North Pacific Bank · 2016. 9. 9. · North Pacific Bank Annual Report 2016 2 A Message from the President I would like to start this message by thanking all stakeholders for their

North Pac i f i c Bank Annua l Repor t

North Pacific Bank

NO

RTH

PA

CIF

IC BA

NK A

NN

UA

L REPO

RT 2016

Nor th Paci f ic Bank Annual Repor t 2016

1

North Pacific Bank

Group Business Principles• Provide quality service to our business partners and progress together with our customers

• Improve our corporate value and win a high level of trust from our stockholders and the market

• Create a rewarding workplace where employees can fully display their abilities

North Pacific Bank Business Principle• Providing a steadfast foundation for Hokkaido’s development

2 A Message from the President

3 Highlights

6 Medium-Term Business Plan

7 Further Stimulation of Regional Economies

13 CSR

16 Compliance

17 Corporate Governance

19 Risk Management

21 Corporate Data

21 Organizational Chart

22 Directors, Audit & Supervisory Board Members and Executive Officers

23 Corporate Outline / Principal Shareholders

24 History of North Pacific Bank, Ltd. / Group Structure

25 Financial Section

25 Consolidated Balance Sheets

26 Consolidated Statements of Income

26 Consolidated Statements of Comprehensive Income

27 Consolidated Statements of Changes in Equity

28 Consolidated Statements of Cash Flows

29 Non-Consolidated Balance Sheets

30 Non-Consolidated Statements of Income


2

A Message from the President

I would like to start this message by thanking all stakeholders for their enduring goodwill and patronage afforded

the North Pacific Bank.

In FY2015 the economy of Hokkaido made a modest recovery. Capital investment has been on the rise with the

construction of office buildings in redevelopment areas, plus large-scale value-added investment and productivity

capacity investment in the manufacturing industry. In particular, with the opening of the Shinkansen line to

Hokkaido, there has been increased investment for the building of new hotels as well as extension and rebuilding

of existing hotels. Governmental budget constraints, on the other hand, led to a reduction in public investment.

In Hokkaido, as throughout Japan, personal consumption was brisk, with hiring and the income environment

stabilizing. Housing investment rallied, bolstered by low interest rates. In tourism, there was a significant increase

in visitors from overseas as well as an increase in domestic visitors to Hokkaido thanks to an expansion of flight

routes to the New Chitose Airport and the opening of the Shinkansen line. This trend of increased tourism appears

to be holding steady. In such a business environment the Bank’s revenue and income both rose in the year ended

March 2016.

In January 2016, the Bank of Japan made the historic decision to adopt a negative interest rate. By the end

of February, the yield on new 10-year Japanese government bonds had dropped to a negative rate. Adding in

external factors, market conditions have been fluctuating as the value of the yen rises and stock prices fall. The

future is becoming more uncertain, so in both the corporate and household sectors the investment stance has

grown cautious. We have also been forced to lower yield on loaned money and securities as we face a tough

earnings environment.

Structural reforms that will result from more flexible fiscal policy and deregulation have the potential to stimulate

housing investment and corporate capital spending, and we anticipate more diversified asset management, as

well. North Pacific Bank will work to further meet the capital needs of consumers and small- and medium-sized

enterprises in Hokkaido. We will also expand consultations on asset management through which we aim to build

commissions from the sale of deposit assets and other commission income. We can thereby minimize the impact of

negative bearings and incorporate positive effects. We foresee the negative interest policy remaining in place for the

foreseeable future, and we will pursue a fundamental reform of cost structures.

This year is the final year of our medium-term business plan, “New Challenges: Creating New Values for Hokkaido

and Seeking Growth Together.” We are looking to generate synergy between new possibilities for Hokkaido and

the strengths and unique capabilities of the North Pacific Bank. We will work to further stimulate the economy of

Hokkaido and make a genuine contribution to the development of customers and local communities.

We look forward to your continued support going forward.

September 2016

North Pacific BankJunji Ishii, President


3

(¥ billions)

Highlights

94.2

76.9

16.5

0.8

74.4

78.90%

19.8

0.3

6.0

2.6

28.3

17.7

4.85%

95.9

77.1

17.5

1.1

74.2

77.39%

21.6

0.8

2.0

2.1

25.0

14.8

4.44%

20162015

Year ended Mar. 31,

(1.6)

(0.1)

(1.0)

(0.3)

0.1

1.51%

(1.7)

(0.4)

4.0

0.5

3.2

2.8

0.41%

Increase/(Decrease)

Core gross profit

Net interest income

Net fees and commissions

Net other operating income (excluding gains (losses) on bonds)

Expenses(excluding non-recurring losses)

Core OHR (%)

Core operating profit

Credit cost

Gains (losses) on securities

Net other non-recurring income (loss)(including gains (losses) on money held in trust)

Ordinary profit

Net income

ROE (%)

(¥ billions)

99.1

30.4

18.0

23.0

100.8

27.4

15.7

24.8

20162015

Year ended Mar. 31,

(1.7)

3.0

2.2

(1.8)

Increase/(Decrease)

Core gross profit

Ordinary profit

Profit attributable to owners of parent


Income Summary

Non-Consolidated

Consolidated

Core gross profit and core operating profit were down year-on-year as a result of a drop in net fees and

commissions, which was caused by a larger balance of card loans pushing up guarantee commissions.

Meanwhile, ordinary profit and net income were up year-on-year as a result of lower credit costs and an increase in

gains on securities. ROE was up 0.41% year-on-year to 4.85% on the back of that rise in net income.

ROE = Net income for the current fiscal year (Total net assets at beginning of fiscal year* + Total net assets at end of fiscal year*) / 2

*Excluding subscription rights to shares

Core operating profit Net income ROE

Year ended March 31,

85.8

(¥ billions)

10024.27%

4.44% 4.85%

19.817.721.6

14.8

90

80

70

40

30

20

10

0

A B

A BA B A B

2014 20162015

76.4

North Pacific Bank


4

The average balance of deposits and NCDs was 7,579 billion yen (up 257 billion yen year-on-year), while the year-end

balance was 7,834 billion yen (up 241 billion yen). Figures were up for the year in all sectors: corporate, individual,

public, and financial. Deposit assets were down, mainly as a result of a decrease in safe custody of public bonds.

Hig

hlig

hts

(¥ billions)

7,834

387

539

7,592

433

477

20162015

As of Mar. 31,

241

(45)

62

Increase/(Decrease)

Deposits and NCDs*

Deposit assets

Individual annuity insurance, etc.

Outstanding Balance(¥ billions)

7,5797,322

20162015

Year ended Mar. 31,

257

Increase/(Decrease)

Deposits and NCDs*

Average Balance

Deposits and Deposit Assets (Non-Consolidated)

Deposit assets = Safe custody of public bonds + Investment trustsIndividual annuity insurance, etc. sales reflect cumulative sales amounts.

(¥ billions)

3,409

5,797

5,085

3,396

5,553

4,974

20162015

As of Mar. 31,

13

244

111

Increase/(Decrease)

SMEs, etc.　Loans and bills discounted

In Hokkaido

Outstanding Balance(¥ billions)

5,607

30

5,450

20

20162015

Year ended Mar. 31,

156

10

Increase/(Decrease)

Loans and billsdiscounted

Of which, card loans

Average Balance

SMEs, etc. = SMEs + Consumer loans

Public sector loans include loans to land development public corporations.

Loans and Bills Discounted (Non-Consolidated)The average balance of loans was 5,607 billion yen (up 156 billion yen year-on-year), while loans outstanding at

the end of the year were 5,797 billion yen (up 244 billion yen). Figures were up for the year in all sectors:

enterprise, individual, and public. Aggressive efforts to promote card loans resulted in a 10 billion yen year-on-year

improvement in the average balance.

8,000 600

400

200

0

7,5797,105 7,322 480

426 435

5,0984,892 4,994

2,0001,787 1,892

6,000

4,000

2,000

6,000

25

30

35

20

15

10

5

0

4,000

2,000

0

0

Corporate Individual Public sectors and financial institutions

Year ended March 31,(¥ billions)

A B

BB B

191292 234

387

449 433

BB B

A

2,532A

2,487A

2,474A

1,669B

1,644B

1,654B

1,404C

1,291C

1,322

5,6075,423 5,450

C

A A 195156 198AA A

C Investment trustsInvestment trusts are stated at fair value.

