#1THE YAMAGATA BANK, LTD. Yamagata, Japan Printed in Japan ANNUAL REPORT 2014 Year Ended March 31, 2014#2Corporate Profile The Yamagata Bank, Ltd., and Consolidated Subsidiaries Financial Highlights and Ratios Yen: In millions except per share data and percentages U.S.dollars: In thousands except per share data and percentages Together with the region The Yamagata Bank Ltd. (the "Bank" ) believes that contributing to the development of the regional economy and community through diverse activities is the fulfillment of its corporate social responsibility (CSR) as a regional bank. The Bank is aiming to raise corporate value by fulfilling its CSR and to be a valuable bank for the region which is the driving force of the new era. Present local conditions Yamagata Prefecture, located in the southern Tohoku, has a population of 1,140 thousands and the fifth largest economy of Tohoku region. The economy of Yamagata Prefecture is decentral- ized and of the multipolarization type, rather than a concentrated monopolar type. There are four areas of characteristic economy and culture in the Yamagata Prefecture, named the Murayama area, which is around the capital city, Yamagata City; the Okitama area in the south; the Mogami area in the north, and the Shonai area, which is the only area facing the sea. Yamagata Prefecture is adjacent to Miyagi Prefecture, of which capital city, Sendai City, is the largest city in Tohoku region. For this reason, the brick interaction, called "Senzan Zone Interac- tion", between Yamagata City and Sendai City, contribute to their mutual development of economy and culture. After the Great East Japan Earthquake, the importance of upgrading the transportation infrastructure on the Sea of Japan side of the country was recog- nized. Consequently, in Yamagata Prefecture transportation infrastructure improvements are underway, including improving expressways and increasing the number of air routes from the airport. Representative industries of Yamagata Prefecture are agriculture and manufacturing. The main products of agriculture are rice, cherries of top production in Japan, and "La France" pears. The key products of manufacturing are electronic components and devices, information and communication equipment. Every product made in Yamagata Prefecture is considered to be of quality, thanks to the diligent workers and constant spirit of crafts- manship since the time of traditional industrial. Moreover, the prefecture is attractive to tourists for rich natural environment, which is possesses four distinct seasons and many hot springs. However, the aging of the population is advancing in the prefec- ture at a more rapid pace than in other prefectures, so actions to generate economic vitality are vital. Projects to establish new next-generation businesses, including the creation of the industry based on the agriculture, the use of renewable energy, and efforts to form bioclusters, are being activated. CONTENTS Kichishige Hasegawa President Financial Highlights and Ratios- Message from Management Review of Operations Corporate Data Financial Statements Consolidated For the years ended March 31 2014 2013 (Millions of yen) (Millions of yen) 2014 (Thousands of U.S.dollars) Total income. \ 45,738 ¥ 47,937 $ 444,406 \ 34,670 38,227 6,331 5,452 336,870 61,522 Total expenses. Net income.. Non-Consolidated 2014 2013 (Millions of yen) 39,319 ¥ 29,139 6,318 (Millions of yen) 41,280 32,644 5,437 Amounts per share Net income ¥ 37.14 ¥ 31.98 $ 0.36 \ 37.06 31.90 Cash dividends declared during the year Net assets 6 6 789.89 747.20 7.67 788.18 745.73 As of March 31 Total assets Loans and bills discounted Total liabilities Deposits Total net assets Ratios: Capital ratio (Note 2) ¥2,379,310 ¥2,312,413 1,409,351 2,237,627 1,326,192 2,178,564 $ 23,118,054 13,693,658 ¥2,366,529 1,418,297 \ 2,300,369 1,333,899 21,741,427 2,232,173 2,173,235 2,119,245 141,682 2,091,639 133,849 20,591,188 2,126,057 2,098,715 1,376,626 134,355 127,133 2014 2013 13.92% 13.92% Note 1: U.S.dollars represent transactions, for the convenience of readers, at ¥102.92-U.S.$1.00, the rate prevailing on March 31, 2014. Note 2: Figures for 2013 and 2014 are shown according to domestic standards. The graph contains non-consolidated data. 1 2 4 Net Income Total Net Assets (Millions of yen) (Billions of yen) 1,815 3,675 3,706 5,437 6,318 108.6 108.6 2014 2013 13.34% 13.40% 113.9 127.1 134.3 '10 '11 '12 '13 '14 '10 '11 '12 '13 '14 1#32 Message from Management Management philosophy To prosper together with the region To satisfy all of our customers To provide our staff with stability and opportunities What Yamagata Bank is aiming for I am grateful for the continuous patronage of our customers towards Yamagata Bank from the bottom of my heart. The economy of Japan during the fiscal year ended March 2014 generally recovered due to Abenomics, which focuses on monetary and fiscal policy and improved the economy and, in the latter half of the year, rush demand before the increase in the consumption tax rate, which significantly facilitated efforts to pull out of deflation. Public investment increased in general due to recon- struction projects and the economic measures, and housing investment rose because of reasons such as construction of houses earlier than planned to beat the upcoming increase in the consumption tax rate. Personal consumption stopped falling and remained stable because of moderate improvements in employ- ment and income conditions, and of last-minute purchases made before the increase in the consumption tax rate. These circumstances stimulated corporate production activities and investment in plant and equip- ment made a modest recovery against the background of improvement of corporate performance. Improve- ments in export conditions due to the depreciation of the yen helped exports to rise, but later in the year, instability in the emerging economies and other factors tended to slow this increase somewhat. Considering the economy of Yamagata Prefecture, in which our business is based, corporate production activities were depressed in the first half of the fiscal year. But it gradually recovered. The corporate production activities such as production in the electronics-related business, which is the major industry in the prefecture, remained low to the extent that some companies laid off staff in the first half of the fiscal year. But in the latter half of the fiscal year, the production improved with the recovery in the domestic economy. Personal consumption was strong, as the after-effects of the particularly high consumption following the Great East Japan Earthquake disaster ended and because of hurried buying before the rise in the consumption tax rate. Also, housing investment increased in general, and the public investment was much larger than that of the previous year due to an increase in orders for construction work from national and local government. Under these circumstances, the business confidence of companies improved and invest- ment in plant and equipment recovered at a low level. During the year, employment picture saw a strong improvement as a result of the continuous work offers in a diverse range of businesses. Under the circumstances as stated above, Yamagata Bank carry out our 17th long-term management plan, called the "Yamagin Innovation Plan II" (fiscal 2012- 2014). In accordance with this management plan and with the understanding that Yamagata Bank will not have any growth without the vitalization of the regional economy, we are endeavoring to further enhance our region-oriented banking. Based on the plan, we will make our best efforts to assist in raising regional vitality by supporting customers in creating added value and by making contributions to materialize a sustainable regional economy and society. We would be most grateful if you could continue to extend your support and lasting patronage. Aiming to be a bank that is absolutely necessary for Yamagata with an overwhelming presence and trustworthiness. The management philosophy of Yamagata Bank, which has been maintained throughout the long history of the Bank, is based on three aspects, namely the region, our customers and our employees, and has the common ideal as that of the corporate social responsibility of the modern management. Therefore, we have set the management philosophy as our corporate social respon- sibility charter, and we consider that meeting our corporate social responsibility is the management of the Bank. The 17th long-term management plan, "Yamagin Innova- tion Plan II", which began in April 2012, is aimed at raising our corporate value through further enhancement of region-oriented banking, by considering our corporate social responsibility as a regional bank based on the three aspects. The major target of the plan is structural reform to become a bank that is absolutely necessary for Yamagata with an overwhelming presence and trustworthi- ness, in other words an enterprise that materializes vitalization in the region. All of the managers and staff of Yamagata Bank will unite and strive to meet the targets in the plan. CSR charters The management philosophy of Yamagata Bank, which the bank has respected throughout its long history, also applies to CSR management in the current times. Under the 17th long-term management plan, various business problems will be solved by regarding the management philosophy as CSR charters. To prosper together with the region From the aspect of the economy and social contribu- tions (the meaning of our existence) Regional banks share a common destiny with their home region. They bear a responsibility to contribute to the growth of the economy of their region, which is permanent, regardless of the flow of the times. Today, the roles of regional banks are expanding, not only in financial aspects, but also in social aspects. To satisfy all of our customers From the aspect of our customers (customer satisfaction) The lifestyles of our customers are diversifying, which means that the requirements of each customer differ. We endeavor to raise our ability each and every day to solve customers' problems so that they will use our services for a long time. To provide our staff with stability and opportunities - From the aspect of our employees (employee satisfaction) The satisfaction of our employees who serve our customers is vital to deliver good services to customers. Yamagata Bank is managed in a way whereby the employees are proud of working at the bank, are eager to complete their tasks and feel enthusiastic. Basic concept of the 17th long-term manage- ment plan 1.To swiftly meet targets to raise adaptability to the changes in conditions considering the next decade. 2.To contribute to sustainable growth and the devel- opment of the region and our customers on the understanding that the region and Yamagata Bank share a common destiny; and to further enhance region-oriented banking in order to maintain and expand the foundations of our earnings and to raise our corporate value. Basic policies in three years (fiscal 2012-2014) 1.We make the utmost efforts to solve the problems of our customers actively and swiftly by using the advantage of our comprehensive finical informa- tion service. 2.We provide financial products and services of high added-value to satisfy every customers, so that they will keep using our bank continually and permanently. 3.As the core of innovation of Yamagata Prefec- ture, we contribute to the regional sustainable development. Six reconstruction in progress 1.Procurement and investment 2.Operation 3.Profit making structure 4.Human resource development 5.Services reform 6.Consciousness and conduct Outline of major targets 1.To raise earnings capacity (1)To strengthen the foundations of our earnings by building business relationships that are sustainable and materialize development (reform of the profit-making framework) We aim to have business with customers that is sustainable and materializes development; in other words, life-long business for personal customers and permanent business for corporate customers. We will respond to the diverse requirements of customers by offering solutions, and contribute to the growth and development of the region and of our customers by working together to find solutions. (2)To improve both the quality and quantity of earnings by changing business models (reform of procurement and investment, and a profit- making framework) We will change the way that we operate our financing, and lend funds to foster companies and markets, by taking risks proactively. 2.To strengthen business foundations Reform of human resource development, way of thinking, deed, services and operations We will realize sustainable growth by strengthening business management and staff training, which are the foundations of business. 