Financial Section

Financial Highlights

Financial Review

Earnings

In fiscal 2000, the Bank of the Ryukyus reported operating income of ¥5,566 million (US$44,929 thousand). This pleasing performance was the result of a number of factors, including a major decline in loan write-offs as the Bank virtually completed the disposal of non-performing loans accumulated during the bubble economy. Enhanced operating efficiency also benefited profits. Net income for the year amounted to ¥5,876 million (US$47,431 thousand), a record-high level. This signaled a return to profitability after four years of losses. During the period, the Bank wrote off or provided reserves for non-performing loans amounting to ¥6,155 million.

Owing to the improved earnings situation, the Bank plans to resume cash dividend payments, frozen since the fiscal 1998 interim period, in the latter half of fiscal 2001.

Financial position

On March 31, 2001 the Bank had total assets of ¥1,444.7 billion (US$11,660 million), up ¥37.0 billion from a year earlier. Total liabilities declined ¥8.0 billion to ¥1,366.2 billion (US$11,027 million). The capital ratio according to domestic standards was 8.98%.

Segment information

The Bank of the Ryukyus Group consists of the parent company, six consolidated subsidiaries — Ryugin Business Service Co., Ltd.; Ryugin Sogo Kanri Co., Ltd.; Ryugin Property Management Co., Ltd.; Ryugin Office Service Co., Ltd.; Ryugin Credit Guarantee Co., Ltd.; and Ryugin Diamond Credit Co., Ltd. — and two affiliated companies, Ryukyu Leasing Co., Ltd., and Ryukyu Computer Service Co., Ltd. Together, this group of companies provides a comprehensive array of high-quality financial services, including core banking operations, securities business, investment trust business, credit cards, and leasing cards.

In the banking account, total deposits at fiscal year-end amounted to ¥1,212.2 billion (US$9,783 million), up ¥49.8 billion from a year earlier. This gain stemmed from increases in both liquid and time deposits.

The balance of loans and bills discounted in the banking account rose ¥26.8 billion, to ¥1,031.7 billion (US$8,327 million). The increase was the result of active promotion of services, centering on consumer and housing loans, amid generally depressed demand for funds from corporations due to the prolonged economic recession. As a result, net income from banking services amounted to ¥5.1 billion (US$41.8 million), representing the first profit in four years.

Net income from credit card services was ¥349 million (US$2,822 thousand), and from credit guarantee services was ¥6 million (US$49 thousand). Net income from the handling of clerical work for the Bank came to ¥3 million (US$32 thousand).

Deposits

The Bank’s total balance of deposits at fiscal year-end stood at ¥1,210.3 billion (US$9,768 million), up ¥48.6 billion from a year earlier. Increases in both liquid and time deposits led to this increase. The balance of money in trust declined to ¥22.7 billion to ¥146.6 billion (US$1,183 million), as the attractiveness of the Bank’s products faded amid prolonged low interest rates. As a result, the combined total of deposits in the banking and trust accounts was ¥1,356.9 billion (US$10,951 million), up ¥25.8 billion.

Loans

In fiscal 2000, demand for funds among corporations declined due to the prolonged economic stagnation. For this reason, the Bank actively targeted retail customers with mortgage loans and consumer loans under public loan schemes. As a result, the balance of loans and bills discounted in the banking account rose ¥27.2 billion to ¥1,029.3 billion (US$8,308 million). On the other hand, the balance of loans in the trust account fell ¥19.4 billion to ¥96.4 billion (US$778.0 million). The combined total of loans and bills discounted in the banking and trust accounts stood at ¥1,125.7 billion (US$9,086 million), up ¥ 7,825 million.

Securities and foreign exchange

The year-end balance of securities was ¥166.6 billion (US$1,345 million), up ¥1.3 billion from a year earlier. Foreign exchange transactions for the year, however, fell US$4,646 million to US$12,279 million, due to a decline in foreign-currency deposits.

Streamlining operations

As of March 31, 2001 the Bank had a total of 1,414 employees, down 192 from a year earlier, and 69 branches, a decrease of two. To maintain and enhance convenience for customers, the Bank joined the e-Net scheme, which allows the Bank’s customers to use ATMs in convenience stores. As a result, our ATM/CD network has expanded to cover 1,526 locations nationwide, up from only 127 locations (at our own branches) at the end of fiscal 1999.

In addition to reducing staff, the Bank lowered bonus payments. However, non-personnel expenses remained largely unchanged for the year. We are seeking to cut costs and utilize managerial resources more effectively. For instance, we are making increased use of outsourcing, aiming to reduce systems-related costs, which are expected to become a growing burden in the future. In this way, during the year, the Bank reached a final agreement with six regional banks outside Okinawa Prefecture to jointly develop banking-dedicated computer systems. We plan to switch over to the new system in fiscal 2004.

Cash flows

Cash and cash equivalents at end of year amounted to ¥24,277 million (US$195,947 thousand), down ¥11,482 million. In the previous fiscal year, the Bank held large amounts of cash due to concern about a potential cancellation of deposits resulting from the posting of net loss. Such concern largely dissipated in fiscal 2000, prompting the Bank to reduce such holdings.

Net cash used in operating activities came to ¥7,489 million (US$195,947 thousand), down from ¥22,476 million in the previous year. This improvement stemmed from a major increase in funds procured through deposits, in addition to revenues from fund operations in the form of loans and call loans.

Net cash used in investing activities amounted to ¥4,048 million (US$22,677 thousand), down from ¥38,624 million. The improvement derived from a significant reduction in the purchase of securities, which outweighed declines in proceeds from the sale and redemption of securities.

Net cash used in financing activities amounted to ¥1 million (US$16 thousand), compared with ¥44,955 million in net cash provided by financing activities in fiscal 1999. This changed stemmed mainly from capital increase measures taken in the previous fiscal year, when the Bank received an injection of public funds valued at ¥40 billion and issued common stock worth ¥22,714 million.