CONTENTS
Independent Auditors’ Report--- 2
Consolidated Balance Sheets --- 3
Consolidated Statements of Operations --- 4
Consolidated Statements of Changes In Equity --- 5
Consolidated Statements of Cash Flows --- 7
Notes to Consolidated Financial Statements--- 9
INDEPENDENT AUDITORS’ REPORT To the Board of Directors of
The Chukyo Bank, Ltd.:
We have audited the accompanying consolidated balance sheets of The Chukyo Bank, Ltd. (the Bank ) and subsidiaries as of March 31, 2010 and 2009, and the related consolidated statements of operations, changes in equity and cash flows for the years then ended, all expressed in Japanese yen. These consolidated
financial statements are the responsibility of the Bank’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted in Japan. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of the Chukyo Bank ,Ltd and subsidiaries as of March 31, 2010 and 2009, and the consolidated results of their operations and their cash flows for the years then ended in conformity with accounting principles generally accepted in Japan.
Our audits also comprehended the translation of Japanese yen amounts into U.S. dollar amounts and, in our opinion, such translation has been made in conformity with the basis stated in Note 1. Such U.S. dollar amounts are presented solely for the convenience of readers outside Japan.
June 29, 2010
Deloitte Touche Tohmatsu LLC Nagoya Daiya Building 3-goukan, 13-5, Meieki 3-chome, Nakamura-ku Nagoya, Aichi 450-8530
Japan
Tel: +81(52)565 5511 Fax: +81(52)569 1394 www.deloitte.com/jp
Member of
Deloitte Touche Tohmatsu
Thousands of Millions of Yen U.S. Dollars (Note 1)
2010 2009 2010
ASSETS:
Cash and due from banks (Notes 3 and 22) ¥ 77,704 ¥ 72,022 $ 835,078
Call loans and bills purchased (Note 22) 497 2,095 5,341
Monetary receivables purchased - 266 -
Trading securities (Notes 4 and 22) 435 498 4,675
Securities (Notes 4, 10 and 22) 375,410 352,003 4,034,498
Loans and bills discounted (Notes 5 and 22) 1,172,648 1,198,158 12,602,343
Foreign bills of exchange (Notes 6 and 22) 5,143 6,761 55,272
Other assets (Note 7) 12,547 13,040 134,841
Premises and equipment (Notes 8 and 11) 22,291 22,464 239,560
Intangible assets 78 80 838
Deferred tax assets (Note 12) 6,474 9,029 69,575
Customers' liabilities for acceptances and guarantees (Note 9) 10,338 10,640 111,102
Reserve for possible loan losses (Note22) (32,187) (26,818) (345,911)
Total assets ¥ 1,651,378 ¥ 1,660,238 $ 17,747,212
LIABILITIES:
Deposits (Notes 10, 13 and 22) ¥ 1,517,838 ¥ 1,518,319 $ 16,312,069
Call money and bills sold - 15,000 -
Foreign bills of exchange (Notes 6 and 22) 1 3 11
Subordinated bonds (Notes 14 and 22) 20,000 20,000 214,938
Other liabilities (Note 16) 15,277 14,565 164,181
Liability for retirement benefits for employees (Note 15) 2,008 1,497 21,580
Retirement allowances for directors and corporate auditors 221 180 2,375
Reserve for reimbursement of dormant deposits 327 398 3,514
Reserve for contingencies 342 192 3,675
Deferred tax liabilities for land revaluation surplus (Note 11) 4,102 4,106 44,084
Acceptances and guarantees (Note 9) 10,338 10,640 111,102
Total liabilities 1,570,454 1,584,900 16,877,529
COMMITMENTS AND CONTINGENT LIABILITIES (Notes 17, 21 and 23) EQUITY (Notes 18 and 25):
Capital stock:
Common stock: authorized, 500,000 thousand shares;
issued, 217,459 thousand shares in 2010 and 2009 31,844 31,844 342,225
Capital surplus 23,185 23,185 249,167
Retained earnings 16,546 16,458 177,818
Net unrealized gain (loss) on available-for-sale securities 4,048 (1,648) 43,503
Deferred loss on derivatives under hedge accounting (320) (105) (3,439)
Land revaluation surplus (Note 11) 5,016 5,022 53,907
Treasury stock, at cost:
596 thousand shares in 2010 and 565 thousand shares in 2009 (224) (215) (2,407)
Total 80,095 74,541 860,774
Minority interests 829 797 8,909
Total equity 80,924 75,338 869,683
Total liabilities and equity ¥ 1,651,378 ¥ 1,660,238 $ 17,747,212
See notes to consolidated financial statements.
THE CHUKYO BANK, LTD. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS
MARCH 31, 2010 AND 2009
6
2 Thousands of Millions of Yen U.S. Dollars (Note 1)
2010 2009 2010
INCOME:
Interest on:
Loans and discounts ¥ 23,061 ¥ 25,598 $ 247,835
Securities 5,445 5,469 58,517
Other 988 600 10,618
Fees and commissions 4,347 4,561 46,717
Other operating income 3,667 1,369 39,409
Gain on sales of premises and equipment 255 - 2,740
Collection of previously unrecoverable debts 8 8 8
Other income (Note 19) 2,165 6,745 23,267
Total income 39,936 44,350 429,189
EXPENSES:
Interest on:
Deposits 3,823 5,048 41,085
Borrowings 3 8 3
Bonds 387 334 4,159
Other 190 93 2,042
Fees and commissions 1,703 1,764 18,302
Other operating expenses 304 2,775 3,267
General and administrative expenses 20,566 21,647 221,021
Provision for possible loan losses 8,446 14,103 90,768
Loss on sales and disposal of premises and equipment 62 80 666
Impairment loss on long-lived assets - 3 -
Other expenses (Note 20) 2,951 3,531 31,714
Total expenses 38,435 49,386 413,056
INCOME (LOSS) BEFORE INCOME TAXES AND MINORITY INTERESTS 1,501 (5,036) 16,133 INCOME TAXES (Note 12):
Current 879 206 9,447
Deferred (347) (3,048) (3,729)
Total income taxes 532 (2,842) 5,718
MINORITY INTERESTS IN NET INCOME 19 18 204
NET INCOME (LOSS) ¥ 950 ¥ (2,212) $ 10,211
PER SHARE OF COMMON STOCK (Note 2.p): U.S. Dollars
Basic net income (loss) ¥ 4.38 ¥ (10.19) $ 0.05
Cash dividends applicable to the year 5.00 4.00 0.05
See notes to consolidated financial statements.
