronically recorded monetary claim (electronic bill) March 31, 2016 March 31, 2017 purchase is a service we offer in which non-recourse No. of cases 91 139 purchase is undertaken (= with no buyback obligation). Balance (billions of yen) 7.8 12.2

SHIGA BANK ANNUAL REPORT 2017 27 Providing nancing and solutions Backup system for our customers

based on business assessments In partnership with branches, and the Business Promotion Department, Credit Supervision Department, General Planning The Bank sees “business assessments” as an important part Department and Financial Markets & International Department, of day-to-day communication with the business client. the Bank proactively takes measures to “support main business” Based on evaluations of future viability after an analysis of and “support management improvement” at business customers in accordance with their requests and corporate development sector trends and the clients’ business, it believes it vital to stages. Specifically, the Bank leverages partnerships with external provide financing and solutions based on business experts and organizations when needed in areas such as assessments, without depending unduly on collateral or boosting sales, cutting costs, advice on shoring up the financial guarantees. Additionally, it sees its role as contributing to the position, organizational restructuring, business transfers, M&A, development of the regional economy by providing and a wide range of other business regeneration measures. financing based on business assessments and proposing Backup system for our customers

optimal solutions tailored to corporate development stages. Support system for SMEs Customers Nonohana Support Group Regional Economy Vitalization Corporation of Japan Providing ﬁnancing and solutions based on business assessments Shiga Prefecture Industrial Support Center Cooperation Trends in the total and regional number of customers and Finance Branches National Federation of Small Business Associations for Shiga Prefecture comparison with the total number of companies in the region benchmark ・Credit Guarantee Association Branch support, queries, and consultation measures ・Organization for Small & Medium Enterprises Accredited supporting institutions and Regional Innovation, JAPAN (certi ed tax accountants and Fiscal year ended Fiscal year ended Fiscal year ended ・Japan Finance Corporation certi ed public accountants, etc.) Shigagin group Utilization and cooperation March 31, 2015 March 31, 2016 March 31, 2017 SME Revitalization Support Councils Items Cooperation Business Promotion Dept. Credit Supervision Dept. Local Non-local Local Non-local Local Non-local Shiga Prefecture Regeneration Support Liaison Committee Regional Banks Association of Japan Cooperation General Planning Dept. Cooperation Financial Markets & International Dept. Kyoto Regeneration Network Committee Information sharing The Shigagin Economic & Cultural Center Co., Ltd. Total no. of customers 22,470 22,443 23,496 Liaison Council for Certi ed Supporting Institutions Business Improvement Support Center

15,348 6,738 7,109 15,526 7,488 No. of customers by region 14,909 (SPC:1) (SPC:7) (SPC:9) (SPC:1) (SPC:18) No. of companies by region 48,914 1,807,845 48,914 1,807,845 48,914 1,807,845 Supporting compilation of business improvement plans

The Bank supports its customers with compilation of Finance “business improvement plans” as a measure to resolve The Bank’s main customers as a proportion of total customers benchmark issues which have been identiﬁed in the Ratings Fiscal year ended Fiscal year ended Fiscal year ended Fiscal year ended Communication Service. Due follow-up of progress in the Items March 31, 2014 March 31, 2015 March 31, 2016 March 31, 2017 proposed plan is also oﬀered as part of our support for A Total customers 21,872 22,470 22,443 23,496 improving business of the customer. B The Bank’s main customers (non-consolidated) 8,672 9,087 9,109 9,268

Percentage (B/A) 39.6% 40.4% 40.6% 39.4% Customers who formulated business improvement plans (accumulated total)

Customers who formulated business improvement plans (No. of customers)

1,600 1,463 1,407 Business improvement at the Bank’s main Finance 1,400 1,340 1,223 benchmark 1,200 customers and trends in balance of loans 1,087 Fiscal year ended Fiscal year ended 1,000 926 Items March 31, 2016 March 31, 2017 Balance of loans at customers showing improvement in 800 759 A The Bank’s main 7,758 7,820 management benchmarks customers (group) (billions of yen) 600 Balance of loans at the Bank’s Fiscal year ended Fiscal year ended Fiscal year ended 400 main customers (billions of yen) 784.1 829.1 March 31, 2015 March 31, 2016 March 31, 2017 200 B Customers showing improvement 3,570 4,198 526.9 565.1 566.7 0 in management benchmarks FY2010 FY2011 FY2012 FY2013 FY2014 FY2015 FY2016 Percentage (B/A) 46.0% 53.7% Progress in business improvement plans at SMEs subject Finance to revised lending conditions benchmark Revised Very strong Good Weak Item conditions performers performers performers * Ratings Communication Providing nancing and solutions based on

Development of regional economy Progress in business improvement plans for Service (Ratings CS) business assessments SMEs with revised conditions 1,296 53 221 1,022 Analysis is undertaken of the High Past client’s past financial ↑ * Included in weak performers are businesses that have not yet devised business improvement plans and customers that have compiled consultation sheets (simplified plans) condition, in addition to Past nancial information and ratings Support for “business industry trends and client [Quantitative Surface] transformation” and business, and the Bank informs clients of their “improvement of Support for growth respective strengths and weaknesses. management functions” Customers who compiled fundamental and feasible plans among recipients of Finance business rehabilitation support, and ratio of those that have achieved their targets benchmark Ratings Simulation Service (Ratings SS) Support for Support for No. of customers who have compiled No. of customers No. of customers liquidations and turnarounds Item fundamental and that achieved that missed targets By forecasting and sharing business closures, etc. (+ growth support) feasible plans targets Future details of future financial ↓ position based on client Low No. of customers who compiled fundamental and feasible plans and their achievement ratio 94 81 13 business strategy (targets), we support improvement of corporate Low ← Business assessments (future) → High value. [Qualitative Surface] 86.2% 13.8%

28 SHIGA BANK ANNUAL REPORT 2017 Backing up the corporate management of our customers Measures to support fundamental business rehabilitation Challenge to regional revitalization

We offer extensive support to customers working to Regarding business rehabilitation including financial support, we improve their management. The Company Management strengthen alliances with SME Business Rehabilitation Support Support Office in the Credit Supervision Department is at Co-operative and other public, neutral third-party organizations, the center of these activities. This Office comprises and commit fully to turning around businesses in difficulty. employees highly specialized in business support. The Office Cumulative total of cases proposed by the Bank after the launch of members provide management support to our corporate SME Business Rehabilitation Support Co-operative customers by collaborating with external experts, such as Number of cases (customers) proposed by the Bank after the launch of SME Business lawyers, certified public accountants, tax accountants and Rehabilitation Support Co-operative in fiscal 2003 consulting companies. 200 178 180 171 Manager Guarantee Guideline Measures 160 155 140 137 In Manager Guarantee Guideline Measures, we take measures to encourage financing that does not depend on 120 112 100 manager guarantees, by respecting and complying with the 89 guidelines for manager guarantees under the Financial 80 77 Facilitation Management Policy provided in the basic policy 60 on financial facilitation. Based on the guidelines for manager 40 guarantees, we will continue to act in good faith in concluding guarantee agreements with customers and 20 arranging guarantee obligations. 0 FY2010 FY2011 FY2012 FY2013 FY2014 FY2015 FY2016

Results for scal 2016 Finance (From April 1, 2016 to March 31, 2017) benchmark Finance benchmark Items No. of instances Item FY2016 No. of new loans 17,411 No. of customers using SME Business Rehabilitation Support Co-operative 7 Of which no. of loans without guarantees 3,260

Percentage of loans not dependent on manager guarantees 18.7% For customers that need fundamental overhauls including financial rehabilitation, we offer fundamental support measures including financial support such as debt-debt swap arrangements.

Financial support given based on business improvement plans: 35 customers (includes repeat recipients)

Debt-debt swap (debt subordination) 24

Debt-equity swap (converting debt into equity) 3

Discounted payo (transfer of credits) 10

Results of measures to support corporate rehabilitation

M&A scheme 17

Involving Civil Rehabilitation Act 3

M&A by private arrangement 14

“Secondary corporation” method 7

Major external specialist partners (excluding SME Business Rehabilitation Support Co-operative)

Consulting companies 25

Lawyers and law o ces 7

Other experts 7

SHIGA BANK ANNUAL REPORT 2017 29 Finance Items that correspond to benchmarks benchmark for nancial intermediary function Challenge to strengthening top line

Issues Pro tability Asset management capabilities Consulting capabilities

● Profound “business assessment” ● Leveraging our Asia expertise ● Sound but active risk-taking ● Diversifying asset management, strengthening market trading capabilities Initiatives ● Demonstrating consulting functions (business ● Expanding business with wealthy clients, and with customers over succession, M&A, etc.) their lifetimes

Main theme the Bank should aim for Improvement of pro tability Improvement of corporate value

Finance Corporate business strategy for Business and asset succession measures benchmark strengthening top line The Banks offers optimized proposals for business and asset succession through skilled staff with the Small and Medium Enterprise In our corporate business strategy, the business model we are aiming Management Consultants and the Grade 1 financial planning for is “strengthening interest income from loans and bills discounted qualifications. while establishing a profitability model that is not governed by the Fiscal year ended Fiscal year ended financial environment aiming for sound management structure that is Item capable of contributing to regional revitalization and regional March 31, 2016 March 31, 2017 economic development” through measures such as “building close No. of customers receiving business succession support 218 343 relations with business partners through comprehensive understanding of business partners” and “understanding the strengths of regional financial institutions to contribute to the growth of business partners.” Finance M&A benchmark Corporate merger and acquisition (M&A) has gained attention as a Challenge to Resolution of management issues through main business corporate business strategy, and is generally thought to have the following merits. strengthening support: A key role of a regional nancial institution top line We have teamed up with business partners, the Branches and Buyer Seller Corporate Promotion Group in the Business Promotion Department to Expansion of business area Resolves issues of succession strengthen consulting functions regarding business and asset Strengthening of main businesses Realizes earnings for the founder succession measures, M&A, “domestic-market solutions” in the field of insurance for corporations, crowdfunding, new energy, medical care, Diversi cation of revenue sources Enables sustainable growth “support for growth areas” in the sixth-sector industrialization initiative, Access to human resources Concentrates resources in main businesses CSR private placement bonds, electronically recorded monetary claims, syndicated loans and use of PFI, and other “diversified funding methods” and business-matching measures. By working hand-in-hand Shiga Bank with the client, we aim to raise corporate value at customers and Targeted support that generates Seller Expert knowledge Buyer commit ourselves to contribute to the sustainable growth of regional Information networks economies and regional revitalization. Branch network

Partner organization External experts trust and reassurance Challenge for creation of new business models

Fiscal year ended Fiscal year ended Aiming to create an earnings structure that is not unduly governed by Item March 31, 2016 March 31, 2017 the ﬁnancial environment, which remains harsh due to persistently low No. of customers receiving M&A support 33 28 interest rates, we are strengthening corporate-customer fees and commissions by leveraging our consulting functions, to generate new earnings opportunities. By developing highly specialized personnel such as Small and Medium Enterprise Management Consultants and Trends in the number of customers with business loans ﬁnancial planning experts through main business support for customers, the Bank aims to strengthen its earning power and (Business clients) transform corporate-customer fees and commissions into a core 19,500 19,259 source of income to create new business models. 19,143 19,193

19,000 18,897 Transition of corporate-customer fees and commissions 18,691 2000 Business matching 18,500 18,409 1500 Private placement bonds (fees and commissions, 18,205 1000 guarantee charges) 18,000 17,904 17,849 Syndicated loans, etc. 500 M&A 17,674 Cross-selling, etc. 17,500 0 Sep. Mar. Sep. Mar. Sep. Mar. Sep. Mar. Sep. Mar. (Millions of yen) FY2014 FY2015 FY2016 ・・・ Targeted level 2012 2013 2013 2014 2014 2015 2015 2016 2016 2017

30 SHIGA BANK ANNUAL REPORT 2017 Finance Items that correspond to benchmarks benchmark for nancial intermediary function Challenge to strengthening top line

Issues Pro tability Asset management capabilities Consulting capabilities

● Profound “business assessment” ● Leveraging our Asia expertise ● Sound but active risk-taking ● Diversifying asset management, strengthening market trading capabilities Challenge to strengthening top line Initiatives ● Demonstrating consulting functions (business ● Expanding business with wealthy clients, and with customers over succession, M&A, etc.) their lifetimes

Main theme the Bank should aim for Improvement of pro tability Improvement of corporate value

Partner organization External experts trust and reassurance Challenge for creation of new business models

SHIGA BANK ANNUAL REPORT 2017 31 Corporate business strategy for Life insurance for business owners strengthening top line As part of moves to strengthen relationships with customers who are not borrowers, we are providing business owners with life insurance, to prepare them for management issues of the future such as retirement Healthcare support beneﬁts and funding for business succession. We provide solutions tailored to the stage of development of an organization such as clinics, hospitals, or care providers. Consultation Customers who are not borrowers on the opening of clinics can also be requested from the Bank’s Branches Interviews to ascertain needs website. We provide comprehensive business support spanning market research, provision of real estate information and formulation of Bring up to business plans, proposals for establishment of medical corporations the Headquarters and medical business succession (business succession and M&A) measures, as well as partnerships with external specialist organizations. Proposal The Headquarters person in charge Business alliance for encouraging sustainable agriculture

Launch of nancing for producers who have acquired international agricultural certi cation Preparing funds for the future using life insurance With the aim of revitalizing regional economies and industries through 1) Retirement bene ts 2) Fund for business succession measures development of agriculture, on April 28, 2017, we signed an agreement 3) Fund for business security measures for business cooperation with West Japan Railway Company (JR West) 4) Fund for inheritance measures and Farm Alliance Management Co., Ltd., in which JR West has a stake. At the same time, we began to offer the “GAP* accreditation support plan,” a main-business support loan facility for producers, which ● incorporates international agriculture certification into business Regional Bank Food Selection assessments. We are the first regional bank in the Kinki region to take A total of 52 regional banks jointly held “Regional Bank Food Selection 2016” at Tokyo Big Sight from November 8 to 9, such a measure. 2016. A total of 687 food-related companies exhibited from The Bank regards it as its mission as a regional financial institution all over Japan, and 11 clients of the Bank exhibited at the fair. to support the revitalization of sustainable agriculture through regional revitalization and CSR activities. Our aims include improving food, environmental and workplace safety, strengthening the international ● Agribusiness loans competitiveness of Japanese agriculture, encouraging the spread of In May 2014, the Bank started international certification that contributes to revitalization of regional “Agribusiness Loans,” economies and protection of regional environment, supporting the guaranteed loans provided by Shiga Agriculture Credit development of young farmers and encouraging companies to enter Guarantee Fund Association. We the agriculture sector. offer a wide range of options to *GAP: Continuous improvement activities through accurate implementation, service the funding needs of record-keeping, inspection, and evaluation of each process in agricultural production, in accordance with each inspection item pursuant to applicable laws agricultural business owners. and regulations required for agricultural production activities.

● Farm Alliance Management Shiga Sixth-Sector Industrialization Fund Shiga Bank ● Utilization of IT in the provision In September 2014, the Bank established the Limited Liability of system service for acquiring ● Regional networks of industry, "GLOBAL G.A.P." international Business alliance academia, and government Partnership for Investment in Growth and Industrialization of authentication, environment ● maintenance and education Funding for GAP-certi ed practitioners Shiga Agriculture, Forestry and Fisheries Businesses (total of ● Wholesale of farm products to ● retail traders, etc. Support for businesses seeking ¥0.5 billion) in cooperation with Shigachuou Shinkin Bank, GAP certi cation Nagahama Shinkin Bank, Koto Shinkin Bank, Shigaken Capital participation Shinyoukumiai, and Agriculture, forestry and ﬁsheries Fund Measures taken corporation for Innovation, Value-chain and Expansion JR West Japan. As of March 31, 2017, we have invested in one ● Joint sponsoring of seminars, etc. ● Reinvigoration of regional ● Introduction of individual producers, etc. company. agriculture ● Consultancy services for agricultural ● Promotion of farm alliance issues (consultation on agricultural Through investments in businesses oering production business, study sessions, etc.) and marketing support Sixth-Sector Industrialization businesses, the Bank is supporting initiatives that help raise Acquisition of GLOBAL Financial support G.A.P. certi cation and introduction of Introduction of productivity, etc. of agriculture, marketing channels Producers, etc. marketing channels forestry, and ﬁsheries, leading to ● Streamlining agricultural business on the back of acquisition of GAP certi cation establishment of new processing ● Improvement of production and logistics businesses. technologies and expansion of marketing channels

32 SHIGA BANK ANNUAL REPORT 2017 Supporting development of sales channels Intellectual Property Business Matching Mart Project

The Bank is involved as a core financial institution in the Intellectual Challenge to strengthening top line Business Matching Finance benchmark Property Business Matching Mart Project organized by the Kansai Bureau of Economy, Trade and Industry. Leveraging the open patents We use our branch network to set up effective business-matching owned by major companies, this initiative encourages new product meetings, with a view to improving sales and expanding marketing development by SMEs. channels for all of our corporate and individual customers. The Bank provides opportunities for interviews with major Fiscal year ended Fiscal year ended corporations, and a full spectrum of support from conclusion of Item March 31, 2016 March 31, 2017 No. of customers receiving support licensing agreements through to commercialization. 62 59 for developing marketing channels Business-matching Support for Professional Personnel Finance Eco Business Matching Fair benchmark Aiming to revitalize the region and give further impetus to the regional economy, and by using alliances with personnel strategy headquarters We held the “Eco Business Matching Fair 2017 in Kyoto” on June 16, and specialist businesses, the Bank supports creation of stable 2017 to provide a forum for business discussions focusing on employment and attraction of personnel into the region for business environmental businesses. This was clients with personnel needs. the tenth time we have held this annual event. A total of 122 companies and organizations, New Power Initiatives largely exceeding the number in past years, presented exhibits. We The Bank proposes solutions using the New Power to meet clients’ expanded our booth in the needs to stabilize business operations and save power. agribusiness support corner and simultaneously arranged Asia seminars. In the financial support corner, we showcased measures to support acquisition of GLOBAL G.A.P. certification, an international standard for agricultural produce.

Eco Business Matching Fair

SHIGA BANK ANNUAL REPORT 2017 33 Our Services for Individual Customers

Strategies for Individual Customers Position “Shigagin” to offer inheritance consultancy services

In our strategy for individual customers, we uphold the fiduciary duty Demand for inheritance and policy (business approach that puts the customer first) as part of donation has been on an increase measures to best act in the interests of the customer and aim to “estab- and the Bank offers consultation lish a consultation framework that provides satisfaction to the custom- using its guidebook on inheritance er.” We aim to provide appropriate products and services by issues. understanding customers’ needs at different stages of their life. Our Head Office or branches are now able to offer testamentary trust, * Please see the Bank’s website for more details about the policy for customer-first business operation. etc. and other inheritance-related services. We encourage customers to enquire at their local branch Strategies for Individual Customers (1) about this. Expansion of transactions with wealthy customers To expand transactions with wealthy clients, we are strengthening consulting for general asset management and inheritance measures, Strategies for Individual Customers (2) etc. on an integrated basis after developing a full picture of corporate Expand transactions with customers over their lifetimes and individual assets. In addition to creating a wide-ranging lineup of asset-manage- We are making proposals tailored to different life stages with a focus ment products including both investment trusts and insurance on meeting the needs of particular age groups. products as well as structured bonds and foreign bonds, in line with We will approach younger customers to open lifelong main customer needs, we are creating a system enabling comprehensive accounts with us as a means of securing a core deposit base. proposals for inheritance and other matters effectively leveraging real By offering asset management and insurance products to custom- estate and insurance and trust products. er segments involved in asset formation, we aim to increase the balance of assets under custody and grow revenues from stockhold- ings, as well as expand individual loans to individuals. Expansion of transactions with wealthy customers For customers in retirement, we will work to expand transactions in throughout their lifetimes.

Measures involving the Inheritance and donation integration of corporate and Younger customers measures individual customers Encouraging lifelong main accounts (building up core deposits)

• Asset management proposals • Leverage insurance and trust • Increase in accounts held by younger • Increase in salary transfer based on a firm grasp of overall products people accounts assets (corporate and • Inheritance measures including • Leveraging Junior NISA accounts • Omni-channel strategy individual) use of real estate • Mainstreaming settlement services • Online banking, more (STIO Card, brand debit) advanced ATMs etc. Proposals tailored to life-cycles Development of new Strengthen products and customers services Asset formation customer segments Approach to asset management and insurance • Develop new customers based • More‌ branches to offer consultancy • Asset formation product • Expansion of products through mainly on asset-management on weekends and holidays proposals tailored to regulatory system changes (NISA, proposals • Strengthen proposals for lifestyle and age group expansion of individual-type defined structured and foreign bonds contribution accounts) Step up personal loan

• Step up mortgage loan • Offer comprehensive • Step up unsecured loan consulting services including Strengthen consulting system for assets under guarantee-based insurance custody and develop human resources and asset management to mortgage loan customers retirement Customers in

Expand transactions throughout lifetime • Proposals for management of severance • Increase in pension Corporate customers/ Individual investors assets (customers in retirement) accounts owners

Through these activities, we aim to deepen the trust of regional Comprehensive asset management/ customers. In the 6th Medium-term Business Plan, we have set a proposals for inheritance measures numerical target of “total assets under management (term-end balance) < total deposits + investment trusts + public securities + financial product intermediary > 5 trillion yen.”

34 SHIGA BANK ANNUAL REPORT 2017 Measures for iDeCo program offering Strategies for Individual Customers (3)

major asset-formation benefits Expansion of unsecured loan transactions Challenge to strengthening top line The individual-type defined contribution (iDeCo) plan is a We are taking measures to develop direct marketing, by pension plan that enables setting aside funds for old age leveraging ICT platforms, stepping up promotions, promot- while offering significant tax incentives. Since the system ing contracts without direct (face-to-face) contact and strengthening relations with the customer. By enabling has been open to almost everybody from January 2017, the financial services demanded by the customer through an Bank has taken measures to publicize and promote the integration of “direct (face-to-face)” and “indirect” communi- system by enhancing the product features in order to foster cation, the Bank aims to boost the balance of unsecured the usage by as many people as possible. loans to ¥50.0 billion at the end of fiscal 2018.

Customers

Individual-type defined contribu- Reduction of Expansion of Direct (face-to-face)-based services Services without face-to-face contact (convenience, self-completion) tion (iDeCo) plan commissions product lineup (optimized proposals and advice)

Smart Call centers open Branches Call centers Launch of receipt phones on weekends and by regular mail holidays

“iDeCo-chan” Phone Internet Fax

ATM Since the launch of the Individual-type defined contribution pension plan in April 2002, the Bank has handled iDeCo procedures at all of its branches (except representative offices). (As of March 31, 2017, the total number of subscribers was around 6,400). Steady growth in customers for unsecured loans with smart- A campaign encouraging people to join iDeCo through Shiga Bank phone contracts

The Bank held a campaign encouraging people to join iDeCo through Introduced in 2015, unsecured loan contracts which can be completed Shiga Bank between November 25, 2016 and March 31, 2017 and was by smartphones (hereafter “Smartphone Contracts”) have seen a steady well-received by all. increase due to the improved customer convenience they offer. Targeted loan, free loan (the “Just Support”) and card loan (the “Satto Cash”) transactions can be carried out under Smartphone Contracts. The Smartphone Contract service enables completion of contract procedures on a smartphone terminal, by logging into a dedicated contract website followed by consent to and confirmation of contract terms. There is no need to come to a branch. The Smartphone Contract application service is offered not only online, but also over the counter and via fax, ATM, and telephone.

SHIGA BANK ANNUAL REPORT 2017 35 Spread Asia expertise overseas

International financial strategy measures Consulting services (overseas advisory)

In the international financial strategy of the 6th Medium-Term Business M&A Plan, the watchword is “spread Asia expertise overseas.” We plan to leverage the Asia business know-how we have built up through cooperation with our overseas bases — the Hong Kong Branch, Shang- hai Representative Office, and Bangkok Representative Office — and Stability/ maturity support our business customers, with a focus on “strengthening the Establishment of top line” and “regional revitalization.” overseas bases

Closure of bases Stepping up loaning to non-Japanese borrowers Arrangement of site visits Discussion of feasibility of Growth market entry Challenge of developing the overseas loan market Advice for drafting plans

To strengthen the top line, we are focusing on stepping up loaning to non-Japanese borrowers, principally loans and structured finance for overseas corporate customers. Assuming a certain level of risk, we aim Implementation to build up a portfolio of assets offering high returns and transform the Headquarters into a profit center. Exhibiting at trade shows Business matching Planning Demonstrating financial intermediary functions

Increase deposits and loans denominated in foreign currencies

We aim to expand revenues by building up deposits and loans Support for overseas business expansion through denominated in foreign currencies. business alliances and business matching. Demand for foreign-currency denominated funding has grown due to globalization of Japanese companies. In response, we plan to To step up its support for customers expanding overseas, the Bank is step up our foreign-currency-based loan operations by securing stable strengthening alliances with local government, public organizations, foreign-currency-based funding and leveraging overseas fund procure- and private companies. ment through cooperation with alliance partners in Japan and over- In fiscal 2016, we signed agreements for business alliance with seas. Japan International Cooperation Agency (JICA), a Japanese overseas We also propose foreign-currency deposits as a tool for asset development aid organization with bases in 96 locations overseas. We management in a negative interest-rate environment. also signed a business-matching services agreement with Alibaba.com Japan Co., Ltd., which supports online development of overseas Demonstrating information intermediary functions marketing channels, trade negotiation and commerce.

Strengthening our consulting functions

The mission of a regional bank is to unleash the potential “earning power” of its region. The way international operations meet the challenge of “regional revitalization” is through unleashing the earning power of regional corporations. For that reason, we aim to deepen our support role for customers’ overseas business development. Overseas business development at our business customers is diversified, and trading is becoming more brisk year by year. The Bank has so far offered integrated support of our branches, overseas bases and our Headquarters to get a clear idea of the needs and ideas of our business customers regarding overseas operations. The Bank will provide more thorough-going services by leveraging the overseas business know-how the Bank has built up over the years, Business alliance with JICA its track record in supporting overseas expansion, and the dynamism of branches. The Bank will also contribute to solving issues that customers face in their overseas businesses through “paid consulting services.”