*NCDs = Negotiable certificates of deposit

Safe custody of public bonds

As of March 31,(¥ billions)

A B

CC

C

Deposits and NCDs* (Average Balance)

Enterprises Individuals Public sectors

Year ended March 31, Year ended March 31,(¥ billions)

A B C

Loans and Bills Discounted (Average Balance)

Deposit Assets (Outstanding Balance)

(¥ billions)

Card Loans (Average Balance)

20162014 2015 20162014 2015

20162014 2015 20162014 2015

30

15

20


5

Gains on securities were up 6 billion yen year-on-year to 100 billion yen as of March 31, 2016.

Unrealized Gains (Losses) on Securities (Non-Consolidated)

(¥ billions)

11.67%

332

2,850

10.09%

347

3,444

2015

As ofMar. 31,

As ofMar. 31,

Capital adequacy ratio (%)

Capital

Risk-adjusted assets

100

2016

Stocks Bonds Others

Unrealized gains (losses) on securities

2014 2015

68

0.8

39

18

1

67

22

3

31

59

93

With the permission of the Financial Services Agency,

we began using the more accurate foundation

internal ratings-based approach for evaluating credit

risk, starting with the capital adequacy ratio of March

31, 2016. In addition to the increase in profits, the

change in calculation method resulted in an improved

capital adequacy ratio on both consolidated and

non-consolidated bases.

Capital adequacy ratio of March 31, 2015, is calculated using the standardized approach; that of March 31, 2016, is calculated using the foundation internal ratings-based approach.

Capital Adequacy Ratio (Domestic) (Non-Consolidated)

1.39%1.91%

1.61%

42

128

153

110

50

17

62

64

26

53

54

20

Bankrupt and quasi-bankrupt assets

Doubtful assetsSubstandard loans

20162014 2015

As of March 31,(¥ billions)

(¥ billions)As of March 31,

Unrealized gains (losses) on securities

Stocks

Bonds

Others

Nikkei stock average (¥)

New 10-year Japanese government bond yield (%)

20162015

Increase/(Decrease)

100

68

31

0

16,758

(0.050%)

93

67

22

3

19,206

0.400%

(¥ billions)

6

0

9

(2)

(2,448)

(0.450%)

(¥ billions)

Bankrupt and quasi-bankrupt assets

Doubtful assets

Substandard loans

Problem assets based on the FinancialRevitalization Law

Percentage of total credit provided (%)

*After partial direct write-offs

Percentage of total credit provided (%)

*Partial direct write-offs have not been implemented. The figures as they would appear after partial direct write-offs are shown for reference.

20162015

As of Mar. 31, Increase/(Decrease)

53

54

20

128

2.25%

91

1.61%

42

50

17

110

1.86%

82

1.39%

(11)

(3)

(2)

(17)

(0.39%)

(8)

(0.22%)

As of Mar. 31,

The amount and rate of problem assets disclosed under the act declined as a result of business administration

assistance for clients and progress in the final disposal of problem assets.

Problem Assets Based on the Financial Revitalization Law (Non-Consolidated)

A

A BC

A BC

A BC

B C

A B C

AA A

BB

B

C

C

C

Percentage of total credit provided(After partial direct write-offs)

2016


6

North Pacif ic Bank

Numerical targets for FY2016 are those announced at the time of the unveiling of the plan in May 2014.

• Improve shareholder value

We will create new standards and values for Hokkaido

Strive to generate synergies between new possibilities for Hokkaido and the North Pacific Bank’s strengths and unique capabilities to stimulate the regional economy, emerge from deflation, and create new standards and values for Hokkaido.

We will be number one for customer satisfaction, community contribution,and employee satisfaction among local banks.

Synergies

New possibilities for Hokkaido

Fulfill Hokkaido’s potential and make a genuine contributionto the development of customers and local communities.

Full use ofworkforce

Funding of projects so thatcapital flows within Hokkaido

Swift dissemination of informationaccumulated and analyzed

Four Basic Policies

Mid-to-Long-Range Vision

Strategies to Turn Our Mid-to-Long-Range Vision into Reality

North Pacific Bank’s strengthsand unique capabilities

Basic Policies and Business Targets

• Improve corporate value to benefit customers, communities, shareholders, and employees

• Optimize organizations, systems, networks, and processes

• Implement the PDCA cycle thoroughly to encourage self-innovation in company administration

• Make compliance and CSR integral parts of the Bank’s administration

Six Business Targets• Improve profitability through

improved customer relations

• Support for growth of local communities

• Invigoration of the workforce

• Establish a low-cost structure

• Strengthen the Bank’s business foundation

New Challenges: Creating New Values for Hokkaido and Seeking Growth TogetherThe North Pacific Bank has established a medium-term business plan for FY2014 through FY2016 called New

Challenges: Creating New Values for Hokkaido and Seeking Growth Together.

The plan clarifies our Mid-to-Long-Range Vision for the North Pacific Bank. By generating synergies between new

possibilities for Hokkaido and the North Pacific Bank’s strengths and unique capabilities, we have positioned

fulfilling Hokkaido’s potential and making a genuine contribution to the development of customers and local

communities as our main theme.

The duration of the plan covers an important period in the history of North Pacific Bank, coinciding with the run-up

to our centenary in August 2017. Every member of the board is determined to seek out and overcome new

challenges as part of the Bank’s efforts to play a role in forging new values and directions – rooted, as always, in

our customer-oriented perspective.

Numerical Targets


Ordinary profit

Net income

Average loans

Capital adequacy ratio (based on FIRB)

26.0

23.0

15.0

5,550.0

Approx. 12%

Average deposits(incl. NCDs)

7,280.0

(¥ billions)

Non-consolidated FY2016 plan

Ordinary profit


(¥ billions)

Consolidated FY2016 plan

24.0

15.5

Highlights / M

edium-Term

Business Plan

Medium-Term Business Plan


7

Further Stimulation of Regional Economies

Bank of Yokohama

Chiba Bank

Bank of Fukuoka

Shizuoka Bank

Joyo Bank

77 Bank

North Pacific Bank

Nishi-Nippon City Bank

Bank of Kyoto

Hiroshima Bank

12,877

11,539

9,424

9,185

8,142

7,971

7,834

7,547

7,212

7,024

Kanagawa

Chiba

Fukuoka

Shizuoka

Ibaraki

Miyagi

Hokkaido

Fukuoka

Kyoto

Hiroshima

(¥ billions)

HQ Funds

10,005

8,797

8,260

7,663

5,912

4,357

5,797

6,220

4,606

5,267

Loans

Compiled by North Pacific Bank from summarized financial results published by each respective bank for the fiscal year ended March 31, 2016.Funds = Deposits + NCDs

Market Share in HokkaidoAs of March 31, 2016, the Bank’s shares of deposits

and loans in Hokkaido amounted to 34% and 39%,

respectively.

As of the same date, the Bank’s balance of outstanding

Notes: Market shares are based on the outstanding balances of domestic banks and shinkin banks with head offices and branch office operations in Hokkaido (excluding Japan Post Bank and the Resolution and Collection Corporation). Deposits include negotiable certificates of deposit (negotiable certificates of deposit of shinkin banks have been estimated based on the total national balance of negotiable certificates of deposit held by shinkin banks).Sources: Bank of Japan: “Deposits, Vault Cash, and Loans and Bills Discounted by Prefecture;” Shinkin Central Bank Research Institute: “Profile of the National Association of Shinkin Banks,” “Shinkin Central Bank Monthly Review;” and other disclosure documentations

Our Standing among Regional Banks NationwideIn terms of total funds (non-consolidated), the North Pacific Bank ranked seventh among regional banks

nationwide as of March 31, 2016.

North Pacific Bank

Competitor regional banks

Other banks

Shinkin banks

(As of March 31, 2016)

Deposits inHokkaido

¥22.3 trillion

Deposits inHokkaido

¥22.3 trillion

Loans in Hokkaido

¥12.8 trillion

Loans in Hokkaido

¥12.8 trillion

24.1%24.1%31.4%31.4%

14.3%14.3%19.4%19.4%

15.4%15.4%

20.8%20.8%

39.7% 34.9%

loans in Hokkaido totaled 5,085 billion yen (up 111

billion yen, or 2.2%, year-on-year), accounting for

about 90% of the Bank’s loans.

A

BC

DA

B

C

DA

B

C

D


8

North Pacif ic BankFu

rther Stim

ulatio

n o

f Reg

ional Eco

nom

ies

Initiatives to Stimulate and Develop the Local EconomyAt North Pacific Bank, we have identified a number of

growth areas on which to focus our efforts in order to

promote sustained growth of Hokkaido’s economy.