3.To generate the value of the region The Bank will make our best efforts to assist in raising regional vitality by supporting customers in creating added value and by making contribu- tions to materialize a sustainable regional economy and society. K. He Kichishige Hasegawa President 3#4Review of Operations The Conditions of Consolidated Accounts Corporate Data Management (As of June 24, 2014) President Managing Directors Corporate Auditors The General situa- tion of this term (from April 1, 2013 to March 31, 2014) Deposits and negotiable certifi- cates of deposit As a result of our efforts to offer products that respond to the diverse requirements of our customers, the year-end consolidated balance of deposits and negotiable certificates of deposit rose by ¥27.6 billion during the year to ¥2,119.2 billion. Deposits by personal customers increased especially well. Deposited assets The year-end consolidated balance of deposited financial assets rose by ¥18.8 billion during the year to ¥311.1 billion, due to reasons such as a satisfactory increase in personal annuity insurance of ¥29.9 billion in the year. Loans The year-end consolidated balance of loans rose by ¥83.1 billion during the year to ¥1,409.3 billion. This was realized because the Bank proactively responded to the demand for funds by local companies and local public entities, and made constant efforts to increase loans to personal customers, mainly focusing on housing loans. Securities As a result that we invested assets by attaching importance to safety and liquidity and by paying close attention to investment conditions and market trends, the year-end consolidated balance of securities rose by ¥82.1 billion during the year to ¥854.1 billion. Profit and loss The consolidated ordinary income declined by ¥2,189 million on the previous year to ¥45,738 million, mainly because of a decrease in fund invest- ment earnings due to the long-lasting low interest rate environment and the decrease in the gain on the reversal of the allowance for bad debts, a large amount of which was accounted for in the first half of the year. The consoli- dated ordinary expenses were down by ¥3,610 million on the previous year to ¥34,534 million, mainly because of a decrease in security-related losses, such as losses on sales of shares. As a result, the consolidated ordinary profit rose by ¥1,421 million during the year to ¥11,203 million, and the consolidated net income rose by ¥879 million in the year to ¥6,331 million. Results by business sector In the banking business, the ordinary income for the consolidated fiscal year was ¥39,319 million, which was ¥1,951 million less than that for the previous fiscal year; the segment profit for the consolidated fiscal year was ¥10,316 million, which was ¥1,608 million more than that for the previous fiscal year. In the leasing business, the ordinary income for the consolidated fiscal year was \ 4,796 million, which was ¥226 million less than that for the previous fiscal year; the segment profit for the consolidated fiscal year was ¥217 million, which was ¥128 million less than that for the previous fiscal year. In other business sectors, the ordinary income for the consolidated fiscal year was ¥2,544 million, which was ¥41 million less than that for the previous fiscal year; the segment profit for the consolidated fiscal year was ¥739 million, which was ¥96 million less than that for the previous fiscal year. Cash flow Cash flow from operating activities was positive at ¥40.2 billion, due to increases in deposits and decreases in call loans, etc. Cash flow from investing activities was negative at ¥79.4 billion, because the outflow generated by the acquisition of securities, etc., exceeded the inflow generated by sales and redemptions of securities, etc. Cash flow from financing activities was negative at ¥1 billion, because of payments of dividends, etc. As a result of the above, the year-end consolidated balance of cash and cash equivalents decreased by ¥40.2 billion during the year to ¥36.5 billion. Kichishige Hasegawa Senior Managing Directors Hitoshi Watanabe Masahiro Takeda Haruhiko Tanno Directors Takami Konta Tamon Nakagawa Shinichi Nakayama Bin Hamada Yasumasa Gomi Shinichiro Miura Yoshihiro Ishikawa Organization (As of June 24, 2014) Board of Directors Hiromitsu Takahashi Yoshihiro Domon Kosuke Suzuki Masaki Kakizaki Kiyohiro Naganuma Satoshi Nagai Kazuhiro Moriya Gisuke Ohara General Meeting of Shareholders Board of Corporate Auditors Executive Committee President Senior Managing Directors Managing Directors Auditing Division Secretariat General Planning & Coordinations Division Personnel Division General Administration Division Corporate Business Planning Division Corporate Business Support Division Financial Markets Division Credit Division Operation Administration Division Operation Consolidation Division Tokyo Liaison Office Head Office Business Division Branches 5#56 The Yamagata Bank, Ltd., and Consolidated Subsidiaries Financial Statements Consolidated Balance Sheet As of March 31, 2014 and 2013 Assets Cash and due from banks (Note 9) Call loans and bills purchased Trading securities (Note 5) Securities (Notes 5 and 11) Loans and bills discounted (Note 4) Foreign exchange (Note 4) Other assets (Note 11) Tangible fixed assets Buildings (Note 10) Land (Note 6) Construction in process 2014 (Millions of yen) 2013 2014 (Millions of yen) (Thousands of U.S. dollars)(Note 2) 37,502 ¥ 87,777 $ 18,683 72,644 364,384 181,535 57 854,183 34 771,994 557 1,409,351 1,326,192 8,299,494 13,693,658 1,510 1,029 14,677 31,221 26,791 303,356 13,461 13,268 130,793 3,021 3,139 29,354 Consolidated Statements of Income and Comprehensive Income For the years ended March 31, 2014 and 2013 Consolidated Statement of Income Income: Interest on loans and discounts Interest and dividends on securities Other interest Fees and commissions Other operating income Other income Total income 2014 2014 2013 (Millions of yen) (Millions of yen) (Thousands of U.S. dollars)(Note 2) ¥ 19,472 7,204 ¥ 20,221 7,227 $ 189,198 70,003 147 237 1,432 7,349 7,230 71,413 8,201 9,200 79,692 3,361 3,817 32,665 45,738 47,937 444,406 8,923 8,933 86,704 Expenses: 319 13 3,104 Other tangible fixed assets (Note 10) 1,197 1,181 11,630 Interest on deposits. 1,711 1,734 16,632 Intangible fixed assets Software Other intangible fixed assets 1,201 1,366 11,670 Interest on borrowings and rediscounts 74 120 720 983 1,147 9,553 Other interest 1,264 1,282 12,285 217 218 2,117 Fees and commissions 2,256 2,137 21,928 Deferred tax assets (Note 16) 418 481 4,063 General and administrative expenses 23,341 23,540 226,797 Customers' liabilities for acceptances and guarantees 19,764 21,232 Reserve for possible loan losses (8,045) Total assets ¥2,379,310 (10,401) ¥2,312,413 192,035 (78,174) Other expenses 6,021 9,407 58,507 Total expenses 34,670 38,227 336,870 $ 23,118,054 Income before income taxes and 11,067 9,710 107,535 Liabilities and Net Assets Liabilities: Deposits (Note 11) minority interests Income taxes (Note 16) \2,119,245 ¥2,091,639 $ 20,591,188 Current Call money and bills sold Payables under securities lending transactions (Note 11) Borrowed money (Note 11) Foreign exchange Other liabilities 21,204 49,429 55 538 15,366 25,491 206,031 480,272 38 536 19,113 17,236 185,715 Reserve for bonuses to directors and corporate auditors 20 20 194 Reserve for employees' retirement benefits (Note 18) Liability for retirement benefits 1,129 684 6,648 Reserve for directors and corporate auditors' retirement benefits 305 276 2,966 Reserve for losses on dormant deposit repayments 158 187 1,535 Reserve for losses on contingencies 225 147 2,192 Deferred tax liabilities 5,834 3,646 56,691 Deferred tax liabilities arising from revaluation of land (Note 6) Acceptances and guarantees 1,586 1,612 15,417 19,764 21,232 192,035 Deferred Income before minority interests. Minority interests Net income Consolidated Statement of Comprehensive Income Income before minority interests Other comprehensive income (Note 14) Unrealized holding gain on securities Deferred loss on hedging instrument Comprehensive income 2,924 1,127 28,417 1,241 2,308 12,060 4,166 3,436 40,478 6,901 6,273 67,056 569 821 5,534 \ 6,331 ¥ 5,452 $ 61,522 ¥ 6,901 ¥ 6,273 $ 67,056 1,939 8,734 18,843 1,201 9,660 11,675 737 (926) 7,168 8,840 15,007 85,900 Total liabilities ¥2,237,627 ¥2,178,564 $ 21,741,427 Comprehensive income attributable to shareholders of the parent company...... 8,266 14,184 80,322 Net Assets Comprehensive income attributable to minority interests 574 822 5,577 Shareholders' equity (Notes 7 and 12): Common stock, without par value: Authorized 298,350,000 shares Issued - 172,000,000 shares Capital surplus Retained earnings (Note 8) Less treasury stock, at cost ¥ 12,008 4,939 ¥ 101,464 12,008 4,939 96,216 $ 116,678 47,991 985,861 (828) (820) (8,053) Total shareholders' equity. 117,583 112,343 1,142,477 Accumulated other comprehensive income Unrealized holding gain on securities (Note 5) 18,333 17,136 178,132 Deferred loss on hedging instruments (2,370) (3,108) (23,036) Revaluation of land (Note 6) 1,073 1,012 10,426 Retirement benefits liability adjustments Total accumulated other comprehensive income Minority interests Total net assets Total liabilities and net assets ¥ 141,682 28 276 17,063 15,039 165,798 7,034 6,465 68,351 ¥ 133,849 $ 1,376,626 2,379,310 2,312,413 23,118,054 See accompanying notes to consolidated financial statements. 7#6Consolidated Statement of Changes in Net Assets For the year ended March 31, 2014 Consolidated Statement of Cash Flows For the years ended March 31, 2014 and 2013 (Millions of yen) Minority interests Total net assets Cash flows from operating activities: Shareholders' equity Common stock Capital surplus Retained earnings Less treasury stock, at cost Total shareholders' equity Unrealized holding gain on securities Deferred loss on hedging instruments Revaluation of land ¥12,008 ¥4,939 ¥96,216 \ (820) ¥112,343 \ 17,136 \ (3,108) \ 1,012\ Accumulated other comprehensive income Retirement benefits Total of accumulated liability other comprehensive adjustments income \ 15,039 \ 6,465 ¥133,849 Income before income taxes and minority interests 2014 2013 2014 (Millions of yen) (Millions of yen) (Thousands of U.S. dollars)(Note 2). ¥ 11,067 ¥ 9,710 $ 107,535 Balance as of April 1, 2013 Changes in the consolidated fiscal year Cash Dividends. Net income Acquisition of treasury stocks ... Disposition of treasury stocks ... Reversal of land revaluation ...... Changes in items other than shareholders' equity items (1,022) 6,331 (60) TICII (1,022) 6,331 (7) (7) (60) | | | | | | | | | | IIIII in the consolidated fiscal year... 1,197 737 60 | | | | | 28 (1,022) Adjustments to reconcile income before income taxes and minority interests to net cash provided by operating activities: Depreciation and amortization 6,331 Loss on impairment of fixed assets 1,169 124 1,252 11,368 36 1,207 (7) Reserve for possible loan losses (2,355) (4,026) (22,886) (60) Reserve for employees' retirement benefits (1,129) (275) (10,976) Liability for retirement benefits 712 6,925 28 2,024 568 2,593 Reserve for directors and corporate auditors' retirement benefits Reserve for losses on dormant deposits repayments 29 34 284 (29) (22) (281) (net amounts) Total 5,248 (7) 5,240 1,197 737 60 28 2,024 568 7,833 Reserve for losses on contingencies 78 (35) 759 Balance as of March 31, 2014...... ¥12,008 ¥4,939 ¥101,464 \ (828) 117,583 18,333 \ (2,370) \ 1,073\ 28 17,063 ¥ 7,034 141,682 Interest income (26,824) (27,688) (260,634) Interest expense 3,050 3,140 29,638 Loss (gain) on investment securities (3,057) 237 (29,707) Foreign exchange gain, net (78) (85) (764) For the year ended March 31, 2013 Loss on disposal of fixed assets 11 36 112 Shareholders' equity Accumulated other comprehensive income (Millions of yen) Common stock Capital surplus Retained earnings Less treasury stock, at cost Total shareholders' equity Unrealized Deferred loss holding gain on hedging Revaluation of land on securities instruments Total of accumulated other comprehensive income Minority interests Total net assets Loans Deposits (83,153) (37,457) (807,946) 27,547 67,667 267,662 Balance as of April 1, 2012. Changes in the consolidated \ 12,008 ¥4,939 91,742 \ (818) ¥107,872 \7,477 \ (2,182) \ 1,057 6,352 ¥5,648 \119,872 Borrowed money (excluding subordinated borrowings) Due from banks (excluding due from Bank of Japan) 23,938 16,385 232,589 10,017 9,462 97,330 Call loans and bills purchased 50,112 8,475 486,912 fiscal year Cash Dividends Net income.... Acquisition of treasury stocks Disposition of treasury stocks Reversal of land revaluation Changes in items other than shareholders' equity items in the consolidated fiscal year (net amounts) Total Call money and bills sold (538) 521 (5,233) (1,022) 5,452 (1,022) 5,452 (3) (3) 0 0 45 45 | | | | | ||||| ||||| (1,022) 5,452 Payables under securities lending transactions 5,828 12,571 56,636 (3) Trading securities (22) 9 (221) 0 Foreign exchange assets (397) 91 (3,865) 45 (0) 4,474 9,658 (926) (45) 8,687 817 9,505 (2) 4,471 9,658 (926) (45) 8,687 817 13,976 Balance as of March 31, 2013 ¥12.008 * 4,939 \96,216 \ (820) 112,343 \17.136 \ (3,108) \ 1,012 15,039 \ 6,465 133,849 For the year ended March 31, 2014 Common stock Capital surplus Shareholders' equity Retained earnings Accumulated other comprehensive income (Thousands of U.S.dollars) (Note 2) Less treasury stock, at cost Total Unrealized shareholders' equity holding gain on securities Deferred loss Revaluation Retirement benefits on hedging liability of land instruments adjustments Total of accumulated other comprehensive income Minority Total net interests assets Foreign exchange liabilities Interest received Interest paid Other Subtotal Income taxes paid Income taxes refunded Net cash provided by operating activities Cash flows from investing activities: Purchases of investment securities 16 0 162 26,988 27,816 262,225 (3,372) (3,167) (32,769) 1,447 (810) 14,062 41,180 83,881 400,123 (1,308) (1,556) (12,709) 364 40,237 184 3,540 82,509 390,955 Balance as of April 1, 2013 Changes in the consolidated fiscal year Cash Dividends. Net income Acquisition of treasury stocks... Disposition of treasury stocks ... Reversal of land revaluation....... Changes in items other than $ 116,678 $ 47,991 $ 934,869 $ (7,976) $ 1,091,562 $166,499 $ (30,204) $ 9,834 $ ||||| IIIII (9,938) 61,522 S| | (9,938) 61,522 (77) (77) (591) (591) | | | | I | | | | | | | | | | $146,129 $ 62,823 $1,300,515 (536,323) (9,938) 61,522 Proceeds from sales of investment securities Proceeds from redemption of investment securities Expenditure for acquisition of tangible fixed assets Income from sale of tangible fixed assets Expenditure for acquisitions of intangible fixed assets Net cash used in investing activities 397,961 (697,972) 559,620 (5,211,068) 3,866,709 60,231 105,045 585,224 (1,090) (590) (10,595) 14 52 136 (252) (490) (2,453) (79,459) (34,334) (772,047) (77) (591) Cash flows from financing activities: Dividends paid Dividends paid to minority shareholders shareholders' equity items in the consolidated fiscal year... 11,632 7.168 591 161 276 19,668 5,528 25,196 (net amounts) Total 50,991 (77) 50.914 11.632 7,168 591 276 19.668 5,528 76,111 Balance as of March 31, 2014 $ 116,678 $ 47,991 $ 985,861 $ (8,053) $ 1,142,477 $ 178,132 $ (23,036) $ 10,426 $ 276 $165,798 $ 68,351 $ 1,376,626 8 See accompanying notes to consolidated financial statements. Purchases of treasury stock Proceeds from sales of treasury stock Net cash used in financing activities Effect of exchange rate changes on cash and cash equivalents Net increase (decrease) in cash and cash equivalents Cash and cash equivalents at beginning of year Cash and cash equivalents at end of year (Note 9) (1,022) (1,022) (9,938) (5) (5) (49) (7) (3) (77) 0 (1,035) (1,031) (10,065) (1) (40,259) ¥ 76,774 36,515 ¥ (1) 47,142 29,632 (11) (391,168) $ 76,774 745,966 354,798 See accompanying notes to consolidated financial statements. 