Okashin_H1-H4.indd H1 2018/08/09 20:41 The Okazaki Shinkin Bank was established in 1924 in Okazaki City, Aichi JAPAN Prefecture to serve small and medium-sized companies and their employees. Under its corporate mission of sincerely striving for the prosperity of society and the development of regional industry, the Bank continues to maintain sound operations, and is steadily widening its business scope. The Bank AICHI currently enjoys an overwhelming share of deposits and loans in Okazaki City, and is one of the top-ranked shinkin banks in Japan. NAGOYA

Amid the present dramatic changes in the financial sector, the Bank OKAZAKI reaffirms its customer-focused business stance. We are continuing to improve our services and lineup of financial products, streamline our corporate organization, raise operational efficiency, and further reinforce our risk management capability and earning power. $V0DUFK7KH%DQN·VQHWZRUN²FRYHULQJWKHZKROHRI$LFKL 3UHIHFWXUH²FRPSULVHGEUDFKHV7KHQHWZRUNZDVVWDIIHGE\ employees serving 131,658 members. The total balance of deposits stood at ¥3,043,268 million (US$28,645 million), and loans and bills discounted totaled ¥1,584,243 million (US$14,911 million). (exchanging ¥106.24, end of March 2018)

Profile of The Okazaki Shinkin Bank About the Representative System (As of March 31, 2018) Shinkin banks are the Japanese equivalent of a credit union, and are a form of financial • Established: July 1924 institution with a cooperative structure based on the fundamental principles of "mutual trust" • Head Office: 41 Motosuga, Sugo-cho, Okazaki and "reciprocity" between members, and that maximizes the value of the opinions of each • Members: 131,658 and every member. Each member of a shinkin bank therefore has a single voting right regardless of the number of asset accounts, and participates in the operation of the bank • Capital: 3,167.7 million yen through the general meetings. However, because of the large number of members of the • Deposits: 3,043.2 billion yen Okazaki Shinkin Bank, it is not possible in practice to actually hold general meetings. In • Loans: 1,584.2 billion yen order to maintain member consensus while ensuring the completeness of deliberations, a • Full-time employees: 2,010 representative system is therefore used instead of general meetings. • Location: 99 locations The representatives committee is the highest-level decision-making body for deciding Number of Offices by Area important issues such as approval of accounts or change to statutes of the bank, and Okazaki Area 29 appointment of the board of directors and auditors. The representatives committee Nagoya Area 19 therefore conducts business through representatives that are selected by some appropriate procedure from among the members, and the opinions of each and every member are Owari Area 5 therefore reflected in the running of the bank in the same way as a general meeting. West-Mikawa Area 30 Furthermore, communication with representatives and members that occurs not only in East-Mikawa Area 16 the representative meetings, but also in everyday operations is treated as important, and is incorporated into various improvements in the running of the bank.

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Okashin_AR_01-10_2018.indd 01 2018/08/09 20:42 Message from the Management

Ichiro Obayashi Makoto Okawara Chairman of the Board President

Aiming to Be the Most Trusted, Number-One Community Bank

Thank you for using the Okazaki Shinkin Bank. We are publishing "The State of Okashin 2018," our annual disclosure report, in order to foster an even deeper understanding of our bank, and we would invite everyone to read it. Local economic conditions continued along the path of a gentle recovery in 2017, including a transition to stronger production activities due to increases in exports and equipment investment. However, the sense of uncertainty about the future also increased due to a greater sense of labor shortages among companies as well as concerns over increasing tension surrounding North Korea and trade friction caused by the United States. On the financial side of the economy during this time, interest rate levels have continued to be extremely low, with the Bank of Japan maintaining a policy of negative interest rates. Amidst these financial and economic conditions, we have striven to improve the quality of our financial services with a focus on fields in which our clients have growing needs, such as business match-making, business succession and inheritance, real estate utilization, health care and welfare, and overseas business support, based on an approach that seeks mutual advantage and puts fairness before profits, in accordance with the medium-term business plan we launched in 2015, our "Three-Year Plan for Transitioning from Quantity to Quality." With regard to bank locations, we moved our Nagoya Branch to the Nagoya Building newly constructed in the Misono district of Nagoya, and our Okazaki Ekinishi Branch, Ikeura Branch, Handa Branch, and Hina Branch also moved to new facilities. We have also worked to offer greater convenience for our customers by continuing to install new ATMs in shopping centers and other locations. With the new medium-term management plan that we are starting in 2018, our "Three-Year Plan for Reform and Creativity," we aim to become a financial institution that thrills customers and enriches employees by creating new added value without being limited by previous ways of thinking, via five strategies that concern sales, bank branches, business operations, personnel, and finances. Our personnel and executives are united in our efforts to pursue business operations that will earn an even higher level of trust from our customers, and we humbly ask for your continued support in these efforts. July 2018

