Corporate Report 2016 Becoming a leading player CONTENTS All for Our Customers 2 15-Year Growth of the Tokai Tokyo Financial Group 4 in Asia that makes its Group overview 6 Consolidated Financial Highlights 10

Message from the CEO 12 unique presence felt Interview with Top Management 14 Special Feature : Introducing a New Brand 18 Special Feature : Initiatives to Evolve the Business Model 20 Special Feature : Facing Change in the Global Economy 22 The Tokai Tokyo Financial Group operates a full-line securities house, On Group Management 24 offering leading-edge, multifaceted financial services. Ever since its Financial Information 25 founding, the Group has looked continually to the future and strived to Business overview raise the quality and range of its services. The guiding idea is to Retail Sales 28 contribute what we can to the advance of the economy and society in Corporate Sales / Corporate Finance 30 Market Sales 32 which we operate as well as to people’s well-being. We now aim to Alliance strategy 34 become a leading player in Asia that makes its unique presence felt by Other strategic subsidiaries 36 leveraging our dominant presence in the Chubu region and innovative Corporate Governance & CSR alliance strategy. Directors 38 Corporate Governance 40 Compliance & Risk Management 41 CSR initiatives 42 Employee relations 43

Financial Section Operating Result for fiscal 2015 46 Consolidated Balance Sheet 50 Consolidated Statement of Income 52 Consolidated Statement of Comprehensive Income 53 Consolidated Statement of Changes in Equity 54 Consolidated Statement of Cash Flows 55 Notes to Consolidated Financial Statements 56 Independent Auditor's Report 100

Company Information / Stock Information 101

"FORWARD-LOOKING STATEMENTS" OR "NOTICE CONCERNING THE CONTENT OF THIS REPORT" This corporate report is intended to provide information on operational results for fiscal 2015 (April 1, 2015 to March 31, 2016) and management’s vision, but not to solicit investment in marketable securities issued by the Company. The strategies, opinions and other forward-looking statements offered in this corporate report are based on the judgment of the Company at the time the report was prepared and may change without notice. No guarantee or warranty has been made as to the accuracy and completeness of the information contained herein.

1 All for Our Customers

The Tokai Tokyo Financial Group provides leading-edge financial We support our customers’ asset building services to individual and corporate customers and conducts with exceptional knowledge and expertise. market trading. Consulting on asset management Everything we do is aimed at satisfying our customers. ◎ We are committed to offering the most suitable solutions ◎ Offering a range of investment products to meet diversifying needs of customers while fulfilling our The services ◎ Consulting on succession (business transfers, real estate) dedicated to fiduciary duties. ◎ Providing research and market information and holding individual seminars customers

The Tokai Tokyo

We deliver optimal solutions to Financial Group We meet our customers’ diverse needs with the management tasks our customers face. will meet all the needs professional ideas. ◎ Advice on fund management ◎ Conduct Trading operations (Japanese and foreign equities, bonds, currency exchange, ◎ Advice on POs and IPOs of stock and fund procurement, of our customers. derivatives, etc.) including bond underwriting and other services ◎ Offer Research, develop and compose financial products ◎ M&A advisory service Service to Financial ◎ Provide market information ◎ Advice on business transfers corporate products and ◎ Provision of research and market information and holding customers trading of seminars

Fiscal 2015 (ended March 31, 2016) Total revenues Operating income Net income attributable to owners of the parentAssets under custody

¥67,585million¥12,643million ¥12,423million ¥5,178.5 billion

2 3 15-Year Growth of the Tokai Tokyo Financial Group

April 2009 In October 2000, Tokai Tokyo Securities (now Tokai Tokyo Financial Holdings) was established through the merger between

1 2 Tokai Tokyo Financial Holdings Tokyo Securities, then a member of Nikko Securities group* and Tokai Maruman Securities, then belonging to the Tokai Bank* inaugurated its operation group. Since then, we have constantly adapted ourselves to an ever-changing market environment by practicing organizational conversion to holding company structure and by launching an alliance strategy. The efforts have enabled us to achieve uninterrupted growth. The Tokai Tokyo Financial Group will continue to provide unique and attractive products and services as a comprehensive financial group that customers, shareholders, and investors all become attached to and find trustworthy. July 2012 October 2015 The Head Office of April 2010 15th anniversary of the founding of Tokai Tokyo Research Institute ● History Tokai Tokyo Financial Holdings, Inc The Head Office of was moved to Nagoya Tokai Tokyo Securities was relocated to Nagoya 1 Nikko Securities* April 2010 business group October 2000 Tokyo Securities and Tokai Tokyo Securities and Tokyo Securities Tokai Tokyo Securities Tokai Maruman Securities merged Toyota Financial Services (now Tokai Tokyo Financial Holdings) was established Securities merged

October 2007 November 2008 May 2010 September 2013 Tokai Maruman Securities YM Securities Hamagin Tokai Tokyo SecuritiesNishi-Nippon City Tokai Tokyo Securities Senshu Ikeda Tokai Tokyo Securities started operations*3 started operations*3 started its operation*3 started its operation*3 Tokai Bank*2 group

*1 Now SMBC Nikko Securities *2 Now the Bank of Tokyo-Mitsubishi UFJ 90,547 *3 An affiliated securities company that is a joint venture with a regional bank 205.0%

Tokai Tokyo Financial Holdings 82,700

● Tokai Tokyo Financial Holdings' Stock Price compared with Nikkei Stock Average (October 2000 = 100 for each) 71,776 115.3% 100% 67,854 67,585 63,765 63,152 Nikkei Stock Average 58,500

52,402 52,631

● Revenues (Millions of yen) 47,025 Management plan 43,627 40,951 Ambitious 5 39,602 Management plan 35,507 TT Revolution Leading Player in ASIA Management plan 28,052 Blue ocean 1. Community & the Middle 4. Humanity Innovation Jump Up 5 M&A strategy strategy 2. Alliance & Platform 5. Risk Management Premier House 3. Expertise IT strategy supporting reform + Alliance strategy ◎Growth ◎Productivity ◎Communication ◎Customer loyalty ◎Reform the corporate governance/ corporate culture ◎Super Community House ◎Reform the business portfolio/business model ◎◎Reform the network Reform products and services ◎Reform employees’ productivity

2001.3 2002.3 2003.3 2004.3 2005.3 2006.3 2007.3 2008.3 2009.3 2010.3 2011.3 2012.3 2013.3 2014.3 2015.3 2016.3

4 5 Group overview

We provide a wide range of advanced financial services, drawing on our diverse functional capabilities. We leverage the mobility and flexibility acquired by operating the Group under a holding company structure to promote regional and alliance strategies in the running of What sets our core securities brokerage business. us apart ❶ The Tokai Tokyo Financial Group is a comprehensive securities company group led by its holding company, Tokai Tokyo Financial Holdings, Inc. The Group Established affiliated joint venture securities companies with four major regional banks comprises 21 subsidiaries, including five located overseas, and six affiliates, including one overseas. Tokai Tokyo Financial Holdings is responsible for the Tokai TokyoLeading Financial Holdings the hasfinancial established industryfour under a region-specific strategy by forming close-knit Regional banks management and supervision of the companies under its umbrella. It also maximizes its mobility to drive the Group’s unique management strategy, exemplified affiliated jointalliances venture securities with companiesregional with players foremost by its regional and alliance strategies, and to achieve uninterrupted growth for the Group. In recent years, Tokai Tokyo Financial Holdings has focused on the major regional banks of the Yamaguchi Financial Customer Majority establishing and expanding its overseas network, particularly in Asia, and has further raised its reputation as a global company. introduction investment Group, The Bank of Yokohama, The Nishi-Nippon

City Bank, and Senshu Ikeda Holdings. We are Tokai Tokyo Financial Group Joint ventures Business transfer Holding company (Listed company) preparing to establish a securities company through between regional banks of branch operation and Tokai Tokyo Financial Holdings a joint investment with Hokuhoku Financial Group. Products serve to Tokai Tokyo Hokuhoku Financial Group operates mainly in the Minority investment ( Securities ) Hokuriku and Hokkaido regions. •Reduce the number of Human head office personnel By providing the management resources of the Product sale resources Compliance (expertise) Tokai Tokyo Financial Group that are our products •Reduce paperwork processing and purchase for branch operations and services bundled as a package, we have thus Paperwork Sales •Cut costs Systems processing support Provide our securities far been able to cut the cost of running joint •Achieve profitable operation brokerage expertise ventures and made operations profitable at an early and products bundled Research all in one package Training report stage after the start of business. Moreover, our endeavors on this front have gained synergy as we apply our business expertise to the attractive customer bases of partner regional banks.

What sets us apartComplete with a full lineup of functions and infrastructure necessary for Tokai Tokyo Securities Co., Ltd. Tokai Tokyo Asset Management Co., Ltd. Tokai Tokyo Wealth Consulting Co., Ltd. Tokai Tokyo Investment Co., Ltd. Tokai Tokyo Research Institute Co., Ltd. Tokai Tokyo Academy Co., Ltd. Tokai Tokyo Services Co., Ltd. Tokai Tokyo Business Services Co., Ltd. Tokai Tokyo Securities (Asia) Ltd. Tokai Tokyo Securities Europe Limited Tokai Tokyo Securities (USA), Inc. Tokai Tokyo Investment Management Singapore Pte. Ltd. Tokai Tokyo Global Investments Pte. Ltd. YM Securities Co., Ltd. Hamagin Tokai Tokyo Securities Co., Ltd. Nishi-Nippon City Tokai Tokyo Securities Co., Ltd. Senshu Ikeda Tokai Tokyo Securities Co., Ltd. All Nippon Asset Management Co., Ltd. Utsunomiya Securities Co., Ltd. Phillip Tokai Tokyo Investment Management Pte. Ltd. ❷ running the securities business Consolidated subsidiaries (excluding the investment corporation and six other companies) Affiliates Advancing business platform services for small and medium-sized securities companies

(As of June 30, 2016) The Tokai Tokyo Financial Group has built up a ●Guotai Junan Securities Co., Ltd. (China) variety of functions and infrastructure featuring Overseas financial institutions Human Products ●Mirae Asset Daewoo Securities Co., Ltd. (South Korea) Research products, expertise, systems, sales support, and resources in alliance with us report ●Saigon Securities Inc. (Vietnam) education and training required of securities (expertise) ●Religare Enterprises Limited (India) company operations. We are promoting business ●Phillip Securities Pte Ltd. (Singapore) platform services that provide these functions and Business platform services Systems Compliance ●First Metro Investment Corporation (Philippines) infrastructure to small and medium-sized (Tokai Tokyo Financial Group) ●The Bank of East Asia, Limited (Hong Kong) securities companies nationwide. By forming ●Stifel Financial Corp. (USA) cooperative groups on a nationwide scale, we aim Sales ●Bualuang Securities Public Company Limited (Thailand) Training to stabilize our business foundation and diversify Paperwork support K & N Kenanga Holdings Berhad (Malaysia) ● our revenue sources. processing Note: Listing is the order in which partnership agreements were signed.

6 7 Group overview

A unique and excellent business model We have created a fully developed network The Tokai Tokyo Financial Group has developed three distinct resources to support its competitiveness; covering chiefly the Chubu region • A diversified product and service portfolio Tokai Tokyo Securities, the core company of the Tokai Tokyo Financial Group, • A dominant presence in the Chubu region operates 70 sales outlets nationwide. The Chubu region, where we enjoy • An alliance strategy promoted jointly with regional banks unrivaled dominance, has 41 outlets out of the total of 70, nurturing strong The Group has gained all these resources under a creatively mapped management strategy for the purpose of upgrading its relationships of trust with local customers. We are also building an extensive corporate characteristics and preeminence. The Group’s endeavors have been designed ultimately to boost continuously its network that stretches from Chubu and Japan to the world, with the inclusion corporate value. Our unique and superior business model provides a foundation for stable earnings for the Group. Going forward, of the sales outlets operated by our affiliated joint venture securities firms Tokai Tokyo we will continue seeking to create new services that improve customer convenience. At the same time, we will expand and Securities and our overseas alliance partners, among others. enhance our global network so that we can leap ahead and become a leading player in Asia. 70 sales outlets nationwide

Diversification of the business portfolioDiversity of products Hokkaido/Tohoku regions sales outlets (Tokai Tokyo Securities, non-consolidated) 2

We are expanding and enhancing our lineup of products Create a better-balanced earnings structure such as foreign equities, foreign bonds and structured bonds, Koshin-etsu/Hokuriku regions 4 sales outlets Kanto region sales outlets by expanding non-retail business and as a consequence diversifying our sources of earnings 12 Utsunomiya Securities 6 sales offices Income ratio by business unit Income ratio by product Kinki region sales outlets Investment trusts 30% Investment trusts 25% 3 Hamagin Tokai Tokyo Securities16 sales offices Others 4% Others 3% Non-retail 15% Non-retail 37% Domestic equities Domestic equities Senshu Ikeda Tokai Tokyo Securities3 sales sites 45% 26% Chubu region 41 sales outlets Approx. 2.5x Kyushu region sales outlets 2007.3 2016.3 4 2007.3 2016.3 Chugoku/Shikoku regions sales outlets Nishi-Nippon City Tokai Tokyo Securities11 sales offices 4 YM Securities sales offices 19 (As of June 30, 2016) Foreign bonds/ Foreign equities structured bonds Foreign bonds/ (Note) Of the four Kyushu sales outlets, three (Kumamoto, Miyazaki, and Kagoshima) will be Foreign equities % structured bonds taken over by Nishi-Nippon City Tokai Tokyo Securities effective on August 1, 2016. Retail 85% Retail 63% 9 17 % 10 % 24% Domestic bonds 2% Domestic bonds 5% The Tokai Tokyo Financial Group operates six Stability of overseas subsidiaries and affiliates, including earnings Tokai Tokyo Securities (Asia) Limited and Tokai Mirae Asset Daewoo Securities Tokyo Securities Europe Limited. We have also Alliance strategy with regional banks Dominant presence in the Chubu region established close alliances with 10 financial Guotai Junan Securities (Tokai Tokyo Securities, non-consolidated) institutions overseas, mainly in Asia, to cultivate The operating results of affiliated joint venture securities the overseas market and upgrade the caliber of Allocate sales resources intensively to the Chubu region Religare Enterprises Saigon Securities South Korea firms have improved rapidly, supported by synergies The highest number of sales outlets in the industry our financial services. gained from resource sharing with regional banks. Shanghai Tokai Tokyo Securities Europe Tokai Tokyo Securities (USA) Bualuang Securities China (Billions of yen) Comparison with peers in terms of sales outlet coverage Assets under custody of the affiliated Hong Kong Tokai Tokyo Securities (Asia) joint venture securities firms in the Chubu region India 1,048.0 998.5 (Aichi, Gifu, Mie and Shizuoka prefectures) The Bank of East Asia 884.4 41 London Thailand Philippines 780.8 New York Vietnam 642.0 K & N Kenanga Holdings 540.0 Kuala Lumpur Phillip Securities Singapore 371.7 16 245.3 12 Tokai Tokyo Investment Management Singapore Stifel Financial Corp. Phillip Tokai Tokyo Investment Management

5.5 ●Head Office Tokai Tokyo Global Investments 0 2008.3 2009.3 2010.3 2011.3 2012.3 2013.3 2014.3 2015.3 2016.3 Tokai Tokyo Securities Major company A Major company B ●Overseas group company ●Financial institution in alliance with us First Metro Investment Corporation

(As of June 30, 2016)

8 9 Consolidated Financial Highlights

Tokai Tokyo Financial Holdings, Inc. and Consolidated Subsidiaries For the years ended March 31, 2012 through 2016.

(Millions of yen)

2012.3 2013.3 2014.3 2015.3 2016.3 Total revenues Operating income (Millions of yen) (Millions of yen) Key Performance 90,547 82,700 Total revenues 52,631 67,854 90,547 82,700 667,5857,585 30,248 67,854 67,585 Commissions 24,191 36,659 54,939 44,082 3434,267,267 25,071 52,631 Brokerage 6,006 9,995 26,301 19,016 1616,538,538 15,252 Underwriting and distribution 12,136 20,484 22,071 18,886 1111,365,365 12,643

Other 6,048 6,180 6,567 6,180 66,363,363 3,363 Net gain on trading 25,593 28,301 32,775 35,428 3030,330,330 2012.3 2013.3 2014.3 2015.3 2016.3 2012.3 2013.3 2014.3 2015.3 2016.3 Interest and dividend income 2,846 2,893 2,831 3,190 2,2,988988

Interest expense 1,875 1,900 1,865 1,325 11,307,307

Net revenues 50,756 65,954 88,682 81,375 666,2786,278 Net income attributable to owners of the parent / ROE Total equity / Total assets Selling, general and administrative expenses 47,392 50,702 58,434 56,303 553,6353,635 17.7% ■■ Net income attributable to (Millions of yen) ■■ Total equity ■■ Total assets (Millions of yen) owners of the parent 23,243 Operating income 3,363 15,252 30,248 25,071 1212,643,643 ROE 12.6% 641,216 630,061 Income before income taxes 4,769 17,812 35,307 28,896 1717,925,925 617,270 18,499 568,549

Net income attributable to owners of the parent 2,545 11,273 23,243 18,499 112,4232,423 9.7% 8.1% 458,106 12,423 Financial Conditions (Fiscal year-end) 11,273

Total equity 110,259 122,397 142,929 157,351 1155,20455,204

Total assets 641,216 630,061 617,270 458,107 56568,5498,549 2.3% 2,545 142,929 157,351 155,204 110,259 122,397

2012.3 2013.3 2014.3 2015.3 2016.3 2012.3 2013.3 2014.3 2015.3 2016.3 Per share of common stock

Basic net income (Yen) 9.45 42.74 87.68 69.51 4646.92.92

Total equity (Yen) 416.51 461.12 528.26 579.91 5580.1680.16 Assets under custody Cash dividends per share / Dividends payout ratio Cash dividends applicable to the year (Yen) 8.00 16.00 32.00 34.00 2828.00.00 (Billions of yen) ■■ Basic net income per share Dividends payout ratio (Yen) 59,955 （%） 84.7% 34.00 Dividends payout ratio 84.7 37.4 36.5 48.9 5959.7.7 32.00 52,990 51,785 Key ratios 48,702 28.00 44,451 ROE （%） 2.3 9.7 17.7 12.6 88.1.1 59.7%

48.9% Operating income ratio （%） 6.4 22.5 33.4 30.3 118.78.7 16.00

37.4% 36.5% SG&A ratio （%） 90.0 74.7 64.5 68.1 779.49.4 8.00

2012.3 2013.3 2014.3 2015.3 2016.3 2012.3 2013.3 2014.3 2015.3 2016.3

10 11 Message from the CEO

As an innovative comprehensive financial group with the securities business at its core, we will strive to achieve further growth and enhance corporate value.

In October 2015, the Group celebrated the 15th anniversary of its founding. For 15 years, the Group has kept its eyes firmly fixed on the trend of the times, building a Tateaki Ishida track record of stable operating results and sustainable growth with a steady President & CEO stream of innovations. As a result of our focus on diversifying and growing our business portfolio, the operations of each current division—Retail, Wholesale (Corporate Sales and Corporate Finance) and Market—are well balanced, and we are cementing our position as one of Japan’s leading comprehensive securities groups. We enjoy an outstanding presence in the Chubu region and—through such initiatives as establishing affiliated joint venture securities companies with regional banks, and actively promoting the platform business that provides functions required for comprehensive securities business to small and mid-sized securities firms—we have built a unique business model unmatched by any other financial institution. This is the source of the competitive edge that drives the Group’s forward momentum. Japan’s financial industry faces a historical turning point, driven by trends such as the aging of society, the declining birthrate, the divergence of customer classes and the advance of Internet transactions. It is in this context that the Group is concentrating its efforts on creating businesses and services adapted to the changing business environment in this closing year of its management plan, “Ambitious 5.” In the years ahead, we aim to continue to pursue advanced management that anticipates the times and delivers further growth as an innovative financial group. I would like to humbly ask you, our valued customers, shareholders and investors, for your continued understanding and support in the future.

12 13 Interview with Top Management We are concentrating and deploying management resources to create a financial business model that anticipates the future while seizing the opportunities Tateaki Ishida President & CEO presented by the changing times in which we live.

product development and proposal preparation capabilities, as Hokuhoku Financial Group mentioned earlier, we took a stake in well as working to augment our status in the underwriting league All Nippon Asset Management Co., Ltd (ANAM). This company tables for bonds and the like. As part of our “Humanity” strategy, was established to provide a new independent management The second stage of the “Ambitious 5” management based on our push to expand the Group’s operating foundation and platform that is not associated with existing financial groups, and Qplan has entered its third and final year. How do you diversify our business portfolio, we have radically changed our also to contribute to the sound development of regional financial human resources system so that we can evaluate and treat institutions and local economies. evaluate progress at this point? employees appropriately. Moreover, we have encouraged We also concentrated on advancing marketing strategies by diversity to support the success of employees from a variety of customer segment. In May 2015, with our eyes on the “inheritance I see the current era as an historical turning point for the backgrounds, as well as sought to nurture the human resources era,” we consolidated all the consulting functions into Tokai Tokyo Japanese financial industry. The environment in which More than 15 years have elapsed since the founding A who will guide the Group in the next generation. In addition, in Wealth Consulting. The functions specialized in inheritance, real the financial sector operates has changed dramatically in recent Qof Tokai Tokyo Securities and 10 years since you, Mr. pursuit of our “Risk Management” strategy we have further estate and business succession were scattered around the Group. years, due to such trends as the aging of society, the declining Tateaki Ishida, took the helm as CEO. What are your reinforced our risk management and governance frameworks. Additionally, in November 2015 we launched our new “Orque d’or” birthrate, the divergence of customer classes and the advance of thoughts when you look back over the past? The “Ambitious 5” management plan is now facing its final year. brand for wealthy customers along with a new “Orque d’or Member” FinTech. To accomplish continuous growth in a volatile era such as Building on our past successes, we will focus on innovative membership system. Furthermore, in March 2016, we opened the this, it is imperative to create a new business model that responds initiatives such as enhancing services for customers who are “Salon de Orque d’or” on the top floor of the Dai Nagoya Building that Since I became CEO in 2006, I have steered three rapidly to change. It was this perception of the problem that building assets by providing banking and insurance services and stands in front of Nagoya Station. This salon is not only a space for A medium-term management plans. In the first of those formed the core of my ideas for the second stage of “Ambitious establishing a marketing style driven by effective use of IT. These social activities between Orque d’or members, but will also be used three, “Innovation Jump Up 5” (April 2006 to March 2009), we 5,” and for the past two years we have been striving to implement in turn will further raise the Group’s originality and raison d'etre. actively as a venue for the activities of financial circles and academia promoted five reforms, such as the reform of employee awareness this vision. as well as the place for promoting open innovation and international and the reform of our business portfolio. This enabled us to evolve Of the five strategies, for “Community & the Middle,” Tokai Please describe the main initiatives undertaken in the exchange. In this way, we hope to contribute to the development of away from a traditional securities company and into a unique Tokyo Securities has focused on marketing by customer segment. Qyear ended March 2016 and their outcomes. the region and to internationalization. comprehensive securities group. Driving ahead with this concept In particular, for business with wealthy customers, we are pushing I would also like to highlight the performance of expansion in of “Change and Reform” as a company-wide initiative resulted in a range of initiatives, such as establishing the new Premier the Market Segment as one of the successes of the fiscal year a stronger framework for the Group as a whole. In the year ended March 2016, we again pushed forward Medical Department and Premier Executive Advisors to provide under review. Despite volatile markets, bond trading, by capturing In the next medium-term management plan, “TT Revolution” (April A with a variety of programs to further develop our unique total service, as well as launching “Orque d’or.” Also, as an the downward trend in interest rates, made a particularly noticeable 2009 to March 2012), we took “Growth” as our theme. We worked on business model and marketing style. Regarding our domestic contribution to consolidated earnings. Transactions sourced from building our network and expanding the scale and scope of our example of specialization in strategic regions, we are working to alliance strategy, concurrently with inking the agreement with business through such measures as reinforcing our base in the Chubu strengthen our platform and cultivate markets in the Chubu region, region, our home market, M&A and cooperating with regional banks. primarily in Nagoya. Progress Report on the “Ambitious 5” Management Plan In “Ambitious 5” (April 2012 to March 2017), which is still in As for “Alliance & Platform,” in March 2016 we came to a Leading Player in ASIA basic agreement with Hokuhoku Financial Group based in progress, the five basic strategies are “Community & the Middle,” “Ambitious 5” for a unique comprehensive financial group “Alliance & Platform,” “Expertise,” “Humanity” and “Risk Toyama City, to set up an affiliated joint venture securities Community & the Middle Alliance & Platform Management.” Under these strategies, we are aiming to become company with a joint capital contribution. Preparations for the 1 Specialize in strategic regions and customers 2 Actively expand the business foundation

a Leading Player in Asia and we are now approaching concluding establishment of the company are under way, with the intention Tailor marketing strategies by customer segment Drive the acquisition of strategic functions phase of the second stage that began in April 2014. of launching operations by the end of fiscal 2016. Together with Sales promotion focused on stable revenue generation Broaden business partnerships Looking back, the 15 years since Tokai Tokyo Securities was our four existing affiliated joint venture securities firms, this Projects to improve sales efficiency Push forward in the platform business established and the 10 years since I assumed the role of CEO, my joint venture will lead to a further expansion of their business 3 Expertise 4 Humanity 5 Risk Management everyday life has been a process of accurately predicting changes in platform and further growth in their contribution to the Group’s Specialist expertise A company with the human touch Bolster the ability to respond to crises the times, while deepening the innovation that has driven the operating results. Reinforce product development and proposal preparation capabilities Reform the human resources system Improve governance and compliance readiness Cement status in the underwriting league tables Promote diversity (supporting female and elderly workers to work in activeEnhance roles) the effectiveness of the crisis management framework reform of management systems and the management structure. With regard to “Expertise,” we have worked hard to bolster

