NOTES TO UNAUDITED QUARTERLY CONSOLIDATED FINANCIAL STATEMENTS

(Basis of presentation)

Sumitomo Mitsui Financial Group, Inc. (“the Company”) was established on December 2, 2002 as a holding company for the SMBC Group (“the Group”) through a statutory share transfer (kabushiki iten) of all of the outstanding equity securities of Sumitomo Mitsui Banking Corporation (“SMBC”) in exchange for the Company’s newly issued securities. The Company is a joint stock corporation with limited liability (Kabushiki Kaisha) incorporated under the Companies Act of Japan. Upon formation of the Company and completion of the statutory share transfer, SMBC became a direct wholly owned subsidiary of the Company.

The Company has prepared the accompanying consolidated financial statements in accordance with the provisions set forth in the Japanese Financial Instruments and Exchange Act and its related accounting regulations, and in conformity with accounting principles generally accepted in Japan (“Japanese GAAP”), which are different in certain respects as to application and disclosure requirements from International Financial Reporting Standards (“IFRS”).

The accounts of overseas subsidiaries and affiliated companies are, in principle, integrated with those of the Company’s accounting policies for purposes of consolidation unless they apply different accounting principles and standards as required under U.S. GAAP or IFRS, in which case a certain limited number of items are adjusted based on their materiality.

These consolidated financial statements are translated from the consolidated financial statements contained in the quarterly securities report filed under the Financial Instruments and Exchange Act of Japan (“FIEA based financial statements”) except for the addition of U.S. dollar figures.

Amounts less than ¥1 million have been rounded down. As a result, the totals in Japanese yen shown in the financial statements do not necessarily agree with the sum of the individual amounts.

The translation of the Japanese yen amounts into U.S. dollars is included solely for the convenience of readers outside Japan, using the prevailing exchange rate at December 31, 2022 which was ¥132.71 to US$1. These translations should not be construed as representations that the Japanese yen amounts have been, could have been, or could in the future be, converted into U.S. dollars at that rate.

 

—5—

(Changes in the scope of consolidation or in the scope of equity method)

 

(1)

Significant changes in the scope of consolidation

Not applicable.

 

(2)

Significant changes in the scope of equity method

Not applicable.

(Changes in accounting policies)

Application of Implementation Guidance on Accounting Standard for Fair Value Measurement

The Company applied “Implementation Guidance on Accounting Standard for Fair Value Measurement” (ASBJ Guidance No.31, June 17, 2021) from the beginning of the period for the three months ended June 30, 2022. In accordance with the transitional treatment set forth in Paragraph 27-2 of Implementation Guidance on Accounting Standard for Fair Value Measurement, the Company has prospectively adopted the new accounting policy set forth in Implementation Guidance on Accounting Standard for Fair Value Measurement. There are no effects on quarterly consolidated financial statements due to the application of the Implementation Guidance.

 

—6—

(Applied special accounting methods used for preparing quarterly consolidated financial statements)

Accounting treatment of tax expenses

The Company and certain domestic consolidated subsidiaries calculated tax expenses by multiplying Income before income taxes by an effective tax rate that was reasonably estimated by applying tax effect accounting to estimated Income before income taxes for the fiscal year ending March 31, 2023 including the period for the nine months ended December 31, 2022. Amounts of Income taxes include Income taxes-deferred.

(Additional information)

1. Transition from the consolidated corporate-tax system to the group tax sharing system

The Company and certain consolidated domestic subsidiaries transitioned from the consolidated corporate-tax system to the group tax sharing system from the beginning of the period for the three months ended June 30, 2022. In accordance with the transition, the accounting treatment and disclosure of corporate tax, local tax and tax effect accounting are based on “Practical Solution on the Accounting and Disclosure Under the Group Tax Sharing System” (ASBJ Practical Issue Task Force No. 42, August 12, 2021). Based on Paragraph 32(1) of ASBJ Practical Issue Task Force No. 42, it is deemed that changes in accounting policy by applying ASBJ Practical Issue Task Force No. 42 have no effect.

2. Suspected illegal stabilization transactions

On March 24 and April 13, 2022, the Tokyo District Public Prosecutors Office filed charges with the Tokyo District Court to prosecute SMBC Nikko Securities Inc. (hereinafter, “SMBC Nikko Securities”), a consolidated subsidiary of the Company, and its former executive officers and employees, on suspicion of illegal stabilization transactions. The fine, etc., that SMBC Nikko Securities is expected to incur due to violation of the Financial Instruments and Exchange Act is reasonably estimated and reflected on quarterly consolidated financial statements for the nine months ended December 31, 2022.