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Okashin_AR_01-10_2018.indd 02 2018/08/09 20:42 Review of Operations

Savings and Deposits Thanks to you, our savings and deposit balance reached 3 trillion yen in 30,432 (unit: 100 million yen) 29,105 28,283 December 2017. We were able to grow our savings and deposit balance to 3 trillion yen in December 2017. We are now ranked third nationwide among all shinkin 22,886 21,956 22,435 banks in this area. Going forward, we aim to be a financial institution that continues to please and bee Reached chosen by customers, and we hope to continuee 3 trillion receiving the exceptional support you have shown us.. yen Personal savings (yen) 3 trillion Reached 2 trillion yen

2 trillion Reached 1 trillion yen 0 End of March 2016 End of March 2017 End of March 2018 1 trillion Personal deposits increased 45 billion yen, and corporate deposits increased

83.3 billion yen, resulting in a savings and deposits increase of 132.7 billion yen 0 compared to the end of the previous fiscal year. The period-end balance was 1986 1994 2017 3,043.2 billion yen.

Loans Profit and Loss Conditions

(unit: 100 million yen) (unit: million yen) 15,495 15,706 15,842 Operating Current operating profit 7,129 profit 6,779

5,670 5,204

4,338

6,393 3,258 5,869 6,237

Individual loans

0 0 End of March 2016 End of March 2017 End of March 2018 End of March 2016 End of March 2017 End of March 2018 Loans increased by 13.5 billion yen compared to the end of the previous fiscal Operating profit was 6.779 billion yen, and current operating profit was year, for a period-end balance of 1,584.2 billion yen. 5.204 billion yen.

Capital ratio Non-performing Loan Conditions

(unit: 100 million yen) (unit: million yen) Isolated capital ratio (%) 193,991 13.1113.11 12.8112.818 12.4712.47 3.833.83 Non-performing loan rate (%) 3.243.24 2.902.990 1,926 1,953 2,000 59,738 51,265 46,225

Capital Accumulated amount earnings Non-performing loans

0 0 End of March 2016 End of March 2017 End of March 2018 End of March 2016 End of March 2017 End of March 2018 Our isolated capital ratio was 12.47% (a 0.34 point decrease compared to the end The non-performing loan amount based on the Financial Revitalization Act of the previous fiscal year). This is over 3 times more than the domestic standard of declined 5.04 billion yen compared to the end of the previous fiscal year, for a 4%, and it demonstrates both the soundness and security of the Okazaki Shinkin Bank. total of 46.225 billion yen. To further alleviate risks, our total capital is 200 billion yen, putting our bank in a position of excellent operational strength that ranks among Japan’s top shinkin banks. 3

Okashin_AR_01-10_2018.indd 03 2018/08/09 20:42 Efforts towards Compliance (Adhering to Laws)

Fundamental Compliance Policy

The Okazaki Shinkin Bank has established a fundamental policy of prioritizing compliance as our most important management issue, and all of our executives and employees are active in efforts to comply with laws and regulations, etc. A set of "in-house rules for supervising compliance" have been established based on the compliance policy, and these rules determine the basic items related to preparations for complying with laws, etc. A strong management system has also been built with the board of directors at the top. In terms of actions, the "compliance program" that details specific implementation plans is decided every year. Through this program, all of our executives and employees strive to be active in each of the areas for improving employee awareness and building systems for complying with laws, etc.

Compliance Management System

The final decision-making body in relation to compliance is the Board of Directors Corporate auditors board of directors. In addition to deciding on our fundamental policies and compliance standards, the board of directors appropriately evaluates the range of compliance measures in addition to the state of compliance. The compliance committee Executive Committee was established in accordance with our compliance policy and is involved in investigating, planning, and evaluating from the standpoint of comprehensive business management. Compliance Committee Furthermore, the risk management division (legal affairs administration office) has been established as the supervising office, and in addition to performing business and planning related Risk Management Division Hotline to compliance measures, also undertakes guidance and training, (Legal Affairs Administration Office) and responds to questions and consultations. Regarding the organization of each position, a "compliance officer" is stationed in the primary work supervision role, and a "compliance supervisor" is stationed in each branch. They provide instruction, guidance, and verification related to the work within Compliance Compliance their branch and to the staff within their branch. Officer Supervisor In order to respond swiftly and appropriately in the rare event that a violation of the law occurs, there is a system in place to facilitate a prompt response, so that when a staff member becomes aware of a compliance violation or that there is a risk of Staff a compliance violation, the staff member is to notify a compliance officer or compliance supervisor, and in addition, there is a hotline through which the risk management division (legal affairs administration office), corporate auditors or advising lawyers can be notified directly.