14 15 affiliated joint venture securities companies and those using our as FinTech to expand the transaction base. In addition to these Nagoya based professional football club. In July of the same year, platform services were also relatively firm. Each of the segments segmented strategies, we will strive to rebuild the retail business Please tell us a little more about the state of we hosted exchange events between the students of Nagoya of Retail, Wholesale and Market is showing balanced growth, and by improving marketing productivity through the active use of big Qoverseas expansion and your basic strategy University and the University of Cambridge to support Nagoya I feel that our efforts are coming to fruition, which makes me feel data, opening new offices in greenfield neighborhoods in the Chubu going forward. University’s academic and educational exchange activities in the that the Group’s operating structure has started approaching the region that still remain relatively unsaturated, and enhancing the United Kingdom. “configuration” we target. functionality of solutions businesses such as real estate brokerage. My basic perception is that Japanese financial industry is The “Salon de Orque d’or,” opened in March 2016, is not only a For the strengthening of the trilateral collaborative efforts A right in the middle of this broad trend of globalization. Also, space for social activities among Orque d’or members but also Please share your plans among Markets, Corporate sales and Corporate finance, these due to the market shrinking that reflects the aging of society and something that we hope will be actively used as a location for Qfor the growth strategy going forward. concerned units will work together to build a new framework to the declining birthrate, in addition to other weaknesses specific to financial and academic activities, open innovation and boost earnings capabilities. The key issues here will likely be Japan such as fiscal problems, there is no doubt that the current international exchange. Our medium- and long-term goal is to create a opening up overseas and institutional investors as customers, lack of visibility in the Japanese financial markets will continue. A comprehensive financial group that can fight on equal strengthening trading, bringing product formation in-house and Keeping these medium- and long-term trends in mind, the Group Finally, please explain your basic policy footing with the top five securities firms and firms associated rolling out more sophisticated information-gathering frameworks. has prepared steadily over the past few years to boost its presence Qregarding returns to shareholders and enhancing with the megabanks. To achieve this ambition, we must devote We need to consider carefully how to gather and arrange the in global markets. In August 2014 we concluded a business alliance shareholder value. management resources to steady execution of the growth information that we obtain from overseas business partners and agreement with Bualuang Securities in Thailand, and in March strategies drawn up by each segment. fund management, and how we can use this in our own business 2015, we established an asset management company in Singapore My mission as CEO is to push the evolution of the Tokai Fiscal 2016 is the final year of the “Ambitious 5” management and to support customers. in a joint venture with Singapore’s Phillip Capital Pte. Ltd. In May A Tokyo Financial Group into an “innovative financial group” plan, and it is also a crucial year for working on further refinement With regard to “Powering up affiliated joint venture securities 2015 we took a stake in K & N Kenanga Holdings, an independent that drives the transformation of the financial industry and of the business model for the post “Ambitious 5” period. From this companies,” while working to expand assets under custody and investment bank in Malaysia, further expanding our business supports the development of the Japanese economy. As the perspective, we will in this term put the entire strength of the improve earnings capabilities at the four existing companies and foothold in east Asia and ASEAN. Global development has its risks “Ambitious 5” management plan has progressed, we have put in Group into achieving the three core policies of “Rebuilding the the company preparing to begin operations, we are considering but is a vital policy for the Company’s future growth, and so we will place the right fundamental conditions, such as building a retail business,” “Strengthening the trilateral cooperation among initiating possible sixth joint venture. For the platform services continue to carefully work on this front. nationwide network, to continue our great strides ahead. Focusing Markets, Corporate sales and Corporate finance,” and “Powering that we currently provide to 46 companies, we will work to on the cultivation of human resources and the role of women as up affiliated joint venture securities companies.” develop new platform customers and plan further strengthening the source of our competitive edge going forward, I want to I have heard that, as a good corporate citizen, By “Rebuilding the retail business,” we mean a policy of further and expansion of the business. realize our ambition to become a unique comprehensive financial Qthe Tokai Tokyo Financial Group puts evolution in our strategy of marketing by segment. Leveraging our Unlike the top five securities firms and firms associated with the group that can shine in Asia and all over the world. considerable effort into activities that contribute resource, “Salon de Orque d’or,” we will support Orque d’or megabanks, Tokai Tokyo Securities itself does not possess a With regard to profit returns to our shareholders, our idea is this. to society. Please summarize your basic CSR members as a real partner for their entire family, providing every nationwide customer base. Therefore, by growing the market While maintaining a stable dividend payment with a target dividend kind of service related to assets and supporting the continuation of potential through affiliated joint venture securities companies and policy and any specific initiatives undertaken. payout ratio of 30% to 50%, we consider purchasing treasury stock as well-to-do status across generations of customers. For “Mature” the platform business, we will form a closely knit strong network we find necessary. Most important of all is enhancing shareholder customers, we will broaden our transactions with individuals with banks and securities companies all over Japan and then create Besides attempting to contribute to the healthy value through continuous growth in profits. In the more than 15 years through retirement payment seminars and asset health checks, a new amplified business model. Moreover, we will continue to A development of the capital markets using the Group’s since the Group was founded, the market capitalization of Tokai Tokyo while for customers focused on building assets we will provide engage actively in nurturing and diversifying human resources and financial infrastructure as a corporate citizen, the Group’s basic Financial Holdings has grown at a rate exceeding both the growth insurance, Internet banking (housing loans) and new functions such that, I believe, should be the core endeavor of our growth strategy. CSR policy is to contribute to the vitalization of regional society. rate of the Nikkei Stock Average and that of market capitalization This mission covers a wide area, including supporting the training of the major securities firms over the same period. I interpret that The Tokai Tokyo Financial Group’s of global human resources, assisting manufacturing industry in the remarkable growth in the Company’s market “Ambitious 5” plan enters its final year the Chubu region, participating in disaster recovery activities, capitalization attest to the endorsement of the Improved earnings capability supporting sports activities, sponsoring culture and the arts, Group’s vision and management policies by the Rebuilding the retail business reducing our environmental burdens and the like. shareholders and investors. Strengthening the well-coordinated trilateral actions among In October 2015, an open event, Symposium on the World Going forward, the Group will continue Markets, Corporate sales and Corporate finance Economy, was held by the Company’s Global Advisory Board, the deploying advanced management practice with Powering up affiliated joint venture securities companies advisory members of which consist of leading authorities on the aim of growing shareholder value and of Ambitious 5 corporate management, financial regulation and politics from raising the indicator of this value: the (April 2012 to March 2017) For further growth Europe, the Americas and Asia. In this Global Economic Symposium, share price and market capitalization. M&A strategy “securities,” “asset management,” “insurance” experts from various corners of the world shared their opinions on I would like to humbly ask you, Bolstering the network with regional banks and mid-sized securities companies the global political and economic situation and on future issues. valued shareholders and investors Business philosophy and corporate governance In terms of social contributions to the Chubu region, we concluded for your continued understanding Preparing for overseas expansion in June 2015 an official partner agreement with Nagoya Grampus, a and support.

16 17 Special Feature : Introducing a New Brand

Introducing the Salon de Orque d’or

The Salon serves as multi-purpose spot for the Members’ socializing, the meetings for the circles of business and academia as well as for the activities of international exchange. We envisage, in particular, that it will facilitate business-academia collaboration, for instance, their activities engaged in “Open Innovation.”

In March 2016, we opened the “Salon de Orque d’or” on the top floor of location for open innovation the Dai Nagoya Building. The Salon occupies an area of 1,780 square activity in the financial circles meters. Besides a deeply luxurious lounge, it is fully equipped with such and academic worlds that leads facilities as a dining room, a multipurpose hall, and a detached to transformations in business Japanese-style room, providing the ultimate in hospitality in a high- and lifestyles, contributing to quality venue for Orque d’or members and their families. The Salon, of the development and course, provides a welcoming space where Orque d’or members can internationalization of the region. The staff involved in Salon de Orque relax and talk at ease with family and friends. But, we do not stop d’or, who are close at hand to attend to members, are steeped in the there. It will also be used as a place for members to mingle with spirit of the Orque d’or, namely, “sincere mind,” “the preciousness of the prominent individuals from both Japan and overseas, as well as a circle of humanity” and “to-the-point and satisfactory information.” Orque d’or Launched in 2016 We aim to deliver high trustworthiness and ultimate customer satisfaction as a real partner to our special customers. In November 2015, we established our new brand of service concept, “Orque d’or.” The mission this brand symbolizes is to move forward dynamically with “sincere mind,” “circle of humanity” and “information to the point.” We have inaugurated a new membership system for wealthy customers associated with the brand. We embrace “Orque d’or” as a key to the Group’s efforts to deliver high trustworthiness and ultimate customer satisfaction that cannot be obtained elsewhere. We will achieve this by answering in good faith any query from our special customers about the matters related to their asset building and lifestyle.

Delivering Service As a real partner to the entire family.

Orque d’or puts together all of the financial services that the carefully reviewing the overall picture of their wealth Group has developed over the years. We provide solutions that distribution. In fund procurement, we leverage the considerable An internationally renowned violinist, Ms. Ran Matsumoto, deliver superior satisfaction by organically linking each of the expertise and resources of the Group to draw up and execute now retained as the official face of the “Orque d’or” brand. three areas of asset management, inheritance and business completely tailor-made proposals that are individually suited to succession, and fund procurement in a one-stop consulting respective customer’s goal. In addition, we sponsor medical Violinist Ran Matsumoto has been appointed the official face of the Group’s new service. As a real partner for the entire family, we offer honest consultations through tie-ups service brand “Orque d’or.” Ms. Matsumoto is a leading violinist in Japan, having Asset won awards in numerous music competitions. She participates actively in advice regarding asset building and lifestyle issues, supporting with medical institutions and management family wealth transfer across generations while receiving such host the events that serve as international cultural exchange, as exemplified by her remarkable success in harmonizing Kimono dressing with classical music. The refined and graceful tones of customers in the very best hospitality. With regard to asset socializing occasions for regional Fund procurement management, full-time consultants take ample time to discuss society, providing firm support Inheritance / Ms. Matsumoto’s violin symbolize the trust and hospitality “Orque d’or” financial business every detail in their proposals for a tailor-made investment for our customers’ high-quality succession services are meant to be.

strategy. We craft best fitting solutions for our customers in the lifestyle by way of delivering our Financial Services Dining Service areas of inheritance, donations and business succession after comprehensive services. Event Coordination Health and Well-Being

18 19 Special Feature : Initiatives to Evolve the Business Model

PROJECT ❷ Asset Management Company Additional investment in All Nippon Asset Management

In March 2016, the Company invested in All Nippon Asset Management Co., Ltd (ANAM), which was established under the concerted initiative taken by regional banks to provide an independent asset management platform that is not associated with any existing financial corporate group. ANAM is an investment management Tokai Tokyo Financial Holdings, Inc.(36%) Development Bank of Japan Inc.(8%) company that was set up to contribute to the sound development of regional financial institutions and local economies. With the Regional banks (8% each)

investments received from the Company, regional banks and others, it The Hiroshima Bank Ltd. The San-in Godo Bank, Ltd. began operating in April 2016. ANAM has adopted an open The Nishi-Nippon City Bank, Ltd. The Akita Bank, Ltd. architecture that can be used equally by all participating regional banks, providing a service that addresses the need to further enhance Yamaguchi Financial Group, Inc.The Yamagata Bank, Ltd. the investment management capabilities of regional banks. The The Juroku Bank, Ltd. Company's rationale for investing in ANAM is that its policy of adopting open architecture fits our own strategy that deems alliances Investment with regional banks a pillar of our own business. Going forward, we All Nippon Asset Management Co., Ltd. will continue to support ANAM’s business operations by leveraging Progress on Important Actions the experience and expertise we have accumulated in the course of

The Group has pursued its own unique business model, which includes actively Offering Specialty managing affiliated joint venture securities firms. expanding its platform business that provides infrastructure and services for the securities business to small and mid-sized securities firms, as well as establishing Regional Banks Tokai Tokyo FG Small and Expertise in the PROJECT ❸ FinTech affiliated joint venture securities companies with regional banks. We have Mid-sized Securities Business Securities Firms continued into 2016 the execution of a range of strategies for building the next- Synergies Platform The service, “Money Forward for Tokai Tokyo Securities” is launched as the generation business model and we have moved ourselves another step closer to becoming a unique comprehensive financial group. first of its kind in the securities industry.

In May 2016, Tokai Tokyo Securities launched the service, “Money be applicable, and at the same time, we continue exploring the use of PROJECT ❶ Affiliated joint venture securities companies Forward for Tokai Tokyo Securities,” via online operator, Money cutting edge technology in the FinTech and other fields to improve the Starting preparations to establish an affiliated joint venture securities Forward, Inc. The service, an automatic online household accounts convenience of our customers. company with Hokuhoku Financial Group bookkeeper and asset manager has made it possible for the customers to centralize the control of their multiple accounts with Grasp the current value of all your assets at a glance! In March 2016, the Company signed a basic agreement with networks, we aim to found a securities company that regional securities companies, banks and credit card issuers. It is the tool built Hokuhoku Financial Group, Inc. (Hokuhoku FG) on the establishment customers can count on and feel close to. on the application provided by Money Forward Inc., and it is the first Money Forward for Tokai Tokyo Securities by joint investment of a securities company, and has begun of its kind made available in securities industry and it has the features Free of charge! Customized for Grasp total value Income and expenditure Tokai Tokyo of your assets for household accounts preparing to launch the business. This will be the fifth joint venture Summary of Hokuhoku Financial Group expanded specifically for the use by Tokai Tokyo’s customers. For the ¥0 Securities! at a glance! viewable at a glance! securities company affiliate for the Company after YM Securities Regional banks with main bases in Hokuriku and Hokkaido first time in the securities industry, the service allows our customers Co., Ltd., Hamagin Tokai Tokyo Securities Co., Ltd., Nishi-Nippon Hokuhoku Financial Group, Inc. to integrate and manage all their securities transaction records of City Tokai Tokyo Securities Co., Ltd., and Senshu Ikeda Tokai Tokyo Established 2003 their multiple accounts with us and other securities companies. Not Securities Co., Ltd. Hokuhoku FG, a regional financial group formed Headquarters location Toyama City, Japan only that, the new service now enables the customers to do the same Capital ¥70.8 billion by the business combination of Hokuriku Bank and Hokkaido Bank in Equity ratio 10.30% control over any kind of their financial activity records ranging from 2004 and now with the wide operating territory, has taken the lead Credit rating A (R&I) debit and credit at the accounts virtually with all the Japanese Deposits including negotiable ¥10,502.6 billion in economic and social revitalization of the regions of Hokuriku and (certificates of deposit ) domestic banks that run up to more than 2,580 to the shopping Hokkaido. The investment ratio for the soon-to-be-established joint Loans ¥7,599.6 billion histories at electronic commerce sites. The service, Money Forward (As of March 31, 2016) venture will be 40% from the Company (as our equity method for Tokai Tokyo Securities, also distributes the notice of special offers affiliate) and 60% from Hokuhoku FG (as their consolidated from Tokai Tokyo Securities. This revolutionary service can be used subsidiary), with the company expected to start operations in the free of charge by anybody, even those without a Tokai Tokyo Securities, banks, pensions, credit cards, second half of fiscal 2016. By combining the expertise and functions Securities account. We will further study jointly with Money Forward, internet shopping, electronic money, miles that the Group has accumulated and Hokuhoku FG’s robust regional Inc. possible other areas of financial service that new technology can

20 21 Special Feature : Facing Change in the Global Economy

The Second Meeting of the Global Advisory Board A brisk debate to penetrate the lack of visibility around the globe ～Advice from the thought leaders fittingly respected as “the world’s wise men”～

On October 20, 2015, the second meeting of the Global Advisory Board leadership position it is imperative to cooperate with Japan, the leader was held at the Midland Premier Salon in Nagoya. Mr. Makoto of Asia. Mr. Enrique V. Iglesias explained that due to proactive trade Utsumi, Global Advisory Board Chairman of the Company and former agreements with China, South and Central America are currently Vice Minister of Finance, presided the meeting, having the honor of enjoying a 10-year “golden era,” adding, “Japan should invest more in presence of the following dignitaries.: Mr. Jean-Claude Trichet, former South and Central America.” Mr. Singh remarked that the moves toward President of the European Central Bank; Mr. Robert M. Kimmitt, former a more favorable investment environment in India, such as tax system Deputy Treasury Secretary of State (the United States) ; Mr. Enrique V. reform, deregulation and infrastructure investment, while Sir David Li Iglesias, former President of the Inter-American Development Bank; Kwok-po discussed his view that the Chinese economy, which has been Sir David Li Kwok-po, Chairman and Chief Executive of the Bank of slowing, could recover by focusing on sustainable growth. Finally, the East Asia; Mr. N. K. Singh, former Member of Parliament (Rajya Chair, Mr. Makoto Utsumi, spoke on the twin challenges for the Sabha) of the Republic of India—collectively forming a group of Japanese state of the aging of society and the fiscal deficit. “The thought leaders who command respects as “the world’s wise government must make clear the route it takes to resolve these issues,” men” because of their depth of experience—discussed the global he argued. After all the participants had given their views, the meeting political and economic situation and future issues. moved to a concentrated session of Q&A and discussion. Mr. Trichet commented that the eurozone has the ability to recover While we, the Group, continue organizing the meetings of the Global and is returning to a growth trajectory. He noted, “There is no problem Advisory Board at suitable timing, we will actively host symposiums as Global Advisory Board with the euro currency,” and expressed his opinion stating, “The impact well on the global economy and the similar events to be attended by the of the slowdown in the Chinese economy on Europe will be minor.” Mr. Board Members, with the aim of questioning the society on the state of In 2014, to strengthen the Group’s strategy both in Japan and overseas, the Company established a Global Advisory Kimmitt emphasized that for the United States to retain its global the world economy and the role that Japan should play. Board, whose members are leading experts from major foreign countries including a former central bank president. In May 2015 the inaugural meeting was held, followed by the second meeting in October 2015. The deeply learned and highly knowledgeable members, who include former President of the European Central Bank (ECB), Mr. Jean-Claude Trichet, entered into a lively exchange of views on the economic trends and geopolitical situation in each region of the globe, as well as on appropriate responses for the Tokai Tokyo Financial Group to take to cope with the situation those members elucidated. With the advice of these experts for guidance, the Company will continue to manage its business with a keen awareness of the changing global economy.

Hosting forums and symposiums

Capitalizing a very precious opportunity of hailing all such authorities at one Participating Members of the Global Advisory Board place in Tokyo for the October 2015 second meeting, we organized a symposium on “The World Economy” attended by all the Board Members, and a special Former President of the Inter-American Development Bank lecture by Mr. Jean-Claude Trichet, former ECB President. Mr. Trichet delivered a Mr. Enrique V. Iglesias lecture in front of an audience of more than 70 investment managers Chairman and Chief Executive Former Member of Parliament of The Bank of East Asia India (Rajya Sabha) representing some of Japan’s largest financial institutions, and he discussed a Sir David Li Kwok-po Mr. N. K. Singh variety of issues, including the Greek problem, the deceleration in the Chinese Former Deputy Secretary of the economy, and the emissions scandal faced by a German auto manufacturer and Former President of the Treasury and former Under European Central Bank of the impact of these issues on the EU economy. He also gave his assessment Secretary of State (the United States) Mr. Jean-Claude Trichet Mr. Robert M. Kimmitt on Japanese economic issues such as Abenomics and the Bank of Japan’s quantitative easing policy. President & CEO Global Advisory Board Chairman Tokai Tokyo Financial Holdings, Inc. Former Vice Minister of Finance, Ministry of Finance Mr. Tateaki Ishida Mr. Makoto Utsumi

22 23 On Group Management Financial Information

We will make the most of expedited decision making process that Financial highlights is the benefit realized by separating Group management and business execution of securities company Points ●Revenues totaled ¥67,585 million, down 18.3% year on year to note ●Net income attributable to owners of the parent was ¥12,423 million, down 32.8% year on year ●Although both revenues and profit fell for two consecutive fiscal years under difficult operating environment, Net income attributable to owners of the parent was the fourth-highest level ever Toshiyuki Hayakawa recorded Hiroshi Iizumi Director During the fiscal year ended March 31, 2016, the sensed economic Nikkei Stock Average and Foreign Exchange Director and Deputy President President and COO (Representative Director) (Representative Director) ( of Tokai Tokyo Securities Co., Ltd. ) slowdown of emerging countries such as China intensified, leading to (Yen) Foreign exchange (U.S. dollars) Nikkei Stock Average (Yen) a sluggish pace of recovery worldwide. Over the course of the fiscal 150 20,000 year under review, stock markets fell back sharply reflecting the slowdown in emerging economies, the decline in oil prices and the pause in the depreciation of the yen, which were triggered by the 120 15,000 devaluation of the Chinese yuan in August. Thereafter, markets fluctuated wildly due to factors such as raised interest rates in the United States, and the Nikkei Stock Average having recorded a closing 90 10,000 level of ¥16,758 at the end of March 2016 after all. Amid these difficult operating conditions, while driving marketing strategies by customer segment, the Group at the same time 60 5,000 2010.4 2016.3 worked to further secure the operating foothold with a view to formulate the next-generation business model. Actual achievements we made in this endeavor include the following; Revenues and Income

established its new “Orque d’or” brand of service, executed an (Millions of yen) agreement with Hokuhoku Financial Group to set up of an affiliated ■ Total revenues ■ Operating income Net income attributable to owners of the parent Tokai Tokyo Financial Holdings began its history as Tokai Tokyo relocated the Head Office of Tokai Tokyo Securities Co., Ltd., the joint venture securities company, and took a stake in investment 90,547 Securities through the merger between Tokyo Securities of then, Group’s core company, to our home turf, the city of Nagoya, and management company, All Nippon Asset Management Co., Ltd. 82,700 the Nikko Securities (now SMBC Nikko Securities) business group worked to further boost sales capabilities in the Chubu region. For the year under review, the Company’s revenues fell 18.3% compared with a year earlier, to ¥67,585 million, and Net revenues and Tokai Maruman Securities of, likewise, the Tokai Bank group The results have begun to exceed our expectations for the 67,854 67,585 totaled ¥66,278 million, down 18.6%. Selling, general and (now The Bank of Tokyo-Mitsubishi UFJ group) in October 2000. business generated from the wealthy customers in Chubu, which administrative (SG&A) expenses fell 4.7% to ¥53,635 million. Operating 52,631 The Company transformed its structure later on to holding represents one of our intensively focused segments, as well as income fell 49.6% to ¥12,643 million, and Net income attributable to 30,248 company in April 2009. We aimed to boost the speed of from the customers related to the Toyota group. As such, we are owners of the parent dropped 32.8% to ¥12,423 million. Both revenues 25,071 management decision-making by separating the duties of Group on one hand concentrating resources in the Chubu region, and on and profit fell for two consecutive fiscal years, but Net income 23,243 15,252 management and daily operational execution of a securities the other rolling out alliance strategy with regional banks in other attributable to owners of the parent was the fourth-highest level ever 18,499 12,643 recorded. Moreover, this was the 13th consecutive year with profit 12,423 company and to increase mobility and flexibility to drive forward regions, as geographically well-balanced efforts to achieve 3,363 11,273 an alliance strategy. Two years earlier, in 2007, we established organic growth. dating back all the way to the years even before Tokai Tokyo Financial 2,545 YM Securities through a joint capital contribution with the We are also paying keen attention to overseas development Holdings was established. 2012.3 2013.3 2014.3 2015.3 2016.3 Yamaguchi Financial Group, and in 2008 we opened Hamagin and have concluded so far a series of business alliance Revenues Tokai Tokyo Securities though a merger by way of joint capital agreements with leading financial institutions in Southeast Asia contribution with the Bank of Yokohama. The shift to a holding and elsewhere. In this way, we have become able to obtain the Breakdown of Revenues company structure has helped us to accelerate the rollout of very latest local data and provide a notch more sophisticated Brokerage commissions fell 13.0% year on year, while commissions (Millions of yen) ■ Interest and dividend income various strategic steps including alliances with regional banks, information to our customers. Over the past few years, this end of 30,000 ■ Net gain on trading ■ Commissions which is a unique cooperative model combining banking and contribution to the Group’s foreign equities related business has for underwriting, distribution and soliciting purchases by specified securities brokerage operations. To broaden our alliances with been remarkable. We are now looking into providing unique investors also fell by 42.1% year on year. Total commissions for the 15,000 major regional banks thereafter, we established Nishi-Nippon City services of Japanese ingenuity of which needs are rising in Asia fiscal year under review declined by 22.3% year on year to ¥34,267 Tokai Tokyo Securities with the Nishi-Nippon City Bank in 2010, through the cooperation of our alliance partners. million. Net gain on trading from stocks, bonds and foreign exchange and Senshu Ikeda Tokai Tokyo Securities with Senshu Ikeda In October 2015, we marked the 15th anniversary of the birth slid by 14.4% year on year to post profits of ¥30,330 million. 0 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q Holdings in 2013, both via joint capital contribution. of the Tokai Tokyo Financial Group. The Group now hails the time 2015.3 2016.3 While driving forward the alliance strategy, in April 2010 we of remarkable leap forward.

24 25 Financial Information

Features and trends in earnings

Points ●Revenues from the retail business segment were ¥41,595 million, down 24.8% year on year to note ●Revenues from the non-retail business segment were ¥24,815 million, down 1.0% year on year

Investors increasingly inclined to wait-and-see, causing a decrease in individual investor transactions and thus pushing down revenues in retail, but the non-retail segment was relatively firm, relieved, for example, in the market segment by profits from bond trading, which smartly captured the downward phase of interest rate movement.

Breakdown of Income Revenues by Segment ■ Non-retail ■ Retail Wholesale segment % Other 4% 100% 7

Retail sales 63%

50% Market 26%

2016.3

0% 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 2015.3 2016.3 (Within Tokai Tokyo Securities alone) (Within Tokai Tokyo Securities alone) Review of Operations Expenses

Points ●SG&A expenses were ¥53,635 million, down 4.7% year on year to note ・Trading related expenses fell by 3.3% year on year to ¥11,793 million, as a result of the decline in customer transactions ・Employees’ compensation and benefits were ¥24,889 million, down 11.1% year on year, due to declines in performance-based bonuses and so on

As a result, SG&A expenses fell 4.7% to ¥53,635 million. As investors increasingly inclined to wait-and-see and transaction value also fell, trading related expenses contracted by 3.3% to ¥11,793 million. Employees’ compensation and benefits decreased by 11.1% due to such factors as lower performance-based bonuses, amounting to ¥24,889 million, while depreciation also dipped by 0.5% to ¥1,849 million. On the other hand, data processing and office supplies were pushed up by the factors such as subcontracting expenses hike for accounting systems, rising 9.8% to ¥6,682 million. Real estate expenses also rose as a consequence of new branch openings and so on, to ¥6,039 million (up 1.4%).