Yen
THE CHUKYO BANK, LTD. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED MARCH 31, 2010 AND 2009
Thousands
Outstanding Net Unrealized Deferred Loss
Number of Gain (Loss) on on Derivatives
Shares of Common Capital Retained Available-for-sale under Hedge Common Stock Stock Surplus Earnings Securities Accounting
BALANCE AT APRIL 1, 2008 216,988 ¥ 31,844 ¥ 23,185 ¥ 19,581 ¥ 12,209 ¥ (224)
Net loss - - - (2,212) - -
Cash dividends, \5.00 per share - - - (1,085) - -
Purchases of treasury stock (112) - - - - -
Disposal of treasury stock 18 - - (1) - -
Reversal of land revaluation surplus - - - 175 - -
Net change in the year - - - - (13,857) 119
BALANCE AT MARCH 31, 2009 216,894 31,844 23,185 16,458 (1,648) (105)
Net income - - - 950 - -
Cash dividends, \4.00 per share - - - (868) - -
Purchases of treasury stock (33) - - - - -
Disposal of treasury stock 2 - - (0) - -
Reversal of land revaluation surplus - - - 6 - -
Net change in the year - - - - 5,696 (215)
BALANCE AT MARCH 31, 2010 216,863 ¥ 31,844 ¥ 23,185 ¥ 16,546 ¥ 4,048 ¥ (320)
Land
Revaluation Treasury Minority Total
Surplus Stock Total Interests Equity
BALANCE AT APRIL 1, 2008 ¥ 5,197 ¥ (188) ¥ 91,604 ¥ 814 ¥ 92,418
Net loss - - (2,212) - (2,212)
Cash dividends, \5.00 per share - - (1,085) - (1,085)
Purchases of treasury stock - (34) (34) - (34)
Disposal of treasury stock - 7 6 - 6
Reversal of land revaluation surplus (175) - - - -
Net change in the year - - (13,738) (17) (13,755)
BALANCE AT MARCH 31, 2009 5,022 (215) 74,541 797 75,338
Net income - - 950 - 950
Cash dividends, \4.00 per share - - (868) - (868)
Purchases of treasury stock - (10) (10) - (10)
Disposal of treasury stock - 1 1 - 1
Reversal of land revaluation surplus (6) - - - -
Net change in the year - - 5,481 32 5,513
BALANCE AT MARCH 31, 2010 ¥ 5,016 ¥ (224) ¥ 80,095 ¥ 829 ¥ 80,924
Millions of Yen
Millions of Yen
THE CHUKYO BANK, LTD. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
YEARS ENDED MARCH 31, 2010 AND 2009
Net Unrealized Deferred Loss Gain (Loss) on on Derivatives Common Capital Retained Available-for-sale under Hedge
Stock Surplus Earnings Securities Accounting
BALANCE AT MARCH 31, 2009 $ 342,225 $ 249,167 $ 176,873 $ (17,711) $ (1,128)
Net income - - 10,210 - -
Cash dividends, $0.04 per share - - (9,328) - -
Purchases of treasury stock - - - - -
Disposal of treasury stock - - (2) - -
Reversal of land revaluation surplus - - 65 - -
Net change in the year - - - 61,214 (2,311)
BALANCE AT MARCH 31, 2010 $ 342,225 $ 249,167 $ 177,818 $ 43,503 $ (3,439)
Land
Revaluation Treasury Minority Total
Surplus Stock Total Interests Equity
BALANCE AT MARCH 31, 2009 $ 53,972 $ (2,311) $ 801,087 $ 8,565 $ 809,652
Net income - - 10,210 - 10,210
Cash dividends, $0.04 per share - - (9,328) - (9,328)
Purchases of treasury stock - (107) (107) - (107)
Disposal of treasury stock - 11 9 - 9
Reversal of land revaluation surplus (65) - - - -
Net change in the year - - 58,903 344 59,247
BALANCE AT MARCH 31, 2010 $ 53,907 $ (2,407) $ 860,774 $ 8,909 $ 869,683
See notes to consolidated financial statements.
Thousands of U.S. Dollars (Note 1)
Thousands of U.S. Dollars (Note 1)
THE CHUKYO BANK, LTD. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
YEARS ENDED MARCH 31, 2010 AND 2009
THE CHUKYO BANK, LTD. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS YEARS ENDED MARCH 31, 2010 AND 2009
Thousands of Millions of Yen U.S. Dollars (Note 1)
OPERATING ACTIVITIES: 2010 2009 2010
Income (loss) before income taxes and minority interests ¥ 1,501 ¥ (5,036) $ 16,133
Adjustments for:
Income tax refund (paid) 544 (1,912) 5,846
Depreciation and amortization 653 641 7,018
Impairment loss on long-lived assets - 3 -
Equity in earnings of an affiliated company (24) (45) (258)
Net gain on sales and redemption of securities (3,789) (2,434) (40,720)
Net foreign exchange loss 124 90 1,333
Net (gain) loss on sales and disposal of premises and equipment (194) 80 (2,085)
Changes in assets and liabilities
Net decrease (increase) in loans and bills discounted 25,510 (10,939) 274,154
Net (decrease) increase in deposits (481) 15,823 (5,169)
Net decrease in borrowed money (excluding subordinated borrowings of the Bank) - (800) -
Net decrease (increase) in due from banks (excluding due from the Bank of Japan) 522 (56) 5,610
Net decrease (increase) in call loans and bills purchased 1,598 (834) 17,173
Net (decrease) increase in call money and bills sold (15,000) 15,000 (161,204)
Net decrease in monetary receivables purchased 267 1,455 2,869
Net decrease (increase) in foreign bills of exchange, debit 1,618 (869) 17,388
Net decrease in foreign bills of exchange, credit (2) (31) (21)
Net increase in reserve for possible loan losses 5,369 11,171 57,700
Net increase in liability for retirement benefits for employees 511 169 5,492
Net increase in retirement allowances for directors and corporate auditors 41 21 440
Net decrease in prepaid pension expense - 160 -
Net increase in interest receivable (5,830) (5,819) (62,654)
Net increase in interest payable 460 589 4,943
Net increase in other assets (361) (786) (3,880)
Net increase in other liabilities 290 158 3,117
Total adjustments 11,826 20,835 127,092
Net cash provided by operating activities 13,327 15,799 143,225
FORWARD ¥ 13,327 ¥ 15,799 $ 143,225
(Continued)
THE CHUKYO BANK, LTD. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS YEARS ENDED MARCH 31, 2010 AND 2009
Thousands of Millions of Yen U.S. Dollars (Note 1)
2010 2009 2010
FORWARD ¥ 13,327 ¥ 15,799 $ 143,225
INVESTING ACTIVITIES:
Purchases of securities (163,749) (78,443) (1,759,796)
Proceeds from sales of securities 108,544 31,049 1,166,513
Proceeds from maturities of securities 43,778 47,534 470,478
Dividends and interest received from investing activities 5,819 5,864 62,536
Purchases of premises and equipment (382) (736) (4,105)
Proceeds from sales of premises and equipment 210 135 2,257
Net cash (used in) provided by investing activities (5,780) 5,403 (62,117)
FINANCING ACTIVITIES:
Proceeds from issuance of subordinated bonds 4,970 - 53,412
Repayment of subordinated bonds (5,000) - (53,736)
Interest paid on subordinated loans (390) (335) (4,191)
Dividends paid (868) (1,085) (9,328)
Dividends paid by subsidiaries to minority shareholders (1) (1) (11)
Acquisition of treasury stock (10) (34) (107)
Proceeds from sales of treasury stock 1 5 11
Repayment of lease obligations (25) (0) (269)
Net cash used in financing activities (1,323) (1,450) (14,219)
FOREIGN CURRENCY TRANSLATION ADJUSTMENTS ON CASH AND CASH EQUIVALENTS (20) (23) (215)
NET INCREASE IN CASH AND CASH EQUIVALENTS 6,204 19,729 66,674
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR 71,041 51,312 763,471 CASH AND CASH EQUIVALENTS, END OF YEAR (Note 3) ¥ 77,245 ¥ 71,041 $ 830,145
See notes to consolidated financial statements.
