the okazaki shinkin bank audited nonconsolidated financial … · 2014. 8. 3. · 3 the okazaki...

The Okazaki Shinkin Bank

Audited Nonconsolidated Financial Statements

March 31, 2014 and 2013

KPMG AZSA LLC

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Nonconsolidated Balance Sheets March 31, 2014 and 2013

Millions of yen Thousands of

U.S. dollars

2014 2013 2014

Assets: Cash (Notes 4) ¥ 31,399 ¥ 32,859 $ 305,086 Due from banks (Notes 4 and 8) 282,299 188,396 2,742,899 Call loans (Notes 4) 9,254 4,269 89,917 Monetary receivables purchased (Notes 4) 1,437 509 13,967 Trading account securities (Notes 4 and 5) 7 18 68 Investment securities (Notes 4, 5 and 8) 1,017,691 1,017,979 9,888,182 Loans and bills discounted (Notes 4, 6, 13 and 14) 1,479,132 1,458,890 14,371,676 Foreign exchange assets 1,210 1,281 11,764 Other assets 14,044 14,165 136,457 Tangible fixed assets (Note 7) 30,811 28,593 299,373 Intangible fixed assets 103 107 1,007 Prepaid pension cost 299 - 2,907 Deferred tax assets (Note 9) - 191 - Customers' liabilities for acceptances and

guarantees (Note 11)

5,090 6,015 49,465 Reserve for possible loan losses (7,260) (5,855) (70,548)

Total assets ¥ 2,865,521 ¥ 2,747,424 $ 27,842,220

Liabilities: Deposits (Notes 4, 8,10 and 14) ¥ 2,611,637 ¥ 2,518,560 $ 25,375,412 Borrowed money (Notes 4 and 8) 26,138 12,255 253,970 Call money 9,159 282 89,000 Foreign exchange liabilities 99 27 967 Other liabilities 6,467 7,236 62,843 Reserve for employee bonuses 315 317 3,065 Reserve for bonuses to directors and corporate

auditors

59

44

574 Reserve for employee retirement benefits 6,628 7,386 64,400 Reserve for severance indemnities for directors

and corporate auditors

124

102

1,209 Reserve for reimbursement of deposits 135 147 1,321 Reserve for contingent losses 933 715 9,072 Deferred tax liabilities (Note 9) 221 2,148 Deferred tax liabilities for land revaluation (Note 7) 2,475 2,475 24,055 Acceptances and guarantees (Note 11) 5,090 6,015 49,465

Total liabilities 2,669,487 2,555,565 25,937,501

Net assets (Notes 12 and 15): Paid-in members’ capital 3,301 3,322 32,077 Retained earnings: Legal reserve 3,322 3,356 32,286 Special reserve 163,836 159,534 1,591,881 Unappropriated retained earnings 7,442 6,359 72,312

Total retained earnings 174,601 169,250 1,696,479

Total members’ equity 177,903 172,573 1,728,556

Net unrealized gains on available-for-sale securities (Note 5)

12,261

13,416

119,139

Land revaluation excess (Note 7) 5,868 5,868 57,024

Total valuation and translation adjustments 18,130 19,285 176,163

Total net assets 196,033 191,858 1,904,719

Total liabilities and net assets ¥ 2,865,521 ¥ 2,747,424 $ 27,842,220

See accompanying Notes to Nonconsolidated Financial Statements.

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Nonconsolidated Statements of Income

For the Years Ended March 31, 2014 and 2013


U.S. dollars

2014 2013 2014

Income: (Note 14) Interest income: Interest on loans and discounts ¥ 22,906 ¥ 23,780 $ 222,567 Interest and dividends on securities 6,719 6,625 65,288 Other interest income 964 754 9,367

Total interest income 30,590 31,160 297,222 Fees and commissions 4,305 4,069 41,831 Other operating income 2,573 3,625 25,007 Other income 3,368 1,954 32,733

Total income 40,837 40,809 396,793

Expenses: (Note 14) Interest expense: Interest on deposits 1,441 1,422 14,007 Other interest expense 70 67 686

Total interest expense 1,512 1,490 14,693 Fees and commissions 2,621 2,505 25,475 Other operating expenses 206 1,086 2,006 General and administrative expenses 26,116 26,706 253,756 Write-off of loans 553 1,146 5,382 Impairment loss on fixed assets (Note 2(h)) 65 53 638 Other expenses 2,495 1,638 24,246

Total expenses 33,572 34,627 326,196

Income before income taxes 7,265 6,181 70,597 Income taxes:

Current 1,122 556 10,902 Deferred 627 1,038 6,093

Total income taxes 1,749 1,594 16,995

Net income 5,516 4,587 53,602

Unappropriated retained earnings : At beginning of year 6,359 4,947 61,792

Changes during the year:

Transfer to legal reserve 33 (13) 323

Cash dividends for member common shares (165) (166) (1,608)

Transfer to special reserve (4,304) (3,000) (41,821)

Reversal of land revaluation excess - 1 -

Transfer from special reserve 2 2 23

At end of year ¥ 7,442 ¥ 6,359 $ 72,311

Yen U.S. dollars Net income per member common share ¥ 832.12 ¥ 684.31 $ 8.09

See accompanying Notes to Nonconsolidated Financial Statements.

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Notes to Nonconsolidated Financial Statements

1. Basis of Financial Statements The accompanying nonconsolidated financial statements of The Okazaki Shinkin Bank (the “Bank”) have been prepared in accordance with the provisions set forth in the Shinkin Bank Law and in conformity with accounting principles generally accepted in Japan (“Japanese GAAP”), which are different in certain respects as to application and disclosure requirements from the International Financial Reporting Standards. The accompanying nonconsolidated financial statements have been restructured and translated into English from the nonconsolidated financial statements of the Bank prepared in accordance with Japanese GAAP and the Shinkin Bank Law. The accompanying nonconsolidated financial statements do not include statements of changes in net assets and cash flows because the disclosure provisions under the Shinkin Bank Law do not require providing such statements. The amounts shown in millions of Japanese yen in the accompanying nonconsolidated financial statements have been rounded down to the nearest million yen in accordance with the disclosure regulations. Accordingly, the sum of each yen amount appearing in the accompanying nonconsolidated financial statements and the notes thereto may not equal to the sum of the individual account balances. The translation of the Japanese yen amounts into U.S. dollar amounts is included solely for the convenience of readers outside Japan, using the prevailing exchange rate at March 31, 2014, which was ¥102.92 to U.S. $1.00. Such translation should not be construed as a representation that the Japanese yen amounts have been, could have been or could in the future be converted into U.S. dollars at this or any other rate of exchange. Certain comparative figures have been reclassified to conform to the current year’s presentations.

2. Summary of Significant Accounting Policies

(a) Trading account securities

Trading account securities are stated at fair value at the fiscal year-end. Related gains and losses, both realized and unrealized, are included in current earnings. Gains and losses on sales of trading account securities are computed based on the moving average method. Accrued interests on trading account securities are included in other assets.