Breakdown of SG&A Expenses Trend in SG&A Expenses

(Millions of yen) ■ Others ■ Real estate expenses Others 4.4% 20,000 ■ Depreciation ■ Employees’ compensation and benefits Data processing and office supplies Trading-related expenses Depreciation ■ ■ 3.4% Trading related Data processing expenses and office supplies 22.0% 12.5% 10,000 Real estate expenses 2016.3 11. 3 %

0 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q Employees’ compensation and benefits 46.4% 2015.3 2016.3

26 Business overview: Tokai Tokyo Securities

Retail Business Segment

■Review of operations ■Future initiatives R etail Sales During the fiscal year ended March 31, 2016, we focused on The environment surrounding the retail business changes by the promoting sales with an emphasis on catering to the character of day and even by the hour and it is getting ever harsher reflecting customers and regions in driving forward the second stage of our the trends like aging customers and the competition brought by Tokai Tokyo Financial Group’s retail business consists of helping customers—mostly individuals—to build their management plan “Ambitious 5.” For instance, we opened in January the rivals affiliated with megabanks and online brokers. We will 2016 the Premier Salon Toyota Sales Office in Toyota City, to offer face the challenge by redesigning and reconstructing retail assets by proposing a range of investment products and providing consulting in asset management. Using more convenient services to customers in the Mikawa region of Aichi business operations. Tokai Tokyo Securities’ nationwide branch network and a well-developed system for Internet trading, we offer Prefecture, where the customer base is growing dramatically. In its First, we will further intensify sales strategy with an emphasis a spectrum of financial services and financial products, including stocks in Japan and overseas, bonds and core business of consulting sales to individual customers, we have on the approach catering to the characteristic of customers. The gone beyond handling just asset management. We now tap Wealth Management Unit was reorganized in April 2016 and now investment trusts. sophisticated consulting activities that include inheritance, effective has two sales arms consisting of the Orque d’or business segment use of real estate and business succession with the help from Tokai and the premier business segment. Taking advantage of this new Tokyo Wealth Consulting in order to form customer relationships operational structure, we will provide a variety of solutions to our leveraging on the advantage of face-to-face sales. customers by utilizing the brand power of Orque d’or as well as In addition, we established the new “Orque d’or” brand of our customer relations. Meanwhile, for “mature” customers we We are committed to service concept dedicated to wealthy customers. Orque d’or is a will offer consulting services such as organizing seminars on brand that symbolizes our endeavors to be a real partner to our retirement payment and providing health check of asset building, proposing optimum asset customers and their families, delivering both high trustworthiness while for customers focused on building assets for the near future, building to further reinforce and ultimate gratification. A large number of customers have we will provide a range of products and services, primarily already registered as the members of Orque d’or, and started insurance, channeling through the Tokai Tokyo Financial Galleries. the trust of customers. using the salon that we opened in front of Nagoya Station. Furthermore, we are taking steps to deliver even greater At the same time, aiming at the customers who will soon move convenience for customers, such as improving the functionality of into the life-stage of asset building, we took various measures Internet trading systems and adding new FinTech functions, such as offering the industry’s lowest interest rate on the margin following Money Forward. for direct margin trades, enhancing the convenience of our We will consider the optimal configuration of the branch Takashi Matsunaga systems to win new customers, and organizing and inviting to the network, to enable the provision of higher-quality financial Director & Deputy President “For Women Only” events such as seminars and IR tours, services that meet each customer’s circumstances and needs. In Tokai Tokyo Securities Co., Ltd. publicizing through “The Maiden’s Purse” section of our website. addition, we will transform the productivity of retail sales. In the fiscal year ended March 31, 2016, the Retail business Further, we will analyze the behavior of superior sales staff segment of Tokai Tokyo Securities posted revenue of ¥41,595 who are trusted by many customers, and other sales staff will million (down 24.8% year on year), while assets under custody undergo training based on the conclusions of the analysis to raise came to ¥2,441.4 billion, a decline of 11.3% year on year. their skill levels. ■ Results for the Retail Business Despite the adverse environment for retail business caused by With these measures, we aim to achieve stable and declining stock prices and appreciation of the yen against the sustainable growth in earnings by responding to the diverse ● Breakdown of revenues ● Total revenues (Trend) ● Individual customers’ assets Retail vs. the rest (Non-Retail) (The revenues made by respective retail under custody (Trend) currencies of emerging countries, the said initiatives worked well requirements of customers and expanding the assets they place in (All the retail sales related units vs. the rest sales related unit, i.e. the Retail Business to increase net balance of assets under custody from customers our custody. Unit, Wealth Management Unit and Direct of revenue generating units within Tokai (deposits less withdrawals) of ¥49,179 million. Tokyo Securities, i.e. revenues from the Units Channel Unit within Tokai Tokyo Securities) (Billions of yen) of Retail Business, Wealth Management 2,752.5 and Direct Channel all added together (Millions of yen) Business policy for fiscal 2016 2,441.0 2,441.4 against those earned by all other units) 65,141 2,371.5 63% 55,295 ◎ Deploy sales strategies tailored to customers’ specific circumstances and needs 48,590 41,595 ◎ Revolutionize face-to-face sales productivity ◎ Expand assets under custody from customers 2016.3 1 Reinforce customer relationships by leveraging the Orque d’or brand 2 Strengthen consulting functions and diversify products and services 3 Improve Internet trading system functionality and expand FinTech functions

2013.3 2014.3 2015.3 2016.3 2013.3 2014.3 2015.3 2016.3

28 29 Business overview: Tokai Tokyo Securities

Wholesale Segment

■Review of operations ■Planned Actions Corporate Sales / Corporate FinanceThe primary line of duty of the Corporate Sales Unit is to propose Going forward, we anticipate that the market environment will remain solutions to corporate customers such as institutional investors, financial volatile due to the Bank of Japan's negative interest rate policy and institutions and other corporations in general in Japan and overseas, due to political and geopolitical risk, leading to further diversification providing products and advice related to asset management and custom- in customer needs for asset management and funds procurement. The Offering services to corporate customers is the role assumed by the two units of Tokai Tokyo Securities designed products such as foreign exchange embedded derivatives Corporate Sales Unit and the Corporate Finance Unit plan to cultivate operations and the one is the Corporate Sales Unit which is involved in asset management operations and the transactions to meet specific customer needs. In the fiscal year ended new corporate customers and expand transaction volume with March 31, 2016, the Bank of Japan continued its program of quantitative existing customers and upgrade their competence to offer timely other one is the Corporate Finance Unit which assists funds procurement. For underwriting and sales of IPO of and qualitative monetary easing, and in addition, they introduced an suggestions that fit to market environment by exercising stepped up municipal bonds and the like, the two units work together to provide the related service. unprecedented negative interest rate policy, leading to an even more and well concerted actions trilaterally among those two units plus the difficult asset management environment for corporate customers. Market Sales Promotion Unit. However, accurate grasp of customers’ needs and subsequent focus on Up to now, the Corporate Sales Unit has built its decent track increasing transactions for bonds and structured bonds turned in a record by meeting the needs of financial institutions as customers. relatively strong performance. The Unit also accomplished solid results But, from now on, it will seek to further strengthen its relations with of increased transaction with financial institutions and expanded number overseas investors and foundations, educational institutions and the of investors both in Japan and overseas by leveraging its industry- like. It will also provide solutions tailor-made for its customers to Responding accurately and leading position in municipal bond underwriting. Further, the deal with the issues concerning asset management by making full collaborations between the traders of the Market Sales Promotion Unit use of its high-level specialist knowledge and insights and by speedily to the needs of corporate and the analysts of the Tokai Tokyo Research Institute Co., Ltd. also enhancing its ability to respond to customer needs. proved instrumental to accomplish such feat. In its bond underwriting operations, the Corporate Finance Unit customers that are getting The Corporate Finance Unit is responsible for underwriting bond and will focus on broadening the services it provides to issuing equity as well as mergers and acquisitions (M&A). In the fiscal year entities such as local governments and corporates to win lead increasingly sophisticated ended March 31, 2016, the equity underwriting team of the Unit acted underwriter positions and raise the frequency of underwriting as a domestic lead managing underwriter for the three companies of participation and then ultimately to boost its overall status in the the Japan Post group in the largest initial public offering (IPO) with the bond underwriting market. (Left) (Right) exception of that of NTT Corporation in the past. As a result, the total In the stock underwriting operations, the Unit will use the Masanori Hayashi Masataka Sato underwritten stock value rose significantly to ¥22,669 million, up newly established Nagoya Corporate Development Unit to Head of Corporate Sales Unit and Head of Corporate Finance Unit, and 159.5% year on year. In addition, the bond underwriting team reinforce its equity finance proposal sales to customers in our Managing Executive Officer Managing Executive Officer continued to strengthen its activities to win lead underwriting deals, home Chubu region, working to win lead manager status for IPOs, Corporate Sales Unit Tokai Tokyo Securities Co., Ltd. most notably, in municipal bonds. This momentum helped the Unit to increase underwritten value and enhance its presence. In Tokai Tokyo Securities Co., Ltd. maintain the status of its sixth-place ranking for aggregate addition, for M&A operations, it will bolster marketing activities underwritten value in bonds just behind the industry’s big five. such as unearthing the business needs of mid-sized family firms, These efforts paid off with the revenue of the wholesale primarily in the Chubu region. At the same time, the Unit will segment for the fiscal year ended March 31, 2016 of ¥4,832 billion actively develop functions to contribute to improvements in the that both Corporate Sales Unit and Corporate Finance Unit corporate value of its customers, such as support for corporate ■ Results for the Corporate Sales / Corporate Finance Units generated on combined basis, which was second only to the record reorganizations and take-over bid agent operations. high posted in the previous fiscal year.

● Breakdown of revenues ● Total revenues ● Tokai Tokyo Securities’ league table (Within Tokai Tokyo Securities) ranking for fiscal 2015 Business policy for fiscal 2016 (Millions of yen) Corporate Sales Unit Corporate Finance Unit Bonds overall: Underwriting value 6th ◎ Diversification of customer base and ◎ Raising the knowledge level of (Value ¥249,970 million, share 2.17%, 124 transactions) 4,852 4,832 boosting transactions proposal offering and establishing the 4,468 Municipal bonds: 4,166 Company’s status in the said area Underwriting value 6th 1 Strengthening relations with customers 2016.3 (Value ¥147,658 million, share 7.70%, 36 transactions) such as overseas investors, foundations 1 Strengthening municipal bond lead underwriting Stock public offerings: and educational institutions proposals and broadening product portfolio Underwriting value 15 th (Value ¥780 million, share 0.12%, 3 transactions) 2 Raising the knowledge level of asset 2 Winning IPO lead underwriting roles and bolstering 7% proposal offering for capital management policies Stock initial public offerings: management solutions Underwriting value 8th 3 M&A advisory to enhance corporate value 2013.3 2014.32015.3 2016.3 (Value ¥18,413 million, share 1.29%, 22 transactions)

30 31 Business overview: Tokai Tokyo Securities

Market Segment

■Review of operations ■Actions from now on M arket Sales The Market Sales Promotion Unit has developed an extensive In the fiscal year ending March 31, 2017, we anticipate that the distribution network not merely covering Tokai Tokyo Securities’ own severe market environment will continue under the concerns about sales offices but those of affiliated joint venture securities companies global economic slowdown and the prevalent political risk arising and the peer securities firms we provides platform services to. Thanks from the decision by the UK to exit from the European Union and the The Market Sales Promotion Unit of Tokai Tokyo Securities currently carries the products and services including; to this network development, the Unit has not only expanded revenue presidential election in the United States, and the geopolitical risk broking equities and bonds both foreign and Japanese, foreign currencies, and offerings of foreign bonds, structured but also has built a stable business model unbiased toward any related to regional conflicts and terrorism, as well as the sense that particular products or instruments. Moreover, it is now able to source monetary policy has reached a dead end in major countries such as bonds and derivatives, and in addition it furnishes the information associated with the said products. The Unit high quality information and a wide range of products including Japan, seemingly exhausting all the possible solutions. actively offers the products not only to the customers of Tokai Tokyo Securities but also to the affiliated joint venture derivatives from overseas business partners such as Stifel in the In this demanding business environment, the Market Sales Promotion United States. As such, it now matches squarely giant players like Unit will develop and provide products that meet foremost the needs of securities companies and the peer securities firms who use our platform services as a route to business expansion. those under megabank umbrellas in terms of information and product- retail customers and it aims to open up new corporate customers and offering capabilities, and its ability to respond to a wide range of expand transactions with corporate clientele through well concerted customer needs is also a strength. trilateral endeavors together with the Corporate Sales and Corporate In the fiscal year ended March 31, 2016, the Market Sales Finance Units. Furthermore, it will seek to strengthen the information Promotion Unit worked to further secure the said superiority, provision competence through collaboration with its overseas business We aim for stable growth in earnings broadening its information provision function by strengthening partners in order to win solid evaluation from Tokai Tokyo Securities’ collaboration with overseas business partners, putting infrastructure own customers as well as from the affiliated joint venture securities by cultivating transactions with in place such as an Internet-based information distribution system companies and peer securities firms who use our platform services. We covering foreign equities and by upgrading support functions for sales will move forward to promote offering the services of comprehensive affiliated joint venture securities promotions by the affiliated joint venture securities companies and solutions based on our bundled expertise in the areas of human the peer securities firms who use our platform services. The Unit has resources development, sales promotion, operational administration companies and the peer securities also hired professional staff with high competence and continuously and compliance, and as such, it will further increase business with the developed human resources to improve its trading capabilities. affiliated joint venture securities companies and the peer securities firms who use our platform services. As a result of these efforts, the revenue generated by the Market firms who use our platform services. Sales Promotion Unit in the fiscal year ended March 31, 2016 came to With regard to product development, while making maximum use ¥17,018 million (down 3.9% year on year). During that fiscal year, all of the bonds on our own booking, it will actively develop and provide Hideaki Yamane the negative factors such as the so-called “China Shock,” the rise in products that suit to every risk category and customer needs, related Head of Market Sales Promotion Unit U.S. interest rates and the appreciation of the yen against emerging to, for instance, to interest rates, currency, equity and credit. We are Managing Executive Officer country currencies, inevitably affected the volume of transactions with also working to upgrade the infrastructure with a view to improve Tokai Tokyo Securities Co., Ltd. customers of Tokai Tokyo Securities. Not only that, transactions trading system for handling Japanese equities and derivatives, which sourced from affiliated joint venture securities companies and the facilitates expanded order placing function and faster trade execution. peer securities firms who use our platform services also declined. In this closing year of our management plan “Ambitious 5,” we keenly Although the earnings fell year on year, bond trading, which had recognize the important roles to be played by the Market Sales captured the tide of declining interest rates in Japan and overseas Promotion Unit that include developing and providing new products ■ Results for the Market Sales Promotion Unit and somehow made profit, helped the Unit to suppress the downfall meeting the needs of customers, and sending timely information. By to a relatively marginal level. fulfilling these roles, we will achieve rapid growth in earnings.

● Breakdown of revenues ● Total revenues ● Number of securities companies to (Within Tokai Tokyo Securities) which we provide platform services / Business policy for fiscal 2016 (Millions of yen) Related transaction value ■ Transaction value of foreign equities / 26% Foreign structured bonds (Billions of yen) ◎Strengthening product provision capability and expanding transaction volume Cumulative number of 17,712 corporate customers ◎Strengthening the well harmonized activities among itself, the Corporate Sales Unit 17,018 46 103.8 45 15,499 40 and the Corporate Finance Unit 42 33 ◎Proposing integrated solutions to affiliated joint venture securities companies and 75.6 74.0 2016.3 27 the peer securities firms who use our platform services 51.8 8,796 48.5 1 Bolstering the ability to respond to customer needs by in-house product development 13 formation in-house and expanding customer flows 5 19.9 10.2 2 Developing the corporate business through collaborations with the Corporate Sales Unit and Corporate Finance Unit 3.6 3 Enhancing the support framework for the affiliated joint venture securities companies and the First Second First Second First Second First Second half half half half half half half half peer securities firms who use our platform services, and further boosting transactions with them 2013.3 2014.32015.3 2016.3 2013.3 2014.3 2015.3 2016.3

32 33 Business overview: Alliance strategy

Under the “Ambitious 5” management plan being implemented by Nishi-Nippon City Tokai Tokyo Securities and Senshu Ikeda Tokai the Tokai Tokyo Financial Group, we are committed to tackling the Tokyo Securities—have grown to the scale rivaling that of a mid- On the affiliated joint venture securities firms challenge to cultivate and expand the operating foothold of Tokai sized securities company, with approximately ¥1 trillion as of March Tokyo Securities, our core company, to drive the Group's 31, 2016. As such, the contribution to the Tokai Tokyo Financial Group uninterrupted growth. We are collaborating with regional banks is increasing further by the growth in market capacity made available that are well established in the geographic areas where the Tokai from these affiliated joint venture securities firms. Tokyo Financial Group finds it difficult to build a strong foothold Now, the relationships with these affiliated joint venture securities on its own. These joint ventures have taken off recently thanks to firms work as major factor supporting our goal of “Becoming the their complementary functionality, with regional banks providing leading player in Asia,” as set out in “Ambitious 5.” YM Securities Co., Ltd. Hamagin Tokai Tokyo Securities Co., Ltd. the operating foothold and Tokai Tokyo Securities supplying In addition, we have moved the business platform offering securities business expertise and products. services into high gear. The service is to furnish infrastructure, YM Securities, a joint venture with the Yamaguchi Financial Hamagin Tokai Tokyo Securities, a joint venture with The Since the establishment of YM Securities as an affiliated joint functions and products that we have amassed over the years and are Group, started operations on October 10, 2007, and since Bank of Yokohama, has conducted operations in the venture securities firm with the Yamaguchi Financial Group in necessary to run small to mid-sized securities firm operations. We then, has undertaken business in Yamaguchi, Hiroshima, Kanagawa area since its beginning on November 4, 2008. It 2007, we have continued to actively roll out our alliance strategy have steadily generated results in this domain and as of March 31, Kita-Kyushu, Fukuoka and Tokyo. The company now boasts has 14 branches and two booths, with assets under custody to great effect. This includes the creation of an affiliated joint 2016 had provided foreign equity products and foreign and assets under custody of ¥380,078 million as of March 31, totaling ¥372,697 million as of March 31, 2016. venture securities firm with The Bank of Yokohama, Nishi-Nippon structured bonds, as well as services such as employee education, 2016 generated from its 17 branches and two booths. The company aims to be an indispensable entity for its City Bank and Senshu Ikeda Holdings. to 46 peer securities firms. As a result, total assets under custody of the four affiliated joint Going forward, we will vigorously promote our alliance strategy YM Securities has developed an extensive lineup of customers and the No. 1 securities firm in Kanagawa ventures securities—YM Securities, Hamagin Tokai Tokyo Securities, with regional banks to further expand our network. financial products that banks cannot handle, based on the through face-to-face communication in providing consulting. concept of order-made consulting, which involves thinking It seeks to provide better services to meet the needs of together with the customer from the beginning about assets individual customers. building. Concurrently, the company provides conventional ● Operating foothold asset management consulting services. We aim to protect Assets under custody of and develop customers’ assets by conducting these affiliated joint venture securities firms ¥998.5billion consulting services. (As of March 31, 2016)

● Trend in assets under custody of ● Foreign equity assets under custody of the affiliated joint venture securities firms Tokai Tokyo Financial Group

(Billions of yen) (Billions of yen) 1,200 140 ■ Small- and mid-sized securities firms ■ Affiliated joint venture securities firm 1,048.0 ■ Tokai Tokyo Securities Nishi-Nippon City Tokai Tokyo Securities Co., Ltd. Sensyu Ikeda Tokai Tokyo Securities Co., Ltd. 998.5 120 1,000 884.4 100 800 780.8 Nishi-Nippon City Tokai Tokyo Securities, a joint venture Since its establishment on September 2, 2013, Senshu Ikeda

642.0 80 with Nishi-Nippon City Bank, has operated in the Kyushu Tokai Tokyo Securities, a joint venture with Senshu Ikeda 600 540.0 region since opening its doors on May 6, 2010. It has 11 Holdings, has worked as the only local bank-affiliated 60 branches and two booths, with assets under custody of securities firm in the Kinki area. It has three branches and 400 371.7 40 245.3 ¥163,466 million as of March 31, 2016. assets under custody stood at ¥82,249 million as of March 200 20 Since its establishment as the first securities subsidiary of 31, 2016.

5.5 a local bank in Kyushu, the company has provided top-level The company strives to win customer loyalty as the 0 0 2008.3 2009.3 2010.3 2011.3 2012.3 2013.3 2014.3 2015.3 2016.3 2012.32013.3 2014.3 2015.3 2016.3 services in the region and expanded its financial product highest ranking local bank-affiliated securities firm that is lineup to meet all kinds of asset management needs. It aims polite and kind, and it meets the purpose by holding onto the We are rolling out an operating strategy that takes advantage of The balance of foreign equity assets under custody, which to be the securities firm that is the closest to customers in motto, “Our region first,” and “Our customers first.” regional characteristics by linking banks and securities brokerage. As includes those from affiliated joint venture securities firms and the region, and their first choice. a result, the balance of assets under custody has increased steadily securities firms to which we provide platform services, is now at over the past. As of March 31, 2016, the balance was ¥998.5 billion, the level exceeding that of the equivalence of Tokai Tokyo down slightly from the record level posted in the previous fiscal year. Securities alone.

34 35 Business overview: Other strategic subsidiaries

Tokai Tokyo Research Institute Co., Ltd.

Drawing on its research of economic and financial markets in Japan and overseas, Tokai Tokyo Research provides valuable investment information to customers of the Tokai Tokyo Financial Group, including individual, corporate and institutional investors. From among the information on numerous and complex market forces, the company selects only that which is truly useful. It strives to act as a knowledgeable group of professionals that offers information in a timely manner. It provides high-quality information, drawing from a network comprising the Tokai Tokyo Financial Group’s overseas firms as well as overseas affiliated financial institutions. It is strengthening its industrial and corporate research in the Chubu region. In addition, it has launched the online transmission of Tokai Tokyo TV, as part of its unique strategy.

Tokai Tokyo Wealth Consulting Co., Ltd.

Tokai Tokyo Wealth Consulting began operations in May 2015 as a company specializing in comprehensive consulting on inheritance and real Corporate estate within the Tokai Tokyo Financial Group. The company has established a service-providing framework that makes Governance& it possible to respond with confidence to diversifying customer needs, including consulting in such areas as inheritance and real estate as well CSR as business succession. The company also holds a range of seminars and provides the latest information on matters such as tax revisions by leveraging its consulting expertise. In addition, it offers a wealth diagnosis service for appraising the value of customer assets and estimating the amount of inheritance tax.

Tokai Tokyo Academy Co., Ltd.

Tokai Tokyo Academy was launched in June 2011 as a Group company focused on education and training. It is responsible mainly for human resource development in the Tokai Tokyo Financial Group, with the Academy performing a number of tasks within each Group company such as rank-specific education for junior employees, mid-career workers and management. All of this is done to strengthen the expertise needed to practice securities and other financial business, and support the acquisition of special qualifications. The company develops individual training programs for affiliated joint venture securities companies and other financial institutes, and provides extensive education and training that help to improve knowledge and skills in securities and other financial businesses. Tokai Tokyo Academy also undertakes such activities as planning of endowed chairs for universities and runs courses at the universities to raise awareness of investment as part of its contribution to local communities.

36 Directors

(As of June 29, 2016)

Tateaki Ishida President & CEO (Representative Director) Masato Okajima Director / Audit & Supervisory Committee Member

April 1968 Joined The Tokai Bank, Ltd. April 2003 Chief Executive Officer, UFJ International plc April 1983 Joined Tokyo Securities Co., Ltd. (currently, the Company) October 2013 Managing Executive Officer, Head of Operation Unit, April 1992 President & Chief Executive Officer, May 2004 Advisor of the Company February 2003 General Manager, Financial Department of the Company General Manager of Funds Department, Tokai Bank Europe plc June 2004 Deputy President of the Company April 2009 General Manager, Financial Planning Department of the Company; Tokai Tokyo Securities Co., Ltd. June 1994 Director, The Tokai Bank, Ltd. March 2005 President of the Company General Manager, Financial Department, November 2013 Managing Executive Officer, Head of Operation Unit, Tokai Tokyo Securities Co., Ltd. June 1996 Managing Director, The Tokai Bank, Ltd June 2006 President & CEO (Representative Director) of Tokai Tokyo Securities Co., Ltd. April 2015 Managing Executive Officer of the Company June 1998 President, Tokai Asset Management Co., Ltd. the Company (current position) April 2010 Executive Officer,General Manager of General Planning Group, and General Manager of Financial Planning Department of the CompanyJune 2015 Full-time Audit & Supervisory Board Member of April 2001 Chairman, Tokai Bank Europe plc May 2011 Executive Officer and the Company; Audit & Supervisory Board Members, April 2002 Chairman, UFJ International plc Deputy Chief of General Planning Group of the Company Tokai Tokyo Securities Co., Ltd. April 2013 Managing Executive Officer and June 2016 Director, Audit & Supervisory Committee Deputy Chief of General Planning Group of the Company Member of the Company (current position)

Hiroshi Iizumi Director & Deputy President (Representative Director) Shigeo Kashiwagi Outside Director / Audit & Supervisory Committee Member

April 1980 Joined The Tokai Bank, Ltd. June 2010 Director and Managing Executive Officer, April 1973 Joined the Ministry of Finance July 2003 Executive Vice President, Policy Research May 1998 Managing Director, Tokai Bank Europe plc Mitsubishi UFJ Research and Consulting Co., Ltd. July 1993 Director, International Organizations Division, Institute, Ministry of Finance August 2001 General Manager, Securities Investment Office, June 2011 Director and Senior Managing Executive Officer, International Finance Bureau, Ministry of Finance May 2004 Attached to the Minister’s Secretariat The Tokai Bank, Ltd. Mitsubishi UFJ Research and Consulting Co., Ltd. July 1994 Attached to the Minister’s Secretariat (Executive Director, International Monetary Fund) January 2005 General Manager, Market Sales Department, June 2012 Senior Managing Executive Officer and (Executive Director, Asian Development Bank) June 2007 Professor, Graduate School of Business and UFJ Bank Ltd. Head of Market Sales Promotion Unit, July 1996 Director, Securities Market Division, Securities Bureau, Commerce, Keio University May 2006 General Manager, Market Sales Department, Tokai Tokyo Securities Co., Ltd. Ministry of Finance June 2009 Audit & Supervisory Board Member of the Company The Bank of Tokyo-Mitsubishi UFJ, Ltd. April 2014 Senior Managing Executive Officer and June 1998 Director, General Coordnation Division, April 2016 Guest Professor, Keio University (current position) Chief of General Planning Group of the Company June 2007 Executive Officer and General Manager of Financial System Planning Bureau, Ministry of Finance June 2016 Director, Audit & Supervisory Committee Market Sales Department, The Bank of June 2014 Director, Senior Managing Executive Officer and July 1999 Director General, Member of the Company (current position) Tokyo-Mitsubishi UFJ, Ltd. Chief of General Planning Group of the Company Tokai Local Finance Bureau, Ministry of Finance June 2008 Executive Officer and General Manager of April 2015 Director & Deputy President of the Company Investment Management Department, June 2015 Director & Deputy President (Representative The Bank of Tokyo-Mitsubishi UFJ, Ltd. Director) of the Company (current position) Mitsuhiro Yasuda Outside Director / Audit & Supervisory Committee Member

April 1977 Registered as Attorney at Law March 2015 Of Counsel, Marunouchi International Law Office Toshiyuki Hayakawa Director January 1987 Partner, Mitsui & Yasuda Law Firm (current position) May 2005 Partner, Linklaters Gaikokuho June 2015 Audit & Supervisory Board Member of the Company April 1978 Joined The Tokai Bank, Ltd. Kyodo-Jigyo (foreign law joint enterprise) Law Firm June 2016 Director and Audit & Supervisory Committee January 2006 General Manager, May 2011 Managing Executive Officer and July 2007 Partner, Nishimura & Asahi Member of the Company (current position) Nagoya-Ekimae Commercial Banking Office, Head of Head Office Sales Division, The Bank of Tokyo-Mitsubishi UFJ, Ltd. Tokai Tokyo Securities Co., Ltd. September2007 Executive Officer of the Company April 2012 Director and Deputy President, April 2008 Managing Executive Officer of the Company Hamagin Tokai Tokyo Securities Co., Ltd. April 2009 Managing Executive Officer, Tokai Tokyo Securities Co., Ltd. April 2014 Senior Managing Executive Officer, Chief of Strategic Business Group of the Company April 2010 Managing Executive Officer, Deputy Head of Toyota Business Division, April 2015 President & COO, Tokai Tokyo Securities Co., Ltd. Tokai Tokyo Securities Co., Ltd. (current position) June 2015 Director of the Company (current position) Keisuke Inoue Outside Director / Audit & Supervisory Committee Member

April 1973 Joined Sumitomo Life Insurance Company April 2009 Executive Vice President, Ichiro Mizuno Outside Director July 1999 Director, Sumitomo Life Insurance Company Mitsui Life Insurance Co., Ltd. October 2001 Managing Director, Sumitomo Life Insurance Company June 2009 Director and Executive Vice President, April 1966 Joined Mitsubishi Corporation April 2003 Executive Vice President and Chief Financial Officer, Mitsui Life Insurance Co., Ltd. Mitsubishi Corporation April 2002 Managing Director and Managing Executive Officer, May 1991 General Manager, Sumitomo Life Insurance Company April 2012 Executive Advisor, Corporate Information Dept., Mitsubishi Corporation June 2003 Member of Board, Executive Vice President, June 2002 President and CEO, Sumitomo Life Investment Co., Ltd. Sumitomo Life Insurance Company October 1993 General Manager, Chief Financial Officer, Mitsubishi Corporation July 2013 Head, Azabu Economic Research Institute Currency Exchange Dept., Mitsubishi Corporation April 2006 Member of Board, Senior Executive Vice President, December 2002 President and CEO, Sumitomo Mitsui Asset Management Co., Ltd. (current position) May 1995 President, Mitsubishi Corporation Finance PLC (London) Mitsubishi Corporation April 2016 Part-time Advisor of the Company June 2010 Director, Tokai Tokyo Securities Co., Ltd. July 2007 Senior Managing Executive Officer (Representative Director), June 1997 General Manager, Finance Dept., Mitsubishi Corporation Sumitomo Life Insurance Company June 2016 Director and Audit & Supervisory Committee June 2001 Executive Officer and CFO of New Business Initiative Group,June 2013 Director of the Company (current position) Member of the Company (current position) Mitsubishi Corporation

Masato Setta Outside Director

April 1983 Joined Toyota Motor Corporation January 2011 General Manager, General Administration January 1998 Manager, Accounting Division, Toyota Motor Corporation Group, Toyota Motor Corporation January 2003 General Manager, Tokyo Secretarial Division, June 2013 Managing Officer, Toyota Motor Corporation Toyota Financial Services Corporation (current position) January 2004 Director, Toyota Personnel Support Co., Ltd. June 2013 Director of the Company (current position) January 2007 Seconded to Toyota Motor Sales, U.S.A. Inc.

