YMFG Annual Report YMFG Notes to Consolidated

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					        YMFG Notes to Consolidated Financial Statements
     Years ended March 31, 2011 and 2010


     1. BASIS OF PRESENTATION                                             2. SIGNIFICANT ACCOUNTING POLICIES

     Yamaguchi Financial Group, Inc. (“YMFG”) was established             Consolidation and equity method
     on October 2, 2006 as a holding company for The Yamaguchi            (1) Scope of consolidation
     Bank, Ltd. (“Yamaguchi Bank”) and Momiji Holdings,                      Japanese accounting standards on consolidated financial
     Inc. (“Momiji Holdings”) through a statutory share transfer             statements require a company to consolidate any
     (kabushiki iten). Upon formation of YMFG and completion                 subsidiaries of which the company substantially controls
     of the statutory share transfer, Yamaguchi Bank and Momiji              the operations, even if it is not a majority owned
     Holdings became wholly owned subsidiaries of YMFG.                      subsidiary. Control is defined as the power to govern the
        On October 1, 2010, YMFG established Kitakyushu                      decision making body of an enterprise.
     Financial Project Co., Ltd. for the purpose of the establishment         (i) 14 consolidated subsidiaries, the same as at the
     of a banking subsidiary in the city of Kitakyushu.                           preceding fiscal year-end
        YMFG and its consolidated subsidiaries (“the Group”)                      The names of the consolidated subsidiaries are
     maintain their accounts and records in accordance with                       described on page 6.
     the provisions set forth in the Financial Instruments and                      In addition to the establishment of Kitakyushu
     Exchange Law and its related accounting regulation and in                    Financial Project Co., Ltd., YMFG acquired shares
     conformity with accounting principles and practices generally                in Momiji Consulting Co., Ltd., which had been an
     accepted in Japan (“Japanese GAAP”). Japanese GAAP are                       affiliated company accounted for under the equity
     different in certain respects as to application and disclosure                method. Accordingly, these companies were included
     requirements of International Financial Reporting Standards.                 in the scope of consolidation from the fiscal year
        The accompanying consolidated financial statements are a                   ended March 31, 2011.
     translation of the audited consolidated financial statements                    Furthermore, Yamagin Business Operations Center,
     of YMFG which were prepared in accordance with Japanese                      Ltd., and Momiji Staff Service Co., Ltd., have been
     GAAP and were filed with the appropriate Local Finance                        excluded from the scope of consolidation due to
     Bureau of the Ministry of Finance as required by the Financial               liquidation.
     Instruments and Exchange Law.                                           (ii) 4 unconsolidated subsidiaries, the same as at the
        In preparing the accompanying consolidated financial                       preceding fiscal year-end
     statements, certain restructuring and reclassifications have                  Principal company:
     been made in the consolidated financial statements issued                     Yamaguchi Capital 2nd Investment Business Limited
     domestically in order to present them in a form which is more                Liability Association
     familiar to readers outside Japan.                                             The unconsolidated subsidiaries are excluded
        The consolidated financial statements are stated in Japanese               from the scope of consolidation because their total
     yen. The translations of the Japanese yen amounts into U.S.                  amounts in terms of total assets, ordinary income,
     dollars are included solely for the convenience of readers, using            net income and retained earnings are so immaterial
     the prevailing exchange rate at March 31, 2011, which was                    that they do not hinder a rational judgment of
     ¥83.15 to U.S.$1.00. The convenience translations should                     YMFG’s consolidated financial position and results
     not be construed as representations that the Japanese yen                    of operations when excluded from the scope of
     amounts have been, could have been, or could in the future be,               consolidation.
     converted into U.S. dollars at this or any other rate of exchange.   (2) Application of the equity method
                                                                             Japanese accounting standards also require any
                                                                             unconsolidated subsidiaries and affiliates over the financial
                                                                             and operating policies of which YMFG is able to exercise
                                                                             material influence to be accounted for by the equity
                                                                             method.
                                                                              (i) No unconsolidated subsidiary was accounted for by
                                                                                  the equity method


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    (ii) As at March 31, 2011, the 4 affiliates accounted for           on Disclosures about Certain Special Purpose Entities”
         by the equity method were as follows:                        (ASBJ Statement No. 15, March 29, 2007). Therefore,
         YM Saison Co., Ltd.                                          notes regarding this company have been omitted.
         Yamaguchi Lease Co., Ltd.
         Yamaguchi Capital Co., Ltd.                              Trading assets, trading liabilities and transactions for
         Momiji Card Co., Ltd.                                    trading purposes
   (iii) As at March 31, 2011 and 2010, 4 unconsolidated          The valuation method of “Trading assets” and “Trading
         subsidiaries were not accounted for by the equity        liabilities” is as follows:
         method. Principal company:                                   Balances incurred by transactions of which purpose is to
         Yamaguchi Capital 2nd Investment Business Limited        earn a profit by taking advantage of short-term fluctuations in
         Liability Association                                    a market or discrepancies in different markets of interest rates,
           Unconsolidated subsidiaries that are not accounted     currency exchange rates, share prices or other indices (hereinafter
         for by the equity method are also excluded from the      referred to as “trading purposes”) are included in “Trading
         scope of equity method because their total amounts       assets” or “Trading liabilities” in the consolidated balance sheets
         in terms of net income and retained earnings are         as of the date on which the transactions have been contracted.
         so immaterial that they do not hinder a rational             Trading assets and trading liabilities are valued, in the case
         judgment of YMFG’s consolidated financial position        of securities and commercial paper, at the market value as of
         and results of operations.                               the date of the balance sheet and, in the case of derivatives,
   (iv) No affiliates which were not accounted for by the           including swaps, futures and options, at the amount due
         equity method.                                           if the transactions were to be settled as of the date of the
(3) The balance sheet dates of consolidated subsidiaries          balance sheet. “Trading income” and “Trading expenses”
   (i) The balance sheet date of each consolidated subsidiary     include interest income and interest expense, respectively, and
       is as follows:                                             gains and losses, respectively, resulted from the valuation of
                February 28 1 company                             securities, commercial paper, derivatives and etc, which are
                March 31       13 companies                       included in “Trading assets” or “Trading liabilities.”
   (ii) The accounts of consolidated subsidiaries are
        consolidated into the Group accounts as of the            Securities
        subsidiaries’ balance sheet dates.                        With regard to the valuation of securities, held-to-maturity debt
          Appropriate adjustments are made for material           securities are stated at amortized cost (straight-line method) using
        transactions during the periods between the above         the moving-average method. Investments in unconsolidated
        stated balance sheet dates and the consolidated balance   subsidiaries that are not accounted for by the equity method
        sheet date.                                               are stated at cost determined by the moving-average method.
(4) Matters related to special purpose companies                  Available-for-sale securities with market values are in general
    outside the scope of disclosure                               stated at market value (cost of sale calculated primarily according
   One special-purpose company is excluded from the scope         to the moving-average method) indicated according to their
   of consolidation, as it is determined not to be a subsidiary   stock market price at the consolidated balance sheet date (for
   of the investor as stipulated in Paragraph 7, Article 8, of    equity securities, the average market price during the one-month
   the Financial Statement Regulations.                           period ending on the consolidated balance sheet date). Available-
      In addition, eliminating the above-stated special-          for-sale securities having no readily available market value are
   purpose company from the scope of consolidation is             valued at cost using the moving-average method.
   determined to have no material effect on the financial               Unrealized gain (loss) on available-for-sale securities are
   conditions and operating performance of the group,             reported as a component of net assets.
   judged from their total amounts in terms of total assets,         The securities constituting the trust assets within money
   ordinary profit, net income (in proportion to ownership)        held in trust are valued using the same methods as for the
   and retained earnings (in proportion to ownership), as         above-mentioned trading assets, liabilities and securities.
   described in Paragraph 3 of the “Implementation Guidance


                                                                                                                                         23
     Derivatives                                                     bankrupt, an allowance is provided for based on the amount
     Derivatives other than those for specific trading purpose or     of loans, net of amounts expected to be collected through
     those for which certain exceptional accounting treatment in     disposition of collateral or through execution of guarantees.
     applied are stated at fair value.                                  For loans to borrowers in danger of bankruptcy, an
                                                                     allowance is provided for in the amount of loans, net of
     Method of hedge accounting                                      amounts expected to be collected through disposition of
     The subsidiaries that operate banking business (“The            collateral or through execution of guarantees, and other sources.
     Banks”) apply deferred hedge accounting in accordance with         Loans to normal borrowers and borrowers requiring caution
     “Treatments of Accounting and Audit on Application of           are classified into certain groups, and an allowance is provided
     Accounting Standard for Financial Instruments in Banking        for each group using the rate of loan losses experienced for the
     Industry”(JICPA Industry Audit Committee Report No.24).         group during certain reference periods in the past.
     As for the hedge to offset market fluctuation, the Banks assess      Each branch as well as the credit supervision department
     the effectiveness of the hedge by grouping the hedged items      evaluates all loans in accordance with the self-assessment rule, and
     such as deposits and loans and the hedging instruments such     their evaluations are audited by the asset audit section, which is
     as interest rate swaps by their maturity. The Banks apply       independent from each branch and credit supervision department;
     exceptional treatments permitted for interest rate swaps to     the evaluations are revised as required based on the audits.
     certain assets and liabilities.                                    Other consolidated subsidiaries provide for an allowance
        Deferred hedge losses and gains on hedging derivatives       for an amount calculated using the rate of collection losses in
     that were designated as “Macro Hedge,” by adopting the          the past for loans of normal borrowers in addition to amounts
     report “Temporary Treatment in Accounting and Audit for         estimated based on collectibility analysis for borrowers in
     Banks on Application of Accounting Standard for Financial       danger of bankruptcy and certain other borrowers.
     Instruments” issued by the Industry Audit Committee of
     JICPA, are allocated to interest income or interest expenses    Tangible fixed assets (excluding lease assets)
     over nine years from the 2003 fiscal year, according to          Tangible fixed assets are stated at cost less accumulated
     remaining period and assumed principle of each hedging          depreciation, except for certain revalued land.
     instrument. Deferred hedge losses on hedging derivative based      Depreciation of tangible fixed assets of the Banks is
     on “Macro Hedge” amounted to ¥11 million ($132 thousand)        computed by using the declining-balance method except
     at March 31, 2011, and ¥32 million at March 31, 2010.           for buildings acquired after March 31, 1998, which are
        Also, the Banks apply the deferred hedge accounting to       depreciated using the straight-line method.
     hedge foreign exchange risks associated with various foreign       The estimated useful lives of the assets are primarily as
     currency denominated monetary assets and liabilities as         follows:
     stipulated in “Treatment of Accounting and Auditing                Buildings: 7 to 50 years
     Concerning Accounting for Foreign Currency Transactions in         Others: 3 to 15 years
     Banking Industry” (JICPA Industry Audit Committee Report           Other consolidated subsidiaries depreciate tangible fixed assets
     No. 25). The effectiveness of the currency swap transactions,    using mainly the declining-balance method over the useful lives
     exchange swap transactions and similar transactions hedging     of the respective assets provided by the tax law in Japan.
     the foreign exchange risks of monetary assets and liabilities      As explained in Note 14, pursuant to the Law concerning
     denominated in foreign currencies is assessed based on          Revaluation of Land, certain land used for business operations
     comparison of the foreign currency position of the hedged       was revalued at fair value on March 31, 1999.
     monetary assets and liabilities and the hedging instruments.
                                                                     Intangible fixed assets (excluding lease assets)
     Allowance for loan losses                                       Depreciation of intangible fixed assets is computed by using
     The Banks provide allowance for loan losses according to the    the straight-method. Software costs for internal uses are
     following write-off and provisioning standards.                  amortized over the estimated useful life (mainly 5 years).
        For loans to borrowers who are legally bankrupt (due to         In addition, the amortization of goodwill is amortized by
     bankruptcy, composition, suspension of transactions with        using the straight-line method over 10 years.
     banks by the rules of clearinghouses, etc.) or substantially
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Lease assets                                                         Past service cost: Profit and loss recognition by the straight-
Lease assets included within tangible and intangible fixed                               line method over a fixed number of years
assets related to finance lease transactions that do not transfer                        (2 years) within the employees’ average
ownership are depreciated over the lease term using the                                 remaining service period from the time of its
straight-line method. For lease assets with a guaranteed residual                       incurrence
value stated in their lease agreements, the residual value is that   Actuarial cost: Recognition of expenses apportioned by the
guaranteed residual value. Otherwise, the residual value is zero.                       straight-line method over a fixed number
                                                                                        of years (Mainly 10 to 11 years) within the
Accounting for certain lease transactions                                               employees’ average remaining service period
Of consolidated subsidiaries’ finance lease transactions that                            at the time of its incurrence in each fiscal
do not transfer ownership, lease transactions belonging to                              year, starting from the next fiscal year of
accounting periods that commenced prior to April 1, 2008,                               incurrence
are treated as ordinary operating lease transaction.
                                                                     (Changes in Accounting Method)
Income taxes                                                         During the fiscal year ended March 31, 2010, the Group
Income taxes comprise corporate, enterprise and inhabitant           adopted “Partial Amendments to Accounting Standard for
taxes. The Group recognizes tax effects of temporary                  Retirement Benefits (Part 3)” (ASBJ Statement No. 19, July
differences between the financial statement basis and the tax          31, 2008).
basis of assets and liabilities. The asset and liability approach       As this adoption resulted in employing the same discount
is used to recognize deferred tax assets and liabilities for the     rate as was used under the previous method, the adoption
expected future tax consequences of temporary differences.            of this standard did not affect the consolidated financial
                                                                     statements for the fiscal year ended March 31, 2010.
Foreign currency translation
Foreign currency assets and liabilities and the accounts of          Provision for directors’ retirement benefits
overseas branches of the Banks are translated into yen at the        Provision for directors’ retirement benefits is provided for
rates prevailing at the consolidated balance sheet date. Other       the estimated amount corresponding to accrued retirement
consolidated subsidiaries’ foreign assets and liabilities are        benefit payments to directors as of the end of the fiscal year.
translated into yen at the rate prevailing at their respective
balance sheet dates.                                                 Provision for loss on interest repayment
                                                                     Provision for loss on interest repayment is provided for
Provision for bonuses                                                possible losses on reimbursements of excess interest payments
Provision for bonuses is provided for payment of bonuses to          and loan losses related to consumer finance loans extended at
employees, in the amount of estimated bonuses which are              interest rates in excess of the maximum interest rate prescribed
attributable to the fiscal year.                                      in the Interest Rate Restriction Law.
                                                                        In accordance with “Audit Guidelines on Consumer Finance
Provision for directors’ bonuses                                     Companies’ Provisions for Possible Losses on Reimbursements
Provision for directors’ bonuses is provided for payment of          of Excess Interest Payments,” issued by JICPA in 2006, the
bonuses to directors and executive officers, in the amount of          amount of such provision is rationally estimated and booked
estimated bonuses which are attributable to the fiscal year.          based on the number of repayment claims by debtors.