THE CHUKYO BANK, LTD. AND SUBSIDIARIES
N OTES TO CONSOLIDATED FINANCIAL STATEMENTS YEARS ENDED MARCH 31, 2010 AND 2009
1. Basis of Presenting Consolidated Financial Statements
The accompanying consolidated financial statements of The Chukyo Bank, Ltd. (the “Bank”) and its subsidiaries (together, the “Group”) have been prepared in accordance with the provisions set forth in the Japanese Financial Instruments and Exchange Act and its related accounting regulations and the Enforcement Regulation for the Banking Law, and in conformity with accounting principles generally accepted in Japan, which are different in certain respects as to application and disclosure requirements of International Financial Reporting Standards.
In preparing these consolidated financial statements, certain reclassifications and rearrangements have been made to the consolidated financial statements issued domestically in order to present them in a form which is more familiar to readers outside Japan. In addition, certain reclassifications have been made in the 2009 financial statements to conform to the classifications used in 2010.
The consolidated financial statements are stated in Japanese yen, the currency of the country in which the Bank is incorporated and operates. The translations of Japanese yen amounts into U.S. dollar amounts are included solely for the convenience of readers outside Japan and have been made at the rate of ¥93.05 to $1, the approximate rate of exchange at March 31, 2010. Such translations should not be construed as representations that the Japanese yen amounts could be converted into U.S. dollars at that or any other rate.
2. Summary of Significant Accounting Policies a. Consolidation
The consolidated financial statements as of March 31, 2010 and 2009 include the accounts of the Bank and all four subsidiaries including The Chukyo Business Service Co., Ltd., The Chukyo Card Co., Ltd., Kikyo Service Co., Ltd. and The Chukyo Finance Co., Ltd.
Under the control or influence concept, those companies in which the Bank, directly or indirectly, is able to exercise control over operations are fully consolidated, and those companies over which the Group has ability to exercise significant influence are accounted for by the equity method.
An investment in an associated company, The Chukyo Sogo Leasing Co., Ltd., is accounted for by the equity method for the years ended March 31, 2010 and 2009.
All significant intercompany balances and transactions have been eliminated in consolidation. All material unrealized profit included in assets resulting from transactions within the Group is eliminated.
The fiscal years of all subsidiaries are the same as the Bank.
b. Cash and Cash Equivalents
Cash and cash equivalents in the consolidated statements of cash flows consist of cash and due from the Bank of Japan, included in “cash and due from banks” in the consolidated balance sheets.
c. Trading Securities
Trading securities are stated at fair value, and the related unrealized gains and losses are included in earnings. The cost of trading securities sold is determined based on the moving-average method.
d. Securities
Securities other than trading securities are classified and accounted for as available-for-sale securities.
Available-for-sale securities are reported at fair value, with unrealized gains and losses, net of applicable taxes, reported in a separate component of equity. The cost of securities sold is determined based on the moving-average method.
Non-marketable available-for-sale securities are stated at cost determined by the moving-average method. For other than temporary declines in fair value, available-for-sale securities are reduced to net realizable value by a charge to income.
On March 10, 2008, the ASBJ revised ASBJ Statement No. 10, “Accounting Standard for Financial Instruments”, and issued ASBJ Guidance No. 19, “Guidance on Accounting Standard for Financial Instruments and Related Disclosures”. This accounting standard and the guidance are applicable to financial instruments and related disclosures at the end of the fiscal years ending on or after March 31, 2010 with early adoption permitted from the beginning of the fiscal years ending before March 31, 2010.
The Group applied the revised accounting standard and the new guidance effective March 31, 2010.
The effect of this change was to increase securities by ¥123 million ($1,322 thousand), to reduce deferred tax assets by ¥49 million ($527 thousand), to increase net unrealized gains on
available-for-sale securities, net of taxes by ¥74 million ($795 thousand), and to increase operating income and income before income taxes and minority interests by ¥53 million ($570 thousand) for the year ended March 31, 2010.
e. Premises and Equipment
Premises and equipment are stated at cost less accumulated depreciation. Depreciation of premises and equipment other than leased assets of the Bank is computed by the declining-balance method based on the estimated useful lives of the assets, while the straight-line method is applied to buildings acquired after April 1, 1998. Premises and equipment held by the subsidiaries are depreciated mainly using the straight-line method.
The range of useful lives is principally from 7 to 50 years for buildings, and from 3 to 20 years for other premises and equipment.