Compliance-Related Activities

Through the annual compliance program, in addition to branch guidance by managers and training workshops being held, efforts are progressing towards appropriate work management, centered on each of the officers and supervisors, such as holding study seminars that utilize tools such as the compliance manual.

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Okashin_AR_01-10_2018.indd 04 2018/08/09 20:42 Efforts to Strengthen the Risk Management System

Credit Risk

Credit risk is the risk of loss to a financial institution if the value of assets held by the financial institution is reduced or destroyed by worsening financial conditions, bankruptcy, etc. of borrowers. At the Okazaki Shinkin Bank, the basic attitude that executives and staff take part in our credit business is established by our "Credit Policy," and we strive to maintain a suitable screening and management system based on it. Furthermore, for all borrowers, a calculation of the credit risk is carried out by a VaR through the applicable credit rating based on the business conditions by considering quantitative information such as financial information, and qualitative information such as the strength of the business, and a rigorous asset assessment is carried out based on the "rules related to self-assessment" in order to ensure the soundness of loan assets. In addition to this, monitoring is performed periodically to ensure that there is no bias of credit to particular borrowers or industries (credit concentration risk) and the risk is dispersed. The Okazaki Shinkin Bank endeavors to appropriately manage the credit risk associated with market transactions by internal regulations decided by the bank.

Market Risk

Market risk is the risk of loss to a financial institution if the value of assets or debts held by the financial institution, such as cash deposits and securities, fluctuates due to changes in interest rates or variations in the market. Specific examples of market risk include the interest risk that occurs when interest rates change, value variation risk that occurs when the value of securities, etc. change, and exchange risk due to variations in exchange rates. At the Okazaki Shinkin Bank, a cross-checking system has been established where the investment department that performs the market transactions (front office), and business administration department that performs the business processing (back office) are separate, and the risk management department (middle office) is organizationally separate from these market departments. Furthermore, the bank adheres to the appropriate risk limit (the limiting value on the amount of risk) that suits the equity capital approved by the board of directors, and the position limits (the limits on the amount invested and the amount retained). Furthermore, for the market risk, which varies daily due to market trends, rigorous management is performed by periodically monitoring the amount of risk as calculated by a VaR.

Liquidity Risk

Liquidity risk is the risk of loss out of the necessity to obtain funds at much higher interest rates than are normally used to procure funds in the event that the required funds become difficult to secure and there is a shortfall in cash as a result of unexpected losses in liquid funds due to market turmoil or worsening of the financial conditions of the bank. In addition to taking care to hold securities that have a highly liquid market, such as national and municipal bonds, in order that sudden demands for cash can be handled adequately, strict management is made to ensure that surplus funding reserves are held, and that the liquidity risk is not actualized.

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Okashin_AR_01-10_2018.indd 05 2018/08/09 20:42 Operational Risk

Operational risk is a collective term for risks that have a major impact on operations and where losses are caused by errors in business process, the activities of managers and employees, computer system processing, etc. or from changes in external conditions. In response to operational risk, the Okazaki Shinkin Bank decides the basic policies for risk management each year for system risks and administrative risks and proceeds with preparations and maintenance, and also the relevant departments take efforts to prevent the occurrence of other risks, including legal risks, personal risks, tangible asset risks, and reputation risks.

●System Risk System risk is the risk of loss due to damage, incorrect operation due to malfunctions, illicit usage, information leaks, cyber-attacks, etc. involving our computer system. The Okazaki Shinkin Bank endeavors to ensure the stability and reliability of hardware and software based on the "Computer System Safety Guidelines for Financial Institutions" in order to provide stable, high quality, and appropriate system functionality. Furthermore, as measures for dealing with disasters such as large-scale earthquakes, the Okazaki Shinkin Bank has duplicated the system circuitry, and strives to ensure the effectiveness of emergency response by carrying out system failure training.

●Administrative Risk Administrative risk is the risk of loss due to any executive or employee neglecting to properly carry out their duties, or due to accidents or illegal activities. At the Okazaki Shinkin Bank, the Operations Management Division periodically updates the "Administrative Procedure Guidelines", and also strives to maintain an internal environment in which administrative work is carried out correctly and where employee knowledge of administrative procedures is acquired and improved through education, training, and in-branch lecture. Furthermore, when an administrative error occurs, the cause of the error is investigated, and all employees are notified of how to handle the situation in the future in order to prevent the mistake from occurring again. In addition, an internal control structure has been setup to prevent mistakes whereby each branch conducts a monthly internal inspection, and internal audits are carried out periodically by the Audit Division.