These include medical care, agriculture and foodstuffs,

and tourism. We are also working with outside experts

and external bodies with a view to supporting

manufacturing to promote the secondary industrial

sector in Hokkaido, supporting overseas business

expansion, primarily in Asia, and supporting the

growing need for business succession as business

owners grow older.

Moreover, we established a Regional Revitalization

Promotion Office, charged with supporting efforts

based on leveraging excellent regional characteristics

or resources to promote industry, launch new

operations, and start new businesses. Similarly, we

inaugurated a Regional Revitalization Project Team as a

cross-sectional solutions-providing department.

Initiatives to Support Small- and Medium-Sized EnterprisesUnder our business principle of “Providing a steadfast

foundation for Hokkaido’s development” we consider

it the responsibility of the Bank to contribute to the

furtherance and invigoration of the regional economy.

“Support for growth of local communities” is also one

of the business targets raised in our medium-term

Major Initiatives

• Support for new business development and venture startups through various funds, subsidies, and other measures

• Support for sales route expansion through business matching and support for product marketability enhance-ments such as improved package design

• Support for setting up operations in China, ASEAN countries, and globally, using the Bank’s overseas networks

• Support in matters of business succession and business acquisitions based on close interaction with sales branches, headquarters officers, and outside experts such as CPA firms

• Business improvement support through funds, the Small and Medium Enterprise Reconstruction Support Com-mittee, and other external institutions etc.

business plan, “New Challenges,” launched in April

2014. Based on this policy we actively support the

invigoration of economic activities through the

expansion of our customers’ businesses, management

improvements, and other initiatives.

The progressing aging of the population has been

spurring demand for funds required for new facility

investment—in hospitals, nursing care facilities, and

the like. The Bank has been proactively involved in

meeting this demand for capital investment and other

funds, and we have strengthened our customer

support through consulting. In addition, we have

signed comprehensive collaborative agreements with

medical and other universities in Hokkaido to promote

regional healthcare and mutual development through

university-industry partnerships, and have been

holding Citizen Medical Seminars, amongst other

endeavors.

Support for the Healthcare and Social Welfare Sector


9

In the area of tourism, Hokkaido excels in attracting

tourists—both international and domestic visitors. In

light of the significant economic multiplier effects,

such as stimulation of the regional economy and

creation of working opportunities, the Bank has been

actively providing support for multiple initiatives in

cooperation with tourism-related institutions and

associations. To bring together food and tourism and

increase promotional effectiveness, the Bank hosted

a business matching event for Hokkaido-based

tourism-related businesses at the “Information Bazaar”

networking event for Hokkaido-made foodstuffs. The

event was joined by Hokkaido-based tourism-related

firms and organizations, Tokyo-based travel agencies,

and other parties, leading to the conception of new

tours and travel magazine features.

Agriculture and food production are principal indus-

tries of Hokkaido. The Bank works to promote and

strengthen all phases of food business operations in

Hokkaido—production, processing, and marketing.

For the production phase, we utilize various funds to

enhance the capital adequacy of corporations involved

in agriculture, forestry and fishery businesses and

support the diversification of fund procurement. At the

processing and marketing stage, we host “Information

Bazaar” networking events for Hokkaido-made food-

stuffs to help strengthen the brands of Hokkaido-made

products and establish or expand sales routes to

Japan’s main island of Honshu.

Information Bazaar in Tokyo 2015

Manufacturing Technology Fair

Compared with other regions, Hokkaido gives less

weight to the manufacturing industry. The Bank helps

businesses involved in manufacturing to expand their

sales routes through business matching and by

establishing new funds. The Bank also collaborates

with external institutions to identify and mentor

businesses that show distinct promise. The Bank

hosted a Manufacturing Technology Fair networking

event in July 2015 which attracted the largest number

of exhibiting companies and organizations yet at 209.

Gathered under one roof were SMEs that possessed

exceptional technologies and products, along with

universities, support organizations and many others.

The fair promoted Hokkaido’s manufacturing industry

by helping to expand sales routes, facilitate

cooperation among businesses, and encourage

information and technology exchanges.

Additionally, the Hokuyo Innovation Fund organized by

the Bank was established to assist clients that

demonstrate future growth potential, including the

founding of SMEs and new operations in Hokkaido,

and cases of promising innovations. Since April 2012,

the fund has invested a cumulative 456 million yen

altogether in 25 companies, and in June 2016 the fund

raised its capital from 500 million yen to 1 billion yen.

Support for the Tourism Sector

Support for the Food and Farming Sector

Support for the Manufacturing Sector


10


rther Stim

ulatio

n o

f Reg

ional Eco

nom

ies

A More Convenient Network of Branches and Consultation Desks

Our branch network has become more robust and

convenient with the installation of barrier-free interiors

and ATMs.

In April 2016, the Asahigaoka Branch reopened after

refurbishing. The lobby has been made more spacious

and customer conveniences were added through the

set up of a reception counter and notice board.

Reopening as a “next-generation bank,” the branch

also features enhanced privacy measures, with private

consulting booths that allow for quiet consultations.

The Okusawaguchi Branch reopened in August 2016,

to be followed in December by the Miyanomori

Branch, which has been rebuilt in a new location and is

also part of our “next-generation bank” system.

To facilitate relaxed consultations on non-weekdays,

the Bank also offers loan consultations at Loan Plazas

and branches that operate outside of normal office

hours. Some Loan Plazas even accept consultation

requests regarding housing and other loans on

weekends and holidays. Additionally, the Bank offers a

toll-free number that customers can use for

consultations by telephone.

A Wider Range of Products and Services

At North Pacific Bank we are working to provide

customers with new products and services that match

customers’ diverse needs. For example, we have been

striving to offer a full array of deposit products ranging

from investment trusts to insurance products, as well

as asset management advisory services.

The Bank now offers online products and services

that can be used easily by customers who find it

difficult to get to a bank office. In April 2015 we

began offering a “Hokuyo Free & Omatome Loan (Web Contract).” This is a highly convenient loan that

can be used for any purpose. All steps, from placing

an application to concluding the contract, can be

performed online. In November 2015 the Bank

launched a “Hokuyo Web Account” (nickname:

“Webry”) system. These are ordinary savings accounts

for which a passbook is not issued. Instead, account

holders can use a computer or smartphone to easily

transfer money, view their balance, and otherwise

manage their account. Such an account can be applied

for and opened at any time online, and because no

passbook is issued there is no worry about losing it,

having it stolen, keeping it up to date or replacing it

when it fills up.

Initiatives for Regional Revitalization

The Bank keenly supports local government initiatives

throughout Hokkaido aimed at stimulating the local

economy. Such initiatives include promoting industry

by leveraging excellent regional characteristics and

resources, launching innovative, new businesses, and

entering the global marketplace. We do this by sign-

ing a comprehensive collaborative agreement with

each local government and by collaborating actively

with the businesses that the governing bodies are

working to promote. One initiative involves dealing

with the vacant homes that are on the rise as the

local population ages and birthrate declines. The Bank

provides a range of loans and has set up a consulta-

tion section at our Hokuyo Loan Plazas for dealing

with vacant homes, thereby supporting relocation,

permanent residency, and changes of residence.

Also, the opening of the Hokkaido Shinkansen line in

March 2016 is expected to bring positive economic

effects. At this time the Bank set up the Aomori-

Hakodate Industrial Promotion Office and formed the

Aomori-Hakodate Revitalization Fund through public-

private sector cooperation as part of various efforts to

capitalize on the opening of the bullet train line.

Asahigaoka Branch lobby


11

Overseas Business Development Support

The Bank supports customers at each stage of their

overseas business activities. We utilize our network of

overseas business sites and partner financial

institutions to offer such services as international

money transfers, import/export transactions, foreign

exchange risk hedging, overseas sales channel

development, local information collection and

provision, support for feasibility studies, and referrals

to partnering financial institutions overseas and local

experts. In FY2015 the International Division and

overseas representative offices provided support for

234 cases of business negotiations.

To meet our customers’ needs with attentive detail in

regard to foreign exchange, the Bank has set up a

Markets Desk within the International Division. We

deliver information on exchange rates in foreign

currency markets directly from the Bank’s dealing

room and offer instruments for hedging against

exchange-rate fluctuation risk. These are just some of

the ways in which we are able to offer multi-faceted

support to customers for foreign exchange transac-

tions.