36 SHIGA BANK ANNUAL REPORT 2017 Market investment strategy

Maximize earnings by taking on risks To support maximization of revenues, boldly using all resources develop risk management systems Challenge to strengthening top line

Diversification of investment and evolve human resources

Diversify securities investments by building up a balance of “Other Strengthen monitoring posture securities” (foreign securities + investment trusts, etc.), and at the same Given the accelerating difficulties of asset management with a nega- time maximize revenues through diversified investment in “bonds + tive interest-rate policy, we will deepen investment diversification and stocks + other” instruments. step up our monitoring posture in support of a better spread of investments.

Trends in ratio of balance of securities Improve ability to manage preemptively Build up the balance of foreign securities + investment trusts, etc.

100 Given an unprecedented environment of low interest rates, we aim to Foreign securities & improve our capabilities in preemptive management to prepare the investment trust, etc. Bank for future market changes. We will control market risk in such a Stocks 80 Bonds way as to be able to cope with dramatic changes in the market. Diversification of foreign currency procurement 60 By taking measures to accumulate a balance of foreign-currency denominated bonds and diversifying into foreign currency procure- 40 ment, we will control foreign-currency liquidity risk and spur diversification of the investment portfolio.

20 Responding to regulations and systems, streamlining administration

In January 2017, we reviewed the front/middle systems for securities 0 (%) FY2015 (result) FY2016 (result) FY2018 (plan) operations. The aim is to streamline administration through centralized database management with the back system and streamline administration and respond to financial regulations and regimes. Strengthening trading capabilities Develop human resources Given the negative interest-rate policy environment, the Bank will work to strengthen its trading capabilities in various classes of investment Amid a dramatically changing financial market, we will train employees assets, and will make effective use of derivative transactions (futures, to be able to respond to market change very quickly, and employees options and interest rate swaps, etc.) in addition to carried interest and who are versed in the financial markets to respond to diversifying capital gains (proceeds from sales), aiming for a stable revenues based customer needs. on an earnings structure of the trinity. Challenge to maximization of profitability Boldly take on risk using all resources Investment by category

While guarding against future interest-rate rises and curbing our sensitivity to the interest-rate Maximize Domestic environment, further diversify the investment revenues bonds with asset-swap, option transactions and investments in inﬂation-linked government bonds, etc.

With the risk from foreign currency-based fund procurement controlled, build up the balance Diversify Strengthen trading Foreign investments capabilities securities of mainly European and US securities while giving due consideration to interest-rate trends overseas.

While taking measures to diversify investment Develop human Responding to systems Investment targets (assets), accumulate a balance of Refine risk Streamline administration trusts, investments with relatively low correlation to management posture resources etc. interest rates in Japan and overseas.

SHIGA BANK ANNUAL REPORT 2017 37 Challenge to increasing productivity

Issues Proﬁtability Asset management capabilities Consulting capabilities

● Reform of branch operations ● Strengthening indirect Initiatives ● IT strategy (non-face-to-face) channels ● ICT strategy ● FinTech

Main theme the Bank should aim for Strengthening relations with our customers More muscular organization

Consideration for use of blockchain technology Measures for online settlement and Announcement of participation in electronic money charge

“Japan Bank Consortium” To meet diversifying customer settlement needs, the Bank has enabled Challenge to The Bank has announced its participation in “Japan Bank Consortium,” online settlement from Shiga Bank accounts and e-money charging increasing in a move to promote discussion of new remittance and settlement (making deposits). services using blockchain technologies (distributed ledger This enables users to immediately withdraw sums for purchase productivity technology). payments directly from their bank accounts and make online deposits Currently, 56 financial institutions including the Bank participate in to e-money accounts. this consortium (as of April 2017). We are taking further measures to improve customer convenience Blockchain is a revolutionary core financial technology of FinTech. by forming partnerships with companies that provide settlement It is expected to improve the stability of computer systems at financial services, which are in strong demand. Increasing productivity through institutions and enable creation of flexible and efficient systems. Compliant services Yahoo! Wallet This service enables the use of a Shiga Bank account for settlement of transactions with Whenever, wherever! Useful new features Yahoo! Money “Yahoo! Auctions” and “Yahoo! Shopping.” effective business operations The number of downloads for “Money Customers can credit “LINE Pay” e-money LINE Pay accounts from their bank accounts using our Forward for SHIGA BANK” is increasing service. Customers can credit “Rakuten Edy” e-money One year has passed since the launch of “Money Forward for SHIGA Rakuten Edy accounts from their bank accounts using our service. BANK” automated bookkeeping and asset management services. The number of downloads is increasingly steadily. We will continue to consider cooperation aimed at providing new A heartfelt welcome financial services in the FinTech business field. The “Pepper” robot is at our branches!

For some customer services, we have adopted the “Pepper” robot developed and provided by SoftBank Robotics Corp. It has been deployed at some of our branches as we develop new ways of communicating with our customers, to provide excellent services using robotics and artiﬁcial intelligence.

38 SHIGA BANK ANNUAL REPORT 2017 Challenge to increasing productivity

Issues Proﬁtability Asset management capabilities Consulting capabilities

● Reform of branch operations ● Strengthening indirect Initiatives ● IT strategy (non-face-to-face) channels ● ICT strategy ● FinTech Challenge to increasing productivity

Main theme the Bank should aim for Strengthening relations with our customers More muscular organization

Consideration for use of blockchain technology Measures for online settlement and Announcement of participation in electronic money charge

SHIGA BANK ANNUAL REPORT 2017 39 Reform of branches Reform of affiliates

Against a background of changes in the economic environment and in In the past, while shares of some of the consolidated subsidiaries of the customer trends (linked with population decrease, aging population, Bank had been part-owned by companies outside the Group, we have the spread of convenience stores and smartphones, etc.), the operating converted these subsidiaries into wholly-owned subsidiaries by environment surrounding our branches is about to change significant- purchasing those shares from these external entities. ly due in part to the remarkable progress in recent years in ICT. We aim to continue to speed up decision-making and strengthen To respond to the increasingly diversifying needs of customers corporate governance at the Group and will provide comprehensive and to provide them with tailored services, it is necessary to under- financial services on an even more integrated basis through strength- stand accurately the expected functions of our branches and to switch ened partnerships within the Group. to administration methods and facilities as well as systems better adapted to the times. Branch strategy Against this backdrop, the Bank launched “Operational Overhaul Project Team” and, driven by a radical awareness of the need for The number of customers coming to our established branches is falling reform, is taking measures to improve productivity and enhance the due to population decline, declining birthrate, aging population, the satisfaction of both customers and employees. rapid development of online business and social interaction, increased usage of smartphones and similar devices and other trends. At the Organizational reform at the Headquarters same time, with greater use of online banking and ATMs, customer expectations of bank branches as a marketing channel have also Financial Markets & International Department changed greatly. Under these circumstances, the Bank is making adjustments to As a measure for improving productivity of the Headquarters organiza- branch functions to address new market characteristics and trends. By tion, on June 27, 2017, the Financial Markets & International Depart- specifying clearer roles for individual branches, the Bank aims to ment was newly established by integrating the Financial Markets improve customer convenience and upgrade services as well as Department and International Department. By concentrating the strengthen its business posture and optimize its use of corporate investment and international finance expertise we have built up over resources. the years in the Financial Markets & International Department, we aim In branch initiatives within Shiga Prefecture, the Bank will take to foster a talent team with enhanced competence in markets and measures to further improve services by creating a business posture create an organization that can generate earnings by proactively taking that better meets customer needs, while duly noting changing on risks. demographics and regional characteristics and growth potential. This Through its partnership with the Business Promotion Department, means shifting from branches of offering full branch banking services the Financial Markets & International Department is focusing on to branches with specific functions including sub-branches and offering a one-stop consultancy service for corporations, and making representative offices. efforts in “the reinforcement of the overall proposal capability “ In business initiatives outside the prefecture, the Bank opened including the overseas development support of the business partner. Kyoto Branch in 1938, Osaka Branch in 1941, and Tokyo Branch in 1946, Direct Sales Office of the Business Promotion Department becoming one of the earliest “wide-area regional banks.” In new branch openings outside the prefecture in recent years, the As the importance of non-face-to-face channels grows, on June 27, Bank has established branches specializing in corporate business. 2017, we transformed the direct channel group of the Business These chiefly target SMEs, as part of the new “exuding strategy” for Promotion Department to the Direct Sales Office of the same Depart- branches, in which a certain volume of business is achieved through ment. Through this move, we aim to improve customer convenience business approaches that make maximum use of local and interper- by stepping up direct sales using call centers. sonal connections and knowledge – rather than growing through rapid openings of a string of new branches with the sole object of boosting volumes. Going forward, we consider it strategically necessary to focus on the software rather than the hardware given expectations of further change in the social and economic structure against a background of declining population and innovation in the technologies of AI and the IoT. We are committed to equipping branches with smart technologies using FinTech and expanding services that enable completion of procedures without coming to a branch, to position us to better meet diversifying customer needs.

40 SHIGA BANK ANNUAL REPORT 2017 ICT strategy

The rapid spread of the smartphone has made it possible to use many and provide high value-added services by aiming for (1) “expanding services at “anytime” and “anywhere,” with greater speed and ease of use financial services” to provide accurate responses to customer needs; (2) Challenge to increasing productivity than ever. Going forward, we also expect accelerating development in further “streamlining business operations and ensuring risk control”; ICT with improvements in transmission speed and wider use of AI. and (3) “creating a system to realize strategic management policies” in In response to the development of ICT, the financial industry has a flexible and scalable way. likewise begun to develop new services through FinTech measures. Under these circumstances, the Bank attaches even more importance as management issues to providing new services that meet Basic policies of ICT strategy customer needs by leveraging ICT and improving the productivity of Improving conve- Improving the pro- Providing wor- conventional operations. nience and custom- ductivity of business ry-free, secure ICT er satisfaction operations services Meanwhile, the Bank’s computer system is one of the important parts of public infrastructure, and is expected to have a robust ICT Leveraging ICT platform to ensure provision of secure and reliable financial services. To ensure the Bank keeps one step ahead while ensuring reliability, Expanding financial services it has designated ICT is one of the pivots of its business strategy. It has basic policies of ICT strategy: (1) contributing to greater convenience Streamlining business operations and and customer satisfaction through ICT; (2) improving the productivity ensuring risk control of business operations; and (3) working to provide worry-free, secure Creating a system enabling implementation of ITC services. strategic management policies In line with its basic policies of ICT strategy, the Bank is committed to proactively mobilizing ICT to understand our customers even better

Contributing to greater convenience and customer satisfaction using ICT

Accounts-related systems Information-related systems Expanding ICT services provided to the customer the to provided services ICT Expanding Business approach rooted in customer needs

Internet Concentration of information Leveraging data banking SUCCESS system ATM, etc. Mainframe platforms Open platforms

West Japan main center Mutual emergency Concentration of information backup

Accounts-related systems

Mainframe platforms Cluster of systems for various operations Open platforms

East Japan sub-center Administrative building

Providing worry-free and secure ICT services

SHIGA BANK ANNUAL REPORT 2017 41 Challenge to constructing a robust management foundation

Issues Responding to a changing environment

● Expanding corporate governance ● BCP Initiatives ● Expanding risk management system ● Developing human resources ● Compliance

Main theme the Bank should aim for Robust business foundation

Basic views Process of developing ﬁnancial targets

The risks faced by the Bank in the performance of its operations have been growing more complex and diversified. Based on the Bank’s policy that “Shiga Bank must be sound in Analysis of current status Risk profile order for the local community to be healthy,” we are building Internal Profitability/efficiency, etc. Rating System and Comprehensive Risk Management System in order to accurately assess and control risk using rational criteria without Challenge to undue reliance on personal intuition or experience. constructing a robust We have also introduced a “risk appetite framework” that will Risk-taking policy incorporate business strategy in an integrated risk management Clarifying risks that can be proactively taken, and risks that need to be minimized management model, to generate sustainable earnings opportunities. Continuing the initiatives we have launched so far, we plan to foundation improve our risk management capabilities based on the principle of self-responsibility. Stress Risk controls testing (Business department) Strategy (Market department) Confirmation of consistency Tolerable level of risk Risk Appetite Framework with risk-taking policy capital For more solid organizational allocation (Basel regulations, etc.) Confirming level of risk indicators The risk appetite framework refers to frameworks for business and risk (Business department) through stress-testing management that enable clarification of risk by type and level that the (Market department) Discussion of methods of Bank is prepared to take on, as well as sharing and monitoring of it for controlling risk management the purposes of accomplishing business strategy and financial targets. Simulation Earnings and risk Regarding the formulation of financial targets, the Bank first benchmarks identifies a risk-taking policy based on current-status analysis and risk profiling, and confirms the consistency of strategy in the sales and market departments. Then we carry out various simulations to test the strategy, and sets target earnings and risk benchmarks. After Financial targets confirming through stress testing that the plan will remain reasonably sound under a certain amount of stress, we allocate capital accordingly and seek out the best balance among earnings, risk, and capital. Stress testing is also used to originate countermeasures in the Monitoring/PDCA cycle Review event of strategy failure. We monitor financial targets that have been prepared, and every six months consider revisions to the risk-taking policy and financial Glossary Capital allocation targets. This enables us to clarify the relationship between analysis of The Bank uses VaR, etc. to quantify the various risks it current status and risk profile; risk-taking policy; strategy; and financial faces. Amounts of capital corresponding to risk amounts (economic capital) are allocated for individual categories targets. We ensure the effective functioning of the PDCA cycle for of risk and for individual departments and other units, achievement of appropriate risk management and strategy within the scope of own capital. At Shiga Bank, business department and market department are subject to attainment that can quickly respond to changes in the financial capital allocation measures. environment.

42 SHIGA BANK ANNUAL REPORT 2017 Challenge to constructing a robust management foundation

Issues Responding to a changing environment

● Expanding corporate governance ● BCP Initiatives ● Expanding risk management system ● Developing human resources ● Compliance

Main theme the Bank Challenge to a robust constructing management foundation should aim for Robust business foundation

Basic views Process of developing ﬁnancial targets

SHIGA BANK ANNUAL REPORT 2017 43 Outline of Risk Management System For risk that cannot be quantitatively measured using statistical methods, such as operational and reputational risks, we take measures The Shiga Bank’s Board of Directors have established Risk Management to minimize occurrence and impact in monetary terms. Rules, specified the types of risk that should be managed, and defined Additionally, as a comprehensive risk management method, we the roles and responsibilities of the sections responsible for those risks. have created an integrative risk management system which measures At the same time, Risk Management Rules prescribe risk management and manages various types of risk using such integrated yardsticks as methods. the (maximum) Value at Risk (VaR) formula applied to each risk catego- Furthermore, “Risk Management Policies” are instituted semiannu- ry. ally at the Board of Directors’ meeting after clarifying “risk appetite” in The Bank conducts its business based on the capital allocation light of the Bank’s strategic goals and risk status. system, controlling risk by keeping it within the specified ratio to both 1) These statuses of risk and return are properly managed by having regulatory capital (own capital needed to satisfy capital adequacy reg- it reported to management through the ALM Committee, the Meeting ulations) and 2) economic capital (risk amounts calculated using VaR, of Managing Directors, and the Board of Directors. etc.). In addition, the Bank has created a system that appropriately com- plements the capital allocation system by controlling 3) price change Comprehensive Risk Management risk in investments in securities by keeping it within a specified range.

Comprehensive risk management means to appropriately manage risks by looking at various types of risk as a whole, and comparing them to capital adequacy which represents the strength of the financial institution. Glossary VaR (Value at risk) The Bank’s Assets & Liabilities Managing Department is responsible VaR uses a statistical technique to measure the losses that for unified monitoring of all risks, including quantitative monitoring and could potentially be incurred in a fixed period of time (for management of loan concentration risk, which is outside the scope of example one year). The Bank uses risk amounts measured with a confidence interval of 99% and a holding period of capital adequacy requirements, and interest rate risk in the Bank’s own one year in its internal management. accounts.

Risk Management System

Meeting of Audit & Supervisory Board Members / Board of Directors Audit & Supervisory Board Members

Executive Committee Oce of Audit & Supervisory Board Members

ALM Committee Internal Audit Brie ng Sessions

Assets & Liabilities Assets & Liabilities Managing Dept. Managing Dept. Risk Management Dept. Administration Dept. Audit & Inspection Dept. & Inspection Audit (Internal Audit Dept.)

Operational Risk Risk Credit Market Liquidity Reputational categories Risk Risk Risk Risk Processing Information Legal Tangible Human Risk Technology Risk Risk Asset Risk Risk

Dept. Credit Financial Markets & Administration Computer Assets & Liabilities General Personnel General responsible Supervision Dept. International Dept. Dept. System Dept Managing Dept. Aairs Dept. Aairs Dept. Planning Dept. for risk

Branches and Head Oce

44 SHIGA BANK ANNUAL REPORT 2017 Credit Risk Management System munication tools that connect our customers to the Bank. A shared recognition is reached regarding issues and risks faced by a business Credit risk is the risk that the Bank will suffer losses due to the worsen- customer, and the Bank provides proposals to strengthen the manage- ing financial conditions of clients, etc. ment foundation of customers and support for compilation of plans for Recognizing credit risk as the most important risk to business man- management improvement.

agement from the standpoint of its size and scope, the Bank believes Challenge to a robust constructing management foundation that it is necessary to establish a credit risk management system and Outline of Credit Risk Management control the risk using rational yardsticks. Changes in the financial status of the customers are reflected as For this reason, in December 1998 the Bank introduced its own changes in the credit risk of the Bank through the credit rating system. corporate credit ratings system, and then it adopted Basel II’s “Founda- In order to more precisely implement credit risk management the tion Internal Ratings Based-Approach” beginning from the fiscal year Bank does not merely analyze the results of the measurements of the ended March 31, 2007. amount of credit risk; it implements credit risk management while being aware at all times of the risks faced by its customers. Outline of the Corporate Credit Rating System In recent years, linkage between the economy and the financial The Bank implements financial analyses (quantitative evaluations) us- capital market has deepened on a worldwide scale. Using compilations ing statistical rating models based on the financial statements of the of multiple economic scenarios on a global basis, the Bank predicts the customers, and decides the corporate credit rating taking into account extent of impact of such scenarios on the regional economy and on qualitative evaluations using the unique screening know-how of the our business customers. Specifically, we forecast rates of sales growth Bank, and the condition of the company. or decline for individual business customers under these different Based on this Corporate Credit Rating System, the Bank conducts economic scenarios, and possible changes in credit rating after a trial “Shigagin Ratings Communication Service” which discloses the ratings calculation of financial impact. This enables us to manage credit risk of customers and “Shigagin Ratings Simulation Service” as rational com- and capital ratio status for the whole Bank.

The Signi cance and Purpose of the Corporate Credit Rating System

Reasons for adopting Basel II’s Foundation Internal Ratings Based-Approach (FIRB) Based on its conviction to adhere to our “responsible management” system, and with the aim of sophisticating credit risk management, the Bank introduced its own corporate credit ratings system in December 1998 as a rational communication tool for the Bank and its customers to use together to raise enterprise value. Based on its belief that Basel II is ultimately a tool for pursuing mutual prosperity with regional communities, the Bank recognizes that the building of a solid internal ratings system is essential for consistent implementation of the responsible management model. Therefore, it will do its utmost to further improve its risk management system. From this viewpoint, the Bank, in adopting Basel II, has selected the Internal Ratings-Based Approach founded on the principle of account- ability, has proactively committed itself to a credit-based business and its own credit ratings system, and wants to contribute on a broad basis to the further development of regional communities.

Signi cance and purpose of the ratings system Local community development Activating local Stable supply economies of capital Coexistence and partners in prosperity Improving nancial Raising enterprise Appropriate Raising ability condition value risk evaluation to take risks

Customers Rating Shiga Bank

Strengthening the Perceiving issues and Ratings disclosure as an eective Upgrading ratings Raising operating foundation systems enterprise value studying solutions communications tool

SHIGA BANK ANNUAL REPORT 2017 45 Through these initiatives, we are working to establish a credit risk that the risk amounts are being ascertained appropriately, and reports management system using rational risk control that contribute to the the results of the verifications to the ALM Committee. mutual prosperity of the Bank and regional community for creation and As a general rule, the organizational system related to market risk sharing of new value. At the same time, we are proactively working to management is divided into the market transaction sector (front office), achieve a level of pricing (setting of loan rates) duly corresponding to business management sector (back office), and risk management sector credit risk to ensure an appropriate level of returns in relation to the risk. (middle office), each of which checks the operations of the other. Fur- thermore, The Audit & Inspection Dept., the internal audit department, performs audits of the state of compliance with related laws, related Market Risk Management System regulations, the operational plan, and other requirements and reports

Market risk refers to the risk that the Bank will incur a loss because the the audit results to the Internal Audit Briefing Sessions comprised of the value of the assets and liabilities it holds changes due to fluctuations in President and the responsible directors and to the Board of Directors. a variety of risk factors in the market, including interest rates, prices of securities and currency exchange rates. Fully recognizing the possibility of unexpected risk arising during Liquidity Risk Management System the course of business operations due to uncertainties accompanying Liquidity risk is the risk of losses arising due to the necessity of trad- market changes and the necessity of responding promptly and in ing at significantly adverse prices compared with usual levels, due to accordance with the nature of the risk, the Bank aims to ensure stable upheaval in markets causing inability to secure sufficient funding and profits by controlling market risk within a fixed scope based on quanti- hindering fund-raising. tative methods. The Bank views liquidity risk as a fundamental risk faced by the Regarding market risk for overall banking operations, adjustments Bank. We take measures to ensure accurate understanding of fund-rais- are made to financial targets every six months concerning all assets ing and stable fund procurement and investment, and have a basic and liabilities including deposits, loans, and securities, and capital is policy in place for rigorous risk management that fully emphasizes allocated after consideration of the expected earnings and risk balance. market liquidity. The amount of interest rate risk is controlled based on the “interest rate In managing the flows of funds, the Financial Markets Department risk in the banking book” (outlier criteria). Furthermore, in risk measure- as fund-raising management department monitors fund-raising factors ment the Bank takes into account the type, size, and characteristics of including the financial environment, balance of liquid assets, expected the positions held, and uses VaR and sensitivity (duration, BPV) and oth- cash outflows, and events that are expected to have an impact on er factors for multiple management. With regard to “interest rate risk in the banking book,” the Bank also works to establish a risk management fund-raising on a daily basis, and acts as appropriate. In addition, the system based on revised international standards. Assets & Liabilities Managing Department keeps track of day-to-day Of the market risks, for the risk arising from fluctuations in the risk management by the fund-raising management department, and prices of securities and other financial instruments the Bank sets risk ensures appropriate management of liquidity risk through regular re- tolerance amounts and other limits so as to ensure that the loss due porting to the ALM Committee regarding the status of fund-raising. to market fluctuations does not have an effect on the operation of the For the liquidity coverage ratio regulation implemented from the regulated capital base. end of March 2015, which is the standard for judging soundness of the For items for which limits are set using risk amount measurement liquidity, the Bank takes appropriate action. methods such as VaR, the Bank performs back-testing in order to verify

46 SHIGA BANK ANNUAL REPORT 2017 Operational Risk Management System we use data centers located in East and West Japan that enable mutual backup with the latest technology. The Bank carries out various safety Operational risk refers to the risk that the Bank will incur a loss due to a measures for the assumed system risk including virus entry measures work-related accident at the bank, a flaw in the systems of the Bank, or and unauthorized access measures to prevent information leakage and external factors such as earthquakes or other disasters. strive for the stable operation and information protection of the sys-

The Bank has formulated the Operational Risk Management Regu- tem. Challenge to a robust constructing management foundation lations, divided operational risk into five kinds of risk: (i) processing risk, With compilation of its contingency plan, the Bank has further tak- (ii) information technology risk, (iii) legal risk, (iv) tangible asset risk, and en every precaution against any kind of accident or large-scale disaster. (v) human risk, and is carrying out integrated management of these risks in the Administration Dept. Implementation of RCSA

Processing risk management The Bank has put in place a risk management system in compliance with capital adequacy requirements, and carries out regular in-house Processing risk refers to the risk that the Bank will incur a loss, or the RCSA. The Bank identifies and evaluates risk independently. credibility of the Bank will be damaged, due to dishonesty or scandals, The Bank also engages in collation and analysis of operational risk processing accidents, flaws in the processing management system, information (accident data, etc.) to ensure implementation of the PDCA executives and employees failing to perform accurate processing, or cycle to increase the efficiency of risk management. These measures other problems of this kind. for risk control, transfer and avoidance further raise risk management The Bank is deeply aware that sound processing is the foundation standards. of its credibility, and of the importance of information management, so The Bank uses the “Standardized Approach” in the calculation of in order to reduce processing risk and eliminate accidents and dishon- amounts equivalent to the operational risk under the capital adequacy esty it is focusing on human resources development, strengthening our ratio requirements. organization, development of regulations and manuals, and compli- * RCSA is an abbreviation for Risk & Control Self-Assessment. ance, while also working on strengthening daily processing instruction This is a method for independent risk management, involving compilation and implementa- and training systems and endeavoring to improve processing quality. tion of necessary risk reduction measures based on identification of risks inherent in all business processes and operational systems and in fixed tangible assets, etc., with an evaluation and full appraisal of risk that remains even after counter-measures have been taken. Information Technology Risk Management Reputational Risk Management System Information technology risk is the risk of losses being caused to customers or the Bank due to problems such as computer system failure, Reputational risk is the risk of unexpected tangible or intangible losses malfunction, defect, or illegal abuse. arising for damage to the Bank’s good name due to rumors or slanders The Bank has installed an earthquake-proof structure enabling spreading in abnormal circumstances. computer systems to continue functioning even in an earthquake di- The Bank has formulated the “Reputational Risk Management saster, and also has in place administrative offices that can operate for Rules” and is committed to prior prevention of abnormal situations that up to 72 hours using in-house power generation systems. In addition, could lead to reputational risk arising.