Provision for retirement benefits                                     Provision for reimbursement of deposits
Provision for retirement benefits is provided for payment             Provision for reimbursement of deposits is provided for
of retirement benefits to employee, in the amount deemed              in order to meet depositor requests for reimbursement on
accrued at the fiscal year-end, based on the projected                deposits already derecognized as liabilities, in an amount
retirement benefit obligation and the fair value of plan assets       deemed necessary by estimating the losses corresponding to
at the fiscal year-end. The methods for recognizing expenses          the expected requests for reimbursements in the future.
for past service cost and actuarial cost are as follows:
                                                                                                                                        25
     Provision for customers point services                           Changes in significant accounting principles affecting
     A provision for customers point services is provided in          the basis for preparing the consolidated financial
     conjunction with a point system to promote credit card           statements
     use. The reserve is taken out against in preparation for costs   Accounting Standards Related to Financial Instruments
     incurred when credit card members use the points they have       From the end of the fiscal year ended March 31, 2010, the
     received. This is recorded at the amount expected to be used     Group applied the “Accounting Standard for Financial
     in the future as of the balance sheet date.                      Instruments” (ASBJ Statement No. 10, March 10, 2008) and
        Previously, the points given to credit card members were      the Implementation Guidance on Disclosure about Fair Value
     expensed when the points were used. However, because it          of Financial Instruments (ASBJ Guidance No. 19, March 10,
     became possible to rationally calculate the amount expected      2008).
     to be used in the future, and also because the total amount of      Compared with previous methods of recording, this
     points granted became significant, the provision for customers    adoption caused securities to decrease ¥99 million, deferred
     point services is recorded from the year ended March 31, 2010.   tax assets to increase ¥29 million, valuation difference on
        As a result, compared with the previous method, operating     available-for-sale securities to decrease ¥70 million, and
     expenses were ¥53 million higher in the year ended March 31,     ordinary income and income before income taxes each to
     2010, and ordinary income and income before income taxes         increase ¥161 million in the year ended March 31, 2010.
     were lower by that same amount.
                                                                      Accounting standard for asset retirement obligations
     Reserves under the special laws                                  The Group applied the “Accounting Standard for Asset
     Reserves under special laws consist of the product transaction   Retirement Obligations” (Accounting Standards Board of
     responsibility reserve of ¥2 million ($24 thousand) posted by    Japan (ASBJ)) Statement No. 18, March 31, 2008) and the
     YM Securities Co., Ltd., which was calculated according to       “Guidance on Accounting Standard for Asset Retirement
     the specifications of Article 46-5 of the Financial Instruments   Obligations” (ASBJ Guidance No. 21, March 31, 2008) from
     and Exchange Act and Article 175 of the Cabinet Office             the fiscal year ended March 31, 2011. This application had no
     Order Related to the Financial Instruments Business, to          material impact on the consolidated financial statements.
     prepare for losses originating from incidents relating to the
     purchase and sale of securities or other transactions.           Changes in presentation
                                                                      Consolidated statements of income
     Amounts per share of common stock                                Due to an increase compared with the preceding fiscal year
     Computations of net income per share of common stock are         in the materiality of “interest on corporate bonds,” an ¥18
     based on the weighted-average number of shares outstanding       million amount included in “other interest expense,” this
     during each year.                                                amount is recorded separately for the fiscal year ended March
        YMFG has issued potential shares, but “current term net       31, 2010.
     income per share after stock adjustment” is not shown because       “Income before minority interests” for the fiscal year
     these shares have no dilutive effect.                             ended March 31, 2011, is presented due to the application
        Cash dividends per share represent the cash dividends         of the “Cabinet Office Ordinance of Partial Amendment
     declared as applicable to each year.                             to Regulation for Terminology, Forms and Preparation of
                                                                      Financial Statements” (Cabinet Office Ordinance No. 5,
     Valuation of assets and liabilities of consolidated              March 24, 2009), based on the “Accounting Standard for
     subsidiaries                                                     Consolidated Financial Statements” (ASBJ Statement No. 22,
     The valuation of all assets and liabilities of consolidated      December 16, 2008).
     subsidiaries at the time of acquiring control is conducted
     using the market value method.                                   Consolidated statements of cash flows
                                                                      Figures indicated in “purchase of treasury stock and proceeds
     Amortization of goodwill and negative goodwill                   from disposal of treasury stock” previously were presented as a
     Goodwill is mainly amortized over a 10-year period using the     net amount. However, as these figures have become material,
     straight-line method.                                            this method has been changed, with proceeds and disposal
26
presented as individual amounts from the fiscal year ended       and 2010 were as follows:
March 31, 2011.                                                                                                          Thousands of
                                                                                                   Millions of yen        U.S. dollars
   The amounts of “purchase of treasury stock” and                                                2011         2010         2011
“proceeds from disposal of treasury stock” for the fiscal year   Cash and due from banks          ¥157,590     ¥174,269 $1,895,250
ended March 31, 2010, was ¥43 million and ¥10 million,          Time deposits in other banks       (8,042)       (7,565)     (96,717)
                                                                Other                              (3,871)       (4,414)     (46,555)
respectively.                                                   Cash and cash equivalents        ¥145,677     ¥162,290 $1,751,978

Additional information
Partial change in retirement benefit systems
Yamaguchi Bank had several retirement benefit plans              4. FINANCIAL INSTRUMENTS
including defined benefit corporate pension plan, tax qualified
pension plan as well as lump-sum retirement allowance plan.     Items pertaining to the status of financial instruments
As of April 1, 2010, it made the following changes: A part of   (1) Policies on financial instruments
the lump-sum retirement allowance plan was changed to a         YMFG provides community-based integrated financial
defined contribution plan; and the tax qualified pension plan     services centered on the banking business and including the
was integrated into the defined benefit corporate pension plan    securities and credit card businesses. Accordingly, the Group
and its content has changed to cash balance type plan.          is subject to a variety of risks, including credit risk, market
   In connection with these changes, the Group applied the      risk and liquidity risk. Due to changes in economic, social
“Accounting Treatment Related to Transfers in Retirement        and financial conditions, these risks have grown more diverse
Benefit Systems” (Corporate Accounting Standard                  and complex. Under these conditions, the Group considers
Application Guidance No. 1, January 31, 2002) and the           strengthening its risk management structure a priority issue.
“Practical Application of Accounting Treatment for Transfers    To maintain and enhance the soundness of these operations,
between Retirement Benefit Systems” (Practical Issues Task       YMFG has created groupwide risk management regulations,
Force No. 2, March 29, 2002). As a result, income before        which clarify the Group’s fundamental stance on risk
income taxes increased by ¥1,117 million for the year ended     management.
March 31, 2010.                                                 (2) Content and risks of financial instruments
                                                                Of financial assets held by the Group, principally loans and
Presentation of comprehensive income                            bills discounted extended to business partners are subject
The Group has applied the “Accounting Standard for              to the credit risk of breach of contract. The Group holds
Presentation of Comprehensive Income (ASBJ Statement            securities, principally debt securities, equity securities and
No. 25, June 30, 2010) from the fiscal year ended March          investment trusts, for trading purposes, for holding to
31, 2011. However, the amounts of “valuation and                maturity, for purely investment purposes and to promote
translation adjustments” and “total valuation and translation   positive business relations. These securities are subject to issuer
adjustments” for the fiscal year ended March 31, 2010, are       credit risk, interest rate fluctuation risk and market price
presented as “accumulated other comprehensive income” and       fluctuation risk.
“total accumulated other comprehensive income”, respectively.      The Group’s financial liabilities center on deposits and
                                                                negotiable certificates of deposit, and call money that it
                                                                raises in the market. However, the Group is subject to the
3. CONSOLIDATED STATEMENTS OF                                   liquidity risk of becoming unable to secure necessary funding.
   CASH FLOWS AND CASH EQUIVALENTS                              The Group is also subject to interest rate risk arising from
                                                                fluctuations in financial and economic conditions.
In preparing the consolidated statements of cash flows, the         The Group employs derivative transactions to hedge
Banks consider cash and due from THE BANK OF JAPAN to           underlying market risks on its assets and liabilities. The
be cash and cash equivalents.                                   Group also provides derivatives as financial products to
   The reconciliation of cash and due from banks in the         meet customers’ needs. Interest-related and securities-
consolidated balance sheets and cash and cash equivalents in    related derivative transactions are employed to limit the
the consolidated statements of cash flows at March 31, 2011      impact on income of future interest rate fluctuations and