Markets Desk

Foreign Exchange Services

Cooperation with Overseas Sites and Financial Institutions

Following on from representative offices opened in

Dalian and Shanghai in China in 2005, the Bank

added a first ASEAN business site in January 2014 by

establishing a representative office in Thailand’s

capital of Bangkok. Moreover, in June 2015 a coop-

erative agreement was signed with the Bank of East

Asia in Hong Kong, followed in August 2015 by a

similar agreement with Hawaii-based Central Pacific

Bank. We now have a total of nine cooperative

arrangements with overseas financial institutions,

including the Metropolitan Bank in the Philippines,

and Vietcombank in Vietnam. In January 2016, the

Bank issued a standby letter of credit* based on a

cooperative agreement with United Overseas Bank

of Singapore. Under the standby letter of credit,

locally incorporated affiliates of our customers are

able to raise local-currency capital needed for their

business expansion.

*Standby letter of credit: A letter of guarantee issued by the Bank to a foreign financial institution in order to create with that foreign financial institution a credit facility for our customers’ locally incorpo-rated affiliates.

Hokkaido Office for ASEAN Countries

Working with the Hokkaido Government, in January

2016 we seconded banking staff to the Hokkaido Gov-

ernment Representative Office Registered in Singapore

Covering ASEAN Countries to support the expansion of

exports of Hokkaido-produced goods and promote the

overseas business development of Hokkaido-based

companies. At our Bangkok-based representative

office also, we have increased staffing to four mem-

bers so that we can provide better coverage of the

entire ASEAN region.

Correspondent Bank Agreements

In the area of overseas account settlement, the Bank

collects bills, issues and accepts letters of credit, and

settles accounts, all through broad-ranging corre-

spondent arrangements with 135 banks in 31 coun-

tries in Asia, Europe, North and Central America,

South America, Oceania, and Russia (as of the end of

March 2016), so as to ensure that foreign exchange

transactions can be carried out smoothly. The coop-

erative system in place facilitates the international

settlement of commercial payments, wire transfers,

and so on.


12


rther Stim

ulatio

n o

f Reg

ional Eco

nom

ies

North Pacific Bank International Network (As of June 30, 2016)

HokkaidoSakhalin Office

Bangkok Bank JETRO Singapore Office

Central Pacific BankHawaii, U.S.A.

United Overseas Bank

Bank Negara Indonesia

International PartnersSecondment of Employees

Bangkok Bank

Hokkaido ASEAN Office

Metropolitan Bankand Trust

The Bank of East Asia

State Bankof India

Vietcombank

Bank of Dalian

Shanghai Office

Dalian Office

BangkokOffice

Region Base/Seconding Destination Partner(s)

China

ASEAN

India

Russia

U.S.A.

Dalian Office (base, March 2005)Shanghai Office (base, June 2005)

JETRO Singapore Office (seconding, Oct. 2011) Bangkok Bank (seconding, June 2013)Bangkok Office (base, Jan. 2014)Hokkaido Government Representative Office

Registered in Singapore CoveringASEAN Countries (seconding, Jan. 2016)

Hokkaido Sakhalin Office (seconding, 2001)

Chiba Bank New York Branch (seconding, Apr. 2016)

Financial institutionsBank of Dalian (Nov. 2010)The Bank of East Asia (June 2015)

Governmental organizations (9)Cities of Shanghai, Dalian, Shenyang, Tsingtao, Tianjin; provinces of Liaoning, Heilongjiang, Jilin; Hong Kong Trade Development Council

Trade organizationChina Council for the Promotion of International Trade, Dalian Branch Office

Financial institutionsBangkok Bank (Oct. 2012)Bank Negara Indonesia (Feb. 2013)Metropolitan Bank and Trust (July 2013)United Overseas Bank (July 2013)Vietcombank (Dec. 2013)

Financial institutionState Bank of India (Feb. 2013)

Governmental organizationGovernment of the Sakhalin Region (Sep. 2013)

Financial institutionCentral Pacific Bank (Aug. 2015)

Signing ceremony with Central Pacific Bank (Aug. 21, 2015)

Foreign Exchange

In November 2014, the Bank began offering cash-based

foreign exchange services in three additional ASEAN

currencies (Singapore Dollar, Indonesian Rupiah, and

Malaysian Ringgit) in response to mounting demand

from customers for travel and business purposes in the

ASEAN region. This brings the number of currencies

handled by the Bank’s cash-based foreign exchange

service to 16.

Chiba BankNew York Branch


13

Roles and Functions

for Regional Financial Institutions

As a member of the regional community, the Bank

regards CSR activities as important. We believe it is

essential to manage our business in a way that takes

into account the needs of the environment and of our

stakeholders, including the regional community. We

have set up a dedicated CSR promotion office for

taking dynamic, effective action, established three

principal themes for our CSR activities as

environmental protection, healthcare/social welfare,

and education/culture, and are engaged in a variety

of activities for enhancement and sustainable growth

of the community, all in accordance with our Basic

CSR Policy.

CSR Activities

Through such activities as the provision of financial

products and services, the Bank supports efforts on the

part of customers to reduce the impact on the environ-

ment as well as R&D, commercialization, business development, and other eco-related business activities.

For individual customers, we offer financing at prefer-

ential interest rates for energy-saving renovation work,

installation of solar panel systems, and other purposes.

For corporate customers, in light of Hokkaido’s nature

as a veritable treasure trove for renewable energies,

we handle a fund specialized in supporting growth

fields from a financial perspective.

We also provide financing to support the acquisition of

environmentally-related certifications, financing for

enterprises making facilities investment aimed at

reducing carbon dioxide emissions, and private-place-

ment financing at favorable rates for enterprises

making efforts to preserve the environment.

Environmental Protection Initiatives

CSR

Environmental protectionHealthcare/Social welfare

Education/Culture

Importanceto the sustainable

development of our group

Importanceas a social issue

Importanceto the sustainable

developmentof the region

Our Basic CSR Policy

Based on the Sapporo Hokuyo Group’s

management principles, the group takes action

for the ongoing benefit of our supporting

stakeholders as we strive to offer the best

financial instruments, services, and information,

while carrying out support activities.

Business-based Environmental Activities

To help prevent global warming, the Bank has estab-

lished a plan to reduce its emissions of carbon dioxide

and other greenhouse gases. In addition, we are step-

ping up procurement of energy-efficient office equip-

ment, increasing the use of LED lighting, and making

other efforts to conserve energy. We also strive to

conserve paper resources, using recycled and FSC-

certified paper products and employing paperless

methods for internal communication. Forms and

records that no longer must be retained are recycled

in a secure manner to ensure that no confidential

information is leaked.

Efforts to Reduce the Bank’s Environmental Impact


14

North Pacif ic Bank

Citizen Medical Seminar

CS

R

Healthcare / Social Welfare Initiatives

The Bank is working actively to utilize the group’s

financial capabilities and network to support and

enhance the region’s healthcare and social welfare

infrastructure. The Bank has concluded an overall

cooperative agreement with four medical and other

universities in Hokkaido and is supporting regional

medicine through such efforts as helping to host

Citizen Medical Seminars. In addition, we have agreed

to coordinate with the Hokkaido Government on

cancer-prevention programs aimed at promoting

understanding of cancer, and are working to promote

cancer checkups.

In social welfare contributions, the Bank has also made

donations and offered support in various guises to the

Hokkaido Bone Marrow Bank Promotion Association,

Hokku Fund

As part of its environmental protection efforts, the

Bank has established the Hokku Fund to protect the

diversity of wildlife in Hokkaido. In order to maintain

appropriateness, fairness, and transparency in the

operation of the fund, the Hokku Fund Selection

Committee has been established incorporating

members from the public and private sectors to

oversee fund grants and aid. During FY2015, grants

were made to seven organizations.

Hokku Term Deposit

Part of the Hokku Fund involves the Hokku Term

Deposit that comes without term maturity notice, and

is available at all branches. The Bank pays to the Hokku

Fund an amount equivalent to 0.01% of the Hokku

Term Deposit balances plus the postage fee equivalent

amount saved by not issuing a notice of maturity.

Investing in Hokku Term Deposit provides

accountholders with the opportunity to participate in

the Hokku Fund indirectly and thereby promote

biodiversity in Hokkaido.A Hokku Term Deposit passbook

Grant presentation ceremony

including more than 20 years of assistance (since the

association’s establishment) in the running of the

secretariat. Employees are encouraged to play their

part by a system of special leave for bone marrow

donors.


15

Education / Culture Initiatives

Junior high school essay contest

Financial education for schoolchildren

L-boshi certification mark(highest rating)

We believe that the mission of a financial institution is

to educate people by giving them proper knowledge

about money and economic mechanisms so that they

become able to take on the responsibility of helping

the Hokkaido economy to develop.