(b) Investment securities

Debt securities for which the Bank has both the positive intent and the ability to hold to maturity are classified as held-to-maturity securities and are stated at amortized cost. Investments in subsidiaries and affiliates are stated at cost. As a rule, securities other than those classified as trading securities, held-to-maturity securities or investments in subsidiaries and affiliates are carried at fair value as available-for-sale securities with net unrealized gains and losses reported as a component of net assets, net of applicable income taxes. Gains and losses on transactions for the sale of investment securities are computed based on the moving average method. However, available-for-sale securities without market quotations are stated at moving average cost or amortized cost. Carrying values of individual investment securities (except for trading account securities) are reduced, if necessary, through write-downs to reflect other-than-temporary diminution in value. Such write-downs are made based on the Bank’s internal rules that require securities, whose market prices have fallen to below 50% of the cost at the balance sheet date, to become unconditionally subject to

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impairment accounting. Securities whose market prices have fallen to below 70%, but to a level equal to or above 50% of their cost at the balance sheet date, and for which there is no possibility of recovery to market value, are principally subject to impairment accounting after consideration of price trends over a certain period and performance as well as creditworthiness of the securities issuers. Securities without market quotations whose net asset values have fallen below 50% of their costs are principally subject to impairment accounting. Impairment of securities was neither recorded at March 31, 2014 nor 2013.

(c) Derivatives and hedge accounting

The Bank uses swaps and other types of derivative contracts. These derivative instruments are used to meet the financing needs of customers for risk management and for the Bank’s asset-liability management (“ALM”). Derivative instruments are valued at fair value if hedge accounting is not appropriate or if there is no hedging designation, and the gains and losses on the derivatives are recognized in current earnings. According to the special treatment permitted by the accounting standard for financial instruments, hedging interest rate swap contracts are accounted for on an accrual basis and recorded net of interest income generated from the hedged items if certain conditions are met. The Bank applies the deferral method of hedge accounting in accordance with the Japanese Institute of Certified Public Accountants (“JICPA”) Industry Audit Committee Report No. 25, entitled the “Treatment of Accounting and Auditing Concerning Accounting for Foreign Currency Transactions in the Banking Industry,” to hedges of foreign exchange risks associated with various foreign currency denominated monetary assets and liabilities. The effectiveness of the exchange swap transactions and similar transactions hedging the foreign exchange risks of monetary assets and liabilities denominated in foreign currencies described above is assessed based on the comparison of the foreign currency position of the hedged monetary assets and liabilities and the corresponding hedging instruments.

(d) Loans and bills discounted and reserve for possible loan losses Loans and bills discounted are each stated at the amount of unpaid principal. Unearned interests and discounts are recorded as liabilities and recognized as income over the term of the loan or bill. A reserve for possible loan losses is established to cover future credit losses pursuant to the Bank’s internal rules on self-assessment of asset quality and providing reserves. Loans written off are charged to either the reserve for possible loan losses or current income. The recovery of a loan written off is recorded as other income. For claims against borrowers in legal bankruptcy or who are virtually bankrupt, a reserve is provided based on the amounts of such claims net of the amounts expected to be collected through the disposal of collateral or the enforcement of guarantees. For claims against borrowers who face the possibility of bankruptcy, a reserve is provided in the amount considered necessary based on overall solvency assessment performed for the amounts of such claims net of the amounts expected to be collected through the disposal of collateral or the enforcement of guarantees. For claims against other borrowers, a reserve is provided based on the historical loan loss experience of the Bank for a certain past period. All claims are assessed by the Bank’s sales related departments based on the Bank's internal rules on self-assessment of asset quality. The Bank’s ALM Division (the “ALM Division”), which is independent from the Bank’s sales-related departments, conducts audits of these assessments, and a reserve is provided based on the audit results. For collateralized or guaranteed claims against debtors who are legally bankrupt or virtually bankrupt, the amounts of such claims net of the amounts expected to be collected through the disposal of collateral or the execution of guarantees are charged off. Such charged-off claims amounted to ¥5,759million ($55,964 thousand) and ¥6,788 million at March 31, 2014 and 2013, respectively.

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(e) Tangible fixed assets and depreciation (except for leases)

Tangible fixed assets are stated principally at cost less accumulated depreciation computed by the declining balance method over the estimated useful life of such assets. However, buildings acquired on or after April 1, 1998 are depreciated by the straight-line method. The useful lives of tangible fixed assets range as follows.

Buildings 34 years to 50 years Equipment and furniture 3 years to 20 years

(The change in accounting policy which is difficult to distinguish from the change in the accounting estimate) In accordance with revisions made to the Corporation Tax Law, the Bank’s method of depreciation for tangible fixed assets acquired on or after April 1, 2012 has been based on the revised Corporation Tax Law from this fiscal year. As a result, as compared with the previous accounting method, income before income taxes increased by ¥14 million for the year ended March 31, 2013.

(f) Intangible fixed assets and amortization (except for leases)

Amortization of intangible fixed assets is computed by the straight-line method.

(g) Leases

The Bank, as lessee, capitalizes the assets used under finance leases commenced on or after April 1, 2008, except for certain immaterial or short-term finance leases accounted for as operating leases. Depreciation of the leased assets capitalized in connection with finance lease transactions is computed by the straight-line method over the lease term and with the assumption that there will be no residual value unless residual value is guaranteed by the lease contract. As permitted, finance leases which commenced prior to April 1, 2008 and have been accounted for using the accounting treatment similar to that used for operating leases continue to be accounted for in the same manner.

(h) Impairment of fixed assets The Bank has adopted the “Accounting Standard for Impairment of Fixed Assets” and the related practical guidance. Such standard requires that fixed assets be reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. An impairment loss is recognized in the income statement by reducing the carrying amount of the impaired asset or group of assets to the recoverable amount, measured as the higher of the asset’s net selling price or value in use. Fixed assets include lands, buildings and other forms of property and are grouped at the lowest level for which there are identifiable cash flows separate from that of other groups of assets. For the purpose of recognition and measurement of impairment loss, fixed assets are grouped principally into cash generating units, with operating branches being the smallest unit for managerial accounting purposes, other than for idle or unused property. Recoverable amounts of assets are based on net selling prices, principally using appraisal valuations less the estimated costs of disposal. The Bank recognized impairment losses on fixed assets amounting to ¥42 million ($418 thousand) for four operating branches and ¥22 million ($221 thousand) for one idle property for the year ended March 31, 2014, and ¥40 million for four operating branches and ¥13 million for two idle properties for the year ended March 31, 2013.

(i) Foreign currency translation

Assets and liabilities denominated in foreign currencies are generally translated into Japanese yen at the exchange rates prevailing at the fiscal year-end. Income and expenses are translated at the exchange rates existing at the transaction date. Gains and losses resulting from the transactions are included in the determination of net income.

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(j) Reserve for employee bonuses A reserve for employee bonuses is provided for the payment of bonuses to employees based on the estimated amounts of future payments attributable to the respective year.