                                                                                                                                         27
     price fluctuations for loans and bills discounted, deposits,         into consideration. In terms of portfolio management,
     securities and other instruments bearing long-term fixed             the Group strives to enhance its risk management by first
     rates of interest. Currency-related derivative transactions are     measuring credit risk, and then managing risk by category,
     used primarily to avoid fluctuations in income stemming              sector and geographic area.
     from future exchange rate fluctuations, stabilize funding                Risk management departments periodically obtain credit
     denominated in foreign currencies, as well as offered as             information and fair value as a part of managing credit risks
     products to clients. With regard to transactions that aim to        on securities issuers and counterparty risks on derivative
     secure income through changes in market rates, the Group            transactions.
     has established stringent standards that include risk limits and    (ii) Management of market risk
     loss limits and conducts these transactions on a limited basis.     Qualitative information on the management of market risk
        As market risk factors, interest rate related and securities-    The Group has formulated a market risk management
     related derivative transactions are subject to the risk of          process that identifies and quantitatively measures inherent
     fluctuations in interest rates and prices, and currency-related      market risks. An asset-liability management (ALM) system is
     derivative transactions are subject to exchange rate fluctuations.   employed to control market risk within allowable limits, and
     For transactions that are not conducted on exchanges, the           the Group ALM Committee is periodically held to respond to
     Group is subject to credit risk, the risk of loss in the event      such risks.
     a counterparty becomes unable to fulfill its contractual                 YMFG periodically evaluates market risk conditions and
     obligations due to deteriorating financial conditions.               verifies the appropriateness of risk controls.
        With regard to use of hedge accounting, the Group applies        Quantitative information on the management of market risk
     deferred hedge accounting after it ensured in advance that          The market risk (estimated loss amount) of the loans,
     the established conditions are satisfied. The Group employs          securities, deposits and derivatives transactions of Yamaguchi
     portfolio hedge, which it performs hedging comprehensively          Bank and Momiji Bank of the Group are calculated according
     on certain group of identified assets that have similar risk.        to value at risk (VaR). Furthermore, the covariance method is
     Also, an exceptional treatment is applied as allowed for certain    used to calculate VaR.
     individual hedge and interest swap contracts whereby hedging            As of March 31, 2011, the market risk (estimated loss
     instruments are treated as off balance items.                        amount) of Yamaguchi Bank was ¥93,166 million ($1,120
     (3) Risk management structure related to financial                   million), and the market risk (estimated loss amount) of
         instruments                                                     Momiji Bank was ¥28,052 million ($337 million).
     (i) Management of credit risk                                           Assumptions used in calculating VaR include a holding
     Through the appropriate operation of a credit rating system,        period of three months (however, one year for a holding
     the Group endeavors to determine the financial conditions            period for shares held for the purpose of strategic investment),
     of business partners and accurately evaluate credit risk. The       a confidence interval of 99.9% and an observation period of
     Group has raised the precision of its credit evaluations,           five years.
     reviewing business partner credit ratings swiftly and                   Yamaguchi Bank and Momiji Bank conduct back-testing
     appropriately for each financial period and each time their          to compare the VaR calculated by the model with the actual
     credit conditions change.                                           losses. Based on the results for the year ended March 31,
        The Group conducts self assessments according to stringent       2011, the measurement model is considered to have captured
     standards that are consistent throughout the Group. YMFG            market risk to an acceptable degree of accuracy. However,
     performs write-off and provisions based on the results of its        as measurements of market risk employ certain probabilities
     self assessments. The Group’s authentication departments            of occurrence which is statistically calculated on the basis of
     verify the content of such inspections. Independence is             historical market fluctuations, it is possible that this method
     maintained through internal audits conducted by audit               may not adequately capture market risk in the event of sudden
     departments. In addition, the Group undergoes external              changes in the market environment outside the normally
     audits conducted by its independent external auditors.              expected scope.
        With regard to the screening of individual transactions, the     (iii) Management of liquidity risk related to fundraising
     Group employs a sector-specific screening system to conduct          The majority of funds is raised through deposits, which
     detailed screenings that take individual sector characteristics     constitute a stable base for procuring funds. The Group
28
manages funds on the basis of elaborate forecasts, confirming                                                                       Millions of yen
cash flows primarily through cash controls in financial                                                                                   2010
                                                                                                                      Consolidated
markets.                                                                                                              balance sheet Fair value     Difference
   For cash flow management, the Group strives to maintain                                                                amount
                                                                                (1) Cash and due from banks            ¥ 174,269 ¥ 174,269           ¥    —
the liquidity risk by reducing liquidity risk, ensuring stability,
                                                                                (2) Call loans and bills purchased         601,153       601,153          —
preparing for unexpected events, and maintaining highly                         (3) Money held in trust                     78,326        78,326          —
liquid assets.                                                                  (4) Securities
(4) Supplementary explanation of items pertaining to                              Held-to-maturity debt securities          10,545        10,641          96
                                                                                  Available-for-sale securities          1,756,567     1,756,567          —
    the fair value of financial instruments                                      (5) Loans and bills discounted           5,688,341
The fair values of some financial instruments are based on                         Allowance for loan losses (* 1)         (118,532)
market prices. The fair values of other instruments, for which                                                          5,569,809      5,631,792      61,983
                                                                                Total assets                           ¥8,190,669 ¥8,252,748         ¥62,079
market prices are not readily available, are based on rational
                                                                                (1) Deposits                           ¥7,394,146 ¥7,403,413         ¥ 9,267
calculation. However, as assumptions are used in these                          (2) Negotiable certificates of deposit      462,230       462,230           0
calculations, different assumptions can yield different values.                   Total liabilities                      ¥7,856,376 ¥7,865,643         ¥ 9,267
                                                                                Derivative transactions (* 2)
                                                                                Hedge accounting not applied           ¥     6,955 ¥       6,955     ¥    —
Items pertaining to the fair value of financial                                  Hedge accounting applied                      (538)          (538)        —
instruments                                                                     Total derivative transactions          ¥     6,417 ¥       6,417     ¥    —
The table below indicates the consolidated balance sheet
amounts of financial instruments as of March 31, 2010, as                                                                     Thousands of U.S. dollars
well as their fair values and the differences between the two.                                                                        2011
Items for which the consolidated balance sheet amount is                                                             Consolidated
                                                                                                                     balance sheet Fair value     Difference
of low materiality are omitted from this table. Furthermore,                                                            amount
unlisted equity securities and other instruments for which fair                 (1) Cash and due from banks          $ 1,895,250 $ 1,895,250        $      —
value is not easily determinable are not included in the table                  (2) Call loans and bills purchased      5,524,823   5,524,823              —
                                                                                (3) Money held in trust                   854,660      854,660             —
below. (Refer to (Note 2).)                                                     (4) Securities
                                                   Millions of yen                Held-to-maturity debt securities         75,802       76,560            758
                                                        2011                      Available-for-sale securities       22,636,188 22,636,188                —
                                      Consolidated                              (5) Loans and bills discounted        68,992,965
                                      balance sheet Fair value     Difference
                                                                                  Allowance for loan losses (* 1)      (1,326,603)
                                         amount
                                                                                                                      67,666,362 68,475,250          808,888
(1) Cash and due from banks            ¥ 157,590 ¥ 157,590           ¥    —
                                                                                Total assets                         $98,653,085 $99,462,731 $809,646
(2) Call loans and bills purchased         459,389       459,389          —
                                                                                (1) Deposits                         $89,401,455 $89,456,669 $ 55,214
(3) Money held in trust                     71,065        71,065          —
                                                                                (2) Negotiable certificates of deposit 6,699,146     6,699,146              —
(4) Securities
                                                                                (3) Bonds payable                       1,142,514   1,136,115          (6,399)
  Held-to-maturity debt securities           6,303         6,366          63
                                                                                Total liabilities                    $97,243,115 $97,291,930 $ 48,815
  Available-for-sale securities          1,882,199    1,882,199           —
                                                                                Derivative transactions (* 2)
(5) Loans and bills discounted           5,736,765
                                                                                Hedge accounting not applied         $ 107,060 $ 107,060            $      —
  Allowance for loan losses (* 1)         (110,307)
                                                                                Hedge accounting applied                  (24,414)     (24,414)            —
                                        5,626,458     5,693,717       67,259
                                                                                Total derivative transactions        $     82,646 $     82,646      $      —
Total assets                           ¥8,203,004 ¥8,270,326         ¥67,322
(1) Deposits                           ¥7,433,731 ¥7,438,322         ¥ 4,591    (* 1) The general allowance for loan losses and specific allowance for loan losses are deducted.
                                                                                (* 2) The amount collectively represent the derivative transactions which are recorded on trading assets
(2) Negotiable certificates of deposit      557,034       557,034          —           and liabilities, and other trading assets and liabilities.
(3) Bonds payable                           95,000        94,468        (532)   This indicates the net amount of rights and obligations under derivative transactions. Parentheses, ( )
Total liabilities                      ¥8,085,765 ¥8,089,824         ¥ 4,059    indicated that the net amount is negative.
                                                                                   Derivative transactions recorded within money trusts are not included. The market value of such
Derivative transactions (* 2)                                                   transactions is a negative ¥936 million ($11 million).
Hedge accounting not applied           ¥     8,902 ¥       8,902     ¥    —
Hedge accounting applied                    (2,030)       (2,030)         —
Total derivative transactions          ¥     6,872 ¥       6,872     ¥    —