9#710 Notes to Consolidated Financial Statements March 31, 2014 1. Basis of Presentation The accompanying consolidated financial statements of The Yamagata Bank, Ltd. (the "Bank") have been prepared in accordance with the provisions set forth in the Financial Instruments and Exchange Act of Japan and its related accounting regulations and the Enforcement Regulation for the Banking Law of Japan (the "Banking 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 of International Financial Reporting Standards. In preparing the accompanying consolidated financial statements, certain reclassifications have been made in the consolidated financial statements issued for domestic purposes in order to present them in a form which is more familiar to readers outside Japan. In addition, the notes to the consolidated financial statements include information which is not required under accounting principles generally accepted in Japan but is presented herein as additional information. As permitted by the Financial Instruments and Exchange Act amounts of less than one million yen have been omitted. As a result, the totals shown in the accompanying consolidated financial statements (both in yen and U.S.dollars) do not necessarily agree with the sums of the individual amounts. 2. U.S.Dollar Amounts The Bank maintains its records and prepares its financial statements in yen. Amounts in U.S.dollars are presented solely for the convenience of readers outside Japan. The rate of 102.92=U.S.$1.00, the rate of exchange in effect on March 31, 2014, has been used in translation. The translation should not be construed as a representation that yen could be converted into U.S. dollars at the above or any other rate. 3. Summary of Significant Acco- unting Policies a. Principles of consolidation The accompanying consolidated financial statements include the accounts of the Bank and its 7 subsidiaries, except for 1 subsidiary which is not consolidated due to its immateriality. All significant intercompany accounts and transactions have been eliminated in consolidation. Goodwill represents the difference between the cost of an acquisition and the fair value of the net assets of the acquired subsidiary at the date of acquisition. Immaterial goodwill is charged to income when incurred. b. Securities Securities are classified into three categories: trading, held-to-maturity bonds, or other securities (securities available for sale). Trading. account securities, which are purchased for trading purpose, are carried at market value and held-to-maturity bonds are carried at amortized cost. Marketable securities classified as securities available for sale are carried at market value with changes in unrealized holding gain or loss, net of the applicable income taxes, included directly in net assets. Available-for-sale securities which do not have readily determinable fair value are carried at cost. Cost of securities sold is determined by the moving average method. c. Derivative financial instruments Derivatives are stated at fair market value. d. Tangible fixed assets The Bank recognizes depreciation by the decline-balance method applicable to each specific category of assets. The useful lives of buildings and equipment are summarized as follows: Buildings 2 to 50 years Equipment 2 to 15 years Depreciation of tangible fixed assets of the consolidated subsidiaries is mainly computed using the declining-balance method over the estimated useful lives of respective assets. e. Intangible fixed assets Intangible fixed assets are depreciated by the straight-line method. The Bank's software, which is used in-house, is depreciated based on the estimated period of use (mainly five years) at the Bank and at consoli- dated subsidiaries. f. Leased assets Leased assets on finance lease transactions that do not transfer ownership are depreciated over the useful life of assets, equal to the lease term, by the straight-line method with zero residual value or, where lease agreements stipulate guarantee of residual value, the guaranteed residual value. The Bank leases certain vehicle, computer equipment and other assets. g. Foreign currency translation Foreign-currency-denominated assets and liabilities are translated into yen equivalents at the exchange rates prevailing at the balance sheet date. h. Reserve for possible loan loss The reserve for possible loan losses of the Bank is provided in accordance with internally established standards for write-offs and reserve provisions. The reserve for possible loan losses on loans to borrowers who are classified as substantially bankrupt or who are legally bankrupt is provided based on the amount remaining after deduction of the amounts expected to be recoverable from the disposal of collateral and amounts recoverable under guarentees. In addition, an allowance is provided for loans to borrowers who, although not legally bankrupt, are experiencing serious difficulties and whose failure is imminent. In such cases, a portion of this allowance is provided based on the amount remaining after deduction of the amounts expected to be recoverable from the disposal of collateral and the amounts recoverable under guarantees, and the balance of the allowance is provided after giving full consideration to the amount which the borrower is deemed capable of repaying. In the case of all other loans, the amount provided as an allowance is based on the Bank's historical percentage of actual defaults over a specific fixed period in the past. The relevant departments assess the assets for all of the credit, based on self-assessment standards for assets, and an independent asset audit department audits the results of the assessments. We provide a reserve described above based on the assessment results. The reserve for possible loan losses is calculated based on the quality of the Bank's total loan assets, applying the Bank's internally established rules for the self-assessment of its assets. i. Reserve for bonuses to directors and corporate auditors A reserve for bonuses to directors and corporate auditors is provided in the amount accrued during the year, which is calculated based on the estimated amount of future bonus payment to directors and corporate auditors. j. Employees' retirement benefits For the calculation of employees' retirement benefit obligation, the estimated amount of employees' retirement benefits is attributed to each period by the straight-line method. Prior service cost is amortized as incurred, by the straight-line method over a period (5years) which falls within the average remaining years of service of the active participants in the plans. Actuarial gain and loss are amortized in the year following the year in which the gain or loss is recognized, by the straight-line method over a period (5years) which falls within the average remaining years of service of the active participants in the plans. Also, certain consolidated subsidiaries calculate the net defined benefit liability and retirement benefit cost using the simplified method which assumes the retirement benefit obligation to be equal to the necessary payments of the voluntary retirement for all employees at the fiscal year-end. k. Reserve for directors and corporate auditors' retirement benefits A reserve for directors and corporate auditors retirement benefits is provided in the amount accrued during the year, which is calculated based on the estimated amount of future retirement payments to directors and corporate auditors. I. Reserve for losses on dormant deposit repayments A reserve for losses on dormant deposit repayments which are derecog- nized as liabilities is provided for the possible losses on the future claims of repayments based on the historical repayments experience. m. Reserve for losses on contingencies A reserve for losses on contingencies is provided for future estimated payments to the Credit Guarantee Corporations. n. Leases As lessor Finance lease revenue and related cost of revenue are recorded when the lease payment is received. Investments in leased assets for finance lease transactions which do not transfer ownership of the leased property to the lessee and were entered into before April 1, 2008 was stated at the carrying value of the relevant fixed assets at March 31, 2008, pursuant to the paragraph 81 of Implementation Guidance No.16, "Implementation Guidance on Accounting Standard for Lease. If these lease transac- tions had been retroactively accounted for as ordinary sale transactions pursuant to paragraph 80 of the Guidance, income before income taxes and minority interests would have increased by ¥38 million ($369 thousand) and ¥75 million for the year ended March 31, 2014 and 2013. o. Hedge accounting 1.Interest rate risk hedges The Bank uses deferral hedges described in "Accounting and auditing for the application of financial instrument accounting standards in banking" (Japanese Institute of Certified Public Accoun- tants, Industry Audit Committee Report no. 24, referred to as Report no. 24 of the Industry Audit Committee) to hedge interest rate risks generated by the Bank's financial assets and liabilities. The effectiveness of hedges to offset market fluctuations is assessed for each hedged item (for example, deposits and loans) and its hedging instrument (such as interest rate swaps). Concerning hedges to fix the cash flow, the Bank identifies hedged items by grouping them based on interest rate indexes and on interest rate revision periods in accordance with Report no. 24 of the Industry Audit Committee, and specifies interest rate swaps as hedging instruments. The Bank specifies hedges in such a way that the major conditions of hedged items and hedging instruments are almost the same, so we believe that our hedges are highly effective. The Bank applies the exeptional method for interest rate swaps to certain assets and liabilities. 2.Exchange rate fluctuation risk hedges The hedge we use against exchange rate fluctuation risks, which are generated by our financial assets and liabilities in foreign currencies, is the deferral hedge described in "Accounting and auditing for transactions in foreign currencies, etc., in banking" (Report no. 25 of the Industry Audit Committee of the Japanese Institute of Certified Public Accountants, referred to as Report no. 25 of the Industry Audit Committee). We assess the effectiveness of the hedge by regarding currency swaps and foreign exchange swaps, which are conducted to reduce or eliminate exchange rate fluctuation risks generated by monetary claims and liabilities in foreign currencies, etc., as hedging instruments and by checking whether or not we have appropriate foreign currency positions for the hedging instruments to meet the hedged items (monetary claims and liabilities in foreign currencies, etc.). p. Cash and cash equivalents For the purpose of reporting cash flows, cash and cash equivalents consist of cash and due from the Bank of Japan. q. Consumption tax and regional consumption tax With respect to the Bank and the domestic consolidated subsidiaries, all amounts in the accompanying consolidated balance sheet are recorded exclusive of consumption tax and regional consumption tax. r. Accounting Changes The Bank adopted "Accounting Standard for Retirement Benefits" (ASBJ Statement No.26 of May 17, 2012) and "Guidance on Accounting Standard for Retirement Benefits" (ASBJ Guidance No.25 of May 17, 2012) (except for certain provisions described in the main clause of Section 35 of the standard and in the main clause of Section 67 of the guidance) as of the end of the fiscal year ended March 31,2014. These accounting standards require entities to apply a revised method for recording the retirement benefit obligation, after deducting pension plan assets, as a liability for retirement benefits. In addition, unrecognized actuarial differences and unrecognized prior service costs are recorded as a liability for retirement benefits. Concerning the application of the Accounting Standard for Retirement Benefits, based on the provisional treatment set out in Clause 37 of the standard, the effects of such changes in the current fiscal year I have been recorded in retirement benefits liability adjustments through accumulated other comprehensive income. As a result of this change, a liability for retirement benefits was recognized in the amount of ¥684 million ($6,648 thousand) and accumulated other comprehensive income increased by ¥28 million ($276 thousand) as of March 31,2014. s. Standards issued but not yet effective 1.Accounting standards for retirement benefits On May 17, 2012, the ASBJ issued "Accounting Standard for Retire- ment Benefits" (ASBJ Statement No.26) and "Guidance on Accounting Standard for Retirement Benefits" (ASBJ Guidance No.25), which replaced the Accounting Standard for Retirement Benefits that had been issued by the Business Accounting Council in 1998 with an effective date of April 1, 2000 and the other related practical guidance, being followed by partial amendments from time to time through 2009. (1)Overview The standard provides guidance for the accounting for unrecog- nized actuarial differences and unrecognized prior service costs, the calculation methods for retirement benefit obligation and service costs, and enhancement of disclosures taking into consid- eration improvements to financial reporting and international trends. (2)Scheduled date of adoption Revisions to the calculation methods for the retirement benefit obligation and service costs are scheduled to be adopted from the beginning of the fiscal year ending March 31, 2015. (3) Impact of adopting revised accounting standard and guidance As a result of this adoption, ordinary income and income before income taxes and minority interests for the fiscal year ended March 31, 2015 will decrease by ¥189 million ($1,836 thousand). 