SHIGA BANK ANNUAL REPORT 2017 47 Enhancing Legal Compliance

Led by the Legal Affairs Office of the Assets and Liabilities Managing Whistle-blowing system established Department the Bank is building systems for maintaining compliance with laws and regulations and proper bank management, and is mak- In order to promote compliance management, we have established a ing efforts to foster employees with a heightened awareness of expec- legal compliance help line (24 hours a day) for employees to contact tations placed by the public in banks, and with a strong sense of ethics. when they have discovered a violation of laws, regulations, or rules in the workplace and cannot discuss their concerns with their superiors Legal compliance system or colleagues. We have also jointly established a system that allows employees The Bank has stipulated the Code of Conduct based on the CSR to consult with lawyers and solve problems early when they face legal Charter, our management principles. A Legal Compliance Committee problems outside the workplace. chaired by the senior managing director of the Bank takes the lead in observation of this Code of Conduct and thorough compliance with laws and regulations, and once every six months we draw up a Compli- ance Program and endeavor to implement it. Specifically, training is conducted every year at each department, branch and affiliate in accordance with set themes, and the extent to which the training has been understood is monitored by the Head Office. Departments, branches and affiliates which are determined not to understand it sufficiently redouble their efforts and try to strengthen their legal compliance system by continuously implementing the PDCA cycle. In fiscal 2017, we will run training programs with the themes of compliance and prevention of harassment. Instead of conventional lecture-type training, participatory training Poster publicizing the Bank’s with a focus on discussion is being adopted. whistleblowing system

Legal compliance system

Audit & Supervisory Board Members/ President Board of Directors Meeting of Audit & Supervisory Board Members

Discussion and reporting Discussion and reporting O ce of Audit & Supervisory

Board Members employees) by system (whistle-blowing Line Help Compliance Legal

Administration Dept. Legal Compliance Committee Assets & Liabilities (Bureau: Assets & Liabilities Managing Dept.) Managing Dept.

Customer Legal Aairs O ce of the Assets Consultation O ce & Liabilities Managing Dept. Internal Audit Brieng Sessions Compliance Program

Legal checks for new products and services

Audit and instruction Business Promotion Audit & Inspection Dept. Dept. Compliance O cers (Branches and Departments of Head O ce) Personnel Aairs Dept.

48 SHIGA BANK ANNUAL REPORT 2017 BCP

Business continuity Disaster measures

“Business continuity” refers to measures by a company to avoid any in- The Bank has taken measures to develop in-house infrastructure so terruptions to its important business, or if there is an interruption being that even when a disaster such as a major earthquake occurs, it can still able to recover from it as quickly as possible, even after suffering dam- fulfill its role as a financial institution and maintain the functions neces- age from a large-scale disaster such as an earthquake or an outbreak of sary for the livelihoods of its customers, the economic activities of the Challenge to a robust constructing management foundation an infectious disease such as a new strain of influenza. region, and settlements. Due to the highly public character of banks, the Banking Act also requires measures for “continuity of operations.” Shiga Bank considers Maintaining the functions of on-line systems “business continuity” to be one important management issue from the The core element of business continuity is maintaining the functions of perspective of corporate social responsibility (CSR) as well, so we have on-line systems. We have installed an earthquake-proof structure en- constructed a system which enables us to operate smoothly and con- abling computer systems to continue functioning even in an earthquake tinuously even when a crisis occurs. disaster, administrative offices that can operate for up to 72 hours using in-house power generation systems and data centers located in East and Toward operation of an effective West Japan that enable mutual backup with the latest technology. “Business Continuity Plan” Maintaining the functions of branches The Bank formulated its Business Continuity Plan (BCP) based on the scenario of the occurrence of a major earthquake and its Business At each of the branches, we carry out seismic diagnoses and anti-seismic Continuity Plan “Infectious Diseases Countermeasures” based on the reinforcement, and in the main branches within a certain area, we have scenario of an outbreak of a new strain of influenza in March 2007 and installed equipment that will enable business to continue even when a December 2009 respectively. disaster occurs, including emergency-use power-generating equipment. Based on these business continuity plans (BCPs), learning from the Great East Japan Earthquake, the Bank formulated the “Earthquake Distribution of Emergency Supplies Disaster Initial Response Manual” and the “Nuclear Power Facility Acci- The Bank distributed safety helmets for all employees and visitors to our dent Initial Response Manual” to make initial responses at the time of a branches as well as flashlights, emergency toilets and water carriage bags disaster clear, and the Bank also established regulations, manuals and in case of water supply failure and procedures for crisis management, disaster prevention and other areas. emergency food and drinking wa- Moreover, we ran training and education based on our annual ter to all our branches. Furthermore, schedule that included initial response and decision-making drills for the our branches in metropolitan areas Crisis Response Division, working to ensure and enhance its effectiveness are enhancing stockpile of emer- for all employees. Moreover we regularly hold meetings of the BCP Com- gency food and drinking water for mittee chaired by the Senior Managing Director, keep everyone in the the case where commuters are bank informed, and continuously revise our in-house systems. stranded at times of disasters. Emergency supplies

Conclusion of agreement on mutual support in the event of large-scale disasters

In September 2015, seven regional banks with their head offices in the six prefectures making up the Kinki region (Shiga Bank, The Bank of Kyoto, Ltd., Kinki Osaka Bank, Limited, The Senshu Ikeda Bank, Ltd., The Nanto Bank, Ltd., The Kiyo Bank, Ltd., and The Tajima Bank, Ltd.) signed a mutual assistance agreement to take measures to keep financial services operational or promptly restore them in the event of a major disaster.

Glossary BCP (Business Continuity Plan) A business continuity plan is a plan for deciding on measures to be taken at normal times and methods and tools to be used in an emergency to ensure continuation of business. It is intended to minimize damage to business assets and enables continuation of core business operations or their rapid restoration in the event of an emergency caused by a natural or other kind of major disaster. Training at Emergency Headquarters

SHIGA BANK ANNUAL REPORT 2017 49 Finance Items that correspond to benchmarks benchmark for nancial intermediary function Challenge to a strategic CSR

Prevention of global warming Declining birthrate, aging population, Issues and biodiversity preservation Regional vitalization and depopulating society

● “Environmental management” which ● Drawing on the distinctive strengths of a ● Positive action incorporates environment into our regional bank to mobilize the community ● Work-life balance Initiatives main businesses ● Regional prosperity, volunteering, ● Employment of senior citizens ● Environmentally-friendly products welfare, and development of young ● Employment of people with disabilities Challenge to and services people ● Development of human resources

Main theme the Bank a strategic CSR should aim for Harmonious coexistence with the “environment” Mutual prosperity with the “regional community” Mutual prosperity with “all employees”

CSR private placement bonds “Tsunagari” “Shiho yoshi” with the regional community Building a prosperous society where Toward a society that can connect by prioritizing children’s future Merchants in the Omi region had a philosophy called “Sampo yoshi” which means to bring happiness to three sides: the seller, the buyer, With “Tsunagari” CSR private placement bonds, an amount equivalent and society. Through CSR private placement bonds, we aim to add a to 0.2% of total issue price is contributed by the Bank, and items that fourth dimension — “good for local companies” — to our “Sampo support children’s learning and growth are donated to schools, to yoshi” philosophy and so promote joint prosperity with the regional people and communities can grow foster sound development of the next generation and build up links community. between regional communities and children. Good for the issuing company This year marks approximately three years since the launch of CSR private placement bonds in 2014, a ﬁrst for a regional bank in the Kinki The buyer region. With the support of a large number of companies, these private placement bonds have been issued 230 times, in a total issue amount “Shiho yoshi” of ¥20.3 billion. This allowed the Bank to donate goods equivalent to Good for Shiga Bank Good for schools and children ¥30.32 million to 182 elementary and junior high schools and other The seller Public interest organizations.

Structure of CSR bonds o ered through private placement Finance benchmark Good for local companies Issuing company Something extra

Issuance of CSR private placement bonds Schools [The seller] Shiga Bank Total issue price of private Donation Excavation of the fund needs placement bonds: ¥20.3 billion → Donating gifts equivalent to 0.2% of total [The buyer] The issuing company *As of May 31, 2017 issue price are donated by the Shiga Bank →Social contributions to the community, evidence of excellence as an enterprise, and improvement of corporate image Shiga Bank [Public interest] Schools and children →Donating items to support children’s learning and growth [Something extra] Local companies Merits of introducing CSR private placement bonds for issuing companies →Regional economic vitalization (purchase of donation items from local companies) ● Able to make contributions to society through school education ● Able to publicize the company’s stance regarding CSR measures By continuing to supply a wide range of ﬁnancial products, the ● Leads to evidence of excellence as an enterprise and improvement Bank will work to realize the cherished goal of development of regional of corporate image communities and a brighter future, and contribute to a better society.

Donations enabled by CSR private placement bonds

Extending thanks to people who create hope for the future Through CSR private placement bonds, we received a bookcase that all the students can use. Receiving this gift made me think about the importance of valuing things. Instead of treating the gift simply as a thing but appreciating the thoughts of others. I felt that this was what it was like to value something. The spirit of valuing things is what is enabling us to have a pleasant school life. I am grateful that there are people who extend support for our future. I will try to make the most of my school life, holding the belief that working hard in your given situation is the best way of making repayment. I will try to inspire my juniors to the same as well. Thank you very much.

Sora Hamanaka, Student Council President of Moriyama Junior High School

50 SHIGA BANK ANNUAL REPORT 2017 Finance Items that correspond to benchmarks benchmark for nancial intermediary function Challenge to a strategic CSR

Prevention of global warming Declining birthrate, aging population, Issues and biodiversity preservation Regional vitalization and depopulating society

Main theme the Bank a strategic CSR should aim for Harmonious coexistence with the “environment” Mutual prosperity with the “regional community” Mutual prosperity with “all employees” Challenge to a strategic CSR

Structure of CSR bonds o ered through private placement Finance benchmark Good for local companies Issuing company Something extra

Donations enabled by CSR private placement bonds

Sora Hamanaka, Student Council President of Moriyama Junior High School

SHIGA BANK ANNUAL REPORT 2017 51 Challenge to a strategic CSR — NEXT STAGE — Sustainable society

Main theme Mutual prosperity Mutual prosperity the Bank should with the regional Creation of shared values with all employees aim for community The CSR Charter

Harmonious coexistence with the environment

Strategic CSR (NEXT STAGE) ① Strategy for resolution of social issues through our main business ② Consideration for the environment and society in our main banking processes ③ Dissemination of non- nancial information

Resolution of social issues

• CSR private placement bonds “Tsunagari”: • Shift to the scal 2015 version of ISO 14001: • Work process reforms: empowering Results Realizing “Shiho yoshi” (Page 51) Improvement of operations in the female employees (Page 57) • CSR medical institution bonds “Hagukumi”: main business • Environmental volunteering: Support for medical institutions • Repair work of the administrative center: Improvement of environmental

• Support for GAP accreditation Reduction in CO2 emissions awareness (Page 55) Environmental protection (Page 55) Power usage reduction • Measures for compliance Food safety Improvement of operational eciency • Welfare: Grant awards (Page 56) Support for agricultural training • Carbon-neutral branch: • Raising awareness of human rights • Purchase of JICA bonds (ESG investment) Reduction in CO2 emissions (Page 55) • BCP measures • Crowdfunding: • Reduction in paper resources Regional revitalization (Page 26) • Environmental cost management and • Business alliance with Shiga University environmental accounting Solving regional issues • Multilingual QR code: Support for overseas visitors to Japan

Strategy Resolution of social issues Strategy Resolution of environmental Strategy Strengthening the CSR foundations Strategy 1 through our main business 2 issues in our operations 3 that support our main business • Deepening of environmental nance “Eco-o ce creation” • Legal compliance, BCP, supply chain • Resolution of social issues (declining birthrate • Human resources development, • Reduction in greenhouse gas emissions and aging population, depopulation, etc.) empowering female employees and • Environment-conscious branches and • Support for the discovery of local resources work-life balance facilities, resource saving (tourism, specialty products and culture) • Environmental volunteering and • Improvement of business eciency, • Strengthening networks and relationships dialogue with the community (industry, government, academy and NPO) risk reduction (ISO 14001)

6th Medium-Term Business Plan

Business environment/risk/management capital SDGs

Social issues ISO26000 Issues Depopulation, aging population, and global warming (7 core issues) Biodiversity and regional vitalization

52 SHIGA BANK ANNUAL REPORT 2017 CSR basic information External communication CSR promotional stance Certiﬁed as Eco-First Enterprise

We established a CSR Committee headed by the President of the Bank In July 2008, the Bank submitted its “Eco-First Commitments” to the for cross-organizational discussion of longer-term planning, and annual Minister of the Environment, the first in the financial industry in Japan and was certified as “Eco-First Enterprise.” As an environmental initiatives in CSR. front-runner, we will set challenging targets, and commit ourselves to

fulﬁlment of pledges. Challenge to a strategic CSR Organization Chart of Environmental Management In addition, we are working in collaboration President with staﬀ members in charge of CSR/environment from the ten “Eco-First Enterprises” headquartered in Kansai as “Eco First in Kansai.” Internal Audit Team

Advisors in charge of products Environment Management Oﬃcer Advisors in charge of legal aﬀairs Signed the UNEP FI Statement

In 2001, we became the ﬁrst commercial bank in Japan CSR Committee to sign the “UNEP Statement of Commitment by ISO Oﬃce Financial Institutions (FI) on Sustainable Development.”

Various departments and offices Associated companies Initiatives for ISO 14001 The Bank has operated an environmental Environmental policy management system over the eighteen years (established in October 1999 and revised in April 2010) since obtaining ISO 14001 certification in 2000. In fiscal 2016, we completed the transition to the fiscal 2015 version and will take further steps to As a regional bank in Shiga Prefecture, home to Lake Biwa, an streamline our main business through integration “asset to be held in custody for future generations,” the Shiga Bank of EMS into business processes. has reaffirmed its mission of contributing to a sustainable society by further expanding applications for “environmental finance” and Selected as an SRI fund target stock taking measures to ensure “prevention of global warming” and We have been selected for 14 consecutive “biodiversity preservation” in the spirit of “protecting the global years as a component stock of the FTSE4Good environment through the circulation of money.” Index Series. FTSE is a joint venture of The Financial Times Ltd. and the London Stock 1) Conservation of resources and energy usage Exchange. 2) Environmental protection through financial services 3) Complying with environmental laws and regulations, etc. Signed the Principles for Financial Action for the 21st Century

4) Participation of, and awareness-raising among, all employees The Bank has signed the “Principles for Finance Action towards a 5) Disclosure of environmental policy Sustainable Society (Principles for Financial Action for the 21st Century)” which was established Policies for biodiversity preservation in October 2011. (established in August 2010) As a member of Shiga Green Purchasing Network The social mission of the Shiga Bank, whose headquarters is located next the Lake Biwa, one of the world’s great ancient lakes We participate in Shiga Green Purchasing Network, which aims at and home to a wide range of wildlife, is “environmental “creating green economy from Shiga.” management.” We are committed to protection of the “blessings of the earth” in all their biodiversity and to building a sustainable society in partnership with local communities. As a member of “Small Kindness Movement”

1) Activities for protection of biodiversity launched by employees of all grades As the Shiga Headquarter of the Small Kindness 2) Creating networks in partnership with all stakeholders across the region Movement, we will contribute to the regional 3) Enhancement of environmentally-responsive ﬁnancial products and services community through local environmental protection activities and donations of wheelchairs.

SHIGA BANK ANNUAL REPORT 2017 53 Harmonious coexistence with the environment — environmental management— The social mission of our company, which is headquartered by Lake Biwa, is to pursue CSR based around “environmental management” which incorporates the environment in management. We are also committed to prevention of global warming and biodiversity preservation as well as building of a sustainable society.

Example of “environmental management” cycle The Bank’s original environmental rating (PLB)

The Bank operates “environmental management” as a cycle in The Bank has established its own unique “Shiga Bank Principles for Lake story-telling. Biwa (PLB)” to protect Lake Biwa and the global environment, and is enlisting support for these principles. In addition, the Bank rates customers who have agreed with the [Eco-oce creation] [Environmental nance] principles of the PLB, using the “environmental rating (PLB rating)” based on the Bank’s unique evaluation standards. This is used as a tool for raising awareness of environmental management. Customers who develop products or services that are practically useful in preserving the environment or introduce energy-saving facilities, etc. are eligible for funding under the “Principles for Lake Biwa “Environmental support fund (PLB Fund).” The Bank oﬀers a discount of up to 0.5% on management” cycle annual interest rates on loans depending on degree of environmental commitment shown in the rating.

Three principles in Shigagin Principles for Lake Biwa (PLB) [Environmental 1) We compile standards for production, marketing and volunteering] services that are useful for environmental protection. 2) We aim to ensure environmentally-friendly corporate conduct without missing business opportunities. 3) We reduce environmental risk and realize a sustainable “Environmental nance” regional society. United Nations Conference on Environment and Development (Earth Summit) in June 1992 “Two-pillar” pact to preserve the global environment SDGs United Nations Framework United Nations Convention on Convention on Climate Change Biological Diversity Preserving the environment and biodiversity through nancial services Shigagin CSR Charter The “Mirai Yoshi (Bright Future) Carbon Neutral Loan” is a service that (2007) Corporate philosophy of the Bank aims to promote introduction of natural energy and restore the Environmental policy (October 1999) Policies for biodiversity preservation (August 2010) environment and ecosystem of Lake Biwa. Shiga Bank Principles for Lake Biwa (PLB) Approval Certi cate (Year 2005) <10,826 cases>

PLB rating <10,434 cases> PLB rating BD <5,569 cases> (Year 2009) Financing PLB rating 80 CSR private Shiga Bank Customers PLB Fund (for subsidized interest payments by the Ministry of Environment) placement bonds *As of May 31, 2017 Discount 0.1% from the Broadening the uptake interest rate applied of renewable energy We are helping create a sustainable society through our role as a Converting the reduced amount of Funding financial institution, such as development and provision of CO2 emission into (Total amount of ¥14,700 thousand from fiscal 2007 to 2016) environmentally-responsive financial products and services. monetary value Corporate credit ratings that take account of Protection, breeding and release program customer environmental awareness Shiga Prefecture Fisheries for Nigorobuna fish (carassius auratus grandoculis) and Wataka fish (ischikauia Environmental awareness has been established as a “screening Promotion Association steenackeri) (In certain cases, such releases form part of volunteer activities of Bank criterion” in the Bank’s “corporate credit ratings.” Customers’ employees.) environmental protection measures are reflected in these ratings.

Corporate credit ratings system ● Preserving biodiversity in Lake Biwa Proposal measures for improvement of corporate value Credit ratings of areasSharing needing improvement and (Protection of Nigorobuna sh (carassius auratus grandoculis) and Wataka sh (ischikauia other issues uncovered by rating process Qualitative evaluations steenackeri), species threatened with extinction that are unique to Lake Biwa) Self-assessment Corporations and proprietors Industry trends ● Transaction matrix policy Preserving the environment around Lake Biwa Business foundation (Wataka sh (ischikauia steenackeri) eats water weeds and prevent their over-proliferation) Care for the environment, etc. Transaction policy ● Protection of the dining culture of Japan’s Lake Country Quantitative evaluations (Nigorobuna sh (carassius auratus grandoculis) is a raw ingredient in crucian carp sushi) Pro tability Safety Growth potential, etc. Utilization of interest subsidies Transaction evaluations Transaction pro tability Maintainability The Bank was selected as a ﬁnancial institution that oﬀers the Familiarity “Environmentally-Friendly Loan Interest Subsidy and Grant Program” Care for the environment which is implemented by the Ministry of Environment.

54 SHIGA BANK ANNUAL REPORT 2017 Eco-oﬃce creation Environmental volunteering

The Bank is actively promoting resource and energy usage reduction in We are committed to protection of the environment and biodiversity accordance with the “Shigagin environmental policy.” so as to pass on to future generations the bountiful blessings that the global environment brings to us. Power-saving measures “Ikimonogatari” (Tales of Life) activities with a story The “Shigagin Eco Style” summer campaign between May and October and winter campaign between December and March are The Bank’s “Ikimonogatari” activities, unique to Shiga Prefecture, are all Challenge to a strategic CSR implemented, while lighting is reduced and overtime is discouraged. about protecting the quality of water in Lake Biwa and protecting and developing spawning grounds and reed beds to protect, nurture and In fiscal 2016, we conducted repair works of the Headquarter release Nigorobuna fish (carassius auratus grandoculis) and Wataka fish administrative center installing the latest energy-saving facility and (ischikauia), endangered species unique to the Lake, and to eliminate realized significant power usage reduction. invading alien fish species.

Planting reed seedlings Reed-cutting Recycle system in the Bank

We have established recycling systems within Bank premises and are taking measures to promote paper recycling and prevent data leakage.

Headquarters and associated companies Recycle system in the Headquarters Collection “Ikimonogatari” Paper recycling activities plant Paper resources Conﬁdential documents containing customer information, etc.

Collection As they are installed within Bank premises, leakage of conﬁdential data is prevented Recycle

Branches Elimination of foreign Releasing Nigorobuna fish (carassius auratus origin and fishing grandoculis) and Wataka fish (ischikauia)

Recommending eco-commuting and One Coin Eco Pass system Initiatives rooted in the community

In 2011, the Bank was certiﬁed for excellence in eco-commuting. The We are proactively involved in regional activities to improve the Bank aims to raise awareness of eco-commuting in every employee, environmental awareness of employees, promote exchange among and encourages them to shift to commutation modes of low diﬀerent areas and strengthen our links with the community. environmental impact such as trains, buses, bicycles, and walking. We are recommending to our employees the “One Coin Eco Pass,” an initiative led by the Shiga Bus Association, and are urging a shift from commuting in private cars to using public transport for environmental protection.

Development of environment-conscious branches

We are committed to environmental protection and reduction of Large-scale campaign to eliminate Biwa trout upstream project greenhouse-gas emission volumes through inclusion at new branches ludwigia stipulacea (water plant) of “solar panels,” “solar street-lights,” “LED lighting,” “rainwater- harvesting equipment,” “rooftop-greening” and other measures. Ritto Branch was opened in 2015 as a “carbon-neutral store,” which realize practically zero CO2 emissions. We aim to raise environmental awareness among employees at our branches and the customers who use them.

* Image of a carbon-neutral system in Ritto Branch

Reducing CO2 emissions by 34% using the energy-saving equipment, and the remaining 66% is covered by solar power generation. Project to bring tea back to Mt. Kodakami Project to bring ﬁsh life into rice paddies

SHIGA BANK ANNUAL REPORT 2017 55 Mutual prosperity with the regional community As a bank that advances hand-in-hand with community

Regional contribution through ﬁnancing Social contributions rooted in the community Supporting athletes related to Shiga prefecture through time deposits We are taking measures to support welfare activities and development of young people’s talents. An amount equivalent to 0.005% of customer time deposit balances is donated to the “Lakes Sports Fund,” which supports amateur sports. Grants for innovative and pioneering regional welfare activities In September 2016, the Bank donated ¥1,330 thousand. With an eye to the 2020 Tokyo Olympics and Paralympics and the National The “Shigagin Welfare Fund,” a social welfare corporation, was Sports Festival in 2024 in Shiga Prefecture, the Bank seeks to support established in 1984 to commemorate the 50th anniversary of the sports within the prefecture and revitalize the region. foundation of the Bank. It is a unique fund in Japan, making a wide range of grants for experimental and pioneering welfare initiatives being developed within the prefecture. Grants are limited to Shiga Prefecture. In ﬁscal 2017, the 33rd round of grants was paid out, with a total of ¥8,597 thousand approved for nine projects. A total of 473 projects have been approved to date, and cumulative grants totaled ¥355.07 million.

Aiming to improve customer satisfaction Ensuring worry-free services for as many customers as possible

From the perspective of CSR, the Bank organizes “training courses for dementia support personnel” (as of April 30, 2017, enrolments totaled 459), “classes simulating the experience of the aged,” “AED training” and other measures for all employees to improve employee skills in service provision. We are also making branch facilities barrier-free.

Financial education for the next generation

The Bank arranges financial education including study of the mechanisms of banking and the roles of money to foster self-reliance in children and help them interact with society. In addition to arranging visiting lecturers and “challenge week” work-experience sessions for junior high school students, the Bank in fiscal 2016 held Shigagin Junior Learning Team financial classes for children of employees.

Services for the hard of hearing, writing boards and illustrated guidance panels

AED (Automated external deﬁbrillator) Convex glasses and magnifying glasses

56 SHIGA BANK ANNUAL REPORT 2017 Mutual prosperity with all employees — Work process reforms — Respecting the human rights and individuality of each and every executive and regular employee, we are working to build a satisfying workplace.

Developing “human resources” Positive action

We arrange “human resource” training based on learning daily In 2006, the Bank established its “Committee for Advancing Women’s communication skills, so as to further develop all employees and equip Success” as part of measures to ensure meaningful equality of them with the skills to optimally serve the customer. opportunity and build a society in which men and women participate Personnel development policy for ﬁscal 2017 is geared to together. We promote the empowerment of women of ambition and “fostering an awareness of corporate good citizenship and ability. professionalism in banking.”

Expanding systems to support childcare Challenge to a strategic CSR

Fostering an awareness of corporate good citizenship and professionalism in banking As a company that supports good parenting based on the Act on Advancement of Measures to Support Raising Next-Generation [Expanding career programs] Children, the Bank was awarded “Platinum Kurumin certiﬁcation,” the ● Reemployment system for early ﬁrst for a regional bank in the Kinki area, on April 20, 2016. Group training, OJT, and instructor system [Skill improvement] retirees and senior citizens ● Employment of people We have introduced systems for maternity and childcare, and ● Training by job grade with disabilities created a parent-friendly workplace with easy-to-use systems. We also ● Training by duties Training for new employees of the Bank provided mental health care follow-up ● Recruitment system and career development support. In the fourth period (April 2014 to March 2016), the Bank took further measures for promotion of men’s participation in childcare. Looking ahead, we will continue to expand our support for childcare and to create a better workplace environment.