(k) Reserve for bonuses to directors and corporate auditors

A reserve for bonuses to directors and corporate auditors is provided for the payment of bonuses to directors and corporate auditors based on the estimated amounts of future payments attributable to the respective year.

(l) Reserve for employee retirement benefits Employees who terminate their service with the Bank are entitled to retirement benefits generally determined by reference to basic rates of pay at the time of termination, length of service and conditions under which the termination occurred. The Bank has a lump-sum retirement benefit plan and a defined benefit pension plan which together cover substantially all of its employees. In accordance with the accounting standard for employee retirement benefits, the Bank recognizes retirement benefits, including pension costs and related liabilities, based on the present value of the projected benefit obligation using an actuarial appraisal approach and the value of pension plan assets available for benefits at the respective fiscal year-end. An initial transitional provision amounting to ¥2,519 million has been and is being amortized over fifteen years from the year ended March 31, 2001. Unrecognized actuarial differences arising from changes in the projected benefit obligation or the value of pension plan assets to the extent not anticipated by previous assumptions and/or from changes in any assumptions themselves are amortized on a straight-line basis over 10 years, a period within the average remaining service years of the employees measured from the year immediately following the year in which such actuarial differences arise. An unrecognized prior service cost is amortized using the straight-line method over 10 years, a period within the average remaining service years of the employees measured from the year in which such prior service cost arises. The Bank participates in a certain corporate pension plan under the multi-employer pension program established by other employers together with the Bank. Because information regarding the portions of the pension plan assets that are attributable and proportionate to the contributions made by the Bank is not available, the Bank records the related required contributions to the pension plan as net periodic retirement benefit expense for the applicable period in accordance with the amended accounting standard for employee retirement benefits (Accounting Standards Board of Japan (“ASBJ” Statement No. 14). The balance of the reserve for employee retirement benefits does not include the portion under the multi-employer pension program. Information on the funded status of the entire corporate pension plan available as of the latest calculation period-ends is as follows.

Millions of yen

Thousands of U.S dollars

2014 2013 2014

Latest calculation period-end

March 31, 2013

March 31, 2012

March 31, 2013

Pension plan assets

¥

1,476,279

¥

1,386,363

$

14,343,947

Related benefit obligation under the program

(1,698,432)

(1,645,902)

(16,502,450)

Difference, primarily resulting from unamortized past service cost

¥

(222,153)

¥

(259,538)

$

(2,158,503)

Ratio of the Bank’s contributions to the total contributions to the entire plan

2.0822%

2.1403%

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(m) Reserve for severance indemnities for directors and corporate auditors

A reserve for severance indemnities for directors and corporate auditors is provided for in the amount that would be payable assuming such directors and corporate auditors terminated their service at the balance sheet date based on the Bank’s internal rules.

(n) Reserve for reimbursement of deposits A reserve for reimbursement of deposits which were derecognized as liabilities under certain conditions is provided for the possible losses on future claims of withdrawal based on the Bank’s past experience with such reimbursements.

(o) Reserve for contingent losses

A reserve is provided at an amount deemed necessary to cover possible losses resulting from default on loans under the responsibility sharing system with a credit guarantee corporation, principally based on the Bank’s past experience with such losses.

(p) Income taxes Income taxes are accounted for under the asset and liability method. Deferred tax assets and liabilities are recorded as future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and operating loss carry-forwards. Deferred tax assets and liabilities are measured using the enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in the period in which such change becomes effective.

(q) Consumption taxes National and local consumption taxes incurred by the Bank are included in the transaction amounts.

(r) Appropriation of retained earnings

Cash dividends and other appropriations are recorded in the fiscal year when a proposed appropriation of unappropriated retained earnings is approved at the annual general members’ meeting.

(s) Per share data Net income per common member share is computed by dividing income available to common shareholders by the weighted average number of common member shares outstanding during the respective year.

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3. Matters Concerning Financial Instruments

(a) Policies on financial instruments

The Bank conducts financial operations including deposit-taking operations, lending operations and fund management operations. Consequently, to hedge against the negative impact of interest rate fluctuations, the Bank uses an integrated approach to ALM. Part of such management involves the use of derivative financial instruments.

(b) Types of financial instruments held and related risks

Financial assets held by the Bank mainly comprise loans to customers located in the Bank’s business area. Consequently, the Bank is exposed to counterparty credit risk and interest rate risk stemming from bankruptcies or financial deterioration of lending counterparties. As part of its ALM activities, the Bank enters into interest rate swap transactions to hedge against interest rate risk vis-à-vis a portion of its loan assets. Such transactions are recognized under the special accounting treatment for interest rate swaps. Securities mainly comprise bonds, including Japanese government bonds, local government bonds and corporate bonds, and foreign securities, stocks and investment trusts. Securities are held to maturity for investment and strategic business purposes. These securities are exposed to issuer credit risk, interest rate risk and market price fluctuation risk. In addition, the Bank’s securities valued in foreign currencies are exposed to currency fluctuation risks. Financial liabilities mainly comprise deposits from customers. These deposits are exposed to liquidity risk and interest rate risk. Derivative transactions comprise interest rate swaps to hedge against interest rate risk vis-à-vis a portion of the Bank’s loan assets and foreign currency forwards to hedge against exchange rate risk vis-à-vis foreign currency-denominated transactions. Interest rate swaps are recognized under the special accounting treatment for interest rate swaps. Assessment on the effectiveness of hedging activities is carried out as part of the decision criteria used under the special accounting treatment.

(c) Risk management frameworks for financial instruments

Credit risk management

In accordance with loan screening rules and rules for managing credit risk, the Bank has established a framework for credit management of its loan portfolio. This framework covers such issues as screening of individual loans, credit limits, management of credit information, assignment of guarantees and collateral and measures against nonperforming loans. Credit management is carried out by each of the Bank’s branches as well as the Bank’s Credit Administration Division (the “Credit Administration Division”). Senior management regularly participates in deliberations and receives reports concerning credit management at meetings of the Bank’s Executive Committee (the “Executive Committee”) and the Board of Directors (the “Board of Directors”). The ALM Division also conducts checks on the credit management situation. Credit risk related to securities issuers and counterparty risk related to derivative transactions are managed by the Bank’s Treasury and Securities Division (the “Treasury and Securities Division”) which regularly monitors credit information and market prices. Market risk management

a. Interest rate risk management The Bank uses ALM to manage interest rate risk. The Bank’s prescribed risk management method and procedures are clearly stipulated in the Bank’s rules and core tenets of ALM. Based on the risk management policies determined by the Bank’s ALM Committee (the “ALM Committee”), the

