Hokuhoku Financial Group, whose shares are the best performers among Japanese banks this year, is hunting for yields from short-dated government bonds as it prepares for rising interest rates at home.

The president of the major regional lender, Hiroshi Nakazawa, said he expects the Bank of Japan to raise interest rates in October or December if "things go smoothly.” That view is in line with a growing number of analyst predictions and traders wagering on rate hike odds.

"For the time being, we have to structure a portfolio that will be less affected by the BOJ’s decisions,” said Nakazawa, whose firm’s shares have shot up 95% this year, the biggest gain among the almost 70 lenders in the Topix banks index. Banks need to keep some government bonds on their books partly as collateral for market deals, and shorter-dated ones tend to be less vulnerable to yield increases.

Shares of Hokuhoku reversed losses during the day to close slightly higher on Friday, the highest in more than 15 years.

Investment decisions by executives of Japan’s nearly 100 regional banks are in the spotlight now after the BOJ’s pivot last year to lifting interest rates from providing super-easy credit. Investors are keen for any clues on whether banks will eventually return in a big scale to Japanese government bonds after the BOJ’s policy shift, or keep more of their funds in overseas markets.

Regional lenders are at the same time facing pressure to consolidate their operations as local populations shrink and the elderly become an ever bigger part of communities.

Stock investors like Hokuhoku for its strong earnings growth and expected bigger shareholder returns, said Toyoki Sameshima, a senior analyst at SBI Securities. Its net income of ¥39.1 billion ($266 million) in the year ended March was the most since the period through March 2007, Bloomberg-compiled data shows.

But actions by Hokuhoku’s top management are even more important, with Nakazawa and Deputy President Yuji Kanema both committed to pursuing synergies between the two lenders that were merged to form the company, said Sameshima. "Many regional banks face difficulties in realizing synergies after mergers but investors want to see them a lot sooner,” he said.

The lender was formed in 2004 through a merger between Hokuriku Bank, headquartered in Toyama, and Hokkaido Bank.

Nakazawa has been at Hokuriku Bank his whole career while Kanema is from Hokkaido Bank, and they are heads of those respective firms.

"Hokuhoku" refers to the first kanji character of both merged banks’ names, meaning "north" and which can be read as "hoku."

"Hokuhoku" is also a word used to describe warm and soft-textured food like roasted sweet potato that brings joy to the eater.

It was one of the first banks that consolidated regional lenders following a banking crisis in the late-1990s. It’s also an unusual combination in that there are about 800 kilometers between the headquarters of the two merged banks, whereas other regional lender tie-ups have tended to involve firms based in nearby areas.

Hokuriku Bank traces its history back to 1877, less than a decade after Japan started to open itself up to the world following the overthrow of Edo military government. Hokkaido Bank got its start in 1951, helping fund the island’s massive postwar economic recovery. Historically, the two areas were connected by shipping, with Hokkaido sending marine products and getting rice and other necessities in return.

Consolidating the two banks hasn’t always gone smoothly. That can be seen in the two’s market teams, which are now housed in the same floor in a building near the Bank of Japan’s headquarters in Tokyo.

But until a few years ago, the trading floors of the two lenders were separated by a wall, officials at Hokuhoku said. That was torn down but there’s still a glass divide between the two offices, though staff can move freely from one side to another, the officials said.

Nakazawa said it makes more sense to run market operations together, while the two banks can keep their respective client-facing businesses separate given historical local ties.

Hokuhoku’s securities portfolio stood at ¥2.3 trillion as of the end of June, one of the bigger holdings for a regional lender. Domestic bonds including JGBs made up ¥1.5 trillion of the total. The bank’s shift to shorter bonds means that it’s easier to keep the securities until they mature, helping it avoid realizing paper losses.

Nakazawa said he wants to hire more staff, even though there’s a premium for hiring experienced investment professionals — "competition is very fierce, it’s not so easy,” he said.