FINANCIAL STATEMENT 2008 - chukyo-bank.co.jp · PDF fileFinancial Statement 2008 ... We conducted our audits in accordance with auditing standards ... Our audits also comprehended

FINANCIAL STATEMENT 2008

Financial Statement 2008 Fiscal Year Ended March31,2008

CONTENTS

Independent Auditors’ Report-------------------------------- 2

Consolidated Balance Sheets ------------------------------- 3

Consolidated Statements of Income ---------------------- 4

Consolidated Statements of Changes In Equity --- 5

Consolidated Statements of Cash Flows ---------------- 7

Notes to Consolidated Financial Statements----------- 9

THE CHUKYO BANK,LIMITED 1



INDEPENDENT AUDITORS’ REPORT To the Board of Directors of The Chukyo Bank, Ltd.: We have audited the accompanying consolidated balance sheets of The Chukyo Bank, Ltd. (the “Bank”) and subsidiaries as of March 31, 2008 and 2007, and the related consolidated statements of income, changes in equity and cash flows for the years then ended, all expressed in Japanese yen. These consolidated financial statements are the responsibility of the Bank’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in Japan. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of the Bank and subsidiaries as of March 31, 2008 and 2007, and the consolidated results of their operations and their cash flows for the years then ended in conformity with accounting principles generally accepted in Japan. As discussed in Note 2.i to the consolidated financial statements, the Bank and subsidiaries changed its method of accounting for retirement allowances for directors and corporate auditors effective March 31, 2007. Our audits also comprehended the translation of Japanese yen amounts into U.S. dollar amounts and, in our opinion, such translation has been made in conformity with the basis stated in Note 1. Such U.S. dollar amounts are presented solely for the convenience of readers outside Japan.

June 27, 2008 (August 14, 2008 as to Note 26 (2) and (3)) The accompanying financial statements are not intended to present the financial position, results of operations and cash flows in accordance with accounting principles generally accepted in countries and jurisdictions other than Japan. The standards, to audit such financial statements are those which are generally accepted in Japan

Deloitte Touche Tohmatsu Nagoya Daiya Building 3-goukan, 13-5, Meieki 3-chome, Nakamura-ku, Nagoya Aichi 450-8530,Japan Tel: +81(52)565 5511 Fax: +81(52)569 1394 www.deloitte.com/jp



THE CHUKYO BANK, LTD. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETSMARCH 31, 2008 AND 2007

Thousands ofMillions of Yen U.S. Dollars (Note 1)

2008 2007 2008ASSETS:　　Cash and due from banks (Note 3) ¥ 52,236 ¥ 53,152 $ 521,317 Call loans and bills purchased 1,260 2,754 12,575 Monetary receivables purchased 1,721 1,630 17,176　　Trading securities (Note 4) 694 482 6,926　　Securities (Notes 4 and 11) 370,247 377,559 3,695,080　　Loans and bills discounted (Note 5) 1,187,219 1,181,402 11,848,493　　Foreign bills of exchange (Note 6) 5,892 6,724 58,802　　Other assets (Note 7) 11,500 11,154 114,771　　Premises and equipment (Notes 8, 9 and 12) 22,552 22,679 225,070　　Intangible assets 83 85 828　　Deferred tax assets (Note 13) 872 966 8,703　　Customers' liabilities for acceptances and guarantees (Note 10) 12,676 14,000 126,507　　Reserve for possible loan losses (15,646) (18,668) (156,148) Total assets ¥ 1,651,306 ¥ 1,653,919 $ 16,480,100LIABILITIES:　　Deposits (Notes 11 and 14) ¥ 1,502,496 ¥ 1,483,915 $ 14,994,970　　Borrowed money (Note 15) ¥ 800 ¥ 2,400 $ 7,984　　Foreign bills of exchange (Note 6) 34 6 340　　Subordinated bonds (Note 16) 20,000 20,000 199,601　　Other liabilities (Note 18) 15,820 15,638 157,884　　Liability for retirement benefits for employees (Note 17) 1,328 1,287 13,253　　Retirement allowances for directors and corporate auditors 159 133 1,587　　Reserve for reimbursement of dormant deposits (Note 2.l) 350 - 3,493　　Reserve for contingencies (Note 2.m) 61 - 609　　Deferred tax liabilities (Note 13) 943 8,467 9,411 　　Deferred tax liabilities for land revaluation excess (Note 12) 4,221 4,266 42,126　　Acceptances and guarantees (Note 10) 12,676 14,000 126,507 Total liabilities 1,558,888 1,550,112 15,557,765

COMMITMENTS AND CONTINGENT LIABILITIES (Notes 19, 23 and 24)

EQUITY (Note 20): Capital stock: Common stock: authorized, 500,000 thousand shares; issued, 217,459 thousand shares in 2008 and 2007 31,844 31,844 317,804 Capital surplus 23,185 23,185 231,387　　Retained earnings 19,581 16,480 195,419　　Land revaluation excess (Note 12) 5,197 5,265 51,866　　Net unrealized gain on available-for-sale securities 12,209 27,117 121,846 Deferred loss on derivatives under hedge accounting (224) (671) (2,235)　　Treasury stock, at cost: 471 thousand shares in 2008 and 405 thousand shares in 2007 (188) (166) (1,876) Total 91,604 103,054 914,211　　Minority interests 814 753 8,124 Total equity 92,418 103,807 922,335 Total liabilities and equity ¥ 1,651,306 ¥ 1,653,919 16,480,100

See notes to consolidated financial statements.



CONSOLIDATED STATEMENTS OF INCOMEYEARS ENDED MARCH 31, 2008 AND 2007


2008 2007 2008

INCOME: Interest on: Loans and discounts ¥ 25,671 ¥ 23,461 $ 256,198 Securities 5,564 5,793 55,529 Other 724 797 7,226 Fees and commissions 5,164 5,182 51,537 Other operating income 927 253 9,251 Gain on sales of premises and equipment 117 607 1,168 Collection of previously unrecoverable debts 191 12 1,906 Other income (Note 21) 1,951 2,330 19,471

Total income 40,309 38,435 402,286

EXPENSES: Interest on: Deposits 5,011 2,853 50,010 Borrowings 36 52 359 Bonds 335 333 3,343 Other 117 182 1,168 Fees and commissions 1,875 1,806 18,713 Other operating expenses 1,048 1,123 10,459 General and administrative expenses 21,580 21,395 215,369 Provision for possible loan losses 1,819 281 18,154 Loss on sales and disposal of premises and equipment 60 74 599 Impairment loss on long-lived assets (Note 9) 108 - 1,078 Other expenses (Note 22) 2,725 1,767 27,196

Total expenses 34,714 29,866 346,448

INCOME BEFORE INCOME TAXES AND MINORITY INTERESTS 5,595 8,569 55,838

INCOME TAXES (Note 13): Current 1,881 1,455 18,772 Deferred (470) 438 (4,691) Total income taxes 1,411 1,893 14,081

MINORITY INTERESTS IN NET INCOME 66 26 659

NET INCOME ¥ 4,118 ¥ 6,650 $ 41,098

PER SHARE OF COMMON STOCK (Note 2.r): U.S. Dollars Basic net income ¥ 18.97 ¥ 30.63 $ 0.19 Cash dividends applicable to the year 5.00 5.00 0.05