                                                                                                                                                                                           29
     (Note 1) Methods of calculating the fair value of financial         No. 25, October 28, 2008), calculated on a rational basis in
     instruments                                                        accordance with the consolidated balance sheet amount at
     (1) Assets                                                         the end of the fiscal year. Consequently, compared with their
     (i) Cash and due from banks                                        consolidated balance sheet amounts on the basis of market
     As the settlement term of these instruments is short (within one   prices, securities increased by ¥10,567 million ($127 million),
     year) and their fair values and book values are approximately      deferred tax assets decreased by ¥2,037 million ($24 million),
     the same, their book values are taken as their fair values.        and the unrealized gain on available-for-sale securities
     (ii) Call loans and bills purchased                                increased by ¥8,530 million ($103 million).
     As the settlement term of these instruments is short                  Although the Group is in receipt of third-party information,
     (within one year) and their fair values and book values are        the rational calculation that has been employed assumes that
     approximately the same, their book values are taken as their       the principal and the future expected coupon on the Group’s
     fair values.                                                       holdings of floating-rate Japanese government bonds should
     (iii) Money held in trust                                          be discounted to present value based on the interest rate of
     As for the securities held as trusted assets in money held in      the referenced government bonds. The Group determined
     trust established independently for the purpose of investing       the future expected coupon by taking into consideration the
     mainly in the securities of the group, the value on stock          product characteristics of floating-rate Japanese government
     exchanges is taken as fair value for the equity securities, and    bonds, the future expected coupon is estimated by adjusting
     either the value on exchanges or a price indicated by other        the shape of the yield curve, volatility, and the timing of
     financial institutions dealing with the specific instruments is      interest payments.
     taken as fair value.                                               (v) Loans and bills discounted
         Notes pertaining to money held in trust exchange by            For loans and bills discounted with floating interest rates, as in
     purpose of holding are indicated on page 34 in “(Money held        the short term their values reflect market interest rates, unless
     in trust).”                                                        the credit status of the obligor has changed significantly since
     (iv) Securities                                                    the loans were extended, their fair value is similar to their
     For equity securities, fair value is determined by stock           book value, so their book value is taken as their fair value.
     exchange prices; the fair value of debt securities is determined      For loans and bills discounted bearing fixed interest rates,
     by exchange prices or from prices received from information        fair value is determined for each internal rating category and
     vendors. Fair values of investment trusts are determined by        period by discounting to present value the total amount of
     exchange prices or according to standard prices disclosed by       interest and principal, using as the discount rate the risk-free
     investment trust management companies.                             rate for operating loans and bills discounted plus the credit
         The fair value of private placement bonds guaranteed by        cost for each internal rating category. For consumer loans
     Yamaguchi Bank and Momiji Bank is determined for each              and bills discounted, fair value is determined by discounting
     internal rating category and period by discounting to present      them to their present value using the assumed interest rate on
     value the total amount of interest and principal, using as the     new loans of the same type. For instruments having a short
     discount rate the risk-free rate plus the credit cost determined   settlement period (within one year), as their fair values and
     for each internal rating category. However, fair value of          book values are approximately the same, their book value is
     bonds of legally bankrupt debtors, substantially bankrupt          taken as their fair value.
     debtors and debtors in danger of bankruptcy is determined by
     deducting the expected amount of loss on the bond by using         With regard to loans to legally bankrupt obligors, substantially
     the same method applied to loans from the bond’s face value.       bankrupt obligors or obligors who are in danger of bankruptcy,
         The fair value of floating-rate Japanese government bonds       the estimated collectible amount is based on either the present
     is determined after taking into consideration recent market        value of estimated future cash flows or the expected amounts
     conditions. If the Group determines that conditions are such       recoverable from the disposal of collateral and/or under
     that continued valuation according to market prices is not         guarantees. As the fair value is essentially equivalent to the
     deemed as fair value, the fair values of securities in question    amount after deducting the allowance for possible loan losses
     are determined in accordance with the “Practical Solution on       from the consolidated balance sheet amount on the balance
     Measurement of Fair Value for Financial Assets” (ASBJ PITF         sheet date, this amount is taken as fair value.
30
    For loans that have no specific repayment period, as the                                                                                       Thousands of
                                                                                                                           Millions of yen         U.S. dollars
fair value is assumed to be equivalent with the book value
                                                                                                                         2011          2010          2011
according to the expected payment dates and interest rates,        Category                                              Consolidated balance sheet amount
book value is taken as the fair value.                             (1) Unlisted equity securities                         ¥5,476        ¥5,642       $65,857
                                                                        (*1, *2)
(2) Liabilities
                                                                   (2) Investments in partnerships,                           1,675               2,106              20,144
(i) Deposits and (ii) Negotiable certificates of deposit                 etc. (*3)
The fair value of demand deposits is determined as the               Total                                                  ¥7,151              ¥7,748             $86,001
payment amount if payment were required on the consolidated        (*1) As unlisted equity securities have no market prices and their fair value is not readily available, they
                                                                        are not included in the scope of fair value disclosures.
balance sheet date (book value). The fair value of time deposits   (*2) During the fiscal year ended March 31, 2011 and 2010, an impairment loss of ¥15 million ($180
                                                                        thousand) and ¥191 million were recorded on unlisted equity securities.
is determined by discounting future cash flows to their present     (*3) Of investments in partnerships, those partnership assets that are comprised of unlisted equity
                                                                        securities, which have no readily available fair value, are not included in the scope of fair value
value by time periods. The discount rate employed is the                disclosure.
required interest rate on deposits of newly accepted deposits.
For deposits having a short period (within one year), as their     (Note 3) Expected maturity amount of monetary claims and
fair values and book values are approximately the same, their      securities with maturities after the consolidated balance sheet
book value is taken as their fair value.                           date
(iii) Bonds payable                                                                                          Millions of yen
The fair value of bonds issued by the Group is determined by                                                      2011
                                                                                                  More than More than More than
using prices publicly quoted by third-party institutions.                                Within    one year three years five years More than
                                                                                         one year and within and within and within seven years
(3)Derivative transactions                                                                        three years five years seven years
The fair value of derivative transactions, comprising interest     (1) Cash and           ¥53,300 ¥        — ¥          — ¥      — ¥        —
                                                                       due from
rate related transactions (such as interest rate futures,              banks
interest rate options and interest rate swaps) currency related    (2) Call loans     459,389         —          —                                        —                 —
                                                                       and bills
transactions (such as currency futures, currency options               purchased
and currency swaps), bond-related transactions (such as            (3) Securities      43,612    199,758    504,845                              374,518           603,606
                                                                   Held-to-             1,557      3,292      1,454                                   —                 —
bond futures and bond options) is taken as their value on          maturity debt
                                                                   securities
exchanges, discounted present value or price as calculated           Japanese             702      1,602      1,404                                       —                 —
using option pricing models.                                         government
                                                                     bond
    Interest rates swaps that employ exceptional accounting          Corporate            855      1,690         50                                       —                 —
treatment are accounted for as part of the loans and bills           bond
                                                                   Available-for-      42,055    196,466    503,391                              374,518           603,606
discounted that are hedged. Therefore, their fair value is         sale securities
included in the fair value of loans and bills discounted.          with maturities
                                                                     Japanese           5,512     79,049    263,228                              275,693           404,315
                                                                     government
                                                                     bond
(Note 2) Financial instruments for which market prices are
                                                                     Local             11,764      7,751     33,123                                  2,055             8,349
not readily available                                                government
                                                                     bond
Financial instruments for which market prices are not readily        Corporate         18,077     84,842    162,857                                53,387          187,968
available are not included in “Assets (4) Available-for-sale         bond
                                                                     Others             6,702     24,824     44,183                               43,383     2,974
securities.”                                                       (4) Loans and 2,169,108 1,202,979        827,330                              459,478 1,077,869
                                                                       bills dis-
                                                                       counted
                                                                       (*)
                                                                   Total           ¥2,725,409 ¥1,402,737 ¥1,332,175                            ¥833,996 ¥1,681,475




                                                                                                                                                                                  31
                                        Millions of yen                                                         Thousands of U.S. dollars
                                             2010                                                                        2011
                             More than More than More than                                                More than More than More than
                    Within    one year three years five years More than                          Within      one year three years five years More than
                    one year and within and within and within seven years                      one year and within and within and within seven years
                             three years five years seven years                                             three years five years seven years
     (1) Cash and   ¥174,269 ¥        — ¥          — ¥      — ¥        —      (1) Cash and $ 641,010 $              — $        — $          — $        —
         due from                                                                 due from
         banks                                                                    banks
     (2) Call loans     601,153        —          —          —          —     (2) Call loans    5,524,823           —          —            —          —
         and bills                                                                and bills
         purchased                                                                purchased
     (3) Securities     100,595    204,379   447,317     216,838   623,441    (3) Securities      524,498 2,402,381 6,071,497 4,504,125 7,259,242
     Held-to-             4,680      2,659     3,206          —         —     Held-to-             18,725       39,591     17,486           —          —
     maturity debt                                                            maturity debt
     securities                                                               securities
       Japanese             200      1,304      1,906        —          —       Japanese            8,442       19,266     16,885           —          —
       government                                                               government
       bond                                                                     bond
       Corporate          4,480      1,355      1,300        —          —       Corporate          10,283       20,325        601           —          —
       bond                                                                     bond
     Available-for-      95,915    201,720   444,111     216,838   623,441    Available-for-      505,773 2,362,790 6,054,011 4,504,125 7,259,242
     sale securities                                                          sale securities
     with maturities                                                          with maturities
       Japanese           3,007     43,979   268,743     109,470   496,320      Japanese           66,290      950,679 3,165,701 3,315,610 4,862,477
       government                                                               government
       bond                                                                     bond
       Local              9,255     15,949     26,629     29,459     15,270     Local             141,479       93,217    398,352       24,714    100,409
       government                                                               government
       bond                                                                     bond
       Corporate         70,027     93,975   120,844      61,844   105,065      Corporate         217,402 1,020,349 1,958,593          642,057 2,260,589
       bond                                                                     bond
       Others            13,626     47,817    27,895      16,065     6,786      Others             80,602      298,545    531,365      521,744     35,767
     (4) Loans and 1,718,033       698,690   925,130     494,215 1,852,273    (4) Loans and 26,086,686 14,467,577 9,949,850 5,525,893 12,962,947
         bills dis-                                                               bills dis-
         counted                                                                  counted
         (*)                                                                      (*)
     Total           ¥2,594,050   ¥903,069 ¥1,372,447   ¥711,053 ¥2,475,714   Total           $32,777,017 $16,869,958 $16,021,347 $10,030,018 $20,222,189
                                                                              (*) Loans and bills discounted for which no period is specified are included in “within one year.”



                                                                              (Note 4) Estimated repayment amounts of deposits,
                                                                              negotiable certificates of deposit and other interest-bearing
                                                                              liabilities to be repaid after the consolidated balance sheet date
                                                                                                                       Millions of yen
                                                                                                                            2011
                                                                                                                   More than More than
                                                                                                        Within one one year     two years Three years
                                                                                                           year    and within and within or more
                                                                                                                    two years three years
                                                                              Deposits (*)              ¥6,745,372 ¥432,859 ¥217,453        ¥38,047
                                                                              Negotiable certificates of    555,813      1,220           —          —
                                                                              deposit
                                                                              Bonds payable                 20,000         —        30,000    45,000
                                                                              Total                     ¥7,321,185 ¥434,079 ¥247,453        ¥83,047


                                                                                                                       Millions of yen
                                                                                                                            2010
                                                                                                                   More than More than
                                                                                                        Within one one year     two years Three years
                                                                                                           year    and within and within or more
                                                                                                                    two years three years
                                                                              Deposits (*)              ¥6,454,468 ¥684,075 ¥129,920 ¥125,683
                                                                              Negotiable certificates of    461,170      1,060          —           —
                                                                              deposit
                                                                              Total                     ¥6,915,638 ¥685,135 ¥129,920 ¥125,683




32
                                      Thousands of U.S. dollars               (b) Held-to-maturity debt securities:
                                                2011                                                                              Millions of yen
                                       More than More than                                                                             2011
                          Within one one year      two years Three years                                              Consolidated
                              year     and within and within or more                                   Type           balance sheet Fair value Difference
                                        two years three years                                                           amount
Deposits (*)              $81,122,934 $5,205,761 $2,615,189     $457,570
                                                                              Securities on which fair Japanese
Negotiable certificates of   6,684,462      14,672           —         —
                                                                              value exceeds consolidated government      ¥3,506      ¥3,546         ¥40
deposit
                                                                              balance sheet amount       bond
Bonds payable                 240,529           —     360,794    541,191
                                                                                                         Corporate
Total                     $88,047,925 $5,220,433 $2,975,983     $998,761                                                   2,240      2,268          28
                                                                                                         bond
(*) Within deposits, demand deposits are included in the “within one year.”                              Subtotal          5,746      5,814          68
                                                                              Securities on which fair Japanese
                                                                              value does not exceed      government         202         200           (2)
                                                                              consolidated balance sheet bond
5. SECURITIES                                                                 amount                     Corporate
                                                                                                                            355         352           (3)
                                                                                                         bond
                                                                                                         Subtotal           557         552          (5)
Securities held at March 31, 2011 include shares of                                                      Total           ¥6,303      ¥6,366         ¥63
unconsolidated subsidiaries and affiliates amounting to ¥289
million ($3 million) and investments of ¥578 million ($7
                                                                                                                                  Millions of yen
million). Corresponding figures at March 31, 2010, were                                                                                 2010
¥370 million and ¥660 million.                                                                                        Consolidated
                                                                                                       Type           balance sheet Fair value Difference
  For the year ended March 31, 2011, the amount of                                                                      amount
guarantee obligations for private placement bonds (Financial                  Securities on which fair Japanese
                                                                              value exceeds consolidated government     ¥ 3,410     ¥ 3,462        ¥ 52
Instruments and Exchange Law, Article 2, Item 3), out of                      balance sheet amount       bond
bonds included in securities, amounted to ¥10,643 million                                                Corporate
                                                                                                                           6,770       6,825         55
                                                                                                         bond
($128 million). This figure was ¥15,577 million for the year
                                                                                                         Subtotal         10,180     10,287         107
ended March 31, 2010.                                                         Securities on which fair Japanese
                                                                              value does not exceed      government           —           —          —
                                                                              consolidated balance sheet bond
                                                                              amount                     Corporate
                                                                                                                            365         354          (11)
6. FAIR VALUE INFORMATION                                                                                bond
                                                                                                         Subtotal           365         354         (11)
                                                                                                         Total          ¥10,545     ¥10,641        ¥ 96
Securities
The following tables summarize book values, fair value and
acquisition cost of securities with available fair values as of                                                             Thousands of U.S. dollars
                                                                                                                                      2011
March 31, 2011 and 2010:                                                                                              Consolidated
(a) Trading securities                                                                                 Type           balance sheet Fair value Difference
                                                                                                                        amount
    Amount of unrealized gain (loss) on trading securities
                                                                              Securities on which fair Japanese
    included in the consolidated statement of income                          value exceeds consolidated government     $42,165     $42,658        $493
                                                                              balance sheet amount       bond
    — ¥(14) million ($(168) thousand) and ¥20 million as at
                                                                                                         Corporate
    March 31, 2011 and 2010, respectively.                                                                               26,939      27,276         337
                                                                                                         bond
                                                                                                         Subtotal        69,104      69,934         830
                                                                              Securities on which fair Japanese
                                                                              value does not exceed      government        2,429      2,405          (24)
                                                                              consolidated balance sheet bond
                                                                              amount                     Corporate
                                                                                                                           4,270      4,233          (37)
                                                                                                         bond
                                                                                                         Subtotal         6,699       6,638         (61)
                                                                                                         Total          $75,803     $76,572        $769




