Review of Operations (non-consolidated)

◆ Deposits -- Increase in liquid deposits pushes up total deposit balance

The term-end balance of deposits came to ￥1,397.2 billion, for an increase of ￥35.3 billion over the previous term-end, largely as a result of growth in liquid deposits made by individuals and businesses corporations. The total of deposits and assets in custody rose￥88.3 billion year-on-year, to￥1,603.0 billion.

The term-end loan balance showed an increase of ￥69 billion to  ￥1,119.5 billion thanks to growth in loans both to business corporations and to individuals, particularly mortgage loans for the purchase/construction of housing both for personal use and for renting out (small-scale apartment buildings).

◆ Loans to Individuals -- Growth powered by mortgage loans

The term-end balance of loans to individuals rose ￥7.4 billion over the previous term–end, to ￥337.8 billion, as a result of an increase in the total value of mortgage loans made during the term, in addition to the non-repetition of the declines in the loan balance resulting from the large-scale securitization of mortgage loans in fiscal 2004-5.

◆ Assets in custody --
　 Growth powered by expansion of product lineup to meet customers’ real needs

The term-end balance of assets in custody (investment trusts, government bonds, and pension insurance) grew by ￥53.0 billion year-on-year to ￥205.8 billion (principally through growth in investment trusts and government bonds), thanks to our launch of new products specifically designed to meet customers’diversifying and ever more sophisticated asset investment needs.

◆ Business profit on core banking operations --
　 profit declines due to lower interest margin

Business profit on core banking operations (see note) is a key indicator of profitability. It represents net business profit (the total sum of profits on ordinary banking operations including deposits, loans, and foreign exchange), while eliminating the impact of one-time factors. It is roughly equivalent to the operating income of companies outside the banking sector. Despite an increase in yield on investments in securities, the Bank’s business profit on core banking operations for the term under review declined by ￥6.2 billion year-on-year, to ￥11.0 billion, largely as a result of the non-repetition of the one-time gains posted in the previous term from the securitization of mortgage loans.

◆ Operating income and net income --
　  Improvement posted thanks to sharp drop in disposal of nonperforming loans

As a result of a large decline in the value of nonperforming loan disposals, operating income increased by  ￥6.3 billion over the previous term’s figure, to ￥7.9 billion.
Net income rose by ￥4.5 billion year-on-year to ￥5.8 billion, for the second-highest level in the Bank’s history.

◆ Unsecured loans to businesses --
　 Decline resulting from reassessment of loan product profitability

Despite the fact that the sale of a new loan product (called “Smooth Sailing”) offered in collaboration with the Okinawa Prefecture Credit Guarantee Association got off to a good start, the term-end balance of unsecured loan products for businesses (i.e. those requiring neither collateral nor third-party guarantees) declined by ￥400 million from the previous term-end, to ￥10.4 billion. This is largely attributable to disappointing sales of our Best Supporter loan package to help SMEs and sole proprietorships diversify into new business lines, as well as the application of stricter credit screening standards to certain other loan products that were proving unprofitable.

◆ Capital ratio -- Great majority of public fund infusion already repaid

A bank’s capital ratio is one of the chief indicators of the safe nature of its management and the soundness of its assets. It indicates the extent to which a bank’s profits and capital are adequate to cover possible losses on its loans and similar assets. The minimum domestic standard (for banks operating solely in Japan) is 4%, and the minimum standard for banks also operating overseas is 8%.
As of March 31, 2007, the Bank’s capital ratio had declined by 1.52 percentage points to 9.40% as a result of the repayment during the reporting term of a portion of the public funds previously borrowed, in addition to the increase in its risk-weighted assets in line with the new BIS standards, commonly known as Basel II. If calculated under the previous BIS standards, the Bank’s capital ratio would have been 10.04%.

◆ Credit rating -- Bank once again receives A- rating (single A-minus) from JCRA

Credit ratings (issued by impartial credit rating agencies) with respect to companies that have issued bonds and other investment instruments represent judgments as to the probable ability of the company to repay the principal of, and pay the interest accruing to, such investment instruments. Japan Credit Rating Agency (JCRA), Japan’s leading credit rating agency, awarded the Bank an A- rating (single-A minus), for its long-term debentures. This is the seventh-highest rating out of a total of twenty.

◆ Bad debt disclosure -- NPL amount, bad debt ratio both improve

Thanks to steady efforts to help debtors improve their management and a significant reduction in total nonperforming loans through the utilization of corporate rehabilitation funds, bad debt (claims subject to disclosure under the Financial Reconstruction Law) at term-end declined by ￥34.7 billion from the previous term-end, to ￥47.8 billion. As a result, the bad debt ratio (ratio of bad debt to total claims) decreased by 3.49 percentage points from the previous term-end, to 4.21%.

◆ Business performance forecasts for FY2007 --
　 Net income of ￥5.0 billion projected

The Bank forecasts net income of ￥5.0 billion for the fiscal 2007 business term, down ￥0.8 billion from the previous term, as a result of increased expenses caused by forward-looking investment for the purpose of building a stronger earnings base over the medium-to-long term.

◆ Expenses -- Expenses stay flat from previous year

An increase in nonpersonnel expenses, including the cost of joint development of core computer systems for banks, was offset by decreases in personnel expenses and tax payments: as a result, total expenses were at approximately the same level as in the previous business term, at  ￥20.3 billion.