Yen




CONSOLIDATED STATEMENTS OF CHANGES IN EQUITYYEARS ENDED MARCH 31, 2008 AND 2007

ThousandsOutstanding Net Unrealized Number of Land Gain onShares of Common Capital Retained Revaluation Available-for-sale

Common Stock Stock Surplus Earnings Excess Securities

BALANCE AT APRIL 1, 2006 217,091 ¥ 31,844 ¥ 23,185 ¥ 11,157 ¥ 5,265 ¥ 23,613 Reclassified balance as of March 31, 2006 (Note 2.j) - - - - - - Net income - - - 6,650 - - Cash dividends, \6.00 per share - - - (1,303) - - Bonuses to directors and corporate auditors - - - (22) - - Purchases of treasury stock (68) - - - - - Disposal of treasury stock 31 - - (2) - - Net change in the year - - - - - 3,504BALANCE AT MARCH 31, 2007 217,054 31,844 23,185 16,480 5,265 27,117 Net income - - - 4,118 - - Cash dividends, \5.00 per share - - - (1,085) - - Purchases of treasury stock (78) - - - - - Disposal of treasury stock 12 - - (0) - - Reversal of land revaluation excess - - - 68 (68) - Net change in the year - - - - - (14,908)BALANCE AT MARCH 31, 2008 216,988 ¥ 31,844 ¥ 23,185 ¥ 19,581 ¥ 5,197 ¥ 12,209

Deferred Losson Derivativesunder Hedge Treasury Minority Total Accounting Stock Total Interests Equity

BALANCE AT APRIL 1, 2006 - ¥ (154) ¥ 94,910 - ¥ 94,910 Reclassified balance as of March 31, 2006 (Note 2.j) - - - 726 726 Net income - - 6,650 - 6,650 Cash dividends, \6.00 per share - - (1,303) - (1,303) Bonuses to directors and corporate auditors - - (22) - (22) Purchases of treasury stock - (25) (25) - (25) Disposal of treasury stock - 13 11 - 11 Net change in the year ¥ (671) - 2,833 27 2,860BALANCE AT MARCH 31, 2007 (671) (166) 103,054 753 103,807 Net income - - 4,118 - 4,118 Cash dividends, \5.00 per share - - (1,085) - (1,085) Purchases of treasury stock - (26) (26) - (26) Disposal of treasury stock - 4 4 - 4 Reversal of land revaluation excess - - - - - Net change in the year 447 - (14,461) 61 (14,400)BALANCE AT MARCH 31, 2008 ¥ (224) ¥ (188) ¥ 91,604 ¥ 814 ¥ 92,418

Millions of Yen

Millions of Yen




CONSOLIDATED STATEMENTS OF CHANGES IN EQUITYYEARS ENDED MARCH 31, 2008 AND 2007

Net Unrealized Land Gain on

Common Capital Retained Revaluation Available-for-saleStock Surplus Earnings Excess Securities

BALANCE AT MARCH 31, 2007 $ 317,804 $ 231,387 $ 164,471 $ 52,545 $ 270,629 Net income - - 41,098 - - Cash dividends, $0.05 per share - - (10,829) - - Purchases of treasury stock - - - - - Disposal of treasury stock - - (0) - - Reversal of land revaluation excess - - 679 (679) - Net change in the year - - - - (148,783)BALANCE AT MARCH 31, 2008 $ 317,804 $ 231,387 $ 195,419 $ 51,866 $ 121,846

Deferred Losson Derivativesunder Hedge Treasury Minority Total Accounting Stock Total Interests Equity

BALANCE AT MARCH 31, 2007 $ (6,696) $ (1,657) $ 1,028,483 $ 7,515 $ 1,035,998 Net income - - 41,098 - 41,098 Cash dividends, $0.05 per share - - (10,829) - (10,829) Purchases of treasury stock - (259) (259) - (259) Disposal of treasury stock - 40 40 - 40 Reversal of land revaluation excess - - - - - Net change in the year 4,461 - (144,322) 609 (143,713)BALANCE AT MARCH 31, 2008 $ (2,235) $ (1,876) $ 914,211 $ 8,124 $ 922,335


Thousands of U.S. Dollars (Note 1)

Thousands of U.S. Dollars (Note 1)




CONSOLIDATED STATEMENTS OF CASH FLOWSYEARS ENDED MARCH 31, 2008 AND 2007


OPERATING ACTIVITIES: 2008 2007 2008

Income before income taxes and minority interests ¥ 5,595 ¥ 8,569 $ 55,838 Adjustments for: Income taxes paid (1,844) (1,377) (18,403) Depreciation and amortization 600 555 5,988 Impairment loss on long-lived assets 108 - 1,078 Bonuses to directors and corporate auditors - (22) - Equity in loss (earnings) of an affiliated company 39 (85) 389 Net gain on sales and redemption of securities (155) (494) (1,547) Net foreign exchange loss (gain) 1,545 (103) 15,419 Net gain on sales and disposal of premises and equipment (57) (533) (569) Changes in assets and liabilities Net increase in loans and bills discounted (5,816) (2,767) (58,044) Net increase in deposits 18,581 23,111 185,439 Net decrease in borrowed money (excluding subordinated borrowings of the Bank) (1,600) (200) (15,968) Net increase in due from banks (excluding due from the Bank of Japan) (139) (18) (1,387) Net decrease (increase) in call loans and bills purchased 1,494 (1,672) 14,910 Net decrease in call money - (5,000) - Net increase in monetary receivables purchased (92) (33) (918) Net decrease (increase) in foreign bills of exchange, debit 832 (64) 8,303 Net increase (decrease) in foreign bills of exchange, credit 28 (8) 279 Net decrease in reserve for possible loan losses (3,021) (5,571) (30,150) Net increase in liability for retirement benefits for employees 40 7 399 Net increase in retirement allowances for directors and corporate auditors 25 133 250 Net decrease in prepaid pension expense 110 68 1,098 Net increase in interest receivable (5,498) (5,938) (54,870) Net increase in interest payable 1,045 1,112 10,429 Net decrease in defined contribution pension payable (662) (756) (6,607) Net (increase) decrease in other assets (590) 352 (5,888) Net increase in other liabilities 1,100 335 10,979 Total adjustments 6,073 1,032 60,609

Net cash provided by operating activities 11,668 9,601 116,447

FORWARD ¥ 11,668 ¥ 9,601 $ 116,447

(Continued)




CONSOLIDATED STATEMENTS OF CASH FLOWSYEARS ENDED MARCH 31, 2008 AND 2007


2008 2007 2008

FORWARD ¥ 11,668 ¥ 9,601 $ 116,447

INVESTING ACTIVITIES: Purchases of securities (63,930) (35,698) (638,024) Proceeds from sales of securities 14,921 25,500 148,912 Proceeds from maturities of securities 32,379 15,128 323,144 Dividends and interest received from investing activities 5,913 6,108 59,012 Purchases of premises and equipment (612) (939) (6,109) Proceeds from sales of premises and equipment 70 1,150 699 Net cash (used in) provided by investing activities (11,259) 11,249 (112,366)

FINANCING ACTIVITIES: Repayment of subordinated loans - -5,500 - Interest paid on subordinated loans (335) (335) (3,343) Dividends paid (1,085) (1,303) (10,828) Dividends paid by subsidiaries to minority shareholders (1) (1) (10) Acquisition of treasury stock (26) (25) (259) Proceeds from sales of treasury stock 4 9 40 Net cash used in financing activities (1,443) (7,155) (14,400)