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Executive Committee and the Board of Directors monitor and confirm the implementation status of ALM and conduct discussions on future responses. On a daily basis, the ALM Division and the Treasury and Securities Division comprehensively monitor the interest rates and maturities of financial assets and liabilities. These divisions monitor situations using gap analysis and interest rate sensitivity tests and provide monthly reports to the Executive Committee and the Board of Directors. b. Exchange rate risk management The Bank manages exchange rate risk through the use of foreign currency forwards and currency swaps on an individual transaction basis. c. Market price fluctuation risk management Holdings of fund management instruments, including securities, are managed in accordance with market risk management rules which are based on policies set by the ALM Committee. This process is supervised by the Board of Directors. The Treasury and Securities Division conducts purchases of fund management instruments and works to mitigate price fluctuation risk through pre-purchase screening, the setting of investment limits and continuous monitoring. A portion of the stocks held by the Treasury and Securities Division are held for strategic business purposes. Through monitoring of each issuer’s market conditions and financial position, these stocks are monitored in a manner similar to that used for loan assets. The above-mentioned information is reported regularly to the Executive Committee, the Board of Directors and the ALM Committee by the Treasury and Securities Division, the Credit Administration Division and the ALM Division. d. Derivative transactions The execution, assessment of hedging effectiveness and transaction administration are each handled by separate divisions to ensure proper internal control. Derivative transactions are conducted in accordance with specific rules on such transactions. e. Quantitative information regarding market risk The Bank uses VaR to measure the market risk of securities - bonds, stocks, and mutual funds - on a monthly basis and manages its securities to ensure that the risk it has taken on remains within the range of its risk limits. The Bank’s VaR is calculated according to the variance-covariance method (with a holding period of 125 days, a confidence interval of 99% and an observation period of 240 days), and the Bank’s amounts of risk (estimated values of losses) under such calculation were ¥25,571 million ($248,457thousand) and ¥17,490 million as of March 31 (the settlement date of the Bank’s fiscal year), 2014 and 2013, respectively. The Bank also uses VaR to measure the market risk of financial products other than those mentioned above, such as loans and bills discounted and deposits that are affected by changes in the interest rate, and manages these products to ensure that the risk it has taken on remains within the range of its risk limits. VaR is calculated according to the variance-covariance method (with a holding period of 250 days, a confidence interval of 99% and an observation period of 1,250 days), and the Bank’s amounts of market risk (estimated value of losses) for these funds under such calculation were ¥13,741 million ($133,520 thousand) and ¥18,554 million as of March 31, 2014 and 2013, respectively. The Bank has been implementing back-testing to compare actual fund losses to the VaR calculated using its model. For fiscal years 2013 and 2012, the results of the back-testing the Bank implemented showed that the number of times actual losses exceeded VaR was within the range estimated, and the Bank believes that the measurement model used provided a satisfactorily accurate depiction of market

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risk for such periods. That being said, VaR measures market risk according to fixed event probabilities that are statistically calculated from past changes in market price and, thus, may not depict market risk in a market environment that is subject to wild fluctuations unimaginable under normal circumstances. Furthermore, strategically held equity securities in unlisted companies are outside of the scope of risk measurement. As such, the total amount thereof is managed through the establishment of a framework for a separate position (retention limit amount). Liquidity risk management related to fundraising

The Bank manages liquidity risk through such activities as managing its cash position in a timely manner through ALM, diversifying fundraising methods and adjusting the balance between short- and long-term fundraising in line with market conditions.

(d) Supplementary explanation concerning market values of financial instruments

Market values of financial instruments, in addition to values based on market prices, include values based on reasonable estimates if market prices are unavailable. Since value estimates are predicted on certain assumptions, values may vary if the underlying assumptions change. Of the financial instruments, the amounts presented for loan assets are calculated using a simplified method as substitute for market values.

4. Fair Values of Financial Instruments

The carrying values, fair values and unrealized gains (losses) of financial instruments as of March 31, 2014 and 2013 are as set forth in the table below. Unlisted equity securities and other items for which the fair values have been deemed extremely difficult to determine and items deemed immaterial were omitted from the table.

Financial instruments with fair values at March 31, 2014

Carrying value Fair value Unrealized gains (losses)

Millions of yen

Cash and due from banks (*1) ¥ 313,698 ¥ 313,566 ¥ (131) Call loans 9,254 9,254 - Monetary receivables purchased 1,437 1,437 - Trading account securities 7 7 - Investment securities 1,015,505 1,016,824 1,319 Loans and bills discounted (*1) 1,479,132 Reserve for possible loan losses (*2) (7,204)

1,471,928 1,485,998 14,069

Total assets ¥ 2,811,830 ¥ 2,827,088 ¥ 15,257

Deposits (*1) 2,611,637 2,611,793 156 Borrowed money 26,138 26,190 52

Total liabilities ¥ 2,637,775 ¥ 2,637,984 ¥ 208

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Financial instruments with fair values at March 31, 2013

Carrying value Fair value Unrealized gains (losses)

Millions of yen

Cash and due from banks (*1) ¥ 221,255 ¥ 221,266 ¥ 10 Call loans 4,269 4,269 - Monetary receivables purchased 509 509 - Trading account securities 18 18 - Investment securities 1,017,478 1,019,000 1,522 Loans and bills discounted (*1) 1,458,890 Reserve for possible loan losses (*2) (5,797)

1,453,093 1,469,624 16,530

Total assets ¥ 2,696,625 ¥ 2,714,688 ¥ 18,063

Deposits (*1) 2,518,560 2,518,893 333 Borrowed money 12,255 12,306 51

Total liabilities ¥ 2,530,815 ¥ 2,531,199 ¥ 384

Financial instruments with fair values at March 31, 2014 Carrying value Fair value

Unrealized gains (losses)

Thousands of U.S. dollars

Cash and due from banks (*1) $ 3,047,985 $ 3,046,705 $ (1,280) Call loans 89,917 89,917 - Monetary receivables purchased 13,967 13,967 - Trading account securities 68 68 - Investment securities 9,866,936 9,879,760 12,824 Loans and bills discounted (*1) 14,371,676 Reserve for possible loan losses (*2) (70,001)

14,301,675 14,438,380 136,705

Total assets $ 27,320,548 $ 27,468,797 $ 148,249

Deposits (*1) 25,375,411 25,376,929 1,518 Borrowed money 253,970 254,477 507

Total liabilities $ 25,629,381 $ 25,631,406 $ 2,025

(*1) An amount calculated by a simple procedure was carried instead of fair value.

(*2) General and specific reserves for possible losses corresponding to loans and bills discounted were

deducted.

Calculation method for fair values of financial instruments – financial assets

(a) Cash and due from banks

With respect to due from banks without maturity, the carrying amount is presented at fair value because it approximates such fair value. The fair value of due from banks with maturity classified by its remaining maturity is estimated by discounting the value of new similar transactions. The carrying amount thereof is presented at fair value when the remaining maturity is less than one year and such fair value approximates the carrying amount.

(b) Call loans The carrying amount of a call loan is presented at fair value if the remaining maturity is less than one year and such fair value approximates the carrying amount.