                                                                                                                                                            33
     There were no cost of sales, sales and profit on held-to-maturity                                                       Thousands of U.S. dollars
     debt securities in the years ended March 31, 2011 and 2010.                                                                      2011
                                                                                                                      Consolidated
                                                                                                                                    Acquisition
                                                                                                          Type        balance sheet             Difference
                                                                                                                                       cost
     (c) Available-for-sale securities                                                                                  amount
                                                     Millions of yen             Securities on which fair Shares      $ 838,906 $ 489,862 $ 349,044
                                                          2011                   value exceeds consolidated Japanese
                                                                                 balance sheet amount       government 4,555,117 4,431,353        123,764
                                         Consolidated
                                                       Acquisition                                          bond
                             Type        balance sheet              Difference
                                                           cost                                             Local
                                           amount
                                                                                                            government     610,090     602,742      7,348
     Securities on which fair Shares     ¥ 69,755 ¥ 40,732           ¥ 29,023                               bond
     value exceeds consolidated Japanese
     balance sheet amount                                                                                   Corporate
                                government    378,758    368,467      10,291                                             2,518,521 2,480,986       37,535
                                                                                                            bond
                                bond
                                                                                                            Others         223,993     221,708      2,285
                                Local
                                government     50,729     50,118         611                                Subtotal     8,746,627 8,226,651      519,976
                                bond                                             Securities on which fair Shares           251,016     317,943    (66,927)
                                Corporate                                        value does not exceed      Japanese
                                              209,415    206,294       3,121     consolidated balance sheet government 7,805,640 7,859,508        (53,868)
                                bond
                                                                                 amount                     bond
                                Others         18,625     18,435         190
                                Subtotal      727,282    684,046      43,236                                Local
                                                                                                            government     148,070     149,994     (1,924)
     Securities on which fair Shares           20,872     26,437      (5,565)                               bond
     value does not exceed      Japanese
     consolidated balance sheet government                                                                  Corporate
                                              649,039    653,518      (4,479)                                            3,580,120 3,612,363      (32,243)
     amount                                                                                                 bond
                                bond
                                                                                                            Others       2,104,714 2,372,495     (267,781)
                                Local
                                government     12,312     12,472        (160)                               Subtotal    13,889,560 14,312,303    (422,743)
                                bond                                                                        Total      $22,636,187 $22,538,954 $   97,233
                                Corporate
                                              297,687    300,368      (2,681)
                                bond
                                Others        175,007    197,273     (22,266)    Available-for-sale securities sold during the fiscal year
                                Subtotal    1,154,917 1,190,068      (35,151)                                                     Millions of yen
                                Total      ¥1,882,199 ¥1,874,114    ¥ 8,085                                                            2011
                                                                                                                           Sale    Total gain Total loss
                                                                                                                        amount        on sale     on sale
                                                     Millions of yen             Shares                               ¥      3,643    ¥ 1,173       ¥ 421
                                                          2010                   Japanese government bond               2,339,361       10,931       1,154
                                         Consolidated                            Local government bond                     83,253        1,834           —
                                                       Acquisition
                             Type        balance sheet              Difference
                                                           cost                  Corporate bond                           392,708        3,292            9
                                           amount
     Securities on which fair Shares     ¥ 76,754 ¥ 43,971           ¥ 32,783    Others                                   215,684        1,793       1,570
     value exceeds consolidated Japanese                                         Total                                ¥3,034,649       ¥19,023      ¥3,154
     balance sheet amount       government    448,694    437,256      11,438
                                bond
                                Local                                                                                            Millions of yen
                                government     80,884     79,801       1,083                                                          2010
                                bond                                                                                      Sale    Total gain Total loss
                                Corporate                                                                               amount       on sale     on sale
                                              246,368    242,826       3,542
                                bond
                                                                                 Shares                                ¥    3,403     ¥ 852        ¥ 104
                                Others         48,146     47,587         559
                                                                                 Japanese government bond               2,494,963      12,154         538
                                Subtotal      900,846    851,441      49,405
                                                                                 Local government bond                    149,469       2,741            0
     Securities on which fair Shares           20,402     25,533      (5,131)
                                                                                 Corporate bond                           242,501       2,876           —
     value does not exceed      Japanese
     consolidated balance sheet government                                       Others                                    87,341       1,401       2,138
                                              472,823    474,650       (1,827)
     amount                     bond                                             Total                                 ¥2,977,677     ¥20,024      ¥2,780
                                Local
                                government     15,678     15,781        (103)
                                bond                                                                                        Thousands of U.S. dollars
                                Corporate                                                                                            2011
                                              205,388    206,104        (716)
                                bond                                                                                      Sale    Total gain Total loss
                                Others        141,430    158,348     (16,918)                                           amount      on sale      on sale
                                Subtotal      855,721    880,416     (24,695)    Shares                               $    43,812   $ 14,107       $ 5,063
                                Total      ¥1,756,567 ¥1,731,857    ¥ 24,710     Japanese government bond              28,134,227     131,461       13,879
                                                                                 Local government bond                  1,001,239      22,057           —
                                                                                 Corporate bond                         4,722,886      39,591          108
                                                                                 Others                                 2,593,915      21,563       18,881
34                                                                               Total                                $36,496,079   $228,779       $37,931
                                                                        Unrealized gain (loss) on available-for-sale securities
Impairment losses on securities                                         The information on unrealized gain (loss) on other securities
Those securities with market values that have fallen                    and other money held in trust was as follows:
substantially below the acquisition price and are not expected                                                                         Thousands of
                                                                                                               Millions of yen          U.S. dollars
to recover to the acquisition price are recorded in the                                                       2011         2010           2011
consolidated balance sheets at their current market values. The         Net unrealized gains                  ¥ 7,737      ¥24,358        $93,049
                                                                         Other securities                       8,057       24,694          96,897
unrealized gain (loss) is recorded as a loss during the period           Other money held in trust               (320)         (336)         (3,848)
(hereinafter, “impairment losses”).                                     Deferred tax liabilities               (6,400)     (11,236)        (76,970)
                                                                        Net unrealized gains on other           1,337       13,122          16,079
   During the fiscal year, impairment losses totaled ¥1,546              securities before following
million ($19 million) (of which, ¥1,406 million ($17 million)           adjustment
                                                                        YMFG’s interest in net unrealized           3              4            36
on equity securities and ¥140 million ($2 million) on other             gains on valuation of other
securities). The basis for determining whether the market               securities held by affiliates
                                                                        accounted for by the equity method
value has fallen significantly is as follows.                            Net unrealized gains on other         ¥ 1,340     ¥13,126         $16,115
   If the market value of the securities in general has fallen by       securities

30% or more compared with the acquisition cost, the value
of the securities is determined to have “fallen significantly.”          Derivatives
However in the case of shares and equivalent securities, if their       (1) Derivative transactions at March 31, 2011 and 2010, to
market value has fallen by 30% or more but less than 50% of                 which hedge accounting not applied
the acquisition cost, the determination of whether the value            (a) Interest rate related:
has “fallen significantly” takes into consideration other factors                                                 Millions of yen
                                                                                                                      2011
such as the issuing company’s credit risk (independent debtor                                                                            Realized
                                                                                                  Contract    Over one
classification, external ratings, etc.), previous percentage                                       amounts       year
                                                                                                                          Fair value      gains
                                                                        Type                                                             (losses)
decreases over a specific period of time in the past.                    Over-the-counter:
                                                                        Interest rate swap:
                                                                        Receivable fixed,            ¥59,529     ¥58,499        ¥ 665         ¥ 665
Money held in trust                                                     payable floating
The information on money held in trust as of March 31, 2011             Receivable floating,          60,265      59,390         (505)         (505)
                                                                        payable fixed
and 2010 was as follows:
                                                                        Other
(a) Money held in trust classified as trading purposes                     Sold                        1,642       1,509           (1)           19
    No corresponding amounts as at March 31, 2011 and 2010                Bought                        100          —           —              (4)
                                                                        Total                       ¥    —      ¥    —         ¥ 159         ¥ 175
(b) Money held in trust classified as held-to-maturity
    There are no corresponding transactions as at March 31,
                                                                                                                 Millions of yen
    2011 and 2010.                                                                                                    2010
(c) Other money held in trust                                                                     Contract    Over one
                                                                                                                                         Realized
                                           Millions of yen                                                                Fair value      gains
                                                                                                  amounts       year
                                                2011                    Type                                                             (losses)
                                            Consolidated Unrealized     Over-the-counter:
                               Acquisition                              Interest rate swap:
                                            balance sheet   gains
                                  cost                                  Receivable fixed,            ¥57,117     ¥47,417        ¥ 429         ¥ 429
                                              amount       (losses)
Other money held in trust        ¥71,065        ¥71,385        ¥(320)   payable floating
                                                                        Receivable floating,          49,331      48,856         (308)         (308)
                                                                        payable fixed
                                           Millions of yen              Other
                                                2010                      Sold                        2,467       2,267            (3)          24
                                            Consolidated Unrealized       Bought                        300         100             0          (10)
                               Acquisition                              Total                       ¥    —      ¥    —          ¥ 118        ¥ 135
                                            balance sheet   gains
                                  cost
                                              amount       (losses)
Other money held in trust         ¥78,662       ¥78,326        ¥(336)


                                     Thousands of U.S. dollars
                                               2011
                                           Consolidated Unrealized
                               Acquisition
                                           balance sheet    gains
                                  cost
                                             amount        (losses)
Other money held in trust       $854,660 $858,508            $(3,848)                                                                                  35
                                           Thousands of U.S. dollars                                                       Thousands of U.S. dollars
                                                   2011                                                                            2011
                                                                        Realized                                                                         Realized
                                Contract    Over one                                                          Contract      Over one
                                                         Fair value      gains                                                           Fair value       gains
                                amounts       year                                                            amounts         year
     Type                                                               (losses)     Type                                                                (losses)
     Over-the-counter:                                                               Over-the-counter:
     Interest rate swap:
                                                                                     Currency swap            $2,152,700   $1,590,908    $104,498        $ (3,668)
     Receivable fixed,           $715,923     $703,536      $ 7,997       $ 7,997
     payable floating                                                                 Forward foreign exchange
     Receivable floating,         724,775      714,251         (6,073)     (6,073)    contracts:
     payable fixed                                                                      Sold                      543,524       50,102        3,728          3,728
     Other                                                                             Bought                    370,824       42,550       (4,486)        (4,486)
       Sold                       19,747       18,148          (12)          229     Currency option
       Bought                      1,203           —            —            (48)      Sold                    3,920,337    3,077,823 (436,945) (130,414)
     Total                      $     —      $     —       $ 1,912       $ 2,105       Bought                  3,920,337    3,077,823  441,624   196,500
                                                                                     Total                    $       —    $       — $ 108,419 $ 61,660