FOREIGN CURRENCY TRANSLATION ADJUSTMENTS ON CASH AND CASH EQUIVALENTS (20) 8 (200)NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS (1,054) 13,703 (10,519)CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR 52,366 38,663 522,615CASH AND CASH EQUIVALENTS, END OF YEAR (Note 3) ¥ 51,312 ¥ 52,366 $ 512,096




THE CHUKYO BANK,LTD. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS YEARS ENDED MARCH 31, 2008 AND 2007 1. Basis of Presenting Consolidated Financial Statements

The accompanying consolidated financial statements of The Chukyo Bank, Ltd. (the “Bank”) and its subsidiaries (together, the “Group”) have been prepared in accordance with the provisions set forth in the Japanese Financial Instruments and Exchange Law (formerly, the Japanese Securities and Exchange Law) and its related accounting regulations and the Enforcement Regulation for the Banking Law, and in conformity with accounting principles generally accepted in Japan, which are different in certain respects as to application and disclosure requirements of International Financial Reporting Standards. The consolidated financial statements are not intended to present the financial position, results of operations and cash flows in accordance with accounting principles and practices generally accepted in countries and jurisdictions other than Japan. In preparing these consolidated financial statements, certain reclassifications and rearrangements have been made to the consolidated financial statements issued domestically in order to present them in a form which is more familiar to readers outside Japan. In addition, certain reclassifications have been made in the 2007 financial statements to conform to the classifications used in 2008. The consolidated financial statements are stated in Japanese yen, the currency of the country in which the Bank is incorporated and operates. The translations of Japanese yen amounts into U.S. dollar amounts are included solely for the convenience of readers outside Japan and have been made at the rate of ¥100.20 to $1, the approximate rate of exchange at March 31, 2008. Such translations should not be construed as representations that the Japanese yen amounts could be converted into U.S. dollars at that or any other rate.

2. Summary of Significant Accounting Policies


a. Consolidation The consolidated financial statements as of March 31, 2008 and 2007 include the accounts of the Bank and all five subsidiaries including The Chukyo Business Service Co., Ltd., The Chukyo Card Co., Ltd., Takara Fudosan Co., Ltd., Kikyo Service Co., Ltd. and The Chukyo Finance Co., Ltd. The Chukyo Business Service Co., Ltd. and Takara Fudosan Co., Ltd. were merged on April 1, 2008. Under the merger, the surviving company was defined as Takara Fudosan Co., Ltd. Simultaneously, the merged company was renamed as The Chukyo Business Service Co., Ltd. Under the control or influence concept, those companies in which the Bank, directly or indirectly, is able to exercise control over operations are fully consolidated, and those companies over which the Group has ability to exercise significant influence are accounted for by the equity method. The investment in an affiliated company, The Chukyo Sogo Leasing Co., Ltd., is accounted for by the equity method for the years ended March 31, 2008 and 2007.


All significant intercompany balances and transactions have been eliminated in consolidation. All material unrealized profit included in assets resulting from transactions within the Group is eliminated. The fiscal years of all subsidiaries are the same as the Bank. The Group adopted the Paragraph 30-2 of the Japanese Institute of Certified Public Accountants (“JICPA”) Accounting System Committee Report No. 6 “Practical Guidelines Concerning Deferred Tax Accounting for Consolidated Financial Statements” for tax effects of sales of investments such as subsidiaries’ stocks within the Group for the year ended March 31, 2008. The effect of this adoption was to decrease income before income taxes and minority interests by ¥90 million ($898 thousand) for the year ended March 31, 2008.

b. Cash and Cash Equivalents Cash and cash equivalents in the consolidated statements of cash flows consist of cash and due from the Bank of Japan, included in “cash and due from banks” in the consolidated balance sheets.

c. Trading Securities Trading securities are stated at fair value, and the related unrealized gains and losses are included in earnings. The cost of trading securities sold is determined based on the moving-average method.

d. Securities Securities other than trading securities are classified and accounted for, depending on management’s intent, as follows: i) held-to-maturity debt securities, which are expected to be held to maturity with the positive intent and ability to hold to maturity, are reported at amortized cost and ii) available-for-sale securities, which are not classified as held-to-maturity debt securities, are reported at fair value, with unrealized gains and losses, net of applicable taxes, reported in a separate component of equity. The cost of securities sold is determined based on the moving-average method. Inflation-indexed bonds with embedded derivatives classified as available-for-sale securities were measured at fair value and unrealized gains or losses were recognized in current earnings through March 31, 2006. The Bank adopted the Accounting Standard Board of Japan (the “ASBJ”) Guidance No. 12, “Accounting for Other Compound Financial Instruments (Compound Financial Instruments Other Than Those with Option to Increase Paid-in Capital)” issued by the ASBJ for the year ended March 31, 2007. In accordance with the new accounting guidance, the Bank measured inflation-indexed bonds with embedded derivatives at fair value and unrealized gains or losses, net of applicable taxes, were recognized in a separate component of equity for the year ended March 31, 2007. Non-marketable available-for-sale securities are stated at cost determined by the moving-average method. For other than temporary declines in fair value, available-for-sale securities are reduced to net realizable value by a charge to income.

e. Premises and Equipment

THE CHUKYO BANK,LIMITED 10Premises and equipment are stated at cost less accumulated depreciation. Depreciation of premises


and equipment of the Bank is computed by the declining-balance method based on the estimated useful lives of the assets, while the straight-line method is applied to buildings acquired after April 1, 1998. Premises and equipment held by the subsidiaries are depreciated mainly using the straight-line method. The range of useful lives is principally from 7 to 50 years for buildings, and from 3 to 20 years for other premises and equipment.

f. Long-lived Assets

The Group reviews its long-lived assets for impairment whenever events or changes in circumstance indicate the carrying amount of an asset or asset group may not be recoverable. An impairment loss would be recognized if the carrying amount of an asset or asset group exceeds the sum of the undiscounted future cash flows expected to result from the continued use and eventual disposition of the asset or asset group. The impairment loss would be measured as the amount by which the carrying amount of the asset 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.

g. Intangible Assets Intangible assets are amortized by the straight-line method. Software for internal use is charged to income as incurred because its contribution to revenues or reduction of expenses in the future is uncertain.

h. Reserve for Possible Loan Losses

The Bank implemented a self-assessment system for asset quality. The quality of all loans is assessed by the related lending division and subsequently audited by the asset audit division, which is independent from the lending division, in accordance with the Bank’s policies and rules for self-assessment of asset quality. The Bank has established a credit rating system under which its customers are classified into five categories such as “normal,” “caution,” “possible bankruptcy,” “virtual bankruptcy” and “legal bankruptcy.” The credit rating system is used for self-assessment of asset quality.

For normal and caution loans, the reserve for possible loan losses is provided for based on actual past loss ratios. If future cash flows of the principal and interest from certain large borrowers with restructured loans can be reasonably estimated, the discounted cash flow method is applied, under which method the reserve is determined as the difference between the book value of the loan and its present value of future cash flows discounted using the contractual interest rate.