38 39 Corporate Governance Compliance & Risk Management

operations and the other does to “Non-Executive Directors” who Basic Approach are mainly in charge of supervision of business execution. The Compliance Framework Risk Management Framework roles of Directors of both classes are clearly distinguished by the Company. Furthermore, appointing the Chairperson of the The Company considers the enhancement of corporate governance Board of Directors from “Non-Executive Directors” signifies The Tokai Tokyo Financial Group has laid down basic standards The Group has laid down fundamental standards such as the to be one of its important tasks. Accordingly, the Company will the Company’s efforts to ensure the role of the Board of such as the “Compliance Policy” and “Ethical Code of Conduct,” “Basic Risk Management Policy,” and prepared rules such as the reinforce and upgrade its corporate governance, aiming to Directors with respect to corporate governance efficacy. and in addition it has prepared compliance rules and related rules “Risk Management Code” and others to administer integrated risk boost the level of fairness and transparency in its management, (2) Enhancing functions of the Board of Directors and the and is working to implement them. management for the group as a whole. with the ultimate goals of ensuring trust from its broad range of Audit & Supervisory Committee To secure the effectiveness of measures to enforce the strict In addition, the Company has established the Comprehensive stakeholders and continuously increasing corporate value. To raise the level of management transparency and soundness, observance of laws and regulations, the Group has set up the Risk Management Committee to monitor the state of risk five of the nine members of the Company’s Board of Directors Comprehensive Risk Management Committee as an organization management. It has also set up a Comprehensive Risk Compliance Basic Approach are Outside Directors with abundant experience and a high to report to the Board of Directors Meeting on matters related to Department as a specialist department to perform activities of (1) The Company respects the right of its shareholders and degree of insight (including the three who serve on the Audit & compliance. It has also established the Comprehensive Risk/ coordination, guidance, and monitoring related to various types works to maintain an environment in which such right can Supervisory Committee). The result is that Outside Directors Compliance Department as the department specialized in of risk. be appropriately exercised as well as to ensure the real account for a majority of both the Board of Directors and the providing guidance and coordination on compliance. fairness to shareholders. Audit & Supervisory Committee, which ensures robust checks (2) While the Company engages in suitable cooperation with various and balances within the Company. Tokai Tokyo Securities’ Risk stakeholders including shareholders, customers, business Tokai Tokyo Securities’ Compliance partners, employees, and regional societies, it fosters corporate Management Framework culture and spirit that respect sound business operations. Framework Shifting to the company with a Tokai Tokyo Securities established both the Market Risk (3) The Company discloses information appropriately not only committee governance structure Tokai Tokyo Securities draws up the Compliance Program, which is Committee and the Credit & Operational Risk Committee. At the what is required by laws, regulations, etc., but also the a specific implementation plan for each fiscal year in line with same time, in conjunction with this, it drew up related rules and information it deems necessary in order to ensure fairness In June 2016, the Company shifted from being a company with Tokai Tokyo Financial Holdings’ Basic Policy, and this is followed established a framework that facilitates the routine practices of and transparency in its management. an Audit & Supervisory Board to a company with an Audit & by all the directors and employees. analyzing, managing and reporting market risk, credit risk and (4) The Company makes efforts to maintain a system that enables Supervisory Committee. The shift was designed to accomplish To secure the effectiveness of enforcing strict observance of liquidity risk. To secure the sound management and financial Directors perform more effective supervision over its the following: laws and regulations, we have set up the Compliance Committee standing of Tokai Tokyo Securities, the Board of Directors has set management and concurrently facilitates the management’s 1. Strengthen the audit and supervisory functions by appointing as an organization to report to Tokai Tokyo Securities’ a lower limit level for capital adequacy ratios, the maintenance swift and resolute decision making. some of the Audit & Supervisory Committee members Management Meeting on the matters related to compliance. The of which or better is designated a basic policy of risk (5) In order to promote continuous growth and increase in concurrently as members of the Board of Directors while committee meets once a month, and the details of its discussions management operations. medium-to-long-term corporate value, the Company preserving the merits of the existing corporate governance are reported to Tokai Tokyo Securities’ Management Meeting. undertakes constructive dialogue with shareholders through structure (including majority representation at the Board of We have established the Compliance Unit as a specialist unit to proactive IR and other activities. Directors Meeting by Outside Directors, a clear demarcation Market Risk Management coordinate, guide, verify the state of observance, prevent unfair ◎ between the roles of executive directors and those of non- Based on the “Risk Management Rules,” the department in charge transactions, thoroughly manage information and deal with executive directors, and assumption of the duty of Chairperson of risk management, which is independent of the department that antisocial forces, while seeking concurrently to enhance the of the Board of Directors Meeting by a non-executive director). performs trading operations, exercises calculation and control of Main Characteristics of the internal control framework. Company’s Corporate Governance 2. Speed up decision making at the Company by delegating a risk, position and profits and losses on a daily basis. wide range of authority on important business execution from (1) Distinguish clearly the managerial functions of “business the Board of Directors Meeting to executive directors, ◎ Tokai Tokyo Securities’ compliance training ◎ Credit Risk Management execution” and “supervision” 3. Focus the discussions at the Board of Directors Meeting on Tokai Tokyo Securities conducts training specialized in compliance Based on the “Risk Management Rules,” the losses that could The Board of Directors consists of two classes and the one class more strategic issues and in a more comprehensive and on a regular basis. It strives to raise awareness of compliance, occur as a result of nonperformance by the transaction refers to “Executive Directors” who carry out daily business thorough manner. through training programs dedicated respectively to sales counterparty are managed so that they stay within a managers, internal control managers and employees involved in predetermined limit. In addition, in accordance with the General Meeting of Shareholders internal control duties. In addition, it organizes compliance “Credit Risk Rules,” credit risk allowance is determined and Appointment Appointment Appointment training for all directors and employees to improve their managed thereafter for each counterparty on the basis of their Board of Directors competence as registered representatives and for less Directors serving on the Audit and supervisory Committee financial strength. Directors who are not Audit & Supervisory Committee Members Audit & Supervisory Committee experienced sales personnel to raise their awareness that compliance is critically important. Chairperson of the Board of Directors (Outside Director) President Liquidity Risk Management Associated with Funding Directors (Audit & Supervisory Committee Members) ◎ Outside Directors Chief Executive Officer Outside Directors (Audit & Supervisory Committee Members) Based on the “Liquidity Risk Management Rules,” the Directors Directors departments responsible for financing monitor and manage Audit suitably the cash position on a daily basis. Moreover, they prepare (Non-executive directors) (Executive directors) a contingency plan to deal with financial market volatility, and they present a monthly funding forecast periodically to the Market Instruct Report Inquire Report Executive Officers Execution of Business Inquire Collaborate Risk Committee. Nomination and Remuneration Committee General Planning Group Management Meetings Audit Department Audit of Business Execution Strategic Planning Group Comprehensive Risk Management Committee Collaborate Overall Risk Management Group Human Resources Committee Accounting Auditor Management (Execution of Business)

40 41 CSR initiatives Employee relations

class cluster for manufacturing, and we conduct a range of Social contribution through our working environment and facilitate the development of expert activities to further deepen local people’s understanding of its Basic philosophy core operations appeal as well as industry trends. human resources. Concurrently, our remuneration system, which In the field of sports, in June 2015 the Company and Tokai combines stable monthly salaries with clearly merit-based For the Tokai Tokyo Financial Group, contributing extensively to Tokyo Securities concluded an Official Partner agreement with The Tokai Tokyo Financial Group considers human resources its bonuses, helps us significantly realize fair compensation society through its core business is a basic CSR policy, and the the J1 League’s Nagoya Grampus to show their strong greatest asset and the source of its growth potential. We, for employees. Group handles green bonds and other social contribution bonds approval of the latter’s policy of “Building Strong Ties by therefore, allocate ample management resources to develop as part of its push to help solve social problems such as global Sharing Our Dreams and Emotions with Local People.” our personnel. We have introduced enriched, rank-specific warming. In addition, we promote a wide range of activities Furthermore, in March 2016 the Group opened the “Salon de training programs for young staff, management and executive Promoting diversity aimed at university students, such as internships, and as part Orque d’or” on the top floor of the Dai Nagoya Building in front personnel in an effort to nurture financial professionals with of our CSR efforts in fiscal 2008 we began offering funded of Nagoya Station. The new Salon is intended as a space advanced knowledge and skills. We are also constructing The global economy and capital markets continue to change from coursework to universities in the Chubu region and the Tokyo where people and technology can interact as well as a location human resources systems and employment frameworks that day to day and moment to moment. To achieve sustainable growth metropolitan area in which the Company’s executive officers used actively for open innovation, and we aim for it to take careful account of diversity. In addition, we support the in this period of volatile change, it is critical to actively recruit and and employees serve as lecturers. In the year ended March 31, contribute to even greater achievements in the Chubu region. career building of aspiring employees through the measures promote the advancement of diverse human resources, regardless 2016, a course titled “Securities business as recounted from As a good corporate citizen, the Group will continue to like job posting, MBA scholarship for those selected to study of age or gender. Based on this thinking, the Tokai Tokyo Financial the frontline” was given at three Chubu region universities conduct a wide range of activities that contribute to society. at schools either in Japan or overseas, and encouraging (Aichi, Meijo and Aichi Gakuin) from April to July 2015 and at participation in voluntary training courses and overseas Group is working to promote diversity, and to create and maintain Aoyama Gakuin University in Tokyo from September 2015 to training program. a pleasant and motivating environment for a range of employees. January 2016. The series of lectures sought to promote This aims to achieve the concept of “Humanity,” which is one of CSR topics understanding of the role of securities firms in capital markets the themes of our management plan “Ambitious 5.” In particular, we are implementing various measures to as well as the Company’s business strategy in a rapidly Our personnel system changing environment, while discussing topics related to the Accelerating “Global CSR” initiatives promote the active participation of women in the workplace. securities business. Toward this end, we offer them dual support. The one is to Moreover, in October 2015 a new a CSR Activity Department The Tokai Tokyo Financial Group works constantly to enhance its support the balance between childcare and work, and the other is was established at Tokai Tokyo Securities, to prepare the The Tokai Tokyo Financial Group is involved in personnel system and employee evaluation system to ensure that to support widely the competence growth of female employees. foundation for developing a wide range of social contribution regional contribution activities at the locations of its all employees perform at their maximum capability. The actions To foster an appropriate balance between childcare and work, we activities. By further invigorating CSR activities through our overseas offices as well as in other programs aimed include introducing specialist training program that allows extended the duration of childcare leave and the application of core business, we will contribute to the development of at exchanges between Japan and the rest of the employees to choose from among four courses. We also designed shortened working hours above and beyond legal requirements. society and the economy and to the promotion of partnerships world, as the entire Group works to expand its diversity-conscious HR practices such as allowing employees to We have also introduced a Half-Day Holiday, in which a paid between industry and academia. “Global CSR” initiatives. In June 2015, we donated continue working beyond retirement age and actively promoting leave can be used in half-day units, and a Career Bridge Program, an elementary school building in Palo on Leyte suitable female employees to managerial positions. These which helps women, who once retired due to unavoidable island in the Philippines, which was hit hard by an practices help employees work in comfortable and productive childcare or nursing duties, to return to work. With regard to extremely strong typhoon in November 2013. At Contribution to local communities Christmas, we made a present of school supplies and other items. In November 2015, at a “Top Global Details of personnel system reforms The Tokai Tokyo Group, which boasts an extensive network of Universities Project” symposium led by the Ministry business locations in Japan and overseas, contributes to the of Education, Culture, Sports, Science and advancement of numerous regions where we operate through Technology, our president, Tateaki Ishida, gave the The Company: Rapidly expand the operational base and rapidly diversify business following the shift a diverse array of CSR activities. Tokai Tokyo Securities keynote address on the subject of global human Background to a holding company structure contributes to the advancement of regional society through its resources. Furthermore, in January 2016, students Society : Adapt to an aging society and actively utilize women active support of academia, culture, sports and other areas in from Hong Kong University of Science and its home market of the Chubu region. Technology visited the Company to learn about Expertise Diversity In February 2015, to nurture the human resources that will Japan’s financial and capital markets and current ●Four specialist courses ●Measure for older workers drive Chubu’s internationalization, we launched the Nagoya economic conditions. Lectures were given by the ・Created a meister course (operational routine-related ・Increased the upper age limit for continuous University Tokai Tokyo Financial Holdings Global Business Company’s executive officers, and students and positions) employment from 65 to 70 ・Created a specialist course (planning and management- program to support Nagoya University’s academic and younger employees held fruitful discussions. related positions) ●Measures for the active participation of women Actively promote women to managerial positions educational exchanges in the United Kingdom. Under this ・Revised an expert course (positions requiring advanced ・ expertise) ・Extended the duration of childcare leave and allowed project, undergraduate and graduate students from Nagoya child-rearing mothers a longer period of shortened ・Created a wealth management course (sales to wealthy University are sent to the University of Cambridge and the customers) working hours University of Edinburgh. Courses on international affairs, among others, are also provided to explain the global situation Suitable conditions Simplification to citizens and students in the Chubu region. We believe that ●Stable monthly salary ●The entire system was redesigned for simplicity our support contributes to the internationalization of Nagoya ●Clear merit-based bonuses University and the Chubu region. In addition, Chubu is a world-

42 43 Employee relations

supporting the competence growth of female employees, we long-term vision to become a comprehensive financial group provide career step-up training for their future career building and with a strong presence in Asia. retooling-program for those returning from childcare leave. We Efforts are being made to foster the capabilities required in also provide “Diversity Training” to managerial personnel for them respective job responsibilities through a rank-based program to realize the importance of encouraging female workers to be of supportive training that aims to promote the growth of each actively engaged in work. The Group’s efforts to promote diversity employee. The programs cover the stages of skills have been highly acclaimed by society with Tokai Tokyo Financial development (young employees), maximizing potential (mid- Holdings winning the “Tokyo Promoting Active Roles for Women” career workers) and management support (the managerial excellence award in the business category in 2015. In addition, in level). To support career building for motivated and talented fiscal 2015, Tokai Tokyo Securities was officially certified by employees, we have introduced an internal job posting system Nagoya City as a company that provides child-raising support for in which people can apply for the department of their choice women who are participating actively in the workforce. and an MBA scholarships program in which qualified personnel The Group seeks to achieve further growth by further are sent to graduate schools either in Japan or overseas. The promoting the women to managerial positions and by reemploying Group effectively runs a variety of programs supporting older workers and utilizing diverse human resources. employee growth, including voluntary training aimed at encouraging acquisition of specialized expertise in finance, e-learning in which employees can study a diverse range of subjects regardless of the location where they work, and On human resource development “qualification mileage system” in which the learners earn the points by acquiring designated qualifications and by The Tokai Tokyo Financial Group is committed to developing participating voluntarily in training while their learning exceptional financial professionals with distinct knowledge participation progresses are actually monitored. and skills as the driving force for achieving our medium- to Financial Section Compulsory training

Skills development stage Prospective employee support program

In the skills development stage, employees first learn the fundamental New employee support program knowledge indispensable as members of society and people engaged in the securities business. stage Young employee development support program This stage is positioned as the spring board for acquiring practical expertise through a range of training and workshops, as well as fostering Young employees

Skills development Young employee qualification acquisition a strong will to continue learning of one’s own accord with a view to support program the future.

Potential maximization stage OJT support program

From this stage on, there is a training curriculum to boost skills befitting Leadership reinforcement program the job category and to facilitate stepping up to a managerial position, including the development of management capabilities. stage Mid-career skill overhaul program The training focuses on nurturing in mid-career personnel a sense of duty to lead their departments and re-polish their accumulated knowledge and experience. Mid-career workers Managerial candidate program Potential maximizationPotential

Management support stage

New manager support program At this stage, we work to give the staff training so that they can operate at a higher level by adding a managerial sense to the experience and knowledge that they have acquired in the workplace.

stage The training focuses on learning the ideal way to act as a person responsible for an organization and on expanding the knowledge and skills Management skills improvement program

Managerial level to be acquired by the candidates for future executive positions. Management support

44 Ambitious 5: Since April 2012, the Group has been promoting strategies alongside the business plan, “Ambitious Operating Result for fiscal 2015 5,” under which it positions the fiscal year ended March 31, 2015 and thereafter as the second stage of the plan, in order to implement further advanced measures. Operating Environment At the second stage of the plan, the Group aims to become the “Leading Player in Asia” as a unique and Japanese Economy During the consolidated fiscal year ended March 31, 2016 (April 1, 2015 to March 31, comprehensive financial group by way of reinforcing new service capabilities and expanding global network for 2016), after following a moderate recovery trend, the economy gradually lost steam on the back of the economic better customer convenience to be offered while upholding its fundamental philosophy intact. slowdown in China and other emerging countries, declines in stock markets and rising yen after the summer Business Focus: Tokai Tokyo Securities Co., Ltd. (hereinafter, “Tokai Tokyo Securities”), the core operating season. Consumer spending made a modest recovery on the back of the improvement in employment and the company of the Group, has been promoting “Stable Revenue Generating Business Activity” and “Per Customer salary increases realized at large companies, but ended up short of a real recovery as a result of increased share of Profit-focused Business Activity” based on “Specifically Designed Marketing Activities Catering to Each non-regular employment and the modest salary increases at small- and medium-sized companies. Furthermore, Customer Segment” in retail business operations. Japanese companies became more cautious in their capital expenditure responding to the economic slowdown in Segmented Approaches: For “The Class” (affluent) customers, the Group introduced the new brand service, emerging countries as well as rising yen. In the wake of decelerated price hikes under the higher yen and the “Orque d’or” and new membership system, “Orque d’or Members.” The Group will provide members and their lower crude oil price on top of the waned real economy as mentioned above, the Bank of Japan introduced a families with all services associated with their asset management needs as their true partner, thus helping the negative interest rate policy in February 2016. members with their process of “wealth transfer” between generations of respective families. Looking Abroad Although the recovery trend in general was mildly positive, slower growth was observed in Mostly for “The Mature” customers (those with a certain level and above of financial assets and with appetite China and other emerging countries. In the United States, while consumer spending was positive as a whole, for asset management), the Group established Toyota FS Retail Client Department “Premier Salon Toyota” in corporate performance turned negative, albeit slightly, under the pressure of a stronger dollar and lower crude oil January 2016 in an effort to increase our presence and improve the services in the focused geographic area of prices. In Europe, the continued monetary easing favored the region’s economy, but the weak performance of the Nishimikawa. Furthermore, the Group has been promoting solution sales activities to provide financial products banking sector and strong shock of the refugee issue and terrorist attacks resulted in a sluggish economy after and services that fit each customer by utilizing “Asset Analysis Service” to diagnose the assets held by customers all. The Chinese economy saw a continuous slowdown due to its structural adjustment of reducing excessive Mainly for “Asset Formation” customers (those willing to build up assets toward future), the Group has focused capital stock. on the expansion of online functions and the improvement of call center operation services under the “Simple Japanese Stock Market The Nikkei Stock Average started at just above ¥19,100 in April 2015 and observed Direct Services.” upward movement temporarily reaching a level close to ¥21,000 in June 2015. However, it plunged sharply in On the other hand, amid choppy financial market conditions, the Market Division contributed to business August 2015 and thereafter, triggered by devaluation of the Chinese yuan and discouraged by decelerated performance particularly with revenue earned from bond trading by seizing the downward trend of interest rates. emerging economies, lower crude oil prices and the appreciation of the yen. In December, the FRB (Federal Furthermore, enhanced information-gathering capability by frequent use of the resource provide by overseas Reserve Board) raised interest rates for the first time in nine and a half years, which triggered accelerated risk business partners helped both JV securities firms operating jointly with the Tokai Tokyo Securities and the aversion movement of investors. As a result, the Nikkei Stock Average fell temporarily to below ¥15,000 in Platform Alliance partners (meaning the securities firms to which we provide the infrastructure and functions February 2016 and closed March transactions at ¥16,758. The average daily transaction volume in the First necessary for broking foreign stock and bond) maintain decent transaction volume of foreign stocks, albeit Section of the Tokyo Stock Exchange from April 2015 to March 2016 was ¥2,883.4 billion, exceeding the actually a decrease on year-on-year basis due to deteriorated markets. ¥2,407.1 billion recorded during the same period in previous year. The Corporate Finance Division made steady achievements such as securing its position just behind the five Japanese Bond Market Starting at above 0.4% in April 2015, the yield on the 10-year JGB, the benchmark for major rival firms in the area of bond underwriting and winning the lead manager’s position in seven stock long-term interest rates, rose temporarily to 0.545% in June 2015 as U.S. long-term interest rates rose on the back underwriting transactions including, foremost, those in which we assumed the role of domestic specified of the predicted interest rate hike by the FRB. Subsequently, however, the yield turned downward on the back of lead manager for the secondary distribution associated with the shares of the three companies under the sluggish stock prices and lower crude oil price, finally reaching the below-zero level after the Bank of Japan Japan Post Group. introduced a negative interest rate policy in February 2016. The yield then fell further, briefly reaching negative The Corporate Sales Division kept on strengthening its revenue generation capacity by expanding their 0.135% in March 2016, and closed at negative 0.05% at the end of March 2016. customer base centering on non-financial entities and institutional investors. Foreign Exchange Market The quantitative easing by the Bank of Japan, concurrently with the prospect of the Alliance Move: On the domestic alliance strategy, Tokai Tokyo Financial Holdings, Inc. (“the Company”) interest rate hike by the FRB, caused the dollar to appreciate against the yen until June 2015, temporarily reaching reached a basic agreement with Hokuhoku Financial Group, Inc. to establish a securities firm in the form of a the ¥125 level. Subsequently, although there were several factors for the appreciation of the dollar against the yen joint investment with the aim of further expanding and developing joint businesses with major regional banks, and such as the U.S. interest rate hike and the introduction of negative interest rate policy by the Bank of Japan, started preparation for opening. The existing four JV securities firms (YM Securities Co., Ltd., Hamagin Tokai buying pressure on the yen for risk aversion purposes prevailed on the back of sluggish stock prices and lower Tokyo Securities Co., Ltd., Nishi-Nippon City Tokai Tokyo Securities Co., Ltd. and Senshu Ikeda Tokai Tokyo crude oil price. After temporarily reaching above ¥110 in March 2016, the dollar closed March transactions at the Securities Co., Ltd.) have steadily expanded business, now operating at as many as 51 outlets. ¥112 level. With respect to three branches of Tokai Tokyo Securities (Kumamoto, Miyazaki and Kagoshima Branches)