Toward this end we extend to schoolchildren—the

shapers of the future of Hokkaido—classes on financial

education via school visits, plus tours of our main and

other branches. In FY2015, 886 participants from

elementary school through to university age took part

in these activities.

Furthermore, in FY2012 the Bank began hosting classi-

cal concerts twice a year performed by the Sapporo

Symphony Orchestra to help promote culture in Hokkaido.

Already 13,800 customers have been given free invita-

tions to these superb concerts. In FY2013 we began

supporting an essay contest for junior high school

students organized by the Mainichi Newspapers.

Support for Women’s Participation in the Workplace and for the Next Generation

In April 2016, we became the first Hokkaido company

to attain three stars (the highest rating) under the

“L-boshi” certification regime that rates businesses

for their promotion of opportunities for women in

the workplace. Under the initiative, which is based on

the Act on the Promotion of Women’s Participation

and Advancement in the Workplace, the Minister of

Health, Labour and Welfare certifies companies that

actively encourage advances in this area. Recognition

under the “L-boshi” system follows

our certification in 2007 under a

similar system based on the Act

on Advancement of Measures to

Support Raising Next-Generation

Children, and we have constantly

sought to enable the women of our

workplace to balance their profes-

sional and parental lives.

Customer Satisfaction Enhancement Activities

In order to further enhance customer satisfaction, the

Bank has installed notice boards at all branches for

written messages, provides training workshops on

how best to interact with people with disabilities, and

offers support for people who have difficulty using

ATMs including due to visual or other disability, by

offering customers the opportunity to transact their

business at bank counters while incurring only the fee

applicable for ATM transactions. Moreover, work is

under way to equip ATMs with handsets and make

bank branches barrier-free.

Classical concert presented by North Pacific Bank (Sapporo)


16

North Pacif ic BankC

SR / C

om

plian

ce

Compliance

Compliance Frameworks

Shutting Out Organized Crime

Management Frameworks for Personal Information Protection and Customer Protection

The Bank regards the compliance frameworks of the

Bank and the group as a whole as an important

component of management. The Board of Directors

coordinates the formulation of the structure, defining

measures including compliance frameworks and basic

policies for norms of action.

The Compliance Committee, with chairman and

members appointed by the president, is supported by the

Legal and Compliance Division. In principle, the

Compliance Committee serves to compile and maintain a

Compliance Manual, which explains about pertinent laws

and provides specific instructions for compliance violation

situations, and distributes the manual to all concerned.

The committee also formulates and reviews the

Compliance Program, a detailed plan aimed at

strengthening the compliance framework, and meets

with and reports to the Board of Directors.

Compliance officers and staff are assigned in each

headquarters division and sales branch. These

individuals monitor the status of compliance and work

to implement and promulgate compliance policies.

They also organize and lead regular compliance

training sessions, and the Bank undertakes to

strengthen the compliance frameworks by providing

training sessions targeting each class of employees,

from senior compliance staff to new hires.

To ensure early detection and correction of

inappropriate actions and compliance-related problems,

we have established an internal whistle-blower system,

with both internal and external (legal counsel)

notification structures that can be utilized by everyone,

including all group company employees, part-timers,

and temporary staff.

In recognition of the importance of appropriate

protection of important information and effective use

of information assets, the Bank has established

Combined Security Policies and Security Standards

whose status of observance is checked in a timely and

appropriate manner. Publicly released Privacy Policies,

the creation of frameworks for preventing information

leaks and frameworks for receiving and responding to

requests for information disclosure are just some of the

ways in which we strive to ensure the integrity of

personal information.

To enhance customer convenience and protection, the

Bank has established Customer Protection

Management Policies and Solicitation Policies to

provide customers with appropriate financial products,

and strives to reinforce customer confidence by

appropriately conducting its business operations.

The Bank has also established Conflict of Interest

Management Policies and Rules for the Prevention of

Conflicts of Interest to protect customers’ interests by

keeping tight control of transactions that may

constitute a conflict of interest. Moreover, the Bank

has established a Policy for the Facilitation of Financing

for SMEs in accordance with the purpose of the Act

Concerning Temporary Measures to Facilitate

Financing for SMEs, etc. (which ran from December

2009 to March 2013) so that SME customers may

approach the bank for financing advice with peace of

mind. These policies have all been made public on the

Bank’s website, and the Bank’s officers have all been

made thoroughly aware of them in order that the Bank

can offer customers a stronger privacy protection

framework.

The Bank remains devoted to maintaining an

impeccable standard of corporate ethics to earn

customers’ trust and cement its position as their “top

bank.”

The Bank recognizes its public mission and

responsibility to society and strives to maintain

measures to ensure that it makes no transactions and

has no contact whatsoever with organized crime. The

Bank maintains its Basic Policies for Dealing with

Organized Crime, and a Provision for the Exclusion of

Organized Crime covers our deposit, lending, and

rental deposit box transactions. We also coordinate

with law enforcement and legal counsel in

undertaking to shut out organized crime.


17

We respect the various rights and circumstances of

our stakeholders, as well as the upholding of sound

business ethics, and we strive to earn and maintain

the trust of all stakeholders through working together

with them in whatever capacity is most appropriate.

In keeping with our role as a regional bank to

contribute to Hokkaido’s economic development, we

pursue a community-oriented brand of banking,

working aggressively to bring about regional

revitalization and provide services to meet the needs

of our clients specific to the different stages of their

lives. As an involved member of the community, we

place a premium on corporate social responsibility, as

illustrated by our initiatives under our three principal

themes: environmental protection, healthcare/social

welfare, and education/culture.

Working in Partnership with Stakeholders

Inspired by the Bank’s management principles and the

management principles of the Sapporo Hokuyo Group as

a whole, we at North Pacific Bank pursue sustainable

growth and improved corporate value in the mid-to-long

term. Our basic approach to achieving those goals is to

earn and retain the trust of our shareholders, clients,

workforce, local communities, and other stakeholders,

and to maintain effective corporate governance.

Base on this fundamental approach, in order to ensure

auditing independence, we have adopted an Audit & Supervisory Board, which is kept separate from the Board

of Directors. Within this framework, we have further-

more sought to ensure more effective corporate gover-

nance by voluntarily establishing a Group Remuneration

Committee composed of the chairman, president,

deputy president, and the Bank’s external directors.

Basic Approach

The Bank has 14 directors (including three external

directors) and five Audit & Supervisory Board Mem-bers (including three external auditors). Directors’

tenures are capped at one year in order to enable the

Bank to quickly adapt to changes in the operating

environment, create flexible management structures,

and allow the general shareholders meeting to assess

director performance annually.

We have group management meetings to coordinate

and fine-tune strategies and policies aimed at

furthering operations, and an Executive Committee,

attended by standing directors, to deliberate and vote

on important operational and administrative matters.

To enhance management transparency, the Bank

elects three external directors. In coordination with the

Audit & Supervisory Board, including external board members, these external directors monitor the perfor-

mance of duties by the directors. The company elects

three external Audit & Supervisory Board Members and

considers the supervisory role provided by the external

board members to be functioning effectively.

All external appointees satisfy the Bank’s criteria for

independence, and are consequently registered with

the Tokyo Stock Exchange and Sapporo Securities

Exchange as independent corporate officers.

External Directors and External Audit & Supervisory Board Members

We endeavor to effectively protect shareholders’ rights

and ensure impartiality through a range of initiatives.

These include due consideration to the full range of

interests, including those of minority shareholders

and foreign shareholders; as well as making it easier

for shareholders to participate and vote, for instance

through early delivery of meeting notices, advance

disclosure of the agenda, online voting, and choosing

the most appropriate days for general shareholders

meetings.

Moreover, we strive to ensure that all shareholders and

investors get equal access to information by holding

information meetings and, for the benefit of non-insti-

tutional investors, uploading materials distributed at

meetings to the Bank’s website on the same day (in

principle).

Protecting Shareholders’ Rights and Ensuring Impartiality

Corporate Governance

Governance Organs


18

North Pacif ic BankC

orp

orate G

overn

ance

Our basic approach to information disclosure is set

forth in our Disclosure Policy. The policy stipulates that

we will disclose information in a timely and appropriate

manner as required under law, and that the Disclosure

Committee will oversee our activities in this area.

Moreover, disclosure is not limited to financials: our

business principles, medium-term business plan, and

other non-financial information can also be found on

the Bank’s website.