For loans to customers classified as possible bankruptcy, the reserve is provided for in an amount deemed necessary to cover possible loan losses. The amount is determined by considering the customer’s solvency and other factors, after the estimated fair value of the real estate collateral or guaranteed amount has been deducted. If future cash flows of the principal and interest from certain large borrowers can be reasonably estimated, the discounted cash flow method is applied.



For loans to customers classified as virtual bankruptcy or legal bankruptcy, the reserve is provided for in an amount deemed necessary to cover possible loan losses after the estimated fair value of the real estate collateral or guaranteed amount has been deducted.

Reserve for possible loan losses of subsidiaries is provided based on actual past loss ratios and estimated collectability of specific claims.

i. Retirement and Pension Plans

The Bank has a non-contributory funded pension plan, a defined contribution pension plan and an unfunded retirement benefit plan for its employees. Additionally, the consolidated subsidiaries have unfunded retirement benefit plans for their employees. Effective April 1, 2000, the Group adopted a new accounting standard for retirement benefits and accounted for the liability for employees’ retirement benefits based on projected benefit obligations and plan assets at the balance sheet date. Unrecognized transitional obligation, excluding exempted portions of the governmental pension program and transferred portion to defined contribution pension plan managed by the Bank, is amortized over 15 years (See Note 17). Prior to April 1, 2006 no provision was recorded for retirement benefits to be paid to the Group’s directors and corporate auditors. Effective March 31, 2007, the Group changed its method of accounting for such retirement benefits to an accrual basis to reflect periodic income and expenses more appropriately due to the early adoption of the JICPA Auditing and Assurance Practice Committee Report No. 42 “Auditing Treatment relating to Reserve defined under the Special Tax Measurement Law, Reserve defined under the Special Law and Reserve for Director and Corporate Auditor Retirement Benefits” issued by JICPA on April 13, 2007.

j. Presentation of Equity

On December 9, 2005, the ASBJ published a new accounting standard for presentation of equity. Under this accounting standard, certain items which were previously presented as liabilities or assets, as the case may be, are now presented as components of equity. Such items include stock acquisition rights, minority interests, and any deferred gain or loss on derivatives accounted for under hedge accounting. This standard is effective for fiscal years ending on or after May 1, 2006. The balances of such items as of March 31, 2006 were reclassified as separate components of equity as of April 1, 2006 in the consolidated statement of changes in equity.

k. Bonuses to Directors and Corporate Auditors Bonuses to directors and corporate auditors are accrued at year end to which such bonuses are attributable.

l. Reserve for Reimbursement of Dormant Deposits

Reserve for reimbursement of dormant deposits is provided for the deposits derecognized from the liabilities at the estimated amount of future claims for withdrawal based on the actual past loss amount.


Effective from the year ended March 31, 2008, the Group adopted the JICPA Auditing and Assurance Practice Committee Report No. 42 “Auditing Treatment relating to Reserve


defined under the Special Tax Measurement Law, Reserve defined under the Special Law and Reserve for Director and Corporate Auditor Retirement Benefits” issued on April 13, 2007. The effect of this adoption was to recognize a reserve for reimbursement of dormant deposits and to decrease income before income taxes and minority interests for the year ended March 31, 2008 by 350 million ($3,493 thousand), which included a cumulative effect of ¥265 million ($2,645 thousand) at March 31, 2007.

m. Reserve for Contingencies

Reserve for contingencies is provided for contingent liabilities to the Credit Guarantee Corporations at the estimated amount of future payment based on the Joint Responsibility System with the Credit Guarantee Corporations. The Group recognized reserve for contingencies for the year ended March 31, 2008 in accordance with commencement of the Joint Responsibility System with the Credit Guarantee Corporations on October 1, 2007. The effect of this treatment was to decrease income before income taxes and minority interests for the year ended March 31, 2008 by ¥61 million ($609 thousand).

n. Income Taxes

The provision for income taxes is computed based on the pretax income included in the consolidated statements of income. The asset and liability approach is used to recognize deferred tax assets and liabilities for the expected future tax consequences of temporary differences between the carrying amounts and the tax bases of assets and liabilities. Deferred taxes are measured by applying currently enacted tax laws to the temporary differences. Future tax benefits are recognized to the extent that such benefits are more likely than not to be realized.

o. Leases

Under Japanese accounting standards for leases, finance leases that deem to transfer ownership of the leased property to the lessee are to be capitalized, while other finance leases are permitted to be accounted for as operating lease transactions if certain “as if capitalized” information is disclosed in the notes to the lessee’s financial statements. All other leases are accounted for as operating leases.

p. Foreign Currency Translations

Foreign currency assets and liabilities of the Group are translated into Japanese yen amounts at the exchange rates prevailing at the fiscal year end. The foreign exchange gains and losses from translation are recognized in the income statement to the extent that they are not hedged by forward exchange contracts.

q. Derivatives and Hedging Activities

The Group uses a variety of derivative financial instruments including foreign currency forward contracts, interest rate swaps and others.


Derivative financial instruments are classified and accounted for as follows: a) all derivatives are recognized as either assets or liabilities and measured at fair value, and gains or losses on derivative transactions are recognized in the consolidated statements of income and b) for derivatives used for


hedging purposes, if derivatives qualify for hedge accounting because of high correlation and effectiveness between the hedging instruments and the hedged items, gains or losses on derivatives follow hedge accounting. Interest rate risk hedges The Bank applies the principle treatment of the JICPA Industry Audit Committee Report No. 24. The effectiveness of hedge transactions to offset the fluctuations of fair value is evaluated by inspecting each hedged item, such as deposits and loans, and the hedging instruments, such as interest rate swaps, separately. The effectiveness of cash flow hedges is evaluated by verifying the correlation between the hedged items and the hedging instruments concerning interest volatility. Exchange rate risk hedges The Bank applies the principle treatment of the JICPA Industry Audit Committee Report No. 25. Foreign exchange swaps and currency swaps, originated for the purpose of conversion between borrowing and lending currencies, are recorded using hedge accounting. The effectiveness of currency swap and foreign exchange swap transactions is verified by confirming that these hedging instruments are executed for the purpose of offsetting the risk of currency exchange rates of corresponding hedged items, such as foreign currency monetary receivables and payables.

r. Per Share Information

Basic net income per share is computed by dividing net income available to common shareholders by the weighted-average number of common shares outstanding for the period, retroactively adjusted for stock splits. The weighed average number of common shares used in the computation for the years ended March 31, 2008 and 2007 was 217,019,065 shares and 217,083,506 shares, respectively. 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 conversion of the outstanding convertible notes and bonds at the beginning of the year (or at the time of issuance) with an applicable adjustment for related interest expense, net of tax, and full exercise of outstanding warrants. Diluted net income per share is not disclosed because there are no dilutive shares for the years ended March 31, 2008 and 2007. Cash dividends per share presented in the accompanying consolidated statements of income are dividends applicable to the respective years including dividends to be paid after the end of the year.

s. New Accounting Pronouncements

Lease Accounting―On March 30, 2007, the ASBJ issued ASBJ Statement No. 13, “Accounting Standard for Lease Transactions,” which revised the existing accounting standard for lease transactions issued on June 17, 1993. The revised accounting standard for lease transactions is effective for fiscal years beginning on or after April 1, 2008 with early adoption permitted for fiscal years beginning on or after April 1, 2007.



