Review of Operations (non-consolidated)

◆ Deposits -- steady increase in deposits for individuals and corporations

The term-end balance of deposits and trust accounts stood at 1,388.4 billion, up ￥35.2. Despite a decline in deposits from local governments, deposits from individuals increased, thanks to the popularity of our time deposit products with lottery tickets, and deposits from corporations also grew.

The term-end loan balance declined ￥12.3 billion year-on-year, to stand at ￥1,117.3 billion. This is attributable to sluggish corporate demand for funds and the securitization of mortgage loans. Taking into account a ￥26.3 billion decline because of securitization, the term-end balance of loans would have totaled ￥1,143.7 billion, marking a ￥14.0 billion increase during the term under review. Mortgage loans are the driving force.

◆ Loans to Individuals -- increased as projected

The balance of loans to individuals declined ￥5 billion from the previous term-end, to ￥369.7 billion. Despite strong sales of mortgage loans with cancer insurance riders, the balance of loans to individuals declined as a result of securitization of mortgage loans. If the impact of securitization were excluded, the term-end balance for mortgage loans would be ￥331.7 billion, up ￥22.1 billion, while the term-end balance for loans to individuals would be ￥396.1 billion, up ￥21.3 billion. Thus, both loan balances showed steady increases.

◆ Assets in Custody -- showed a dramatic increase

The balance of assets in custody (investment trusts, pension insurance, and Japanese government bonds designed for individuals) stood at ￥103.8 billion at term-end, up ￥49.4 billion from the previous term-end. This increase is primarily the result of offering products tailored to the needs of our customers.

◆ Business Profit on Core Banking Operations

Business profit on core banking operations is the most prominent profit indicator for banks in Japan. It represents net business profit (the total sum of profits on ordinary banking operations including deposits, loans and foreign exchange, as well as securities operations), after eliminating one-time factors. In the banking industry, this indicator is commonly used as a profit indicator where other industries employ operating income. Despite a decline in interest income as a result of a decrease in interest on loans, the Bank’s business profit on core banking operations on a non-consolidated basis for the term under review amounted to ￥16,824 billion, up ￥2,450 billion, marking a record high for the fourth consecutive term. This increase is partly attributable to posting a gain on the sale of mortgage loans through securitization and an increase in intereset income on securities.

◆ Operating Income and Net Income -- highest net income

Operating income increased ￥1,053 billion to ￥8,069 billion, the second-highest operating income in the Bank’s history, mainly due to an improved performance in equity share trading. Net income rose ￥1,525 billion to ￥5,846 billion, marking a record high net income.

◆ Enhanced Business Efficiency

Personnel expenses declined ￥59 million from the previous term as a result of a decrease in the number of Bank employees. Non-personnel expenses also fell ￥256 million from the previous term due to a reduction in outsourcing expenses for computer operations. Taxes rose ￥278 million over the previous fiscal year's level following the imposition of a new revenue-based taxation system, effective from the reporting fiscal year. Total expenses declined ￥36 million, to ￥19,884 billion, marking a steady improvement in business efficiency.

◆ Capital Ratio

Capital ratio is one of the chief indicators designed to show the adequacy and soundness of the asset portfolio of a bank. The minimum requirement for this ratio (the domestic standard is applied) is 4% for banks operating domestically, as in the case of the Bank of the Ryukyus, and 8% for banks also operating overseas. As of March 31, 2005, the Bank had secured a capital ratio on a non-consolidated basis of 10.96% according to the domestic standard, which is more than twice the minimum requirement.

◆ Credit Rating -- acquired A- rating

Credit ratings are awarded by credit rating agencies, as impartial third parties, on the occasion of the issuance of bonds and other investment instruments, to determine the likelihood of repayment of principal and interest.

The Japan Credit Rating Agency, Japan’s leading credit rating agency, gave the Bank of the Ryukyus an “A-“ rating (a single A minus) for a long-term debenture. This is the seventh-highest rating out of a total of 20.

◆ NPL Amounts Reduced and Bad Debt Ratio Dramatically Improved

Bad debt (claims subject to mandatory disclosure under the Financial Reconstruction Law) declined ￥23.1 billion during the reporting term to ￥85.6 billion. The bad debt ratio (ratio of bad debts to total claims) also declined by a substantial 1.92 percentage points from the previous term-end to stand at 7.49%. We bolstered our support function for corporate clients undergoing management reform through a structural reorganization, in which the management reform support team was reinvented as the Corporate Rehabilitation Support Department. We implemented other measures to help debtors improve their borrower category ratings.