Leased assets under finance leases which do not deem to transfer ownership of the leased assets to the lessee included in premises and equipment are depreciated by the straight-line method over the lease
period. Residual value is zero unless residual value is stipulated in lease agreements.
f. Long-lived Assets
The Group reviews its long-lived assets for impairment whenever events or changes in circumstance indicate the carrying amount of an asset or asset group may not be recoverable. An impairment loss would be recognized if the carrying amount of an asset or asset group exceeds the sum of the
undiscounted future cash flows expected to result from the continued use and eventual disposition of the asset or asset group. The impairment loss would be measured as the amount by which the carrying amount of the asset exceeds its recoverable amount, which is the higher of the discounted cash flows from the continued use and eventual disposition of the asset or the net selling price at disposition.
g. Intangible Assets
Intangible assets are amortized by the straight-line method.
Software for internal use is charged to income as incurred because its contribution to revenues or reduction of expenses in the future is uncertain.
h. Reserve for Possible Loan Losses
The Bank implemented a self-assessment system for asset quality. The quality of all loans is assessed by the related lending division and subsequently audited by the asset audit division, which is independent from the lending division, in accordance with the Bank’s policies and rules for self-assessment of asset quality.
The Bank has established a credit rating system under which its customers are classified into five categories such as “normal,” “caution,” “possible bankruptcy,” “virtual bankruptcy” and “legal bankruptcy.” The credit rating system is used for self-assessment of asset quality.
For normal and caution loans, the reserve for possible loan losses is provided for based on actual past loss ratios.
For loans to customers classified as possible bankruptcy, the reserve is provided for in an amount deemed necessary to cover possible loan losses. The amount is determined by considering the customer’s solvency and other factors, after the estimated fair value of the real estate collateral or guaranteed amount has been deducted.
For loans to customers classified as virtual bankruptcy or legal bankruptcy, the reserve is provided for in an amount deemed necessary to cover possible loan losses after the estimated fair value of the real estate collateral or guaranteed amount has been deducted.
Reserve for possible loan losses of subsidiaries is provided based on actual past loss ratios and estimated collectability of specific claims.
i. Retirement and Pension Plans
The Bank has defined benefit plans such as lump-sum retirement payment and corporate pension fund for its employees. The Bank also has a defined contribution pension plan for its employees.
Additionally, the consolidated subsidiaries have lump-sum retirement payment plans for their employees.
Effective April 1, 2000, the Group adopted an accounting standard for retirement benefits and accounted for the liability for employees’ retirement benefits based on projected benefit obligations and plan assets at the balance sheet date. Unrecognized transitional obligation, excluding exempted portions of the governmental pension program and transferred portion to the defined contribution pension plan managed by the Bank, is amortized over 15 years (See Note 15).
The unrecognized prior service benefit and unrecognized actuarial loss are amortized over a certain period (11 years) within the average remaining working lives of employees.
Retirement allowance for directors and corporate auditors are recorded to state the liability at the amount that would be required if all directors and corporate auditors retired at each balance sheet date.
j. Reserve for Reimbursement of Dormant Deposits
Reserve for reimbursement of dormant deposits is provided for the deposits derecognized from the liabilities at the estimated amount of future claims for withdrawal based on the actual past loss amount.
Effective from the year ended March 31, 2008, the Group adopted the JICPA Auditing and Assurance Practice Committee Statement No. 42, “Auditing Treatment relating to Reserve defined under the Special Tax Measurement Law, Reserve defined under the Special Law and Reserve for Director and Corporate Auditor Retirement Benefits,” issued on April 13, 2007.
k. Reserve for Contingencies
Reserve for contingencies is provided for contingent liabilities to the Credit Guarantee Corporations at the estimated amount of future payment based on the Joint Responsibility System with the Credit Guarantee Corporations.
The Group recognized reserve for contingencies for the year ended March 31, 2008 in accordance with commencement of the Joint Responsibility System with the Credit Guarantee Corporations on October 1, 2007.
l. Income Taxes
The provision for income taxes is computed based on the pretax income included in the consolidated statements of operations.
The asset and liability approach is used to recognize deferred tax assets and liabilities for the expected future tax consequences of temporary differences between the carrying amounts and the tax bases of assets and liabilities. Deferred taxes are measured by applying currently enacted tax laws to the
temporary differences. Future tax benefits are recognized to the extent that such benefits are more likely than not to be realized.
m. Leases
In March 2007, the ASBJ issued ASBJ Statement No. 13, “Accounting Standard for Lease Transactions”, which revised the previous accounting standard for lease transactions issued in June 1993. The revised accounting standard for lease transactions is effective for fiscal years beginning on or after April 1, 2008 with early adoption permitted for fiscal years beginning on or after April 1, 2007.
Under the previous accounting standard, finance leases that deem to transfer ownership of the leased property to the lessee were to be capitalized. However, other finance leases were permitted to be accounted for as operating lease transactions if certain “as if capitalized” information is disclosed in the notes to the lessee’s financial statements. The revised accounting standard requires that all finance lease transactions should be capitalized to recognize leased assets and lease obligations in the balance sheet. In addition, the revised accounting standard permits leases which existed at the transition date and do not transfer ownership of the leased assets to the lessee to be accounted for as operating lease transactions with certain “as if capitalized” information disclosed in the notes to the lessee’s financial statements.
The Group applied the revised accounting standard effective April 1, 2008. In addition, the Group accounted for leases which existed at the transition date and do not transfer ownership of the leased assets to the lessee as operating lease transactions.
n. Foreign Currency Translations
Foreign currency assets and liabilities of the Group are translated into Japanese yen amounts at the exchange rates prevailing at the fiscal year end. The foreign exchange gains and losses from translation are recognized in the statements of operations to the extent that they are not hedged by forward exchange contracts.
o. Derivatives and Hedging Activities
The Group uses a variety of derivative financial instruments such as foreign currency forward contracts and interest rate swaps.
Derivative financial instruments are classified and accounted for as follows: a) all derivatives are recognized as either assets or liabilities and measured at fair value, and gains or losses on derivative transactions are recognized in the consolidated statements of operations and b) for derivatives used for hedging purposes, if derivatives qualify for hedge accounting because of high correlation and effectiveness between the hedging instruments and the hedged items, gains or losses on derivatives follow hedge accounting.
Interest rate risk hedges
The Bank applies the principle treatment of the JICPA Industry Audit Committee Statement No. 24.
The effectiveness of hedge transactions to offset the fluctuations of fair value is evaluated by inspecting each hedged item, such as deposits and loans, and the hedging instruments, such as interest rate swaps,
separately, or aggregating some hedged item and hedging instruments. The effectiveness of cash flow hedges is evaluated by verifying the correlation between the hedged items and the hedging instruments concerning interest volatility.