[System for discussion] [Mental health care] Empowering female employees ● Semi-annual interviews ● Training for management-level with managers employees ● Follow-up training for nurses at Bank health oﬃces The Bank’s action plan in response to the Act on Promotion of ● Partnerships with Women’s Participation and Advancement in the Workplace external experts Period of the plan: April 1, 2016 to March 31, 2020 ● Proportion of women in management (general manager level or higher): more than 5% ● Proportion of women in management (sub-assistant general manager level or higher): more than 25% ● Percentage of women involved in corporate PR: more than 20% Raising awareness of human rights

To cultivate human rights sensitivity, the Bank organizes employee We support women’s advancement in the workplace through seminars training sessions to deepen understanding of sexual harassment, and other events. We will take further measures to develop the roles of power harassment, Dowa discrimination and other human rights women in the workplace. issues. In ﬁscal 2017, the Bank organized a range of training courses with the theme of creating a “workplace where every individual is valued.” Award for Companies that Support Future Generations Other human rights initiatives included displays of various kinds of We were awarded the Award for Companies that Support Future posters and asking a wide range of employees to come up with Generations, a competition held by the Alliance of Governors for slogans. Supporting the Next Generation to Revive Japan, which comprise governors from 13 prefectures including Shiga. The Bank was recognized for its Work-life balance proactive support for childcare, women, and To promote a better work-life balance, we have established a “half-day young employees, such annual paid leave system,” a mechanism enabling half-day units of as its initiative toward leave to be taken from annual paid leave, and a “spouse maternity providing extensive special leave system” for enabling male employees whose wives are in childcare leave and maternity to take special leave. those aimed at As an organization that is committed to home education for increasing the number children, the Bank has likewise signed the “Shiga Prefecture Home of male employees Education Corporate Enterprise Agreement” with the Shiga Prefecture taking such leave. Board of Education, and encourages use of this system.

SHIGA BANK ANNUAL REPORT 2017 57 CSR initiatives –evaluation from society-

Environmental Communication Awards ’03 ● Awarded the Environmental Management Pearl Prize at the “1st Japan Environmental Management Award”

Won the “Prize for Excellence” in Environmental Report Category ’04 ● Awarded the Financial Institution Category Prize at the “2nd Integrity Award”

● Awarded the Fujisankei Communications Group Prize at the “13th Global Environment Award” We were awarded for being the first regional bank in Japan to compile ● Awarded the Shiga Labor Bureau’s Award both an integrated report and a CSR report. ● Certified as “FTSE4Good Global Index” The Bank was highly evaluated for the following points: its CSR ’07 ● Awarded the “Manager of the Year Award” of ZAIKAI for fiscal 2006 orientation and strategy in the integrated report underpinned by the ● Awarded Minister of the Environment Prize at the “9th Green Purchasing Award” Bank’s stance toward positioning environmental measures as a ’08 ● Awarded the Chairman’s Prize from the New Energy Foundation at the “12th New Energy Award” management priority; the composition of the CSR report full of ● Awarded the Grand Prize at the “5th Corporate Philanthropy Award” illustrations and images that conveys the ● Registered as a “Work-Life Balance Promotion Company” Bank’s activities in an easy-to-understand ● Awarded the Grand Prize at the “BCAO Awards 2007” manner; its ideal balance between the two ● Certified as a company that proactively works to support childcare based on the “Act on reports. Advancement of Measures to Support Raising Next-Generation Children”

Host: Global Environmental Forum of the Ministry ● Certified as “Eco-First Enterprise” by the Ministry of the Environment of the Environment ● Awarded the “Kansai Eco Office Prize” for fiscal 2007

Awards ceremony: February 22, 2017 ● Awarded the “Minister of the Environment’s Commendation for Global Warming Prevention Activity” for ﬁscal 2008

’09 ● Awarded the Prize for Encouragement at the “12th Environmental Communication Award”

’10 ● Awarded the Special Excellence Award in the Environmental Report Category at the “13th Environmental Communication Award”

● Awarded the Environmental Management Pearl Prize at the “8th Japan Environmental Management Award”

● Ranked ﬁrst in the nonmanufacturing sector/ﬁnancial institutions category in the “14th “Regional Finance Prize” in the Environmental Management Survey” by Nikkei Inc.

“Sustainable Finance Awards” ’11 ● Awarded the judges’ special award at the “Stop Global Warming Award –Low Carbon Cup 2011–”

● Awarded the Prize for Excellence in the Environmental Television Commercial Category at the Particularly appreciated were initiatives unique to the Bank, such as “14th Environmental Communication Award” CSR private placement bonds enabling our “Shiho yoshi” philosophy ● Certiﬁed for the second time as a company that proactively works to support childcare based on through ﬁnance, and our proprietary environmental rating (PLB rating) the “Act on Advancement of Measures to Support Raising Next-Generation Children” system. ● Awarded the Minister of Agriculture, Forestry and Fisheries Prize at the “2nd Contest for Corporate Activities on Biodiversity”

Host: Research Institute ’12 ● “Ikimonogatari activities” were included in the 2012 “Environmental White Paper”

for Environmental ● Certiﬁed as Good Practice in the “Principles for Finance Action towards a Sustainable Society” Finance ’13 ● Awarded Grand Prize at the “15th Green Purchasing Award” Awards ceremony: ’14 ● CSR activities of the Bank were included in the Contemporary Ethics textbook for high schools January 23, 2017 published by Shimizu Shoin

● Earned double commendations at the “17th Environmental Communication Award” Environmental Report Grand Prize in the Environmental Report Category (Minister of the Environment Prize) Prize for Excellence in the Environmental Television Commercial Category (President of Global Environmental Forum Prize)

● Certiﬁed again as “Eco-First Enterprise” by the Ministry of the Environment

● Certiﬁed for a third time as a company that proactively works to support childcare based on the “Grand Prize” in the “Shiga Biodiversity Award” “Act on Advancement of Measures to Support Raising Next-Generation Children”

● Awarded the Minister of Health, Labour and Welfare Prize at the “50th National Convention of the Blood Donation Drive” We adopted a storytelling approach in conveying the activities related ● Awarded the Prize for Encouragement at the 2nd “‘Miyako Environmentally Friendly Building’ Reward System” (Kyoto Branch) to the environmental issues at Lake Biwa and continued initiatives ’15 ● Awarded the Prize for Excellence at the “1st Kaueco GRAND PRIX” distinctive of a financial institution that links those environmental ● Awarded the Prize for Excellence in the Environmental Report Category at the “18th activities with our main business. Through these, our employees have Environmental Communication Award” become more aware of environmental issues and more active in ● Won the Outstanding Performance Award at the first “Low Carbon ‘Towns and Buildings’ Contest” (Ritto Branch) participating in community activities, which led to us being highly ● Won the Outstanding Performance Award at the “Integrity Award 2015” evaluated for the growing scope of our activities. ● Awarded the first prize at the “Kankyo Hito-zukuri Kigyo Taisho 2014”

Hosts: Shiga Prefecture and ● Awarded the Shiga Labor Bureau Director’s award for promotion of equality and a better Shiga Committee for work-life balance for ﬁscal 2015 in the family-friendly corporate category Economic Development ● Awarded the ﬁrst prize in the “2015 UCDA Award”

Awards ceremony: March 2, ’16 ● Certiﬁed as Good Practice at the 4th “Principles for Finance Action towards a Sustainable Society” 2017 ● Adopted “Ikuboss declaration” (239 persons)

● Awarded “Platinum Kurumin certiﬁcation” based on the “Act on Advancement of Measures to Support Raising Next-Generation Children”

● Commended as a business operator that excels in environmental protection at the Shiga Prefecture’s “Environment Protection Chairman’s Prize”

58 SHIGA BANK ANNUAL REPORT 2017 Organization Chart As of June 30, 2017

General Planning Dept.

Assets & Liabilities Managing Dept.

Audit & Inspection Dept. The Shigagin Business •Head Office Service Co., Ltd. Business Department Executive Committee Secretariat •Domestic Branches The Shigagin Agency •Sub-Branches Co., Ltd. The Shigagin Cash General Affairs Dept. Service Co., Ltd. Deputy Senior Managing Managing General Meeting of Board of Chairman President Directors The Shiga Home Loan Stockholders Directors President Directors Directors Guarantee Service Co., Ltd. Personnel Affairs Dept. The Shigagin Computer Service Co., Ltd. Business Promotion Dept. Hong Kong Branch The Shigagin Economic & Cultural Center Co., Ltd. The Shiga DC Card Credit Supervision Dept. Co., Ltd. Shigagin Lease & Capital Co., Ltd. Audit & Supervisory Financial Markets & Office of Audit & Shanghai The Shigagin JCB Board Members Supervisory Board Members International Dept. Representative Office Co., Ltd. Meeting of Audit & Supervisory Board Members Bangkok Administration Dept. Representative Office

Computer System Dept.

Consolidated Subsidiary

Company Name The Shigagin Business Service Co.,Ltd. The Shigagin Economic & Cultural Center Co.,Ltd. The Shigagin Agency Co.,Ltd. The Shiga DC Card Co.,Ltd. The Shigagin Cash Service Co.,Ltd. Shigagin Lease & Capital Co.,Ltd. The Shiga Home Loan Guarantee Service Co.,Ltd. The Shigagin JCB Co.,Ltd. The Shigagin Computer Service Co.,Ltd.

SHIGA BANK ANNUAL REPORT 2017 59 Financial Section

The Shiga Bank, Ltd. and Consolidated Subsidiaries Consolidated Five-year Summary

Millions of yen 2017 2016 2015 2014 2013 As of March 31 Total assets ¥5,539,561 ¥5,025,426 ¥4,996,976 ¥4,777,483 ¥4,662,055 Investment securities 1,467,592 1,428,917 1,542,013 1,422,210 1,486,497 Loans and bills discounted 3,461,905 3,257,723 3,051,704 2,916,953 2,822,561 Deposits 4,516,648 4,331,151 4,281,984 4,163,311 4,090,014 Total equity 374,246 346,714 349,851 292,466 267,535 Years ended March 31 Total income 90,162 95,940 88,499 88,519 88,872 Total expenses 69,412 73,621 64,439 69,072 74,991 Income before income taxes 20,749 22,319 24,060 19,447 13,880 Net income attributable to owners of the parent 14,895 15,508 13,675 11,027 5,544 Per share data (in yen) Cash dividends ¥8.00 ¥8.00 ¥6.00 ¥7.00 ¥6.00 Net income 57.21 59.57 51.87 41.79 21.00 Net equity 1,425.41 1,310.98 1,324.63 1,091.45 998.62 Ratio Capital ratio 16.67% 16.45% 15.94% 14.80% 14.14% ROE 4.18% 4.52% 4.32% 3.99% 2.18%

Financial review (Consolidated basis) Balance sheets

During the fiscal year under review, the Japanese economy showed Deposits, including negotiable certificates of deposit, rose ¥187,253 a trend of moderate recovery as corporate profits, the employment million during the fiscal year under review and the balance stood and earnings environment recovered as a result of government at ¥4,603,126 million, of which ¥4,516,648 million were deposits, at economic policies and monetary easing policies by the Bank of the end of the fiscal year under review. The balance of loans and Japan. However, many concerns about the prospects for a fully bills discounted increased ¥204,182 million to ¥3,461,905 million, fledged economic remain, with strengthening uncertainty about while securities increased ¥38,674 million to ¥1,467,592 million. the administration of the United States. Total assets at fiscal year-end stood at ¥5,539,561 million, a year-on- Within the prefecture, despite signs of slowing growth in year increase of ¥514,135 million. Total equity amounted to certain areas of demand, there is positive momentum in corporate ¥374,246 million, an increase of ¥27,531 million from the end of the production and employment, and the overall economy can be previous fiscal year. considered to be in a moderate recovery stage. In the financial sector, measures to provide customer-oriented, high-quality services and to develop financial intermediary roles were strengthened.

60 SHIGA BANK ANNUAL REPORT 2017 Statements of operations Cash flows from operating activities

Regarding income, total income posted a year-on-year decrease of Net cash provided by operating activities during the fiscal year ¥5,693 million to ¥90,151 million. Meanwhile, due to a decrease in under review amounted to ¥286,223 million, an increase in pro- credit costs, total expenses decreased by ¥4,389 million to ¥68,919 ceeds of ¥419,626 million year-on-year, due primarily to increases million. As a result, the Bank posted income before income taxes for of the borrowed money, deposits, and payables under securities the fiscal year under review of ¥20,749 million, down ¥1,570 million lending transactions. year-on-year, and net income attributable to owners of parent of ¥14,895 million, down ¥613 million year-on-year. Cash flows from investing activities Additionally, as the Group consists of a single segment in the banking business, business results by segment are not provided. Net cash used in investing activities amounted to ¥352 million, an increase in outflows of ¥67,134 million year-on-year. This was Cash flows mainly the result of an increase in outflows from purchases of securities. Cash and cash equivalents as of the end of the fiscal year under review amounted to ¥469,250 million, an increase of ¥281,901 Cash flows from financing activities million year-on-year. Net cash used in financing activities amounted to ¥3,967 million, an increase of ¥2,266 million year-on-year. The main factor is payments from changes in ownership interests in subsidiaries that do not result in change in scope of consolidation.

Deposits Loans and bills discounted Investment securities Total income and expenses (Billions of yen) (Billions of yen) (Billions of yen) (Billions of yen) Total income 5,000 4,000 1,500 120 Total expenses

100 4,000 3,000

1,000 80 3,000

2,000 60

2,000 500 40

1,000 1,000 20

0 0 0 0 201420132015 2016 2017 201420132015 2016 2017 201420132015 2016 2017 201420132015 2016 2017

3695 2551 1225 116.2 106.1 3654 2710 1113 96.1 113.5 3781 2714 1339 98.2 88.4 SHIGA BANK ANNUAL REPORT 2017 61 The Shiga Bank, Ltd. and Consolidated Subsidiaries Consolidated Balance Sheet As of March 31, 2017 and 2016

Thousands of Millions of yen U.S. dollars 2017 2016 2017 Assets Cash and due from banks (Notes 3 and 31) �� ¥470,106 ¥187,959 $4,190,266 Call loans and bills bought �� 2,506 642 22,337 Debt purchased �� 5,574 5,769 49,683 Trading securities (Note 4) �� 316 201 2,816 Money held in trust (Note 5) �� 10,831 8,724 96,541 Investment securities (Notes 4, 12, 19 and 31) �� 1,467,592 1,428,917 13,081,308 Loans and bills discounted (Notes 7, 13 and 31) �� 3,461,905 3,257,723 30,857,518 Foreign exchange assets (Note 8) �� 5,254 8,778 46,831 Other assets (Notes 9 and 12) �� 58,747 70,381 523,638 Tangible fixed assets (Notes 10, 11, and 14) �� 57,924 58,626 516,302 Intangible fixed assets �� 3,674 3,479 32,748 Deferred tax assets (Note 30) �� 641 697 5,713 Customers’ liabilities for acceptances and guarantees (Note 19) �� 23,930 25,862 213,298 Allowance for possible loan losses �� (29,445) (32,339) (262,456) Total assets �� 5,539,561 5,025,426 49,376,602

Liabilities Deposits (Notes 12, 15 and 31) �� 4,516,648 4,331,151 40,258,917 Negotiable certificates of deposit (Note 31) �� 86,478 84,722 770,817 Call money and bills sold (Note 31) �� 90,276 51,284 804,670 Payables under securities lending transactions (Notes 12 and 31) �� 137,947 26,937 1,229,583 Borrowed money (Notes 12, 16 and 31) �� 206,830 50,509 1,843,568 Foreign exchange liabilities (Note 8) �� 61 54 543 Bonds with stock acquisition rights (Note 17) �� 22,438 22,536 200,000 Other liabilities (Note 18) �� 28,909 37,143 257,678 Liability for employees’ retirement benefits (Note 29) �� 8,831 13,417 78,714 Liability for retirement benefits of directors and Audit & Supervisory Board Members �� 12 12 106 Liability for reimbursement of deposits �� 504 911 4,492 Allowance for repayment of excess interest �� 61 73 543 Reserve for other contingent losses �� 168 217 1,497 Deferred tax liabilities (Note 30) �� 35,007 26,539 312,033 Deferred tax liabilities for land revaluation (Note 14) �� 7,208 7,337 64,248 Acceptances and guarantees (Note 19) �� 23,930 25,862 213,298 Total liabilities �� 5,165,315 4,678,711 46,040,779

Equity (Notes 20, 21 and 36) Common stock, authorized, 500,000,000 shares; issued, 265,450,406 shares as of March 31, 2017 and 2016 �� 33,076 33,076 294,821 Capital surplus �� 24,577 23,966 219,065 Stock acquisition rights �� 113 98 1,007 Retained earnings �� 185,201 172,152 1,650,779 Treasury stock – at cost 5,144,295 shares and 5,137,718 shares as of March 31, 2017 and 2016, respectively �� (3,490) (3,490) (31,107) Accumulated other comprehensive income: Net unrealized gains on available-for-sale securities (Notes 4 and 6) �� 120,103 106,243 1,070,532 Deferred losses on derivatives under hedge accounting �� (1,206) (1,660) (10,749) Land revaluation surplus (Note 14) �� 11,561 11,798 103,048 Defined retirement benefit plans �� 1,220 (820) 10,874 Total �� 371,158 341,363 3,308,298 Noncontrolling interests �� 3,088 5,350 27,524 Total equity �� 374,246 346,714 3,335,823 Total liabilities and equity �� ¥5,539,561 ¥5,025,426 $49,376,602 See Notes to Consolidated Financial Statements.

62 SHIGA BANK ANNUAL REPORT 2017 The Shiga Bank, Ltd. and Consolidated Subsidiaries Consolidated Statement of Income Years ended March 31, 2017 and 2016

Thousands of Millions of yen U.S. dollars 2017 2016 2017 Income Interest income: Interest on loans and discounts �� ¥38,075 ¥39,875 $339,379 Interest and dividends on securities �� 13,651 12,805 121,677 Other interest income �� 232 250 2,067 Fees and commissions �� 13,923 13,992 124,101 Other operating income (Note 22) �� 18,562 23,957 165,451 Other income (Note 23) �� 5,716 5,059 50,949 Total income �� 90,162 95,940 803,654

Expenses Interest expenses: Interest on deposits �� 1,652 2,218 14,725 Interest on borrowing and rediscounts �� 1,234 889 10,999 Other interest expenses �� 704 374 6,275 Fees and commissions �� 4,627 4,430 41,242 Other operating expenses (Note 24) �� 14,850 18,182 132,364 General and administrative expenses �� 43,999 43,605 392,182 Other expenses (Note 25) �� 2,344 3,919 20,893 Total expenses �� 69,412 73,621 618,700

Income before income taxes �� 20,749 22,319 184,945

Income taxes (Note 30) Current �� 4,052 6,357 36,117 Deferred �� 1,527 103 13,610 Net income �� 15,168 15,858 135,199 Net income attributable to noncontrolling interests �� 273 349 2,433 Net income attributable to owners of the parent �� ¥14,895 ¥15,508 $132,765

Yen U.S. dollars 2017 2016 2017 Per share information (Notes 2 (u) and 35) Basic net income �� ¥57.21 ¥59.57 $0.510 Diluted net income �� 50.61 52.73 0.451 Cash dividends applicable to the year �� 8.00 8.00 0.071 See Notes to Consolidated Financial Statements.

The Shiga Bank, Ltd. and Consolidated Subsidiaries Consolidated Statement of Comprehensive Income Years ended March 31, 2017 and 2016

Thousands of Millions of yen U.S. dollars 2017 2016 2017 Net income �� ¥15,168 ¥15,858 $135,199 Other comprehensive income (Note 33): Net unrealized gains (losses) on available-for-sale securities �� 13,819 (9,694) 123,174 Deferred gains (losses) on derivatives under hedge accounting �� 454 (955) 4,046 Land revaluation surplus �� — 387 — Defined retirement benefit plans �� 2,041 (7,062) 18,192 Total other comprehensive income (loss) �� 16,315 (17,323) 145,422 Comprehensive income (loss) �� ¥31,484 ¥(1,465) $280,631 Attributable to Owners of the parent �� ¥31,250 ¥(1,866) $278,545 Noncontrolling interests �� 233 401 2,076 See Notes to Consolidated Financial Statements.

SHIGA BANK ANNUAL REPORT 2017 63 The Shiga Bank, Ltd. and Consolidated Subsidiaries Consolidated Statement of Changes in Equity Years ended March 31, 2017 and 2016

Millions of yen Accumulated Other Comprehensive Income Net Deferred unrealized losses on gains on derivatives Defined Stock available- under Land retirement Non- Common Capital acquisition Retained Treasury for-sale hedge revaluation benefit controlling Total stock surplus rights earnings stock securities accounting surplus plans Total interests equity Balance as of April 1, 2015 �� ¥33,076 ¥23,968 ¥ 69 ¥157,989 ¥(3,486) ¥115,988 ¥ (704) ¥11,756 ¥6,241 ¥344,900 ¥4,951 ¥349,851 Changes during the year: Net income attributable to owners of the parent �� 15,508 15,508 15,508 Cash dividends, ¥6.50 per share �� (1,692) (1,692) (1,692) Purchase of treasury stock �� (17) (17) (17) Sales of treasury stock �� (2) 14 11 11 Reversal of land revaluation surplus �� 346 346 346 Other changes �� 28 (9,745) (955) 41 (7,062) (17,693) 398 (17,294) Net change in the year �� — (2) 28 14,163 (3) (9,745) (955) 41 (7,062) (3,536) 398 (3,137) Balance as of March 31, 2016 �� 33,076 23,966 98 172,152 (3,490) 106,243 (1,660) 11,798 (820) 341,363 5,350 346,714 Changes during the year: Net income attributable to owners of the parent �� 14,895 14,895 14,895 Cash dividends, ¥8.00 per share �� (2,082) (2,082) (2,082) Purchase of treasury stock �� (27) (27) (27) Sales of treasury stock �� (3) (0) 27 23 23 Change in the parent’s ownership interest due to transactions with noncontrolling interests �� 615 615 615 Reversal of land revaluation surplus �� 236 236 236 Other changes �� 14 13,859 454 (236) 2,041 16,133 (2,262) 13,871 Net change in the year �� — 611 14 13,048 0 13,859 454 (236) 2,041 29,794 (2,262) 27,531 Balance as of March 31, 2017 �� ¥33,076 ¥24,577 ¥113 ¥185,201 ¥(3,490) ¥120,103 ¥(1,206) ¥11,561 ¥1,220 ¥371,158 ¥3,088 ¥374,246

Thousands of U.S. dollars Accumulated Other Comprehensive Income Net Deferred unrealized losses on gains on derivatives Defined Stock available- under Land retirement Non- Common Capital acquisition Retained Treasury for-sale hedge revaluation benefit controlling Total stock surplus rights earnings stock securities accounting surplus plans Total interests equity Balance as of March 31, 2016 �� $294,821 $213,619 $ 873 $1,534,468 $(31,107) $ 946,991 $(14,796) $105,160 $ (7,309) $3,042,722 $47,686 $3,090,418 Changes during the year: Net income attributable to owners of the parent �� 132,765 132,765 132,765 Cash dividends, $0.07 per share �� (18,557) (18,557) (18,557) Purchase of treasury stock �� (240) (240) (240) Sales of treasury stock �� (26) (0) 240 205 205 Change in the parent’s ownership interest due to transactions with noncontrolling interests �� 5,481 5,481 5,481 Reversal of land revaluation surplus �� 2,103 2,103 2,103 Other changes �� 124 123,531 4,046 (2,103) 18,192 143,800 (20,162) 123,638 Net change in the year �� — 5,446 124 116,302 0 123,531 4,046 (2,103) 18,192 265,567 (20,162) 245,396 Balance as of March 31, 2017 �� $294,821 $219,065 $1,007 $1,650,779 $(31,107) $1,070,532 $(10,749) $103,048 $10,874 $3,308,298 $27,524 $3,335,823 See Notes to Consolidated Financial Statements.

64 SHIGA BANK ANNUAL REPORT 2017 The Shiga Bank, Ltd. and Consolidated Subsidiaries Consolidated Statement of Cash Flows Years ended March 31, 2017 and 2016

Thousands of Millions of yen U.S. dollars 2017 2016 2017 Operating activities: Income before income taxes �� ¥ 20,749 ¥ 22,319 $ 184,945 Depreciation �� 2,905 2,813 25,893 Losses on impairment of long-lived assets �� 430 210 3,832 Increase (decrease) in allowance for possible loan losses �� (2,893) 1,267 (25,786) Decrease in reserve for other contingent losses �� (49) (25) (436) Increase (decrease) in liability for retirement benefits �� (4,585) 7,553 (40,868) Increase (decrease) in liability for retirement benefits of directors and Audit & Supervisory Board Members �� 0 (2) 0 Increase (decrease) in liability for reimbursement of deposits �� (407) 110 (3,627) Increase (decrease) in allowance for repayment of excess interest �� (12) 26 (106) Interest income �� (51,959) (52,930) (463,133) Interest expense �� 3,591 3,482 32,008 Gains on sales and write-down of investment securities �� (3,604) (10,824) (32,124) Gains on money held in trust �� (160) (129) (1,426) Foreign exchange losses �� 1 9 8 Losses (gains) on disposals of fixed assets – net �� 52 (13) 463 Net increase in loans and bills discounted �� (204,182) (206,019) (1,819,966) Net increase in deposits �� 185,497 49,166 1,653,418 Net increase (decrease) in negotiable certificate of deposits �� 1,755 (8,781) 15,643 Net increase (decrease) in borrowed money (excluding subordinated loans) �� 156,321 (11,108) 1,393,359 Net increase in due from banks (excluding deposits in Bank of Japan) �� (245) (212) (2,183) Net decrease (increase) in call loans and others �� (1,669) 31,779 (14,876) Net increase in call money and bills sold �� 38,991 8,732 347,544 Net increase (decrease) in payables under securities lending transactions �� 111,009 (8,428) 989,473 Net decrease (increase) in foreign exchange assets �� 3,523 (3,150) 31,402 Net increase (decrease) in foreign exchange liabilities �� 6 (316) 53 Interest received (cash basis) �� 51,622 52,912 460,130 Interest paid (cash basis) �� (3,023) (3,099) (26,945) Other �� (9,908) (5,565) (88,314) Subtotal �� 293,757 (130,221) 2,618,388 Income taxes – paid �� (7,534) (3,181) (67,153) Net cash provided by (used in) operating activities �� 286,223 (133,403) 2,551,234

Investing activities: Purchases of securities �� (798,611) (760,925) (7,118,379) Proceeds from sales of securities �� 644,638 672,978 5,745,948 Proceeds from redemptions of securities �� 158,863 160,692 1,416,017 Increase in money held in trust �� (2,149) — (19,155) Purchases of tangible fixed assets �� (2,062) (4,219) (18,379) Proceeds from sales of tangible fixed assets �� 38 545 338 Purchases of intangible fixed assets �� (1,070) (2,289) (9,537) Net cash provided by (used in) investing activities �� (352) 66,781 (3,137)

Financing activities: Purchase of treasury stock �� (27) (17) (240) Proceeds from sales of treasury stock �� 23 11 205 Dividends paid �� (2,082) (1,692) (18,557) Dividends paid to noncontrolling interests �� (2) (2) (17) Payments from changes in ownership interests in subsidiaries that do not result in change in scope of consolidation �� (1,878) — (16,739) Net cash used in financing activities �� (3,967) (1,700) (35,359) Foreign currency translation adjustments on cash and cash equivalents �� (0) (9) (0) Net increase (decrease) in cash and cash equivalents �� 281,901 (68,331) 2,512,710 Cash and cash equivalents, beginning of year �� 187,348 255,680 1,669,917 Cash and cash equivalents, end of year (Note 3) �� ¥ 469,250 ¥ 187,348 $ 4,182,636 See Notes to Consolidated Financial Statements.