Under the existing accounting standard, finance leases that deem to transfer ownership of the leased property to the lessee are to be capitalized, however, other finance leases are permitted to be accounted for as operating lease transactions if certain “as if capitalized” information is disclosed in the note to the lessee’s financial statements. The revised accounting standard requires that all finance lease transactions shall be capitalized recognizing lease assets and lease obligations in the balance sheet.

3. Cash and Due from Banks

Cash and due from banks as of March 31, 2008 and 2007 consisted of the following:

Millions of Yen

Thousands of U.S. Dollars

2008 2007 2008 Cash on hand ¥ 18,537 ¥ 17,059 $ 185,000

Due from banks 33,699 36,093 336,317 Total ¥ 52,236 ¥ 53,152 $ 521,317

A reconciliation of the cash and due from banks in the consolidated balance sheets to the cash and cash equivalents in the consolidated statements of cash flows for the years ended March 31, 2008 and 2007 was as follows:

Millions of Yen Thousands of U.S. Dollars

2008 2007

2008 Cash and due from banks ¥ 52,236 ¥ 53,152 $ 521,317

Due from banks other than the Bank of Japan (924) (786)

（9,221）

Cash and cash equivalents ¥ 51,312 ¥ 52,366 $ 512,096

4. Trading Securities and Securities

Trading securities as of March 31, 2008 and 2007 consisted of the following:

Thousands of Millions of Yen U.S. Dollars 2008 2007 2008 National government bonds ¥ 693 ¥ 473 $ 6,916 Local government bonds 1 9 10 Total ¥ 694 ¥ 482 $ 6,926

Valuation gains (losses) of trading securities included in income before income taxes and minority interests for the years ended March 31, 2008 and 2007 were ¥15 million ($150 thousand) and ¥(2) million, respectively.



Securities as of March 31, 2008 and 2007 consisted of the following:

Millions of Yen


2008 2007 2008 National government bonds ¥ 115,457 ¥ 111,922 $ 1,152,265 Local government bonds 33,220 24,180 331,537 Corporate bonds 88,278 81,146 881,018 Equity securities 41,688 58,677 416,048 Other securities 91,604 101,634 914,212 Total ¥ 370,247 ¥ 377,559 $ 3,695,080

Investments in an affiliated company, which were included in securities in the accompanying consolidated balance sheets, for the years ended March 31, 2008 and 2007 were ¥909 million ($9,072 thousand) and ¥951 million, respectively.

The carrying amounts and aggregate fair values of available-for-sale securities, held-to-maturity securities and other investments as of March 31, 2008 and 2007 were as follows:

2008 Millions of Yen

Cost Unrealized

Gains Unrealized

Losses Fair

Value Securities classified as

Available-for-sale: Equity securities ¥ 20,817 ¥ 16,825 ¥ (619) ¥ 37,023 Debt securities 220,256 2,897 (1,249) 221,904 Other 92,603 2,391 (3,390) 91,604

2008 Thousands of U.S. Dollars

Cost Unrealized

Gains Unrealized

Losses Fair


Available-for-sale: Equity securities $ 207,754 $ 167,914 $ (6,177) $ 369,491 Debt securities 2,198,164 28,912 (12,465) 2,214,611 Other 924,181 23,862 (33,832) 914,211

2007 Millions of Yen

Cost Unrealized

Gains Unrealized

Losses Fair


Available-for-sale: Equity securities ¥ 19,750 ¥ 34,180 ¥ (76) ¥ 53,854 Debt securities 204,083 791 (1,550) 203,324 Other 95,918 7,774 (2,058) 101,634


For the years ended March 31, 2008 and 2007, losses on the write-down of available-for-sale securities to reflect the decline in value considered to be other than temporary were ¥880 million ($8,782 thousand) and ¥1 million, respectively.


Losses on the write-down of available-for-sale securities are recognized when their fair value declines more than or equal to 30% of the carrying amounts and such decline is expected to continue for approximately a year or longer. Available-for-sale securities whose fair value was not readily determinable as of March 31, 2008 and 2007 were as follows:

Carrying amount


2008 2007 2008 Available-for-sale:

Equity securities ¥ 3,757 ¥ 3,872 $ 37,495 Debt securities 15,050 13,924 150,200 Total ¥ 18,807 ¥ 17,796 $ 187,695

Proceeds from sales of available-for-sale securities for the years ended March 31, 2008 and 2007 were ¥13,879 million ($138,513 thousand) and ¥23,491 million, respectively. Gross realized gains and losses on these sales, computed on the moving-average cost basis, were ¥1,642 million ($16,387 thousand) and ¥464 million ($4,631 thousand), respectively, for the year ended March 31, 2008, and ¥1,387 million and ¥894 million, respectively, for the year ended March 31, 2007. The carrying values of debt securities by contractual maturities for available-for-sale securities as of March 31, 2008 were as follows:


Due in one year or less ¥ 24,753 $ 247,036 Due after one year through five years

151,239

1,509,371

Due after five years through ten years

89,174

889,960

Due after ten years 37,231 371,567 Total ¥ 302,397 $ 3,017,934

5. Loans and Bills Discounted

Loans and bills discounted as of March 31, 2008 and 2007 consisted of the following:


2008 2007 2008 Bills discounted ¥ 25,652 ¥ 27,538 $ 256,008 Loans on bills 106,395 110,318 1,061,826 Loans on deeds 838,796 842,385 8,371,218 Overdrafts 216,376 201,161 2,159,441 Total ¥ 1,187,219 ¥ 1,181,402 $ 11,848,493



Nonaccrual loans, which include loans to borrowers in bankruptcy and past due loans, are defined as loans which the Bank and its subsidiaries discontinue the accrual of interest income. Borrowers are generally placed on nonaccrual status when substantial doubt is deemed to exist as to ultimate collectibility of either the principal or interest, and if the loans are past due for a certain period or for other reasons.

Loans to borrowers in bankruptcy represent nonaccrual loans to debtors who are legally bankrupt, which are defined in Article 96, Paragraph 1, Subparagraphs 3 and 4 of the Enforcement Ordinance for the Corporation Tax Law. Loans to borrowers in legal bankruptcy as of March 31, 2008 and 2007 were ¥5,060 million ($50,499 thousand) and ¥6,134 million, respectively. Past due loans are nonaccrual loans other than loans to borrowers in bankruptcy and loans of which interest payments are deferred in order to assist the financial recovery of debtor in financial difficulties. Past due loans as of March 31, 2008 and 2007 were ¥37,425 million ($373,503 thousand) and ¥39,833 million, respectively.

Accruing loans that past due three months or more are defined as loans on which principal or interest is past due more than three months. Loans classified as loans to borrowers in bankruptcy or past due loans are excluded from accruing loans past due three months or more. The balances of accruing loans past due three months or more as of March 31, 2008 and 2007 were ¥233 million ($2,325 thousand) and ¥498 million, respectively.

Restructured loans are defined as loans to which the lender is providing financial support to a borrower by a reduction of the interest rate, deferral of interest payment, extension of maturity date, or reduction of the face or maturity amount of the debt or accrued interest. Loans classified as loans to borrowers in bankruptcy, past due loans, or accruing loans past due three months or more are excluded from restructured loans. The balances of restructured loans as of March 31, 2008 and 2007 were ¥4,148 million ($41,397 thousand) and ¥6,871 million, respectively.