46 47 located in southern Kyushu, we decided to transfer their financial instruments businesses to Nishi-Nippon City (1) Brokerage Tokai Tokyo Securities Co., Ltd. by way of corporate split with the aim of providing more community-focused Total brokerage commissions earned by the Group decreased 13.0%, to ¥16,539 million, of which brokerage services to customers. commissions on stock amounted to ¥15,149 million, down 17.3%, due to a decline in transactions by individual Meanwhile, under the overseas alliance strategy, the Company entered into a business cooperation agreement in investors. The value of stock brokered by Tokai Tokyo Securities, a subsidiary of the Company, expanded 0.2%, April with K & N Kenanga Holdings Berhad, which is the largest independent investment bank in Malaysia, and to ¥3,820.6 billion, while the volume of stock brokered decreased 7.1%, to 4,549 million shares. subsequently made a capital contribution in May, aiming at strengthening information-gathering capability as well as expanding product offering competence to improve our services. (2) Underwriting and distribution Streamlined Information Providing Function: Additionally, the Company has established a system to meet The Group recorded underwriting and distribution commissions of ¥11,365 million, a decrease of 39.8% from the diverse and sophisticated customer needs by putting all the dispersed information-providing functions into Tokai previous year. Distribution commissions for the most part were earned from investment trusts. Tokyo Wealth Consulting Co., Ltd. that provides advice to customers. This change was aimed to enhance the capability to help customers solve their questions about inheritance, business succession, Tax and other peripheral (3) Other matters by showing ideas. Other commissions were ¥6,363 million, up 3.0% from the preceding year. Most of this amount was attributable CSR Activities: As part of activities that contribute to society and local communities in Japan, the Company to agency commissions from investment trusts. opened “Salon de Orque d’or” in March 2016 on the 33rd floor, the highest floor of the Dai Nagoya Building. The Salon is intended for use by the Orque d’or members, business associations and academic societies, and it serves (Trading profit and loss) as the base of open innovation activities. In the consolidated fiscal year under review, net gain on trading of stocks was ¥11,691 million, down 30.1%, All Nippon Asset Management Co., Ltd.: The Company established All Nippon Asset Management Preparation mainly reflecting the decline in trading of foreign stock (centered on U.S. stock). On the other hand, net gain Co., Ltd. in August 2015 for the purpose of providing an operational platform to regional banks. In December on trading of bonds and forex, including mainly trading of foreign currency-denominated bonds and structured 2015, the new company was renamed as All Nippon Asset Management Co., Ltd., and received capital bonds, was ¥18,638 million, a drop of 0.3%. As a result, net gain on trading totaled ¥30,330 million, down contributions from several regional banks in March 2016. We expect that the company will be widely utilized as a 14.4%. common operational platform based on which regional banks will enhance their capabilities to manage their own funds, thus contributing to sound development of each regional bank and promotion of the local economy. (Net interest and dividend income) Meanwhile, the Group entered into an official partner agreement with Nagoya Grampus Eight, a Japanese In the consolidated fiscal year under review, interest and dividend income was ¥2,988 million, down 6.3%. professional J1 League football club in the Chubu region that engages in promoting local sports and activating the Interest expense decreased 1.4%, to ¥1,307 million, resulting in net interest and dividend income of ¥1,681 local community besides playing good football. In October 2015, for the purpose of proactively promoting the million, down 9.9%. local contribution activities mainly in the Chubu region, Tokai Tokyo Securities established the “CSR Activity Department.” In Asia, the Group donated a new classroom building for an elementary school in Leyte Island in (Selling, general and administrative expenses) the Philippines in June 2015. Selling, general and administrative expenses for the consolidated fiscal year under review were ¥53,635 million, 15th Anniversary: In October 2015, the Group marked the 15th anniversary of the establishment of the Tokai down 4.7%. Of this amount, employees’ compensation and benefits decreased 11.1%, to ¥24,889 million; Tokyo Financial Group. Taking this memorable opportunity, the Group decided to establish “The Tokai Tokyo brokerage and other commissions amounted to ¥5,935 million, down 4.9%; data processing and office supplies Foundation” aiming to contribute to the local community and society as a whole toward the future through increased 9.7%, to ¥6,682 million; and real estate expenses increased 1.3% year on year, to ¥6,039 million. financial service-related support. Better Workplace for Female Colleague: With respect to the Company-wide project of “Providing Female (Other income and expenses) Colleagues with Better Opportunities for the Better Result,” we are proactively putting various ideas into action to In the consolidated fiscal year under review, other income, net, was ¥5,282 million. The primary positive factors make it easier for child rearing employees to work, as well as giving female workers career development support, included net gain on sales and impairment loss on investment securities of ¥2,597 million. In contrast, the primary while setting numerical targets and action plans to raise the percentage of female managers. These efforts have negative factors included a 43.2% decrease in equity in gain of associated companies, to ¥949 million. been highly recognized by the city of Nagoya and other organizations that honored us with several awards. As a result, total revenues for the consolidated fiscal year under review decreased 18.3%, to ¥67,585 million; Analysis of Operating Results(All figures quoted here are on a consolidated basis) net revenues fell 18.6%, to ¥66,278 million; operating income shrank 49.6%, to ¥12,643 million; and net income The Company’s consolidated operating results for the period were as follows: attributable to owners of the parent dropped 32.8%, to ¥12,423 million. (Commissions) During the consolidated fiscal year under review, total commissions received decreased 22.3%, to ¥34,267 million. (The percentage indicates a year-on-year change; the same applies hereinafter in this section below.).

48 49 ConsolidatedConsolidated Balance Balance Sheet Sheet ConsolidatedConsolidated BalanceBalance Sheet Sheet TokaiTokai Tokyo Tokyo Financial Financial Holdings, Holdings, Inc. and Subsidiaries Inc. and Subsidiaries TokaiTokai Tokyo Tokyo FinancialFinancial Holdings, Holdings, Inc. and Subsidiaries Inc. and Subsidiaries AsAs ofof March 31,31, 2016 2016 As ofAs March of March 31, 31, 2016 2016 Thousands of Thousands of U.S. dollars U.S. dollars Millions of yen Millions of yen (Note 1) (Note 1) 2016 2015 2016 2016 2015 2016 ASSETS LIABILITIES AND EQUITY Cash on hand and in banks (Notes 3 and 14): Borrowings (Notes 6, 7 and 14): Cash and deposits ¥ 45,204 ¥ 56,528 $ 401,173 Short-term borrowings ¥ 81,052 ¥ 98,029 $ 719,315 Commercial paper 9,800 8,300 86,972 Cash segregated as deposits 28,712 26,268 254,806 Current portion of long-term debt 35,856 37,901 318,207 73,916 82,796 655,979 Long-term debt 21,650 13,903 192,137 Collateralized short-term financing agreements (Note 14): 148,358 158,133 1,316,631 Cash collateral pledged for securities borrowed 134,043 79,468 1,189,587 134,043 79,468 1,189,587 Collateralized short-term financing agreements (Notes 7 and 14): Trading assets (Note14): Cash received on securities loaned 68,539 3,805 608,256 Trading securities (Notes 4 and 7) 255,621 195,803 2,268,556 Borrowings under repurchase agreements 㸫 1,000 㸫 Derivatives (Note 5) 3,614 2,250 32,073 68,539 4,805 608,256 259,235 198,053 2,300,629 Trading liabilities (Note 14): Receivables: Trading securities (Note 4) 129,790 63,271 1,151,847 Receivables from brokers, dealers, and clearing organizations (Note 14) 11,952 11,118 106,071 Derivatives (Note 5) 7,322 6,855 64,978 Receivables from customers 130 110 1,153 137,112 70,126 1,216,825 Receivables related to margin transactions (Note 14) 41,375 38,759 367,192 Payables (Note 14): Other 3,523 2,726 31,262 Payables to brokers, dealers, and clearing organizations 15,262 10,902 135,445 56,980 52,713 505,678 Payables to customers 25,131 22,861 223,026 Allowance for doubtful accounts (32) (35) (284) Payables related to margin transactions (Note 7) 5,708 10,675 50,658 56,948 52,678 505,394 Other 5,871 10,791 52,104 51,972 55,229 461,233 Short-term investment securities (Notes 4 and 14) 㸫 10 㸫 Deferred tax liabilities (Note 13) 471 1,792 4,179 Investment securities (Notes 4, 7 and 14) 14,518 17,202 128,854 Accrued and other liabilities: Income taxes payable 533 2,558 4,730 Investments in associated companies (Note 14) 10,552 9,584 93,650 Provision for bonuses 1,722 3,807 15,280 Liability for retirement benefits (Note 10) 548 652 4,867 Deferred tax assets (Note 13) 209 1,284 1,847 Other 3,650 3,264 32,393 6,453 10,281 57,270 Other assets: Property and equipment (Notes 7, 8 and 9) 18,241 16,661 161,881 Statutory reserves 440 389 3,910 Accumulated depreciation (8,038) (7,819) (71,329) Total liabilities 413,345 300,755 3,668,304 10,203 8,842 90,552 Lease deposits 2,090 1,969 18,539 Asset for retirement benefits (Note 10) 2,697 2,411 23,941 Equity (Notes 11, 12 and 22) Other 5,474 5,159 48,579 Common stock: 20,464 18,381 181,611 Authorized: 972,730,000 shares Allowance for doubtful accounts (1,336) (1,349) (11,857) Issued: 280,582,115 shares in 2016 and in 2015 36,000 36,000 319,489 19,128 17,032 169,754 Capital surplus 33,473 33,470 297,063 Stock acquisition rights 327 196 2,904 Total assets ¥ 568,549 ¥ 458,107 $ 5,045,694 Retained earnings 85,537 82,140 759,117 Treasury stock, at cost: 16,706,568 shares in 2016 (6,389) (3,639) (56,713) and 13,929,529 shares in 2015 Accumulated other comprehensive income: Unrealized gain on available-for-sale securities 2,026 3,979 17,982 Foreign currency translation adjustments (11) 70 (98) Defined retirement benefit plans 2,454 2,614 21,780 Total 153,417 154,830 1,361,524 Noncontrolling interests 1,787 2,522 15,866 Total equity 155,204 157,352 1,377,390 Total liabilities and equity ¥ 568,549 ¥ 458,107 $ 5,045,694

See notes to consolidated financial statements. See notes to consolidated financial statements.

50 51 ConsolidatedConsolidated StatStatementement of of Income Income ConsolidatedConsolidated Statement Statement of ofComprehensive Comprehensive Income Income TokaiTokai TokyoTokyo Financial Financial Holdings, Holdings, Inc. and Inc. Subsidiaries and Subsidiaries TokaiTokai Tokyo Tokyo Financial Financial Holdings, Holdings, Inc. and Inc. Subsidiaries and Subsidiaries ForFor the the year year ended ended March March 31, 31, 2016 2016 ForFor the yearthe endedyear Marchended 31, March 2016 31, 2016 Thousands of Thousands of U.S. dollars Millions of yen U.S. dollars Millions of yen (Note 1) (Note 1) 2016 2015 2016 2016 2015 2016 Revenues: Net income ¥ 12,491 ¥ 18,754 $ 110,852 Commissions (Note 15) ¥ 34,267 ¥ 44,082 $ 304,111 Net gain on trading 30,330 35,428 269,165 Other comprehensive income (Note 18): Interest and dividend income 2,988 3,190 26,517 Unrealized (loss) gain on available-for-sale securities (1,955) 1,706 (17,347) Total revenues 67,585 82,700 599,793 Foreign currency translation adjustments (81) 289 (716) Interest expense 1,307 1,325 11,598 Defined retirement benefit plans (160) 1,429 (1,424) Net revenues 66,278 81,375 588,195 Comprehensive income ¥ 10,295 ¥ 22,178 $ 91,365 Selling, general and administrative expenses (Note 16) 53,635 56,304 475,990 Operating income 12,643 25,071 112,205 Total comprehensive income attributable to (Note 18): Owners of the parent ¥ 10,229 ¥ 21,922 $ 90,781 Other income, net (Note 17) 5,282 3,825 46,879 Noncontrolling interests 66 256 584 Income before income taxes 17,925 28,896 159,084

Income taxes (Note 13): Current 4,526 9,329 40,172 Deferred 908 813 8,060 Total income taxes 5,434 10,142 48,232

Net income (Note 2(d)) 12,491 18,754 110,852

Net income attributable to noncontrolling interests 68 255 601

Net income attributable to owners of the parent (Note 2(d)) ¥ 12,423 ¥ 18,499 $ 110,251

Per share of common stock (Notes 2(t) and 20):Yen U.S. dollars Basic net income ¥ 46.92 ¥ 69.51 $ 0.42 Diluted net income 46.87 69.33 0.42 Cash dividends applicable to the year 28.00 34.00 0.25

See notes to consolidated financial statements. See notes to consolidated financial statements.

52 53 Consolidated Statement of Changes in Equity ConsolidatedConsolidated Statement of ofCash Cash Flows Flows TokaiConsolidated Tokyo Statement Financial of Changes in Equity Holdings, Inc. and Subsidiaries TokaiTokai Tokyo Tokyo FinancialFinancial Holdings, Holdings, Inc. and SubsidiariesInc. and Subsidiaries Tokai Tokyo Financial Holdings, Inc. and Subsidiaries ForFor the theyear ended year March 31,ended 2016 March 31, 2016 For Forthe theyear year ended ended March March 31, 31, 2016 2016 Thousands of shares Millions of yen Thousands of Accumulated other comprehensive income Unrealized Foreign Defined U.S. dollars Stock gain on currency retirement Millions of yen Common Treasury Common Capital acquisition Retained Treasury available-for-sale translation benefit Noncontrolling Total (Note 1) stock stock stock surplus rights earnings stock securities adjustments plans Total interests equity Balance as of April 1, 2014 (as previously reported) 280,582 14,685 ¥ 36,000 ¥ 33,413 ¥ 105 ¥ 71,644 ¥ (3,835) ¥ 2,275 ¥ (219) ¥ 1,185 ¥ 140,010 ¥ 2,362 ¥ 142,372 2016 2015 2016 Cumulative effect of accounting change 㸫 㸫 㸫 㸫 㸫 (558) 㸫 㸫 㸫 㸫 (558) 㸫 (558) Balance as of April 1, 2014 (as restated) 280,582 14,685 ¥ 36,000 ¥ 33,413 ¥ 105 ¥ 71,086 ¥ (3,835) ¥ 2,275 ¥ (219) ¥ 1,185 ¥ 140,010 ¥ 2,362 ¥ 142,372 Cash flows from operating activities: Net income attributable to owners of the parent 㸫 㸫 㸫 㸫 㸫 18,499 㸫 㸫 㸫 㸫 18,499 㸫 18,499 Cash dividends, ¥28.00 per share 㸫 㸫 㸫 㸫 㸫 (7,445) 㸫 㸫 㸫 㸫 (7,445) 㸫 (7,445) Income before income taxes ¥ 17,925 ¥ 28,896 $ 159,084 Purchase of treasury stock 㸫 3 㸫 㸫 㸫 㸫 (2) 㸫 㸫 㸫 (2) 㸫 (2) Disposal of treasury stock 㸫 (759) 㸫 57 㸫 㸫 198 㸫 㸫 㸫 255 㸫 255 Adjustments for: Net change in the year 㸫 㸫 㸫 㸫 91 㸫 㸫 1,704 289 1,429 3,513 160 3,673 Balance as of March 31, 2015 280,582 13,929 ¥ 36,000 ¥ 33,470 ¥ 196 ¥ 82,140 ¥ (3,639) ¥ 3,979 ¥ 70 ¥ 2,614 ¥ 154,830 ¥ 2,522 ¥ 157,352 Income taxes - paid (6,680) (12,301) (59,285) Net income attributable to owners of the parent 㸫 㸫 㸫 㸫 㸫 12,423 㸫 㸫 㸫 㸫 12,423 㸫 12,423 Cash dividends, ¥34.00 per share 㸫 㸫 㸫 㸫 㸫 (9,026) 㸫 㸫 㸫 㸫 (9,026) 㸫 (9,026) Depreciation and amortization 1,849 1,858 16,410 Purchase of treasury stock 㸫 3,003 㸫 㸫 㸫 㸫 (2,824) 㸫 㸫 㸫 (2,824) 㸫 (2,824) Disposal of treasury stock 㸫 (226) 㸫 3㸫 㸫 74 㸫 㸫 㸫 77 㸫 77 (Decrease) increase in allowance for doubtful accounts (17) 26 (152) Net change in the year 㸫 㸫 㸫 㸫 131 㸫 㸫 (1,953) (81) (160) (2,063) (735) (2,798) Balance as of March 31, 2016 280,582 16,706 ¥ 36,000 ¥ 33,473 ¥ 327 ¥ 85,537 ¥ (6,389) ¥ 2,026 ¥ (11) ¥ 2,454 ¥ 153,417 ¥ 1,787 ¥ 155,204 Decrease in liability for retirement benefits (716) (3) (6,355)

Thousands of U.S. dollars (Note 1) Increase in provision for statutory reserves 51 100 457 Accumulated other comprehensive income Gain on sales of investment securities (2,598) (700) (23,057) Net unrealized Foreign Defined Stock gain on currency retirement Gain on change in equity (81) 㸫 (715) Common Capital acquisition Retained Treasury available-for-sale translation benefit Noncontrolling Total stock Surplus rights earnings stock securities adjustments plans Total interests equity (Gain) loss on sales of fixed assets (1) 85 (7) Balance as of March 31, 2015 $ 319,489 $ 297,032 $ 1,740 $ 728,970 $ (32,300) $ 35,313 $ 618 $ 23,204 $ 1,374,066 $ 22,383 $ 1,396,449 Net income attributable to owners of the parent 㸫 㸫 㸫 110,251 㸫 㸫 㸫 㸫 110,251 㸫 110,251 Impairment loss on fixed assets 㸫 29 㸫 Cash dividends, $0.30 per share 㸫 㸫 㸫 (80,104) 㸫 㸫 㸫 㸫 (80,104) 㸫 (80,104) Purchase of treasury stock 㸫 㸫 㸫 㸫 (25,069) 㸫 㸫 㸫 (25,069) 㸫 (25,069) Impairment loss on investment securities 1 52 10 Disposal of treasury stock 㸫 31 㸫 㸫 656 㸫 㸫 㸫 687 㸫 687 Net change in the year 㸫 㸫 1,164 㸫 㸫 (17,331) (716) (1,424) (18,307) (6,517) (24,824) (Increase) decrease in receivables (4,250) 15,297 (37,717) Balance as of March 31, 2016 $ 319,489 $ 297,063 $ 2,904 $ 759,117 $ (56,713) $ 17,982 $ (98) $ 21,780 $ 1,361,524 $ 15,866 $ 1,377,390 Decrease in payables (3,268) (39,529) (29,001) Changes in trading assets and liabilities 5,805 19,638 51,515 Changes in collateralized short-term financing agreements 9,159 23,886 81,279 Other, net (4,877) 412 (43,281) Total adjustments (5,623) 8,850 (49,899) Net cash provided by operating activities 12,302 37,746 109,185

Cash flows from investing activities: Purchases of property and equipment (2,561) (1,297) (22,731) Proceeds from sales of property and equipment 23 294 207 Purchases of investment securities (1,204) (2,089) (10,685) Proceeds from sales of investment securities 3,971 1,229 35,244 Purchases of stocks of a subsidiary and an associated company 㸫 (168) 㸫 Other, net (1,004) (183) (8,914) Net cash used in investing activities (775) (2,214) (6,879) Cash flows from financing activities: Decrease in short-term borrowings - net (17,176) (34,282) (152,433) Proceeds from long-term debt 48,029 49,335 426,243 Repayment of long-term debt (42,129) (26,987) (373,871) Proceeds from commercial paper 49,200 45,700 436,635 Redemption of commercial paper (47,700) (45,200) (423,323) Proceeds from exercise of stock options 64 212 571 Purchases of treasury stock (2,822) 㸫 (25,047) Net increase in treasury stock (2) (3) (22) Cash dividends paid (9,026) (7,445) (80,104) Proceeds from share issuance to noncontrolling interests 800 㸫 7,100 Repayments to noncontrolling interests (782) (29) (6,943) Dividends paid to noncontrolling interests (18) (11) (159) Other, net (268) (228) (2,380) Net cash used in financing activities (21,830) (18,938) (193,733)

Effect of exchange rate change on cash and cash equivalents (76) 305 (673) Net (decrease) increase in cash and cash equivalents (10,379) 16,899 (92,100) Decrease in cash and cash equivalents resulting from change of scope of consolidation (1,047) 㸫 (9,290) Cash and cash equivalents at the beginning of year 56,040 39,141 497,336 Cash and cash equivalents at the end of year (Note 3) ¥ 44,614 ¥ 56,040 $ 395,946

See notes to consolidated financial statements. See notes to consolidated financial statements.

54 55 Notes to Consolidated Financial Statements b. Unification of accounting policies applied to foreign subsidiaries for the consolidated financial Tokai Tokyo Financial Holdings, Inc. and Subsidiaries statements Year ended March 31, 2016 In May 2006, the Accounting Standards Board of Japan (the “ASBJ”) issued ASBJ Practical Issues Task Force (“PITF”) No. 18, “Practical Solution on Unification of Accounting Policies Applied to Foreign 1. Basis of presentation of consolidated financial statements Subsidiaries for the Consolidated Financial Statements” which was subsequently revised in February 2010 and March 2015 to reflect revisions of the relevant Japanese GAAP or accounting standards in The accompanying consolidated financial statements have been prepared by Tokai Tokyo Financial other jurisdictions. PITF No. 18 prescribes that the accounting policies and procedures applied to a Holdings, Inc. (the “Company”) and its subsidiaries (collectively, the “Group”) in accordance with the parent company and its subsidiaries for similar transactions and events under similar circumstances provisions set forth in the Japanese Financial Instruments and Exchange Act and its related accounting should in principle be unified for the preparation of the consolidated financial statements. However, regulations, and in accordance with accounting principles generally accepted in Japan (“Japanese financial statements prepared by foreign subsidiaries in accordance with either IFRS or generally GAAP”), which are different in certain respects as to the application and disclosure requirements of accepted accounting principles in the United States of America (Financial Accounting Standards Board International Financial Reporting Standards (IFRS). Accounting Standards Codification – “FASB ASC”) tentatively may be used for the consolidation process, except for the following items that should be adjusted in the consolidation process so that net In preparing these consolidated financial statements, certain reclassifications and rearrangements have income is accounted for in accordance with Japanese GAAP, unless they are not material: (a) been made to the consolidated financial statements issued in Japan in order to present them in a form amortization of goodwill; (b) scheduled amortization of actuarial gains or losses of pensions that have which is more familiar to readers outside Japan. In addition, certain reclassifications have been made in been recorded in equity through other comprehensive income; (c) expensing capitalized development the 2015 consolidated financial statements to conform to the classifications used in 2016. costs of R&D; and (d) cancellation of the fair value model of accounting for property, plant and equipment and investment properties and incorporation of the cost model of accounting. The consolidated financial statements are stated in Japanese yen, the currency of the country in which the Company is incorporated and operates. The translation of Japanese yen amounts into U.S. dollars is c. Unification of accounting policies applied to foreign associated companies for the equity method included solely for the convenience of readers outside Japan, using the prevailing exchange rate at In March 2008, the ASBJ issued ASBJ Statement No. 16, “Accounting Standard for Equity Method of March 31, 2016, which was ¥112.68 to USD1. The amounts in Japanese yen are directly converted into Accounting for Investments” which was subsequently revised in line with the revisions to PITF No. U.S. dollar amounts even for the amounts presented only in millions of Japanese yen in the consolidated 18 above. The standard requires adjustments to be made to conform the associate’s accounting policies financial statements. As such, there are cases in which the conversion of the amounts in millions of for similar transactions and events under similar circumstances to those of the parent company when the Japanese yen using the prevailing exchange rate are different from those in U.S. dollars shown in the associate’s financial statements are used in applying the equity method, unless it is impracticable to consolidated financial statements. The translation should not be construed as a representation that the determine the necessary adjustments. In addition, financial statements prepared by foreign associated Japanese yen amounts have been, could have been or could be converted into U.S. dollars at that or any companies in accordance with either IFRS or generally accepted accounting principles in the United other rate. States of America tentatively may be used in applying the equity method if the following items are adjusted so that net income is accounted for in accordance with Japanese GAAP, unless they are not 2. Summary of significant accounting policies material: (a) amortization of goodwill; (b) scheduled amortization of actuarial gain or loss of pensions that has been recorded in equity through other comprehensive income; (c) expensing capitalized a. Principles of consolidation development costs of R&D; and (d) cancellation of the fair value model of accounting for property, The consolidated financial statements as of March 31, 2016, include the accounts of the Company and its plant and equipment and investment properties and incorporation of the cost model of accounting. 19 (19 in 2015) subsidiaries. All Nippon Asset Management Co., Ltd. (“All Nippon AM”) was founded in August 2015 as a consolidated subsidiary of the Company. In March 2016, it was excluded from the d. Business combinations scope of consolidation and included in associated companies accounted for by the equity method, as the In October 2003, the Business Accounting Council issued a Statement of Opinion, “Accounting for Company's shareholding ratio in All Nippon AM decreased by the third party allotment of new shares. Business Combinations,” and in December 2005, the ASBJ issued ASBJ Statement No. 7, “Accounting Tokai Tokyo-Sumishin Wealth Partners & Consulting Co., Ltd. changed its name to Tokai Tokyo Wealth Standard for Business Divestitures” and ASBJ Guidance No. 10, “Guidance for Accounting Standard Consulting Co., Ltd. in May 2015. for Business Combinations and Business Divestitures.”