2.Accounting standards for business combinations On September 13, 2013, the ASBJ issued "Revised Accounting Standard for Business Combinations" (ASBJ Statement No. 21), "Revised Accounting Standard for Consolidated Financial Statements" (ASBJ Statement No. 22), "Revised Accounting Standard for Business Divestitures" (ASBJ Statement No.7), "Revised Accounting Standard for Earnings Per Share" (ASBJ Statement No.2), "Revised Guidance on Accounting Standard for Business Combinations and Accounting Standard for Business Divestitures" (ASBJ Guidance No.10), and "Revised Guidance on Accounting Standard for Earnings Per Shares" (ASBJ Guidance No.4). (1)Overview Under these revised accounting standards, the accounting treat- ment for any changes in a parent's ownership interest in a subsidiary when the parent retains control over the subsidiary and the corresponding accounting for acquisition-related costs were revised. In addition, the presentation method of net income was amended, the reference to "minority interests" was changed to "non-controlling interests," and transitional provisions for these accounting standards were also defined. 11#812 (2)Scheduled date of adoption The Bank expects to adopt these revised accounting standards and guidance from the beginning of the fiscal year ending March 31, 2016. (3) Impact of adopting revised accounting standard and guidance The Bank is currently evaluating the effect of adopting these revised standards on its consolidated financial statements. 4. Loans and Bills Discounted Loans to borrowers under bankruptcy procedures and delinquent loans totaled ¥2,483 million ($24,125 thousand) and ¥17,724 million ($172,211 thousand), respectively, at March 31, 2014, and ¥2,545 million and ¥18,524 million, respectively, at March 31, 2013. A loan is placed on non-accrual status when substantial doubt as to the collect- ibility of its principal and interest is judged to exist, if payment is past due for a certain period of time, or for other reasons. Loans to borrowers in bankruptcy represent non-accrual loans, after the charge-offs of loans deemed uncollectible, to borrowers who are legally bankrupt as defined in Article 96, Paragraph 1, Subparagraphs 3 and 4 of Enforcement Ordinance of the Corporation Income Tax Law. Delinquent loans are non-accrual loans other than loans to borrowers in bankruptcy or loans on which interest payments have been deferred in order to assist the restructuring of the borrowers. Loans past due for 3 months or more totaled ¥54 million ($524 thousand) and ¥43 million at March 31, 2014 and 2013, respectively. Loans past due for 3 months or more are those whose principal or interest payments are 3 months or more past due but are not included in loans to borrower under bankruptcy procedures or delinquent loans. Restructured loans totaled ¥2,034 million ($19,762 thousand) and ¥3,621 million at March 31, 2014 and 2013, respectively. Restruc- tured loans are those on which the Bank has granted certain conces- sions, such as a reduction of the contractual interest rate or principal amount or a deferral of interest/principal payments, in order to assist the restructuring of the borrowers. Excluded from restructured loans are loans to borrowers under bankruptcy procedures, other non-accrual loans, and loans past due for 3 months or more. The total of loans to borrowers under bankruptcy procedures, other non-accrual loans, loans past due for 3 months or more and restructured loans amounted to ¥22,298 million ($216,653 thousand) and \24,734 million at March 31, 2014 and 2013, respectively. 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 banker's acceptance bills, commercial bills discounted, documentary bills and foreign exchange bought without restrictions. The face value of banker's acceptance bills, commercial bills, documentary bills acquired at discount and foreign exchange bought at a discount was ¥7,967 million ($77,409 thousand) and ¥9,108 million as of March 31, 2014 and 2013, respectively. Overdraft protection on current accounts and contracts for loan commit- ments are agreements under which the Bank and the consolidated subsidiaries are bound to extend loans up to a prearranged amount, at the request of the customer, unless the customer is in breach of contract. The unutilized balance of such contracts amounted to ¥534,367 million ($5,192,061 thousand) and ¥557,280 million as of March 31, 2014 and 2013, respectively, in which the balance of contracts that have a term of one year or less or are unconditionally cancelable at any time were ¥526,021 million ($5,110,969 thousand) and ¥550,771 million as of March 31, 2014 and 2013, respectively. Since many of these contracts are scheduled to expire without the rights having been exercised, any unutilized balance in itself does not necessarily affect the future cash flows of the Bank or its consolidated subsidiaries. A provision is included in many of these contracts which entitles the Bank and the consolidated subsidiaries to refuse the execu- tion of such loans, or to reduce the maximum amount loaned under such contracts when there is a change in the borrowers' financial situation, or when there is the necessity to secure a claim, or when other similar factors arise. In addition, the Bank and its consolidated subsidiaries obtain, if needed, real estate or securities as collateral at the time the contracts are entered into and they subsequently monitor the borrowers' financial condition periodically based on, and in accordance with, the procedures established. If deemed necessary, specific measures such as amendments to the contracts are undertaken in order to control the credit risk. 3. Other securities (as of March 31, 2014) Carrying value exceeding cost Carrying value not exceeding cost (Millions of yen) (Thousands of U.S. dollars) Type Stocks Bonds ¥ Carrying value 31,872 608,988 Cost ¥19,335 596,740 Difference Carrying value Cost Difference ¥ 12,537 $ 309,677 $ 187,864 $121,813. Japanese government bonds 411,430 405,643 12,248 5,786 5,917,100 5,798,095 119,005 3,997,570 3,941,342 56,218 Municipal bonds 112,739 107,946 4,793 1,095,404 1,048,834 46,570 Short-term bonds Corporate bonds 84,818 83,150 Other 97,440 93,476 1,667 3,964 824,115 807,909 16,197 946,754 908,239 38,515 Foreign bonds 73,324 72,028 1,296 712,436 699,844 12,592 Other 24,116 21,448 2,668 234,317 208,394 25,923 Subtotal 738,302 709,552 28,749 Stocks 1,383 1,671 (287) 7,173,552 13,437 6,894,209 279,333 16,235 (2,798) Bonds 82,204 82,343 (138) 798,717 800,068 (1,350) Japanese government bonds 58,267 58,366 (99) 566,138 567,100 (971) Municipal bonds 17,406 17,427 (20) 169,121 169,325 (204) Short-term bonds Corporate bonds 6,531 6,549 (18) 63,457 63,631 (184) Other 24,229 24,473 (243) 235,415 237,786 (2,370) Foreign bonds Other 19,562 19,782 (219) 4,666 4,690 Subtotal Total ¥ 107,818 846,120 108,487 ¥818,040 (23) (669) 190,069 45,336 192,207 (2,137) 45,569 (233) ¥28,080 $ 1,047,590 8,221,142 1,054,090 (6,509) $7,948,309 $272,833 4. Held-to-maturity bonds sold during the year ended March 31,2014 (Millions of yen) (Thousands of U.S. dollars) Cost Proceeds from sales Gain(loss) on sales Cost Corporate bonds Total ¥ ¥ 16 ¥ 16 ¥ 0 $ 156 $ Proceeds from sales 157 Gain(loss) on sales $ 1 16 \ 16 ¥ 0 $ 156 $ 157 $ 1 The sales are due to redemption of securities. 5. Other securities sold during the year ended March 31, 2014 378,542 (Millions of yen) (Thousands of U.S. dollars) Proceeds from Sales Gains on sales Losses on sales Proceeds from sales Gains on sales Losses on sales Stocks Bonds \ 3,520 \ 1,091 ¥ 54 384,923 2,679 Japanese government bonds 2,442 997 930 $ 34,201 3,740,021 $ 10,600 $ 524 26,029 9,687 3,678,021 23,727 9,036 Municipal bonds 4,681 222 45,481 2,157 0 Short-term bonds 0 0 0 Corporate bonds 1,698 13 67 16,498 126 650 Other Total 7,722 ¥396,165 251 5 75,029 2,438 48 \ 4,022 ¥ 1,057 $ 3,849,251 $ 39,078 $ 10,270 5. Securities Trading securities, marketeble securities classified as held-to-maturity debt securities and other securities at March 31, 2014 are summarized as follows: 1.Trading securities Unrealized holding gain charged to current operations (Millions of yen) ¥ 0 Unrealized holding gain charged to current operations (Thousands of U.S.dollars) $ 3 6. Securities which have readily determinable fair value are devaluated to fair value, and the difference between cost and fair value is treated as loss for the fiscal year if fair value has significantly deteriorated compared with cost and fair value is unlikely to recover up to the acquisition cost. The amount of the Impairment loss for the year ended March 31, 2013 was ¥818 million (including ¥818 million of equity securities. The amount of the Impairment loss for the year ended March 31, 2014 was ¥4 million ($38 thousand) [including ¥4 million ($38 thousand) of equity securities]. The criteria for determining whether a security's fair value has "significantly deteriorated" are: where a security whose fair value is 50% or less and where a security whose fair value exceeds 50% but is 70% or less of the acquisition cost, considering the quoted market price transition during a certain period in the past, business performance and other factors. 2. Held-to-maturity bonds (as of March 31, 2014) (Millions of yen) (Thousands of U.S. dollars) Type Carrying value Fair value Difference Carrying Value Fair value Difference Fair value exceeding carrying value Japanese government bonds ¥ \ ¥ $ $ $ Municipal bonds Short-term bonds Corporate bonds 7,005 7,133 127 68,062 69,306 1,233 Other Subtotal 7,005 7,133 127 68,062 69,306 1,233 Fair value not Japanese government bonds exceeding carrying Municipal bonds value Short-term bonds Corporate bonds Other Subtotal Total 1,603 1,566 (37) 15,575 15,215 (359) 1,603 1,566 (37) 15,575 15,215 (359) ¥ 8,609 \ 8,699 ¥ 90 $ 83,647 $ 84,521 $ 874 6. Revaluation of Land Pursuant to the "Law Concerning the Revaluation of Land" (the "Law"), land used for the Bank's business operations was revalued on March 31, 2002. The excess of the revalued aggregate market value over the total book value (carrying amount) before revaluation was included in net assets at an amount net of the related tax effect at March 31, 2002. The corresponding income taxes were included in liabilities at March 31, 2002 as deferred taxes liability on revalued land. The revaluation of the land was determined based on two method, the official prices published by the Commissioner of the National Tax Authority in accordance with Article 2, Paragraph 4 of the "Enforcement Ordinance Concerning Land Revaluation," with certain neccssary adjustments, and the appraisal by Real estate appraiser. The difference between the total fair value of land for business operation purposes, which was revalued in accordance with Article 10 of the above- mentioned law, and the total book value of the land after the revaluation was ¥4,092 million ($39,759 thousand) at March 31, 2014. 7. Shares Issued The number of shares issued and changes during the year ended March 31, 2014 and 2013 are summarized as follows: Thousands of shares Thousands of shares 2014 2013 Treasury stock Common stock issued Treasury stock Common stock issued Beginning of the year Increase during the year Decrease during the year End of the year 1,518 172,000 18*1 1,510 8*2 1*3 172,000 1,536 1,518 172,000 172,000 *1 18 thousand shares were purchased for claims by the shareholders who owned less than the trade unit (1,000 shares). *2 8 thousand shares were purchased for claims by the shareholders who owned less than the trade unit (1,000 shares). *3 1 thousand shares were sold for claims by shareholders who owned less than the trade unit (1,000) shares). 13#914 8. Dividends Dividends for the year ended March 31, 2014 and 2013 are summarized as follows: 2014 2013 November 14, 2013 Resolution by the board of directors June 25, 2013 Resolution by the general shareholders' meeting November 12, 2012 June 26, 2012 Resolution by the board of directors Total dividends Dividend per share ¥511 million \ 3.0 ¥511 million ¥ 3.0 ¥511 million ¥ 3.0 ¥511 million ¥ 3.0 Base date September 30, 2013 March 31, 2013 September 30, 2012 March 31, 2012 Effective date December 10, 2013 June 26, 2013 December 10, 2012 June 27, 2012 November 14, 2013 Resolution by the board of directors 2014 June 25, 2013 Resolution by the general shareholders' meeting Total dividends Dividend per share $ 4,965 thousand $ $ 4,965 thousand 0.03 $ 0.03 Base date September 30, 2013 Effective date December 10, 2013 March 31, 2013 June 26, 2013 Resolution by the general shareholders' meeting 12. Shareholders' Equity In accordance with the Banking Law of Japan, the Bank has provided a legal reserve by appropriation of retained earnings, which is included in retained earnings. The Banking Law of Japan provides that an amount equivalent to at least 20% of the amount to be disbursed as distributions of earnings be appropriated to the legal reserve until the total of such reserve and additional paid-in capital equals 100% of the common stock. The Corporation Law of Japan provides that neither additional paid-in capital nor the legal reserve had been available for dividends, but both might be used to reduce or eliminate a deficit by resolution of the shareholders or may be transferred to common stock by resolution of the Board of Directors. The Corporation Law of Japan also provides that if the total amount of additional paid-in capital and the legal reserve exceeds 100% of the amount of common stock, the excess may be distributed to the shareholders either as a return of capital or as dividends subject to the approval of the shareholders. There were no changes in the common stock and additional paid-in capital accounts for the two years ended March 31, 2014 and 2013. Maturities of lease receivables at March 31, 2014 are as follows: Years ending March 31 (Millions of yen) 2015 ¥ 3,312 2016 2017 2,643 1,957 2018 1,355 716 517 2019 2020 and thereafter (Thousands of U.S.dollars) $ 32,180 25,680 19,014 13,165 6,956 5,023 Maturities of lease receivables at March 31, 2013 are as follows: Years ending March 31 2014 2015 2016 2017 2018 2019 and thereafter (Millions of yen) ¥ 3,344 2,550 1,877 1,191 612 350 13.Loss on Impairment The Bank reviewed its long-lived assets by grouping into the units consisting of operating branches, idle assets, jointly used assets including head office, administrative centers, company housing and dormitories and each consolidated subsidiary for impairment and recognized loss on impairment of land in the amount of ¥124 million ($1,204 thousand) and ¥36 million for the year ended March 31, 2014 and 2013, respectively. The recoverable amount used for measurement of loss on impairment was net selling price and computed mainly based on the real estate appraisal value. 