 

—7—

(Notes to quarterly consolidated balance sheets)

 

*1	Claims under the Banking Act and the Act on Emergency Measures for the Revitalization of Financial Functions

Claims under the Banking Act and the Act on Emergency Measures for the Revitalization of Financial Functions at March 31, 2022 and December 31, 2022 are as follows. The claims are items that are recorded under the following items on the quarterly consolidated balance sheet (consolidated balance sheet): bonds included in “Securities” (limited to bonds for which the redemption of principal and the payment of interest in whole or in part are guaranteed, and that are issued through private placements (under Article 2, Paragraph 3 of the Financial Instruments and Exchange Act)), loans and bills discounted, foreign exchanges, accrued interest and suspense payments included in “Other assets,” and customers’ liabilities for acceptances and guarantees. If security lending listed in the notes is conducted, such securities (limited to those based on loan for a use agreement or lease agreement) are also included in the claims.

 

		Millions of yen
		March 31, 2022				December 31, 2022
Bankrupt and quasi-bankrupt loans		¥	99,256			¥	94,388
Doubtful loans			643,881				584,515
Substandard loans			414,422				353,981
Past due loans (3 months or more)			13,553				14,291
Restructured loans			400,868				339,690
Subtotal			1,157,560				1,032,886
Normal loans			106,019,459				116,196,258
Total		¥	107,177,019			¥	117,229,145

The amounts of loans presented above are the amounts before deduction of reserve for possible loan losses.

 

*2	Guaranteed amount to privately-placed bonds

The amounts guaranteed by banking subsidiaries to privately-placed bonds (stipulated by Article 2, Paragraph 3 of the Financial Instruments and Exchange Act) in “Securities” at March 31, 2022 and December 31, 2022 were as follows:

 

		Millions of yen
		March 31, 2022				December 31, 2022
Guaranteed amount to privately-placed bonds		¥	1,342,460			¥	1,377,147

 

—8—

(Notes to quarterly consolidated statements of income)

 

*1	Other income

“Other income” for the nine months ended December 31, 2021 and 2022 included the following:

 

Nine months ended December 31, 2021		Millions of yen				Nine months ended December 31, 2022		Millions of yen
Gains on sales of stocks		¥	152,024			Gains on sales of stocks		¥	183,327

 

*2	Other expenses

“Other expenses” for the nine months ended December 31, 2021 and 2022 included the following:

 

Nine months ended December 31, 2021		Millions of yen				Nine months ended December 31, 2022		Millions of yen
Provision for reserve for possible loan losses		¥	98,303			Write-off of loans		¥	66,472
Write-off of loans			67,563			Provision for reserve for possible loan losses			37,533
						Losses on sales of stocks			28,046

 

*3	Extraordinary gains

“Extraordinary gains” for the nine months ended December 31, 2021 and 2022 included the following:

 

Nine months ended December 31, 2021		Millions of yen				Nine months ended December 31, 2022		Millions of yen
Gains on disposal of fixed assets		¥	1,531			Gains on disposal of fixed assets		¥	1,317

 

*4	Extraordinary losses

“Extraordinary losses” for the nine months ended December 31, 2021 and 2022 included the following:

 

Nine months ended December 31, 2021		Millions of yen				Nine months ended December 31, 2022		Millions of yen
Losses on impairment of fixed assets		¥	4,890			Losses on impairment of fixed assets		¥	2,365
Losses on disposal of fixed assets			1,773			Losses on disposal of fixed assets			1,429

 

—9—

(Notes to quarterly consolidated statements of cash flows)

Quarterly consolidated statements of cash flows were not prepared for the nine months ended December 31, 2022. “Depreciation” (including amortization of intangible fixed assets other than goodwill) and “Amortization of goodwill” for the nine months ended December 31, 2021 and 2022 were as follows:

 

		Millions of yen
Nine months ended December 31		2021				2022
Depreciation		¥	165,260			¥	177,140
Amortization of goodwill			12,543				21,954

(Notes to stockholders’ equity)

Dividends paid in the nine months ended December 31, 2021

 