Under the control and influence concepts, those companies in which the Company, directly or indirectly, In December 2008, the ASBJ issued a revised accounting standard for business combinations, ASBJ is able to exercise control over operations are fully consolidated, and those companies over which the Statement No. 21, “Accounting Standard for Business Combinations.” Major accounting changes under Group has the ability to exercise significant influence are accounted for by the equity method. the revised accounting standard are as follows: (1) The revised standard requires accounting for business combinations only by the purchase method. As a result, the pooling-of-interests method of Investments in six (five in 2015) associated companies are accounted for by the equity method. All accounting is no longer allowed. (2) The previous accounting standard required R&D costs to be significant intercompany balances and transactions have been eliminated in consolidation. All material charged to income as incurred. Under the revised standard, in-process R&D costs acquired in the unrealized profit included in assets resulting from transactions within the Group is eliminated. business combination are capitalized as an intangible asset. (3) The previous accounting standard

56 57 provided for a bargain purchase gain (negative goodwill) to be systematically amortized over a period standard, the acquirer accounts for acquisition-related costs by including them in the acquisition not exceeding 20 years. Under the revised standard, the acquirer recognizes the bargain purchase gain in costs of the investment. Under the revised accounting standard, acquisition-related costs shall be profit or loss immediately on the acquisition date after reassessing and confirming that all of the assets accounted for as expenses in the periods in which the costs are incurred. acquired and all of the liabilities assumed have been identified after a review of the procedures used in the purchase price allocation. The revised standard was applicable to business combinations undertaken The above accounting standards and guidance for (a) transactions with noncontrolling interest, (b) on or after April 1, 2010. presentation of the consolidated balance sheet, (c) presentation of the consolidated statement of income, and (e) acquisition-related costs are effective for the beginning of annual periods beginning on or after In September 2013, the ASBJ issued revised ASBJ Statement No. 21, "Accounting Standard for April 1, 2015. Earlier application is permitted from the beginning of annual periods beginning on or Business Combinations," revised ASBJ Guidance No. 10, "Guidance on Accounting Standards for after April 1, 2014, except for (b) presentation of the consolidated balance sheet and (c) presentation of Business Combinations and Business Divestitures," and revised ASBJ Statement No. 22, "Accounting the consolidated statement of income. In the case of earlier application, all accounting standards and Standard for Consolidated Financial Statements." Major accounting changes are as follows: guidance above, except for (b) presentation of the consolidated balance sheet and (c) presentation of the consolidated statement of income, should be applied simultaneously. (a) Transactions with noncontrolling interest—A parent's ownership interest in a subsidiary might change if the parent purchases or sells ownership interests in its subsidiary. The carrying amount of Either retrospective or prospective application of the revised accounting standards and guidance for (a) noncontrolling interest is adjusted to reflect the change in the parent's ownership interest in its transactions with noncontrolling interest and (e) acquisition-related costs is permitted. In retrospective subsidiary while the parent retains its controlling interest in its subsidiary. Under the previous application of the revised standards and guidance, the accumulated effects of retrospective adjustments accounting standard, any difference between the fair value of the consideration received or paid and for all (a) transactions with noncontrolling interest and (e) acquisition-related costs which occurred in the amount by which the noncontrolling interest is adjusted is accounted for as an adjustment of the past shall be reflected as adjustments to the beginning balance of capital surplus and retained goodwill or as profit or loss in the consolidated statement of income. Under the revised accounting earnings for the year of the first-time application. In prospective application, the new standards and standard, such difference is accounted for as capital surplus as long as the parent retains control guidance shall be applied prospectively from the beginning of the year of the first-time application. over its subsidiary. The revised accounting standards and guidance for (b) presentation of the consolidated balance sheet (b) Presentation of the consolidated balance sheet—In the consolidated balance sheet, "minority and (c) presentation of the consolidated statement of income shall be applied to all periods presented in interest" under the previous accounting standard is changed to "noncontrolling interest" under the financial statements containing the first-time application of the revised standards and guidance. revised accounting standard. The revised standards and guidance for (d) provisional accounting treatments for a business (c) Presentation of the consolidated statement of income—In the consolidated statement of income, combination are effective for a business combination which occurs on or after the beginning of annual "income before minority interest" under the previous accounting standard is changed to "net periods beginning on or after April 1, 2015. Earlier application is permitted for a business combination income" under the revised accounting standard, and "net income" under the previous accounting which occurs on or after the beginning of annual periods beginning on or after April 1, 2014. standard is changed to "net income attributable to owners of the parent" under the revised accounting standard. The Company applied the revised accounting standards and guidance for (a) transactions with noncontrolling interest, (b) presentation of the consolidated balance sheet, (c) presentation of the (d) Provisional accounting treatments for a business combination—If the initial accounting for a consolidated statement of income and (e) acquisition-related costs above, effective April 1, 2015, and business combination is incomplete by the end of the reporting period in which the business (d) provisional accounting treatments for a business combination above for a business combination combination occurs, an acquirer shall report in its financial statements provisional amounts for the which occurred on or after April 1, 2015. The revised accounting standards and guidance for (a) items for which the accounting is incomplete. Under the previous accounting standard guidance, the transactions with noncontrolling interest and (e) acquisition-related costs were applied prospectively. impact of adjustments to provisional amounts recorded in a business combination on profit or loss is recognized as profit or loss in the year in which the measurement is completed. Under the revised With respect to (b) presentation of the consolidated balance sheet and (c) presentation of the accounting standard guidance, during the measurement period, which shall not exceed one year consolidated statement of income, the applicable line items in the 2015 consolidated financial from the acquisition, the acquirer shall retrospectively adjust the provisional amounts recognized at statements have been accordingly reclassified and presented in line with those in 2016. the acquisition date to reflect new information obtained about facts and circumstances that existed as of the acquisition date and that would have affected the measurement of the amounts recognized The effect on the consolidated financial statements as of March 31, 2016, was immaterial. as of that date. Such adjustments shall be recognized as if the accounting for the business combination had been completed at the acquisition date. e. Cash and cash equivalents Cash and cash equivalents disclosed in the consolidated statement of cash flows comprise cash on hand, (e) Acquisition-related costs—Acquisition-related costs are costs, such as advisory fees or professional demand deposits and ordinary deposits which can be easily liquidated on demand with original fees, which an acquirer incurs to effect a business combination. Under the previous accounting maturities of three months or less.

58 59 f. Financial instruments k. Retirement and pension plan The purpose of trading activities is to make profits or reduce losses from short-term volatility and The Company and its domestic subsidiaries have defined benefit corporate pension plans and defined arbitrage between markets in stock prices, interest rates, foreign exchange rates and other market contribution pension plans. There are some cases in which extra retirement benefits are paid to indices. The scope of trading activities mainly consists of the following: employees when they retire. Tokai Tokyo Securities Co., Ltd. (“Tokai Tokyo Securities”), a wholly 1) Buying and selling of securities owned major subsidiary of the Company, contributed to the retirement benefit trust for its pension plan. 2) Derivative market transactions Certain domestic consolidated subsidiaries apply the simplified method to state the liability based on the 3) Over-the-counter (OTC) derivative transactions amount that would be paid if employees retired at the consolidated balance sheet date. Securities, derivative contracts and other financial instruments classified as trading assets and liabilities are stated at fair value based on the mark-to-market method. Effective April 1, 2000, the Company and its domestic subsidiaries adopted a new accounting standard for retirement benefits and accounted for the liability for retirement benefits based on the projected Other securities, including short-term investment securities and investment securities, are held for benefit obligations and plan assets at the consolidated balance sheet date. The projected benefit non-trading purposes and are classified as available-for-sale. Available-for-sale securities that have a obligations were attributed to periods on a straight-line basis. Actuarial gains and losses are amortized market quotation are stated at the market price prevailing at the end of the fiscal year. Differences on a straight-line basis over 10 years within the average remaining service period. Past service costs are between the cost of securities held determined by the moving-average method and the fair value less amortized on a straight-line basis over 10 years within the average remaining service period. associated deferred taxes are recorded in “Unrealized gain (loss) on available-for-sale securities” in equity in the consolidated balance sheet. Available-for-sale securities without a market quotation are In May 2012, the ASBJ issued ASBJ Statement No. 26, "Accounting Standard for Retirement Benefits" stated at cost as determined by the moving average. Where available-for-sale securities have declined and ASBJ Guidance No. 25, "Guidance on Accounting Standard for Retirement Benefits," which significantly and such impairment of value is deemed not temporary, such securities are written down to replaced the accounting standard for retirement benefits that had been issued by the Business their fair value and the resulting losses are charged to income for the period. Accounting Council in 1998 with an effective date of April 1, 2000, and the other related practical guidance, and were followed by partial amendments from time to time through 2009. g. Property and equipment Property and equipment are stated at cost. Depreciation of tangible fixed assets is calculated by the (a) Under the revised accounting standard, actuarial gains and losses and past service costs that are declining-balance method based on the estimated useful lives of the assets. However, buildings yet to be recognized in profit or loss are recognized within equity (accumulated other (excluding leasehold improvements) acquired by the Company and its domestic consolidated comprehensive income), after adjusting for tax effects, and any resulting deficit or surplus is subsidiaries on or after April 1, 1998, are depreciated by the straight-line method. The estimated useful recognized as a liability (liability for retirement benefits) or asset (asset for retirement lives of tangible fixed assets are mainly as follows: benefits). Buildings 2-50 years Fixtures and furniture 2-20 years (b) The revised accounting standard does not change how to recognize actuarial gains and losses and past service costs in profit or loss. Those amounts are recognized in profit or loss over a h. Long-lived assets certain period no longer than the expected average remaining service period of the employees. The Group reviews its long-lived assets for impairment whenever events or changes in circumstances However, actuarial gains and losses and past service costs that arose in the current period and indicate the carrying amount of an asset or asset group may not be recoverable. An impairment loss is have not yet been recognized in profit or loss are included in other comprehensive income and recognized if the carrying amount of an asset or asset group exceeds the sum of the undiscounted future actuarial gains and losses and past service costs that were recognized in other comprehensive cash flows expected to result from the continued use and eventual disposition of the asset or asset group. income in prior periods and then recognized in profit or loss in the current period are treated as The impairment loss would be measured as the amount by which the carrying amount of the asset reclassification adjustments (see Note 18). exceeds its recoverable amount, which is the higher of the discounted cash flows from the continued use and eventual disposition of the asset or the net selling price at disposition. (c) The revised accounting standard also made certain amendments relating to the method of attributing expected benefit to periods, the discount rate, and expected future salary increases. i. Intangible fixed assets Amortization of intangible fixed assets is calculated by the straight-line method. Software for internal This accounting standard and the guidance for (a) and (b) above are effective for the end of annual use is amortized by the straight-line method over its economic useful life (five years). periods beginning on or after April 1, 2013, and for (c) above are effective for the beginning of annual periods beginning on or after April 1, 2014, or for the beginning of annual periods beginning on or after j. Allowance for doubtful accounts April 1, 2015, subject to certain disclosure in March 2015, all with earlier application being permitted For the future loss from doubtful accounts, an allowance for doubtful accounts is recognized using the from the beginning of annual periods beginning on or after April 1, 2013. However, no retrospective historical rate of actual losses for normal receivables and the estimated non-recoverable amount for application of this accounting standard to consolidated financial statements in prior periods is required. specific doubtful receivables after considering the recoverability of each account. The Company applied the revised accounting standard and guidance for retirement benefits for (a) and

60 61 (b) above, effective March 31, 2014, and for (c) above, effective April 1, 2014. the standard allows unlisted companies to measure options at their intrinsic value if they cannot reliably estimate fair value. With respect to (c) above, the Company changed the method of attributing expected benefit to periods from a straight-line basis to a benefit formula basis, the method of determining discount rate from using o. Leases the period approximate to the expected average remaining service period to using a single weighted In March 2007, the ASBJ issued ASBJ Statement No. 13, “Accounting Standard for Lease Transactions,” average discount rate reflecting the estimated timing and amount of benefit payment based on yield which revised the previous accounting standard for lease transactions. curve, and recorded the effect of (c) above as of April 1, 2014, in retained earnings. As a result, Under the previous accounting standard, finance leases that were deemed to transfer ownership of the “Retained earnings” as of April 1, 2014, decreased by ¥558 million. leased property to the lessee were capitalized. However, other finance leases were permitted to be accounted for as operating lease transactions if certain “as if capitalized” information was disclosed in Certain subsidiaries recorded retirement benefits for directors and Audit & Supervisory Board members the notes to the lessee’s financial statements. The revised accounting standard requires that all finance at the amount that would be required if all directors and Audit & Supervisory Board members retired at lease transactions be capitalized by recognizing lease assets and lease obligations in the consolidated each consolidated balance sheet date. balance sheet. In addition, the revised accounting standard permits leases that existed at the transition date and do not transfer ownership of the leased property to the lessee to continue to be accounted for as l. Asset retirement obligations operating lease transactions. In March 2008, the ASBJ issued the ASBJ Statement No. 18, “Accounting Standard for Asset Retirement Obligations,” and ASBJ Guidance No. 21, “Guidance on Accounting Standard for Asset The Group applied the revised accounting standard effective April 1, 2008. In addition, the Group Retirement Obligations.” Under this accounting standard, an asset retirement obligation is defined as a continues to account for leases that existed at the transition date and do not transfer ownership of the legal obligation imposed either by law or contract that results from the acquisition, construction, leased property to the lessee as operating lease transactions. All other leases are accounted for as development and the normal operation of a tangible fixed asset and is associated with the retirement of operating leases. such tangible fixed asset. The asset retirement obligation is recognized as the sum of the discounted cash flows required for the future asset retirement and is recorded in the period in which the obligation p. Bonuses to directors and Audit & Supervisory Board members is incurred if a reasonable estimate can be made. If a reasonable estimate of the asset retirement Bonuses to directors and Audit & Supervisory Board members are accrued at the end of the year to obligation cannot be made in the period the asset retirement obligation is incurred, the liability should which such bonuses are attributable. be recognized when a reasonable estimate of the asset retirement obligation can be made. Upon initial recognition of a liability for an asset retirement obligation, an asset retirement cost is capitalized by q. Income taxes increasing the carrying amount of the related fixed asset by the amount of the liability. The asset The provision for income taxes is computed based on the pretax income included in the consolidated retirement cost is subsequently allocated to expense through depreciation over the remaining useful life statement of income. The asset and liability approach is used to recognize deferred tax assets and of the asset. Over time, the liability is accreted to its present value each period. Any subsequent liabilities for the expected future tax consequences of temporary differences between the carrying revisions to the timing or the amount of the original estimate of undiscounted cash flows are reflected as amounts and the tax bases of assets and liabilities. Deferred taxes are measured by applying currently an adjustment to the carrying amount of the liability and the capitalized amount of the related asset enacted income tax rates to the temporary differences. retirement cost. The Group files a tax return under the consolidated corporate-tax system, which allows companies to m. Statutory reserves base tax payments on the combined profits or losses of the parent company and its wholly-owned The Japanese Financial Instruments and Exchange Act and its related regulations require a securities domestic subsidiaries. company to set aside a reserve in proportion to its securities transactions and other related trading to cover future eventual operational losses caused by the securities company for customer transactions. r. Foreign currency transactions All short-term and long-term monetary receivables and payables denominated in foreign currencies are n. Stock options translated into Japanese yen at the exchange rates at the consolidated balance sheet date. The foreign In December 2005, the ASBJ issued ASBJ Statement No. 8, “Accounting Standard for Stock Options,” exchange gains and losses from translation are recognized in the consolidated statement of income to and related guidance. This standard and guidance are applicable to stock options newly granted on and the extent that they are not hedged by forward exchange contracts. after May 1, 2006. This standard requires companies to measure the cost of employee stock options based on the fair value at the date of grant and recognize compensation expense over the vesting period s. Foreign currency financial statements as consideration for receiving goods or services. The standard also requires companies to account for The balance sheet and statement of income accounts of the consolidated foreign subsidiaries are stock options granted to non-employees based on the fair value of either the stock options or the goods translated into Japanese yen at the current exchange rate as of the balance sheet date except for equity, or services received. In the consolidated balance sheet, stock options are presented as stock acquisition which is translated at the historical rate. Differences arising from such translation are shown as “Foreign rights as a separate component of equity until exercised. The standard covers equity-settled, share-based currency translation adjustments” under accumulated other comprehensive income in a separate payment transactions, but does not cover cash-settled, share-based payment transactions. In addition, component of equity.

62 63 t. Per share information The new guidance is effective for the beginning of annual periods beginning on or after April 1, 2016. Basic net income per share is computed by dividing net income attributable to common shareholders by Earlier application is permitted for annual periods ending on or after March 31, 2016. The new guidance the weighted-average number of common shares outstanding for the period, retroactively adjusted for shall not be applied retrospectively and any adjustments from the application of the new guidance at the stock splits. beginning of the reporting period shall be reflected within retained earnings or accumulated other comprehensive income at the beginning of the reporting period. Diluted net income per share reflects the potential dilution that could occur if securities were exercised or converted into common stock. Diluted net income per share of common stock assumes full The Company expects to apply the new guidance on recoverability of deferred tax assets effective April conversion of the outstanding convertible notes and bonds at the beginning of the year (or at the time of 1, 2016, and is in the process of measuring the effects of applying the new guidance in future applicable issuance) with an applicable adjustment for related interest expense, net of tax, and full exercise of periods. outstanding warrants. 3. Cash and cash equivalents Cash dividends per share presented in the accompanying consolidated statement of income are dividends applicable to the respective fiscal years, including dividends to be paid after the end of the Reconciliations between cash and cash equivalents in the consolidated statement of cash flows and cash year. and deposits in the consolidated balance sheets as of March 31, 2016 and 2015, were presented as follows: 㻌 㻌 㻌 㻌 㻌 㻌 㻌 㻌 (Thousands of u. Accounting changes and error corrections (Millions of yen) U.S. dollars) In December 2009, the ASBJ issued ASBJ Statement No. 24, “Accounting Standard for Accounting 㻌 㻌 㻌 㻌 㻌 2016 2015 㻌 2016 Changes and Error Corrections,” and ASBJ Guidance No. 24, “Guidance on Accounting Standard for Cash and deposits ¥ 45,204 ¥ 56,528 $ 401,173 Accounting Changes and Error Corrections.” Accounting treatments under this standard and guidance Time deposits with maturity of over three months (590) (488)  (5,227) are as follows: (1) Changes in Accounting Policies―When a new accounting policy is applied Cash and cash equivalents 㻌 㻌 ¥ 44,614 ¥ 56,040  $ 395,946 following a revision of an accounting standard, the new policy is applied retrospectively unless the

revised accounting standard includes specific transitional provisions, in which case the entity shall comply with the specific transitional provisions. (2) Changes in Presentation―When the presentation of financial statements is changed, prior-period financial statements are reclassified in accordance with the new presentation. (3) Changes in Accounting Estimates―A change in an accounting estimate is accounted for in the period of the change if the change affects that period only and is accounted for prospectively if the change affects both the period of the change and future periods. (4) Corrections of Prior-Period Errors―When an error in prior-period financial statements is discovered, those statements are restated. v. New accounting pronouncements Tax Effect Accounting—On March 28, 2016, the ASBJ issued ASBJ Guidance No. 26, "Guidance on Recoverability of Deferred Tax Assets," which included certain revisions of the previous accounting and auditing guidance issued by the Japanese Institute of Certified Public Accountants. While the new guidance continues to follow the basic framework of the previous guidance, it provides new guidance for the application of judgment in assessing the recoverability of deferred tax assets.

The previous guidance provided a basic framework which included certain specific restrictions on recognizing deferred tax assets depending on the company's classification in respect of its profitability, taxable profit and temporary differences, etc.

The new guidance does not change such basic framework but, in limited cases, allows companies to recognize deferred tax assets even for a deductible temporary difference for which it was specifically prohibited to recognize a deferred tax asset under the previous guidance, if the company can justify, with reasonable grounds, that it is probable that the deductible temporary difference will be utilized against future taxable profit in some future period.

64 65 4. Securities (Thousands of U.S. dollars) 2016 (1) Trading securities as of March 31, 2016 and 2015, consisted of the following: Balance Acquisition Difference 㻌㻌 sheet cost 㻌 㻌 㻌 㻌 㻌 (Thousands of Available-for-sale securities: (Millions of yen) U.S. dollars) Securities with market value that 㻌 㻌㻌 2016 2015 㻌 2016 exceed acquisition cost: $ 55,409 $ 30,750 $ 24,659 Trading assets: Stocks 55,409 30,750 24,659

Equity and warrants ¥ 17,798 ¥ 41,708 $ 157,949 Securities with market value that Bonds 208,886 124,274 1,853,801 do not exceed acquisition cost: 15,991 21,260 (5,269) Beneficiary certificates of investment trusts 28,937 29,821 256,806 Stocks 15,991 21,260 (5,269) Bonds Total ¥ 255,621 ¥ 195,803 㻌 $ 2,268,556 - - - Governmental/municipal bonds - - - Trading liabilities: $ 71,400 $ 52,010 $ 19,390 Equity and warrants ¥ 4,961 ¥ 17,709 $ 157,161 Bonds 112,061 58,191 994,511 (3) The proceeds from sales of investment securities and gross realized gain and loss on investment securities for the years ended March 31, 2016 and 2015, were summarized as follows: Beneficiary certificates of investment trusts 20 119 175

Total ¥ 129,790 ¥ 63,271 㻌 $ 1,151,847 (Thousands of (Millions of yen) U.S. dollars) (2) Short-term investment securities and investment securities with market value as of March 31, 2016 and 㻌 㻌 2016 㻌 2015 2016 2015, consisted of the following: Proceed from sales ¥ 3,644 ¥ 1,737 $ 32,341 㻌㻌Stocks 2,886 887 25,614 㻌 㻌 㻌 㻌 㻌 (Millions of yen) Bonds 10 - 89 2016 2015 㻌㻌Other 748 850 6,638 Balance Acquisition Balance Acquisition Gross realized gain 2,602 709 23,093 Difference Difference 㻌 㻌 㻌 㻌 㻌 sheet cost sheet cost Gross realized loss 㻌 (4) 䠄9䠅 (37) Available-for-sale securities Securities with market value that (4) The impairment loss on available-for-sale securities for the years ended March 31, 2016 and 2015, was exceed acquisition cost: ¥ 6,243 ¥ 3,465 ¥ 2,779 ¥ 9,227 4,050 5,177 ¥1 million ($10 thousand) and ¥52 million, respectively. Stocks 6,243 3,465 2,779 9,227 4,050 5,177 Bonds ------Governmental/municipal bonds ------

Securities with market value that do not exceed acquisition cost: 1,802 2,396 (594) 806 919 (113) Stocks 1,802 2,396 (594) 796 909 (113) Bonds - - - 10 10 (0) Governmental/municipal bonds - - - 10 10 (0) ¥ 8,045 ¥ 5,861 ¥ 2,185 㻌 ¥ 10,033 4,969 5,064

66 67 5. Derivatives Derivative transactions to which hedge accounting is not applied

The Group enters into derivative financial instruments, including foreign currency forward contracts, (1) Currency-related transactions currency swaps, and currency options to hedge foreign exchange risk associated with certain assets and (Millions of yen) liabilities denominated in foreign currencies. The Group also makes use of derivative financial instruments Contract such as bond futures, interest rate futures, interest rate swaps, caps and floors, and swaptions to manage its Contract amount Unrealized Fair value interest rate exposures on certain liabilities. In addition, the Group entered into stock-related derivative amount due after gain (loss) transactions to manage the fluctuation of stock prices. At March 31, 2016 one year OTC: The methods for calculating fair value are based on the internal rules for calculating fair value. The Foreign currency forward contracts: principal methods for calculating fair value are as follows: Selling ¥ 67,303 - ¥ (1,247) ¥ (1,247) Buying 26,424 - 328 328 Category Method Currency options: Stock index options Settlement price at the main financial instruments exchange. Selling 109,671 ¥ 69,282 5,793 366 Foreign currency forward Discounting the receipt and payment amounts using the interest rate of Buying 65,221 51,458 3,642 477 contracts the applicable currency and converting them into yen at the currency 㻌 Currency swaps 52,979 43,172 (1,024) (1,024) exchange rate of the day, and then subtracting the present value of payments from the present value of receipts. (Millions of yen) Stock index futures Liquidation index at the main financial instruments exchange. Contract Liquidation price or equivalent price at the financial instruments Interest rate futures Contract amount Unrealized exchange or foreign financial instruments exchange. Fair value amount due after gain (loss) Bond futures Liquidation price at the main financial instruments exchange. At March 31, 2015 one year OTC equity options Present value calculated by price valuation model based on interest Stock lending transactions rate, dividend yield, volatility, prices of underlying securities, length of OTC: with equity options transaction, etc. Foreign currency forward contracts: Equity swaps Selling ¥ 114,910 - ¥ 529 ¥ 529 Currency options Calculating the future value of receipts and payments by reference to Buying 84,282 - (28) (28) the swap rate, volatility, correlation, etc., and discounting them using Currency options: the interest rate of the respective currencies, and then converting them Selling 71,857 ¥ 51,940 5,511 (1,266) into yen at the currency rate of the day. The present value of payments Buying 36,701 32,472 1,794 60 in yen is subtracted from the present value of receipts in yen. Currency swaps 48,207 40,305 (530) 㻌 (530) Interest rate swaps Calculating the future value of receipts and payments by reference to Caps and floors the swap rate, volatility, etc., and discounting them using the interest Currency swaps rate of the respective currencies, and then converting them into yen at (Thousands of U.S. dollars) Interest rate swaptions the currency rate of the day. The present value of payments in yen is Contract subtracted from the present value of receipts in yen. Contract amount Unrealized Fair value For transactions in which mutual payment of cash is generated or amount due after gain (loss) expired under certain conditions, the present value is the discounted At March 31, 2016 one year amount of future value reflecting the probability distribution of the net OTC: amount of receipts and payments. Foreign currency forward contracts:

Selling $ 597,291 - $ (11,068) $ (11,068) Buying 234,501 - 2,910 2,910 Currency options: Selling 973,299 $ 614,861 51,411 3,250 Buying 578,815 456,678 32,324 4,237 Currency swaps 470,172 383,134 (9,085) (9,085)

68 69 (2) Interest rate-related transactions (Thousands of U.S. dollars) (Millions of yen) Contract Contract Contract amount Unrealized Fair value Contract amount Unrealized amount due after gain (loss) Fair value amount due after gain (loss) At March 31, 2016 one year At March 31, 2016 one year Listed: Listed: Interest rate futures: Interest rate futures: Selling $ 242,148 $ 103,623 $ (690) $ (690) Selling ¥ 27,285 ¥ 11,676 ¥ (78) ¥ (78) Buying - - - - Buying - - - - Bond futures: Bond futures: Selling 246,607 - 350 350 Selling 27,788 - 39 39 Buying 231,378 - (87) (87) Buying 26,072 - (10) (10) OTC: OTC: Interest rate swaps: Interest rate swaps: Fixed rate receipt, floating rate payment 695,095 578,176 28,367 28,367 Fixed rate receipt, floating rate payment 78,323 65,149 3,196 3,196 Fixed rate payment, floating rate receipt 841,253 710,147 (27,569) (27,569) Fixed rate payment, floating rate receipt 94,792 80,019 (3,107) (3,107) Yen/Yen basis swap 127,796 127,796 87 87 Yen/Yen basis swap 14,400 14,400 10 10 Caps and Floors: Caps and Floors: Selling 35,499 35,499 349 1,270 Selling 4,000 4,000 39 143 Buying 35,499 35,499 330 (184) Buying 4,000 4,000 37 (21) Interest rate swaptions: Interest rate swaptions: Selling 8,875 8,875 394 (90) Selling 1,000 1,000 44 (10) Buying Buying ------

(Millions of yen) (3) Stock-related transactions Contract (Millions of yen) Contract amount Unrealized Contract Fair value amount due after gain (loss) Contract amount Fair Unrealized

At March 31, 2015 one year amount due after value gain (loss) Listed: At March 31, 2016 one year Interest rate futures: Listed: Selling - - - - Stock index futures: Buying - - - - Selling ¥ 7,386 - ¥ (72) ¥ (72) Bond futures: Buying 1,624 - (18) (18) Selling ¥ 14,524 - ¥ (53) ¥ (53) Stock index options: Buying 1,620 - (0) (0) Selling 1,414 - 11 9 OTC: Buying 4,290 - 20 4 Interest rate swaps: OTC: Fixed rate receipt, floating rate payment 89,778 ¥ 77,041 2,767 2,767 Stock lending transactions with equity options: Fixed rate payment, floating rate receipt 99,760 87,820 (2,882) (2,882) Selling 1,118 - 1 3 Yen/Yen basis swap 13,700 11,700 57 57 Buying 3,057 - 34 12 Caps and Floors: OTC equity options: Selling 3,000 3,000 78 57 Selling 32,149 ¥ 12,095 3,665 (376) Buying - - - - Buying 29,125 10,319 4,127 723 Interest rate swaptions: Equity swaps - - - - Selling - - - - Buying - - - -

70 71 (Millions of yen) 6. Borrowings Contract Contract amount Fair Unrealized Borrowings as of March 31, 2016 and 2015, were as follows:

amount due after value gain (loss) (Weighted-aver At March 31, 2015 one year age interest rate Listed: (Thousands of or interest rate Stock index futures: (Millions of yen) U.S. dollars) range) Selling ¥ 33,168 - ¥ (1,013) ¥ (1,013) 2016 2015 2016 2016 Buying 853 - 2 2 Short-term borrowings: Stock index options: Borrowings from financial institutions ¥ 79,852 ¥ 96,829 $ 708,665 Selling 975 - 19 (1) Borrowings from securities finance Buying 3,550 - 1 (1) companies 1,200 1,200 10,650 OTC: Total ¥ 81,052 ¥ 98,029 $ 719,315 0.35% Stock lending transactions with equity options: Commercial paper: Selling 92 - 0 0 Short-term bonds ¥ 9,800 ¥ 8,300 $ 86,972 0.09-0.18% Buying 611 - 47 40 OTC equity options: Total ¥ 9,800 ¥ 8,300 $ 86,972 Selling 24,497 ¥ 3,360 1,266 93 Long-term debt䠖 Buying 24,854 2,539 1,617 507 Borrowings from financial institutions ¥ 19,700 ¥ 8,000 $ 174,832 0.58% Equity swaps 282 - 19 19 Straight bonds 34,901 40,178 309,732 0.30-1.80% Exchangeable bonds - 426 - 0.10-11.10% (Thousands of U.S. dollars) Step-up callable bonds 700 700 6,212 0.70-1.80% Contract Callable bonds 2,000 2,400 17,749 0.35-1.45% Contract amount Fair Unrealized Dual currency bonds 205 100 1,819 0.01-0.15%

amount due after value gain (loss) Total ¥ 57,506 ¥ 51,804 $ 510,344 At March 31, 2016 one year Less current portion (35,856) (37,901) (318,207) Listed: Long-term debt, less current portion ¥ 21,650 ¥ 13,903 $ 192,137

Stock index futures: Total borrowings ¥ 148,358 ¥ 158,133 㻌 $ 1,316,631 Selling $ 65,549 - $ (635) $ (635)

Buying 14,414 - (161) (161) The aggregate annual maturities of long-term debt as of March 31, 2016, were as follows: Stock index options: (Thousands of Selling 12,550 - 96 83 Year ending March 31 (Millions of yen) U.S. dollars) Buying 38,076 - 176 34 2017 ¥ 35,856 $ 318,207 OTC: 2018 55 488 Stock lending transactions with equity options: 2019 255 2,263 Selling 9,918 - 10 26 2020 3,015 26,757 Buying 27,132 - 298 105 2021 10,005 88,791 OTC equity options: 2022 and thereafter 8,320 73,838 Selling 285,309 $ 107,342 32,526 (3,334) Total ¥ 57,506 $ 510,344 Buying 258,478 91,578 36,624 6,418

Equity swaps - - - -

Derivative transactions to which hedge accounting is applied

There are no derivative transactions to which hedge accounting is applied.