SHIGA BANK ANNUAL REPORT 2017 65 The Shiga Bank, Ltd. and Consolidated Subsidiaries Notes to Consolidated Financial Statements Years ended March 31, 2017 and 2016

1. Basis of presenting consolidated financial (e) Derivatives and hedging activities Under the Accounting Standards for Financial Instruments, derivatives are statements stated at fair value unless they are used for hedging purposes. The accompanying consolidated financial statements have been prepared based on the accounts maintained by THE SHIGA BANK, LTD. (the “Bank”) and i. Interest rate risk hedges its significant subsidiaries (together the “Group”) in accordance with the The Bank applies deferred hedge accounting to hedge transactions against provisions set forth in the Companies Act of Japan, the Japanese Financial interest rate risk arising from financial assets and liabilities. For the hedges Instruments and Exchange Act, and the Japanese Banking Act and in that offset the fluctuations in the fair value of fixed interest rates classified as conformity with accounting principles generally accepted in Japan, which available-for-sale securities, interest rate swaps are assigned to hedged items are different in certain respects as to the application and disclosure require- collectively by bond type as the hedging instrument. The Bank designates ments of International Financial Reporting Standards. the hedges so as to ensure that the important conditions related to the Certain items presented in the consolidated financial statements hedged items and hedging instruments are largely identical; therefore the submitted to the Director of the Kanto Finance Bureau in Japan have been hedges are considered to be highly effective, and the assessment of the reclassified in these accounts for the convenience of readers outside Japan. effectiveness is based on the similarity of the conditions. Amounts in yen of respective accounts included in the accompanying consolidated financial statements and notes thereto are stated in millions of ii. Currency exchange risk hedges yen by discarding fractional amounts less than ¥1 million. Therefore, total or Regarding the hedge accounting method applied to hedging transactions subtotal amounts do not necessarily tie in with the aggregation of such against currency exchange risk arising from assets and liabilities in foreign account balances. currencies, the Bank applies deferred hedge accounting stipulated in Amounts in U.S. dollars are included solely for the convenience of readers “Accounting and Auditing Concerning Accounting for Foreign Currency outside Japan. The rate of ¥112.19 to U.S.$1, the rate of exchange at March Transactions in Banking Industry” (JICPA Industry Audit Committee Report 31, 2017, has been used in translation. The inclusion of such amounts is not No. 25, July 29, 2002). intended to imply that Japanese yen amounts have been or could be readily The Bank assesses the effectiveness of exchange swaps executed to converted, realized or settled in U.S. dollar amounts at this rate or any other reduce the risk of changes in currency exchange rates with fund swap rates. transactions by verifying that there exist foreign currency positions of the hedging instruments corresponding to the foreign currency monetary claims and debts to be hedged. Fund swap transactions are foreign exchange transactions that are 2. Summary of significant accounting policies contracted for the purpose of lending or borrowing funds in different (a) Principles of consolidation currencies. These transactions consist of spot foreign exchange either The accompanying consolidated financial statements for the year ended bought or sold and forward foreign exchange either bought or sold. March 31, 2017 include the accounts of the Bank and nine consolidated subsidiaries. (f) Bills discounted The consolidated subsidiaries’ respective fiscal periods end March 31 for Bills discounted are accounted for as financial transactions in accordance the year ended March 31, 2017. with JICPA Industry Audit Committee Report No. 24 (February 13, 2002), The Bank has five other nonconsolidated subsidiaries in which invest- “Treatment for Accounting and Auditing of Application of Accounting ments are not accounted for by the equity method because their net Standard for Financial Instruments in Banking Industry.” The Bank has rights income (the portion corresponding to the Bank’s equity), retained earnings to sell or pledge bank acceptances bought, commercial bills discounted, (as above) and accumulated other comprehensive income (as above) have documentary bills and foreign exchanges bought without restrictions. no material impact on the Group’s financial position or business perfor- The total face value at March 31, 2017 and 2016 was ¥13,509 million mance. ($120,411 thousand) and ¥14,490 million, respectively. All significant intercompany transactions have been eliminated in consolidation. All material unrealized profit included in assets resulting from (g) Tangible fixed assets (except for lease assets) transactions within the Group is eliminated. Tangible fixed assets are stated at cost less accumulated depreciation. Depreciation for buildings and equipment of the Bank is computed (b) Cash equivalents using the declining-balance method at a rate principally based on the For the purpose of reporting cash flows, cash and cash equivalents are estimated useful lives of the assets. However, buildings purchased on or after defined as cash and due from the Bank of Japan. April 1, 1998 (excluding fittings and equipment), and fittings and equipment and structures purchased on or after April 1, 2016, are depreciated using the (c) Trading securities straight-line method. Trading securities held by the Bank are stated at fair value at the fiscal year The range of useful lives is principally from 3 to 50 years for buildings and end (cost of sales, in principle, is computed by the moving-average method). from 3 to 20 years for equipment. Depreciation of tangible fixed assets owned by subsidiaries is computed (d) Investment securities principally using the declining-balance method over the estimated useful i. Marketable securities held for trading purposes are stated at fair value (cost lives of the assets. of sales, in principle, is computed by the moving-average method). Under certain conditions such as exchanges of fixed assets of similar Securities held to maturity are stated at amortized cost (straight-line kinds and sales and purchases resulting from expropriation, Japanese tax method) using the moving-average method. Securities available-for-sale for acts permit companies to defer the profit arising from such transactions by which current value can be estimated are stated at fair value at the fiscal year reducing the cost of the assets acquired or by providing a special reserve in end. Securities whose fair value cannot be reliably determined are stated at the equity section. The Bank adopted the former treatment and reduced the cost using the moving-average method. Valuation gains/losses on securities cost of the assets acquired by ¥3,572 million ($31,838 thousand) and ¥3,572 available for sale are included in net assets, net of income taxes (cost of sales, million at March 31, 2017 and 2016, respectively. in principle, is computed by the moving-average method). Pursuant to an amendment to the Corporate Tax Act, the Group adopted Accounting Standards Board of Japan Practical Issues Task Force No. 32 ii. Marketable securities included in money held in trust by the Bank are “Practical Solution on a change in depreciation method due to Tax Reform treated as trust assets and are stated at fair value at the fiscal year-end. 2016” and changed the depreciation method for building improvements and structures acquired on or after April 1, 2016, from the declining-balance iii. Beneficiary rights included in “debt purchased” are stated using the same method to the straight-line method. methods described in (i) above. The impact on profit or loss for the year ended March 31, 2017 was immaterial.

66 SHIGA BANK ANNUAL REPORT 2017 (h) Long-lived assets (m) Liability for retirement of directors and Audit & Supervisory The Group reviews its long-lived assets for impairment whenever events or Board Members changes in circumstances indicate the carrying amount of an asset or asset Consolidated subsidiaries provide Liability for retirement benefits of directors group may not be recoverable. An impairment loss would be recognized if and Audit & Supervisory Board Members at the amount required if they all the carrying amount of an asset or asset group exceeds the sum of the retired at fiscal year end, calculated based on the internal rules of the Group. undiscounted future cash flows expected to result from the continued use and eventual disposition of the asset or asset group. The impairment loss (n) Liability for reimbursement of deposits would be measured as the amount by which the carrying amount of the Liability for reimbursement of deposits that were derecognized as liabilities asset exceeds its recoverable amount, which is the higher of the discounted under certain conditions is provided for possible losses on the future claims cash flows from the continued use and eventual disposition of the asset or of withdrawal based on historical reimbursement experience. the net selling price at disposition. Accumulated impairment losses are directly deducted from the respec- (o) Allowance for repayment of excess interest tive fixed assets. Allowance for repayment of excess interest is provided at the estimated amount based on payment experience that the Bank’s consolidated (i) Intangible fixed assets (except for lease assets) subsidiaries may be required to refund upon customers’ claims. Depreciation for intangible fixed assets is computed under the straight-line method. Development costs for internally used software are capitalized and (p) Reserve for other contingent losses depreciated using the straight-line method over the estimated useful lives of The Bank provides reserves for contingent liabilities not covered by other 5 years. reserves in an amount deemed necessary based on estimated losses in the future. (j) Lease assets Lease assets in “Tangible fixed assets” or “Intangible fixed assets” of the (q) Foreign currency transactions finance leases other than those that were deemed to transfer the ownership Receivables and payables in foreign currencies and foreign branch accounts of the leased property to the lessee are computed under the straight-line are translated into Japanese yen principally at the rates prevailing at the method over the lease term with zero residual value unless residual value is balance sheet dates. guaranteed by the corresponding lease contracts. (r) Accounting for leases (k) Allowance for possible loan losses In March 2007, the ASBJ issued ASBJ Statement No. 13, “Accounting Standard Allowance for possible loan losses of the Bank is provided as detailed below, for Lease Transactions,” which revised the previous accounting standard for pursuant to internal rules for write-offs and allowances. lease transactions. For debtors who are legally bankrupt (bankrupt, under special liquida- tion, or subject to legal bankruptcy proceedings) or virtually bankrupt (in a i. As lessee similar situation), an allowance is provided based on the amount of claims, Finance lease transactions are capitalized by recognizing lease assets and after the write-off stated below, net of amounts expected to be collected lease obligations in the balance sheet. through disposal of collateral or execution of guarantees. For loans to debtors who are likely to go bankrupt, an allowance is provided for the ii. As lessor amount considered to be necessary based on an overall solvency assess- Under the previous accounting standard, finance leases that were deemed ment performed for the amount of such loans, net of amounts deemed to transfer ownership of the leased property to the lessee were to be treated collectible through disposal of collateral or execution of guarantees. For as sales. However, other finance leases were permitted to be accounted for other loans, an allowance is provided based on historical loan loss experi- as operating lease transactions if certain “as if sold” information is disclosed in ence over a certain period of time. the notes to the lessor’s financial statements. The revised accounting All loans are assessed by the branches and the operating divisions based standard requires that all finance leases that are deemed to transfer owner- on the Bank’s internal rules for self-assessment of assets. The Asset Assess- ship of the leased property to the lessee should be recognized as lease ment Division, which is independent from the branches and the operating receivables and all finance leases that are deemed not to transfer ownership divisions, subsequently conducts audits of their assessments, and an of the leased property to the lessee should be recognized as investments in allowance is provided based on the audit results. leases. For collateralized or guaranteed claims to debtors who are legally Lease revenue and lease costs are recognized over the lease period. bankrupt or virtually bankrupt, the amount deemed unrecoverable, which is the amount of claims exceeding the estimated value of collateral or guaran- (s) Income taxes tees, has been written off and amounted to ¥12,960 million ($115,518 The provision for income taxes is computed based on the pretax income thousand) and ¥15,485 million as of March 31, 2017 and 2016, respectively. included in the consolidated statements of income. The asset and liability Allowance for possible loan losses of the Bank’s consolidated subsidiaries approach is used to recognize deferred tax assets and liabilities for the is provided based on historical loan loss experience in addition to amounts expected future tax consequences of temporary differences between the deemed necessary based on estimation of the collectibility of specific claims. carrying amounts and the tax bases of assets and liabilities. Deferred taxes are measured by applying currently enacted tax rates to the temporary (l) Retirement and Pension Plans differences. The Bank has a contributory funded pension plan and lump-sum severance The Bank applied ASBJ Guidance No. 26, “Guidance on Recoverability of payment plan. Consolidated subsidiaries have unfunded lump-sum sever- Deferred Tax Assets,” effective April 1, 2016. There was no impact from this for ance payment plans. the year ended March 31, 2017. The projected benefit obligations are attributed to periods on a benefit formula basis. Past service costs are amortized on a straight-line basis over (t) Appropriations of retained earnings 10 years within the average remaining service period. The consolidated statements of changes in equity reflect the appropriation Actuarial gains and losses are amortized on a straight-line basis over 10 resolved by the general shareholders’ meeting when duly resolved and paid. years within the average remaining service period from the fiscal year following the respective fiscal year in which the difference is recognized. (u) Per share information Consolidated subsidiaries adopt a simplified method where the amount Basic net income per share is computed by dividing net income attributable to be required for voluntary termination at the fiscal year end is recorded as to common shareholders by the weighted-average number of common projected benefit obligations in the calculation of their liability for retirement shares outstanding for the period, retroactively adjusted for stock splits. benefits and retirement benefit costs.

SHIGA BANK ANNUAL REPORT 2017 67 Diluted net income per share reflects the potential dilution that could (3) Available-for-sale securities occur if securities were exercised or converted into common stock. Diluted Available-for-sale securities as of March 31, 2017 and 2016 were as follows: net income per share of common stock assumes full conversion of the Millions of yen outstanding convertible notes and bonds at the beginning of the year (or at 2017 the time of issuance) with an applicable adjustment for related interest Consolidated expense, net of tax, and full exercise of outstanding warrants. balance sheet Unrealized Cash dividends per share presented in the accompanying consolidated amount Cost gains (losses) statements of income are dividends applicable to the respective fiscal years, Consolidated balance sheet including dividends to be paid after the end of the fiscal year. amount exceeding cost: Stocks �� ¥ 214,472 ¥ 59,004 ¥ 155,467 Bonds: �� 861,933 845,243 16,689 3. Cash and cash equivalents Japanese government bonds �� 319,364 312,566 6,797 The reconciliation of “Cash and cash equivalents” and “Cash and due from Japanese local government banks” in the consolidated balance sheets at March 31, 2017 and 2016, is as bonds �� 225,278 220,733 4,545 follows: Japanese corporate bonds �� 317,290 311,944 5,346 Thousands of Others �� 83,317 82,046 1,270 Millions of yen U.S. dollars Subtotal �� ¥1,159,723 ¥ 986,295 ¥173,427 2017 2016 2017 Cash and due from banks �� ¥470,106 ¥187,959 $4,190,266 Consolidated balance sheet Other due from banks �� (855) (610) (7,621) amount not exceeding cost: Cash and cash equivalents �� ¥469,250 ¥187,348 $4,182,636 Stocks �� ¥ 3,195 ¥ 3,430 ¥ (235) Bonds: �� 152,965 156,139 (3,173) Japanese government bonds �� 82,836 85,178 (2,342) Japanese local government 4. Securities bonds �� 14,074 14,308 (234) Securities at March 31, 2017 and 2016 consisted of the following: Japanese corporate bonds �� 56,054 56,651 (597) Thousands of Others �� 141,825 145,703 (3,877) Millions of yen U.S. dollars Subtotal �� 297,986 305,273 (7,287) 2017 2016 2017 Total �� ¥ 1,457,709 ¥ 1,291,569 ¥ 166,140 Japanese government bonds �� ¥ 402,200 ¥ 418,273 $ 3,584,989 Japanese local government Millions of yen bonds �� 239,353 255,475 2,133,461 2016 Japanese corporate bonds �� 373,345 391,557 3,327,792 Consolidated Corporate stocks �� 221,673 179,273 1,975,871 balance sheet Unrealized Other securities �� 231,019 184,337 2,059,176 amount Cost gains (losses) Total �� ¥1,467,592 ¥1,428,917 $ 13,081,308 Consolidated balance sheet amount exceeding cost: Fair value and other information on securities at March 31, 2017 and 2016 Stocks �� ¥ 174,328 ¥ 55,683 ¥ 118,645 were as follows. Securities include “Trading securities” and trust beneficiary Bonds: �� 1,040,578 1,014,769 25,809 right under “Debt purchased,” in addition to “Securities,” which are presented Japanese government bonds �� 398,051 386,841 11,210 on the consolidated balance sheets. Japanese local government bonds �� 255,335 248,962 6,373 Securities Japanese corporate bonds �� 387,191 378,966 8,224 (1) Trading securities Others �� 146,217 142,754 3,463 Thousands of Subtotal �� ¥ 1,361,125 ¥ 1,213,207 ¥ 147,918 Millions of yen U.S. dollars 2017 2016 2017 Consolidated balance sheet Losses included in loss amount not exceeding cost: during the fiscal year Stocks �� ¥ 1,549 ¥ 2,136 ¥ (586) Trading securities �� ¥(5) ¥(33) $(44) Bonds: �� 24,727 24,997 (269) Japanese government bonds �� 20,221 20,399 (178) (2) Held-to-maturity securities Japanese local government No securities were classified as held to maturity as of March 31, 2017 and bonds �� 139 140 (0) 2016. Japanese corporate bonds �� 4,366 4,457 (91) Others �� 32,757 33,272 (514) Subtotal �� 59,034 60,406 (1,371) Total �� ¥ 1,420,160 ¥ 1,273,613 ¥ 146,546

68 SHIGA BANK ANNUAL REPORT 2017 Thousands of U.S. dollars Thousands of U.S. dollars 2017 2017 Consolidated Sales Gains on Losses on balance sheet Unrealized amount sales sales amount Cost gains (losses) Stocks �� $ 54,354 $ 12,166 $ — Consolidated balance sheet Bonds: �� 4,454,933 31,651 22,212 amount exceeding cost: Japanese government bonds �� 4,339,941 30,902 21,436 Stocks �� $ 1,911,685 $ 525,929 $1,385,747 Japanese local government Bonds: �� 7,682,797 7,534,031 148,756 bonds �� ——— Japanese government bonds �� 2,846,635 2,786,041 60,584 Japanese corporate bonds �� 114,992 739 766 Japanese local government Others �� 791,763 10,892 26 bonds �� 2,008,004 1,967,492 40,511 Total �� $ 5,301,069 $ 54,719 $ 22,239 Japanese corporate bonds �� 2,828,148 2,780,497 47,651 Others �� 742,641 731,312 11,320 6) Reclassification of investment securities due to change in intent of Subtotal �� $ 10,337,133 $ 8,791,291 $1,545,832 holding Bonds classified as held to maturity of ¥70,011 million were reclassified to Consolidated balance sheet available-for-sale securities due to change in the operation policy during the amount not exceeding cost: year ended March 31, 2016. As a result of this change, investment securities, Stocks �� $ 28,478 $ 30,573 $ (2,094) deferred tax liabilities and net unrealized gains on available-for-sale securi- Bonds: �� 1,363,445 1,391,737 (28,282) ties as of March 31, 2016 increased by ¥3,417 million, ¥1,040 million and Japanese government bonds �� 738,354 759,229 (20,875) ¥2,377 million, respectively. No reclassification was made during the year Japanese local government ended March 31, 2017. bonds �� 125,447 127,533 (2,085) Japanese corporate bonds �� 499,634 504,955 (5,321) (7) Impairment losses on securities For available-for-sale securities with market quotations (other than securities Others �� 1,264,150 1,298,716 (34,557) whose fair value cannot be reliably determined), in cases where the fair value Subtotal �� 2,656,083 2,721,035 (64,952) has fallen substantially from the acquisition cost and there is believed to be Total �� $ 12,993,216 $ 11,512,336 $ 1,480,880 little likelihood of a recovery in the acquisition cost level, said securities are shown on the balance sheets at fair value and the difference between the (4) Bonds classified as held to maturity were not sold for the years ended fair value and the acquisition cost is posted as a loss (hereinafter “impairment March 31, 2017 and 2016. loss”). No impairment losses were recognized for the years ended March 31, (5) Available-for-sale securities sold 2017 and 2016. Millions of yen In addition, the Bank recognizes that fair value has fallen significantly 2017 based on standards that have been set out in the self-assessment standards for assets by the issuing companies of securities. The details are as follows: Sales Gains on Losses on amount sales sales The Bank recognizes that the fair value of available-for-sale securities of legally bankrupt debtors, virtually bankrupt debtors, or debtors who are Stocks �� ¥ 6,098 ¥ 1,365 ¥ — likely to go bankrupt, has fallen significantly when the fair value of such Bonds: �� 499,799 3,551 2,492 instruments as of the consolidated balance sheet date has decreased from Japanese government bonds �� 486,898 3,467 2,405 the acquisition cost. For debtors on close watch, the Bank recognizes that Japanese local government the fair value has fallen significantly when the fair value as of the consoli- bonds �� ——— dated balance sheet date has decreased 30% or more from the acquisition Japanese corporate bonds �� 12,901 83 86 cost. For normal debtors, it recognizes this when the fair value as of the Others �� 88,828 1,222 3 consolidated balance sheet date has fallen 50% or more from the acquisition Total �� ¥ 594,727 ¥ 6,139 ¥2,495 cost or when the fair value as of the consolidated balance sheet date has fallen 30% or more from the acquisition cost and the market prices remain below certain levels. Millions of yen Debtors on close watch are defined as those who will require close moni- 2016 toring in the future and normal debtors are defined as those other than Sales Gains on Losses on legally bankrupt debtors, virtually bankrupt debtors, debtors who are likely amount sales sales to go bankrupt, or debtors on close watch. Stocks �� ¥ 4,615 ¥ 2,836 ¥ 2 Bonds: �� 518,410 6,412 139 Japanese government bonds �� 502,713 6,365 139 Japanese local government bonds �� ——— Japanese corporate bonds �� 15,697 46 0 Others �� 122,037 2,542 73 Total �� ¥ 645,063 ¥ 11,791 ¥215

SHIGA BANK ANNUAL REPORT 2017 69 5. Money held in trust Past due loans (three months or more) as to principal or interest payments totaled ¥242 million ($2,157 thousand) and ¥338 million as of March (1) Money held in trust classified as trading 31, 2017 and 2016, respectively. Loans classified as loans in legal bankruptcy Millions of yen and nonaccrual loans are excluded. 2017 2016 Restructured loans totaled ¥12,323 million ($109,840 thousand) and Gains (losses) Gains (losses) ¥15,418 million as of March 31, 2017 and 2016, respectively. Such restruc- included in included in tured loans are loans on which creditors grant concessions (e.g., reduction of Consolidated profit (loss) Consolidated profit (loss) the stated interest rate, deferral of interest payments, extension of maturity balance sheet during balance sheet during dates, waiver of the face amount, or other concessive measures) to the amount the fiscal year amount the fiscal year Money held in trust debtors to assist them in recovering from financial difficulties and eventually classified as trading �� ¥10,831 ¥(42) ¥8,724 ¥3 being able to pay creditors. Loans classified as loans in legal bankruptcy, nonaccrual loans and past due three months or more are excluded.

Thousands of U.S. dollars 2017 Gains (losses) 8. Foreign exchanges included in Consolidated profit (loss) Foreign exchange assets and liabilities at March 31, 2017 and 2016, consisted balance sheet during of the following: amount the fiscal year Thousands of Money held in trust Millions of yen U.S. dollars classified as trading �� $96,541 $(374) 2017 2016 2017 Assets: (2) No money held in trust was classified as held to maturity. Due from foreign (3) No other money held in trust (other than money held in trust for trading correspondents �� ¥ 3,950 ¥ 7,282 $ 35,208 purposes and money in trust held to maturity). Foreign bills of exchange purchased �� 0 3 0 Foreign bills of exchange 6. Net unrealized gains/losses on available-for- receivable �� 1,304 1,492 11,623 sale securities Total �� ¥ 5,254 ¥ 8,778 $ 46,831 Available-for-sale securities were valued at market and net unrealized gains/ Liabilities: losses on valuation were as follows: Foreign bills of exchange sold �� ¥ 46 ¥ 41 $ 410 Thousands of Millions of yen U.S. dollars Accrued foreign bills of exchange �� 14 13 124 2017 2016 2017 Total �� ¥ 61 ¥ 54 $ 543 Net unrealized gains on investment securities �� ¥166,140 ¥146,546 $1,480,880 Deferred tax liabilities �� (45,748) (39,974) (407,772) Noncontrolling interests �� (288) (328) (2,567) 9. Other assets Net unrealized gains on Other assets at March 31, 2017 and 2016, consisted of the following: available-for-sale securities �� ¥120,103 ¥106,243 $1,070,532 Thousands of Millions of yen U.S. dollars 2017 2016 2017 7. Loans and bills discounted Prepaid expenses �� ¥ 90 ¥ 124 $ 802 Loans and bills discounted at March 31, 2017 and 2016, consisted of the Accrued income �� 4,121 4,146 36,732 following: Derivatives �� 2,526 3,127 22,515 Thousands of Other (Note 12) �� 52,009 62,983 463,579 Millions of yen U.S. dollars Total �� ¥ 58,747 ¥ 70,381 $ 523,638 2017 2016 2017 Bills discounted �� ¥ 13,374 ¥ 14,347 $ 119,208 Loans on bills �� 109,992 107,946 980,408 10. Tangible fixed assets Loans on deeds �� 3,000,637 2,800,311 26,746,029 Tangible fixed assets at March 31, 2017 and 2016, consisted of the following: Overdrafts �� 337,902 335,118 3,011,872 Total �� ¥ 3,461,905 ¥ 3,257,723 $ 30,857,518 Thousands of Millions of yen U.S. dollars 2017 2016 2017 Loans in legal bankruptcy totaled ¥372 million ($3,315 thousand) and ¥636 million as of March 31, 2017 and 2016, respectively. Nonaccrual loans totaled Buildings �� ¥ 14,444 ¥ 15,221 $ 128,745 ¥44,760 million ($398,966 thousand) and ¥49,594 million as of March 31, Land �� 38,431 38,611 342,552 2017 and 2016, respectively. Loans in legal bankruptcy are loans in which the Construction in progress �� 2,082 1,310 18,557 interest accrual is discontinued (excluding the portion recognized as bad Other �� 2,965 3,482 26,428 debts) based on management’s judgment as to the collectibility of principal Total �� ¥ 57,924 ¥ 58,626 $ 516,302 or interest resulting from the delay in payments of interest or principal for a considerable period of time and other factors. Nonaccrual loans are loans in Accumulated depreciation on tangible fixed assets at March 31, 2017 and which the interest accrual is discontinued, other than loans in legal bank- 2016 amounted to ¥47,448 million ($422,925 thousand) and ¥46,664 million, ruptcy and loans granting deferral of interest payment to the debtors in respectively. financial difficulties to assist them in their recovery.