Ensuring Disclosure and Transparency

We recognize that constructive dialogue with share-

holders is vital if we are to achieve sustainable growth

and improve corporate value over the mid-to-long

term. As such, we are working under our Policy for

Constructive Dialogue with Shareholders and Investors

(as described in the Corporate Governance Report)

set by the Board of Directors to establish a framework

for communications and bolster our investor relations

activities.

Dialogue with Shareholders

The Bank’s Board of Directors has voted to approve

a basic internal control policy based on the

Company Law and regulations for its enforcement.

Our internal control framework incorporates the

major focal points of management monitoring, i.e.,

risk management and compliance arrangements, as

a means of ensuring such monitoring by the Board

of Directors and the Audit & Supervisory Board is robust.

Ensuring the reliability of financial reporting is a vital

aspect of the Bank’s management and, to this end,

we endeavor to meet the strict requirements of our

Internal Control Reporting Regime, which is based on

the Financial Instruments and Exchange Law, through

its Basic Policies and Internal Control Administration

Regulations Regarding Internal Controls on Financial

Reporting, as well as internal controls on the group’s

financial reporting.

Internal Control System Maintenance

Internal audits

The Bank has established an internal Audit and

Inspection Division, governed directly by the Board of

Directors and positioned independently of the divisions

subject to audit. Based on audit policies and basic

implementation plans established by the Board of

Directors, the Audit and Inspection Division conducts

audits of the head office, sales branches, and

subsidiaries. In principle, the results of these efforts are

presented monthly at audit report meetings, and are

conveyed to the Board of Directors and the Audit & Supervisory Board.

Corporate audits

The Bank’s Audit & Supervisory Board validates internal control frameworks through its operations audits,

which include visiting audits at the Bank’s branches

and subsidiaries as well as viewings and inspections of

important documents. Moreover, by attending the

Board of Directors’ meetings, the Audit & Supervisory Board audits the legal compliance and appropriateness

of directors’ execution of duties. As a dedicated

support function to the Audit & Supervisory Board, an Audit & Supervisory Board Members’ Office has been established with a knowledgeable full-time general

manager capable of audit task verification.

Accounting audits

North Pacific Bank has appointed KPMG AZSA LLC as

its accounting auditor.

Cooperation and teamwork

In order to ensure audit effectiveness, Audit & Supervi-sory Board Members hold regular meetings with the

president to exchange opinions; meetings approximately

once every two months with the Bank’s accounting

auditors to exchange information and opinions; and

regular meetings with the Audit and Inspection Division

to exchange information and opinions.

Furthermore, the company’s standing Audit & Supervi-sory Board Members attend audit report meetings and

meetings of the Disclosure Committee, Compliance

Committee, and Risk Management Committee to

verify the company’s internal control status.

Internal Audit, Corporate Audit, and Accounting Audit

19

Risk Management

In order to comprehensively manage the various risks of

group companies, the Risk Management Committee

assesses the current status of principal risks such as credit

risk, market risk, and operational risk, and discusses

matters concerning risk management policies and

maintenance of risk management frameworks. The

Such factors as financial deregulation, internationalization, and asset securitization, as well as the development of a wide

range of financial products, have transformed the operating environment of financial institutions and have made the

resulting risks faced by financial institutions more varied and complex. This environment requires more strongly than before

appropriate risk management and control so that customers may have confidence in the safety of their banking

transactions and select us as their banking partner.

The Bank has established a Risk Management Committee and, through unified management of the risk at group

companies, aims to ensure the soundness of management and to strengthen and enhance risk management frameworks.

For validating the appropriateness and effectiveness of internal control frameworks, internal check and control functions

are created, internal control frameworks are assessed, and proposals for improvements are made in the internal audits by

the Bank’s Audit and Inspection Division.

Bank’s risks are quantified and checks performed to

ensure that total risk is within the range of the capital

adequacy ratio. Moreover, communication with group

companies is achieved across a wide range of issues

through group management meetings.

Measures for Comprehensive Management of Individual Risks

Credit risk refers to the risk of a decline in asset value or

loss of assets by the group due to a deterioration in an

obligor’s financial position or its ability to pay, and the

risks that arise if large-lot loans are tilted toward or

concentrated on specific industries or corporate groups.

We take two different approaches to credit risk

management. One is to manage exposure to specific

borrowers using appropriate methods in accordance with

credit status. The other is to manage a loan portfolio

appropriately to avoid excessive exposure to specific

borrowers and industries, and manage lending activities to

diversify credit risk.

The Risk Management Committee and the Credit Risk

Management Committee identify and survey the group’s

whole risk through the appropriate management of the

group’s entire credit portfolio.

In addition, the Bank strives to enhance its credit

examination capabilities by working to ensure the

independence of the credit examination division and

enhancing credit examination functions as well as through

internal and external training. With regard to raising risk

management capabilities, the Bank is working to broaden

internal rating systems that reflect the probability that

obligors will perform their obligations and implement the

foundation internal ratings-based approach. The Bank

gathers data for calculating the final loss ratio for obligors

in default and is working on estimating average loss

amounts.

Credit Risk Management

Market risk relates to the risk of loss from value declines

in asset holdings caused by changes in interest rates,

prices of securities, and foreign exchange rates, among

others. For the management of financial institutions it is

critically important to forecast, appropriately avoid, and

mitigate the incidence of market risk.

Our Risk Management Committee and ALM Committee

identify the market risk quantum of the group’s overall

assets under management and implement frameworks

for checking and managing market risk. The Bank invests

in low-risk, medium-term and long-term diversified

investments with an emphasis on market liquidity, and

engages in securities investment for purposes of ALM

adjustment and for temporarily parking excess funds. The

Bank makes a point of not excessively relying on market

views and not to invest with the aim of short-term profits.

Specific policies for securities investment are discussed by

the Securities Investment Committee, which includes

management members. Moreover, we seek to manage

market risks by ensuring a robust system of checks

through the strict separation of corporate divisions

engaged in market trades, market risk management and

back-room administration. Furthermore, the Risk

Management Committee sets metrics such as risk limit

alarm points, loss limits, and investment ceilings, thereby

exercising effective risk control.

Market Risk Management


20

North Pacif ic Bank

Operational risk refers to the risk that an operational

process, or an act by a corporate officer or employee,

or a system, is inappropriate, or the risk of loss due to

external circumstances.

The group has established Group Operational Risk

Management Regulations that stipulate basic matters

concerning operational risk management and

manages operational risk based on a breakdown

consistent with risk characteristics into back office

risk, system risk, legal risk, tangible assets risk, and

human risk. In order to prevent risks before they

materialize and to minimize the impact in case they

do, overall controlling units for operational risk

management have been set up at each group

company, with individual risk management divisions

engaging in respective risk management at expert

level. For managing actualized operational risks the

group collects and analyzes internal loss data, while

for managing latent operational risk the group has

introduced risk control self assessment (RCSA) to

specify, assess, manage, and eliminate risk, which

forms a string of processes that is executed at regular

intervals.

Operational Risk Management

Maintenance of Business Continuity Planning (BCP)

As a regional financial institution, the company has

the responsibility in case of an unforeseeable event

such as natural disaster to minimize the impact and to

continue or quickly resume operations. The group has

established Crisis Management Regulations and other

rules, and maintains frameworks for the coordinated

crisis response of group companies.

Notably, the Bank’s Business Continuity Plan provides

new risk scenarios of an epidemic or a terrestrial

earthquake hitting Sapporo. For the continuation of

specified critical operations, manuals have been

prepared with training sessions held at regular

intervals.

Risk M

anag

emen

t

Liquidity risks involve two kinds of risk. One is cash

flow risks, which refers to difficulties in securing the

necessary amount of funds or losses incurred in having

to raise funds at interest rates significantly higher than

normal as a result of unexpected cash outflows. The

other is market liquidity risks, which refers to the

inability to trade on markets or having to trade at

prices considerably less favorable than normal as a

result of market confusion.

The Bank provides for proper liquidity risk

management by setting forth basic provisions and

clear risk management policies in its Liquidity Risk

Management Regulations.

Cash flow managers keep close tabs on daily and

monthly cash flow trends and work to minimize cash

flow risks, while liquidity risk managers monitor closely

to check for cash flow or liquidity risks. When major

changes arise in the market environment and the

Bank’s cash flow situation, the department

immediately reports to executives and convenes the

Risk Management Committee to make swift decisions

about what needs to be done. Moreover, the Bank has

a minimum liquidity reserve standard, under which it

ensures a sufficient volume of liquid assets. Not only is

the reserve monitored daily, the Bank also keeps a

manual for contingencies in which liquidity risks arise,

and holds periodic drills to ensure their efficacy.