72 73 7. Assets pledged as collateral 㻌 (Thousands of U.S. dollars) Obligations Pledged assets (1) Assets pledged as collateral for borrowings as of March 31, 2016 and 2015, were summarized as secured by Cash and Trading Investment follows: pledged Total deposits securities securities 㻌 (Millions of yen) 2016 assets Obligations Pledged assets Short-term borrowings $ 339,013 $ 9,063 $ 791,913 $ - $ 800,976 secured by Long-term debt 1,775 - - 3,327 3,327 Cash and Trading Investment pledged Total Cash received on securities deposits securities securities 2016 assets loaned 608,256 - 482,492 - 482,492 Short-term borrowings ¥ 38,200 ¥ 1,021 ¥ 89,233 ¥ - ¥ 90,254 Borrowings under Long-term debt 200 - - 375 375 repurchase agreements - - - - - Cash received on securities Payables related to margin loaned 68,539 - 54,367 - 54,367 transactions 33,130 - 1,953 - 1,953 Borrowings under Total $ 982,174 $ 9,063 $ 1,276,358 $ 3,327 $ 1,288,748 repurchase agreements - - - - - Payables related to margin (*1) In addition to the above, the following are pledged as collateral for the above obligations: transactions 3,733 - 220 - 220 Total ¥ 110,672 ¥ 1,021 ¥ 143,820 ¥ 375 ¥ 145,216 (Thousands of (Millions of yen) U.S. dollars) 2016 2015 2016 㻌 (Millions of yen) Stocks received as collateral from customers Obligations Pledged assets 㻌 under self-financing margin transactions ¥ 5,593 ¥ 913 $ 49,635 secured by Trading Investment Securities borrowed for collateralized short-term Total 2015 pledged assets securities securities financing agreements 25,549 16,248 226,735 Short-term borrowings ¥ 48,200 ¥ 49,909 - ¥ 49,909 Current portion of long-term (*2) The following assets are pledged as initial margin for futures transactions and as collateral for other debt 200 - ¥ 679 679 transactions: Cash received on securities loaned 3,805 2,784 - 2,784 㻌 㻌 㻌 㻌 㻌 㻌 㻌 㻌 㻌 㻌 (Thousands of Borrowings under (Millions of yen) U.S. dollars) repurchase agreements 1,000 1,000 - 1,000 㻌 㻌 㻌 㻌 㻌 2016 2015 㻌 2016 Payables related to margin Trading securities ¥ 10,295 ¥ 8,404 $ 91,365 transactions 7,810 220 - 220 Property and equipment 86 86 766 Total ¥ 61,015 ¥ 53,913 ¥ 679 ¥ 54,592

74 75 (2) The fair values of securities pledged and received as collateral at March 31, 2016 and 2015, were as expenses”) for those rental properties was ¥122 million ($1,082 thousand) and ¥123 million for the years follows: ended March 31, 2016 and 2015, respectively. Loss on sales of rental properties for the year ended March 31, 2015 was ¥85 million, which was included in “Other income, net.” 㻌 㻌 㻌 㻌 㻌 (Thousands of (Millions of yen) U.S. dollars) The carrying amounts, changes in such balances and market prices of such properties were as follows: 㻌 㻌 2016 2015 㻌 2016 (Millions of yen) Pledged securities: Carrying amount Fair value Securities loaned to customers for margin transactions ¥ 2,040 ¥ 3,087 $ 18,105 April 1, 2015 Increase/(Decrease) March 31, 2016 March 31, 2016 Securities pledged as collateral to securities finance ¥ 1,459 ¥ (18) ¥ 1,441 ¥ 1,163 companies or securities exchange brokers for borrowings under margin transactions 3,661 7,256 32,493 (Millions of yen) Securities loaned for collateralized short-term financing Carrying amount Fair value agreements 68,500 3,818 607,915 April 1, 2014 Increase/(Decrease) March 31, 2015 March 31, 2015 Securities sold under repurchase agreements - 1,000 - ¥ 1,648 ¥ (189) ¥ 1,459 ¥ 1,149 Securities pledged as collateral for short-term guarantees 20,259 14,387 179,790 Received securities: (Thousands of U.S. dollars) Securities received as collateral from customers for loans Carrying amount Fair value under margin transactions ¥ 27,423 ¥ 33,424 $ 243,369 April 1, 2015 Increase/(Decrease) March 31, 2016 March 31, 2016 Securities borrowed from finance companies or securities $ 12,946 $ (154) $ 12,792 $ 10,321 exchange brokers for margin transactions 9,471 2,718 84,056 Notes: Securities borrowed for collateralized short-term financing 1) Carrying amount recognized in the consolidated balance sheet is net of accumulated depreciation and agreements 136,623 79,273 1,212,483 accumulated impairment losses, if any. Securities received as collateral for short-term guarantees 36,369 38,942 322,760 2) Decrease during the fiscal year ended March 31, 2016, primarily represents the depreciation of ¥23 Other 864 㻌 734 㻌 㻌 7,670 million ($203 thousand). Decrease during the fiscal year ended March 31, 2015, primarily represents the sales of certain properties of ¥195 million and the depreciation of ¥25 million. 8. Property and equipment 3) Fair value of properties as of March 31, 2016, is measured by the Group in accordance with its Real-Estate Appraisal Standard. Property and equipment as of March 31, 2016 and 2015, consisted of the following: (Thousands of (Millions of yen) U.S. dollars) 10. Retirement benefits 2016 2015 㻌 2016 Land ¥ 4,925 ¥ 4,948 $ 43,711 The Company and its domestic subsidiaries have a defined benefit corporate pension plan as a main Buildings 7,002 5,740 62,139 defined benefit plan and have a defined contribution pension plan. There are some cases in which extra Fixtures and furniture 6,314 5,973 56,031 retirement benefits are paid to employees when they retire. Tokai Tokyo Securities contributed to the Total 18,241 16,661 161,881 retirement benefit trust for its pension plan. Certain domestic consolidated subsidiaries apply the simplified Accumulated depreciation (8,038) (7,819) (71,329) method to state the liability based on the amount that would be paid if employees retired at the Net property and equipment ¥ 10,203 ¥ 8,842 㻌 $ 90,552 consolidated balance sheet date.

In addition, retirement benefits to directors and Audit & Supervisory Board members of ¥83 million ($737 9. Investment property thousand) and ¥104 million at March 31, 2016 and 2015, respectively, were included in “Liability for

retirement benefits” in the consolidated balance sheets. In November 2008, the ASBJ issued ASBJ Statement No. 20, “Accounting Standard for Investment

Property and Related Disclosures,” and issued ASBJ Guidance No. 23, “Guidance on Accounting Standard for Investment Property and Related Disclosures.”

The Company owns rental properties, such as office buildings in Aichi Prefecture. The net of rental income (included in “Other income, net.”) and operating expenses (included in “Selling, general and administrative

76 77 1. Defined benefit plans, excluding the plans to which the simplified method is applied (3) Reconciliation between the liability and asset recorded in the consolidated balance sheet and the balances of defined benefit obligation and plan assets (1) The changes in defined benefit obligation for the years ended March 31, 2016 and 2015, were as (Thousands of follows: (Millions of yen) U.S. dollars) (Thousands of 2016 2015 2016 (Millions of yen) U.S. dollars) Defined benefit obligation ¥ 10,934 ¥ 11,308 $ 97,034 2016 2015 2016 Plan assets (13,631) (13,719) (120,975) Balance at beginning of year Total ¥ (2,697) ¥ (2,411) $ (23,941) (as previously reported) ¥ 11,308 ¥ 10,552 $ 100,353 Unfunded defined benefit obligation - - - Cumulative effect of accounting change - 862 - Net asset arising from defined benefit Balance at beginning of year (as restated) 11,308 11,414 100,353 obligation (2,697) (2,411) (23,941)  Current service cost 647 606 5,739  Interest cost 105 106 933 (Thousands of  Actuarial gains (539) (333) (4,782) (Millions of yen) U.S. dollars)  Benefits paid (587) (485) (5,209) 2016 2015 2016 Balance at end of year ¥ 10,934 ¥ 11,308 $ 97,034 Liability for retirement benefits ¥ - ¥ - $ - Asset for retirement benefits 2,697 2,411 23,941 (2) The changes in plan assets for the years ended March 31, 2016 and 2015, were as follows: Net asset arising from defined benefit (Thousands of obligation ¥ (2,697) ¥ (2,411) $ (23,941) (Millions of yen) U.S. dollars) 2016 2015 2016 (4) The components of net periodic benefit costs for the years ended March 31, 2016 and 2015, were Balance at beginning of year ¥ 13,719 ¥ 11,414 $ 121,755 as follows:  Expected return on plan assets 183 109 1,629 (Thousands of  Actuarial (losses) gains (511) 1,859 (4,537) (Millions of yen) U.S. dollars) Contributions from the employer 827 822 7,337 2016 2015 2016  Benefits paid (587) (485) (5,209) Service cost ¥ 647 ¥ 606 $ 5,739 Balance at end of year ¥ 13,631 ¥ 13,719 $ 120,975 Interest cost 105 106 933 Expected return on plan assets (184) (109) (1,628) Amortization of prior service benefit (51) (51) (452) Recognized actuarial gains (303) (92) (2,692) Net periodic benefit costs ¥ 214 ¥ 460 $ 1,900

(5) Amounts recognized in other comprehensive (loss) income (before income tax effect) in respect of defined retirement benefit plans for the years ended March 31, 2016 and 2015 (Thousands of (Millions of yen) U.S. dollars) 2016 2015 2016 Prior service benefit ¥ (51) ¥ (51) $ (452) Actuarial (gains) losses (276) 2,100 (2,447) Other - (18) - Total ¥ (327) ¥ 2,031 $ (2,899)

78 79 (6) Amounts recognized in accumulated other comprehensive loss (before income tax effect) in 2. Defined benefit plans to which the simplified method is applied respect of defined retirement benefit plans as of March 31, 2016 and 2015 (Thousands of (1) The changes in liability for retirement benefits for the years ended March 31, 2016 and 2015, (Millions of yen) U.S. dollars) were as follows: 2016 2015 2016 (Thousands of Unrecognized prior service benefit ¥ (242) ¥ (292) $ (2,145) (Millions of yen) U.S. dollars) Unrecognized actuarial losses (3,296) (3,572) (29,252) 2016 2015 2016 Total ¥ (3,538) ¥ (3,864) $ (31,397) Balance at beginning of year ¥ 548 ¥ 555 $ 4,861  Net periodic benefit costs 80 78 713 (7) Plan assets  Benefits paid (163) (85) (1,444) (a) Components of plan assets Balance at end of year ¥ 465 ¥ 548 $ 4,130 Plan assets as of March 31, 2016 and 2015, consisted of the following: 2016 2015 (2) Reconciliation between the liability and asset recorded in the consolidated balance sheet and the Equity investments 55.90% 57.88 % balances of defined benefit obligation and plan assets Debt investments 27.55 27.22 (Thousands of General account 9.82 9.01 (Millions of yen) U.S. dollars) Others 6.73 5.89 2016 2015 2016 Total 100.00 % 100.00 % Unfunded defined benefit obligation ¥ 465 ¥ 548 $ 4,130 (*1) The retirement benefit trust contributed to the pension plan is included in the plan assets and Net liability arising from defined constitutes 36.44% and 37.37% of the total plan assets at March 31, 2016 and 2015, benefit obligation ¥ 465 ¥ 548 $ 4,130 respectively. (Thousands of

(Millions of yen) U.S. dollars) (b) Method of determining the expected rate of return on plan assets 2016 2015 2016 The expected rate of return on plan assets is determined considering the current and future asset portfolio and the long-term rates of return which are expected currently and in the Liability for retirement benefits ¥ 465 ¥ 548 $ 4,130 future from the variety of asset portfolios in plan assets. Net liability arising from defined benefit obligation ¥ 465 ¥ 548 $ 4,130 (8) Assumptions used for the years ended March 31, 2016 and 2015, were set forth as follows: 2016 2015 Net periodic benefit costs based on the simplified method for the years ended March 31, 2016 and Discount rate 0.93㸣 0.93 % 2015, were ¥80 million ($713 thousand) and ¥78 million, respectively. Expected rate of return on plan assets 1.33 0.95 Expected rate of future salary increases 5.40 5.10 3. Defined contribution pension plans (*1) These percentages are based on a weighted average. The Group’s contributions to the defined contribution pension plan for the years ended March 31, 2016 and 2015, were ¥511 million ($4,531 thousand) and ¥489 million, respectively.

80 81 11. Equity 12. Stock options

Japanese companies are subject to the Companies Act of Japan (the “Companies Act”). The significant The stock options outstanding as of March 31, 2016, were as follows: provisions in the Companies Act that affect financial and accounting matters are summarized below: Number of (a) Dividends Stock Persons options Date of Exercise Under the Companies Act, companies can pay dividends at any time during the fiscal year in addition option granted granted grant price Exercise period to the year-end dividend upon resolution at the shareholders’ meeting. Additionally, for companies that 2 directors 7 officers meet certain criteria including (1) having a Board of Directors, (2) having independent auditors, (3) 2011-1 8 employees 863,000 January 5, ¥332 From February 1, 2013 having an Audit & Supervisory Board, and (4) the term of service of the directors being prescribed as stock 4 directors of subsidiaries shares 2011 ($2.95) to January 31, 2016 one year rather than the normal two year term by its articles of incorporation, the Board of Directors option may declare dividends (except for dividends-in-kind) at any time during the fiscal year if the company 20 officers of subsidiaries has prescribed so in its articles of incorporation. However, the Company has not prescribed so in its 144 employees of subsidiaries articles of incorporation. 2 directors 8 officers and senior councilors 2012-1 9 employees 1,048,000 September 30, ¥249 From October 1, 2013 The Companies Act permits companies to distribute dividends-in-kind (noncash assets) to shareholders stock 5 directors of subsidiaries shares 2011 ($2.21) to September 30, 2016 subject to certain limitations and additional requirements. Semiannual interim dividends may also be option paid once a year upon resolution by the Board of Directors if the articles of incorporation of the 21 officers and councilors of subsidiaries company so stipulate. The Companies Act provides certain limitations on the amounts available for 139 employees of subsidiaries dividends or the purchase of treasury stock. The limitation is defined as the amount available for 3 directors 10 officers and senior councilors distribution to the shareholders, but the amount of net assets after dividends must be maintained at no 2013-1 10 employees 939,000 September 7, ¥275 From October 1, 2014 less than ¥3 million. stock 3 directors of subsidiaries shares 2012 ($2.44) to September 30, 2017 option (b) Increases/decreases and transfer of common stock, reserve and surplus 22 officers and councilors of subsidiaries The Companies Act requires that an amount equal to 10% of dividends must be appropriated as a legal 146 employees of subsidiaries reserve (a component of retained earnings) or as additional paid-in capital (a component of capital 3 directors 10 officers and senior councilors surplus), depending on the equity account charged upon the payment of such dividends, until the 2014-1 10 employees 979,000 September 6, ¥797 From October 1, 2015 aggregate amount of the legal reserve and additional paid-in capital equals 25% of common stock. stock 3 directors of subsidiaries shares 2013 ($7.07) to September 30, 2018 Under the Companies Act, the total amount of additional paid-in capital and legal reserve may be option reversed without limitation. The Companies Act also provides that common stock, legal reserve, 23 officers and councilors of subsidiaries additional paid-in capital, other capital surplus and retained earnings can be transferred among the 151 employees of subsidiaries accounts within equity under certain conditions upon resolution of the shareholders. 3 directors 2015-1 39 officers, senior councilors and 1,092,000 September 5, ¥819 From October 1, 2016 stock councilors (c) Treasury stock and treasury stock acquisition rights shares 2014 ($7.27) to September 30, 2019 The Companies Act also provides for companies to purchase treasury stock and dispose of such option 181 employees treasury stock by resolution of the Board of Directors. The amount of treasury stock purchased cannot 2 directors of subsidiaries exceed the amount available for distribution to the shareholders which is determined by a specific 2 directors 2016-1 39 officers, senior councilors and formula. Under the Companies Act, stock acquisition rights are presented as a separate component of 1,092,000 September 4, ¥927 From October 1, 2017 stock councilors equity. The Companies Act also provides that companies can purchase both treasury stock acquisition shares 2015 ($8.23) to September 30, 2020 rights and treasury stock. Such treasury stock acquisition rights are presented as a separate component option 184 employees of equity or deducted directly from stock acquisition rights. 2 directors of subsidiaries (*1) 2011-1 stock options reached exercise periods by March 31, 2016.

82 83 The stock option activity was as follows: 13. Income taxes 2011-1 2012-1 2013-1 2014-1 2015-1 2016-1 stock option stock option stock option stock option stock option stock option The Company and its domestic subsidiaries are subject to Japanese national and local income taxes, which, (Shares) (Shares) (Shares) (Shares) (Shares) (Shares) in the aggregate, resulted in normal effective statutory tax rates of approximately 33.06% and 35.64% for For the year ended March 31, the years ended March 31, 2016 and 2015, respectively. 2015 Non-vested The significant components of deferred tax assets and liabilities as of March 31, 2016 and 2015, were as April 1, 2014 - Outstanding - - 931,000 979,000 - - follows: Granted - - - - 1,092,000 - (Thousands of Canceled - - 4,000 8,000 - - (Millions of yen) U.S. dollars) Vested - - 927,000 - - - 2016 2015 2016 March 31, 2015 - Outstanding - - - 971,000 1,092,000 - Deferred tax assets: Vested Allowance for doubtful accounts ¥ 419 ¥ 452 $ 3,721 April 1, 2014 - Outstanding 96,000 176,000 - - - - Enterprise tax payable 85 335 757 Vested - - 927,000 - - - Provision for bonuses 528 1,250 4,687 Exercised 12,000 48,000 648,000 - - - Liability for retirement benefits 568 692 5,037 Canceled ------Retirement benefits to directors and Audit March 31, 2015 - Outstanding 84,000 128,000 279,000 - - - & Supervisory Board members 55 63 491

Statutory reserves 134 125 1,191 For the year ended March 31, Impairment loss on investment securities 101 115 898 2016 Impairment loss on fixed assets 500 533 4,434 Non-vested March 31, 2015 - Outstanding - - - 971,000 1,092,000 - Other 1,045 㻌 973 㻌 㻌 9,269 Granted - - - - - 1,092,000 Subtotal 3,435 4,538 30,485 Canceled - - - 4,000 20,000 16,000 Tax loss carried forward 113 㻌 308 㻌 1,004 Vested - - - 967,000 - - Deferred tax assets 3,548 4,846 31,489 March 31, 2016 - Outstanding - - - - 1,072,000 1,076,000 Valuation allowance (1,315) (2,006) 㻌 㻌 (11,673) Vested Total deferred tax assets ¥ 2,233 ¥ 2,840 $㻌 19,816 March 31, 2015 - Outstanding 84,000 128,000 279,000 - - -

Vested - - - 967,000 - - Deferred tax liabilities: Exercised 66,000 59,000 101,000 - - - Unrealized gain on available-for-sale Canceled 18,000 - - 12,000 - - securities 862 1,851 7,646 March 31, 2016 - Outstanding - 69,000 178,000 955,000 - - Other 1,633 㻌 1,497 㻌 㻌 14,502

Deferred tax liabilities 2,495 㻌 3,348 㻌 㻌 22,148 ¥332 ¥249 ¥275 ¥797 ¥819 ¥927 Exercise price Total deferred tax liabilities ¥ 2,495 3,348 $ 22,148 ($2.95) ($2.21) ($2.44) ($7.07) ($7.27) ($8.23) ¥767 ¥852 ¥828 - - - 㻌 㻌 㻌 Net deferred tax (liabilities) assets ¥ (262) (508) 㻌 $ (2,332) Average stock price at exercise ($6.81) ($7.56) ($7.35) - - - ¥67.59 ¥53.04 ¥53.98 ¥152.07 ¥162.12 ¥99.31 Balance reported in the consolidated balance sheets as of March 31, 2016 and 2015 was as follows: Fair value price at grant date ($0.60) ($0.47) ($0.48) ($1.35) ($1.44) ($0.88) (Thousands of 㸦Millions of yen㸧 U.S. dollars㸧 The assumptions used to measure the fair value of the 2016-1 stock option 2016 2015 2016 Estimate method: Black-Scholes option-pricing model Deferred tax assets ¥ 209 ¥ 1,284 $ 1,847 Volatility of stock price: 38.10% Deferred tax liabilities (471) (1,792) (4,179) Estimated remaining outstanding period: 3.58 years Net deferred tax liabilities ¥ (262) ¥ (508) $ (2,332) Estimated dividend: ¥33 per share Risk-free interest rate: 0.026%

84 85 A reconciliation between the actual effective tax rate reflected in the accompanying consolidated statement execution of agency trades in the exchange market and fair price formation and smooth distribution of of income and the normal effective statutory tax rate for the year ended March 31, 2016, was as follows: financial instruments for trading outside the exchange market.

2016 To raise funds to operate the financial instruments trading business, in addition to using indirect Normal effective statutory tax rate 33.06% financing such as bank loans, the Group issues commercial paper and bonds taking into account market conditions and the balance of maturities of loans. Increase (decrease) due to:

Permanent differences, such as entertainment expenses 1.35 (2) Nature and extent of risks arising from financial instruments (16.77) Permanently nontaxable items, such as dividend income Tax loss carried forward (0.04) The financial assets and liabilities held by the Group are composed of the following: Inhabitants tax per capita levy 0.45 Gain on change in interest in an equity investment (0.15) (a) Securities, such as stocks and bonds, held for trading with customers or for proprietary trading; Equity in gain of associated companies (1.75) derivatives publicly traded on exchanges, such as futures and options, based on stock price indices Valuation allowance (2.23) and bond futures and bond options; derivatives not traded on exchanges, such as bonds with Adjustment for unrealized profits resulting from transactions within the options, OTC securities options, foreign exchange forward contracts, currency swaps, and interest Group and other - net 16.40 rate swaps; and securities, such as stock held for investment;

Effect of tax rate change 0.44 (b) Loan receivables from customers related to margin transactions and borrowings from securities Other (0.44) finance companies incidental to the loan receivables; and

Actual effective tax rate 30.32% (c) Cash collateral pledged for securities borrowed/cash received on securities loaned based on Such information for the year ended March 31, 2015, is not presented as the difference is less than 5% of collateralized financing agreements with institutional investors and loan receivables as the normal effective statutory tax rate. consideration for purchases of bonds under resell agreements/borrowings as proceed from sales of bonds under repurchase agreements. New tax reform laws enacted in 2016 in Japan changed the normal effective statutory tax rate for the fiscal years beginning on April 1, 2016 and April 1, 2017, from 32.26% to approximately 30.86% and for the The securities held and transaction balances of derivatives are exposed to market risks triggered by fiscal year beginning on or after April 1, 2018 to approximately 30.63%. The effect of these changes was to changes in market values of stock, interest rate and foreign exchange rate fluctuations. Receivables decrease “Deferred tax liabilities,” net of “Deferred tax assets,” by ¥24 million ($214 thousand) in the related to margin transactions, cash collateral pledged for securities borrowed, loan receivables for consolidated balance sheet as of March 31, 2016, and to increase “Income taxes-deferred” by ¥79 million purchases of bonds under resell agreements and OTC derivative transactions are exposed to credit ($705 thousand) in the consolidated statement of income for the year then ended. This change also risks that occur when transaction counterparties default. In addition, due to a lack of liquidity, some increased “Unrealized gain on available-for-sale securities” by ¥46 million ($407 thousand) and “Defined of these financial instruments are exposed to market liquidity risks that trigger losses due to market retirement benefit plans” by ¥58 million ($512 thousand) in the consolidated balance sheet as of March 31, turmoil, which may result in the Group’s inability to transact in the market or cause the Group to 2016. conduct transactions at significantly unfavorable prices.