Exchange rate risk hedges
The Bank applies the principle treatment of the JICPA Industry Audit Committee Statement No. 25.
Foreign exchange swaps and currency swaps, originated for the purpose of conversion between borrowing and lending currencies, are recorded using hedge accounting. The effectiveness of currency swaps and foreign exchange swaps transactions is verified by confirming that these hedging instruments are executed for the purpose of offsetting the risk of currency exchange rates of the corresponding hedged items, such as foreign currency monetary receivables and payables.
p. Per Share Information
Basic net income (or loss) per share is computed by dividing net income (or loss) available to common shareholders by the weighted-average number of common shares outstanding for the period, retroactively adjusted for stock splits.
The weighted average number of common shares used in the computation for the years ended March 31, 2010 and 2009 was 216,876, 581 shares and 216,951,480 shares, respectively.
Diluted net income per share reflects the potential dilution that could occur if securities were exercised or converted into common stock. Diluted net income per share of common stock assumes full conversion of the outstanding convertible notes and bonds at the beginning of the year (or at the time of issuance) with an applicable adjustment for related interest expense, net of tax, and full exercise of outstanding warrants. Diluted net income per share is not disclosed because there are no dilutive shares for the year ended March 31, 2010.
Cash dividends per share presented in the accompanying consolidated statements of operations are dividends applicable to the respective years including dividends to be paid after the end of the year.
q. New Accounting Pronouncements
Asset Retirement Obligations―In March 2008, the ASBJ published a new accounting standard for asset retirement obligations, ASBJ Statement No. 18, “Accounting Standard for Asset Retirement Obligations” and ASBJ Guidance No. 21, “Guidance on Accounting Standard for Asset Retirement Obligations”. Under this accounting standard, an asset retirement obligation is defined as a legal obligation imposed either by law or contract that results from the acquisition, construction, development and the normal operation of a tangible fixed asset and is associated with the retirement of such tangible fixed asset.
The asset retirement obligation is recognized as the sum of the discounted cash flows required for the future asset retirement and is recorded in the period in which the obligation is incurred if a reasonable estimate can be made. If a reasonable estimate of the asset retirement obligation cannot be made in the period the asset retirement obligation is incurred, the liability should be recognized when a reasonable estimate of the asset retirement obligation can be made. Upon initial recognition of a liability for an asset retirement obligation, an asset retirement cost is capitalized by increasing the carrying
amount of the related fixed asset by the amount of the liability. The asset retirement cost is subsequently allocated to expense through depreciation over the remaining useful life of the asset. Over time, the liability is accreted to its present value each period. Any subsequent revisions to the timing or the amount of the original estimate of undiscounted cash flows are reflected as an increase or a decrease in the carrying amount of the liability and the capitalized amount of the related asset retirement cost. This standard is effective for fiscal years beginning on or after April 1, 2010 with early adoption permitted for fiscal years beginning on or before March 31, 2010.
3. Cash and Due from Banks
Cash and due from banks as of March 31, 2010 and 2009 consisted of the following:
Millions of Yen
Thousands of U.S. Dollars
2010 2009 2010
Cash on hand ¥ 17,359 ¥ 20,638 $ 186,556
Due from banks 60,345 51,384 648,522
Total ¥ 77,704 ¥ 72,022 $ 835,078
A reconciliation of the cash and due from banks in the consolidated balance sheets to the cash and cash equivalents in the consolidated statements of cash flows for the years ended March 31, 2010 and 2009 was as follows:
Millions of Yen
Thousands of U.S. Dollars
2010 2009 2010
Cash and due from banks ¥ 77,704 ¥ 72,022 $ 835,078 Due from banks other than the
Bank of Japan (459) (981) (4,933)
Cash and cash equivalents ¥ 77,245 ¥ 71,041 $ 830,145 4. Trading Securities and Securities
Trading securities as of March 31, 2010 and 2009 consisted of the following:
Millions of Yen
Thousands of U.S. Dollars
2010 2009 2010
Debt securities:
National government bonds ¥ 434 ¥ 496 $ 4,664
Local government bonds 1 2 11
Total ¥ 435 ¥ 498 $ 4,675
Valuation gains of trading securities included in income (loss) before income taxes and minority interests for the years ended March 31, 2010 and 2009 were ¥12 million ($126 thousand) and ¥9 million, respectively.
Securities as of March 31, 2010 and 2009 consisted of the following:
Millions of Yen
Thousands of U.S. Dollars
2010 2009 2010
Equity securities ¥ 26,918 ¥ 24,245 $ 289,285 Debt securities:
National government bonds 164,713 129,756 1,770,156
Local government bonds 28,057 38,926 301,526
Corporate bonds 79,019 86,777 849,210
Other securities 76,703 72,299 824,321
Total ¥ 375,410 ¥ 352,003 $ 4,034,498
Investments in an affiliated company, which were included in securities in the accompanying consolidated balance sheets, for the years ended March 31, 2010 and 2009 were ¥980 million ($10,537 thousand) and
¥956 million, respectively.
The carrying amounts and aggregate fair values of trading and available-for-sale securities as of March 31, 2010 and 2009 were as follows:
Millions of Yen
March 31, 2010 Cost
Unrealized Gains
Unrealized
Losses Fair Value Securities classified as:
Trading ¥ 435
Available-for-sale:
Equity securities ¥ 17,231 ¥ 6,472 ¥ 1,473 ¥ 22,230 Debt securities
National government bonds 164,078 1,037 402 164,713
Local government bonds 27,419 642 4 28,057
Corporate bonds 77,535 1,561 77 79,019
Other 77,873 707 2,969 75,611
Millions of Yen
March 31, 2009 Cost
Unrealized Gains
Unrealized
Losses Fair Value Securities classified as:
Trading ¥ 498
Available-for-sale:
Equity securities ¥ 17,034 ¥ 4,509 ¥ 2,017 ¥ 19,526 Debt securities
National government bonds 129,626 1,405 1,275 129,756
Local government bonds 38,510 466 50 38,926
Corporate bonds 73,222 728 625 73,325
Other 78,692 465 6,858 72,299
Thousands of U.S. Dollars
March 31, 2010 Cost
Unrealized Gains
Unrealized
Losses Fair Value Securities classified as:
Trading $ 4,675
Available-for-sale:
Equity securities $ 185,180 $ 69,554 $ 15,830 $ 238,904 Debt securities:
National government bonds 1,763,332 11,144 4,320 1,770,156
Local government bonds 294,670 6,899 43 301,526
Corporate bonds 833,262 16,776 828 849,210
Other 836,894 7,598 31,908 812,584
Available-for-sale securities and held-to-maturity securities whose fair value is not readily
determinable as of March 31, 2009 were as follows. The similar information for 2010 is disclosed in Note 22.