●Other Risk Efforts are made to maintain the appropriate administrative readiness and reduce risks during normal business operations. Legal Risk This is the risk of loss due to an executive or employee violating the law or behaving inappropriately while performing their duties. Personal Risk This is the risk of loss due to employment problems with executives and employees or occupational injuries in the workplace. Tangible Asset Risk This is the risk of loss due to the tangible assets being held by the Okazaki Shinkin Bank being destroyed by natural disasters, etc. Reputation Risk This is the risk of loss due to a dramatic drop in the level of trust in the Okazaki Shinkin Bank due to rumors of poor financial conditions or due to the words and actions of executives and employees.

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Okashin_AR_01-10_2018.indd 06 2018/08/09 20:42 International Operations

The Okazaki Shinkin Bank offers a wide variety of international operations, including overseas remittances and trade transactions, as part of an effort to better tailor services to the more diversified and sophisticated requirements of a client base increasingly engaged in cross-border activities. All branches offer some foreign currency exchange services, and five are capable of offering a full range of such services. Other services include providing exchange-rate information and holding seminars on overseas investment to support local companies as they seek to expand their trade and business connections with overseas countries. We have been broadening our range of international operations since 1986, when we first became involved in international correspondent banking. To support these operations, we set up international communications channels and a dedicated computer system for administration of correspondent banking in fiscal 1994, and a new online international accounts service in fiscal 2001. In May 2006, we launched our internet application service for foreign exchange transaction to enhance customer convenience. As of June 30, 2018 the Bank's international correspondent banking network encompassed 219 banks located in 37 countries.

Offices of Correspondent Banks Abroad (As of June 30, 2018)

EUROPE 25 ASIA NORTH AMERICA 142 14 MIDDLE EAST 1

LATIN AMERICA 6 OCEANIA 4

total: 219 ASIA NORTH AMERICA EUROPE MIDDLE EAST BANGLADESH 22 CANADA 2 BELGIUM 2 CYPRUS 1 CAMBODIA 1 U.S.A. 12 DENMARK 1 CHINA 33 FRANCE 1 OCEANIA HONG KONG 3 LATIN AMERICA GERMANY 4 AUSTRALIA 2 INDIA 7 ARGENTINA 1 ITALY 5 NEW ZEALAND 2 INDONESIA 5 BRAZIL 3 LUXEMBOURG 2 KOREA 11 PERU 1 NETHERLANDS 4 MALAYSIA 6 PARAGUAY 1 RUSSIA 1 PAKISTAN 2 SPAIN 2 PHILIPPINES 4 SWEDEN 1 SINGAPORE 2 SWITZERLAND 1 SRI LANKA 7 U.K. 1 TAIWAN 19 THAILAND 6 VIETNAM 14 JAPAN 27

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Okashin_AR_01-10_2018.indd 07 2018/08/09 20:42 Topics

Events to Commemorate the 100th Anniversary of the Completion of the Okazaki Shinkin Bank Museum In 2017, we celebrated the 100th anniversary of the completion of the Okazaki Shinkin Bank Museum. Our lectures and exhibitions commemorating its 100th anniversary were a great success, with all events visited by large numbers of people.

Exhibition of American Blue-eyed Dolls and Lecture to Commemorate the 100th Japanese Friendship Dolls including "Miss Anniversary of the Completion of the Aichi" (Aug. 2-13) Okazaki Shinkin Bank Museum (Sept. 13) In 1927, over 12,000 American blue-eyed dolls A lecture was delivered by film director Masahiro Shinoda and architect were sent from the United States to Japan as a Shigeru Wakayama in the second-floor large hall at our main branch. gesture of friendship. In response, Japan sent over This unusual combination of a film director and architect, whose lecture 58 Japanese dolls, including Miss Aichi. touched on the depths of The whereabouts of Miss Aichi had been unknown, Japanese culture and looked but it was miraculously rediscovered in 2014, and at the past from the an exhibition of American blue-eyed dolls and SHUVSHFWLYHRIWRGD\·V Japanese friendship dolls was held to "Japanese idol" culture, drew commemorate its return home after 90 years. Miss Aichi about 200 attendees despite Athena Grace Essa Colma Del Sally Hirohata the event taking place on a Kira Junior Kota Miyazaki Elementary weekday. High Elementary Elementary School, Okazaki School, Nishio School, Kota School, Okazaki ● New American blue-eyed doll