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(c) Monetary receivables purchased With regard to monetary receivables purchased with variable rates, each of the carrying amounts is presented at fair value because it approximates such fair value. The carrying amounts of other kinds of monetary receivables purchased are each presented at the value provided by the counterparty or theoretical value calculated in a rational manner.

(d) Trading account securities Trading account securities held for dealing operations are valued at quoted market prices or quotes obtained from financial institutions.

(e) Investment securities The fair values of investment securities are determined using their quoted market prices on the stock exchange, while the fair values of debt securities are based on quoted market prices or quotes obtained from financial institutions. The fair values of privately placed bonds guaranteed by the Bank are calculated by discounting the sum using the rate applied to the same type of privately placed bonds newly issued. The fair values of debt securities by issuers who are bankrupt, virtually bankrupt or potentially bankrupt are stated at their actual values, which are calculated by assessing the amounts of write-offs. Information on securities classified by purpose for which they are held is listed in Note 5, entitled the “Trading Account Securities and Investment Securities.”

(f) Loans and bills discounted The fair values of loans and bills discounted with variable interest rates are presented using their carrying amounts as such fair values approximate such carrying amounts. The fair values of fixed-rate loans and bills discounted are computed per each category of product and lending term by discounting the sum of the principal and future interest income using the rate applied to a same type of new loan. Losses on claims against borrowers who are bankrupt, virtually bankrupt or potentially bankrupt are estimated based on the forecasted recoverable amounts of collateral and guarantees for such claims. The market values of such claims approximate their carrying amounts as of the closing date after deduction of present estimated loan losses. Therefore, the Bank adopts the market values of such claims as fair values.

Calculation method for fair values of financial instruments – financial liabilities

(a) Deposits

With respect to an on-demand deposit, the payment obligation demanded at the balance sheet date, which is the carrying amount, is deemed to be the fair value. The fair values of time deposits are computed using their present values by discounting future cash flows for a certain period for each category. The latest six-month average interest rate is used as the discount rate. For deposits whose maturity is less than one year, their carrying amounts are presented at fair value as fair values thereof approximate the carrying amounts.

(b) Borrowed money For all borrowed money with fixed rates, the fair values are computed per each category of product and borrowing term by discounting the sum of principal and future interest expense using the rate applied to a same type of new borrowing.

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Note

Under the balance sheets, the following totals of financial instruments whose fair values have been deemed extremely difficult to determine were not included in the above table.

Carrying value

Millions of yen


2014 2013 2014

Equity securities of subsidiaries ¥ 15 ¥ 15 $ 147 Unlisted equity securities 485 485 4,719 Privately placed real estate investment trust

1,685 - 16,380

¥ 2,186 ¥ 500 $ 21,246

5. Trading Account Securities and Investment Securities

At March 31, 2014 and 2013, trading account securities consisted of the following.


U.S. dollars

2014 2013 2014

National government bonds ¥ 7 ¥ 11 $ 68 Local government bonds - 7 - At March 31, 2014 and 2013, investment securities consisted of the following.


U.S. dollars

2014 2013 2014

National government bonds ¥ 541,271 ¥ 559,802 $ 5,259,152 Local government bonds 168,118 173,786 1,633,484 Bonds and debentures 201,205 198,137 1,954,967 Equity securities 17,509 22,986 170,128 Other securities 89,586 63,266 870,451

¥ 1,017,691 ¥ 1,017,979 $ 9,888,182

Trading account and investment securities in the accompanying nonconsolidated balance sheets include marketable securities trading on stock exchanges. At March 31, 2014 and 2013, carrying values of trading account securities and related net unrealized gains or losses included in current earnings were as follows.

Carrying value


Carrying value


Carrying value


Millions of yen


2014 2013 2014

Trading account securities ¥ 7 ¥ - ¥ 18 ¥ 0 $ 68 $ -

15

At March 31, 2014 and 2013, gross unrealized gains and losses for securities with fair values classified as held-to-maturity debt securities or available-for-sale securities were as follows.

Carrying value

Fair value

Gross unrealized

gains (losses)

Millions of yen

Held-to-maturity debt securities with fair values at March 31, 2014 Unrealized gain Local government bonds ¥ 37,994 ¥ 38,730 ¥ 736 Bonds and debentures 23,100 23,690 590

Subtotal 61,094 62,421 1,326

Unrealized loss Local government bonds ¥ 1,499 ¥ 1,496 ¥ (2) Bonds and debentures 1,195 1,191 (3)

Subtotal 2,694 2,688 (6)

Total ¥ 63,789 ¥ 65,109 ¥ 1,319

Held-to-maturity debt securities with fair values at March 31, 2013 Unrealized gain Local government bonds ¥ 35,425 ¥ 36,269 ¥ 843 Bonds and debentures 23,296 23,976 680

Subtotal 58,722 60,245 1,523

Unrealized loss Local government bonds ¥ 599 ¥ 598 ¥ (0) Bonds and debentures - - -

Subtotal 599 598 (0)

Total ¥ 59,321 ¥ 60,844 ¥ 1,522


Held-to-maturity debt securities with fair values at March 31, 2014 Unrealized gain Local government bonds $ 369,163 $ 376,315 $ 7,152 Bonds and debentures 224,452 230,188 5,736

Subtotal 593,615 606,503 12,888

Unrealized loss Local government bonds $ 14,569 $ 14,540 $ (29) Bonds and debentures 11,613 11,578 (35)

Subtotal 26,182 26,118 (64)

Total $ 619,797 $ 632,621 $ 12,824

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Fair and

carrying value

Cost

Gross unrealized

gains (losses)

Millions of yen

Available-for-sale securities with fair values at March 31, 2014 Unrealized gain Equity securities ¥ 15,630 ¥ 9,076 ¥ 6,553 Bonds: 819,541 811,479 8,062 National government bonds 539,213 535,955 3,257 Local government bonds 119,034 117,223 1,811 Bonds and debentures 161,293 158,300 2,993 Others 52,311 49,842 2,469

Subtotal 887,483 870,397 17,085

Unrealized loss Equity securities ¥ 1,378 ¥ 1,593 ¥ (215) Bonds: 27,264 27,381 (117) National government bonds 2,058 2,087 (29) Local government bonds 9,590 9,610 (20) Bonds and debentures 15,615 15,682 (67) Others 37,026 38,060 (1,033)

Subtotal 65,669 67,035 (1,366)

Total ¥ 953,152 ¥ 937,433 ¥ 15,719

Available-for-sale securities with fair values at March 31, 2013 Unrealized gain Equity securities ¥ 18,300 ¥ 11,751 ¥ 6,549 Bonds: 844,335 833,441 10,894 National government bonds 542,855 538,294 4,560 Local government bonds 137,161 134,528 2,633 Bonds and debentures 164,318 160,618 3,699 Others 30,516 28,642 1,874

Subtotal 893,152 873,835 19,317

Unrealized loss Equity securities ¥ 4,184 ¥ 5,040 ¥ (855) Bonds: 28,069 28,205 (135) National government bonds 16,947 16,947 (0) Local government bonds 598 599 (1) Bonds and debentures 10,523 10,657 (134) Others 33,259 34,497 (1,238)