     (b) Currency related:
                                                Millions of yen                      (c) Stock related:
                                                     2011                                                                       Millions of yen
                                                                        Realized                                                     2011
                                Contract    Over one
                                                         Fair value      gains
                                amounts       year                                                                                                       Realized
     Type                                                               (losses)                              Contract      Over one
                                                                                                                                         Fair value       gains
     Over-the-counter:                                                                                        amounts         year
                                                                                     Type                                                                (losses)
     Currency swap            ¥178,997       ¥132,284    ¥ 8,689        ¥ (305)      Listed:
     Forward foreign exchange                                                        Stock futures
     contracts:
                                                                                      Sold                      ¥17,152           ¥—       ¥(1,207)       ¥(1,207)
       Sold                     45,194          4,166           310           310
                                                                                     Total                      ¥    —            ¥—       ¥(1,207)       ¥(1,207)
       Bought                   30,834          3,538          (373)         (373)
     Currency option
       Sold                    325,976        255,921     (36,332) (10,844)                                                Thousands of U.S. dollars
       Bought                  325,976        255,921      36,721   16,339                                                         2011
     Total                    ¥     —        ¥     —     ¥ 9,015 ¥ 5,127                                                                                 Realized
                                                                                                              Contract      Over one
                                                                                                                                         Fair value       gains
                                                                                                              amounts         year
                                                                                     Type                                                                (losses)
                                                Millions of yen                      Listed:
                                                     2010                            Stock futures
                                                                        Realized      Sold                    $206,278            $—      $(14,516)      $(14,516)
                                Contract    Over one
                                                         Fair value      gains       Total                    $     —             $—      $(14,516)      $(14,516)
                                amounts       year
     Type                                                               (losses)
     Over-the-counter:                                                               There were no stock related transactions at March 31, 2010.
     Currency swap              ¥210,040     ¥162,988     ¥       59     ¥    59
     Forward foreign exchange
     contracts:                                                                      (d) Bond related:
       Sold                       15,485        3,360           135           135                                               Millions of yen
       Bought                     14,258        3,299          (102)         (102)                                                   2011
     Currency option                                                                                                                                     Realized
                                                                                                              Contract      Over one
       Sold                      391,957      317,752      (28,031)       (3,458)                                                        Fair value       gains
                                                                                                              amounts         year
       Bought                    391,957      317,752       28,084         8,282     Type                                                                (losses)
     Total                      ¥     —      ¥     —      ¥    145       ¥ 4,916     Listed:
                                                                                     Bond futures
                                                                                      Sold                         ¥417           ¥—              ¥(2)         ¥(2)
                                                                                     Total                         ¥ —            ¥—              ¥(2)         ¥(2)


                                                                                                                                Millions of yen
                                                                                                                                     2010
                                                                                                                                                         Realized
                                                                                                              Contract      Over one
                                                                                                                                         Fair value       gains
                                                                                                              amounts         year
                                                                                     Type                                                                (losses)
                                                                                     Listed:
                                                                                     Bond futures
                                                                                      Sold                       ¥6,911           ¥—              ¥—          ¥—
                                                                                     Total                       ¥ —              ¥—              ¥—          ¥—

36
                                      Thousands of U.S. dollars                                                                           Thousands of U.S. dollars
                                              2011                                                                                                2011
                                                                  Realized                                                             Contract Over one
                           Contract    Over one                                                                                                              Fair value
                                                    Fair value     gains      Type                                                     amounts     year
                           amounts       year                                 Principal accounting procedure:
Type                                                              (losses)
Listed:                                                                       Interest rate swaps
                                                                              Receive fixed, pay floating                                 $120,265          $     —             $      204
Bond futures
                                                                              Receive floating, pay fixed                                  239,182           239,182                (5,532)
 Sold                        $5,015          $—           $(24)       $(24)
                                                                              Interest rate swaps employing
Total                        $ —             $—           $(24)       $(24)    exceptional accounting:
                                                                              Interest rate swaps
                                                                              Receive floating, pay fixed                                         4,907          4,907
(e) Commodity related:                                                        Total                                                     $          —      $       —           $(5,328)
                                                                              (*) Of interest rate swaps employing exceptional accounting, as these instruments are accounted for
There were no commodity related transactions.                                     together with the hedged loans and bills discounted, their fair value is included in the fair value of
                                                                                  said loans and bills discounted within “Financial instruments.”

(f ) Credit derivatives:
There were no credit related transactions.                                    (b) Currency related:
                                                                                                                                               Millions of yen
                                                                                                                                                    2011
(2) Derivative transactions at March 31, 2011 and 2010, to                                                                             Contract Over one
                                                                                                                                                               Fair value
                                                                              Type                                                     amounts      year
    which hedge accounting applied
                                                                              Principal accounting procedure:
(a) Interest rate related:                                                    Currency swaps                                             ¥ 7,088                  ¥—          ¥ (127)
                                               Millions of yen                Exchange forward contracts                                  40,381                   —           (1,460)
                                                    2011                      Total                                                      ¥    —                   ¥—          ¥(1,587)
                                       Contract Over one
                                                               Fair value
Type                                   amounts      year
Principal accounting procedure:                                                                                                                Millions of yen
Interest rate swaps                                                                                                                                 2010
Receive fixed, pay floating                ¥10,000      ¥    —         ¥ 17                                                              Contract Over one
Receive floating, pay fixed                 19,888       19,888         (460)                                                                                    Fair value
                                                                              Type                                                     amounts      year
Interest rate swaps employing                                                 Principal accounting procedure:
 exceptional accounting:                                                      Currency swaps                                                ¥    927              ¥—              ¥  (4)
Interest rate swaps                                                           Exchange forward contracts                                      86,475               —               (383)
Receive floating, pay fixed                    408          408            *    Total                                                         ¥     —               ¥—              ¥(387)
Total                                    ¥    —       ¥    —         ¥(443)

                                                                                                                                           Thousands of U.S. dollars
                                               Millions of yen                                                                                     2011
                                                    2010                                                                                Contract  Over one
                                       Contract Over one                                                                                                      Fair value
                                                               Fair value     Type                                                      amounts     year
Type                                   amounts      year                      Principal accounting procedure:
Principal accounting procedure:                                               Currency swaps                                            $ 85,244                  $—        $ (1,527)
Interest rate swaps                                                           Exchange forward contracts                                 485,640                   —         (17,559)
Receive fixed, pay floating                ¥10,000     ¥10,000         ¥ 28     Total                                                     $     —                   $—        $(19,086)
Receive floating, pay fixed                 20,925      20,925          (230)
Interest rate swaps employing
 exceptional accounting:
Interest rate swaps                                                           (c) Stock related:
Receive floating, pay fixed                    472          442            *    There were no stock related transactions.
Total                                    ¥    —      ¥     —         ¥(202)

                                                                              (d) Bond related:
                                                                              There were no bond related transactions.



                                                                              7. LOANS AND BILLS DISCOUNTED

                                                                              Loans at March 31, 2011 and 2010 include “Risk-Managed
                                                                              Loan Amounts” as follows:
                                                                              (1) Loans to borrowers in bankruptcy amounting to
                                                                                  ¥30,329 million ($365 million) and ¥40,962 million
                                                                                                                                                                                            37
         denote loans subject to Article 96-1-3 and 96-1-4 of          the original lender under the JICPA Laws and Regulations
         “Order for Enforcement of the Corporation Tax Act”            Committee Report No. 3 was ¥1,006 million ($12 million) as
         (Cabinet Order No. 97 of 1965) on which interest accrual      of March 31, 2011 and ¥7,749 million as of March 31, 2010.
         have stopped as there is doubt about the collectability of
         either principal or interest because they are contractually
         past due for a considerable period of time or for other       8. COMMITMENT LINES
         reasons.
     (2) Other delinquent loans amounting to ¥104,639 million          Loan agreements and commitment line agreements relating
         ($1,258 million) and ¥101,692 million denote loans on         to loans are agreements which oblige the consolidated
         which the Banks have stopped accruing interest excluding      subsidiaries to lend funds up to a certain limit agreed in
         loans to borrowers in bankruptcy and loans on which           advance. The consolidated subsidiaries make the loans upon
         interest payments are deferred in order to promote            the request of an obligor to draw down funds under such loan
         recovery of borrowers in economic difficulty.                   agreements as long as there is no breach of the various terms
     (3) Loans past due for three months or more amounting to          and conditions stipulated in the relevant loan agreement. The
         ¥3,947 million ($47 million) and ¥409 million denote          unused commitment balance relating to these loan agreements
         loans where payment of interest or principal is delayed       at March 31, 2011 amounted to ¥928,674 million ($11,169
         for three months or more excluding loans to borrowers in      million) and came to ¥919,137 million at March 31, 2010.
         bankruptcy and other delinquent loans.                        Of this amount, ¥878,958 million ($10,571 million) at
     (4) Restructured loans amounting to ¥23,183 million ($279         March 31, 2011, and ¥880,418 million at March 31, 2010,
         million) and ¥23,631 million denote loans to borrowers        relates to loans in which the term of the agreement is one
         for which the repayment terms have been modified to            year or less, or unconditional cancellation of the agreement is
         more favorable terms including reduction of interest          allowed at any time.
         rate, deferral of interest payments, extension of principal      In many cases the term of the agreement runs its course
         payments and debt forgiveness with the objective of           without the loan ever being drawn down. Therefore, the unused
         promoting recovery of borrowers in economic difficulty          loan commitment will not necessarily affect future cash flows.
         excluding loans to borrowers in bankruptcy, other             Conditions are included in certain loan agreements which allow
         delinquent loans, and past due loans.                         the consolidated subsidiaries either to decline the request for
     (5) The total of loans to borrowers in bankruptcy, other          a loan draw-down or to reduce the agreed limit amount when
         delinquent loans, past due loans, and restructured loans      there is due cause to do so, such as when there is a change
         amounted to ¥162,098 million ($1,949 million) and             in financial condition or when it is necessary to protect the
         ¥166,694 million.                                             consolidated subsidiaries’ credit. The consolidated subsidiaries
        The loan amounts disclosed from (1) to (5) above are           take various measures to protect its credit. Such measures
     amounts before deducting allowance for loan losses.               include having the obligor pledge collateral to the consolidated
                                                                       subsidiaries in the form of real estate, securities etc. on signing
     Commercial bills                                                  the loan agreement or in accordance with the consolidated
     Bills discounted are accounted for as financing transactions       subsidiaries’ established internal procedures for confirming the
     in accordance with the Industry Audit Committee Report            obligor’s financial condition, etc. at regular intervals.
     No. 24 of the JICPA, although the Banks have the right to
     sell or pledge them without restrictions. The total face value
     of commercial bills and purchased foreign exchange bills          9. PLEDGED ASSETS
     obtained as a result of discounting was ¥55,083 million ($662
     million) at March 31, 2011 and ¥56,541 million at March           At March 31, 2011 and 2010, the following assets were
     31, 2010.                                                         pledged as collateral for certain liabilities of the Banks.
                                                                                                                                 Thousands of
                                                                                                          Millions of yen         U.S. dollars
     Loan participation                                                                                  2011         2010          2011
     Loan participation agreements which the Banks have acquired       Cash and due from banks          ¥     21     ¥      21   $        253
     economic benefits and risks of the underlying loans from           Securities                        196,342       187,615    2,361,299

38
The collateral was pledged to secure the following:                             Consolidated subsidiaries that do not engage in the banking
                                                             Thousands of    and securities business group their assets, in principle, on an
                                       Millions of yen        U.S. dollars
                                      2011         2010         2011         individual company basis.
Deposits                              ¥19,931      ¥61,861     $239,699         The book values of the above stated assets that are schedules
Payables under repurchase                  50           80            601    for sale are reduced to their recoverable values, and recognized
agreements
Payables under securities lending          9,927        —       119,387      the reduction of ¥46 million ($553 thousand) as impairment
transactions                                                                 loss, which is included in extraordinary loss. This amount
Borrowed money                              700         —          8,419
                                                                             includes land of ¥45 million ($541 thousand) and buildings
                                                                             of ¥1 million ($12 thousand). In addition, some assets were
   In addition, securities not included in the above schedules               disposed of through sale during the fiscal year ended March
were pledged as collateral for operating transactions, such as,              31, 2011.
foreign exchange contracts and forward exchange contracts.                      The recoverable amount used to estimate the impairment
These securities amounted to ¥213,517 million ($2,568                        loss for the fiscal year ended March 31, 2011, is the net selling
million) and net other assets ¥1,299 million ($16 million)                   price, which is calculated by deducting the expected disposal
including security deposits of ¥2,061 million ($25 million)                  cost from the expected disposal value.
at March 31, 2011. The corresponding figures at March 31,
2010, were ¥203,911 million and ¥1,287 million, including
security deposits of ¥2,026 million.                                         12. BORROWED MONEY