70 SHIGA BANK ANNUAL REPORT 2017 11. Long-lived assets The Group recognized impairment losses for the years ended March 31, 2017 and 2016, as follows:

The Bank groups assets by branch, which is the minimum unit for management accounting. Subsidiaries group their assets by unit, which periodically manages profit and loss. The Bank wrote down the carrying amounts to the recoverable amounts and recognized impairment losses of ¥430 million ($3,832 thousand) and ¥210 million for the years ended March 31, 2017 and 2016, respectively, since the carrying amounts of the assets held by the above branches and other exceeded the sum of the undiscounted future cash flows. The recoverable amounts of these assets were measured at their net realizable selling prices, which were determined by quotations from real estate appraisal information, less estimated costs to dispose. Impairment losses Thousands of Millions of yen U.S. dollars Location Description Classification 2017 2016 2017 Shiga Prefecture Branch offices and other Equipment �� ¥ 6 ¥ — $ 53 Shiga Prefecture Idle asset Land �� 423 — 3,770 Other Branch offices and other Land, buildings and equipment �� — 109 — Other Idle asset Land, buildings and equipment �� — 101 — Total �� ¥ 430 ¥ 210 $ 3,832

Impairment losses are included in other expenses (Note 25).

12. Assets pledged Therefore, the unused loan commitment will not necessarily affect future cash flows. Conditions are included in certain loan agreements that allow Assets pledged as collateral and related liabilities at March 31, 2017 and the Group to decline the request for a loan draw down or to reduce the 2016, were as follows: agreed limit amount where there is due cause to do so, such as when there Thousands of is a change in financial conditions or when it is necessary to do so in order to Millions of yen U.S. dollars protect the Group’s credit. The Group takes various measures to protect its 2017 2016 2017 credit. Such measures include having the obligor pledge collateral to the Group in the form of real estate, securities, etc. on signing the loan agree- Investment securities �� ¥405,118 ¥164,939 $3,610,999 ments or, in accordance with the Group’s established internal procedures, Other assets (investments in confirming the obligor’s financial condition, etc. at regular intervals. leases) (Note 9) �� 1,157 1,135 10,312

Thousands of Millions of yen U.S. dollars 14. Land revaluation Related liabilities 2017 2016 2017 Under the “Act of Land Revaluation,” promulgated on March 31, 1998 (final Deposits �� ¥ 26,087 ¥19,993 $ 232,525 revision on May 30, 2003), the Bank elected a one-time revaluation of its Payables under securities lending own-use land to a value based on real estate appraisal information as of transactions �� 137,947 26,937 1,229,583 March 31, 2002. The resulting land revaluation surplus represented unreal- Borrowed money �� 176,917 20,402 1,576,940 ized appreciation of land and was stated, net of income taxes, as a component of equity. There was no effect on the consolidated statement of In addition, other assets (deposits to central counterparty) of ¥12,169 million income. Continuous readjustment is not permitted unless the land value ($108,467 thousand) at March 31, 2017 and investment securities totaling subsequently declines significantly such that the amount of the decline in ¥46,777 million ($416,944 thousand) and ¥59,389 million at March 31, 2017 value should be removed from the land revaluation surplus account and and 2016, respectively, were pledged as collateral for settlement of exchange related deferred tax liabilities. At March 31, 2017 and 2016, the carrying and as securities for futures transactions and others. amount of the land after the above one-time revaluation exceeded the fair Other assets (Note 9) include guarantee deposits of ¥456 million ($4,064 value by ¥12,785 million ($113,958 thousand) and ¥13,200 million, respec- thousand) and ¥780 million at March 31, 2017 and 2016, respectively. tively.

Method of revaluation The fair values were determined by applying appropriate adjustments for 13. Overdrafts and commitment lines land shape and analysis on the appraisal specified in Article 2-3 of the Overdraft agreements and commitment line agreements are agreements Enforcement Ordinance of the Act of Land Revaluation effective March 31, that oblige the Group to lend funds up to a certain limit agreed in advance. 1998. The Group makes the loans upon the request of an obligor to draw down funds under such loan agreements as long as there is no breach of the various terms and conditions stipulated in the relevant loan agreements. The unused commitment balance relating to these loan agreements at March 31, 2017 and 2016 amounted to ¥908,532 million ($8,098,154 thousand) and ¥888,294 million, respectively, and the amounts of unused commitments whose original contract terms are within one year or unconditionally cancelable at any time were ¥875,449 million ($7,803,271 thousand) and ¥862,523 million at March 31, 2017 and 2016, respectively. In many cases, the term of the agreement expires without the loan ever being drawn down.

SHIGA BANK ANNUAL REPORT 2017 71 15. Deposits Description of bonds �� Unsecured convertible bonds with stock acquisition rights, payable in Deposits at March 31, 2017 and 2016, consisted of the following: Euro/U.S. dollars, due June 23, 2020 Class of shares to be issued �� Ordinary shares of common stock Thousands of Millions of yen U.S. dollars Issue price for stock acquisition rights �� — 2017 2016 2017 Exercise price of shares �� $5.925 Current deposits �� ¥ 164,122 ¥ 148,288 $ 1,462,893 Total amount of debt securities issued �� $200,000 thousand Ordinary deposits �� 2,066,624 1,961,105 18,420,750 Total amount of shares issued by exercising stock acquisition rights �� — Deposits at notice �� 73,286 47,661 653,231 Percentage of shares with stock Time deposits �� 2,111,325 2,067,717 18,819,190 acquisition rights �� 100% Other deposits �� 101,289 106,377 902,834 Exercise period of stock acquisition Total �� ¥4,516,648 ¥ 4,331,151 $ 40,258,917 rights �� From April 7, 2015 to June 9, 2020 Matters concerning substitute payment �� At the time of exercise of respective stock acquisition rights, the bonds pertaining to the said stock acquisi- 16. Borrowed money tion rights shall be contributed, and At March 31, 2017 and 2016, the weighted-average interest rates applicable the price of such bonds shall be the same amount as their face value. to borrowed money were 0.42% and 1.17%, respectively. Borrowed money at March 31, 2017 and 2016, consisted of the following: Thousands of Millions of yen U.S. dollars 18. Other liabilities 2017 2016 2017 Other liabilities at March 31, 2017 and 2016, consisted of the following: Subordinated loans �� ¥ 20,000 ¥20,000 $ 178,269 Thousands of Borrowing from banks and other �� 186,830 30,509 1,665,299 Millions of yen U.S. dollars Total �� ¥206,830 ¥50,509 $1,843,568 2017 2016 2017 Accrued income taxes �� ¥ 851 ¥ 4,202 $ 7,585 Annual maturities of borrowed money at March 31, 2017 were as follows: Accrued expenses �� 3,846 4,076 34,281 Thousands of Unearned income �� 8,583 8,132 76,504 Millions of yen U.S. dollars Year ending March 31 Derivatives �� 3,851 4,602 34,325 2018 �� ¥181,215 $1,615,250 Other �� 11,777 16,129 104,973 2019 �� 2,400 21,392 Total �� ¥28,909 ¥37,143 $257,678 2020 �� 1,710 15,242 2021 �� 1,053 9,385 2022 �� 407 3,627 2023 and thereafter �� 20,042 178,643 19. Acceptances and guarantees Total �� ¥206,830 $1,843,568 All contingent liabilities arising from acceptances and guarantees are reflected in “Acceptances and guarantees.” As a contra account, “Customers’ liabilities for acceptances and guarantees,” is shown as an asset representing the Bank’s right of indemnity from the applicants. 17. Bonds The amounts of “Acceptances and guarantees” and “Customers’ liabilities Bonds at March 31, 2017 and 2016, consisted of the following: for acceptances and guarantees” amounting to ¥19,961 million ($177,921 thousand) and ¥13,699 million as of March 31, 2017 and 2016, respectively, Thousands Millions of yen of U.S. dollars were set off because those which were relevant to corporate bonds and the guaranteed bonds were held by the Bank itself. 2017 2016 2017 Interest rate Due Convertible bonds with stock acquisition rights (*) �� ¥22,438 ¥22,536 $200,000 — June 23, 2020 (*) The above convertible bonds with stock acquisition rights are subordinated bonds with non-viability write-off clause. The description of the said bonds was as follows:

72 SHIGA BANK ANNUAL REPORT 2017 20. Equity 21. Stock options (1) Capital stock and capital surplus The stock options outstanding as of March 31, 2017, are as follows: There were no changes in the number of common stock for the years ended Number of March 31, 2017 and 2016. Persons options Date of Exercise Exercise Description granted granted grant price period (2) Companies Act 2013 Stock 9 directors 47,000 shares August 20, ¥ 1 From August Japanese companies are subject to the Companies Act of Japan (the Option 2013 ($ 0.01) 21, 2013 to “Companies Act”). The significant provisions in the Companies Act that affect August 20, financial and accounting matters are summarized below: 2043 2014 Stock 11 directors 50,100 shares August 20, ¥ 1 From August (a) Dividends Option 2014 ($ 0.01) 21, 2014 to Under the Companies Act, companies can pay dividends at any time during August 20, the fiscal year in addition to the year-end dividend upon resolution at the 2044 shareholders’ meeting. For companies that meet certain criteria such as: (1) having a Board of Directors, (2) having independent auditors, (3) having an 2015 Stock 11 directors 49,000 shares August 20, ¥ 1 From August Audit & Supervisory Board, and (4) the term of service of the directors is Option 2015 ($ 0.01) 21, 2015 to prescribed as one year rather than two years of normal term by its articles of August 20, incorporation, the Board of Directors may declare dividends (except for 2045 dividends-in-kind) at any time during the fiscal year if the company has 2016 Stock 12 directors 78,200 shares August 19, ¥ 1 From August prescribed so in its articles of incorporation. However, the Bank cannot do so Option 2016 ($ 0.01) 20, 2016 to because it does not meet all the above criteria. August 19, The Companies Act permits companies to distribute dividends-in-kind 2046 (non-cash assets) to shareholders subject to a certain limitation and additional requirements. The stock option activity is as follows: Semiannual interim dividends may also be paid once a year upon 2013 Stock 2014 Stock 2015 Stock 2016 Stock resolution by the Board of Directors if the articles of incorporation of the Option Option Option Option company so stipulate. The Companies Act provides certain limitations on the Year Ended March 31, 2017 amounts available for dividends or the purchase of treasury stock. The limitation is defined as the amount available for distribution to the share- Non-vested holders, but the amount of net assets after dividends must be maintained at no less than ¥3 million. April 1, 2016—Outstanding — — 15,350 — Granted — — — 78,200 (b) Increases/decreases and transfer of common stock, reserve and surplus Canceled — — (1,100) — The Companies Act requires that an amount equal to 10% (20% for banks Vested — — (14,250) (58,650) pursuant to the Banking Act) of dividends must be appropriated as a legal March 31, 2017—Outstanding — — — 19,550 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 total of the aggregate Vested amount of legal reserve and additional paid-in capital equals 25% (100% for April 1, 2016—Outstanding 61,300 62,400 46,050 — banks pursuant to the Banking Act) of common stock. Under the Companies Vested — — 14,250 58,650 Act, the total amount of additional paid-in capital and legal reserve may be Exercised (14,300) (12,300) (11,300) — reversed without limitation. The Companies Act also provides that common Canceled ———— stock, legal reserve, additional paid-in capital, other capital surplus and March 31, 2017—Outstanding 47,000 50,100 49,000 58,650 retained earnings can be transferred among the accounts under certain conditions upon resolution of the shareholders. 2013 Stock 2014 Stock 2015 Stock 2016 Stock (c) Treasury stock and treasury stock acquisition rights Option Option Option Option The Companies Act also provides for companies to purchase treasury stock Exercise price ¥ 1 ¥ 1 ¥ 1 ¥ 1 and dispose of such treasury stock by resolution of the Board of Directors. ($0.01) ($0.01) ($0.01) ($0.01) The amount of treasury stock purchased cannot exceed the amount Average stock price at exercise ¥ 442 ¥ 442 ¥ 441 — available for distribution to the shareholders that is determined by a specific ($3.94) ($3.94) ($3.93) ($ —) formula. Under the Companies Act, stock acquisition rights are presented as Fair value price at grant date ¥ 528 ¥ 589 ¥ 634 ¥ 473 a separate component of equity. The Companies Act also provides that companies can purchase both treasury stock acquisition rights and treasury ($4.71) ($5.25) ($5.65) ($4.22) stock. Such treasury stock acquisition rights are presented as a separate component of equity or deducted directly from stock acquisition rights. The Assumptions Used to Measure the Fair Value of the 2016 Stock Option Estimate method: Black-Scholes option-pricing model (3) Appropriations of retained earnings Volatility of stock price: 29.031% The following appropriation of retained earnings at March 31, 2017 will be Estimated remaining outstanding period: 2 years and 0 month proposed at the Bank’s ordinary general shareholders’ meeting held on June Estimated dividend: ¥8 per share 27, 2017. Risk free interest rate: 0.210% negative Thousands of Millions of yen U.S. dollars Cash dividends (dividend amount per share: ¥4.5 or $0.040) ¥1,171 $10,437

SHIGA BANK ANNUAL REPORT 2017 73 22. Other operating income 26. Gains (losses) related to bonds Other operating income for the years ended March 31, 2017 and 2016, Gains (losses) related to bonds for the years ended March 31, 2017 and 2016, consisted of the following: consisted of the following: Thousands of Thousands of Millions of yen U.S. dollars Millions of yen U.S. dollars 2017 2016 2017 2017 2016 2017 Gains on foreign exchange Gains (losses) related to bonds transactions-net �� ¥ 406 ¥ 593 $ 3,618 including Japanese government Gains on sales of bonds �� 4,483 8,902 39,958 bonds (five components of Other �� 13,672 14,461 121,864 accounts): Gains on sales of bonds �� ¥ 4,483 ¥ 8,902 $ 39,958 Total �� ¥18,562 ¥23,957 $165,451 Losses on sales of bonds �� (2,582) (277) (23,014) Losses on redemption of bonds �� — (669) — 23. Other income Total �� ¥ 1,900 ¥ 7,955 $ 16,935 Gains (losses) on derivatives: ¥ 55 ¥(4,184) $ 490 Other income for the years ended March 31, 2017 and 2016, consisted of the following: Gains (losses) related to bonds �� ¥ 1,956 ¥ 3,771 $ 17,434 Thousands of Millions of yen U.S. dollars 2017 2016 2017 27. Gains (losses) related to stocks and other Reversal of allowance for possible securities loan losses �� ¥ 840 ¥ — $ 7,487 Recovery of claims previously Gains (losses) related to stocks and other securities for the years ended charged-off �� 1,120 434 9,983 March 31, 2017 and 2016, consisted of the following: Gains on sales of stocks and other Thousands of securities �� 1,707 2,936 15,215 Millions of yen U.S. dollars Other �� 2,048 1,688 18,254 2017 2016 2017 Total �� ¥5,716 ¥5,059 $50,949 Gains (losses) related to stocks and other securities (three components of accounts): Gains on sales of stocks and 24. Other operating expenses other securities �� ¥1,707 ¥2,936 $15,215 Other operating expenses for the years ended March 31, 2017 and 2016, Losses on sales of stocks and consisted of the following: other securities �� — (76) — Losses on retirement of stocks Thousands of Millions of yen U.S. dollars and other securities �� — (3) — Gains (losses) related to stocks 2017 2016 2017 and other securities �� ¥1,707 ¥2,856 $15,215 Losses on sales of government bonds �� ¥ 2,582 ¥ 277 $ 23,014 Losses on redemption of bonds �� — 669 — Expenses on derivatives other than 28. Leases for hedging �� — 4,184 — Lessor Other �� 12,267 13,051 109,341 One subsidiary leases certain equipment and other assets. ¥14,850 ¥18,182 $132,364 Total �� As stated in Note 2 (r) ii, finance lease transactions other than those in which ownership is fully transferred to the lessee are accounted for in a similar manner to ordinary sales and transactions, effective from the year 25. Other expenses ended March 31, 2009.

Other expenses for the years ended March 31, 2017 and 2016, consisted of Investments in leases included in other assets on the balance sheets as the following: of March 31, 2017 and 2016 consisted of the following: Thousands of Thousands of Millions of yen U.S. dollars Millions of yen U.S. dollars 2017 2016 2017 2017 2016 2017 Provision of allowance for possible Gross lease receivables �� ¥17,633 ¥18,043 $157,170 loan losses �� ¥ — ¥2,365 $ — Unguaranteed residual values �� 566 601 5,045 Charge-off of loans and bills Unearned interest income �� (1,650) (1,729) (14,707) discounted �� 1,535 562 13,682 Losses on impairment of Investments in leases �� ¥16,549 ¥16,915 $147,508 long-lived assets (Note 11) �� 430 210 3,832 Losses on sales of investment in stocks �� — 76 — Other �� 379 704 3,378 Total �� ¥2,344 ¥3,919 $20,893

74 SHIGA BANK ANNUAL REPORT 2017 Maturities of lease receivables for finance leases that are deemed to 1. Defined benefit plan (except for the plan adopting the simpli- transfer ownership of the leased property to the lessee are as of March fied method) 31, 2017 are as follows: (1) The changes in defined benefit obligation for the years ended March Thousands of 31, 2017 and 2016, were as follows: Millions of yen U.S. dollars Thousands of 2018 �� ¥28 $249 Millions of yen U.S. dollars 2019 �� 16 142 2017 2016 2017 2020 �� 15 133 Balance at beginning of year �� ¥51,272 ¥44,340 $457,010 2021 �� 14 124 Current service cost �� 2,002 1,650 17,844 2022 �� 14 124 Interest cost �� 220 665 1,960 2023 and thereafter �� 23 205 Actuarial losses �� 1,022 7,419 9,109 Benefits paid �� (3,100) (2,802) (27,631) Maturities of gross lease receivables related to investments in leases as Prior service cost �� — — — of March 31, 2017 are as follows: Balance at end of year �� ¥51,418 ¥51,272 $458,311 Thousands of Millions of yen U.S. dollars (2) The changes in plan assets for the years ended March 31, 2017 and 2018 �� ¥5,667 $50,512 2016, were as follows: 2019 �� 4,564 40,680 Thousands of 2020 �� 3,419 30,475 Millions of yen U.S. dollars 2021 �� 2,343 20,884 2017 2016 2017 2022 �� 1,134 10,107 Balance at beginning of year �� ¥37,951 ¥38,568 $338,274 2023 and thereafter �� 504 4,492 Expected return on plan assets �� 442 591 3,939 With regard to finance lease transactions entered into prior to April 1, Actuarial gains (losses) �� 3,340 (2,296) 29,770 Contribution from 2008, that are not deemed to transfer ownership of the property to the the employer �� 2,203 2,253 19,636 lessee, leased investment assets are recognized at the book value of Benefits paid �� (1,230) (1,165) (10,963) leased assets as of March 31, 2008. As a result, income before income taxes for the year ended March 31, Balance at end of year �� ¥42,706 ¥37,951 $380,657 2016, increased by ¥0 million more than it would have been if the revised accounting standard was applied retroactively to all the finance (3) Reconciliation between the liability recorded in the consolidated lease transactions. balance sheet and the balances of defined benefit obligation and plan The minimum rental commitments under noncancelable operating assets: leases as of March 31, 2017 and 2016, were as follows: Thousands of Millions of yen U.S. dollars Thousands of 2017 2016 2017 Millions of yen U.S. dollars Funded defined 2017 2016 2017 benefit obligation �� ¥51,418 ¥51,272 $458,311 Due within one year �� ¥12 ¥18 $106 Plan assets �� (42,706) (37,951) (380,657) Net liability arising from Due after one year �� 11 17 98 the balance sheet �� ¥ 8,711 ¥13,321 $ 77,645 Total �� ¥24 ¥36 $213

Thousands of Millions of yen U.S. dollars 29. Retirement benefit plans 2017 2016 2017 The Bank and consolidated subsidiaries have either funded or unfunded Liability for retirement benefits �� ¥8,711 ¥13,321 $77,645 defined benefit plans. The Bank’s funded defined benefit corporate pension Asset for retirement benefits �� — — — plan (contract type) provides lump-sum or annuity payments, the amounts Net liability arising from of which are determined based on the length of service and certain other the balance sheet �� ¥8,711 ¥13,321 $77,645 factors. The Bank’s lump-sum severance payment plan, which became a funded plan as a result of setting a retirement benefits trust, provides (4) The components of net periodic benefit costs for the years ended lump-sum payments determined based on the length of service, position, March 31, 2017 and 2016, were as follows: and certain other factors. The consolidated subsidiaries’ unfunded lump-sum Thousands of severance payment plans are based on a simplified method in the calcula- Millions of yen U.S. dollars tion of their liability for retirement benefits and retirement benefit costs. 2017 2016 2017 Service cost �� ¥2,002 ¥1,650 $17,844 Interest cost �� 220 665 1,960 Expected return on plan assets �� (442) (591) (3,939) Recognized actuarial (gains) losses �� 617 (651) 5,499 Amortization of prior service cost �� — — — Net periodic benefit costs �� ¥2,398 ¥1,073 $21,374

SHIGA BANK ANNUAL REPORT 2017 75 (5) Amounts recognized in other comprehensive income (before income (2) Reconciliation between the liability recorded in the consolidated tax effect) in respect of defined retirement benefit plans for the years balance sheet and the balances of defined benefit obligation and plan ended March 31, 2017 and 2016, were as follows: assets: Thousands of Thousands of Millions of yen U.S. dollars Millions of yen U.S. dollars 2017 2016 2017 2017 2016 2017 Prior service cost �� ¥ — ¥ — $ — Unfunded defined benefit Actuarial (gains) losses �� (2,935) 10,366 (26,160) obligation �� ¥120 ¥95 $1,069 Total �� ¥(2,935) ¥10,366 $(26,160) Net liability arising from the balance sheet �� ¥120 ¥95 $1,069 (6) Amounts recognized in accumulated other comprehensive income (before income tax effect) in respect of defined retirement benefit Thousands of plans as of March 31, 2017 and 2016, were as follows: Millions of yen U.S. dollars 2017 2016 2017 Thousands of Millions of yen U.S. dollars Liability for retirement benefits �� ¥120 ¥95 $1,069 2017 2016 2017 Net liability arising from the balance sheet �� ¥120 ¥95 $1,069 Unrecognized prior service cost �� ¥ — ¥ — $ — Unrecognized actuarial (gains) losses �� (1,754) 1,180 (15,634) (3) Net periodic benefit costs recognized in the simplified method for the years ended March 31, 2017 and 2016, were ¥34 million ($303 thou- Total �� ¥(1,754) ¥1,180 $(15,634) sand) and ¥12 million, respectively.