Carrying amount Millions of Yen Available-for-sale:
Unlisted equity securities ¥ 3,763 Unlisted debt securities 13,451
Total ¥ 17,214
Proceeds from sales of available-for-sale securities for the year ended March 31, 2009 were ¥30,552 million.
Gross realized gains and losses on these sales, computed on the moving-average cost basis, were ¥6,678 million and ¥1 million, respectively, for the year ended March 31, 2009.
The information of available-for-sale securities which were sold during the year ended March 31, 2010 was as follows:
Millions of Yen
March 31, 2010 Proceeds Realized
gains Realized losses Available-for-sale:
Equity securities ¥ 1,979 ¥ 1,329 -
Debt securities:
National government bonds 77,438 1,401 ¥ 9
Local government bonds 14,125 397 -
Corporate bonds - - -
Other 13,000 1,447 40
Total ¥ 106,542 ¥ 4,574 ¥ 49
Thousands of U.S. Dollars
March 31, 2010 Proceeds Realized
gains Realized losses Available-for-sale:
Equity securities $ 21,268 $ 14,283 -
Debt securities:
National government bonds 832,219 15,056 $ 97
Local government bonds 151,800 4,267 -
Corporate bonds - - -
Other 139,710 15,551 430
Total $ 1,144,997 $ 49,157 $ 527
The impairment losses on available-for-sale securities are recognized when their fair value declines more than or equal to 30% of the carrying amounts and such decline is expected to continue for approximately a year or longer.
The impairment losses on available-for-sale securities for the years ended March 31, 2010 and 2009 were
¥274 million ($2,945 thousand) and ¥4,048 million, respectively.
The carrying values of debt securities and other by contractual maturities for available-for-sale securities as of March 31, 2010 were disclosed in Note 22.
5. Loans and Bills Discounted
Loans and bills discounted as of March 31, 2010 and 2009 consisted of the following:
Millions of Yen
Thousands of U.S. Dollars
2010 2009 2010
Bills discounted ¥ 15,827 ¥ 20,651 $ 170,091
Loans on bills 88,234 96,539 948,243
Loans on deeds 869,580 862,031 9,345,298
Overdrafts 199,007 218,937 2,138,711
Total ¥ 1,172,648 ¥ 1,198,158 $ 12,602,343
Nonaccrual loans, which include loans to borrowers in bankruptcy and past due loans, are defined as loans which the Bank and its subsidiaries discontinue the accrual of interest income. Borrowers are generally placed on nonaccrual status when substantial doubt is deemed to exist as to ultimate collectability of either the principal or interest, and if the loans are past due for a certain period or for other reasons.
Loans to borrowers in bankruptcy represent nonaccrual loans to debtors who are legally bankrupt, which are defined in Article 96, Paragraph 1, Subparagraphs 3 and 4 of the Enforcement Ordinance for the Corporation Tax Law. Loans to borrowers in legal bankruptcy as of March 31, 2010 and 2009 were
¥14,475 million ($155,560 thousand) and ¥13,388 million, respectively.
Past due loans are nonaccrual loans other than loans to borrowers in bankruptcy and loans of which interest payments are deferred in order to assist the financial recovery of debtor in financial difficulties. Past due loans as of March 31, 2010 and 2009 were ¥37,927 million ($407,599 thousand) and ¥34,235 million, respectively.
Accruing loans past due three months or more are defined as loans on which principal or interest is past due more than three months. Loans classified as loans to borrowers in bankruptcy or past due loans are excluded from accruing loans past due three months or more. The balances of accruing loans past due three months or more as of March 31, 2010 and 2009 were ¥95 million ($1,016 thousand) and ¥541 million, respectively.
Restructured loans are defined as loans to which the lender is providing financial support to a borrower by a reduction of the interest rate, deferral of interest payment, extension of maturity date, or reduction of the face or maturity amount of the debt or accrued interest. Loans classified as loans to borrowers in bankruptcy, past due loans, or accruing loans past due three months or more are excluded from restructured loans. The balances of restructured loans as of March 31, 2010 and 2009 were ¥2,669 million ($28,684 thousand) and ¥3,047 million, respectively.
Total amounts of loans to borrowers in bankruptcy, past due loans, accruing loans past due three months or more and restructured loans as of March 31, 2010 and 2009 were ¥55,166 million ($592,859 thousand) and
¥51,211 million, respectively.
The loan amounts above represent amounts prior to the deduction of reserves for possible loan losses.
Bills discounted are accounted for as financial transactions in accordance with “Treatment of Accounting and Auditing in Applying Accounting Standard for Financial Instruments in the Banking Industry” issued by the JICPA. The Bank has rights to sell or pledge accepted commercial bills discounted and foreign bills of exchange bought without restrictions. The total face value of commercial bills discounted and foreign bills of exchange bought included in foreign exchanges as of March 31, 2010 and 2009 was ¥17,741 million ($190,663 thousand) and ¥23,286 million, respectively.
The total amount of loan participations which was accounted for as loans to original debtors included in
“loans and bills discounted” in accordance with the JICPA Accounting Standard Committee Statement No. 3 issued on June 1, 1995 was ¥20,488 million ($220,178 thousand) as of March 31, 2010.
6. Foreign Bills of Exchange
Foreign bills of exchange as of March 31, 2010 and 2009 consisted of the following:
Millions of Yen
Thousands of U.S. Dollars
2010 2009 2010
Assets:
Due from foreign correspondent account ¥ 644 ¥ 1,126 $ 6,921 Foreign bills of exchange bought 1,914 2,635 20,570 Foreign bills of exchange receivable 2,585 3,000 27,781
Total ¥ 5,143 ¥ 6,761 $ 55,272
Millions of Yen
Thousands of U.S. Dollars
2010 2009 2010
Liabilities:
Overdraft from foreign banks ¥ 1 ¥ 0 $ 11
Foreign bills of exchange sold - 2 -
Foreign bills of exchange payable - 1 -
Total ¥ 1 ¥ 3 $ 11
7. Other Assets
Other assets as of March 31, 2010 and 2009 consisted of the following:
Millions of Yen
Thousands of U.S. Dollars
2010 2009 2010
Domestic exchange settlement, debit ¥ 271 ¥ 324 $ 2,912
Accrued income 2,197 2,275 23,611
Accounts receivable - other 3,381 3,350 36,335
Rights of indemnity 1,645 2,064 17,679
Temporary payments 2,947 2,083 31,671
Other 2,106 2,944 22,633
Total ¥ 12,547 ¥ 13,040 $ 134,841
8. Premises and Equipment
The accumulated depreciation of premises and equipment as of March 31, 2010 and 2009 amounted to
¥16,482 million ($177,131 thousand) and ¥16,218 million, respectively.