Date of resolution

Type of shares

Millions of yen, except per share amount

Cash dividends

Cash dividends     per share

Record date

Effective date

Source of dividends

Ordinary General Meeting of Shareholders held on June 29, 2021

Common stock

¥

130,190

¥

95

March 31, 2021

June 30, 2021

Retained earnings

Meeting of the Board of Directors held on November 12, 2021

Common stock

143,936

105

September 30, 2021

December 3, 2021

Retained earnings

Dividends paid in the nine months ended December 31, 2022

 

Date of resolution

Type of shares

Millions of yen, except per share amount

Cash dividends

Cash dividends     per share

Record date

Effective date

Source of dividends

Ordinary General Meeting of Shareholders held on June 29, 2022

Common stock

¥

143,936

¥

105

March 31, 2022

June 30, 2022

Retained earnings

Meeting of the Board of Directors held on November 14, 2022

Common stock

157,690

115

September 30, 2022

December 2, 2022

Retained earnings

 

—10—

(Notes to segment and other related information)

[Segment information]

1. Information on profit and loss amount by reportable segment

 

Nine months ended December 31, 2021		Millions of yen
		Wholesale Business Unit				Retail Business Unit				Global Business Unit				Global Markets Business Unit				Head office account and others				Total
Consolidated gross profit		¥	511,600			¥	860,800			¥	619,100			¥	346,100			¥	(155,546)			¥	2,182,054
General and administrative expenses			(225,300)				(700,400)				(329,900)				(67,200)				(7,690)				(1,330,490)
Others			46,900				1,900				43,900				29,100				(67,731)				54,069
Consolidated net business profit		¥	333,200			¥	162,300			¥	333,100			¥	308,000			¥	(230,968)			¥	905,632

Notes:		1.		Figures shown in the parenthesis represent the loss.
		2.		“Others” includes equity in profit and loss of affiliates and cooperated profit and loss based on internal managerial accounting.
		3.		“Head office account and others” includes profit or loss to be eliminated as inter-segment transactions.

 

Nine months ended December 31, 2022		Millions of yen
		Wholesale Business Unit				Retail Business Unit				Global Business Unit				Global Markets Business Unit				Head office account and others				Total
Consolidated gross profit		¥	556,400			¥	848,000			¥	917,800			¥	371,500			¥	(316,256)			¥	2,377,444
General and administrative expenses			(219,500)				(686,200)				(470,300)				(82,800)				31,053				(1,427,747)
Others			52,700				3,000				68,700				22,900				(67,847)				79,453
Consolidated net business profit		¥	389,600			¥	164,800			¥	516,200			¥	311,600			¥	(353,050)			¥	1,029,150

Notes:		1.		Figures shown in the parenthesis represent the loss.
		2.		“Others” includes equity in profit and loss of affiliates and cooperated profit and loss based on internal managerial accounting.
		3.		“Head office account and others” includes profit or loss to be eliminated as inter-segment transactions.
		4.		The reportable segment of Fullerton India Credit Company Limited and its consolidated subsidiary was changed from “Head office account and others” to “Global Business Unit” from the beginning of the period for the three months ended June 30, 2022.

 

2.	Difference between total amount of consolidated net business profit by reportable segment and ordinary profit on quarterly consolidated statements of income (adjustment of difference)

 

Nine months ended December 31, 2021		Millions of yen
Consolidated net business profit		¥	905,632
Other ordinary income (excluding equity in gains of affiliates)			183,728
Other ordinary expenses			(221,986)
Ordinary profit on quarterly consolidated statements of income		¥	867,373

 

Note:    Figures shown in the parenthesis represent the loss.

 

Nine months ended December 31, 2022		Millions of yen
Consolidated net business profit		¥	1,029,150
Other ordinary income (excluding equity in gains of affiliates)			216,642
Other ordinary expenses			(213,183)
Ordinary profit on quarterly consolidated statements of income		¥	1,032,609

 

Note:    Figures shown in the parenthesis represent the loss.

 

—11—

(Notes to financial instruments)

There are no significant matters to be disclosed regarding financial instruments.

(Notes to securities)

The amounts shown in the following tables include negotiable certificates of deposit classified as “Cash and due from banks,” and beneficiary claims on loan trust classified as “Monetary claims bought,” in addition to “Securities” stated in the quarterly consolidated balance sheets.