1916 Okazaki Bird’s-eye View Folding Designated a "Scenically Important Screen Exhibit (Mar. 13-Apr. 13) Building" by the City of Okazaki The museum hosted an exhibit of folding screens illustrated by The museum was designated a "Scenically Important Building" by the Terufumi Karasawa, a pen artist living in Okazaki. Some 20 works of City of Okazaki on Oct. 31, 2017. The building is a valuable historical KLVZHUHGLVSOD\HGKLVODWHVWEHLQJ2ND]DNL%LUG·VH\H9LHZ and cultural property for the residents of the city, and it joins the Folding Screen, which depicts Okazaki as it appeared roughly 100 Okazaki Castle Donjon years ago. Karasawa created and Hatcho Miso this highly detailed illustration Storehouse as a structure after gathering contemporary designated as scenically documents, old photographs, important to the and other materials, and it community and an became a feast for the eyes HVVHQWLDOSDUWRIWKHFLW\·V of museum visitors. urban development.

Community Contribution Activities Participation in Relay for Life Japan Okazaki Okashin Advanced Science Scholarship Fund 2017 Results Presentation 7KH-DSDQ&DQFHU6RFLHW\·V5HOD\IRU/LIH-DSDQ2ND]DNL([HFXWLYH On Feb. 19, 2018, a results presentation by the students receiving Committee hosted Relay for Life Japan Okazaki 2017 on Sept. 23 and 24, scholarships from the Okashin Advanced Science Scholarship Fund took 2017. Relay for Life is a walking event in which cancer patients and their place in the large hall at our main branch. The purpose of the Okashin family, friends, and supporters take turns walking the event grounds for 24 Advanced Science Scholarship Fund is to hours to celebrate the courage of people contribute to the development of local confronted with cancer. Team Okazaki society and human resource education. It represented our bank at the event, with was established in August 2012 through a employees and their family members — local partnership with the National Institutes 72 people in total — participating. of Natural Sciences located in Okazaki city.

Attic Art Support Activities

We support the activities of Attic Art, an organization that supports the independence of artists who have incredible talent despite their disabilities. As part of this program, we adopted paintings by seven students at Toyota Koto Tokubetsusien Gakko (Special Support Education High School) in Aichi prefecture to use as tissue box designs for 2017. Additionally, we hosted the Aichi Art Brut × Attic Art Cooperative Exhibit at our Nagoya Branch from Dec. 6 to 17, 2017. The exhibit received many visitors while it ran, including Hideaki Omura, the governor of Aichi Prefecture.

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Okashin_AR_01-10_2018.indd 08 2018/08/09 20:42 Directory

Board of Directors and Corporate Auditors (As of June 30, 2018)

Chairman of the Board President Ichiro Obayashi Makoto Okawara

Deputy President Deputy President Hideaki Tanaka Masahiko Ueno

Senior Managing Director Managing Director Managing Director Kazunari Uno Sugao Asakura Masahiro Kuroyanagi

Directors Corporate Auditors Toshihiro Asayama Kenro Kobayashi Takahiro Ando Yoshiharu Shiraki (standing) Jun Kawai Kaoru Sugiyama Kazuo Kawahara Akiyoshi Sakakibara Shigeki Sakai (standing) Tsuchio Hosoi* Tadashi Fujiura Yuki Inaba Teiji Tachibana *External auditor in accordance with provisions of the Commercial Code

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Okashin_AR_01-10_2018.indd 09 2018/08/09 20:42 Organization Chart (As of June 30, 2018)

General Planning Division

General Board of Directors Human Resources Division 0HPEHU·V Risk Management Division Meeting Executive Committee General Affairs Division

Property Administration Division Chairman of the Board Branch Banking Support Division No.1

President Branch Banking Support Division No.2 New Business and Growing Market Development Division

Deputy President Regional Development Division Retail Business Division Senior Business Support Division Managing Director Treasury&Securities Division

Managing Directors International Business Division

Market Operations Division

Operations Management Division Directors Deposit Operations Administration Division

Loan Operations Administration Division

Innovation Promotion Division Board of Corporate Auditors Operational Reform Project

Okazaki Main Office(Business Div.) Sub-Office

Offices

Audit Division

THE OKAZAKI SHINKIN BANK Head Office 41 Motosuga, Sugo-cho, Okazaki, Aichi 444-0035, Japan Telephone: +81-564-21-6111 International Business Division 41 Motosuga, Sugo-cho, Okazaki, Aichi 444-0035, Japan Telephone: +81-564-25-7198 Mailing Address: Okazaki P.O. Box No. 30, Aichi 444-8602, Japan SWIFT Address: OKSB JP JZ Facsimile: +81-564-24-9660

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