Deferred gains on premises and equipment deductible for tax purposes were ¥1,400 million ($15,046 thousand) as of March 31, 2010 and ¥1,400 million as of March 31, 2009, respectively.
9 Customers’ Liabilities for Acceptances and Guarantees
All contingent liabilities arising from acceptances and guarantees are reflected in acceptances and guarantees. As contra accounts, customers’ liabilities for acceptances and guarantees are presented as assets, representing the Bank’s rights of indemnity from applicants.
The Bank offset customer’s liabilities for acceptance and guarantees with acceptance and guarantees of
¥10,509 million ($112,939 thousand) and ¥13,451 million arising from guarantees of private placement securities in 2010 and 2009, respectively.
9. Assets Pledged
Assets pledged as collateral and their relevant liabilities as of March 31, 2010 were as follows:
Carrying amount Millions of Yen
Thousands of U.S. Dollars Assets pledged as collateral:
Securities ¥ 1,176 $ 12,638
Relevant liabilities to above assets:
Deposits ¥ 5,033 $ 54,089
In addition, securities of ¥37,172 million ($399,484 thousand) were pledged as collateral for settlement of exchange.
Guarantee money included in other assets as of March 31, 2010 and 2009 was ¥398 million ($4,277 thousand) and ¥399 million, respectively.
10. Land Revaluation
Under the “Law of Land Revaluation,” the Bank elected a one-time revaluation of its own-use land to a value based on real estate appraisal information as of March 31, 1998.
The resulting land revaluation surplus represents unrealized appreciation of land and is stated, net of income taxes, as a component of equity. There is no effect on the consolidated statements of operations.
Continuous readjustment is not permitted unless the land value subsequently declines significantly such that the amount of the decline in value should be removed from the land revaluation surplus account and related deferred tax liabilities.
The carrying amount of the land after the above one-time revaluation exceeded the market value by ¥1,599 million ($17,184 thousand) as of March 31, 2010.
11. Income Taxes
The Bank and its subsidiaries are subject to Japanese national and local income taxes which, in the aggregate, resulted in a normal effective statutory tax rate of 39.5% for the years ended March 31, 2010 and 2009.
The tax effects of significant temporary differences, which resulted in deferred tax assets and liabilities as of March 31, 2010 and 2009, were as follows:
Millions of Yen
Thousands of U.S. Dollars
2010 2009 2010
Deferred tax assets:
Reserve for possible loan losses ¥ 9,027 ¥ 7,731 $ 97,013
Write-down of securities 3,187 3,855 34,250
Liability for retirement benefits 751 528 8,071
Deferred loss on derivatives
under hedge accounting 209 69 2,246
Depreciation 1,276 1,173 13,713
Accrued bonuses 317 368 3,407
Impairment loss on land 244 244 2,622
Unrealized loss on
available-for-sale securities - 1,594 -
Tax loss carryforwards - 737 -
Other 1,441 1,328 15,486
Subtotal 16,452 17,627 176,808
Less valuation allowance (8,489) (8,520) (91,231)
Total ¥ 7,963 ¥ 9,107 $ 85,577
Deferred tax liabilities:
Unrealized gain on
available-for-sale securities ¥ (1,451) ¥ (7) $ (15,594)
Income taxes refundable - (31) -
Reserve for advanced
depreciation of fixed assets (38) (40) (408)
Net deferred tax assets ¥ 6,474 ¥ 9,029 $ 69,575
A reconciliation between the normal effective statutory tax rate and the actual effective tax rate reflected in the accompanying consolidated statements of operations for the year ended March 31, 2010 is as follows:
2010 Normal effective statutory tax rate 39.5 % Dividend income and other income excluded
permanently for income tax purpose
(6.6) Entertainment expenses and other expenses
permanently not deductible for income tax purposes
1.3
Per capita tax 3.1
Tax deduction arising from land expropriation (0.7) Equity in earnings of an associated company 0.6 Net change in valuation allowance (2.1)
Other - net 0.3
Actual effective tax rate 35.4%
A reconciliation for the year ended March 31, 2009 was not disclosed because of the net loss position.
13. Deposits
Deposits as of March 31, 2010 and 2009 consisted of the following:
Millions of Yen
Thousands of U.S. Dollars
2010 2009 2010
Current, ordinary and saving deposits,
and deposits at notice ¥ 674,264 ¥ 685,023 $ 7,246,255 Time deposits and installment savings 815,944 811,548 8,768,877
Other 27,630 21,748 296,937
Total ¥ 1,517,838 ¥ 1,518,319 $ 16,312,069
14. Subordinated Bonds
Subordinated bonds as of March 31, 2010 and 2009 consisted of the following:
Millions of Yen
Thousands of U.S. Dollars
2010 2009 2010
Series 1, 2.02% unsecured subordinated
bond due March 2, 2015 ¥ 5,000 ¥ 5,000 $ 53,735 Series 2, unsecured subordinated bond
due March 2, 2015 *1 - 5,000 -
Series 3, unsecured subordinated bond
due December 21, 2017 *2 10,000 10,000 107,468
Series 4, unsecured subordinated bond
due September 25, 2019 *3 5,000 - 53,735
Total ¥ 20,000 ¥ 20,000 $ 214,938
*1 On January 13, 2010, the board of directors of the Bank resolved to redeem series 2, unsecured subordinated bond due March 2, 2015 before its maturity, and the Bank redeemed it on March 2, 2010.
*2 Fixed interest rate of 1.73% up to December 21, 2012 and floating rate of LIBOR plus 1.93% from December 22, 2012 to December 21, 2017 for Series 3, unsecured subordinated bond.
*3 Fixed interest rate of 2.22% up to September 25, 2014 and floating rate of LIBOR plus 2.85% from September 26, 2014 to September 25, 2019 for Series 4, unsecured subordinated bond.