16. Income Taxes The major components of deferred tax assets and liabilities at March 31, 2014 and 2013 are summarized as follows: Deferred tax assets: 2014 2013 (Millions of yen) 2014 (Thousands of U.S.dollars) June 24, 2014 Resolution by the general shareholders' meeting Total dividends ¥511 million $ 4,965 thousand Dividend per share ¥ 3.0 $ 0.03 Base date March 31, 2014 March 31, 2014 Effective date June 25, 2014 June 25, 2014 Dividend of which base date belonged to the year ended March 31, 2014 and 2013 is summarized as follows: 2014 2013 June 25, 2013 Resolution by the general shareholders' meeting 14. Other Comprehensive Income Reclassification adjustments and tax effects allocated to other compre- hensive income for the year ended March 31, 2014 and 2013 are summarized as follows: 2014 2013 2014 Reserve for possible loan losses Reserve for employees' retirement benefits Liability for retirement benefits Devaluation on securities Depreciation and amortization Tax loss carryforwards Other ¥1,283 ¥2,096 401 $ 12,465 239 2,322 274 703 2,662 912 977 8,861 467 457 4,537 3,202 3,383 31,111 Subtotal:deferred tax assets 6,380 8,021 61,989 Valuation allowance (2,051) (2,093) (19,928) Total:deferred tax assets Unrealized holding gains on securities. Other 4,329 5,927 42,061 9,739 9,085 94,626 6 7 58 (Millions of yen) (Thousands of U.S.dollars) ¥511 million ¥ 3.0 March 31, 2013 June 26, 2013 Unrealized holding gain on securities: Amount arising during the year ¥ Reclassification adjustments Amount before tax effect Total:deferred tax liabilities Net deferred tax assets (liabilities) 9,745 9,092 94,685 \(5,416) ¥\(3,164) $ (52,623) 1,766 4,824 ¥ 14,261 (3,057) 253 14,515 Tax effect (565) (4,854) Unrealized holding gain on securities 1,201 9,660 $ 46,871 (29,702) 17,158 (5,489) 11,669 Note: Net deferred tax assets (liabilities) as of March 31, 2014 and 2013 were included in the following accounts in the consolidated balance sheets. 2014 2013 Deferred loss on hedging instruments: 2014 2013 2014 9. Cash Flows Cash and cash equivalents stated in the consolidated statement of cash flows consisted of the following: 11. Assets Pledged Pledged assets and liabilities related to pledged assets as of March 31, 2014 and 2013 were summarized as follows: Tax effect Deferred loss on hedging instruments Amount arising during the year 15 (2,458) 145 Deferred tax assets Reclassification adjustments 1,118 1,033 10,862 Deferred tax liabilities 2014 (Millions of yen) (Thousands of U.S.dollars) \ 418 (5,834) ¥ 481 (3,646) $ 4,061 (56,684) Amount before tax effect 1,134 (1,424) 11,018 (396) 498 (3,847) 2014 2013 2014 737 (926) 7,160 For the fiscal year ended March 31, 2014, the reconciliation of the statutory tax rate of the Bank to the effective income tax rate was as follows: Total other comprehensive income \ 1,939 ¥ 8,734 $ 18,839 Cash and due from banks Deposits with banks other than ¥37,502 (Millions of yen) ¥87,777 (Thousands of U.S.dollars) $ (Millions of yen) (Thousands of U.S.dollars) 2014 Pledged assets: 364,384 Securities ¥185,459 ¥155,315 $ 1,801,972 Statutory tax rate Valuation allowance 2013 38.0% (1.1%) the Bank of Japan Cash and cash equivalents (986) ¥36,515 (11,001) ¥76,774 $ (9,585) 354,798 Liabilities related to the above pledged assets: Non-taxable expenses 0.4% 15. Leases Non-taxable income Deposits ¥ 9,476 \ 9,288 $ 92,071 $ 206,031 Investments in leased assets at March 31, 2014 and 2013 are summarized as follows: 2014 2013 Per capita inhabitants' tax rate Others Effective tax rate (1.4%) 0.4% (0.9%) 35.4% 10. Accumulated Depreciation Accumulated depreciation totaled ¥26,340 million ($255,926 thousand) and ¥26,190 million at March 31, 2014 and 2013, respectively. Payables under securities lending transactions 21,204 ¥ 15,366 Borrowed money \ 46,610 ¥22,640 $ 452,876 In addition, securities totaling ¥44,583 million ($433,181 thousand) and ¥44,401 million were pledged as collateral for settlement of exchange and futures transactions at March 31, 2014 and 2013, respectively. Initial margins of futures markets included in other assets as of March 31, 2014 were ¥144 million ($1,399 thousand). Deposits included in other assets as of March 31, 2014 and 2013 were ¥326 million ($3,167 thousand) and ¥317 million, respectively. Gross lease receivables Estimated residual values Unearned interest income Investments in leased assets 2014 ¥10,502 461 (1,320) ¥9,644 (Millions of yen) ¥9,926 420 (1,339) ¥9,007 (Thousands of U.S.dollars) $ 102,040 4,479 (12,825) $ 93,703 Note: For the fiscal year ended March 31, 2014, the reconciliation of the statutory tax rate of the Bank to the effective income tax rate is not stated as the difference between them is less than 5% of the statutory tax rate. The "Act for Partial Amendment of the Income Tax Act, etc." (Act No.10 of 2014) was promulgated on March 31, 2014 and, as a result, the Bank is no longer subject to the Special Reconstruction Corporation Tax effective for 15#1016 fiscal years beginning on or after April 1, 2014. As a result, the effective statutory tax rate used to measure the Bank's deferred tax assets and liabilities was changed from 38% to 35% for the temporary differences expected to be realized or settled from fiscal years beginning April 1, 2014. The effect of the announced reduction of the effective statutory tax rate was to decrease deferred tax assets by ¥10 million ($97 thousand), increase deferred tax liabilities by ¥77 million ($748 thousand), increase deferred loss on hedging instruments by 3 million ($29 thousand) and increase deferred income taxes by ¥92 million ($893 thousand) as of and for the year ended March 31, 2014. (2) Derivative transactions to which hedge accounting is applied Derivative transactions to which hedge accounting is applied are set force in the table below. These items below do not represent the market risks of the derivative transactions. Interest rate-related transactions (as of March 31, 2014) (Millions of yen) (Thousands of U.S. dollars) Hedge accounting method Type Normal method Interest rate swaps Major hedged item Loans, deposits Contract amounts Contract amounts beyond one year Fair value Contract amounts Contract amounts beyond one year Fair value receive-floating/ \ 77,627 ¥72,627 ¥(3,751) $ 754,246 $ 705,664 $ (36,445) pay-fixed Exceptional method Interest rate swaps Loans receive-floating/ pay-fixed Other Bought Total 10,000 10,000 Loans 97,162 97,162 5,050 5,000 49,067 48,581 ¥ ¥ (3,751) $ $ $ (36,445) 17. Fair Value Information on Derivatives (1) Derivative transactions to which hedge accounting is not applied Derivative transaction to which hedge accounting was not applied are set force in the table below. These items do not reflect the market risks of the derivative transactions. Interest rate-related transactions Contract amounts Contract beyond Fair value (Millions of yen) Unrealized 1 year gain or (loss) <March 31,2014> <March 31,2014> Over-the-counter: Swap: Receive-fixed/pay-floating Receive-floating/pay-fixed \ 8,190 \ 8,190 \ 8,190 8,190 (7) \ (16) 42 (16) <March 31,2013> Over-the-counter: Swap: Receive-fixed/pay-floating Receive-floating/pay-fixed ¥12,364 ¥12,364 \ 12,364 12,364 (9)\ (67) 45 (67) Interest rate-related transactions (as of March 31, 2013) Hedge accounting method (Millions of yen) Contract amounts Contract beyond 1 year (Thousands of U.S. dollars) Fair Unrealized value gain or (loss) Type Normal method Interest rate swaps Major hedged item Loans, deposits Contract amounts Contract amounts beyond one year Fair value receive-floating/ ¥ 80,927 ¥ 80,927 ¥(4,792) Over-the-counter: Swap: Receive-fixed/pay-floating Receive-floating/pay-fixed The above transactions are measured at fair value and the resulting gains or losses are included in the consolidated statement of income. pay-fixed $ 79,576 $ 79,576 $ (68) $ 408 79,576 79,576 (155) (155) Exceptional method Interest rate swaps Loans receive-floating/ 10,000 10,000 pay-fixed Other Bought Total Loans 5,300 5,150 ¥ ¥ ¥ (4,792) The above transactions apply deferral hedge accounting stipulated in JICPA Industry Audit Committee Report No. 24, "Treatment for Accounting and Auditing of Application of Accounting Standard for Financial Instruments in Banking industry." The fair value of over-the-counter transactions is calculated based on the discounted present value and option pricing models. Currency-related transactions (Millions of yen) (Thousands of U.S. dollars) Contract amounts Contract Fair beyond value <March 31,2014> 1 year Unrealized gain or (loss) Contract amounts Contract beyond Fair value Unrealized <March 31,2014> 1 year gain or (loss) Currency-related transactions (as of March 31, 2014) (Millions of yen) (Thousands of U.S. dollars) Over-the-counter transactions: Over-the-counter transactions: Forward exchange contracts Sold ¥ 2,729 \ \ (13)¥ (13) Forward exchange contracts Sold Hedge accounting method Type $ 26,515 $ $ (126) $ (126) Normal method Bought 15 0 0 Bought 145 0 0 Currency swaps Major hedged item Call loans in foreign currency Contract amounts Contract amounts beyond one year Fair value Contract amounts Contract amounts beyond one year Fair value ¥ 18,729 \ ¥ (17) $ 181,976 $ $ (165) <March 31,2013> Total ¥ ¥ ¥ (17) $ $ $ (165) Over-the-counter transactions: Forward exchange contracts 1. The above transactions are measured at fair value and the resulting gains or losses are included in the consolidated statement of income. Sold Bought \1,272\ ¥ 406 14\ (0) 14 (0) 2. Fair values are obtained using the discounted cash flow, etc. Currency-related transactions (as of March 31, 2013) (Millions of yen) Hedge accounting method Type Normal method Currency swaps Bond-related transactions (Millions of yen) Contract amounts Contract beyond Fair value Unrealized gain or Contract amounts Contract beyond <March 31,2014> 1 year (loss) <March 31,2014> 1 year (Thousands of U.S. dollars) Fair Unrealized value gain or (loss) Major hedged item Call loans in foreign currency/ Contract amounts Contract amounts beyond one year Fair value ¥ 33,006 ¥ 940 ¥114 Call money in foreign currencies financial instruments exchange: Forward exchange contracts Sold ¥ ¥ ¥ ¥ financial instruments exchange: Forward exchange contracts Sold Total ¥ * ¥114 $ $ $ $ Bought Bought The above transactions apply deferral hedge accounting stipulated in JICPA Industry Audit Committee Report No. 25, "Treatment for Accounting and Auditing for Transactions in foreign currencies, in Banking industry." The fair value is calculated based on the discounted present value. <March 31,2013> financial instruments exchange: Forward exchange contracts Sold 1. The above transactions are measured at fair value and the resulting gains or losses are included in the consolidated statement of income. ¥7,275 \ - \ 2 \ 2 2. Fair values are obtained using the discounted cash flow, etc. Bought Bond-related transactions (as of March 31, 2014) (Millions of yen) (Thousands of U.S. dollars) Hedge accounting method Type Normal method Bond futures Total Major hedged item Contract amounts Other Securities ¥30,000 Contract amounts beyond one year Contract amounts ¥ ¥ Fair value ¥ 105 \ 105 Contract amounts beyond one year Fair value $ 291,488 $ $ 1,020 $ $ $ 1,020 The fair value of over-the-counter transactions is calculated based on the discounted present value and option pricing models. 17#1118 18. Retirement Benefit Plans The Bank and the consolidated subsidiaries have defined-benefit corporation pension funds and lump-sum retirement benefits. The following table sets forth the funded and accrued status of the plans and the amounts recognized in the consolidated balance sheet for the Bank's and the consolidated subsidiaries' defined retirement benefit plans: (1) The changes on the retirement benefit obligation during the year ended March 31, 2014 are as follows: (4) The components of retirement benefit expense for the year ended March 31, 2014 are as follows: 3. Information of ordinary income, profit or loss, assets, liabilities and other items by reportable segment Year ended March 31, 2014 Reportable segment Other Total Adjustments Banking Leasing Total (Millions of yen) Consolidated financial statements (Millions of yen) (Thousands of U.S.dollars) Retirement benefit obligation at April 1, 2013... \ 15,637 $ 151,933 Service cost.. Interest cost Service cost... 487 4,731 Expected return on plan assets Interest cost. 171 1,661 Actuarial gain/loss. Retirement benefits paid 10 (958) 97 Amortization of actuarial gain/loss cost.. (9,308) Amortization of prior service cost Other..... Prior service cost. Retirement benefit expense. Other. Retirement benefit obligation at March 31, 2014... ¥ 15,348 $ 149,125 Notes (Millions of yen) (Thousands of U.S.dollars) Ordinary income External customers ¥ ¥ 427 $ 4,148 Intersegment 39,175 144 171 (141) 1,661 Total 39,319 ¥ 4,684 112 4,796 ¥ 43,859 ¥ 1,948 256 595 44,116 2,544 678 (1,369) 6,587 Segment profit 10,316 ¥ 1,136 $ 11,037 (2) The changes in plan assets during the year ended March 31, 2014 are as follows: (Millions of yen) (Thousands of U.S.dollars) Plan assets at April 1, 2013.. Expected return on plan assets. ¥ 12,874 141 $ 125,087 Actuarial gain/loss.. 1,009 1,369 9,803 Contributions by employers. 