Subtotal 65,513 67,743 (2,230)

Total ¥ 958,666 ¥ 941,578 ¥ 17,087

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Available-for-sale securities with fair values at March 31, 2014 Unrealized gain Equity securities $ 151,869 $ 88,188 $ 63,681 Bonds: 7,962,901 7,884,566 78,335 National government bonds 5,239,152 5,207,500 31,652 Local government bonds 1,156,572 1,138,973 17,599 Bonds and debentures 1,567,177 1,538,093 29,084 Others 508,275 484,279 23,996

Subtotal 8,623,045 8,457,033 166,012

Unrealized loss Equity securities $ 13,393 $ 15,485 $ (2,092) Bonds: 264,905 266,044 (1,139) National government bonds 20,000 20,285 (285) Local government bonds 93,181 93,379 (198) Bonds and debentures 151,724 152,380 (656) Others 359,763 369,809 (10,046)

Subtotal 638,061 651,338 (13,277)

Total $ 9,261,106 $ 9,108,371 $ 152,735

Others include beneficiary trust interests included in “monetary receivables purchased” at March 31, 2014 and 2013. During the years ended March 31, 2014 and 2013, the Bank sold available-for-sale securities as follows.

Proceeds from sales

Gain on sales

Loss on sales

Millions of yen

Available-for-sale securities at March 31, 2014 Equity securities ¥ 10,730 ¥ 2,486 ¥ 323 Bonds: 506,475 1,816 197 National government bonds 506,475 1,816 197 Bonds and debentures - - - Others 3,716 30 53

Total ¥ 520,922 ¥ 4,334 ¥ 574

Available-for-sale securities at March 31, 2013 Equity securities ¥ 1,743 ¥ 116 ¥ 1,255 Bonds: 564,467 2,954 313 National government bonds 564,256 2,954 20 Bonds and debentures 211 - 292 Others 1,281 18 -

Total ¥ 567,493 ¥ 3,089 ¥ 1,568


Available-for-sale securities at March 31, 2014 Equity securities $ 104,263 $ 24,157 $ 3,141 Bonds: 4,921,064 17,654 1,916 National government bonds 4,921,064 17,654 1,916 Bonds and debentures - - - Others 36,108 301 524

Total $ 5,061,435 $ 42,112 $ 5,581

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Securities loaned out as unsecured loans for consumption (bond loan transactions) were included in the total of ¥7,002 million ($68,034 thousand) under “national government bonds.”

Investment securities included investments in subsidiaries that were stated at cost and amounted to ¥15 million ($147 thousand) and ¥15 million at March 31, 2014 and 2013, respectively. Of the bonds included in “investment securities,” liabilities for guarantees on privately offered corporate bonds (Article 2-3 of the Financial Instrument and Exchange Law of Japan) amounted to ¥1,813 million ($17,616 thousand) and ¥2,292 million at March 31, 2014 and 2013, respectively.

6. Loans and Bills Discounted

At March 31, 2014 and 2013, loans and bills discounted consisted of the following.


U.S. dollars

2014 2013 2014

Bills discounted ¥ 16,955 ¥ 22,903 $ 164,747 Loans on notes 85,899 132,307 834,628 Loans on deeds 1,246,267 1,214,344 12,109,087 Overdrafts 130,009 89,336 1,263,213

Total ¥ 1,479,132 ¥ 1,458,890 $ 14,371,675

At March 31, 2014 and 2013, the outstanding amounts of non-accrual loans and bills discounted, on which interest revenue accruals had been suspended because such loans were classified as claims against borrowers in bankruptcy or past due loans, amounted to ¥72,864 million ($707,976 thousand) and ¥76,545 million, respectively. Of these, claims against borrowers in bankruptcy amounted to ¥1,311 million ($12,741 thousand) and ¥1,713 million and past due loans amounted to ¥71,553 million ($695,235 thousand) and ¥74,832 million, respectively. Loans are generally considered non-accruing when substantial doubt is determined to exist as to the ultimate collectability of either principal or interest of such loans because they are past due for a certain period or for other reasons. As defined in Article 96, Paragraph 1, Subparagraph 3 and 4 of the Enforcement Ordinance of the Corporation Tax Law of Japan, claims against borrowers in bankruptcy are recorded as non-accrual loans after partial charge-off of such claims deemed uncollectible. Past due loans are non-accrual loans other than those for which claims against borrowers in bankruptcy are made and for which interest payments are deferred in order to assist the financial recovery of borrowers in financial difficulties.

At March 31, 2014 and 2013, accrual loans for which the payment of principal and/or interest was contractually past due by three months or more amounted to ¥114 million ($1,114 thousand) and ¥259 million, respectively.

At March 31, 2014 and 2013, restructured loans, excluding non-accrual loans and accrual loans contractually past due by three months or more as discussed above, for which the Bank had relaxed lending conditions to borrowers in financial difficulties through measures such as reduction of the original interest rate, forgiveness of interest and/or principal payments or extension of the maturity date, in order to support the borrowers in their financial recovery or restructuring, amounted to ¥8,146 million ($79,157 thousand) and ¥10,542 million, respectively. Total nonperforming assets, net of charge-offs, consisting of non-accrual loans, accrual loans contractually past due by three months or more and restructured loans, amounted to ¥81,126 million ($788,247 thousand) and ¥87,347 million at March 31, 2014 and 2013, respectively. Bills discounted are accounted for as financial transactions in accordance with JICPA Industry Audit Committee Report No. 24, entitled the “Treatment for Accounting and Auditing Concerning Accounting Standards for Financial Instruments in the Banking Industry.” The Bank has the right to sell or pledge bills discounted and foreign bills bought without restrictions. The face value amounts of the total of commercial bills, which were included in “loans and bills discounted,” and foreign bills

19

bought at a discount by the Bank and which were included in “foreign exchange assets,” were ¥17,508 million ($170,117 thousand) and ¥23,427 million at March 31, 2014 and 2013, respectively.

7. Tangible Fixed Assets At March 31, 2014 and 2013, major classifications of tangible fixed assets were as follows.


U.S. dollars

2014 2013 2014

Land ¥ 19,209 ¥ 17,814 $ 186,647 Buildings and structures 31,513 31,180 306,195 Other tangible fixed assets 10,269 11,381 99,786

60,993 60,375 592,628 Less accumulated depreciation (30,181) (31,781) (293,255)

Total ¥ 30,811 ¥ 28,593 $ 299,373

Deferred capital gains on sales of real properties are deducted from the acquisition costs of newly acquired properties in the same line of business as the properties sold by the Bank in accordance with Japanese income tax laws and regulations. At March 31, 2014 and 2013, the amounts of ¥2,379 million ($23,116 thousand) and ¥2,379 million, respectively, were deducted from the acquisition costs of tangible fixed assets. The Bank elected to use the one-time revaluation option to restate the cost of land used for the banking business at values reassessed on March 31, 1999, reflecting adjustments based on land shape and other factors, and based on appraisal values issued by the Japanese National Tax Agency or municipal property tax bases under the Law Concerning Revaluation of Land (the “Law”). According to the Law, an amount equivalent to the tax effect on the excess of any sound reassessed value over the original book value is recorded in liabilities as deferred tax liability for land revaluation account. The excess, net of the tax effect, has been recorded in net assets as land revaluation excess in the accompanying nonconsolidated balance sheets. At March 31, 2014 and 2013, the net differences of the aggregate carrying values of land used for the banking business after revaluation over the current market value of such land at the respective fiscal year-end amounted to ¥5,829 million ($56,646 thousand) and ¥5,822 million, respectively.