Annual maturities of subordinated bonds as of March 31, 2010 for the next five years and thereafter were as follows:
Year ending March 31 Millions of Yen
Thousands of U.S. Dollars
2011 - -
2012 - -
2013 - -
2014 - -
2015 ¥ 5,000 $ 53,735
2016 and thereafter 15,000 161,203
Total ¥ 20,000 $ 214,938
15. Liability for Retirement Benefits for Employees
The Bank has defined benefit plans such as lump-sum retirement payment and corporate pension fund for its employees. The Bank also has a defined contribution pension plan for its employees. Additionally, the consolidated subsidiaries have lump-sum payment plans for their employees.
Under most circumstances, employees terminating their employment are entitled to retirement benefits determined based on the rate of pay at the time of termination, years of service and certain other factors.
Such retirement benefits are made in the form of a lump-sum severance payment or in the form of an annuity.
The liability for retirement benefits as of March 31, 2010 and 2009 consisted of the following:
Millions of Yen
Thousands of U.S. Dollars
2010 2009 2010
Projected benefit obligation ¥ 15,163 ¥ 15,229 $ 162,956
Fair value of plan assets (8,315) (7,491) (89,361)
Unrecognized transitional obligation (1,128) (1,354) (12,123) Unrecognized actuarial loss (4,516) (5,949) (48,533)
Unrecognized prior service benefit 804 1,062 8,641
Net liability ¥ 2,008 ¥ 1,497 $ 21,580
The components of net periodic benefit costs for the years ended March 31, 2010 and 2009 were as follows:
Millions of Yen
Thousands of U.S. Dollars
2010 2009 2010
Service cost ¥ 353 ¥ 345 $ 3,794
Interest cost 297 295 3,192
Expected return on plan assets (187) (224) (2,010)
Amortization of prior service benefit (258) (258) (2,773)
Recognized actuarial loss 896 722 9,629
Amortization of transitional obligation 226 226 2,429 Net periodic benefit costs ¥ 1,327 ¥ 1,106 $ 14,261
Assumptions used for the years ended March 31, 2010 and 2009 were set forth as follows:
2010 2009
Discount rate 2.0 % 2.0 %
Expected rate of return on plan assets 2.5 % 2.5 % Amortization period of prior service cost 11 years 11 years Amortization period of actuarial loss 11 years 11 years Amortization period of transitional obligation 15 years 15 years
16. Other Liabilities
Other liabilities as of March 31, 2010 and 2009 consisted of the following:
Millions of Yen
Thousands of U.S. Dollars
2010 2009 2010
Domestic exchange settlement, debt ¥ 546 ¥ 561 $ 5,868
Income taxes payable 784 79 8,426
Accrued expenses 3,217 3,166 34,573
Accounts payable – other 2,225 2,096 23,912
Deferred income 3,005 3,721 32,294
Deposits received 2,158 1,840 23,192
Other 3,342 3,102 35,916
Total ¥ 15,277 ¥ 14,565 $ 164,181
17. Commitments and Contingent Liabilities
Commitment line contracts on overdrafts and loans are agreements to lend to customers when they apply for borrowing, to the prescribed amount as long as there is no violation of any condition established in the contracts. The amount of unused commitments as of March 31, 2010 was ¥218,040 million ($2,343,256 thousand), including ¥180,943 million ($1,944,578 thousand) of unused commitments whose original contract terms were within one year.
Since many of these commitments are expected to expire without being drawn upon, the total amount of unused commitments does not necessarily represent actual future cash flow requirements. Many of these commitments have clauses that allow the Bank and subsidiaries to reject the application from customers or reduce the contract amounts in case economic conditions are changed, the Bank and subsidiaries need to secure claims, or other events occur. In addition, the Bank and subsidiaries request their customers to pledge collateral such as premises and securities at the conclusion of the contracts, and take necessary measures, such as understanding the customers’ financial positions based upon procedures predetermined in the Bank and subsidiaries, revising contracts when the need arises, and securing claims after conclusion of the contracts.
18. Equity
Japanese companies have been subject to the Companies Act of Japan (the “Companies Act”). The significant provisions in the Companies Act that affect financial and accounting matters are summarized below:
(a) Dividends
Under the Companies Act, companies can pay dividends at any time during the fiscal year in addition to the year-end dividend upon resolution at the shareholders meeting. For companies that meet certain criteria such as; (1) having a Board of Directors, (2) having independent auditors, (3) having a Board of Corporate Auditors, and (4) the term of service of the directors is prescribed as one year rather than two years of normal term by its articles of incorporation, the Board of Directors may declare dividends (except for dividends in kind) at any time during the fiscal year if the company has prescribed so in its articles of incorporation. However, the Bank cannot do so because it has not prescribed so in its articles of incorporation.
The Companies Act permits companies to distribute dividends-in-kind (non-cash assets) to shareholders subject to a certain limitation and additional requirements.
Semiannual interim dividends may also be paid once a year upon resolution by the Board of Directors if the articles of incorporation of the company so stipulate. The Companies Act provides certain limitations on the amounts available for dividends or the purchase of treasury stock. The limitation is defined as the amount available for distribution to the shareholders, but the amount of equity after dividends must be maintained at no less than ¥ 3 million.
(b) Treasury stock and treasury stock acquisition rights
The Companies Act also provides for companies to purchase treasury stock and dispose of such treasury stock by resolution of the Board of Directors. The amount of treasury stock purchased cannot exceed the amount available for distribution to the shareholders which is determined by specific formula. Under the Companies Act, stock acquisition rights are presented as a separate component of equity. The Companies Act also provides that companies can purchase both treasury stock acquisition rights and treasury stock. Such treasury stock acquisition rights are presented as a separate component of equity or deducted directly from stock acquisition rights.
Other than above, the Japanese Banking Law provided that an amount at least equal to 20% of the aggregate amount of cash dividends and certain other cash payments which are made as an appropriation of retained earnings applicable to each fiscal period shall be set aside as a legal reserve until the total additional paid-in capital and legal reserve equals 100% of stated capital. The amount of total additional paid-in capital and legal reserve which exceeds 100% of stated capital can be transferred to retained earnings by resolution of the shareholders, which may be available for dividends. The Bank’s legal reserve amount, which is included in retained earnings, totals ¥1,493 million ($16,045 thousand) and ¥1,320 million as of March 31, 2010 and 2009, respectively.