Total amounts of loans to borrowers in bankruptcy, past due loans, accruing loans past due three months or more and restructured loans as of March 31, 2008 and 2007 were ¥46,866 million ($467,724 thousand) and ¥53,336 million, respectively.

The loan amounts mentioned above represent amounts prior to the deduction of reserves for possible loan losses. Bills discounted are accounted for as financial transactions in accordance with “Treatment of Accounting and Auditing in Applying Accounting Standard for Financial Instruments in the Banking Industry” issued by the JICPA. The Bank has rights to sell or pledge accepted commercial bills discounted and foreign bills of exchange bought without restrictions. The total face value of commercial bills discounted and foreign bills of exchange bought included in foreign exchanges as of March 31, 2008 and 2007 was ¥28,223 million ($281,667 thousand) and ¥30,160 million, respectively. Total amount of the loan participations which was accounted for as loans to original debtors included in “loans and bills discounted” in accordance with the JICPA Accounting Standard Committee Report No. 3 issued on June 1, 1995 was ¥22,850 million ($228,044 thousand) as of March 31, 2008.



6. Foreign Bills of Exchange

Foreign bills of exchange as of March 31, 2008 and 2007 consisted of the following:

Millions of Yen


2008 2007

2008 Assets:

Due from foreign correspondent account ¥ 835 ¥ 770 $ 8,333 Foreign bills of exchange bought 2,571 2,622 25,659 Foreign bills of exchange receivable 2,486 3,332

24,810

Total ¥ 5,892 ¥ 6,724 $ 58,802

Millions of Yen


2008 2007

2008 Liabilities:

Due to foreign correspondent account ¥ 28 ¥ 1 $ 280 Foreign bills of exchange sold 4 5 40 Foreign bills of exchange payable 2 -

20

Total ¥ 34 ¥ 6 $ 340

7. Other Assets

Other assets as of March 31, 2008 and 2007 consisted of the following:

Millions of Yen


2008 2007 2008 Domestic exchange settlement, debit

¥ 377

¥ 272

$ 3,762

Accrued income 2,326 2,286 23,214 Accounts receivable -

other

3,376

3,221

33,693 Right of indemnity 2,088 2,136 20,838 Other 3,333 3,239 33,264 Total ¥ 11,500 ¥ 11,154 $ 114,771

8. Premises and Equipment

The accumulated depreciation of premises and equipment as of March 31, 2008 and 2007 amounted to ¥16,162 million ($161,297 thousand) and ¥15,728 million, respectively.

Deferred gain on premises and equipment deductible for tax purposes was ¥1,400 million ($13,972 thousand) as of March 31, 2008.



9. Impairment Loss On Long-lived Assets

The Bank reviewed its long-lived assets for impairment loss as of March 31, 2008 and, as a result, recognized an impairment loss of ¥108 million ($1,078 thousand) for land and buildings of two branches due to a change in their purpose for use and the carrying amount of the assets was written down to the recoverable amount for the year ended March 31, 2008. The recoverable amount was measured at the net selling price. No impairment loss was recognized in 2007.

10. Customers’ Liabilities for Acceptances and Guarantees

All contingent liabilities arising from acceptances and guarantees are reflected in acceptances and guarantees. As contra accounts, customers’ liabilities for acceptances and guarantees are presented as assets, representing the Bank’s right of indemnity from applicants. The Bank offset customer’s liabilities for acceptance and guarantees with acceptance and guarantees of ¥15,050 million ($150,200 thousand) and ¥13,724 million arising from guarantees of private placement securities in 2008 and 2007, respectively.

11. Assets Pledged

Assets pledged as collateral and their relevant liabilities as of March 31, 2008 were as follows:

Carrying amount

Millions of Yen Thousands of

U.S. Dollars Assets pledged as collateral: Securities ¥ 43 $ 429 Relevant liabilities to above assets: Deposit ¥ 5,528 $ 55,170

In addition, securities of ¥49,910 million ($498,104 thousand) were pledged as collateral for settlement of exchange. Guarantee money included in other assets as of March 31, 2008 and 2007 were ¥401 million ($4,002 thousand) and ¥391 million, respectively.


12. Land Revaluation

Under the “Law of Land Revaluation”, the Bank elected a one-time revaluation of its own-use land to a value based on real estate appraisal information as of March 31, 1998.

The resulting land revaluation excess represents unrealized appreciation of land and is stated, net of income taxes, as a component of equity. There is no effect on the consolidated statements of income. Continuous readjustment is not permitted unless the land value subsequently declines significantly such that the amount of the decline in value should be removed from the land revaluation excess account and related deferred tax liabilities.

The carrying amount of the land after the above one-time revaluation exceeded the market value by ¥2,759 million ($27,535 thousand) as of March 31, 2008.


13. Income Taxes

The Bank and its subsidiaries are subject to Japanese national and local income taxes which, in the aggregate, resulted in a normal effective statutory tax rate of 39.5% for the years ended March 31, 2008 and 2007. The tax effects of significant temporary differences, which resulted in deferred tax assets and liabilities as of March 31, 2008 and 2007, were as follows:

Millions of Yen


2008 2007 2008 Deferred tax assets:

Reserve for possible loan losses ¥ 4,513 ¥ 5,087 $ 45,040 Write-down of securities 5,822 5,696 58,104 Liability for retirement benefits 388 668 3,872 Deferred loss on derivatives

under hedge accounting 147 439 1,467

Depreciation 1,120 1,157 11,178 Accrued bonuses 360 360 3,593 Impairment loss (land) 242 242 2,415 Other 1,348 943 13,453

Subtotal 13,940 14,592 39,122 Less valuation allowance (9,353) (10,138) (93,343) Total ¥ 4,587 ¥ 4,454 $ 45,779

Deferred tax liabilities: Unrealized gain on available-for-sale securities

¥ (4,658)

¥ (11,955)

$ (46,487)

Net deferred tax liabilities ¥ (71) ¥ (7,501) $ (708)

A reconciliation between the normal effective statutory tax rate and the actual effective tax rate reflected in the accompanying consolidated statements of income for the year ended March 31, 2008 and 2007 is as follows:

2008 2007 Normal effective statutory tax rate 39.5% 39.5% Dividend income and other income excluded permanently for income tax purpose

(3.3)

(2.0)

Entertainment expenses and other expenses permanently not deductible for income tax purposes

0.6

0.3

Inhabitants tax per capita 0.8 0.5 Deduction for land appropriation (0.3) - Tax return amendment 0.4 - Elimination of temporary difference due to merger of

subsidiaries

0.5

- Net change in valuation allowance (14.0) (16.9) Other - net 1.0 0.7 Actual effective tax rate 25.2% 22.1%



14. Deposits

Deposits as of March 31, 2008 and 2007 consisted of the following:

Millions of Yen


2008 2007 2008 Current, ordinary and

saving deposits, and deposits at notice

¥ 689,478

¥ 714,940

$ 6,881,018 Time deposits and

installment savings

786,330

745,514

7,847,605 Other 26,688 23,461 266,347

Total ¥ 1,502,496 ¥ 1,483,915 $ 14,994,970 15. Borrowed Money

Borrowed money as of March 31, 2008 and 2007 consisted of the following:


2008 2007 2008 Borrowings due serially to

December2008 ¥ 800 ¥ 2,400 $ 7,984

The weighted-average interest rates of the borrowings as of March 31, 2008 and 2007 were 1.87% and 1.83%, respectively.