                                                                             Borrowed money at March 31, 2010 included subordinated
10. ACCUMULATED DEPRECIATION                                                 debt of ¥25,000 million.
                                                                               Payment schedule as of March 31, 2011 is as follow:
Accumulated depreciation of tangible assets was ¥67,531                                                                          Thousands of
                                                                                                               Millions of yen    U.S. dollars
million ($812 million) at March 31, 2011, and ¥66,066                        2011                                     ¥ 7,002         $ 84,209
million at March 31, 2010.                                                   2012                                        4,479          53,867
                                                                             2013                                        3,566          42,886
                                                                             2014                                        2,583          31,064
                                                                             2015                                        1,899          22,838
11. IMPAIRMENT LOSSES                                                        Thereafter                                  6,087          73,206
                                                                             Total                                    ¥25,616         $308,070

During the fiscal year ended March 31, 2011, impairment
losses were recorded on the following assets.
                                                  Impairment loss
 Location      Primary use          Type                   Thousands of
                                                                             13. BONDS PAYABLE
                                           Millions of yen U.S. dollars
Within     Asset scheduled Land, buildings            ¥46         $553
Yamaguchi for sale
                                                                             Bonds payable include subordinated bonds of ¥45,000 million
Prefecture                                                                   ($541 million) for the fiscal year ended March 31, 2011.
Other      Asset scheduled Land                          0              0
           for sale
Total                                                 ¥46         $553
                                                                             14. PROVISION FOR EMPLOYEE
The Bank and its consolidated subsidiaries that engage in
                                                                                 RETIREMENT BENEFITS
the banking and securities business group their business-use
assets into the smallest units possible from the standpoint of
                                                                             The Banks and other subsidiaries have contributory funded
management accounting, which is the branch. Idle assets are,
                                                                             defined benefit pension plans such as employee pension plans, tax
in principle, grouped as units of individual assets. In addition,
                                                                             qualified pension plans and lump-sum severance indemnity
corporate headquarters, administrative centers, training
                                                                             plans. The Banks also have retirement benefit trusts.
facilities, company housing and dormitories are considered
                                                                                The liabilities for severance and retirement benefits
corporate assets, as these are related to all the consolidated
                                                                             included in the liability section of the consolidated balance
subsidiaries which are engaged in the banking businesses.
                                                                             sheet as of March 31, 2011 and 2010 were as follows:
                                                                                                                                                 39
                                                                                         Thousands of          The summary of assumptions is as follow:
                                                          Millions of yen                 U.S. dollars       Year ended March 31, 2011
                                                         2011         2010                  2011             Discount rate                                         2.0%—2.5%
     Projected benefit obligation                        ¥(56,585) ¥(56,986)               $(680,517)
                                                                                                             Expected rate of return on plan assets                1.4%—3.1%
     Pension assets                                       52,338        51,897              629,441
                                                                                                             Allocation of estimated amount of               Allocated to each period
     Unrecognized actuarial differences                    19,707        18,457              237,005
                                                                                                             retirement benefits                             by the straight-line method
     Unrecognized past service cost                           18           129                    216
                                                                                                             Period to amortize the past service cost                  2 years.
     Prepaid pension costs                               (15,685)      (13,738)            (188,634)                                                    (using the straight-line method
     Provision for retirement benefits                   ¥ (207) ¥ (241)                   $ (2,489)                                                     within the employees’ average
                                                                                                                                                        remaining service period)
     (Note 1) Excludes premium retirement benefits paid in extraordinary circumstances.
     (Note 2) Certain consolidated subsidiaries employ a simplified method of calculating retirement benefit   Period to amortize unrecognized net                Mainly 10—11 years
              obligations.                                                                                   actuarial cost                             (using the straight-line method
                                                                                                                                                        within the employees’ average
                                                                                                                                                        remaining service period,
       Some consolidated subsidiaries have adopted the simple                                                                                           commencing from the next fiscal
                                                                                                                                                        year of incurrence)
     method in calculation of pension benefit obligation.

        Retirement benefit expenses included in the consolidated                                              Year ended March 31, 2010
                                                                                                             Discount rate                                         2.0%—2.5%
     statements of income for the year ended March 31, 2011 and
                                                                                                             Expected rate of return on plan assets                1.6%—6.3%
     2010 were comprised as follows:
                                                                                                             Allocation of estimated amount of               Allocated to each period
                                                                                         Thousands of        retirement benefits                             by the straight-line method
                                                           Millions of yen                U.S. dollars
                                                                                                             Period to amortize the past service cost             Within 2 years.
                                                         2011          2010                 2011                                                        (using the straight-line method
     Service costs—benefits earned during the year         ¥ 1,577       ¥ 1,860            $ 18,966                                                     within the employees’ average
     Interest cost on projected benefit obligation           1,292         1,401               15,538                                                    remaining service period)
     Expected return on plan assets                        (1,367)       (1,567)             (16,440)        Period to amortize unrecognized net                    10—11 years
     Past service cost                                        110        (4,631)                1,323        actuarial cost                             (using the straight-line method
     Amortization of actuarial differences                   2,623         3,585               31,545                                                    within the employees’ average
                                                                                                                                                        remaining service period,
     Other                                                     82         3,174                   986                                                   commencing from the next fiscal
     Retirement benefit expenses                           ¥ 4,317       ¥ 3,822            $ 51,918                                                     year of incurrence)
     (Note) Retirement benefit obligations of consolidated subsidiaries employing the simplified method are
            included as a lump sum in “past service cost.”

                                                                                                             (Changes in Accounting Method)
     Retirement benefit expenses of the consolidated subsidiaries                                             During the fiscal year ended March 31, 2010, the Group
     adopting the simple method have been added up and include                                               adopted “Partial Amendments to Accounting Standard for
     “service expenses.”                                                                                     Retirement Benefits (Part 3)” (ASBJ Statement No. 19, July
        With regard to past service cost, Yamaguchi Bank                                                     31, 2008)
     converted partially from a lump-sum retirement plan to a                                                   As this adoption resulted in employing the same discount
     defined contribution pension plan, and changed the content                                               rate as was used under the previous method, the adoption
     of its defined benefit pension plan to a cash balance plan.                                               of this standard did not affect the consolidated financial
     Accordingly, past service cost reflects a ¥4,728 million                                                 statements for the fiscal year under review.
     decrease in the pension benefit obligation resulting from this
     change for the year ended March 31, 2010.
        “Other” in the above table for the year ended March 31,                                              15. REVALUATION RESERVE FOR LAND
     2010, includes an amount of ¥3,099 million which represents
     one-time contribution to the newly established defined                                                   Pursuant to the Law concerning Revaluation of Land
     contribution pension plan of Yamaguchi Bank. This amount                                                (Law No. 34, promulgated March 31, 1998, the “Law”),
     was recorded in the “other liabilities” and the related assets                                          YMFG revalued certain land used for banking operations by
     will be transferred to the plan over the 4 years.                                                       consolidated subsidiaries. The tax-equivalent portion of this
                                                                                                             revaluation amount was recorded in liabilities under “deferred
                                                                                                             tax liabilities for revaluation reserve for land,” and the
                                                                                                             reminder under net assets as “revaluation reserve for land.”
                                                                                                             Revaluation date: March 31, 1998

40
   Item 3, Article 3, of the Law establishes as the evaluation       (ii) Method of depreciating lease assets
method as that prescribed by Article 2-4 of the Order for            As described in Lease assets under (4) Matters related to
Enforcement of Law on Revaluation of Land (Enforcement               special purpose companies outside the scope of disclosure,
Order No. 119, promulgated March 31, 1998), and the                  in Note 2 SIGNIFICANT ACCOUNTING POLICIES.
amount of land tax is calculated on the basis of the land        (2) The Banks and other consolidated subsidiaries lease certain
tax amount specified under Article 16 of the Land-holding             equipment under the noncancelable finance and operating
Tax Act, adjusted rationally in accordance with the basis of         leases. Finance leases that do not transfer ownership to
calculation announced officially by the Director General of            lessees are not capitalized and are accounted for in the
the National Tax Administration Agency.                              same manner as operating leases. Certain information
   Total difference between market value as of March 31,              for such non-capitalized finance leases for the year ended
2011, of land for business use revalued in accordance with           March 31, 2011 and 2010 were as follows:
Article 10 of the Law and the total post-revaluation book                                                                       Thousands of
                                                                                                        Millions of yen          U.S. dollars
value of land for said business use:                             Equivalent amount:                   2011          2010           2011
¥22,421 million                                                  Acquisition cost                      ¥ 2,427       ¥ 4,309      $ 29,188
                                                                 Accumulated depreciation               (1,920)       (3,393)       (23,091)
                                                                 Net book value                        ¥ 507         ¥ 916        $ 6,097

16. CONTINGENT LIABILITIES —
    ACCEPTANCES AND GUARANTEES                                                                                                  Thousands of
                                                                                                       Millions of yen           U.S. dollars
                                                                                                      2011         2010            2011
All contingent liabilities including letters of credit,          Lease payments                          ¥474          ¥807          $5,701
                                                                 Equivalent of depreciation expense       408           735            4,907
acceptances and guarantees are reflected in acceptances and
                                                                 Equivalent of interest expense          ¥ 41          ¥ 70          $ 493
guarantees. As a contra account, customers’ liabilities for
acceptances and guarantees are shown on the asset side, which
represent the Banks’ right of indemnity from customers.             Equivalent of depreciation expense is computed using the
                                                                 straight-line method over the lease terms assuming no residual
                                                                 value. Equivalent of interest expense is computed using
17. OTHER EXPENSES                                               interest rate method over the lease terms for the difference
                                                                 between acquisition cost and total lease payments.
Other expenses included ¥682 million ($8,202 thousand) in           Future minimum lease payments under the non-cancelable
loss on sale of stock, ¥1,421 million ($17,090 thousand) in      finance and operating leases having remaining terms in excess
retirement of stock and ¥1,311 million ($15,767 thousand)        of one year at March 31, 2011 and 2010 were as follows:
in loss on money held in trust in the year ended March           At March 31, 2011
                                                                                                                           Thousands of
31, 2011. In the previous year, other expenses included                                                Millions of yen      U.S. dollars
¥1,484 million in loss on sale of stock and ¥1,819 million in    2012                                            ¥318             $3,825
retirement of stock.                                             2013 and thereafter                               245              2,946
                                                                 Total minimum lease payments                    ¥563             $6,771



18. LEASE TRANSACTIONS                                           At March 31, 2010
                                                                                                                          Millions of yen
                                                                 2011                                                               ¥433
1. Finance lease transactions
                                                                 2012 and thereafter                                                  563
(1) Finance lease transactions that do not transfer ownership    Total minimum lease payments                                       ¥996
    (i) Content of lease assets
        Tangible fixed assets
          Mainly office equipment
        Intangible fixed assets
          Software


                                                                                                                                                41
     2. Operating leases                                                          2. Significant differences between the statutory effective tax
        Future minimum lease payments at March 31, 2011 and                          rate and the actual income tax rate after application of
     2010 are as follows:                                                            deferred income tax accounting are as follows:
     At March 31, 2011                                                                                                                       %
                                                             Thousands of         Effective statutory tax rate                                    40.43
                                           Millions of yen    U.S. dollars        (Adjustments)
     2012                                              ¥63             $758       Revision of valuation allowances                               (0.66)
     2013 and thereafter                                11              132       Items permanently exempted from income such as                 (1.59)
     Total minimum lease payments                      ¥74             $890         dividend income
                                                                                  Non-deductable goodwill depreciation                            5.59
                                                                                  Residence tax on per capita basis                               0.37
                                                                                  Items permanently excluded from expense such as                 0.34
     At March 31, 2010                                                              entertainment expenses
                                                             Millions of yen
                                                                                  Others                                                          0.49
     2011                                                                ¥65
                                                                                  Actual tax rate after application of deferred income tax       44.97
     2012 and thereafter                                                    7       accounting
     Total minimum lease payments                                        ¥72