1,535 14,914 Contributions by employees. 59 Retirement benefits paid.. (955) 573 (9,279) (Millions of yen) (Thousands of U.S.dollars) Other..... Plan assets at March 31, 2014.. ¥ 14,664 $ 142,479 Unrecognized prior service cost.... Unrecognized actuarial gain/loss. ¥ $ (43) (417) Other.. Total ¥ (43) $ (417) 1. Concerning the consolidated subsidiaries that use a simplified method, all of the retirement benefit cost is included in the service cost. 2. Service cost does not include the amounts contributed by employees with respect to corporate pension fund plans. Segment assets Segment liabilities Other items Depreciation Interest income 2,367,246 2,232,173 217 12,579 8,857 10,533 2,379,826 2,241,031 739 17,335 13,188 ¥ 45,807 ¥ (69) 852 46,660 11,273 2,397,161 2,254,219 ¥ 45,738 (852) (922) 45,738 (69) (17,851) (16,591) 11,203 2,379,310 2,237,627 Interest expense 1,136 26,768 3,021 23 3 1,160 26,771 9 151 70 3,091 52 1,169 26,923 3,144 (98) (94) 1,169 26,824 Increase in tangible fixed assets and intangible fixed assets 1,251 89 1,341 1 1,343 3,050 1,343 Notes 1. Ordinary income is substituted for sales of companies in other industries. "Adjustments" is elimination of intersegment transactions. 2. "Other" represents business segments that are not the reportable segments and comprises business support service, credit guarantee service, data processing, credit card business, venture capital business, etc. (5) Unrecognized prior service cost and unrecognized actuarial loss included in accumulated other comprehensive income (before tax effect) as of March 31, 2014 are as follows: Year ended March 31, 2013 (Millions of yen) Reportable segment Consolidated Other Total Adjustments financial statements Banking Leasing Total (3) The following table sets forth the funded status of the plans and the amounts recognized in the consolidated balance sheet as of March 31, 2014 for the bank's and the Consolidated subsidiaries' defined benefit plans: (6) The fair value of plan assets, by major category, as a percentage of total plan assets as of March 31, 2014 are as follows: (Millions of yen) (Thousands of Funded retirement benefit obligation........ Plan assets at fair value.. ¥ 15,308 (14,664) U.S.dollars) $ 148,736 643 (142,479) 6,247 Unfunded retirement benefit obligation...... 40 388 Net liability for retirement benefits. 684 6,645 in the consolidated balance sheet Liability for retirement benefits. 684 6,645 Asset for retirement benefits.. Net liability for retirement benefits. ¥ 684 $ 6,645 in consolidated balance sheet Bonds Stocks. General account Other.. Total Notes 35% 40% 22% 3% 100% 1. The expected long-term return on assets has been estimated based on the anticipated allocation to each asset class and the expected long-term return on assets held in each category. Ordinary income External customers ¥ 41,120 Intersegment 150 Total Segment profit Segment assets Segment liabilities Other items Depreciation Interest income 41,270 8,708 2,301,085 2,173,235 ¥ 4,903 119 5,022 ¥ 46,023 270 46,293 ¥ 2,008 577 2,585 ¥ 48,031 847 48,879 ¥ (104) (847) ¥ 47,927 (951) 47,927 346 12,160 8,569 9,054 836 2,313,246 2,181,805 16,171 12,519 9,890 2,329,417 2,194,325 (108) 9,782 (17,003) (15,760) 2,312,413 2,178,564 1,215 27,624 26 Interest expense 3,109 Increase in tangible fixed assets and intangible fixed assets 1,027 84 50 1,242 27,627 3,194 1,077 10 166 46 3 1,252 27,793 3,241 1,080 1,252 (105) (101) 27,688 3,140 1,080 Year ended March 31, 2014 (Thousands of U.S.dollars) (7) The assumptions used in accounting for the above plans were as follows: 1) Discount rate: Ordinary income 2) Expected rate of long-term return on assets: Reportable segment Other Total Adjustments Banking Leasing Total Consolidated financial statements 1.1% 1.1% External customers Intersegment $ 380,635 $ 45,511 1,399 1,088 Total 382,034 46,599 Segment profit Segment assets Segment liabilities Other items Depreciation Interest income 100,233 2,108 23,000,835 21,688,427 122,221 86,057 $ 426,146 2,487 428,643 102,341 23,123,066 21,774,494 $ 18,927 5,781 24,718 $ 445,073 8,278 $ (680) $ 444,403 (8,287) 453,361 (8,968) 444,403 7,180 109,531 (680) 108,851 168,431 128,138 23,291,498 21,902,633 (173,455) (161,212) 23,118,052 21,741,420 19. Segment Information 1. Outline of reportable segments Reportable segments are components for which separate financial information is available and that are subject to periodic examination by the Board of Directors to determine the allocation of management resources and assess performances. The Bank and its consolidated subsidiaries comprise of the Bank and 7 consolidated subsidiaries that are engaged in the financial services business that includes mainly banking services as well as leasing services. Therefore, the reportable segments of the Bank and its consolidated subsidiaries comprise 'Banking' and 'Leasing' that are distinguished by the type of the business. 'Banking' includes deposit taking, lending, investment in securities and exchange services. 'Leasing' represents lease business by Yamagin Lease Co., Ltd., one of the consolidated subsidiaries. 2. Calculation method of ordinary income, profit or loss, assets, liabilities and other items by reportable segment The accounting policies in Note 3, "Summary of Significant Accounting Policies", are adopted for the reportable segments. Reportable segment profit corresponds to ordinary profits. Ordinary income arising from intersegment transactions is based on arm's length prices. 11,037 260,085 Interest expense 29,352 Increase in tangible fixed assets and intangible fixed assets 12,155 223 29 680 864 11,270 260,114 30,033 13,029 87 1,467 505 11,358 261,591 30,547 (961) 11,358 260,629 (923) 29,634 9 13,048 13,048 Notes 1. Ordinary income is substituted for sales of companies in other industries. "Adjustments" is elimination of intersegment transactions. 2. "Other" represents business segments that are not the reportable segments and comprises business support service, credit guarantee service, data processing, credit card business, venture capital business, etc. 19#124. Related information Information by service Year ended March 31, 2014 (Millions of yen) Loan Security investment Lease Other Total Ordinary income from external customers ¥ 19,583 ¥ 11,356 ¥ 4,640 ¥ 10,157 ¥ 45,738 Year ended March 31, 2013 Loan Ordinary income from external customers ¥ 20,345 ¥ Security investment 11,692 (Millions of yen) Lease Other Total ¥ 4,782 ¥ 11,106 ¥ 47,927 Year ended March 31, 2014 (Thousands of U.S.dollars) Loan Security investment Lease Other Total Ordinary income from external customers. $ 190,273 $ 110,338 $ 45,083 $ 98,688 $ 444,403 Information about geographical areas is omitted because the Bank and its consolidated subsidiaries conduct banking and other related activities in Japan without having foreign subsidiaries or foreign branches. Information about major customers is not presented because there are no customers having over a 10% share of ordinary income. 5. Information concerning the impairment loss of fixed assets by reportable segment Year ended March 31, 2014 Impairment loss Year ended March 31, 2013 Impairment loss Year ended March 31, 2014 Impairment loss Reportable segment Banking Leasing ¥ 124 ¥ Reportable segment Banking Leasing ¥ 36 ¥ Reportable segment $ Banking 1,204 Leasing $ Total \ 124 ¥ Total Y 36 * Total $ 1,204 $ Other Other Other (Millions of yen) Total ¥ 124 (Millions of yen) Total ¥ 36 (Thousands of U.S.dollars) Total $ 1,204 2014 2013 2014 (Thousands of U.S. dollars) 61,513 20. Amounts Per Share Amounts per share of net income and net assets, as presented below, are based on the weighted average number of shares of common stock outstanding during each year and the number of shares outstanding at each balance sheet date, respectively. 2014 2013 2014 Net income ¥ (Millions of yen) 6,331 ¥ 5,452 $ Amount not attributable (Yen) (U.S. dollars) to common stock: ¥ 37.14 ¥ 31.98 $ ¥789.89 ¥ 747.20 $ 0.36 7.67 Net income related to common stock 6,331 5,452 61,513 Net income Net assets Diluted net income per share has not been disclosed because the Bank does not issue any potentially dilutive common stock equivalents. The basis for the calculation of net income per share for the year ended March 31, 2014 and 2013 are summarized as follows: Weighted average number of shares of common stock outstanding 170,473 thousand 170,487 thousand 170,473 thousand 21. Financial Instruments 1. Matters relating to the state of financial instruments (1) Policy for financial instruments "Bank" below) The Yamagata Bank group (referred to as the provides financial services mainly connected with the banking business including deposits, loans, buying and selling trading securities and security investments. In the banking business, which is the main business of the Bank, funds are raised by means such as accepting deposits and borrowing money from the call money market, and are invested by providing loans and buying securities. Financial assets and liabilities are susceptible to interest rate fluctuations, so the Bank bears market risk, which is the risk of loss caused by changes in financial market conditions (for example, interest rate risk and price fluctuation risk), and the risk of failing to raise sufficient funds. The Bank performs comprehensive asset and liability management (ALM) to appropriately control the balance of profit and risk in a way that suits fund raising and investment policy as well as taking into consideration the state of assets and liabilities and the trends of the financial and capital markets. The Bank uses derivatives as part of such management. (2) Nature and risk of financial instruments The Bank's financial assets consist mainly of loans to domestic companies and individuals, and the Bank is exposed to the credit risks arising from customers' default on their loans. Securities mainly consist of stocks, bonds and investment trusts, some of which are held until the maturity date, others are held for purposes such as investment and business promotion. Those securities are exposed to credit risk of the relevant issuer, the risks of fluctuations in interest rates and market prices. Deposits, call money, etc., that are financial liabilities have interest rate fluctuation risks caused by differences in interest rates and the periods between financial liabilities and financial assets. Financial liabilities also have the funding risk of loss due to inability to raise funds, because of reasons such as unexpected outflow of funds, and by raising funds at interest rates much higher than the normal rate because of unavoidable reasons; and the market liquidity risk of loss caused by the inability to raise the required funds because of disruption such as a credit crunch in the entire market and by trading at prices greatly disadvantageous compared with the normal price. (3) Risk management for financial Instruments i. Credit risk management The Bank measures the risk amount through credit judgments, credit ratings and self-assessments, attaching importance to the public good, safety, growth potential and profitability, and controls the risk on the principle of elimination of concentration with specific customers, in accordance with credit policy (lending standards), which states the basic ideas about lending, the code of conduct and other matters, and with the credit risk management rules, which specify credit risk management methods. The Bank's credit review division and sales promotion division are separated to ensure independence of each other and stringent credit risk management. The Bank conducts rigorous self-assessment, which includes audits by the audit division, from the aspect of securing the soundness of the assets. Based on the results, the Bank appropri- ately writes off bad debts and sets aside reserves. The Bank has a credit rating system for business loans to understand the true state of companies from both quantitative and qualitative aspects. To reduce and offset credit risk, the Bank receives collateral and guarantees for lending transactions and offsets loans against deposits. The basic ideas about security are stated in the credit policy, and security assessments, management policies and procedures are set out in the operation manual. Measurement method and procedures for credit risk amount are stipulated in the operation manual and the risk is measured monthly based on the borrowers' credit rating and other factors. The results are reported to the ALM Council (the board of managing directors). ii.Market risk management a.Interest rate risk management The Bank's interest rate fluctuation risk is managed by ALM. Risk management methodology and procedures are stated in detail in the rules and manuals related to ALM. Present conditions are checked, state of execution is checked and future actions are discussed by the ALM Council, based on the outcome of the deliberations of the ALM Committee. Risks are monitored using methodology such as basis point value (BPV) and value at risk (VAR), and mainly with gap analyses and interest rate sensitivity analyses, and the results are reported monthly to the ALM Council. As part of ALM, derivatives such as interest rate swap transactions are conducted to hedge interest rate risks. b.Price fluctuation risk management Trading and management of investment instruments such as securities are performed in accordance with the