Annual maturities of borrowings as of March 31, 2008 were as follows:

Year Ending March 31

Millions of Yen


2009 ¥ 800 $ 7,984 Total ¥ 800 $ 7,984



16. Subordinated Bonds

Subordinated bonds as of March 31, 2008 and 2007 consisted of the following:

Millions of Yen


2008 2007 2008 Series 1, 2.02% unsecured subordinated

bond due March 2, 2015

¥ 5,000

¥ 5,000 $ 49,900 Series 2, unsecured subordinated bond

due March 2, 2015 *1 5,000 5,000 49,900 Series 3, unsecured subordinated bond

due December 21, 2017 *2 10,000 10,000 99,801

Total ¥ 20,000 ¥ 20,000 $ 199,601

*1 Fixed interest rate of 1.21% up to March 2, 2010 and floating rate of LIBOR plus 2.00% from March 3, 2010 to March 2, 2015 for Series 2, unsecured subordinated bond.

*2 Fixed interest rate of 1.73% up to December 21, 2012 and floating rate of LIBOR plus 1.93% from December 22, 2012 to December 21, 2017 for Series 3, unsecured subordinated bond.

17. Liability for Retirement Benefits The Bank has unfunded retirement benefit plans which provide for a lump-sum payment, a defined contribution pension plan, and a non-contributory funded pension plan, and the Bank’s subsidiaries have unfunded retirement benefit plans which provide for a lump-sum payment. Under most circumstances, employees terminating their employment are entitled to retirement benefits determined based on the rate of pay at the time of termination, years of service and certain other factors. Such retirement benefits are made in the form of a lump-sum severance payment or in the form of an annuity.

The liability for retirement benefits as of March 31, 2008 and 2007 consisted of the following:


U.S. Dollars 2008 2007 2008

Projected benefit obligation ¥ 15,145 ¥ 15,325 $ 151,148 Fair value of plan assets (8,954) (10,093) (89,361)Unrecognized transitional obligation (1,580) (1,806) (15,769)Unrecognized actuarial loss (4,763) (3,943) (47,535)Unrecognized prior service benefit 1,320 1,534 13,173 Prepaid pension expense 160 270 1,597

Net liability ¥ 1,328 ¥ 1,287 $ 13,253



The components of net periodic benefit costs for the years ended March 31, 2008 and 2007 were as follows:

Millions of Yen


2008 2007 2008 Service cost ¥358 ¥ 350 $ 3,573 Interest cost 298 294 2,974 Expected return on plan assets (252) (245) (2,515)Amortization of prior service benefit (215) (210) (2,146)Recognized actuarial loss 508 475 5,070 Amortization of transitional obligation 226 226 2,256 Net periodic benefit costs ¥923 ¥ 890 $ 9,212

Assumptions used for the years ended March 31, 2008 and 2007 were set forth as follows:

2008 2007 Discount rate 2.0 % 2.0 % Expected rate of return on plan assets 2.5 % 2.5 % Amortization period of prior service cost 12 years 12 years Amortization period of actuarial loss 12 years 12 years Amortization period of transitional obligation

15 years

15 years

18. Other Liabilities

Other liabilities as of March 31, 2008 and 2007 consisted of the following:

Millions of Yen


2008 2007 2008 Domestic exchange settlement, debt

¥ 599

¥ 545

$ 5,978

Income taxes payable 1,024 981 10,220 Accrued expenses 2,916 2,251 29,102 Accounts payable -

other 2,129 2,672 21,248 Unearned income 3,997 3,675 39,890 Deposits received 1,730 1,643 17,265 Other 3,425 3,871 34,181 Total ¥ 15,820 ¥ 15,638 $ 157,884


19. Commitments and Contingent Liabilities

Commitment line contracts on overdrafts and loans are agreements to lend to customers when they apply for borrowing, to the prescribed amount as long as there is no violation of any condition established in the contracts. The amount of unused commitments as of March 31, 2008 was ¥230,770 million ($2,303,094 thousand), including ¥190,865 million ($1,904,840 thousand) of unused commitments whose original contract terms were within one year.


Since many of these commitments are expected to expire without being drawn upon, the total amount of unused commitments does not necessarily represent actual future cash flow requirements. Many of these commitments have clauses that allow the Bank and subsidiaries to reject the application from customers or reduce the contract amounts in case economic conditions are changed, the Bank and subsidiaries need to secure claims or other events occur. In addition, the Bank and subsidiaries request their customers to pledge collateral such as premises and securities at the conclusion of the contracts, and take necessary measures such as understanding the customers’ financial positions based upon procedures predetermined in the Bank and subsidiaries, revising contracts when the need arises and securing claims after conclusion of the contracts.


20. Equity Since May 1, 2006, Japanese companies have been subject to the Corporate Law of Japan (the “Corporate Law”), which reformed and replaced the Commercial Code of Japan. The significant provisions in the Corporate Law that affect financial and accounting matters are summarized below:

(a) Dividends

Under the Corporate Law, companies can pay dividends at any time during the fiscal year in addition to the year-end dividend upon resolution at the shareholders meeting. For companies that meet certain criteria such as; (1) having the Board of Directors, (2) having independent auditors, (3) having the Board of Corporate Auditors, and (4) the term of service of the directors is prescribed as one year rather than two years of normal term by its articles of incorporation, the Board of Directors may declare dividends (except for dividends in kind) at any time during the fiscal year if the company has prescribed so in its articles of incorporation. However, the Bank cannot do so because it has not prescribed so in its articles incorporation. The Corporate Law permits companies to distribute dividends-in-kind (non-cash assets) to shareholders subject to a certain limitation and additional requirements. Semiannual interim dividends may also be paid once a year upon resolution by the Board of Directors if the articles of incorporation of the company so stipulate. The Corporate Law provides certain limitations on the amounts available for dividends or the purchase of treasury stock. The limitation is defined as the amount available for distribution to the shareholders, but the amount of equity after dividends must be maintained at no less than ¥ 3 million.

(b) Treasury stock and treasury stock acquisition rights The Corporate Law also provides for companies to purchase treasury stock and dispose of such treasury stock by resolution of the Board of Directors. The amount of treasury stock purchased cannot exceed the amount available for distribution to the shareholders which is determined by specific formula. Under the Corporate Law, stock acquisition rights, which were previously presented as a liability, are now presented as a separate component of equity. The Corporate Law also provides that companies can purchase both treasury stock acquisition rights and treasury stock. Such treasury stock acquisition rights are presented as a separate component of equity or deducted directly from stock acquisition rights.

Other than above, the Japanese Banking Law provided that an amount at least equal to 20% of the aggregate amount of cash dividends and certain other cash payments which are made as an appropriation of retained earnings applicable to each fiscal period shall be set aside as a legal reserve until the total additional paid-in capital and legal reserve equals 100% of stated capital. The amount of total additional paid-in capital and legal reserve which exceeds 100% of stated capital can be transferred to retained earnings by resolution of the


shareholders, which may be available for dividends. The Bank’s legal reserve amount, which is included in retained earnings, totals ¥1,103 million ($11,008 thousand) and ¥886 million as of March 31, 2008 and 2007, respectively.