(7) Plan assets: 3. Defined contribution plan a. Components of plan assets Not applicable. 2017 2016 Bonds �� 19% 22% Stocks �� 55 52 30. Income taxes Cash and cash equivalents �� 7 7 The tax effects of significant temporary differences that resulted in deferred General accounts �� 19 19 tax assets and liabilities at March 31, 2017 and 2016, were as follows: Total �� 100% 100% Thousands of (Note) Total plan assets included retirement benefits trust of 44% and 42%, for the years Millions of yen U.S. dollars ended March 31, 2017 and 2016, respectively, mainly consisting of 5 stocks, which were 2017 2016 2017 set for a corporate pension plan and a lump-sum payment plan. Deferred tax assets: b. Method of determining the expected rate of return on plan assets Allowance for possible loan The expected rate of return on plan assets is determined considering losses �� ¥ 11,228 ¥ 12,822 $ 100,080 allocation of plan assets and the long-term rates of return which are Devaluation of stocks and other expected currently and in the future from the various components of the securities �� 5,466 5,462 48,720 Liability for employees’ plan assets. retirement benefits �� 5,285 5,734 47,107 Depreciation �� 1,487 1,610 13,254 (8) Assumptions used for the years ended March 31, 2017 and 2016, were set forth as follows: Accrued enterprise tax �� 115 318 1,025 Defined retirement benefit 2017 2016 plans �� — 359 — Discount rate �� 0.43% 0.43% Other �� 2,366 2,710 21,089 Expected rate of return on plan assets Less valuation allowance �� (13,859) (14,615) (123,531) Plan assets (except for retirement benefits Total �� ¥ 12,091 ¥ 14,403 $ 107,772 trust) �� 2.01% 2.80% Deferred tax liabilities: Plan assets (retirement benefits trust) �� 0.00% 0.00% Reserve for advance Estimated rate of salary increase �� 3.50% 3.50% depreciation of fixed assets �� (175) (175) (1,559) Reserve for special account of 2. Defined benefit plan adopting the simplified method advanced depreciation of (1) The changes in defined benefit obligation adopting the simplified fixed assets �� — (96) — method for the years ended March 31, 2017 and 2016, were as follows: Net unrealized gains on available-for-sale securities �� (45,748) (39,974) (407,772) Thousands of Millions of yen U.S. dollars Defined retirement benefit 2017 2016 2017 plans �� (534) — (4,759) Total �� (46,457) (40,246) (414,092) Balance at beginning of year �� ¥ 95 ¥91 $ 846 Net deferred tax assets �� ¥ (34,366) ¥ 25,842 $ (306,319) Net periodic benefit costs �� 33 12 294 Benefits paid �� (8) (8) (71) Contribution to the plan �� — — — Balance at end of year �� ¥120 ¥95 $1,069

76 SHIGA BANK ANNUAL REPORT 2017 A reconciliation between the normal effective statutory tax rate and the To obtain short-swing profits, the Group transacts bond futures contracts, actual effective tax rate reflected in the accompanying consolidated bond options, and stock price index futures trading after setting position statements of income for the years ended March 31, 2017 and 2016, is as limit and loss limits amounts. follows: These derivative transactions include the market risk of incurring 2017 2016 potential losses from market fluctuations, such as fluctuations in interest Normal effective statutory tax rates and exchange rates, as well as the credit risk of incurring potential rate �� 30.6% 32.8% losses when the counterparty to the transaction defaults on a contract. Permanent differences – mainly dividends received �� (1.0) (0.9) Increase in valuation allowance (3) Risk management for financial instruments for deferred tax assets �� (3.7) (6.2) (i) Credit risk management Recognizing credit risk as the most important risk to business management Decrease in deferred tax assets from the standpoint of its size and scope, the Group has established due to changes in statutory tax regulations and standards pertaining to such risk. It has also developed a rate �� — 2.7 borrower rating system based on a Foundation Internal Ratings-based Other �� 0.9 0.5 approach and has built a credit risk management system appropriate to its Actual effective tax rate �� 26.8% 28.9% needs. Notably, the Group has developed a rating system that involves asset self-assessments. Under this system, for example, the Business Management 31. Financial instruments and related department reports the results of its own asset ratings at meetings such as the Meeting of Managing Directors. disclosures With respect to individual credit management, the Group has instituted 1. Overall situation concerning financial instruments its “Basic Rules of Loan Business,” in which it has clearly defined the way of (1) Basic policy for financial instruments thinking and a code of conduct to which all employees involved in the loan As a regional financial institution with its main business base in Shiga business should adhere. It has also established basic procedures to follow Prefecture, the Group provides financial services centered on banking when making credit decisions or managing credit, along with putting in operations. place a system that enables executives and employees to make credit The Group’s main operations are to extend loans to customers in its decisions in accordance with the principles of public benefit, security, business area, and make investments in securities by mainly using funds that profitability, liquidity, and growth potential. More specifically, the Group has are received as deposits from customers and those that are obtained developed and is operating a credit management system that handles credit through the financial market. assessment, credit limits, credit information management, and internal To carry out these operations, the Group has financial assets and financial ratings; sets guarantees and collateral; and deals with problem debts of liabilities that are largely subject to interest rate volatility. To prevent adverse companies (or corporate groups) or individual projects. This credit manage- effects from such interest rate volatility, the Group conducts Asset Liability ment system is being implemented in every bank branch and the Credit Management (ALM), the comprehensive management of assets and Supervision department. liabilities. With respect to extending credit to overseas borrowers, the Group manages it by setting a credit limit for each country at the Meeting of (2) Nature and extent of risks arising from financial instruments Managing Directors each fiscal year, after taking into account the foreign The financial assets held by the Group are primarily loans to customers currency conditions and the political and economic situation of the country within its business area and are subject to credit risk caused by the contrac- in which the borrower resides. tual default of its customers. The Group’s domestic loan portfolio attempts to With respect to conducting market transactions for securities or other distribute risk by industry sector to eliminate its exposure to credit risk instruments, a limit is set semiannually at the Meeting of Managing Directors caused by changes in the business environment in certain industries. for bond issuer credit risk and counterparty risk for derivative and financial The Group holds investment securities, primarily comprised of bonds, transactions, and the credit status and the market prices are managed on a corporate stocks and investment trusts, for the following purposes: to sell daily basis. The Group has established a system in which reports about those them to customers, for purely investment purposes, and for strategic risks are routinely given to the Meeting of Managing Directors. investment. These are subject to interest rate volatility risk, market price volatility risk, and the credit risk of the issuers. (ii) Market risk management Foreign currency-denominated loans and bonds are subject to foreign The Group has compiled a set of Market Risk Management Rules with the exchange risk. They are managed to reduce foreign exchange risk by goal of upgrading market risk management, strengthening internal controls, procuring foreign currency funds through currency swaps, repurchase and ensuring sound management. To achieve stable profits, the Group transactions, or call transactions. institutes a financial plan and risk management policy semiannually and is Financial liabilities are primarily deposits from customers as well as working to build an appropriate risk management system. borrowed money and bonds with stock acquisition rights. Borrowed money 1) Interest rate risk management and bonds with stock acquisition rights are — under certain conditions, As interest rate risk inevitably arises in banking business operations, the such as when the Group is unable to access the market — subject to risks Group manages all assets and liabilities (including off-balance transactions), that losses are incurred due to an inability to secure required funds or being such as deposits, loans, and securities, in a comprehensive manner through forced to raise funds at significantly higher than normal interest rates. ALM. Moreover, some of the Group’s borrowings are made at variable interest rates Along with the aforementioned Market Risk Management Rules, the and are subject to risks of losses from increasing fund procurement costs Group has established standards for risk management methods and associated with rising interest rates. reporting procedures. The Group conducts monitoring through such models To respond to customer needs and hedge market risks for assets and as Value at Risk (VaR) and the maturity ladder approach, and reports to the liabilities, the Group uses derivative transactions, including interest rate ALM Committee on a regular basis. swaps, currency swaps, currency options, and forward exchange contracts. 2) Exchange rate risk management For some of these transactions, the Group applies hedge accounting based For exchange rate volatility risk, the Group sets position limits at the Meeting on internal regulations that comply with the “Practical Guidelines for of Managing Directors to manage positions that are subject to exchange Financial Instruments” of the Japanese Institute of Certified Public Accoun- rate risk. The Group controls positions by using derivative transactions, tants and the Group’s own hedging policies. including foreign currency transactions and currency swaps. The Group establishes an acceptable level of risk using VaR and manages the level of risk on a daily basis so that it stays within an acceptable range.

SHIGA BANK ANNUAL REPORT 2017 77 3) Price volatility risk management (iii) Liquidity risk management related to financing To rigorously manage price volatility risk for transactions, including securities, The Group has compiled a set of Liquidity Risk Management Rules under a the Group has divided the organization into a market transaction sector, basic policy of clearly understanding its cash position and ensuring stable business management sector, and risk management sector. financing. In this way, it strives to establish an appropriate risk management For market transactions including securities, the Group takes into system. account overall Group risk and return, based on a financial plan and a risk With respect to daily financing, the Group monitors and manages the management policy, and formulates a business management plan in the financial environment, the balance of realizable current assets, the expected market sector. amount of cash outflows, and other such factors. The Group reports the When making investments, the Group calculates position amounts, financing situation and other related matters to the ALM Committee on a gains, and losses as well as VaR and Basis Point Value (BPV) based on the regular basis. abovementioned policy and plan. The extent to which the Group complies with the established acceptable risk limit and other risk limits is monitored 2. Fair value of financial instruments on a daily basis and is reported to management. Fair value and the consolidated balance sheet amount of as of March 31, 4) Derivative transaction management 2017 and 2016, are shown below. Immaterial accounts on the consolidated With respect to derivative transactions, the divisions concerned with the balance sheet are not included in the table below. Some instruments, such execution of transactions, the evaluation of hedge effectiveness, and as unlisted stocks, whose fair value cannot be reliably determined, are not business management have been separated, and an internal checking included in the table below (see Note 2). system has been established. Because a majority of the Group’s derivative Millions of yen transactions are performed for the purposes of hedging and cover transac- 2017 tions to customer transactions, the Group manages them so that asset and Consolidated liability risks and market risks are offset with each other. balance sheet 5) Quantitative information regarding market risks amount Fair value Difference Regarding market risks, the Group measures the quantitative risk of interest Cash and due from banks �� ¥ 470,106 ¥ 470,106 ¥ — rate risks and stock price volatility risks through VaR, a statistical method. Investment securities Principally by reporting these risks to the ALM Committee and other organizations on a regular basis, the Group ensures appropriate monitoring Trading securities �� 4,908 4,908 — and management. In calculating the risk amounts, the Group adopts a Available-for-sale securities �� 1,456,487 1,456,487 — historical simulation method (a holding period of one year, a confidence Loans and bills discounted �� 3,461,905 — — interval of 99%, and an observing period of two years). Allowance for possible loan losses (*1) �� (28,744) — — Interest rate risks 3,433,161 3,454,611 21,449 The Group measures interest rate risks of all its assets and liabilities, Assets total �� 5,364,663 5,386,113 21,449 including loans, securities and deposits, and derivative transactions. Deposits �� 4,516,648 4,517,070 422 The Group’s interest rate risk amounts stood at ¥14,967 million Negotiable certificates of deposit �� 86,478 86,481 3 ($133,407 thousand) as of March 31, 2017 and ¥3,853 million as of March 31, 2016. Call money and bills sold �� 90,276 90,276 — Regarding liquid deposits, such as ordinary deposits, the Group Payables under securities lending handles some as deposits that remain with the Group for an extended transactions �� 137,947 137,947 — period and manages them by allocating them to each period category Borrowed money �� 206,830 207,947 1,116 based on an internal model. Liabilities total �� 5,038,181 5,039,723 1,542 Derivative transactions (*2) Stock price volatility risks Deferred hedge accounting is The Group holds certain shares for strategic investment and purely not applied �� 407 407 — investment purposes. The volatility risk amounts of the prices of such Deferred hedge accounting is shares stood at ¥66,474 million ($592,512 thousand) as of March 31, 2017, applied �� (1,733) (1,733) — and ¥51,614 million as of March 31, 2016. Derivative transactions total �� ¥ (1,325) ¥ (1,325) ¥ —

Backtesting To verify the appropriateness of the risk amounts that are measured through VaR, the Group carries out backtesting in which VaR is compared with gains and losses. In this way, the Group analyzes the effectiveness of the risk measurement method. However, because VaR statistically measures the amounts based on the historical market volatility, results may vary due to assumptions, measuring methods, and other factors. In addition, risks may not be able to be appropriately captured when the market environment changes drastically.

Interest rate risks and stock price volatility risks that are held by the Bank’s consolidated subsidiaries are excluded from the calculation of the market risk amount as the impact from such risks on the Group is limited.

78 SHIGA BANK ANNUAL REPORT 2017 Millions of yen (Note 1) Valuation method of financial instruments 2016 Assets (1) Cash and due from banks Consolidated balance sheet As fair values of cash and due from banks without maturity approximate amount Fair value Difference book values, the Group deems the book values to be the fair values. Since Cash and due from banks �� ¥ 187,959 ¥ 187,959 ¥ — contractual terms of cash and due from banks with maturities are short (i.e., one year or less) and fair values of these instruments approximate book Investment securities values, the Group deems the book values to be the fair values. Trading securities �� 5,383 5,383 — Available-for-sale securities �� 1,418,384 1,418,384 — (2) Securities Loans and bills discounted �� 3,257,723 — — Fair values of securities that have market prices are based on their market Allowance for possible loan prices. losses (*1) �� (31,601) — — With respect to those without market prices, the Group uses the present 3,226,121 3,263,050 36,928 value that is calculated by discounting the future cash flows of the principal Assets total �� 4,837,848 4,874,777 36,928 based on contracts, using an interest rate obtained by adjusting interest Deposits �� 4,331,151 4,331,708 557 rates available in the interbank market in accordance with categories of internal ratings and terms, taking into account the credit risk premium and Negotiable certificates of deposit �� 84,722 84,725 3 the liquidity risk premium. Call money and bills sold �� 51,284 51,284 — Fair value information for securities by classification is included in Note 4 Payables under securities lending “Securities.” transactions �� 26,937 26,937 — Borrowed money �� 50,509 52,052 1,543 (3) Loans and bills discounted Liabilities total �� 4,544,605 4,546,709 2,104 As fair values of loans and bills discounted with short contractual terms (i.e., Derivative transactions (*2) less than one year) approximate book values, the Group deems the book Deferred hedge accounting is values to be the fair values. not applied �� 913 913 — Regarding loans with long contract terms (i.e., 1 year or longer), those Deferred hedge accounting is with floating interest rates reflect the market rate in the short term. Conse- applied �� (2,388) (2,388) — quently, unless the credit conditions of borrowers have not significantly Derivative transactions total �� ¥ (1,474) ¥ (1,474) ¥ — changed after the execution of the loans, the book value of the loans is presented as the fair value, as the fair value approximates the book value. With respect to fair values of loans with long contract terms with fixed Thousands of U.S. dollars interest rates, the Group uses the present value that is calculated by dis- 2017 counting the future cash flows of the principal based on contracts, using an Consolidated interest rate obtained by adjusting interest rates available in the interbank balance sheet amount Fair value Difference market in accordance with categories of internal ratings and terms, taking into account the credit risk premium and the liquidity risk premium. Mean- Cash and due from banks �� $ 4,190,266 $ 4,190,266 $ — while, the fair value of certain loans (including consumer loans) is calculated Investment securities by discounting the future cash flows of the principal based on contracts, Trading securities �� 43,747 43,747 — using an interest rate considered to be applicable in cases when similar Available-for-sale securities �� 12,982,324 12,982,324 — loans are executed. Loans and bills discounted �� 30,857,518 — — With respect to claims against legally bankrupt debtors, virtually bank- Allowance for possible loan rupt debtors and debtors who are likely to go bankrupt (potentially bankrupt losses (*1) �� (256,208) — — debtors), since credit losses are calculated based on the present value of the 30,601,310 30,792,503 191,184 expected future cash flows or the estimated amounts that the Group would be able to collect from collateral and guarantees, fair values approximate the Assets total �� 47,817,657 48,008,851 191,184 consolidated balance sheet amount net of the currently expected credit loss Deposits �� 40,258,917 40,262,679 3,761 amount, and the Group thus deems such amounts to be fair value. Negotiable certificates of deposit �� 770,817 770,844 26 Regarding loans, for those without a fixed maturity due to loan charac- Call money and bills sold �� 804,670 804,670 — teristics such as limiting loans to within the value of collaterals, the Group Payables under securities lending deems the book value to be the fair value, since the fair value is expected to transactions �� 1,229,583 1,229,583 — approximate the book value based on the estimated repayment period, Borrowed money �� 1,843,568 1,853,525 9,947 interest rate, and other conditions. Liabilities total �� 44,907,576 44,921,320 13,744 Derivative transactions (*2) �� Deferred hedge accounting is not applied �� 3,627 3,627 — Deferred hedge accounting is applied �� (15,447) (15,447) — Derivative transactions total �� $ (11,810) $ (11,810) $ — (*1) General allowance for loan losses and specific allowance for loan losses provided to “Loans and bills discounted” are separately presented in the above table. (*2) Der ivative transactions recorded in “Other assets” and “Other liabilities” are aggre- gated and shown herein. Assets and liabilities attributable to the derivative transactions are totally offset and the net liability position as a consequence of offsetting would be represented with brackets.

SHIGA BANK ANNUAL REPORT 2017 79 Liabilities Regarding borrowed money with long contractual terms (i.e., one year or (1) Deposits and (2) Negotiable certificates of deposit longer), for floating rate borrowings, the book value is presented as the fair For demand deposits, the Group deems the payment amounts required on value, because the fair value approximates book value. This is because the the consolidated balance sheet date (i.e., book values) to be the fair value. floating rate borrowings reflect the market interest rate in a short period and The fair value of time deposits and negotiable certificates of deposit with there has been no significant change in our credit conditions or in the credit short deposit terms (i.e., less than one year) approximate the book value, and conditions of our consolidated subsidiaries before or after the borrowings the Group deems the book value to be the fair value. With respect to were made. With respect to fixed rate borrowings, the Group uses the deposits with long deposit terms (i.e., one year or longer), the Group uses present value calculated by discounting the future cash flows of the the present value calculated by discounting future cash flows of the principal based on contracts, using an interest rate obtained by adjusting principal based on contracts, using the interest rate that would apply to interest rates available in the interbank market in accordance with categories newly accepted deposits in accordance with the categories of deposit terms. of terms, taking into account the Bank’s credit risk premium. Meanwhile, fair values of borrowings of consolidated subsidiaries are (3) Call money and bills sold and (4) Payables under securities lending calculated by discounting the future cash flows of the principal based on transactions contracts, using interest rates considered to be applicable in cases when the Since contractual terms of these instruments are short (i.e., less than one similar borrowings are made. year) and fair values of these instruments approximate book values, the Group deems the book values to be the fair values. Derivatives Fair value information for derivatives is included in Note 32 “Fair value (5) Borrowed money information on derivative transactions.” As the fair value of borrowed money with short contractual terms (i.e., less than one year) approximates the book value, the Group deems the book value to be the fair value.

(Note 2) Financial instruments whose fair value cannot be reliably determined The following instruments are not included in “Available-for-sales securities” in the above table showing the fair value of financial instruments. Consolidated balance sheet amount Millions of yen Thousands of U.S. dollars 2017 2016 2017 Unlisted stocks (*1) (*2) �� ¥4,006 ¥3,396 $35,707 Investment in capital of partnership and others (*3) �� 2,189 1,753 19,511 Total �� ¥6,196 ¥5,149 $55,227 (*1) Fair value of unlisted stocks is exempt from disclosure because they do not have a market price and their fair value cannot be reliably determined. (*2) For the year ended March 31, 2017, no impairment losses for unlisted stocks were recorded. For the year ended March 31, 2016, impairment losses for unlisted stocks amounted to ¥3 million. (*3) Fair value of investment in capital of partnership and others is exempt from disclosure because partnership assets are composed of unlisted stock and others and their fair value cannot be reliably determined.

(Note 3) Maturity analysis for financial assets and securities with contractual maturities Millions of yen 2017 1 year or less 1 to 3 years 3 to 5 years 5 to 7 years 7 to 10 years Over 10 years Due from banks �� ¥ 433,617 ¥ — ¥ — ¥ — ¥ — ¥ — Available-for-sale securities �� 243,454 364,558 191,679 60,850 159,350 190,525 Japanese government bonds �� 113,600 103,000 34,000 24,000 55,500 63,000 Japanese local government bonds �� 48,244 105,789 51,098 16,462 8,014 5,372 Japanese corporate bonds �� 71,478 113,411 37,438 9,527 15,460 120,865 Others �� 10,132 42,357 69,143 10,859 80,376 1,288 Loans and bills discounted (*) �� 818,210 644,590 510,172 344,618 399,037 671,853 Total �� ¥ 1,495,282 ¥ 1,009,148 ¥ 701,851 ¥ 405,468 ¥ 558,388 ¥ 862,379

Millions of yen 2016 1 year or less 1 to 3 years 3 to 5 years 5 to 7 years 7 to 10 years Over 10 years Due from banks �� ¥ 151,445 ¥ — ¥ — ¥ — ¥ — ¥ — Available-for-sale securities �� 144,344 410,740 338,009 51,279 153,999 110,863 Japanese government bonds �� 50,500 168,600 77,000 5,000 81,000 23,000 Japanese local government bonds �� 23,201 81,854 113,070 19,702 11,180 — Japanese corporate bonds �� 60,333 123,774 89,515 10,112 18,253 80,998 Others �� 10,310 36,512 58,423 16,464 43,566 6,864 Loans and bills discounted (*) �� 837,412 597,289 465,557 301,597 359,752 618,861 Total �� ¥ 1,133,202 ¥ 1,008,030 ¥ 803,566 ¥ 352,876 ¥ 513,752 ¥ 729,725

80 SHIGA BANK ANNUAL REPORT 2017 Thousands of U.S. dollars 2017 1 year or less 1 to 3 years 3 to 5 years 5 to 7 years 7 to 10 years Over 10 years Due from banks �� $ 3,865,023 $ — $ — $ — $ — $ — Available-for-sale securities �� 2,170,015 3,249,469 1,708,521 542,383 1,420,358 1,698,235 Japanese government bonds �� 1,012,567 918,085 303,057 213,922 494,696 561,547 Japanese local government bonds �� 430,020 942,945 455,459 146,733 71,432 47,883 Japanese corporate bonds �� 637,115 1,010,883 333,701 84,918 137,801 1,077,324 Others �� 90,311 377,547 616,302 96,791 716,427 11,480 Loans and bills discounted (*) �� 7,293,074 5,745,520 4,547,392 3,071,735 3,556,796 5,988,528 Total �� $13,328,121 $8,994,990 $6,255,914 $3,614,118 $4,977,163 $7,686,772 (*) Loans in legal bankruptcy, virtual bankruptcy, and potential bankruptcy amounting to ¥45,132 million ($402,281 thousand) and ¥50,230 million loans and bills discounted without contractual maturities amounting to ¥28,289 million ($252,152 thousand) and ¥27,021 million are excluded from the table above as of March 31, 2017 and 2016.

(Note 4) Maturity analysis for bonds, borrowed money, and other interest-bearing liabilities Millions of yen 2017 1 year or less 1 to 3 years 3 to 5 years 5 to 7 years 7 to 10 years Over 10 years Deposits (*) �� ¥ 4,111,515 ¥ 391,030 ¥ 14,102 ¥ — ¥ — ¥ — Negotiable certificates of deposit �� 86,478 — — — — — Call money and bills sold �� 90,276 — — — — — Payables under securities lending transactions �� 137,947 — — — — — Borrowed money �� 181,215 4,111 1,461 42 20,000 — Total �� ¥ 4,607,432 ¥ 395,142 ¥ 15,563 ¥42 ¥ 20,000 ¥ —

Millions of yen 2016 1 year or less 1 to 3 years 3 to 5 years 5 to 7 years 7 to 10 years Over 10 years Deposits (*) �� ¥ 3,868,353 ¥ 442,425 ¥20,371 ¥ — ¥ — ¥— Negotiable certificates of deposit �� 82,908 1,813 — — — — Call money and bills sold �� 51,284 — — — — — Payables under securities lending transactions �� 26,937 — — — — — Borrowed money �� 23,692 4,584 2,053 178 20,000 — Total �� ¥ 4,053,178 ¥ 448,823 ¥22,424 ¥178 ¥ 20,000 ¥—

Thousands of U.S. dollars 2017 1 year or less 1 to 3 years 3 to 5 years 5 to 7 years 7 to 10 years Over 10 years Deposits (*) �� $36,647,785 $3,485,426 $ 125,697 $ — $ — $— Negotiable certificates of deposit �� 770,817 — — — — — Call money and bills sold �� 804,670 — — — — — Payables under securities lending transactions �� 1,229,583 — — — — — Borrowed money �� 1,615,250 36,643 13,022 374 178,269 — Total �� $41,068,116 $3,522,078 $ 138,720 $374 $178,269 $— (*) Demand deposits are included in “1 year or less.”

SHIGA BANK ANNUAL REPORT 2017 81 32. Fair value information on derivative (2) Currency-related transactions transactions Millions of yen 2017 Derivative transactions to which hedge accounting is not applied Contractual value due Net The following is the fair value information for derivative transactions to Contractual after one unrealized which hedge accounting is not applied at March 31, 2017 and 2016. value year Fair value gains (losses) The contractual value of swap agreements and the contract amounts of Over-the-counter: forward exchange contracts, option agreements and other derivatives do Currency swap: �� ¥ 33,326 ¥ 17,114 ¥ 228 ¥228 not necessarily measure the Bank’s exposure to market risk. Forward exchange contracts: Sold �� 35,524 — 134 134 (1) Interest-rate-related transactions Bought �� 3,369 — 43 43 Millions of yen Currency options: 2017 Sold �� 52,467 31,538 (1,871) 325 Contractual Bought �� 52,467 31,538 1,871 79 value due Net Contractual after one unrealized Total �� ¥ — ¥ — ¥ 407 ¥813 value year Fair value gains (losses)

Over-the-counter: Millions of yen Interest rate swap 2016 Receivable fixed rate/pay Contractual floating rate �� ¥283 ¥283 ¥(0) ¥(0) value due Net Contractual after one unrealized Total �� ¥ — ¥ — ¥(0) ¥(0) value year Fair value gains (losses) Over-the-counter: Millions of yen Currency swap: �� ¥ 26,802 ¥ 20,709 ¥ 20 ¥ 20 2016 Forward exchange contracts: Contractual Sold �� 36,732 — 1,148 1,148 value due Net Contractual after one unrealized Bought �� 7,059 — (257) (257) value year Fair value gains (losses) Currency options: Over-the-counter: Sold �� 53,659 33,399 (1,774) (57) Interest rate swap Bought �� 53,659 33,399 1,774 404 Receivable fixed rate/pay Total �� ¥ — ¥ — ¥ 910 ¥ 1,257 floating rate �� ¥172 ¥172 ¥2 ¥2 Total �� ¥ — ¥ — ¥2 ¥2 Thousands of U.S. dollars 2017 Thousands of U.S. dollars Contractual 2017 value due Net Contractual after one unrealized Contractual value year Fair value gains (losses) value due Net Contractual after one unrealized Over-the-counter: value year Fair value gains (losses) Currency swap: �� $ 297,049 $ 152,544 $ 2,032 $2,032 Over-the-counter: Forward exchange contracts: Interest rate swap Sold �� 316,641 — 1,194 1,194 Receivable fixed rate/pay Bought �� 30,029 — 383 383 floating rate �� $ 2,522 $ 2,522 $(0) $(0) Currency options: Total �� $ — $ — $(0) $(0) Sold �� 467,662 281,112 (16,677) 2,896 Notes: 1. The above transactions were revalued at the end of each of the years and the Bought �� 467,662 281,112 16,677 704 related gains and losses are reflected in the accompanying consolidated Total �� $ — $ — $ 3,627 $7,246 statements of income. Notes: 1. The above transactions were revalued at the end of each of the years and the 2. The fair values of the above derivatives are principally based on quoted related gains and losses are reflected in the accompanying consolidated market prices, such as those of Tokyo Financial Exchange Inc., or discounted statements of income. values of future cash flows. 2. Fair value is calculated using discounted cash flows.

(3) Stock-related transactions are not performed. (4) Bond-related transactions are not performed. (5) Financial product-related transactions are not performed. (6) Credit derivative transactions are not performed.