investment policy and risk management policy as determined by the board of directors half-yearly. The Middle Section of the Financial Market Division and the Risk Control Section of the General Planning & Coordinations Division measure market risk for securities investments quantitatively and comprehensively using VaR, etc. The results are reported to the relevant directors, the ALM Council, etc., with the frequency set for each financial instrument to check the state of compliance with the rule. c.Quantitative information concerning market risk The principal financial instruments that are subject to interest rate risk and price fluctuation risk, which are the main risk variables affecting the Bank, are loans and bills discounted, securities, deposits and derivatives transactions. The variance-covariance method (holding period: 90 days*, confidence interval: 99%, observation period: 250 business days) was used for the calculation of VaR, the market risk volume. The volume of overall market risk (estimated loss) as of March 31, 2014 (consolidated accounts settlement date) and 2013 were ¥30,385 million ($295,229 thousand) and ¥20,147 million. The Bank believes that the measurement model estimates market risk with sufficient accuracy because the Bank examines the model by means such as performing backtesting to compare the VaR calculated using the model with the actual profit and loss. However, VaR measures market risk volume with a certain probability that is calculated statistically based on historical market movements, and therefore VaR may fail to represent risk in the case of exceptionally drastic change in market conditions. Holding period for shares purchased for the business relation- ship, which are included in the securities: 125 days. iii.Liquidity risk management Sections managing liquidity risks at the Bank are clearly stated in the liquidity risk management rule that stipulate the liquidity risk management procedures, system and so on. The Bank has a management system to secure sufficient liquidity in case of unexpected events by setting liquidity standards for various cases including times of normality, times of concern, and times of emergency. (4) Supplementary explanation of fair values, of financial instruments Fair value of financial instruments includes market price as well as reasonably determined value where market price is unavailable.The reasonably determined value could differ depending on different conditions and assumptions because calculation of such value is conducted based on certain conditions and assumptions. 2. Fair value of financial instruments Carrying amount and fair value, as of March 31, 2014 and 2013, and the difference between the values are shown in the table below. Unlisted stocks and others whose fair value is deemed to be extremely difficult to determine are not listed in the table (see Note 2). Accounts considered to be immaterial are omitted. 20 20 24 21#13<March 31, 2014> (1) Cash and due from banks (2) Securities Held-to-maturity bonds Other securities (3) Loans and bills discounted Carrying amount ¥37,502 Fair Value ¥37,502 \ (Millions of yen) Difference 8,609 843,527 8,699 843,527 90 1,409,351 Reserve for possible (7,215) loan losses (*1) 1,402,135 1,422,514 20,378 Total assets (1) Deposits 2,291,775 2,312,244 20,469 2,019,521 2,020,281 759 (2) Negotiable certificates of deposit (3) Borrowed money Total liabilities Derivatives transactions (*2) To which hedge accounting is not applied 99,723 49,429 2,168,674 99,725 49,456 2,169,463 2 26 788 To which hedge accounting is applied Total derivatives (37) (3,663) (37) (3,663) ¥ (3,700) ¥ (3,700) ¥ <March 31, 2013> (1) Cash and due from banks (2) Call loans and bills purchased (3) Securities Held-to-maturity bonds Other securities (4) Loans and bills discounted Carrying amount ¥ 87,777 72,644 (Millions of yen) Fair Value Difference ¥87,777 ¥ 72,644 8,858 761,137 8,985 761,137 126 1,326,192 Reserve for possible (9,466) loan losses (*1) 1,316,726 1,341,740 25,013 Total assets (1) Deposits 1,977,246 2,247,145 2,272,285 25,139 1,978,314 1,068 (2) Negotiable certificates of deposit (3) Borrowed money 114,393 25,491 114,393 Total liabilities Derivatives transactions (*2) 2,117,131 25,521 2,118,229 0 29 1,097 To which hedge accounting is not applied To which hedge accounting is applied Total derivatives (61) (4,677) (61) (4,677) ¥ (4,738) ¥ (4,738)¥ <March 31, 2014> (1) Cash and due from banks (2) Securities Held-to-maturity bonds Other securities (3) Loans and bills discounted Reserve for possible loan losses (*1) (Thousands of U.S. dollars) Fair Value Difference $364,380 $ Carrying amount $ 364,380 83,647 8,195,948 13,693,655 84,521 8,195,948 874 (70,102) Total assets (1) Deposits (2) Negotiable certificates of deposit (3) Borrowed money Total liabilities Derivatives transactions (*2) To which hedge accounting is not applied To which hedge accounting is applied Total derivatives 13,623,542 13,821,550 197,998 22,267,537 22,466,420 198,882 19,622,240 968,937 480,266 968,956 480,528 21,071,453 21,079,119 19,629,624 7,374 19 252 7,656 (359) (359) (35,590) (35,590) $ (35,950) $ (35,950) $ (*1) General reserve and specific reserve for possible loan losses correspond- ing to loans and bills discounted are deducted. (*2) Derivative transactions recorded in other assets and other liabilities are presented on a net basis. Note 1 Method to calculate fair values of financial instruments. Assets (1) Cash and due from banks Concerning due from banks without maturity, the carrying amount is reported as fair value because the fair value is approximately the same as the carrying amount. Concerning due from banks with maturity, the carrying amount is reported as fair value because the remaining periods are as short as less than one year, and the fair value is approximately the same as the carrying amount. (2) Securities Fair value of stocks is determined based on the exchange price, and that of bonds based on the exchange price or price quoted by the counter party financial institutions. Fair value of investment trusts is determined based on the price publicly available. Fair value of privately placed guaranteed bonds is calculated by discounting the total amount of principal and interest at an interest rate deemed to be applicable to similar bonds by categories based on internal ratings and terms of the bonds. (3) Loans and bills discounted Fair value of loans and bills discounted is calculated by categorizing the loans based on the type, internal rating, term (the remaining period or the period between interest rate renewals), and then discounting the total of the principals and interest with a rate expected of a new similar loan. For loans with short remaining periods (less than one year), the carrying amount is reported as the fair value because the fair value is approxi- mately the same as the carrying amount. For receivables from "legally bankrupt", "virtually bankrupt" and " "possibly bankrupt" borrowers, possible loan losses are estimated based on factors such as present value of expected future cash flow and expected amounts to be collected from collateral and guarantees. Since the fair value of these items approximates the carrying amount net of the currently expected loan losses at the end of the year, such carrying amount is presented as fair value. Concerning loans whose maturity dates were not set because they were limited to within the values of the collateral offered as securiy, the carrying amount is reported as fair value because the fair value is expected to be approximately the same as the carrying amount considering expected periods of repayments and the terms of interest rate. Liabilities (1) Deposits, and (2) negotiable certificates of deposit Concerning demand deposits, the amounts to be paid if such deposits were withdrawn on the end of the year (book values) are regarded as fair value. Time deposits are separated by period, and the present value is calculated by discounting the future cash flow. The discount rate is the rate used for new deposit-taking. For those with short remaining periods (less than one year), their carrying amount is reported as the fair value because the fair value is approximately the same as the carrying amount. (3) Borrowed money Fair value of borrowed money is calculated by discounting the total amount of the principal and interest of such borrowed money classified by the type, internal rating and the remaining period at the interest rates considered to be applicable to new similar borrowed money. The fair value of short-term borrowed money with remaining period as of the end of the fiscal year not exceeding one year is based on the carrying amount because the fair value is approximately the same as the carrying amount. Derivative transactions Matters related to derivatives transactions are as stated in the Note 17 "Fair Value Information on Derivatives". Note 2 Financial instruments whose fair value is deemed to be extremely difficult to determine were as follows. These were not included in the Asset, "(2) Securities" in "Fair value of financial instruments". <March 31, 2014> Carrying amount Category Millions of yen Unlisted stocks (*1)(*2) ¥ 1,538 $ Investment in Partnerships (*3) 508 Thousands of U.S. dollars 14,943 4,935 Total ¥ 2,046 19,879 <March 31, 2013> Category Carrying amount Millions of yen Unlisted stocks (*1) (*2) ¥ 1,431 Investment in Partnerships (*3) Total ¥ 71 1,503 $ (*1) Unlisted stocks are not subject to fair value disclosure because of the extreme difficulty in determining their fair values as they are not sold in the market. (*2) Impairment accounting was applied to unlisted stocks of ¥9 million in the previous consolidated fiscal year. Impairment accounting was applied to unlisted stocks of ¥0 million ($0 thousand) in this consolidated fiscal year. (*3) In the case that partnership assets consist of unlisted stocks whose fair value is deemed to be extremely difficult to determine, investment in partnerships is not subject to fair value disclosure. Note 3 Scheduled redemption amounts of financial assets and securities with maturities <March 31, 2014> Due from banks 122,864 10 years ¥ 113,918 44,903 (Millions of yen) Due in Due after Due after Due after Due after 1 year 1 year through 3 years through 5 years through or less 3 years 5 years 7 years 7 years through 10 years Due after ¥ 37,502 \ ¥ ¥ ¥ Securities 172,929 Held-to-maturity bonds Corporate bonds 1,863 1,863 4,287 4,287 188,171 1,851 1,851 167,495 607 607 Other securities with a maturity date Japanese government bonds Municipal bonds 121,001 168,641 186,320 166,888 113,918 44,903 81,240 86,619 80,317 118,772 84,760 17,986 20,302 22,045 52,395 6,596 4,586 24,220 Corporate bonds 7,869 31,211 34,886 10,064 7,317 Other 11,589 28,765 18,720 31,454 17,253 2,695 Loans and bills discounted (*) Total ¥ 347,259 507,626¥ 282,283 215,122 141,332 138,379 264,821 455,212 403,293 ¥ 308,828 ¥ 252,297 \ 309,724 *Of loans and bills discounted, the portion whose timing of collection is unforeseeable, such as loan to "Legally bankrupt" borrowers, loan to "Virtually bankrupt" borrowers, loan to "Possibly bankrupt" borrowers, amounting to ¥20,152 million ($195,802 thousand) is not included in the above table. <March 31, 2013> Due from banks Call loans and bills purchased Securities - 158,043 53,330 (Millions of yen) Due in Due after Due after Due after Due after 1 year or less 1 year through 3 years 3 years through 5 years 5 years through 7 years 7 years through 10 years Due after 10 years ¥ 87,777 \ ¥ 72,644 64,062 125,106 Held-to-maturity bonds Corporate bonds 2,209 4,326 2,209 4,326 201,044 1,813 1,813 127,834 510 510 Other securities with a maturity date 61,852 120,780 199,231 127,324 158,043 53,330 Japanese government bonds 24,634 50,346 113,105 84,491 106,491 23,404 Municipal bonds 17,936 31,183 31,387 19,825 4,628 25,325 Corporate bonds 14,015 20,068 36,551 12,191 7,606 Other 5,265 19,181 18,187 10,815 39,316 4,600 Loans and bills discounted (*) 336,854 252,619 211,221 Total ¥ 561,338¥ 377,726 ¥ 412,265 134,526 262,361¥ 124,862 244,408 282,905 ¥ 297,738 *Of loans and bills discounted, the portion whose timing of collection is unforeseeable, such as loan to "Legally bankrupt" borrowers, loan to "Virtually bankrupt" borrowers, loan to "Possibly bankrupt" borrowers, amounting to ¥21,700 million is not included in the above table. 