21. Other Income

Other income for the years ended March 31, 2008 and 2007 consisted of the following:

Millions of Yen


2008 2007 2008 Gain on sales of stocks and

other securities ¥ 1,046 ¥ 1,475 $ 10,439

Equity in earnings of an affiliated company - 85 -

Other 905 770 9,032 Total ¥ 1,951 ¥ 2,330 $ 19,471

22. Other Expenses Other expenses for the years ended March 31, 2008 and 2007 consisted of the following:


U.S. Dollars

2008 2007 2008 Loss on sales of stocks and

other securities ¥ 39 ¥ 30 $ 389

Write-down of loans 70 48 699 Write-down of securities and

other assets

410 71

4,092

Equity in loss of an affiliated company

39

-

389

Other 2,167 1,618 21,627 Total ¥ 2,725 ¥ 1,767 $ 27,196


23. Leases

The Group leases certain equipment under finance leases.

Total rental expense under the above leases for the years ended March 31, 2008 and 2007 were ¥746 million ($7,445 thousand) and ¥699 million, respectively. Pro forma information of leased property such as acquisition cost, accumulated depreciation, obligations under finance leases, depreciation expense, interest expense and other information of finance leases that do not transfer ownership of the leased property to the lessee on an “as if capitalized” basis as of March 31, 2008 and 2007 is as follows:


Millions of Yen


2008 2007 2008 Acquisition cost ¥ 4,446 ¥ 4,312 $ 44,371 Accumulated depreciation (1,977) (1,584) (19,730)

Net leased property ¥ 2,469 ¥ 2,728 $ 24,641 Obligations under finance leases as of March 31, 2008 and 2007 were as follows:


2008 2007 2008 Due within one year ¥ 626 ¥ 591 $ 6,247 Due after one year 2,005 2,297 20,010

Total ¥ 2,631 ¥ 2,888 $ 26,257 The amounts of acquisition costs and obligations under finance leases exclude the imputed interest expense portions.

Depreciation expense and interest expense under finance leases as of March 31, 2008 and 2007 were as follows:

Millions of Yen


2008 2007 2008 Depreciation expense ¥ 622 ¥ 595 $ 6,208 Interest expense 128 128 1,277

Depreciation expense and interest expense, which were not reflected in the accompanying statements of income, were computed by the straight-line method and interest method, respectively.


24. Derivative Financial Instruments

The Group enters into interest rate swaps, forward exchange contracts and others. The Group enters into derivative transactions as a means of managing its interest rate and foreign currency exposures on certain assets and liabilities.

The Group mainly uses derivative transactions to reduce market risks on fixed rate assets in the event interest rates increase and/or foreign exchange rates fluctuate.

Derivatives are subject to market risk and credit risk. The Group’s exposure to market risk is limited, since derivative transactions are primarily used for hedging purposes, and exposure to credit risk is also limited, since the counterparties to those derivatives are limited to major financial institutions and the amount of transactions is restricted.

In order to control the risks related with derivative transactions, the risk management department monitors and measures the risk exposures and reports to the management and the relevant departments. In addition, the Bank establishes the Assets and Liabilities Management Committee (“ALMC”) which consists of the management and the relevant departments. The ALMC meetings are periodically held to discuss various risks and risk controls of the derivative transactions.


Derivative transactions, recorded at fair value whose changes are accounted for in the consolidated statements of income for the years ended March 31, 2008 and 2007, were as follows:

2008 Millions of Yen Contract or

Notional Amount

Fair Value Unrealized Gain (Loss)

Forward exchange contracts: Sell ¥ 7,968 ¥318 ¥ 318 Buy 9,682 (316) (316)

Interest rate swap contracts: Fixed rate receipt, floating rate payment 800 11 11 Floating rate receipt,

fixed rate payment

1,718 8 8

2008 Thousands of U.S. Dollars Contract or

Notional Amount


Forward exchange contracts: Sell $ 79,521 $ 3,174 ¥ 3,174 Buy 96,627 (3,154) (3,154)

Interest rate swap contracts: Fixed rate receipt,

floating rate payment

7,984 110 110 Floating rate receipt, fixed rate payment

17,146 80 80

2007 Millions of Yen Contract or

Notional Amount


Forward exchange contracts: Sell ¥ 14,642 ¥ (16) ¥ (16)

Buy 7,552 70 70 Interest rate swap contracts:

Fixed rate receipt, floating rate payment

800

8

8

Floating rate receipt, fixed rate payment

2,288

19

19

(Notes) 1. Derivative transactions are recorded at fair value and the gains/ (losses) are recognized on the

consolidated statements of income. 2. Derivative transactions which qualify for hedge accounting are excluded from the disclosure of fair

value information.


3. Derivative transactions, hedging foreign currency exposures on foreign-denominated financial assets/liabilities and whose fair values are already reflected in the amount of the financial assets/liabilities on the consolidated balance sheets, are not included in the above table.


4. Derivative transactions, hedging foreign currency exposures on foreign-denominated financial assets/liabilities and these financial assets/liabilities are eliminated in the process of consolidation, are not included in the above table.

5. In accordance with the primary treatment stipulated in the JICPA Industry Audit Committee Report No. 25, currency swaps qualifying for hedge accounting are not included in the above table.

25. Segment Information

The Bank and its subsidiaries operate primarily in one segment, banking, which constitutes most of their consolidated ordinary operations and total assets. Accordingly, the figures for ordinary operations and assets by business segment for the Bank and its subsidiaries are not presented.

The Bank and its subsidiaries operate in Japan. Accordingly, the figures for ordinary operations and assets by geographical segment for the Bank and its subsidiaries are not presented.

Ordinary operations arising from international operations both inside and outside of Japan constitute less than 10% of the consolidated ordinary operations. Accordingly, the figures for ordinary operations arising from international operations are not presented.

26. Subsequent Event

(1) Appropriations of Retained Earnings

The following appropriations of retained earnings at March 31, 2008 were approved at the Bank’s shareholders meeting held on June 27, 2008:


Year-end cash dividends, ¥2.50 ($0.02) per share ¥ 542 $ 5,409

(2) Bad debt – Aisho-Kensetsu Co., Ltd. Aisho-Kensetsu Co., Ltd., which was the Bank’s customer, applied to the Nagoya District Court for the Civil Rehabilitation Law on June 30, 2008. The outstanding balance of loans to Aisho-Kensetsu Co., Ltd. was ¥1,571 million ($15,679 thousand) as of June 30, 2008, and the ultimate loss on this application cannot presently be determined. The Bank will provide an allowance for the loan, approximately ¥500 million ($4,990 thousand), which will not be covered by collateral for the year ended March 31, 2009. (3) Bad debt – Urban Corporation Urban Corporation, which was the Bank’s customer, applied to the Nagoya District Court for the Civil Rehabilitation Law on August 13, 2008. The outstanding balance of loans to Urban Corporation was ¥2,930 million ($29,242 thousand) as of August 13, 2008, and the ultimate loss on this application cannot presently be determined. The Bank will provide an allowance for the loan, approximately ¥2,400 million ($23,952 thousand), which will not be covered by collateral for the year ended March 31, 2009.

* * * * *


Documents

FINANCIAL STATEMENT 2008 - chukyo-bank.co.jp · PDF fileFinancial Statement 2008 ... We conducted our audits in accordance with auditing standards ... Our audits also comprehended