8. Pledged Assets

At March 31, 2014 and 2013, the following assets were pledged as collateral for liabilities, such as deposits and borrowed money, in the aggregate amounts of ¥34,819 million ($388,312 thousand) and ¥25,170 million, respectively.


U.S. dollars

2014 2013 2014

Investment securities ¥ 32,922 ¥ 32,853 $ 319,884 Due from banks 2,000 2,000 19,433

In addition, investment securities and due from banks totaling ¥41,000 million ($398,368 thousand) and ¥41,401 million at March 31, 2014 and 2013, respectively, were pledged as collateral for the settlement of exchange, derivatives and other transactions.

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9. Deferred Tax Assets

The tax effects of temporary differences that gave rise to deferred tax assets and liabilities at March 31, 2014 and 2013 are as follows.


U.S. dollars

2014 2013 2014

Deferred tax assets: Reserve for possible loan losses ¥ 2,066 ¥ 2,033 $ 20,082 Reserve for employee retirement benefits 1,736 2,054 16,868 Depreciation 202 213 1,966 Investment securities 1,274 1,978 12,381 Reserve for employee bonuses 76 82 742 Impairment loss on fixed assets 271 277 2,638 Other 952 964 9,251

Subtotal 6,579 7,604 63,928 Less valuation allowance (3,100) (3,492) (30,130)

Total deferred tax assets 3,478 4,112 33,798 Deferred tax liabilities: Deferred capital gains on sales of real property (207) (214) (2,019) Unrealized gains on available-for-sale securities (3,457) (3,671) (33,595) Other (34) (34) (331)

Total deferred tax liabilities (3,699) (3,920) (35,946)

Net deferred tax assets ¥ (221) ¥ 191 $ (2,148)

In assessing the realizability of deferred tax assets, management of the Bank considers whether some portion or all of the deferred tax assets will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible. At each of March 31, 2014 and 2013, a valuation allowance was provided to reduce deferred tax assets to amounts that management believed would be realizable.

Following the promulgation on March 31, 2014 of the “Act for Partial Revision of the Income Tax Act,

etc.” (Act No. 10 of 2014), a special surtax to be applied to restoration work in connection with the

Great East Japan Earthquake has been abolished from the fiscal year beginning on or after April 1, 2014.

In line with these revisions, the Bank has changed the statutory tax rate used to calculate deferred tax

assets and liabilities from 29.2% to 27.4% for temporary differences expected to be reversed in the

fiscal year beginning on April 1, 2014. As a result of this tax rate change, deferred tax assets

decreased by ¥60 million ($585 thousand) as of March 31, 2014 and deferred income taxes increased by

¥60 million ($585 thousand) for the year ended March 31, 2014.

21

10. Deposits

At March 31, 2014 and 2013, deposits consisted of the following.


U.S. dollars

2014 2013 2014

Demand deposits ¥ 82,221 ¥ 80,717 $ 798,883 Ordinary deposits 1,001,886 965,383 9,734,614 Saving deposits 11,420 9,683 110,967 Deposits at notice 9,476 5,189 92,080 Time deposits 1,410,175 1,367,289 13,701,666 Installment time deposits 64,709 68,071 628,734 Other deposits 31,747 22,225 308,468

¥ 2,611,637 ¥ 2,518,560 $ 25,375,412

11. Acceptances and Guarantees

The Bank provides guarantees for liabilities of its customers for the payment of loans and other liabilities to other financial institutions. As contra account, “customers’ liabilities for acceptances and guarantees” has been shown as an asset on the accompanying nonconsolidated balance sheets indicating the Bank’s right of indemnity from customers.

12. Members’ Equity

The Bank is a cooperative financial institution whose membership is composed of local residents and small and medium-sized companies. At March 31, 2014, the numbers of local residents and companies that were members were 112,200 and 19,436, respectively. The Bank has issued ¥500 par value member common shares with a minimum investment of ¥10,000 per member. No preferred shares have been issued. Cash dividends are distributed at a certain annual percentage (8% for 2014 and 5% for 2013) of the face value of the common shares of each member.

The Shinkin Bank Law provides that an amount equivalent to at least 10% of the total amount of the special reserve and unappropriated retained earnings shall be appropriated as legal reserve until the amount of such reserve equals 100% of paid-in members’ capital. The legal reserve is not available for distributions as dividends but may be used to reduce a deficit by proper action of the Board of Directors and/or members.

13. Loan Commitments

Overdraft facilities contracts and loan commitment limits are contracts under which the Bank lends to customers. These set the prescribed limits under which funds can be drawn based on customers’ applications for loans as long as there is no violation of any condition in the applicable contracts. At March 31, 2014 and 2013, the unused aggregate amounts within the limits relating to such contracts were ¥425,311 million ($4,132,451 thousand) and ¥387,775 million, respectively. Such outstanding contract amounts at March 31, 2014 and 2013 included aggregate amounts of ¥424,761 million ($4,217,107 thousand) and ¥387,400 million, respectively, which related to contracts that were to expire within one year or revocable by the Bank at any time without any conditions.

Since many of these commitments expire without being drawn upon, the unused amount does not necessarily represent a future cash requirement. Most of these contracts have conditions that permit the Bank to refuse customers’ applications for loans or to decrease the contract limits for proper reasons, including changes in the financial situation or deterioration of a customer’s creditworthiness. At the inception of the contract, the Bank obtains real estate, securities and/or other collateral as considered necessary. Subsequently, the Bank performs periodic reviews of the customer’s business results based

22

on internal rules and takes necessary measures to reconsider conditions in contracts and/or require additional collateral and guarantees.

14. Related Party Transactions

During the years ended March 31, 2014 and 2013, the Bank had operational transactions with its subsidiaries. A summary of the material transactions with its subsidiaries for the years ended March 31, 2014 and 2013 is as follows.


U.S. dollars

2014 2013 2014

For the year: Operating revenue ¥ 44 ¥ 57 $ 433 Operating expenses 79 71 776

The Bank also had the following balances of deposits and loans with subsidiaries and affiliates at March 31, 2014 and 2013.