1.    Bonds classified as held-to-maturity

 

 

—12—

2. Other securities

 

		Millions of yen
March 31, 2022		Acquisition cost				Consolidated    balance sheet amount				Net unrealized gains (losses)
Stocks		¥	1,203,355			¥	3,237,013			¥	2,033,658
Bonds			19,610,383				19,560,308				(50,074)
Japanese government bonds			15,821,296				15,774,197				(47,099)
Japanese local government bonds			1,154,551				1,145,496				(9,054)
Japanese corporate bonds			2,634,535				2,640,615				6,080
Other			14,473,249				14,766,875				293,625
Total		¥	35,286,988			¥	37,564,198			¥	2,277,209

 

Notes:		1.		Consolidated balance sheet amount is measured at fair value based on its market price and others at the end of the fiscal year.
		2.		Net unrealized gains (losses) on other securities shown above include gains of ¥2,122 million for the fiscal year ended March 31, 2022 that are recognized in the earnings by applying fair value hedge accounting.

 

		Millions of yen
December 31, 2022		Acquisition cost				Quarterly consolidated balance sheet amount				Net unrealized gains (losses)
Stocks		¥	1,237,026			¥	2,994,334			¥	1,757,308
Bonds			13,304,993				13,174,251				(130,741)
Japanese government bonds			9,516,699				9,441,018				(75,681)
Japanese local government bonds			1,107,364				1,075,020				(32,344)
Japanese corporate bonds			2,680,928				2,658,213				(22,715)
Other			13,779,371				13,583,621				(195,750)
Total		¥	28,321,390			¥	29,752,207			¥	1,430,816

 

Notes:		1.		Quarterly consolidated balance sheet amount is measured at fair value based on its market price and others at the end of the period.
		2.		There are no net unrealized gains (losses) on other securities shown above for the nine months ended December 31, 2022, recognized in the earnings by applying fair value hedge accounting.

 

—13—

3.     Write-down of securities

Bonds classified as held-to-maturity and other securities (excluding other securities whose quarterly consolidated balance sheet amounts are not measured at fair value) are considered as impaired if the fair value decreases materially below the acquisition cost and such decline is not considered as recoverable. The fair value is recognized as the quarterly consolidated balance sheet amount (consolidated balance sheet amount) and the amount of write-down is accounted for as valuation loss for the period. Valuation losses for the fiscal year ended March 31, 2022 and for the nine months ended December 31, 2022 were ¥4,688 million and ¥591 million, respectively. The rule for determining “material decline” is as follows and is based on the classification of issuers under the rules of self-assessment of assets.

 

Bankrupt/Effectively bankrupt/Potentially bankrupt issuers:		Fair value is lower than acquisition cost.
Issuers requiring caution:		Fair value is 30% or lower than acquisition cost.
Normal issuers:		Fair value is 50% or lower than acquisition cost.

Bankrupt issuers: Issuers that are legally bankrupt or formally declared bankrupt.

Effectively bankrupt issuers: Issuers that are not legally bankrupt but regarded as substantially bankrupt.

Potentially bankrupt issuers: Issuers that are not bankrupt now, but are perceived to have a high risk of falling into bankruptcy.

Issuers requiring caution: Issuers that are identified for close monitoring.

Normal issuers: Issuers other than the above 4 categories of issuers.

(Notes to money held in trust)

 

1.	Money held in trust classified as held-to-maturity

Fiscal year ended March 31, 2022

There are no corresponding transactions.

Nine months ended December 31, 2022

There are no corresponding transactions.

 

2.	Other money held in trust (other than trading purpose and held-to-maturity)

 

		Millions of yen
March 31, 2022		Acquisition cost				Consolidated balance sheet amount				Net unrealized gains (losses)
Other money held in trust		¥	310			¥	310			¥	—

 

Note:     Consolidated balance sheet amount is measured at fair value based on its market price and others at the end of the fiscal year.

 

		Millions of yen
December 31, 2022		Acquisition cost				Quarterly consolidated balance sheet amount				Net unrealized gains (losses)
Other money held in trust		¥	311			¥	311			¥	—

 

Note:     Quarterly consolidated balance sheet amount is measured at fair value based on its market price and others at the end of the period.

 

—14—

(Notes to derivative transactions)

 

(1)	Interest rate derivatives

 

		Millions of yen
March 31, 2022		Contract amount				Fair value				Valuation gains (losses)
Listed
Interest rate futures		¥	142,753,490			¥	2,663			¥	2,663
Interest rate options			450,578,969				394,362				394,362
Over-the-counter
Forward rate agreements			12,575,210				(28)				(28)
Interest rate swaps			661,604,364				(121,168)				(121,168)
Interest rate swaptions			26,687,532				(10,506)				(10,506)
Caps			107,838,182				(505,738)				(505,738)
Floors			7,576,704				4,260				4,260
Other			14,037,668				58,115				58,115
Total			/			¥	(178,039)			¥	(178,039)

Note:		The above transactions are valued at fair value and the valuation gains (losses) are accounted for in the consolidated statements of income.
		Derivative transactions to which the hedge accounting method is applied are not included in the table above.