                                                                                  20. NET ASSETS
     19. INCOME TAXES
                                                                                  The Companies Act of Japan (the “Act”) became effective
     1. Significant components of the deferred tax assets and
                                                                                  on May 1, 2006, replacing the Japanese Commercial Code
        liabilities for the year ended March 31, 2011 and 2010
                                                                                  (the “Code”). The Act is generally applicable to events and
        were as follows:
                                                                                  transactions occurring after April 30, 2006 and for the fiscal
                                                                  Thousands of
                                          Millions of yen          U.S. dollars   years ending after that date.
                                         2011         2010           2011             Under the Act, the entire amount paid for new shares
     Deferred tax assets:
                                                                                  is in principle required to be designated as common stock.
      Allowance for loan losses          ¥ 36,804    ¥ 39,413      $ 442,622
      Provision for bonuses                 1,308       1,489         15,731      However, a company may, by a resolution of the Board of
      Provision for retirement benefits      4,297       5,161         51,678      Directors, designate an amount not exceeding one-half of the
      Depreciation                          1,338       1,213         16,091      price of the new shares as additional paid-in capital, which is
      Net operating loss carryforwards     23,556      26,864        283,295
      Taxable losses on devaluation of      2,862       2,480         34,420
                                                                                  included in capital surplus.
       securities                                                                     Under the Act, in cases where dividend distribution of
      Other                                 7,702       7,700         92,628
                                                                                  surplus is made, the smaller of an amount equal to 10% of
      Deferred tax assets                  77,867    ¥ 84,320        936,465
      Valuation allowance                 (23,838)    (21,831)      (286,687)     the dividend or the excess, if any, of 25% of common stock
      Total deferred tax assets            54,029    ¥ 62,489        649,778      over the total of additional paid-in capital and legal earnings
     Deferred tax liabilities:                                                    reserve must be set aside as additional paid-in capital or legal
      Unrealized gain (loss) on            (1,054)      (7,599)       (12,676)
       available-for-sale securities                                              earnings reserve. Legal earnings reserve is included in retained
      Book-value correction for              (947)      (2,067)       (11,389)    earnings in the accompanying Consolidated Balance Sheets.
       tangible fixed assets
                                                                                      Under the Act, legal earnings reserve and additional paid-in
      Other                                (1,812)     (1,763)       (21,792)
      Total deferred tax liabilities       (3,813)    (11,429)       (45,857)     capital may be used to eliminate or reduce a deficit, or may be
     Net deferred tax assets             ¥ 50,216    ¥ 51,060      $ 603,921      capitalized, by a resolution of the shareholder’s meeting.
                                                                                      Under the Act, additional paid-in capital and legal earnings
                                                                                  reserve may not be distributed as dividends, however all of
                                                                                  these may be transferred to other capital surplus and retained
                                                                                  earnings, respectively, which are potentially available for
                                                                                  dividends.
                                                                                      The maximum amount that YMFG can distribute as
                                                                                  dividends is calculated based on the Non-Consolidated
                                                                                  Financial Statements of the Company in accordance with the
                                                                                  Act.
42
  At the annual shareholders’ meeting, held on June 29,                                                     2. Information on dividends is as follows:
2011, the shareholders approved cash dividends amounting to                                                 (a) Dividends paid in the fiscal year ended March 31, 2011.
¥1,528 million ($18 million). Such appropriations have not                                                                                Aggregate
                                                                                                                                                           Cash
                                                                                                                                          amount of
                                                                                                                                                         dividends   Record     Effective
been accrued in the Consolidated Financial Statements as of                                                                               dividends
                                                                                                                                                         per share    date       date
                                                                                                                                           (Millions
March 31, 2011. Such appropriations are recognized in the                                                                                                  (Yen)
                                                                                                                  Type of shares            of yen)
period in which they are approved by the shareholders.                                                      Resolved at the board
                                                                                                            of directors meeting on
                                                                                                            May 14, 2010
                                                                                                            Common stock                        ¥1,316    ¥  5.00 Mar. 31,      Jun. 30,
                                                                                                                                                                   2010          2010
21. CHANGES IN NET ASSETS                                                                                   Preferred stock (Type 1)            ¥ 280     ¥14,000 Mar. 31,      Jun. 30,
                                                                                                                                                                   2010          2010
                                                                                                            Preferred stock (Type 3)            ¥ 127     ¥11,500 Mar. 31,      Jun. 30,
1. Type and number of shares issued and treasury shares were                                                                                                       2010          2010
                                                                                                            Preferred stock (Type 4)            ¥   98    ¥11,500 Mar. 31,      Jun. 30,
   as follows:                                                                                                                                                     2010          2010
                                             Number of shares (in thousand)                                 Resolved at the board
                                      March 31,                          March 31,                          of directors meeting on
                                                Increase     Decrease
                                       2010                                 2011                            November 12, 2010
Shares issued                                                                                               Common stock                        ¥1,316    ¥  5.00 Sep. 30,      Dec. 10,
 Common stock                            264,353                  —                 —        264,353                                                               2010          2010
 Preferred stock (Type 1)*1                   20                  —                 20            —         Preferred stock (Type 3)            ¥ 127     ¥11,500 Sep. 30,      Dec. 10,
 Preferred stock (Type 3)                     11                  —                 —             11                                                               2010          2010
 Preferred stock (Type 4)                      9                  —                 —              9        Preferred stock (Type 4)            ¥   98    ¥11,500 Sep. 30,      Dec. 10,
  Total                                  264,393                  —                 20       264,373                                                               2010          2010
Treasury stock
 Common stock*2                             1,130             2,550                  6           3,674
 Preferred stock (Type 1)*3                    —                 20                 20              —
 Preferred stock (Type 3)                      —                 —                  —               —       (b) Dividends to be paid in the fiscal year ending March 31,
 Preferred stock (Type 4)                      —                 —                  —               —           2012 and fiscal year ended March 31, 2011 are as follows:
  Total                                     1,130             2,570                 26           3,674                                          (Millions of yen, except per share amount)
*1 The decrease in the number of shares is due to their retirement.                                                              Aggregate
                                                                                                                                                          Cash
*2 Of the increase in the number of shares, 2,507 thousand shares were acquired in the market, 42                                amount of Source
   thousand shares were acquisitions of shares constituting less than one share unit, and 1 thousand                                                    dividends Record         Effective
                                                                                                                                 dividends      of
   shares were owned by a newly consolidated subsidiary. Decreases in the number of shares were due                                                     per share      date         date
                                                                                                                                  (Millions dividends
   to sales to meet request for the acquisition of shares to constitute full share units.                                                                 (Yen)
                                                                                                            Type of shares         of yen)
*3 Increases and decreases in the number of shares were due to the acquisition and retirement of said
   shares.                                                                                                  Resolved at the
                                                                                                            board of directors
                                                                                                            meeting on May
                                             Number of shares (in thousand)                                 13, 2011
                                      March 31,                          March 31,                          Common stock            ¥1,304   Retained    ¥  5.00 March 31,      June 30,
                                                Increase     Decrease
                                       2009                                 2010                                                             earnings             2011            2011
Shares issued
                                                                                                            Preferred stock         ¥ 127    Retained    ¥11,500 March 31,      June 30,
 Common stock                            264,353                  —                 —        264,353
                                                                                                            (Type 3)                         earnings             2011            2011
 Preferred stock (Type 1)                     20                  —                 —             20
 Preferred stock (Type 3)                     11                  —                 —             11        Preferred stock         ¥   98   Retained    ¥11,500 March 31,      June 30,
                                                                                                            (Type 4)                         earnings             2011            2011
 Preferred stock (Type 4)                      9                  —                 —              9
  Total                                  264,393                  —                 —        264,393
Treasury stock
 Common stock*                              1,098                 42                10           1,130
 Preferred stock (Type 1)                      —                  —                 —               —
 Preferred stock (Type 3)                      —                  —                 —               —       22. STOCK OPTIONS
 Preferred stock (Type 4)                      —                  —                 —               —
  Total                                     1,098                 42                10           1,130
                                                                                                            There were no stock options outstanding in the fiscal year
Note: Increase in the number of shares were due to fractional share repurchases. Decreases in the
      number of shares were due to sales to meet request for the acquisition of shares to constitute full   ended March 31, 2011 and 2010.
      share units.




                                                                                                            23. INVESTMENT AND RENTAL PROPERTY

                                                                                                            This note is omitted, as the total amount of investment and
                                                                                                            rental property is immaterial.



                                                                                                                                                                                             43
     24. CONSOLIDATED STATEMENT OF                                                  28. PER SHARE DATA
         COMPREHENSIVE INCOME
                                                                                                                                  Yen                U.S. dollars
                                                                                                                           2011       2010              2011
     (1) Other comprehensive income during the fiscal year ended
                                                                                    Net assets per share                  ¥1,624.33 ¥1,600.90            $19.53
         March 31, 2010                                                             Net income per share                      71.18     97.80               0.86
                                                                Millions of yen     Net income per share (diluted)        ¥ 71.15 ¥        —             $ 0.86
     Other comprehensive income                                        ¥35,802
      Unrealized gain on other available-for-sale securities             35,827
      Deferred loss on hedges                                                (37)
      Share of other comprehensive income in affiliated                         12    Net assets per share are calculated based on the following:
       companies accounted for using the equity method                                                                      Millions of yen          Thousands of
                                                                                                                        except number of shares       U.S. dollars
                                                                                                                          2011          2010            2011
     (2) Comprehensive income during in fiscal year ended March                      Net assets                           ¥446,290      ¥463,998      $5,367,287
                                                                                    Amounts excluded from Net assets ¥ 22,861          ¥ 42,603      $ 274,937
         31, 2010
                                                                                      [preferred stock issue price]         19,535       39,505         234,937
                                                                Millions of yen
                                                                                      [dividends on preferred stock]           225           504            2,706
     Comprehensive income                                              ¥62,954
                                                                                      [minority interests]                   3,101         2,594          37,294
      Total comprehensive income attributable to shareholders            62,555
      of the parent                                                                 Net assets attributable to common     423,429       421,395       5,092,350
      Total comprehensive income attributable to minority                   399     stock at the fiscal year-end
       interests                                                                    Number of common stock at the         260,680       263,224
                                                                                    fiscal year-end used for the
                                                                                    calculation of Net assets per share
                                                                                    (in thousand)

     25. SEGMENT INFORMATION
                                                                                    Net income per share is calculated based on the following:
     Business segment information is not shown, due to the Bank                                                               Millions of yen        Thousands of
                                                                                                                          except number of shares     U.S. dollars
     and consolidated subsidiaries operating in one segment.                                                                2011          2010          2011
        Geographic segment information is not shown, due to                         Net income                              ¥19,156      ¥ 26,752      $230,379
     domestic net sales of the Bank and consolidated subsidiaries                   Amount not attributable to                   450         1,008          5,412
                                                                                    common shareholders
     and the consolidated assets being located substantially in                      Preferred stock dividends                  225           504         2,706
     Japan represent more than 90% of consolidated net sales and                     Interim preference stock dividends         225           504         2,706
     assets, respectively.                                                          Net income attributable to               18,706        25,744       224,967
                                                                                    common stock
        Overseas sales information is not shown, due to overseas                    Average number of common stock          262,789      263,234
     sales being less than 10% of consolidated net sales.                           during the year (in thousand)

                                                                                    In fiscal year ended March 31, 2010, preferred shares issued
                                                                                    by consolidated subsidiary YM Securities Co., Ltd., are
     26. RELATED PARTY TRANSACTIONS                                                 excluded from the calculation of “current term net income per
                                                                                    share after stock adjustment,” as the shares have no dilutive
     There are no significant transactions that should indicate                      effect.
     dealings with related parties.                                                 The shares issued and outstanding: 100 shares


     27. BUSINESS COMBINATION                                                       29. SUBSEQUENT EVENTS

     No business combinations took place in 2011 and 2010.                          There were no significant subsequent events. Dividends were
                                                                                    made in June 2011. Please refer to “20. NET ASSETS”.




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