14. Financial instruments and related disclosures Also, with regard to the funding side, the Group owns financial liabilities, such as commercial paper, bonds and borrowings from financial institutions. As a result of a downturn in the Group’s (1) Group policy for financial instruments business or other reasons, these financial instruments are exposed to funding liquidity risk, resulting in obstacles to raising funds or being forced to borrow at significantly higher interest rates The Group is involved in the financial instruments trading business, including trading securities, acting than usual, leading to losses. as an intermediary of securities trading, underwriting and offering securities, treating of soliciting and offering securities, offering private placement securities and other financial instruments trading business, Besides these assets and liabilities, the Group owes financial liabilities, such as temporary deposits and services related or incidental to financial instruments trading business. Due to the Group’s received from customers for their securities transactions and guarantee deposits received from involvement in the financial instruments trading business, the Group holds financial instruments. customers as transaction deposits for margin transactions and derivative transactions. The financial assets attributable to customers in these transactions are segregated from our own financial assets In conducting its financial instruments trading business, the Group sets its basic policy as providing and entrusted as segregated customer’s money trust to the trust bank in accordance with the rules of accurate information to meet its various customers’ needs and products through transactions inside or Financial Instruments and Exchange Act. outside of the stock exchange market. The Group intends to realize sound market functions and smooth

86 87 (3) Risk management for financial instruments account the budget and profit performance of each department; setting annual and monthly loss limits and warning lines for these limits for each department in order to prevent losses from (a) Comprehensive risk management increasing; and maintaining the Group’s internal rules. Due to the complexity and diversification of product lines, such as rapid advances of derivative transactions, the Company regards market, credit, and liquidity risk management as being The management method of market risk for the positions held by the trading department includes extremely important in conducting the Group’s financial instruments trading operations, the main management based on VaR (10-day holding period with confidence interval of 99% and business line of the Group. The Company puts risk management for the entire group and each observation period 750 days) computed using historical simulation method; measurement of stress group company as one of the first priorities for the business. The Company and each group value (one day and 10-day holding periods and observation period 750 days); and back testing of company established a risk management basic policy in order to control risks appropriately by the relationship between the VaR (holding period of one day) data and daily profit/loss data, identifying, analyzing, and managing risks as the responsibility of each group company and to periodically. In addition, stress tests under the various scenarios by products or by ratings have maintain the soundness of business for a long period of time. been periodically conducted.

In accordance with this risk management basic policy, the Company established the Total Risk The department that owns positions exposed to market liquidity risk, which is triggered when it Management Committee to provide the framework for securing financial soundness and profits by becomes impossible to execute transactions in the market because of market turmoil, etc., caused gathering and controlling information on various risks inherent in the Company and each group by low liquidity or which arises when the Group is forced to enter into the transactions at company. The committee discusses matters concerning management of these risks. The committee significantly unfavorable prices, sets an upper limit on the exposure of the market liquidity risk meets in principle monthly to monitor implementation status and to provide the framework of position. reporting of necessary information to the Board of Directors. The risk limits set and allocated for related departments, use of loss limits, profits and losses, stress In addition, Tokai Tokyo Securities, a Class I financial instruments trader in the Group, established value, and status of market liquidity risk positions are analyzed, managed on a daily basis, and a Market Risk Committee and a Credit and Operational Risk Committee and established the related reported to top management by the Risk Controlling Department. Also, analysis of market risk rules to facilitate the risk management system to prepare for market risk, credit risk, and liquidity management and overall reports are made to the Market Risk Committee. In addition, the status of risk. From the perspective of securing business and financial soundness, Tokai Tokyo Securities set market risk management is reported monthly to the Board of Directors. the “target of controlled equity ratio” at the Board of Directors meeting after deliberation by the Market Risk Committee that should be maintained at a minimum and established a basic policy for The estimated amount of market risk (estimated amount of loss) of Tokai Tokyo Securities as of the purpose of the risk management operations to keep the “target.” Regarding risk management March 31, 2016 and 2015, was as follows: relating to the financial instruments trading business, which is our principal business, the risk (Thousands of controlling department, which is organizationally and physically independent from the trading 㸦Millions of yen㸧 U.S. dollars㸧 execution department (the “Risk Controlling Department”), performs risk control by calculating 2016 2015 2016 risk, positions, and profit or loss on a daily basis and reports it along with the status of the capital Amount of Market Risk (VaR) ¥ 963 ¥ 682 $ 8,550 adequacy ratio of Tokai Tokyo Securities to management and related departments every day. In addition, a discussion and report on risk management is made at the Market Risk Committee (Note) VaR measures the amount of market risk with a certain probability that is statistically calculated based on meeting which is generally held twice a month, and at the Credit and Operational Risk Committee historical market fluctuations. Therefore, the risk may not be fully captured under a market environment that meeting, which is generally held once a month. changes drastically.

(b) Management for market risk (c) Credit risk management Tokai Tokyo Securities sets basic policies relating to market risk management based on the Group’s Based on our risk management rules, Tokai Tokyo Securities controls the risk of incurring damages risk management rules and manages the proprietary trading operations. arising from the default of counterparties of transactions or other reasons within predetermined limits. At Tokai Tokyo Securities, the Director in charge of the Risk Control manages risks by The Board of Directors of Tokai Tokyo Securities sets market related risk limits within the amount setting the upper risk limit within the amount equivalent to the risk of loss provided in the article 8 equivalent to the risk of loss provided in article 8 of the Cabinet Office Ordinance concerning the of the Cabinet Office Ordinance concerning to the Financial Instruments and Exchange Act, which Financial Instruments and Exchange Act, the risk limits that are derived by the “target of controlled is led by the “target of controlled equity ratio” that should be maintained at minimum. equity ratio,” which should be maintained at a minimum. In addition, in order to structure a management system that checks excessive risk taking actions, Tokai Tokyo Securities also Upon setting the credit risk limits for each counterparty of a transaction, the Risk Controlling enhances the functions of overall risk management by the following: to the extent of the market risk Department evaluates the financial conditions, etc., of each counterparty of the transaction and sets limit of the Group, the Market Risk Committee restricts market risk by setting the value at risk the upper limit of the credit and determines the acceptability of the transaction in accordance with (“VaR”)-based position limit on each department holding proprietary trading positions taking into the authority of granting the credit limit, taking into account the net worth of the counterparty or

88 89 Tokai Tokyo Securities. It also reviews the credit limit periodically. (4) Supplementary explanations of matters related to the fair value of financial instruments

Also, in order to control the credit balance after the transaction contract, with the cooperation of the Fair values of financial instruments include values based on market prices and values obtained by related department, the office related to each counterparty periodically collects financial reasonable estimates when financial instruments have no market prices. Because certain assumptions information of the counterparty and observes changes in the credit condition of the counterparty are adopted in calculating these values, they may differ when different assumptions are adopted. during the course of daily business operations. When the credit condition of the counterparty deteriorates, the Risk Controlling Department consults with the related department and takes (5) Fair values of financial instruments measures to secure the credit, such as suspension of a new transaction, reduction of the credit limit, change of the terms of the transaction, or requiring collateral, to the extent of the approved credit Fair values of financial instruments are based on quoted prices in active markets. If a quoted price is not limits. available, another rational valuation technique is used instead.

Depending upon the nature of the products, the current exposure method or potential exposure (a) Fair values of financial instruments method is adopted in calculating credit risks. The credit risk is analyzed and managed on a daily The carrying amounts, aggregate fair values, and net unrealized gain (loss) of financial instruments basis and reported to top management by the Risk Controlling Department. Also, the analysis of at March 31, 2016 and 2015, were as follows: credit risk management status and overall reports are made to the Credit and Operational Risk Committee. In addition, the status of credit risk management is reported monthly to the Board of 㸦Millions of yen㸧 Directors. Carrying Unrealized March 31, 2016 amount Fair value gain (losses) (d) Liquidity risk management Based on our liquidity risk management rules, the Company and Tokai Tokyo Securities set and Cash and deposits ¥ 45,204 ¥ 45,204 - operate basic policies for risk management framework for appropriate funding. Cash segregated as deposits 28,712 28,712 - Cash collateral pledged for securities The Company develops a strategy for the liquidity risk of funding by gathering and analyzing borrowed 134,043 134,043 - information, such as stock prices and reputation, to identify and assess liquidity risks for funding Trading securities 255,621 255,621 - that may affect the Company’s funding. To manage funding risk, the Company implements Derivatives 3,651 3,651 - necessary measures, taking into account the situation in managing the funding risk, depending upon Receivables from brokers, dealers, and the possibility of cash flow problems of consolidated subsidiaries affecting the Company’s funding clearing organizations 11,952 11,952 - based on the subsidiaries’ performance. Receivables related to margin transactions 41,375 41,375 - Short-term investment securities - - - Also, in order to secure the adequacy of funding management, the funding control department of Investment securities 8,045 8,045 - Tokai Tokyo Securities determines the accurate funding situation based on the daily management Assets total ¥528,603 ¥ 528,603 - status of various daily funding relating to funds raised and fund management and plans and controls the prospects of monthly and quarterly funding. The status and forecast of funding are reported monthly to the Board of Directors. Short-term borrowings ¥ 81,052 ¥ 81,052 - Commercial paper 9,800 9,800 - The funding control department conducts as-needed management relating to funding in response to Current portion of long-term debt 35,856 35,856 - movements in the market environment. Information relating to the activities is reported to the Long-term debt 21,650 21,694 ¥(44) Board of Directors after promptly assessing the impact on funding. Cash received on securities loaned 68,539 68,539 - Borrowings under repurchase agreements - - - In relation to the securing of assets for payment reserves and the fund-raising method, the funding Trading securities 129,790 129,790 - control department secures the financing method depending upon the degree of funding ability Derivatives 7,326 7,326 - (normal, concerned, crisis, etc.) and payment reserve assets for settlements. In addition, it secures Payables to brokers, dealers, and clearing funding methods, assuming a period of crisis by holding assets available for sale or collateral in organizations 15,262 15,262 - Japan and overseas and setting borrowing facilities in order to obtain funds from commercial Payables to customers 25,131 25,131 - banks. Payables related to margin transactions 5,708 5,708 - Liabilities total ¥400,114 ¥400,158 ¥(44)

90 91 㸦Millions of yen㸧 (Thousands of U.S. dollars) Carrying Unrealized Carrying Unrealized March 31, 2015 amount Fair value gain (loss) March 31, 2016 amount Fair value gain (loss)

Cash and deposits ¥ 56,528 ¥ 56,528 - Cash and deposits $ 401,173 $ 401,173 - Cash segregated as deposits 26,268 26,268 - Cash segregated as deposits 254,806 254,806 - Cash collateral pledged for securities Cash collateral pledged for securities borrowed 79,468 79,468 - borrowed 1,189,587 1,189,587 - Trading securities 195,803 195,803 - Trading securities 2,268,556 2,268,556 - Derivatives 2,316 2,316 - Derivatives 32,404 32,404 - Receivables from brokers, dealers, and Receivables from brokers, dealers, and clearing organizations 11,118 11,118 - clearing organizations 106,071 106,071 - Receivables related to margin transactions 38,759 38,759 - Receivables related to margin transactions 367,192 367,192 - Short-term investment securities 10 10 - Short-term investment securities - - - Investment securities 10,023 10,023 - Investment securities 71,400 71,400 - Assets total ¥420,293 ¥420,293 - Assets total $ 4,691,189 $ 4,691,189 -

Short-term borrowings ¥ 98,029 ¥ 98,029 - Commercial paper 8,300 8,300 - Short-term borrowings $ 719,315 $ 719,315 - Current portion of long-term debt 37,901 37,901 - Commercial paper 86,972 86,972 - Long-term debt 13,903 13,930 ¥ (27) Current portion of long-term debt 318,207 318,207 - Cash received on securities loaned 3,805 3,805 - Long-term debt 192,137 192,529 $(392) Borrowings under repurchase agreements 1,000 1,000 - Cash received on securities loaned 608,256 608,256 - Trading securities 63,271 63,271 - Borrowings under repurchase agreements - - - Derivatives 6,861 6,861 - Trading securities 1,151,847 1,151,847 - Payables to brokers, dealers, and clearing Derivatives 65,018 65,018 - organizations 10,902 10,902 - Payables to brokers, dealers, and clearing Payables to customers 22,861 22,861 - organizations 135,445 135,445 - Payables related to margin transactions 10,675 10,675 - Payables to customers 223,026 223,026 - Liabilities total ¥277,508 ¥277,535 ¥ (27) Payables related to margin transactions 50,658 50,658 - Liabilities total $3,550,881 $3,551,273 $(392)

Methods for determining fair values of financial instruments for the years ended March 31, 2016 and 2015, were as follows:

Cash and deposits, Cash segregated as deposits, Cash collateral pledged for securities borrowed, Receivables from brokers, dealers and clearing organizations, and Receivables related to margin transactions The carrying values of these financial instruments approximate fair values because they are settled in a short period. Trading securities The fair values of these financial instruments are determined in accordance with internal rules of fair value assessment. Short-term investment securities and Investment securities The fair values of these financial instruments are measured at the quoted market price in active markets in accordance with internal rules of fair value assessment.

92 93 Short-term borrowings, Commercial paper, Current portion of long-term debt, Cash received on (Thousands of U.S. dollars) securities loaned, Borrowings under repurchase agreements, Payables to brokers, dealers and Due after Due after clearing organizations, Payables to customers, and Payables related to margin transactions Due in one year five years Due after The carrying values of these financial instruments approximate fair values because they are one year through through 10 10 settled in a short period. March 31, 2016 or less five years years years Derivatives Cash and deposits $ 22,575 - - - Fair value information for derivatives is included in Note 5. Total $ 22,575 - - - Long-term debt Long-term debt from banks and other financial institutions Please see Note 6 for annual maturities of long-term debt. The fair value of long-term debt with floating interest rates is equal to book value on the basis that carrying values of long-term debt approximate fair values because the long-term 15. Commissions debt is based on variable interest rates reflecting market interest rates in a short period of time, and credit conditions have not significantly changed since the execution. The fair value Commissions earned for the years ended March 31, 2016 and 2015, consisted of the following: of long-term debt with fixed interest rates is set as the present value of the total amount of principal and interest to be paid estimated by applying the discount rate assumed when a (Thousands of similar and new borrowing is made. (Millions of yen) U.S. dollars) Bonds Payable 2016 2015 㻌 2016 The fair value is measured at the quoted market price in active markets. If a quoted price is not available, the fair value is calculated as the present value of the total amount of principal Brokerage ¥ 16,539 ¥ 19,016 $ 146,775 and interest estimated by applying the discount rate commensurate with the remaining period Underwriting and distribution 11,365 18,886 100,865 and credit risk. Other 6,363 㻌 6,180 㻌 㻌 56,471

(b) Carrying amount of financial instruments whose fair values cannot be reliably determined Total ¥ 34,267 ¥ 44,082 㻌 $ 304,111 (Thousands of (Millions of yen) U.S. dollars) 16. Selling, general and administrative expenses 2016 2015 2016 Investment in associated companies ¥ 10,552 ¥ 9,584 $ 93,650 Selling, general and administrative expenses for the years ended March 31, 2016 and 2015, consisted of Available-for-sale securities: the following: Stocks (nonlisted) 3,546 3,804 31,466 Other 2,927 3,375 25,988 (Thousands of Total ¥ 17,025 ¥ 16,763 $ 151,104 (Millions of yen) U.S. dollars) 2016 2015 2016 The fair values of unlisted stocks are not included in “Investment securities” in the table (a) as they do Employees’ compensation and benefits ¥ 24,889 ¥ 28,003 $ 220,880 not have a quoted market price in active markets, the amount of future cash flows cannot be estimated, Brokerage and other commissions 5,935 6,246 52,671 and their fair values cannot be reliably determined. Communication and transportation 2,673 2,520 23,717 Real estate expenses 6,039 5,958 53,598 (6) Maturity analysis for financial assets and securities with contractual maturities Data processing and office supplies 6,682 6,087 59,300 Advertising 1,956 2,282 17,359 (Millions of yen) Taxes other than income taxes 890 686 7,902 Due after Due after Depreciation 907 850 8,046 Due in one year five years Due after Amortization 942 1,008 8,364 one year through through 10 10 Other 2,722 㻌 2,664 㻌 㻌 24,153 March 31, 2016 or less five years years years Total ¥ 53,635 ¥ 56,304 㻌 $ 475,990 Cash and deposits ¥ 2,544 - - -

Total ¥ 2,544 - - -

94 95 17. Other income and expenses 18. Other comprehensive income (loss)

The components of “Other income, net” in the consolidated statements of income for the years ended The components of other comprehensive income (loss) for the years ended March 31, 2016 and 2015, were March 31, 2016 and 2015, were as follows: as follows: (Thousands of (Thousands of (Millions of yen) U.S. dollars) (Millions of yen) U.S. dollars) 2016 2015 2016 2016 2015 2016 Dividend income ¥ 736 ¥ 761 $ 6,535 Unrealized (loss) gain on available-for-sale securities: Rental income 637 596 5,656 (Losses) gains arising during the year ¥ (268) ¥ 3,145 $ (2,381) Net gain on investment in partnership 231 172 2,048 Reclassification adjustments to profit or loss (2,676) (811) (23,746) Equity in gain of associated companies 949 1,670 8,422 Amount before income tax effect (2,944) 2,334 (26,127) Foreign exchange losses (26) - (232) Income tax effect 989 (628) 8,780 Net gain on sales and Impairment loss on Total ¥ (1,955) ¥ 1,706 $(17,347) investment securities 2,597 648 23,046 Foreign currency translation adjustments: Gain on change in equity 81 - 715 Adjustments arising during the year ¥ (81) ¥ 289 $ (716) Loss on disposal of fixed assets - (17) - Reclassification adjustments to profit or loss - - - Impairment loss on fixed assets - (29) - Amount before income tax effect (81) 289 (716) Loss on cancellation of contracts - (63) - Income tax effect - - - Provision for statutory reserves (51) (100) (457) Total ¥ (81) ¥ 289 $ (716) Other 128 187 1,146 Defined retirement benefit plans: Total ¥ 5,282 ¥ 3,825 $ 46,879 Adjustments arising during the year ¥ 28 ¥ 2,192 $ 245

Reclassification adjustments to profit or loss (355) (161) (3,144) Amount before income tax effect (327) 2,031 (2,899) Income tax effect 167 (602) 1,475 Total ¥ (160) ¥ 1,429 $ (1,424)

Total other comprehensive (loss) income ¥ (2,196) ¥ 3,424 $ (19,487)

19. Related-Party Transactions

The material related-party transactions as of March 31, 2016, were as follows: Description of Ownership Description Transaction Type Name business or ratio of of volume occupation voting rights transaction President and Chief The ¥12 million Tateaki Executive Officer Exercise of Company Direct 0.13% ($104 Ishida (Representative stock options director thousand) Director)

The above transactions relate to the exercise of stock options granted by the resolution at the shareholders’ meeting on June 29, 2010, June 29, 2011, and June 27, 2012. The transaction volume represents the granted shares for the executed options during the year ended March 31, 2016, multiplied by each exercise price.

There was no such information applicable for the year ended March 31, 2015.

96 97 20. Net income per share (2) Information about products and services of the reportable segment

Reconciliation of the differences between basic and diluted net income per share (“EPS”) for the years This information is not presented because operating revenues from third parties of a single product and service are over 90% of operating revenues in the consolidated statement of income. ended March 31, 2016 and 2015, was as follows: (3) Geographical information (Millions of (Thousands yen) of shares) (Yen) (U.S. dollars) (a) Operating revenues Net income This information is not presented because the Group’s revenues in Japan account for more than 90% attributable to of revenues in the consolidated statement of income. owners of the Weighted-aver parent age shares EPS (b) Property and equipment For the year ended March 31, 2016: This information is not presented because the Group’s property and equipment in Japan account for Basic EPS—Net income available to common more than 90% of property and equipment in the consolidated balance sheet. shareholders ¥ 12,423 264,797 ¥ 46.92 $ 0.42 (4) Information by major customers Effect of dilutive securities: This information is not presented because there are no customers for which sales account for more Warrants - 236 than 10% of revenues in the consolidated statement of income.

Diluted EPS—Net income for computation ¥ 12,423 265,033 ¥ 46.87 $ 0.42 (5) Information about impairment loss on fixed assets, goodwill, and negative goodwill by reportable segment For the year ended March 31, 2015: This information is not presented as the Group operates as a single reportable segment in the

Basic EPS—Net income available to common investment and financial service business. shareholders ¥ 18,499 266,141 ¥ 69.51 22. Subsequent event Effect of dilutive securities: Warrants - 688 (1) Appropriation of Retained Earnings

Diluted EPS—Net income for computation ¥ 18,499 266,829 ¥ 69.33 On June 29, 2016, the shareholders approved the appropriation of retained earnings as follows:

(Thousands of 21. Segment information (Millions of yen) U.S. dollars)

Under ASBJ Statement No. 17, “Accounting Standard for Segment Information Disclosures,” and ASBJ Cash dividends, ¥14.00 ($0.12) per share ¥ 3,694 $ 32,785 Guidance No. 20, “Guidance on Accounting Standard for Segment Information Disclosures,” an entity is required to report financial and descriptive information about its reportable segments. Reportable segments are operating segments or aggregations of operating segments that meet specified criteria. Operating segments are components of an entity about which separate financial information is available and such information is evaluated regularly by the chief operating decision maker in deciding how to allocate resources and in assessing performance. Generally, segment information is required to be reported on the same basis as is used internally for evaluating operating segment performance and deciding how to allocate resources to operating segments.

(1) Information about sales, profit, assets, liabilities, and other items by reportable segments

This information is not presented as the Group operates as a single reportable segment in the investment and financial service business.

98 99 Company Information / Stock Information

Company Information (As of March 31, 2016) Stock Information (As of March 31, 2016)

Company Name Tokai Tokyo Financial Holdings, Inc. Number of Shares Authorized 972,730,000 Date of Incorporation June 19, 1929 Number of Shares Issued 280,582,115 Common Stock ¥36,000,000,000 Number of Shares Issued (excluding treasury stock) 263,875,547 Number of Employees 127(Does not include 13 temporary employees Number of Shareholders 27,938 (Non-Consolidated) and two dispatched workers) Number of Number of Employees 2,391(Does not include 29 investment advisors and Ownership Major shareholders shares held (Consolidated)asset advisors, 282 temporary employees and 100 ratio (%) (thousands) dispatched workers) Group Companies Japan Trustee Services Bank, Ltd. Tokai Tokyo Securities Co., Ltd. (Trust Account) 15,268,200 5.79 Utsunomiya Securities Co., Ltd. Tokai Tokyo Asset Management Co., Ltd. Mitsui Sumitomo Insurance Co., Ltd. 14,283,798 5.41 Tokai Tokyo Wealth Consulting Co., Ltd. Tokai Tokyo Investment Co., Ltd. Tokai Tokyo Research Center Co., Ltd. Toyota Financial Services Corporation 14,280,000 5.41 Tokai Tokyo Academy Co., Ltd. Tokai Tokyo Services Co., Ltd. The Bank of Tokyo-Mitsubishi UFJ, Ltd. 12,016,853 4.55 Tokai Tokyo Business Service Co., Ltd. Tokai Tokyo Securities (Asia) LTD. The Master Trust Bank of Japan, Ltd. Tokai Tokyo Securities Europe Limited (Trust Account) 8,539,600 3.24 Tokai Tokyo Securities (USA), Inc. Tokai Tokyo Investment Management Singapore Pte. Ltd. The Bank of Yokohama, Ltd. 7,014,553 2.66 YM Securities Co., Ltd. Hamagin Tokai Tokyo Securities Co., Ltd. Nishi-Nippon City Tokai Tokyo Securities Co., Ltd. JP Morgan Bank Luxemburg SA 380578 5,860,800 2.22 Senshu Ikeda Tokai Tokyo Securities Co., Ltd. All Nippon Asset Management Co., Ltd. Nippon Life Insurance Company 5,611,890 2.13 Phillip Tokai Tokyo Investment Management Pte. Ltd.

Sumitomo Mitsui Trust Bank, Limited 4,800,000 1.82

RBC ISB S/A DUB NON RESIDENT/ TREATY RATE UCITS-CLIENTS ACCOUNT 4,500,000 1.71 Board of Directors, Audit & Supervisory Board Notes: 1. The ownership ratio is calculated based on figures generated after deducting treasury stock from the total number of shares issued. Members and Executive Officers (As of July 1, 2016) 2. In addition to the companies listed above, Tokai Tokyo Financial Holdings holds 16,706,568 shares of treasury stock.

●Board of Directors and Audit & Supervisory Board Members

President & CEO (Representative Director) Tateaki Ishida (As of March 31, 2016) Director & Deputy President (Representative Director) Hiroshi Iizumi Breakdown of Shareholders Directors Toshiyuki Hayakawa ◎ Shareholdings by Type of Shareholder Ichiro Mizuno

19.43% Other domestic corporations11.91 % Treasury stock5.95 % Masato Setta Individuals and others Director, Audit & Supervisory Committee Member Masato Okajima

Director, Audit & Supervisory Committee Member Shigeo Kashiwagi Financial institutions 40.81% Foreign corporations,20.51 etc. % Securities firms1.39 %

Director, Audit & Supervisory Committee Member Mitsuhiro Yasuda ◎ Shareholdings by Number of Shares Held Director, Audit & Supervisory Committee Member Keisuke Inoue 1,000 to 9,999 9.42% 10,000 to 99,999 9.55% 500,000 or more71.90%

Note: Ichiro Mizuno, Masato Setta, Shigeo Kashiwagi, Mitsuhiro Yasuda and Keisuke Inoue are outside directors stipulated in paragraph 15, Article 2, of the Companies Act. Less than one unit to 999 1.0 0 % 100,000 to 499,999 8.12%

●Executive Officers

Senior Managing Executive Officers Masaaki Murakami

Hiroshi Maezono Managing Executive Officers Masahiro Ishii

Mikio Fujii Executive Officers Hideto Sasaki

Ichirou Gouda

http://www.tokaitokyo-fh.jp/en/

100 101 6-2, Nihonbashi 3-chome, Chuo-ku, Tokyo 103-0027 http://www.tokaitokyo-fh.jp/