Liquidity Risk Management


21

Organizational Chart (As of June 28, 2016)

Corporate Data

Audit and Inspection Division

Sales Bran

ches

General Secretariat

Legal and Compliance Division

Risk Management Division

Management Planning Division

Business Strategy Division

Channel Development Division

Personnel Division

Treasury and Securities Division

Personal Banking Strategy Division

Personal Loan Promotion Division

Investment Products Promotion Division

Corporate Banking Division

Structured and Finance Division

Local Industry Support Division

International Division

Public and Financial Institutions Division

Operations Planning Division

System Division

Loan Administration Division Ⅰ

Loan Administration Division Ⅱ

Loan Administration Planning Division

Loan AdministrationHeadquarters

Personal BankingPromotion Headquarters

Corporate BankingPromotion Headquarters

Audit & SupervisoryBoard Members’ Office

Audit &Supervisory Board

General Meetingof Shareholders

Board of Directors

Executive Committee

Planning and StrategyHeadquarters

Branch SupportHeadquarters


22

North Pacif ic Bank

Chairman

President

Deputy President

Managing Director

Managing Director

Managing Director

Managing Director

Managing Director

Managing Director

Director

Director

Director (External)

Director (External)

Director (External)

Audit & Supervisory BoardMember (Standing)

Audit & Supervisory BoardMember (Standing)

Audit & Supervisory BoardMember (Standing / External)

Audit & Supervisory BoardMember (External)

Audit & Supervisory BoardMember (External)

Ryuzo Yokouchi

Junji Ishii

Ryu Shibata

Fumiyo Fujii

Toshitaka Sakoda

Iwao Takeuchi

Sachio Higashihara

Minoru Nagano

Mitsuharu Yasuda

Katsunori Matsushita

Hirokimi Ito

Mikako Hayashi

Rieko Ubagai

Kazuaki Shimamoto

Yukihiro Shimomura

Hiroshi Soga

Hiroshi Tachikawa

Makoto Nojima

Kimihiro Homma

Managing Executive Officer











Executive Officer

Executive Officer

Executive Officer

Executive Officer

Executive Officer

Executive Officer

Executive Officer

Ryosuke Kobayashi

Takanari Tsukami

Yuji Takakuwa

Hiroaki Morita

Yasushi Tatsuno

Hideki Fujiike

Ikuo Sawai

Masato Yamane

Hidetoshi Kamino

Yuji Iida

Satoshi Fukase

Makoto Sakurai

Satoru Konno

Kazushige Kudo

Shuji Ohata

Nobuo Wakakuri

Hironari Ishikawa

Seiji Hirabayashi

Directors, Audit & Supervisory Board Members and Executive Officers (As of June 28, 2016) Co

rpo

rate Data


23

Principal Shareholders (As of March 31, 2016)

Nippon Life Insurance Company 30,954,500 7.75

Meiji Yasuda Life Insurance Company 30,954,000 7.75

Hokkaido Electric Power Company, Incorporated 23,147,000 5.80

STATE STREET BANK AND TRUST COMPANY 505223 19,449,998 4.87

Japan Trustee Services Bank, Ltd. (Trust Account) 16,699,000 4.18

The Dai‐ichi Life Insurance Company, Limited 13,412,000 3.36

Sompo Japan Nipponkoa Insurance Inc. 13,366,480 3.34

MITSUI LIFE INSURANCE COMPANY LIMITED 11,132,000 2.78

The Master Trust Bank of Japan, Ltd. (Trust Account) 8,838,600 2.21

Japan Trustee Services Bank, Ltd. (Trust Account 4) 8,028,600 2.01

Percentage of total sharesNumber of shares heldName

Common Shares

Corporate Outline (As of March 31, 2016)

Established August 20, 1917

Headquarters 7, Odori Nishi 3-chome, Chuo-ku, Sapporo

Capital 121.1 billion yen

Principal balances Funds: 7,834.8 billion yen

Loans: 5,797.8 billion yen

Assets: 8,441.0 billion yen

Shares issued 399,060,179 common shares

Exchange listings Tokyo Stock Exchange First Section

Sapporo Securities Exchange

Branches 172

Employees 3,200


24

North Pacif ic Bank

History of North Pacific Bank, Ltd.

1917 Established as Hokkaido Mujin, Ltd.

1944 Company’s name changed to Hokuyo Mujin, Ltd.

1950 Listed on the Sapporo Securities Exchange.

1951 Obtained license for mutual savings and loan banking business; company’s name changed to Hokuyo Sogo Bank, Ltd.

1989 Converted into an ordinary bank and company’s name changed to North Pacific Bank, Ltd. Listed on the Tokyo Stock Exchange.

1998 Took over the business of The Hokkaido Takushoku Bank, Ltd.

2001 Jointly established Sapporo Hokuyo Holdings, Inc. together with The Sapporo Bank, Ltd.

2005 Representative offices established in Dalian and Shanghai in China.

2008 Merged with The Sapporo Bank, Ltd.

2009 Issuance of Class 1 Preferred Shares (¥100 billion).

2011 Head office relocated.

2012 Merged with Sapporo Hokuyo Holdings, Inc.

2013 Acquired and retired some Class 1 Preferred Shares (¥30 billion at book value).

2014 Representative office established in Bangkok in Thailand. Acquired and retired all remaining Class 1 Preferred Shares (¥70 billion at book value).

Group Structure (As of March 31, 2016)

Co

rpo

rate Data

Sapporo Hokuyo Lease Co., Ltd.

Sapporo Hokuyo Card Co., Ltd.

Hokuyo Business Service Co., Ltd.

North Pacific Co., Ltd.

North Pacific Bank, Ltd.


25

Financial Section

Consolidated Balance Sheets (As of March 31, 2015 and 2016)

Assets:

Cash and due from banksCall loans and bills boughtMonetary claims boughtTrading account securitiesSecuritiesLoans and bills discountedForeign exchangesLease receivables and investment assetsOther assetsProperty, plant and equipmentIntangible assetsDeferred tax assets Customers’ liabilities for acceptances and guarantees Allowance for loan losses

Total assets

Millions of yen Millions of U.S. dollars

$

$

Note: The rate of ¥112.68 to U.S. $1.00, the foreign exchange rate on March 31, 2016, has been used for translation. The amounts less than one million yen are rounded down. The amounts less than one million dollars are rounded to the nearest million.

2016 2016

Liabilities:

DepositsNegotiable certificates of depositPayables under securities lending transactionsBorrowed moneyForeign exchangesOther liabilitiesProvision for bonusesNet defined benefit liabilityProvision for reimbursement of depositsProvision for point card certificatesDeferred tax liabilitiesDeferred tax liabilities for land revaluationAcceptances and guarantees

Total liabilities

$

Net assets:

$

¥

¥ ¥ $

¥

¥

¥ ¥

¥ ¥

¥

¥

¥

718,742 30,708 11,673 5,624

1,711,785 5,747,173

3,388 45,479 89,461 90,084 10,545

477 50,210 (50,836)

8,464,519

6,379 273 104

50 15,192 51,004

30 404 794 799 94 4

446 (451)

75,120

7,715,256 98,212 52,346 77,796

53 58,590 1,945

785 1,553

335 15,010 2,859

50,210

8,074,956

68,471 872 465 690

0 520 17 7

14 3

133 25

446

71,663

121,101 72,328

112,178 (1)

305,607

72,602 (0)

5,969 14

78,585

55 5,315

389,563

8,464,519

2015

622,039 1,398

16,655 5,075

1,787,027 5,505,045

2,671 44,721 84,107 91,534 11,707

218 53,515 (63,293)

8,162,423

7,480,252 92,899 4,779

90,595 13

57,612 1,843

681 1,672

320 7,065 3,157

53,515

7,794,409

121,101 72,328 97,305

(0)

290,734

66,300 (20)

6,035 490

72,806

― 4,473

368,014

8,162,423

1,075 642 996

(0)

2,712

644 (0)

53 0

697

0 47

3,457

75,120 $

Capital stockCapital surplusRetained earningsTreasury shares

Total shareholders’ equity

Valuation difference on available-for-sale securitiesDeferred gains or losses on hedgesRevaluation reserve for landRemeasurements of defined benefit plans