U.S. dollars

2014 2013 2014

At year-end: Monetary assets ¥ 3,563 ¥ 3,999 $ 34,621 Monetary liability 8,128 8,071 78,975

The Bank’s loans to customers are guaranteed by OKASHIN SHINYOUHOSYO Corporation (“OSC”), a subsidiary of the Bank. The guarantee fees are paid to OSC from customers directly. The balance of guaranteed loans amounted to ¥382,000 million ($3,711,628 thousand) and ¥390,119 million at March 31, 2014 and 2013, respectively. For the years ended March 31, 2014 and 2013, the Bank received ¥149 million ($1,453 thousand) and ¥290 million, respectively, from OSC as subrogation in accordance with the guarantee agreements. At March 31, 2014 and 2013, the balance of loans receivable to directors and corporate auditors amounted to ¥38 million ($371 thousand) and ¥41 million, respectively.

15. Subsequent Events

The Board of Directors of the Bank intends to propose cash dividends of ¥263 million ($2,559 thousand), an annual rate of 8% per common share, as appropriation of unappropriated retained earnings, at the annual general members’ meeting to be held on June 18, 2014.


Consolidated Balance Sheets and Consolidated Statements of Operations

(Unaudited)

March 31, 2014 and 2013

- 1 -

The Okazaki Shinkin Bank and Consolidated Subsidiaries

Consolidated Balance Sheets (Unaudited)

March 31, 2014 and 2013


U.S. dollars

2014 2013 2014

Assets: Cash and due from banks ¥ 313,698 ¥ 221,255 $ 3,047,985 Call loans 9,254 4,269 89,917 Monetary receivables purchased 1,437 509 13,967 Trading account securities 7 18 68 Investment securities 1,017,676 1,017,964 9,888,035 Loans and bills discounted 1,475,569 1,454,891 14,337,055 Foreign exchange assets 1,210 1,281 11,765 Other assets 19,581 19,929 190,256 Tangible fixed assets 30,810 28,457 299,365 Intangible fixed assets 104 108 1,012 Defined benefit assets 299 - 2,907 Deferred tax assets 453 651 4,402 Customers' liabilities for acceptances and

guarantees

5,090 6,015 49,465 Reserve for possible loan losses (8,196) (6,704) (79,641)

Total assets ¥ 2,866,996 ¥ 2,748,648 $ 27,856,558 Liabilities: Deposits ¥ 2,603,688 ¥ 2,510,920 $ 25,298,175 Borrowed money 26,138 12,255 253,970 Call money 9,159 282 89,000 Foreign exchange liabilities 99 27 967 Reserve for employee bonuses 315 317 3,065 Reserve for bonuses to directors and corporate

auditors

59

44

574 Other liabilities 10,972 11,613 106,612 Reserve for employee retirement benefits - 7,386 - Defined benefit liability 6,628 - 64,400

Reserve for severance indemnities for directors and corporate auditors

124

102

1,209

Reserve for reimbursement of deposits 135 147 1,321 Reserve for contingent losses 933 715 9,072 Deferred tax liabilities 255 - 2,485 Deferred tax liabilities for land revaluation 2,475 2,475 24,055 Acceptances and guarantees 5,090 6,015 49,465

Total liabilities 2,666,077 2,552,302 25,904,370

Net assets: Paid-in members’ capital 3,301 3,322 32,077 Retained earnings 179,487 173,737 1,743,949 Undisposed equity (0) (0) (1)

Total members' equity 182,788 177,060 1,776,025

Net unrealized gains on available-for-sale securities

12,261

13,416

119,139

Land revaluation excess 5,868 5,868 57,024

Total valuation and translation adjustments 18,130 19,285 176,163

Minority interests - - -

Total net assets 200,919 196,345 1,952,188

Total liabilities and net assets ¥ 2,866,996 ¥ 2,748,648 $ 27,856,558

- 2 -


Consolidated Statements of Operations (Unaudited)

For the Years Ended March 31, 2014 and 2013


U.S. dollars

2014 2013 2014

Income: Interest income: Interest on loans and discounts ¥ 22,870 ¥ 23,734 $ 222,214 Interest and dividends on securities 6,719 6,625 65,288 Other interest income 964 754 9,367

Total interest income 30,553 31,114 296,869 Fees and commissions 4,902 4,691 47,631 Other operating income 4,855 5,941 47,180 Other income 3,368 1,201 32,734

Total income 43,680 42,948 424,414

Expenses: Interest expenses: Interest on deposits 1,439 1,419 13,987 Other interest expenses 70 67 687

Total interest expenses 1,510 1,487 14,674 Fees and commissions 2,621 2,505 25,475 Other operating expenses 2,235 3,127 21,725 General and administrative expenses 26,130 26,679 253,888 Other expenses 3,254 2,059 31,627

Total expenses 35,753 35,859 347,389

Income before income taxes and minority interests

7,927

7,088

77,025

Income taxes: Current 1,343 757 13,058

Deferred 668 1,150 6,492

Total income taxes 2,012 1,908 19,550

Net income 5,915 5,180 57,475

Retained earnings: At beginning of year 173,737 168,722 1,688,082 Changes during the year: Cash dividends for member common shares (165) (166) (1,608)

Reversal of land revaluation excess - (1) -

At end of year ¥ 179,487 ¥ 173,737 $ 1,743,949

Yen U.S. dollars

Net income per member common share ¥ 892.26 ¥ 722.67 $ 8.67

- 3 -

Notes to Consolidated Balance Sheets and Consolidated Statements of Operations (Unaudited)


1. Basis of presenting the consolidated balance sheets and statements of operations

The accompanying consolidated balance sheets and consolidated statements of operations of The Okazaki Shinkin Bank (the "Bank") have been prepared in conformity with accounting principles generally accepted in Japan (“Japanese GAAP”), although the preparation of such statements are not required under the disclosure provisions of the Shinkin Bank Law. All the disclosures required by Japanese GAAP are substantially omitted in the accompanying notes.

The amounts shown in millions of Japanese yen in the accompanying consolidated balance sheets and the consolidated statements of operations have been rounded down to the nearest million yen. Accordingly, the sum of each yen amount appearing in the accompanying consolidated balance sheets and consolidated statements of operations may not be equal to the sum of the individual account balances.

The translation of the Japanese yen amounts into U.S. dollars is included solely for the convenience of readers outside Japan, using the prevailing exchange rate at March 31, 2014, which was ¥102.92 to U.S. $1.00. Such translation should not be construed as a representation that the Japanese yen amounts have been, could have been or could in the future be converted into U.S. dollars at this or any other rate of exchange.

2. Basis of consolidation The accompanying consolidated balance sheets and consolidated statements of operations of the Bank include the accounts of the Bank and its subsidiaries, which are engaged primarily in the business of providing a wide range of financial services. At March 31, 2014 and 2013, five subsidiaries were consolidated based on the Bank’s ability to exert control over such subsidiaries rather than based on the Bank’s holding of a majority voting interest in each of the same.

the okazaki shinkin bank audited nonconsolidated financial … · 2014. 8. 3. · 3 the okazaki...

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