 

		Millions of yen
December 31, 2022		Contract amount				Fair value				Valuation gains (losses)
Listed
Interest rate futures		¥	152,966,324			¥	4,840			¥	4,840
Interest rate options			365,072,337				851				851
Over-the-counter
Forward rate agreements			26,086,124				10,609				10,609
Interest rate swaps			1,074,014,596				(272,442)				(272,442)
Interest rate swaptions			43,083,821				8,276				8,276
Caps			123,395,008				(1,593,575)				(1,593,575)
Floors			14,194,003				14,879				14,879
Other			34,857,233				116,331				116,331
Total			/			¥	(1,710,229)			¥	(1,710,229)

Note:		The above transactions are valued at fair value and the valuation gains (losses) are accounted for in the quarterly consolidated statements of income.
		Derivative transactions to which the hedge accounting method is applied are not included in the table above.

 

—15—

(2)	Currency derivatives

 

		Millions of yen
March 31, 2022		Contract amount				Fair value				Valuation gains (losses)
Listed
Currency futures		¥	10,758			¥	(103)			¥	(103)
Over-the-counter
Currency swaps			86,400,103				615,163				242,608
Currency swaptions			693,027				91				91
Forward foreign exchange			86,861,074				(184,625)				(184,625)
Currency options			9,911,292				(24,867)				(24,867)
Total			/			¥	405,658			¥	33,103

Note:		The above transactions are valued at fair value and the valuation gains (losses) are accounted for in the consolidated statements of income.      Derivative transactions to which the hedge accounting method is applied are not included in the table above. In addition, transactions related to financial assets and liabilities denominated in foreign currencies and recognized in the consolidated balance sheets, or transactions related to financial assets and liabilities denominated in foreign currencies which have been eliminated in the consolidation are not included in the table above.

 

		Millions of yen
December 31, 2022		Contract amount				Fair value				Valuation gains (losses)
Listed
Currency futures		¥	18,099			¥	144			¥	144
Over-the-counter
Currency swaps			87,257,110				1,477,841				439,468
Currency swaptions			2,398,080				17,753				17,753
Forward foreign exchange			109,229,551				(244,707)				(244,707)
Currency options			9,333,614				(25,525)				(25,525)
Total			/			¥	1,225,505			¥	187,132

Note:		The above transactions are valued at fair value and the valuation gains (losses) are accounted for in the quarterly consolidated statements of income.      Derivative transactions to which the hedge accounting method is applied are not included in the table above. In addition, transactions related to financial assets and liabilities denominated in foreign currencies and recognized in the quarterly consolidated balance sheets, or transactions related to financial assets and liabilities denominated in foreign currencies which have been eliminated in the consolidation are not included in the table above.

 

—16—

(3)	Equity derivatives

 

		Millions of yen
March 31, 2022		Contract amount				Fair value				Valuation     gains (losses)
Listed
Equity price index futures		¥	1,228,695			¥	(22,042)			¥	(22,042)
Equity price index options			1,252,614				(47,940)				(47,940)
Over-the-counter
Equity options			249,895				22,992				22,992
Equity price index swaps			330,918				48,697				48,697
Total			/			¥	1,707			¥	1,707

Note:		The above transactions are valued at fair value and the valuation gains (losses) are accounted for in the consolidated statements of income. Derivative transactions to which the hedge accounting method is applied are not included in the table above.

 

		Millions of yen
December 31, 2022		Contract amount				Fair value				Valuation     gains (losses)
Listed
Equity price index futures		¥	1,309,177			¥	4,001			¥	4,001
Equity price index options			730,486				(18,424)				(18,424)
Over-the-counter
Equity options			243,948				27,035				27,035
Equity index forward contracts			1,474				(18)				(18)
Equity price index swaps			201,577				45,868				45,868
Total			/			¥	58,463			¥	58,463

Note:		The above transactions are valued at fair value and the valuation gains (losses) are accounted for in the quarterly consolidated statements of income. Derivative transactions to which the hedge accounting method is applied are not included in the table above.

 

—17—