Total accumulated other comprehensive income

Subscription rights to sharesNon-controlling interests

Total net assets

Total liabilities and net assets


26

North Pacif ic BankFin

ancial Sectio

n

Consolidated Statements of Income (Year ended March 31, 2015 and 2016)

Consolidated Statements of Comprehensive Income (Year ended March 31, 2015 and 2016)

Ordinary income:

Ordinary expenses:

¥ $

Interest income:Interest on loans and discountsInterest and dividends on securitiesOther interest income

Fees and commissionsOther ordinary income Other income

Total ordinary income

Interest expenses:Interest on deposits Other interest expenses

Fees and commissions paymentsOther ordinary expensesGeneral and administrative expenses Other expenses

Total ordinary expenses

Ordinary profitExtraordinary incomeExtraordinary losses

Income before income taxes

Income taxes:CurrentDeferred

Total income taxes

Profit

Profit attributable to non-controlling interests


Millions of U.S. dollars

¥ ¥ $

¥

¥

¥ $

¥ ¥ $

¥ ¥ $

¥ ¥ $

2016Millions of yen

2016

Millions of U.S. dollars2016

Millions of yen2016

ProfitOther comprehensive income

Valuation difference on available-for-sale securitiesDeferred gains or losses on hedgesRevaluation reserve for landRemeasurements of defined benefit plans, net of tax

Comprehensive income

Comprehensive income attributable to owners of parent Comprehensive income attributable to non-controlling interests

¥ ¥ $

¥ ¥ $

716 593 116

7 270 286

57

1,329

37 14 22 90

231 669 33

1,059

270 0

11

260

29 65

93

166

6

160

80,727 66,828 13,113

785 30,386 32,212 6,465

149,791

4,127 1,601 2,525

10,119 26,065 75,332 3,706

119,351

30,440 9

1,192

29,256

3,260 7,272

10,533

18,722

706

18,015

166 55 57 0 2 (4)

221

213 7

18,722 6,161 6,437

19 181 (476)

24,884

24,041 842

2015

2015

80,983 69,566 10,742

674 29,967 29,868 3,114

143,933

4,169 1,697 2,472 8,725

25,138 75,804 2,670

116,509

27,424 99

831

26,692

1,885 8,484

10,369

16,323

548

15,774

16,323 26,513 25,758

75 327 352

42,836

41,947 889


27

Consolidated Statements of Changes in Equity (Year ended March 31, 2015 and 2016)

Balance as of March 31, 2014

Restated balance as of March 31, 2014

Changes of items during period

Dividends of surplus

Purchase of treasury shares

Disposal of treasury shares

Total changes of items during period









Capitalstock

Capitalsurplus

Retainedearnings

Millions of yen

Treasuryshares

Totalshareholders’

equity

Deferredgains orlosses

on hedges

Valuationdifference

onavailable-for-sale

securities

Revaluationreservefor land

Total accumulated

othercomprehensive

income

Subscriptionrights toshares

Totalnet

assets

Shareholders’ equityAccumulated other

comprehensive income

¥121,101

121,101

― ¥121,101

121,101

― ¥121,101

¥ 72,328

72,328

0

¥ 0

¥ 72,328

72,328

― ¥ 72,328

¥ 82,834

1,445

84,279

(2,792)

15,774

44

¥ 13,026

¥ 97,305

97,305

(3,390)

18,015

247

¥ 14,872

¥112,178

¥ (0)

(0)

(0)

0

¥ (0)

¥ (0)

(0)

(0)

¥ (0)

¥ (1)

¥276,263

1,445

277,708

(2,792)

15,774

(0)

0

44

¥ 13,025

¥290,734

― 290,734

(3,390)

18,015

(0)

― 247

¥ 14,872

¥305,607

¥ 40,883

40,883

25,417

¥ 25,417

¥ 66,300

66,300

6,301

¥ 6,301

¥ 72,602

¥ (95)

(95)

75

¥ 75

¥ (20)

(20)

19

¥ 19

¥ (0)

¥ 5,752

5,752

283

¥ 283

¥ 6,035

6,035

(65)

¥ (65)

¥ 5,969

Remeasurementsof defined

benefit plans

¥ 138

138

352

¥ 352

¥ 490

490

(476)

¥ (476)

¥ 14

¥ 46,677

46,677

26,129

¥ 26,129

¥ 72,806

72,806

5,778

¥ 5,778

¥ 78,585

―

―

― ― ―

―

55

¥ 55

¥ 55

Non-controllinginterests

¥ 3,607

3,607

865

¥ 865

¥ 4,473

4,473

842

¥ 842

¥ 5,315

¥326,548

1,445

327,993

(2,792)

15,774

(0)

0

44

26,995

¥ 40,021

¥368,014

― 368,014

(3,390)

18,015

(0)

― 247

6,676

¥ 21,549

¥389,563

Reversal of revaluation reserve for landNet changes of items other than shareholders’ equity

Reversal of revaluation reserve for land

Cumulative effects of changes in accounting policies

Cumulative effects of changes in accounting policies

Cumulative effects of changesin accounting policies

Net changes of items other than shareholders’ equity









Capitalstock

Capitalsurplus

Retainedearnings


Treasuryshares

Totalshareholders’

equity

Deferredgains orlosses

on hedges

Valuationdifference

onavailable-for-sale

securities

Revaluationreservefor land

Shareholders’ equity

$ 1,075

1,075

― $ 1,075

$ 642

642

― $ 642

$ 864

864

(30)

160

2

$ 132

$ 996

$ (0)

(0)

(0)

$ (0)

$ (0)

$ 2,580

― 2,580

(30)

160

(0)

― 2

$ 132

$ 2,712

$ 588

588

56

$ 56

$ 644

$ (0)

(0)

0

$ 0

$ (0)

$ 54

54

(1)

$ (1)

$ 53

Remeasurementsof defined

benefit plans

$ 4

4

(4)

$ (4)

$ 0

$ 646

646

51

$ 51

$ 697

―

―

0

$ 0

$ 0

$ 40

40

7

$ 7

$ 47

$ 3,266

― 3,266

(30)

160

(0)

― 2

59

$ 191

$ 3,457

Reversal of revaluation reserve for landNet changes of items other than shareholders’ equity

Profit attributable toowners of parent



Subscriptionrights toshares

Totalnet

assets

Non-controllinginterests


Total accumulated

othercomprehensive

income

Accumulated othercomprehensive income

28

North Pacif ic Bank

Net cash provided by (used in) operating activities:Income before income taxesDepreciationImpairment lossIncrease (decrease) in allowance for loan lossesIncrease (decrease) in provision for bonusesIncrease (decrease) in net defined benefit liabilityIncrease (decrease) in provision for reimbursement of depositsIncrease (decrease) in provision for point card certificatesGain on fund managementFinancing expensesLoss (gain) related to securitiesForeign exchange losses (gains)Loss (gain) on disposal of non-current assetsNet decrease (increase) in loans and bills discountedNet increase (decrease) in depositsNet increase (decrease) in negotiable certificates of depositNet increase (decrease) in borrowed money (excluding subordinated borrowings)Net decrease (increase) in deposits (excluding deposits paid to Bank of Japan)Net decrease (increase) in call loansNet increase (decrease) in payables under securities lending transactionsNet decrease (increase) in foreign exchanges - assetsNet increase (decrease) in foreign exchanges - liabilitiesProceeds from fund managementPayments for financeOther - net

SubtotalIncome taxes paid

Net cash provided by (used in) operating activities

Net cash provided by (used in) investing activities:Purchase of securitiesProceeds from sales of securitiesProceeds from redemption of securitiesPurchase of property, plant and equipmentProceeds from sales of property, plant and equipmentPurchase of intangible assets

Net cash provided by (used in) investing activities

Net cash provided by (used in) financing activities:Decrease in subordinated borrowingsCash dividends paidPurchase of treasury sharesProceeds from sales of treasury sharesOther - net

Net cash provided by (used in) financing activities

Effect of exchange rate change on cash and cash equivalents

Net increase (decrease) in cash and cash equivalents

Cash and cash equivalents at beginning of period

Cash and cash equivalents at end of period

Consolidated Statements of Cash Flows (Year ended March 31, 2015 and 2016)


¥ ¥ $

2016Millions of yen

2015 2016

¥ ¥ $

Finan

cial Section

260 85 8

(111) 1 1 (1)0

(716) 37 (54)

102 2

(2,149) 2,086

47 (

Documents

North Pacific Bank · 2016. 9. 9. · North Pacific Bank Annual Report 2016 2 A Message from the President I would like to start this message by thanking all stakeholders for their