82 SHIGA BANK ANNUAL REPORT 2017 Derivative transactions to which hedge accounting is applied Thousands of U.S. dollars 2017 The following is the fair value information for derivative transactions to Contractual which hedge accounting is applied at March 31, 2017 and 2016. value due The contract amounts do not necessarily measure the Bank’s exposure to Hedged Contractual after one market risk: items value year Fair value Loans (1) Interest-rate-related transactions Forward exchange denominated contracts �� in foreign $4,002 $— $0 Millions of yen currencies 2017 Notes: 1. Deferred hedge accounting is mainly applied in accordance with the JICPA Contractual Industry Audit Committee Report No. 25. value due Hedged Contractual after one 2. Fair value is calculated using discounted cash flows. items value year Fair value Principle treatment Available- (3) Stock-related transactions are not performed. Interest rate swap: for-sale (4) Bond-related transactions are not performed. Receivable floating rate/ securities pay fixed rate �� (bonds) ¥20,000 ¥20,000 ¥(1,733) 33. Comprehensive income Millions of yen The components of other comprehensive income for the years ended March 2016 31, 2017 and 2016, were as follows: Contractual value due Thousands of U.S. Hedged Contractual after one Millions of yen items value year Fair value dollars Principle treatment Available- 2017 2016 2017 Interest rate swap: for-sale Unrealized (losses) gains on Receivable floating rate/ securities available-for-sale securities: pay fixed rate �� (bonds) ¥20,000 ¥20,000 ¥(2,387) The amount arising during the period �� ¥23,237 ¥ (5,170) $ 207,121 Reclassification adjustments to Thousands of U.S. dollars profit or loss �� (3,643) (11,575) (32,471) 2017 Before adjustments to tax Contractual effect �� 19,593 (16,745) 174,641 value due Hedged Contractual after one The amount of tax effect �� (5,773) 7,051 (51,457) items value year Fair value Total �� ¥ 13,819 ¥ (9,694) $ 123,174 Principle treatment Available- Interest rate swap: for-sale Deferred losses on derivatives Receivable floating rate/ securities under hedge accounting: pay fixed rate �� (bonds) $178,269 $178,269 $(15,447) The amount arising during Notes: 1. Deferred hedge accounting is mainly applied in accordance with the JICPA the period �� ¥ 635 ¥ (1,360) $ 5,660 Industry Audit Committee Report No. 24. Reclassification adjustments to 2. The fair values of the above derivatives are principally based on quoted profit or loss �� 17 11 151 market prices, such as those of Tokyo Financial Exchange Inc., or discounted Before adjustments to tax values of future cash flows. effect �� 653 (1,349) 5,820 The amount of tax effect �� (198) 394 (1,764) (2) Currency-related transactions Total �� ¥ 454 ¥ (955) $ 4,046 Millions of yen Land revaluation surplus: 2017 Reclassification adjustments to Contractual value due profit or loss �� ¥ — ¥ — $ — Hedged Contractual after one Before adjustments to tax items value year Fair value effect �� — — — Loans The amount of tax effect �� — 387 — Forward exchange denominated Total �� ¥ — ¥ 387 $ — contracts �� in foreign ¥449 ¥— ¥0 currencies Defined retirement benefit plans: The amount arising during Millions of yen the period �� ¥ 2,317 ¥ (9,715) $ 20,652 2016 Reclassification adjustments to Contractual profit or loss �� 617 (651) 5,499 value due Before adjustments to tax Hedged Contractual after one effect �� 2,935 (10,366) 26,160 items value year Fair value The amount of tax effect �� (893) 3,304 (7,959) Loans Total �� ¥ 2,041 ¥ (7,062) $ 18,192 Forward exchange denominated Total other comprehensive contracts �� in foreign ¥842 ¥— ¥(0) income �� ¥ 16,315 ¥ (17,323) $ 145,422 currencies

SHIGA BANK ANNUAL REPORT 2017 83 34. Business combinations Year Ended March 31, 2017 (Transaction under common control) Additional acquisition of subsidiaries’ shares

1. Outline of the business combination (1) Name of acquired company and its business outline Name Business outline The Shiga DC Card Co., Ltd. Credit card business, credit guarantee business The Shigagin JCB Co., Ltd. Credit card business Shigagin Lease & Capital Co., Ltd. Leasing and investment business

(2) Date of the business combination February 2, 2017

(3) Legal form of the business combination Acquisition of shares from noncontrolling interests

(4) Name of the company after the combination Unchanged

(5) Other matters In order to expedite decision-making and strengthen governance of the Group as well as to provide comprehensive financial services as an integrated Group through cooperation throughout the Group.

2. Outline of accounting policy applied The transaction was accounted for as a transaction with noncontrolling interests within a transaction under common control based on “Accounting Standard for Business Combinations” (ASBJ Statement No. 21 issued in September 2013) and “Guidance on Accounting Standard for Business Combinations and Business Divestitures” (ASBJ Guidance No. 10 issued in September 2013).

3. Additional acquisition of subsidiaries’ shares Acquisition cost of the acquired company and related details of each class of consideration Millions of yen Thousands of U.S. dollars Consideration for acquisition Cash and due from banks ¥1,878 $16,739 Acquisition cost ¥1,878 $16,739

4. Change in equity interest of the Bank due to transaction with noncontrolling interests (1) Major reason for change in capital surplus Additional acquisition of subsidiaries’ shares

(2) Amount of capital surplus increased due to transaction with noncontrolling interests ¥ 615 million ($5,481 thousand)

35. Net income per share Reconciliation of the differences between basic and diluted net income per share (“EPS”) for the years ended March 31, 2017 and 2016, is as follows: Millions of yen Thousands of shares Yen U.S. dollars Net income Attributable Weighted-Average to Owners of the parent Shares EPS For the year ended March 31, 2017 Basic EPS: Net income attributable to common shareholders �� ¥14,895 260,329 ¥57.21 $0.510 Effect of dilutive securities: Warrants �� 33,953 Diluted EPS: Net income for computation �� ¥14,895 294,283 ¥50.61 $0.451 For the year ended March 31, 2016 Basic EPS: Net income attributable to common shareholders �� ¥15,508 260,321 ¥59.57 Effect of dilutive securities: Warrants �� 33,775 Diluted EPS: Net income for computation �� ¥15,508 294,097 ¥52.73

84 SHIGA BANK ANNUAL REPORT 2017 36. Subsequent event Appropriation of retained earnings The following appropriation of retained earnings will be authorized at the ordinary general shareholders’ meeting to be held on June 27, 2017: Millions of yen Thousands of U.S. dollars Cash dividends, ¥4.5 ($0.04) per share �� ¥1,171 $10,437 Total �� ¥1,171 $10,437

37. Segment information For the years ended March 31, 2017 and 2016 Because the Group has only one segment, banking, the description is not presented.

Related Information (1) Information about services Millions of yen 2017 Lending services Securities investment Fees and commissions Other Total Operating income from external customers �� ¥39,171 ¥19,840 ¥13,923 ¥17,215 ¥90,151 Millions of yen 2016 Lending services Securities investment Fees and commissions Other Total Operating income from external customers �� ¥40,245 ¥24,642 ¥13,992 ¥16,963 ¥95,844 Thousands of U.S. dollars 2017 Lending services Securities investment Fees and commissions Other Total Operating income from external customers �� $349,148 $176,842 $124,101 $153,445 $803,556

(2) Information about geographical areas (a) Operating income Operating income from external domestic customers exceeded 90% of total operating income on the consolidated statements of income for the years ended March 31, 2017 and 2016; therefore geographical operating income information is not presented. (b) Tangible fixed assets The balance of domestic tangible fixed assets exceeded 90% of the total balance of tangible fixed assets on the consolidated balance sheets as of March 31, 2017 and 2016; therefore, geographical tangible fixed assets information is not presented.

(3) Information about major customers Operating income to a specific customer did not reach 10% of total operating income on the consolidated statements of income for the years ended March 31, 2017 and 2016; therefore, major customer information is not presented.

SHIGA BANK ANNUAL REPORT 2017 85 38. Related party transactions Transactions of the Bank with related parties for the year ended March 31, 2017, were as follows: Transaction amount Year-end balance Millions Thousands of Millions Thousands of Related party Category Description of transactions of yen U.S. dollars Accounts name of yen U.S. dollars Lending operation loan, net of collection �� ¥ 17 $ 151 Loans �� ¥ 28 $ 249

Company in which director or Other relative has the majority of Interest receipts �� 0 0 liabilities �� 0 0 Taiyo & Co. the voting rights Commission receipts, etc. �� 0 0 Lending operation loan, net of collection �� (8) (71) Loans �� 141 1,256 Customers’ liabilities for acceptances and Guarantee of payment �� (16) (142) guarantees �� 148 1,319 Acceptances and Interest receipts �� 1 8 guarantees �� 148 1,319 Company in which director or Guarantee commission Other relative has the majority of receipts �� 0 0 liabilities �� 0 0 KUSANEN CO., LTD. the voting rights Commission receipts, etc. �� 0 0

Transactions of the Bank with related parties for the year ended March 31, 2016, were as follows: Transaction Year-end amount balance Related party Category Description of transactions Millions of yen Accounts name Millions of yen Lending operation loan, net of Company in which director or collection �� ¥ (1) Loans �� ¥ 11 relative has the majority of Other Taiyo & Co. the voting rights Interest receipts �� 0 liabilities �� 0 Lending operation loan, net of collection �� 21 Loans �� 149 Customers’ liabilities for acceptances and Guarantee of payment �� (16) guarantees �� 164 Acceptances and Company in which director or Interest receipts �� 1 guarantees �� 164 relative has the majority of Guarantee commission Other KUSANEN CO., LTD. the voting rights receipts �� 1 liabilities �� 0

86 SHIGA BANK ANNUAL REPORT 2017 Deloitte Deloitte Touche Tohmatsu LLC Yodoyabashi Mitsui Building 4-1-1, Imabashi, Chuo-ku Osaka 541-0042 Japan Tel: +81 (6) 4560 6000 Fax: +81 (6) 4560 6001 www.deloitte.com/jp INDEPENDENT AUDITOR’S REPORT

To the Board of Directors of The Shiga Bank, Ltd.:

We have audited the accompanying consolidated balance sheet of The Shiga Bank, Ltd. and its consolidated subsidiaries as of March 31, 2017, and the related consolidated statements of income, comprehensive income, changes in equity, and cash flows for the year then ended, and a summary of significant accounting policies and other explanatory information, all expressed in Japanese yen. Management’s Responsibility for the Consolidated Financial Statements Management is responsible for the preparation and fair presentation of these consolidated financial statements in accordance with accounting principles generally accepted in Japan, and for such internal control as management determines is necessary to enable the preparation of consolidated financial statements that are free from material misstatement, whether due to fraud or error. Auditor’s Responsibility Our responsibility is to express an opinion on these consolidated financial statements based on our audit. We conducted our audit in accordance with auditing standards generally accepted in Japan. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free from material misstatement.

An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the consolidated financial statements. The procedures selected depend on the auditor’s judgment, including the assessment of the risks of material misstatement of the consolidated financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity’s preparation and fair presentation of the consolidated financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements.

We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion. Opinion In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of The Shiga Bank, Ltd. and its consolidated subsidiaries as of March 31, 2017, and the consolidated results of their operations and their cash flows for the year then ended in accordance with accounting principles generally accepted in Japan. Convenience Translation Our audit also comprehended the translation of Japanese yen amounts into U.S. dollar amounts and, in our opinion, such translation has been made in accordance with the basis stated in Note 1 to the consolidated financial statements. Such U.S. dollar amounts are presented solely for the convenience of readers outside Japan.

June 2, 2017

Member of Deloitte Touche Tohmatsu

SHIGA BANK ANNUAL REPORT 2017 87 Composition of Capital Disclosure (Capital ratio of the fiscal year ended March 31, 2017, Basel III)

Capital ratio (consolidated) (Appended Form 2 of Supplementary Provision of the Notification of Japanese Financial Services Agency No. 7, 2014) Millions of yen, % Year ended March 31, 2017 Year ended March 31, 2016 Amounts Amounts excluded excluded Basel III under under Template transitional transitional No.. Items arrangements arrangements Common Equity Tier 1 capital: instruments and reserves 1a+2-1c-26 Directly issued qualifying common share capital plus related capital surplus and retained earnings 238,193 224,531 1a of which: capital and capital surplus 57,654 57,043 2 of which: retained earnings 185,201 172,152 1c of which: treasury stock (-) 3,490 3,490 26 of which: national specific regulatory adjustments (earnings to be distributed) (-) 1,172 1,173 of which: other than above — — 1b Subscription rights to common shares 113 98 3 Accumulated other comprehensive income and other disclosed reserves 105,343 26,335 69,336 46,224 5 Common share capital issued by subsidiaries and held by non-controlling interests (amount allowed in group Common Equity Tier 1) — — Total of items included in Common Equity Tier 1 capital: instruments and reserves subject to transitional arrangements 277 951 of which: common share capital issued by subsidiaries and held by non-controlling interests 277 951 (amount allowed in group Common Equity Tier 1) 6 Common Equity Tier 1 capital: instruments and reserves (A) 343,927 294,917 Common Equity Tier 1 capital: regulatory adjustments 8+9 Total intangible fixed assets (excluding those relating to mortgage servicing rights) 2,041 510 1,448 965 8 of which: goodwill (including those equivalent) ———— 9 of which: other intangibles other than goodwill and mortgage servicing rights 2,041 510 1,448 965 10 Deferred tax assets that rely on future profitability excluding those arising from temporary differences ———— 11 Deferred gains or losses on derivatives under hedge accounting (0) (0) 0 0 12 Shortfall of eligible provisions to expected losses 4,541 1,135 2,869 1,912 13 Securitization gain on sale ———— 14 Gains and losses due to changes in own credit risk on fair valued liabilities ———— 15 Asset for retirement benefits ———— 16 Investments in own shares (excluding those reported in the Net assets section) 2 0 0 0 17 Reciprocal cross-holdings in common equity ———— 18 Investments in the capital of banking, financial and insurance entities that are outside the scope of regulatory consolidation ———— 19+20+21 Amount exceeding the 10% threshold on specified items ———— 19 of which: significant investments in the common stock of financials ———— 20 of which: intangible fixed assets relating to mortgage servicing rights ———— 21 of which: deferred tax assets arising from temporary differences ———— 22 Amount exceeding the 15% threshold on specified items ———— 23 of which: significant investments in the common stock of financials ———— 24 of which: intangible fixed assets relating to mortgage servicing rights ———— 25 of which: deferred tax assets arising from temporary differences ———— 27 Regulatory adjustments applied to Common Equity Tier 1 due to insufficient Additional Tier 1 and Tier 2 to cover deductions — — 28 Common Equity Tier 1 capital: regulatory adjustments (B) 6,585 4,319 Common Equity Tier 1 capital (CET1) 29 Common Equity Tier 1 capital (CET1) ((A)-(B)) (C) 337,341 290,598 Additional Tier 1 capital: instruments Directly issued qualifying Additional Tier 1 instruments plus related capital surplus of which: 31a classified as equity under applicable accounting standards — — 31b Subscription rights to Additional Tier 1 instruments — — 30 Directly issued qualifying Additional Tier 1 instruments plus related capital surplus of which: 32 classified as liabilities under applicable accounting standards — — Qualifying Additional Tier 1 instruments plus related capital surplus issued by — — special purpose vehicles and other equivalent entities 34-35 Additional Tier 1 instruments issued by subsidiaries and held by non-controlling interests (amount allowed in group Additional Tier 1) 1,247 2,140 33+35 Eligible Tier 1 capital instruments subject to transitional arrangements included in Additional Tier 1 capital: instruments — — 33 of which: instruments issued by bank and its special purpose vehicles — — 35 of which: instruments issued by subsidiaries — — Total of items included in Additional Tier 1 capital: instruments subject to transitional arrangements — — of which: transitional arrangements related to accumulated other comprehensive income — — 36 Additional Tier 1 capital: instruments (D) 1,247 2,140 Additional Tier 1 capital: regulatory adjustments 37 Investments in own Additional Tier 1 instrument ———— 38 Reciprocal cross-holdings in Additional Tier 1 instruments ———— 39 Investments in the capital of banking, financial and insurance entities that are outside the scope of regulatory consolidation ———— Significant investments in the capital of banking, financial and 40 insurance entities that are outside the scope of regulatory consolidation ————

88 SHIGA BANK ANNUAL REPORT 2017 Millions of yen, % Year ended March 31, 2017 Year ended March 31, 2016 Amounts Amounts excluded excluded Basel III under under Template transitional transitional No.. Items arrangements arrangements Total of items included in Additional Tier 1 capital: regulatory adjustments subject to transitional arrangements 567 956 of which: shortfall of eligible provisions to expected losses 567 956 42 Regulatory adjustments applied to Additional Tier 1 due to insufficient Tier 2 to cover deduction — — 43 Additional Tier 1 capital: regulatory adjustments (E) 567 956 Additional Tier 1 capital 44 Additional Tier 1 capital ((D) – (E)) (F) 679 1,183 Tier 1 capital (T1 = CET1 + AT1) 45 Tier 1 capital (T1 = CET1 + AT1) ((C)+(F)) (G) 338,021 291,782 Tier 2 capital: instruments and provisions Directly issued qualifying Tier 2 instruments plus related capital surplus of which: classified as equity under applicable accounting standards — — Subscription rights to Tier 2 instruments — — 46 Directly issued qualifying Tier 2 instruments plus related capital surplus of which: classified as liabilities under applicable accounting standards 14,491 19,057 Qualifying Tier 2 instruments plus related capital surplus issued by special purpose vehicles and other equivalent entities — — 48-49 Tier 2 instruments issued by subsidiaries and held by non-controlling interests (amount allowed in group Tier 2) 293 503 47+49 Eligible Tier 2 capital instruments subject to transitional arrangements included in Tier 2: instruments and provisions 20,000 20,000 47 of which: instruments issued by bank and its special purpose vehicles 20,000 20,000 49 of which: instruments issued by subsidiaries — — 50 Total of general allowance for credit losses and eligible provisions included in Tier 2 153 142 50a of which: provision for general allowance for credit losses 153 142 50b of which: eligible provisions — — Total of items included in Tier 2 capital: instruments and provisions subject to transitional arrangements 16,462 29,303 of which: accumulated other comprehensive income 16,462 29,303 51 Tier 2 capital: instruments and provisions (H) 51,401 69,007 Tier 2 capital: regulatory adjustments 52 Investments in own Tier 2 instruments ———— 53 Reciprocal cross-holdings in Tier 2 instruments ———— 54 Investments in the capital of banking, financial and insurance entities that are outside the scope of regulatory consolidation ———— 55 Significant investments in the capital banking, financial and insurance entities that are outside the scope of regulatory consolidation ———— Total of items included in Tier 2 capital: regulatory adjustments subject to transitional arrangements 567 956 of which: shortfall of eligible provisions to expected losses 567 956 57 Tier 2 capital: regulatory adjustments (I) 567 956 Tier 2 capital (T2) 58 Tier 2 capital (T2) ((H)-(I)) (J) 50,833 68,050 Total capital (TC = T1 + T2) 59 Total capital (TC = T1 + T2) ((G)+(J)) (K) 388,854 359,832 Risk weighted assets Total of items included in risk weighted assets subject to transitional arrangements 512 967 of which: intangibles other than mortgage servicing rights 510 965 of which: deferred tax assets that rely on future profitability excluding those arising from temporary differences — — of which: investments in own shares 1 1 60 Risk weighted assets (L) 2,331,485 2,186,794 Capital ratio (consolidated) 61 Common Equity Tier 1 capital ratio (consolidated) ((C)/(L)) 14.46 13.28 62 Tier 1 capital ratio (consolidated) ((G)/(L)) 14.49 13.34 63 Total capital ratio (consolidated) ((K)/(L)) 16.67 16.45 Regulatory adjustments 72 Non-significant investments in the capital of other financials that are below the thresholds for deduction (before risk weighting) 22,077 10,422 73 Significant investments in the common stock of other financials that are below the thresholds for deduction (before risk weighting) 779 838 74 Intangible fixed assets relating to mortgage servicing rights that are below the thresholds for deduction (before risk weighting) — — 75 Deferred tax assets arising from temporary differences that are below the thresholds for deduction (before risk weighting) — — Provisions included in Tier 2 capital: instruments and provisions 76 Provisions (general allowance for credit losses) 153 142 77 Cap on inclusion of provisions (general allowance for credit losses) 476 475 Provisions eligible for inclusion in Tier 2 in respect of exposures subject to internal ratings-based approach 78 (prior to application of cap) (if the amount is negative, report as “nil”) — — 79 Cap for inclusion of provisions in Tier 2 under internal ratings-based approach 12,822 12,207 Capital instruments subject to transitional arrangements 82 Current cap on AT1 instruments subject to phase out arrangements — — Amount excluded from AT1 due to cap (excess over cap after redemptions and maturities) 83 (if the amount is negative, report as “nil”) — — 84 Current cap on T2 instruments subject to transitional arrangements 30,000 36,000 Amount excluded from T2 due to cap (excess over cap after redemptions and maturities) 85 (if the amount is negative, report as “nil”) — — Note: “Basel III Template No.” indicates the numbers in the table in Annex 1 of the document entitled Composition of capital disclosure requirements released by the Basel Committee on Banking Supervision on June 26, 2012.

SHIGA BANK ANNUAL REPORT 2017 89 Matters concerning the disclosure of consolidated leverage ratio

1. Matters concerning the composition of consolidated leverage ratio (Appended Form 6 of Supplementary Provision of the Notification of the Financial Services Agency, The Japanese Government No. 7, 2014) Millions of yen Corresponding Corresponding Line # on Line # on International International FY2016 FY2015 Template Template (Table 2) (Table 1) Item On-balance sheet exposures 1 On-balance sheet exposures before deducting adjustment items 5,513,028 4,996,435 1a 1 Total assets reported in the consolidated balance sheet 5,539,561 5,025,426 1b 2 Amount of assets of subsidiaries that are not included in the scope of the leverage ratio on a consolidated basis (-) — — Amount of assets of subsidiaries that are included in the scope of the leverage ratio on a consolidated basis (except those 1c 7 — — included in the total assets reported in the consolidated balance sheet) 1d 3 Amount of assets that are deducted from the total assets reported in the consolidated balance sheet (-) 26,533 28,990 2 7 Amount of adjustment items pertaining to Tier 1 capital (-) 6,585 4,319 3 Total on-balance sheet exposures (A) 5,506,442 4,992,116 Derivative transaction exposures 4 Replacement cost associated with derivative transactions, etc. 2,528 3,127 Add-on amount associated with derivative transactions, etc. 3,726 3,766 5 Amount of receivables arising from providing cash margin in relation to derivative transactions, etc. 76 — Amount of receivables arising from providing cash margin, provided where deducted from the consolidated balance 6 — — sheet pursuant to the operative accounting framework 7 Amount of deductions of receivables (out of those arising from providing cash variation margin) (-) — — Amount of client-cleared trade exposures for which a bank or bank holding company acting as clearing member is not 8 obliged to make any indemnification (-) 9 Amount of adjusted effective notional amount of written credit derivatives — — 10 Amount of deductions from effective notional amount of written credit derivatives (-) — — 11 4 Total exposures related to derivative transactions (B) 6,330 6,894 Repo transaction exposures 12 Amount of assets related to repo transactions, etc. — — 13 Amount of deductions from repo transactions, etc. (-) — — 14 Amount of counterparty risk exposure for repo transactions, etc. 616 240 15 Amount of agent transaction exposures 16 5 Total exposures related to repo transactions, etc. (C) 616 240 Other off-balance sheet exposures 17 Notional amount of off-balance sheet transactions 900,202 882,006 18 Amount of adjustments for conversation to in relation to off-balance sheet transactions 769,671 752,162 19 6 Total exposures related to off-balance sheet transactions (D) 130,531 129,843 Consolidated leverage ratio 20 The amount of capital (Tier 1 capital) (E) 338,021 291,782 21 8 Total exposures ((A) + (B) + (C) + (D)) (F) 5,643,922 5,129,094 22 Consolidated leverage ratio ((E) / (F)) 5.98% 5.68% Corresponding Line # on International Template, Table 1 refers to that in Table 1 and Table 2 in the rule text of “Basel III leverage ratio framework and disclosure requirements” published by the Basel Committee on Banking Supervision on January 12, 2014.

2. Reasons for any significant disparities in consolidated leverage ratio compared to the previous fiscal year (if any) Not applicable.

90 SHIGA BANK ANNUAL REPORT 2017 Stock Information As of March 31, 2017

Major shareholders Number of shares held As a percentage of (Thousand shares) total number of issued shares (%)

Japan Trustee Services Bank, Ltd. (Trust account) 15,237 5.74

Sompo Japan Nipponkoa Insurance Inc. 9,518 3.58

NORTHERN TRUST CO. (AVFC) RE SILCHESTER INTERNATIONAL INVESTORS INTERNATIONAL VALUE EQUITY TRUST (Managing agent, The Hongkong and 9,349 3.52 Shanghai Banking Corporation Limited Tokyo Branch)

Nippon Life Insurance Company 8,054 3.03

Meiji Yasuda Life Insurance Company 7,999 3.01

Employee Stock Ownership of Shiga Bank 6,509 2.45

NORTHERN TRUST CO. (AVFC) RE U.S. TAX EXEMPTED PENSION FUNDS (Managing agent, The Hongkong and Shanghai Banking Corporation Limited 6,117 2.30 Tokyo Branch)

Japan Trustee Services Bank, Ltd. (Trust account 9) 6,033 2.27

The Master Trust Bank of Japan, Ltd. (Trust account) 4,804 1.80

Mizuho Bank, Ltd. 3,920 1.47

Total 77,541 29.21

Number of shares held by type of shareholder (Thousand shares)

Government (incl. Local governments) 63 (0.0%)

Individuals and others 63,655 (23.9%)

Financial institutions 92,118 (34.7%)

Foreigners 45,883 (17.2%) Securities houses 3,886 (1.4%)

Other corporations 59,842 (22.5%)

Note: Figures in parentheses represent voting rights as a percentage of the total voting rights held by each shareholder segment.

SHIGA BANK ANNUAL REPORT 2017 91 表紙表紙［本誌］［本誌］

SHIGASHIGA BANKBANK ANNUALANNUAL REPORTREPORT 20172017 YearYear ended ended March March 31, 31, 2017 2017