22 22 23 23#147 years through <March 31, 2014 > (Thousands of U.S.dollars) Due in Due after Due after Due after Due after 1 year 1 year through 3 years through 5 years through or less 3 years 5 years 7 years 10 years Due after 10 years Due from banks Securities Held-to-maturity bonds $ 364,380 $ $ $ $ $ 1,193,781 1,680,227 1,828,322 1,627,429 1,106,859 436,290 18,101 Corporate bonds 18,101 Other securities with a maturity date 1,175,680 41,653 41,653 1,638,563 17,984 17,984 5,897 1,810,338 5,897 1,621,531 1,106,859 436,290 Japanese government bonds 789,350 841,614 Municipal bonds 197,260 214,195 780,382 509,084 1,154,022 823,552 174,757 64,088 44,558 235,328 Corporate bonds 76,457 303,254 338,962 97,784 71,094 Other Loans and bills discounted Total $ 112,602 3,374,067 4,932,238 $ 279,488 2,742,741 4,422,969 $ 181,888 2,090,186 3,918,509 305,616 167,635 26,185 1,373,221 3,000,660 $ 2,451,389 $ 3,009,366 1,344,529 2,573,076 Due after 10 years Note 4 Scheduled repayment amounts of bonds, borrowed money and other interest bearing liabilities <March 31, 2014> (Millions of yen) Due in Due after Due after Due after Due after 1 year 1 year through 3 years through 5 years through 7 years through or less 3 years 5 years 7 years 10 years Deposits (*) ¥ 1,797,678 ¥ Negotiable certificates of deposit 99,103 Borrowed money Total ¥ 47,624 1,944,405 ¥ 176,135 620 1,378 ¥ 45,708 ¥ - ¥ ¥ 426 0 178,133 ¥ 46,135\ 0 ¥ ¥ *Demand deposits are included in "Due in 1 year or less". <March 31, 2013> Deposits (*) Negotiable certificates of deposit Borrowed money Total ¥ Due after 10 years (Millions of yen) Due in Due after Due after Due after Due after 1 year 1 year through 3 years through 5 years through 7 years through or less 3 years 5 years 7 years 10 years 1,727,483¥ 114,298 23,619 1,865,401 ¥ 200,450 ¥ 95 1,366 49,311 ¥ \ 505 0 201,912¥ 49,817 ¥ 0 ¥ ¥ *Demand deposits are included in "Due in 1 year or less". <March 31, 2014> Deposits Negotiable certificates of deposit Borrowed money Total (Thousands of U.S.dollars) Due in Due after Due after Due after Due after Due after 1 year 1 year through 3 years through 5 years through 7 years through or less 3 years 5 years 7 years 10 years 10 years $ 17,466,750 $ 1,711,377 $ 444,111 $ $ $ 962,912 $ 462,728 18,892,392 $ 6.024 13,389 1,730,790 $ 4,139 448,260 0 $ 0 $ $ 22. Subsequent events 1. Issuing of Eurodollar convertible bonds subject to call with maturity in 2019 The issuing of Eurodollar convertible bonds subject to call with maturity in 2019 by the Bank was resolved at a meeting of the board of directors held on April 2, 2014, and payment for the convertible bonds was completed on April 22, 2014. The outline of the issue is as stated below. (1) Name of the convertible bonds The Yamagata Bank Ltd. Eurodollar convertible bonds subject to call with maturity in 2019 (2) Issue price 100% of the face amount of the convertible bonds (face amount of each of the convertible bonds: US$100,000) (3) Offer price 102.5% of the face amount of the convertible bonds (4) Total amount of the issue value (total amount to be paid in) US$100 million (5) Interest rate of the convertible bonds No interest is paid on the convertible bonds. (6) Security and guarantee The convertible bonds are neither secured nor guaranteed. (7) Payment date and issue date of the convertible bonds April 22, 2014 (8) Redemption date The convertible bonds will be redeemed on April 22, 2019 (redemption date) at 100% of the face amount of the convertible bonds. There are stipulations concerning advanced redemption and retirement by purchase under predetermined conditions in the principles of the issue. (9) Matters related to the warrants 1) Total number of the warrants: 1,000 2) Type, details and number of shares associated with the warrants The type and details of the shares associated with the warrants are shares of common stock of the Bank (number of shares to constitute one unit: 1,000 shares) and the number of shares of common stock of the Bank to be issued by the Bank subsequent to the execution of the warrants is obtained by dividing the total face amount of the convertible bonds to be executed by the conversion price stated in 6) below. Notwithstanding the foregoing, if a fraction of less than one share is generated as a result of such execution, the fraction will be dropped and payment in cash for that fraction will not be made. 3) Allotment date of the warrants: April 22, 2014 4) Exercise period of the warrants From May 6, 2014 to April 8, 2019 (In accordance with the time and place of the execution of the warrant) 5) Amount to be paid in when executing the warrants When executing the warrants, the convertible bonds to which the warrants are attached will be used for financing, in which case the value of the convertible bonds will be the same as their face amount. 6) Conversion price: US$5.09 (initial) 7) Capital and capital reserve to be increased by issuing shares subsequent to the execution of the warrants The amount of the capital to be increased by the issuing of shares subsequent to the execution of the warrants will be the amount that is obtained by multiplying the limit of the increase in the capital, etc., that is calculated as set forth in Article 17 of the Ordinance on Company Accounting by a factor of 0.5. If, as a result of this, a fraction of less than one yen is generated, then the fraction will be rounded up. The amount of the capital reserve to be increased will be the amount that is obtained by deducting the amount of the capital to be increased from the limit of the increase in the capital, etc. 8) Issuing of warrants by a successor company, etc., in the case of organizational restructuring, etc., of the Bank There are stipulations in the principles of the issue. 9) Reasons why payment is not required to obtain the warrants Payment will not be required to obtain the warrants, considering that the warrants are attached to the convertible bonds, for this reason, warrants may not be separated from the convertible bonds and transferred; and that the convertible bonds and the warrants are closely related to each other because to execute the warrants, the convertible bonds to which the warrants are attached are used for financing; and considering the financial value for the Bank based on the value of the warrants and the terms of issue of the convertible bonds, including the interest rate and the amount to be paid in. (10) Use of the funds raised The funds raised through the issuing of the convertible bonds are planned to be used as general working capital for loans in US dollars, investment in securities in US dollars, etc., mainly in fiscal 2014. (11) Financial instruments exchange for listing The convertible bonds will be listed at Singapore Exchange Limited. 2. Acquisition of treasury stocks At the meeting of the board of directors of the Bank that was held on April 2, 2014, the following were resolved with regard to the acquisition of treasury stocks in compliance with article 165, paragraph (3) of the Companies Act applied by the reading of article 156 of the Companies Act. (1) Type of shares to be acquired: (2) Total number of shares to be acquired: (3) Total acquisition cost of shares: (4) Period of acquisition: 3. Cancellation of treasury stocks Shares of common stock of the Bank 7 million shares (maximum) ¥3,500 million (maximum) April 3, 2014 to September 22, 2014 At the meeting of the board of directors that was held on May 15, 2014, it was resolved that the Bank would cancel its treasury stocks, and the Bank did so, in compliance with Article 178 of the Companies Act. (1) Type of shares to be canceled: (2) Number of shares to be canceled: (3) Total number of outstanding shares after cancelation: (4) Date of cancellation: Shares of common stock of the Bank 2 million shares 170 million shares May 30, 2014 24 24 25#15The Board of Directors The Yamagata Bank, Ltd. Independent Auditor's Report We have audited the accompanying consolidated financial statements of The Yamagata Bank, Ltd. and its consolidated subsidiaries, which comprise the consolidated balance sheet as at March 31, 2014, and the consolidated statements of income, comprehensive income, changes in net assets, and cash flows for the year then ended and a summary of significant accounting policies and other explanatory information, all expressed in Japanese yen. Management's Responsibility for the Consolidated Financial Statements Management is responsible for the preparation and fair presentation of these consolidated financial statements in accordance with accounting principles generally accepted in Japan, and for designing and operating such internal control as management determines is necessary to enable the prepara- tion and fair presentation of the consolidated financial statements that are free from material misstatement, whether due to fraud or error. Auditor's Responsibility Our responsibility is to express an opinion on these consolidated financial statements based on our audit. We conducted our audit in accordance with auditing standards generally accepted in Japan. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclo- sures in the consolidated financial statements. The procedures selected depend on the auditor's judgment, including the assessment of the risks of material misstatement of the consolidated finan- cial statements, whether due to fraud or error. The purpose of an audit of the consolidated financial statements is not to express an opinion on the effectiveness of the entity's internal control, but in making these risk assessments the auditor considers internal controls relevant to the entity's prepa- ration and fair presentation of the consolidated financial statements in order to design audit procedures that are appropriate in the circumstances. An audit also includes evaluating the appro- priateness of accounting policies used and the reasonableness of accounting estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion. Opinion In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of The Yamagata Bank, Ltd. and its consolidated subsid- iaries as at March 31, 2014, and their consolidated financial performance and cash flows for the year then ended in conformity with accounting principles generally accepted in Japan. Convenience Translation We have reviewed the translation of these consolidated financial statements into U.S. dollars, presented for the convenience of readers, and, in our opinion, the accompanying consolidated financial statements have been properly translated on the basis described in Note 2. June 24, 2014 Yamagata, Japan Non-Consolidated Balance Sheet As of March 31, 2014 and 2013 Assets Cash and due from banks Call loans and bills purchased. Trading securities Securities Loans and bills discounted Foreign exchange Other assets Tangible fixed assets Buildings 2014 2013 2014 (Millions of yen) (Millions of yen) (Thousands of U.S.dollars) \ 37,493 18,683 ¥ 87,769 72,644 $ 364,301 181,535 57 854,127 1,418,297 34 771,931 557 8,298,943 1,333,899 13,780,585 1,510 1,029 14,677 12,549 10,518 121,933 13,228 13,057 128,530 3,010 3,128 29,250 8,923 8,933 86,704 64 60 626 319 13 3,104 910 922 8,845 1,144 1,325 11,121 929 1,109 9,033 Other intangible fixed assets 214 215 2,087 Customers' liabilities for acceptances and guarantees Reserve for possible loan losses... ¥ 15,940 (6,504) 2,366,529 16,754 154,882 ¥ (8,596) 2,300,369 $ (63,195) 22,993,873 Land Leased assets Construction in process Other tangible fixed assets Intangible fixed assets Software Total assets Liabilities and Net Assets Liabilities: Deposits Call money Other liabilities ¥ 2,126,057 ¥ Payables under securities lending transactions Borrowed money 21,204 46,651 2,098,715 538 15,366 22,694 $ 20,657,379 206,031 453,280 Foreign exchange 55 13,703 Reserve for bonuses to directors and corporate auditors Reserve for employees' retirement benefits Reserve for directors and corporate auditors' retirement benefits Reserve for losses on dormant deposit repayments Reserve for losses on contingencies 20 38 12,370 20 536 133,145 194 687 1,091 6,682 288 264 2,805 158 187 1,535 225 147 2,192 Deferred tax liabilities 5,593 3,433 54,352 Deferred tax liabilities arising from revaluation of land Acceptances and guarantees 1,586 15,940 2,232,173 1,612 15,417 ¥ 16,754 2,173,235 $ 154,882 21,688,436 Total liabilities.... Net Assets Common stock Issued Authorized - 298,350,000 shares Capital surplus 172,000,000 shares ¥ Retained earnings Less treasury stock, at cost Total Shareholder's equity Unrealized holding gain on securities Deferred loss on hedging instruments 12,008 4,937 101,203 (828) ¥ 12,008 4,937 95,968 $ 116,678 47,975 983,321 (820) (8,053) 117,320 112,093 1,139,921 18,332 17,135 178,125 (2,370) (3,108) (23,036) Revaluation of land 1,073 1,012 10,426 Total of net assets \ 134,355 2,366,529 ¥ 127,133 2,300,369 1,305,436 $ 22,993,873 Ernst & Young Shin hihon LLC Total of liabilities and net assets 26 26 27 27#16Non-Consolidated Statement of Income For the years ended March 31, 2014 and 2013 2014 2013 2014 (Millions of yen) (Millions of yen) (Thousands of U.S.dollars) Income Interest on loans and discounts ¥ 19,440 ¥ Interest and dividends on securities Other interest 7,204 20,172 7,227 $ 123 222 Fees and commissions Other income 6,086 5,964 6,464 7,691 62,808 Total income 39,319 41,280 382,042 Expenses: Directory 188,890 69,999 1,203 59,140 15,454 Headquarters: 1-2, Nanukamachi 3-chome, Yamagata 990-8642,Japan Phone: +81 23 623 1221 Financial Markets Division: 1-2, Nanukamachi 3-chome, Yamagata 990-8642,Japan Phone: +81 23 634 7547 Fax: +81 23 625 7185 S.W.I.F.T.: YAMBJPJT Foreign Exchange Offices: Head Office 1-2, Nanukamachi 3-chome, Yamagata 990-8642,Japan Phone: +81 23 623 1221 Yonezawa Branch 1-5, Monto-machi 3-chome, Yonezawa 992-0039, Japan Phone: +81 238 22 2010 Nagai Branch 11-14,Sakae-machi, Nagai 993-0084,Japan Phone: +81 238 88 2105 Sagaechuo Branch 2-33, Chuo 1-chome, Sagae 991-0021, Japan Phone: +81 237 86 1141 Tendo Branch 9-1,Higashihoncho 1-chome, Tendo 994-0026, Japan Phone: +81 23 653 3355 Shinjo Branch 2-16, Hon-cho, Shinjo 996-0027, Japan Phone: +81 233 22 2461 Tsuruoka Branch 1-13, Hon-cho 2-chome, Tsuruoka 997-0034,Japan Phone: +81 235 22 5530 Sakata Branch 10-1, Hon-cho 3-chome, Sakata 998-0043, Japan Phone: +81 234 22 7222 Tokyo Branch 5-16, Kyobashi 2-chome, Chuo-ku, Tokyo 104-0031,Japan Phone: +81 3 3567 1861 The Yamagata Bank, Ltd. (Head Office) Yurihonjo Akita district: 1 branch Yamagata- Yamagata district: Head Office and 68 branches -Sendai Miyagi district: 5 branches. -Koriyama Fukushima district: 1 branch -Utsunomiya Tochigi district: 1 branch Saitama Saitama district: 1 branch Tokyo Tokyo district: 1 branch (Total: Head Office and 78 branches) (As of June 30, 2014) Interest on deposits 1,714 Interest on borrowings and rediscounts 45 1,739 88 16,659 441 Other interest 1,261 1,279 12,258 Fees and commissions 2,473 2,314 24,035 General and administrative expenses 22,053 22,265 214,276 Other expenses 1,590 4,954 Total expenses 29,139 32,644 283,126 28 Income before income taxes Income taxes: Current Deferred Net income. Amounts per share: Net income Net assets 10,180 8,636 98,915 2,694 928 26,177 1,167 2,270 11,345 3,861 3,198 37,523 ¥ 6,318 \ 5,437 $ 61,392 2014 2013 2014 (yen) 37.06 788.18 (yen) 31.90 745.73 (U.S.dollars) 0.36 7.65 Bank Data: (As of March 31, 2014) Date of Incorporation: 1896 Authorized Shares: 298,350,000 Issued Stocks: 172,000,000 Number of Shareholders: 8,771 Number of Employees: 1,322 Cherries Cherries are a special product of Yamagata Prefecture. Stylized cherries are used as the symbol of The Yamagata Bank, Ltd. 29 29