To Our Shareholders

The following is a summary of the overall situation and performance of the Bank over the first half of fiscal 2002 (April 1 to September 30, 2002).

Business Environment

During these six months under review, the Japanese economic situation remained severe. Despite some trends toward recovery, with increased exports to other East Asian countries and an apparent bottoming out of capital investments, the unemployment rate stayed high and stock prices remained soft.

The recovery of the economic situation in Okinawa became weaker toward the end of the first half of the fiscal year, as the construction industry suffered from a lower number of orders. Consumer spending remained firm and the tourist industry seemed to be picking up after it was harshly affected by the terrorist attacks on the U.S. in September 2001, but these bright spots proved to be insufficient for overall recovery.

Consumer spending was steady, mainly thanks to new car sales and supermarket sales. The Bank provided financial support to the tourism sector, which was suffering from low profits after having to offer discounted package tours to lure tourists back to the prefecture. The construction industry experienced shrinkage of the market due to a decline in sales of construction materials as well as a falloff in public works and housing construction projects.

The six months saw a decline in corporate bankruptcies and total liabilities, but the unemployment rate rose once again and consumer prices fell below the previous year’s level. Against the background of a prolonged economic recession, there was a slight growth in both deposit and loan amounts in the financial sector.

Interim Performance and Full-Term Forecast (Consolidated)

For the first six months of fiscal 2002, the Bank registered  net income of ￥3,188 million (US$26 million). The Bank also distributed dividends per share of ￥25 (US$0.20), a ￥5 increase over the term-end dividend for fiscal 2001.

For the full term ending March 2003, we are expecting to register operating income of￥10,400 million and net income of ￥8 billion.

Interim Management Strategy

Amid this financial and economic environment, the Bank inaugurated a new medium-term management plan called “Speed 2002.” Through this policy, with the ultimate objective of securing a stable earnings foundation, we have pursued three vital measures including the promotion of small loans, appropriate pricing and enhanced asset management.

To promote small loans, we strengthened sales of financial products such as the unsecured consumer loan Revolution 15 and the Omatome Loan, a package loan with the aim of replacing comprising multiple loans offered by other financial institutions. We also improved the quality of our mortgage loans by attaching cancer insurance riders and extending repayment periods. In September 2002, we added to our business loan products by offering, in cooperation with the Okinawa Prefecture Credit Guarantee Association, a long-term loan called Business Express Hurry! to small and medium-sized businesses. Applications for this unsecured loan are processed quickly and it does not require a third-party guarantor.

To offer appropriate pricing, we have adopted a policy of adjusting the interest rates on each loan product to reflect its potential risk and raising service fees to more precisely match costs. Steady progress was made on raising fees to borrowers who had previously been allowed reduced fee payments.

To enhance our asset management, we minimize the likelihood of new bad debts by providing a thorough, detailed level of support to borrowers, and we are improving our borrower classification portfolio and reducing the instance of non-performing loans subject to mandatory disclosure by assisting customers grappling with various management issues to enhance their overall financial position. From September 2002, with the aim of assisting corporate customers, including sole proprietorships, to enhance their financial positions, we established a financial advisory service using our own financial analysis materials.

After downgrading one of our branches into a sub-branch during the six-month term under review, we had a total of 58 branches (including the Head Office marketing department), and 10 sub-branches, at the end of September 2002.

In an effort to both reduce costs and make more effective use of our management resources, the Bank has joined a core computer system development project created by a group of regional banks outside of Okinawa including Hachijuni Bank, Yamagata Bank, Kanto Bank, Awa Bank, Shinwa Bank, Miyazaki Bank, and Musashino Bank.

Issues and Tasks

The operating environment for banks is entering an era of unprecedented change, with new issues facing the financial sector. These include renewed concern over the stability of Japan’s financial system, declining business fund demand, and intensifying competition with new business entities belonging to other industrial sectors. The business environment is also projected to remain severe due to factors such as the continued downward trends in land and share prices and a sluggish economy.

Aware that the issue of primary importance to the Bank is enhancing our asset soundness, we are putting more energy than ever before into promoting the improvement of our loan assets, preventing the occurrence of new non-performing loans, and properly managing our existing bad debts.

In an effort to firmly cement our reputation for trustworthiness and to promptly provide customers with the financial products they need whenever they are needed, we will make every effort to enhance customer convenience in providing new products and services. We will also create a low-cost management structure in order to reduce expenses and ensure more efficient operations.

The staff of the Bank will continue to work to respond to customers’ needs in a prompt and reliable manner, and build a bank that is strong enough to withstand future change and is an essential presence in Okinawa for the vital role it plays in the regional economy and society.

We look forward to the continued support of our shareholders and all other stakeholders.

November 2002

Isao Oshiro

President