Financial Results for 1st Half of FY
INDEX Ⅰ. Overviews of the Financial Results for the 1st Half Ended September 30, (Fiscal Year ) 1. Summary of Revenue and Expenses Consolidated 1 Non-consolidated 2 2. Profit Margins Non-consolidated 3 3. Business Profit Non-consolidated 4. ROE Non-consolidated 5. Gains (Losses) on Securities Transactions Non-consolidated 6. Investments and Funding Non-consolidated Consolidated 4 7. Unrealized Gains and Losses on Securities Non-consolidated Consolidated 5 8. Employees' Retirement Benefits Non-consolidated Consolidated 6 9. Capital Adequacy Ratio(under Japanese domestic standards ) Consolidated Non-consolidated 7 Ⅱ. Status of Loans, etc. 1. Risk Monitored Loans Non-consolidated Consolidated 8 2. Allowance for Loan Losses Non-consolidated Consolidated 9 3. Disclosed Claims under the Financial Reconstruction Law ("FRL Credit") Non-consolidated 10 4. Allowance and Coverage for FRL Credit Non-consolidated 5. Coverage for FRL Credit by Borrowers' Category Non-consolidated 11 6. Off-Balancing of FRL Credit Non-consolidated 12 7. Breakdown of Loans and Bills Discounted Classified by Industry Non-consolidated 14 1 Loans and Bills Discounted Classified by Industry 2 Risk Monitored Loans Classified by Industry 3 Consumer Loans 15 4 Loans to Small/Medium-sized Corporations 8. Debentures, Deposits and Loans Non-consolidated 9. Credits to Major Shareholder Groups Ⅲ. Uniform Questions for the Interim Period Ended September 30, 1. FRL Credit Ratio Non-consolidated Consolidated 16 2. Investment Stocks Non-consolidated 3. Loans to Small/Medium-sized corporations Non-consolidated 4. Sales of investment trusts and annuity insurance to retail customers Non-consolidated 5. Information related to the Earthquake Non-consolidated Ⅳ. Deferred Tax Assets 17 Ⅴ. Disclosure of exposure to securitized products 18
I. Overviews of the Financial Results for the 1st Half Ended September 30, (Fiscal Year ) 1.Summary of Revenue and Expenses Consolidated FY FY 2011 (A) (A)-(B) (B) Consolidated net revenue 1 1 42,832 3,301 39,531 Net interest income 2 23,619 402 23,217 Net fees and commissions 3 4,529 187 4,342 Net trading income 4 4,096 15 4,081 Net other ordinary income 5 10,586 2,696 7,890 General and administrative expenses 6 (19,195) 48 (19,243) Business profit 2 7 23,637 3,350 20,287 Credit-related expenses 8 (1,653) (4,212) 2,559 Write-off of loans 9 (1,052) (298) (754) Provision of specific allowance for loan losses 10 (11,364) (7,900) (3,464) Provision of general allowance for loan losses 11 12,997 6,206 6,791 Provision of allowance for loans to restructuring countries 12 - - - Loss on disposition of loans 13 (3,542) (3,355) (187) Recoveries of written-off claims 14 1,138 406 732 Provision of reserve for credit losses on off-balance-sheet instruments 15 170 727 (557) Gains (losses) on stock transactions 16 (393) (628) 235 Income from interests in associated undertakings 17 - - - Other 18 (1,600) 952 (2,552) Ordinary profit 19 19,989 (541) 20,530 Extraordinary income (loss) 20 (137) (98) (39) Income before income taxes and minority interests 21 19,851 (640) 20,491 income taxes-current 22 (383) (168) (215) Income taxes-deferred 23 1,398 (912) 2,310 Minority interests in income 24 (30) 1 (31) Net income 25 20,836 (1,718) 22,554 1 Consolidated net revenue = (Interest income - Interest expenses) + (Fees and commissions - Fees and commissions payments) + (Trading income - Trading expenses) + (Other ordinary income - Other ordinary expenses) 2 Business profit = Consolidated net revenue - General and administrative expenses 3 In the fourth quarter of FY2011, we changed the accounting items for gains/ losses (on disposal and valuation) on real estate-related securitization products (available-for-sale), which have been invested as alternatives to loans and no longer generate the contractual cash flows. If we reflect this change in accounting treatment on the first half of FY2011, net other ordinary income (5) increased 1,449 million yen, while loss on disposition of loans (13) increased by the same amount. (Note) The amounts are rounded down to the nearest JPY millions. (Scope of Consolidation and Equity-Method Application) (Number of companies) FY FY 2011 (A) (A)-(B) (B) Consolidated subsidiaries 13 1 12 Affiliated companies applying equity-method 0 0 0-1 -
Non-consolidated FY FY 2011 (A) (A)-(B) (B) Net revenue 1 40,385 3,186 37,199 (Excluding gains(losses) on bond transactions) 2 32,473 1,458 31,015 Net interest income 3 23,482 677 22,805 Net fees and commissions 4 4,470 187 4,283 Net trading income 5 3,399 (267) 3,666 Net other ordinary income 6 9,033 2,591 6,442 (Gains(losses) on bond transactions) 7 7,912 1,729 6,183 General and administrative expenses 8 (17,844) 326 (18,170) Personnel 9 (8,576) (127) (8,449) Property and equipment 10 (8,237) 582 (8,819) Taxes 11 (1,029) (127) (902) Business profit before general allowance for loan losses 12 22,541 3,513 19,028 Excluding gains (losses) on bond transactions 13 14,628 1,784 12,844 Credit-related expenses 14 (979) (3,965) 2,986 Write-off of loans 15 (712) 319 (1,031) Provision of specific allowance for loan losses 16 (11,215) (7,601) (3,614) Provision of general allowance for loan losses 17 13,080 6,309 6,771 Provision of allowance for loans to restructuring countries 18 - - - Loss on disposition of loans 19 (3,359) (4,103) 744 Recoveries of written-off claims 20 1,106 452 654 Provision of reserve for credit losses on off-balancesheet instruments 21 122 659 (537) Gains (losses) on stock transactions 22 (393) (681) 288 Other 23 (1,581) 485 (2,066) Ordinary profit 24 19,587 (649) 20,236 Extraordinary income (loss) 25 (135) (96) (39) Income before income taxes 26 19,451 (746) 20,197 Income taxes-current 27 (255) (289) 34 Income taxes-deferred 28 1,402 (972) 2,374 Net income 29 20,597 (2,009) 22,606 Business profit 30 22,541 4,051 18,490 1 In the fourth quarter of FY2011, we changed the accounting items for gains/ losses (on disposal and valuation) on real estate-related securitization products (available-for-sale), which have been invested as alternatives to loans and no longer generate the contractual cash flows. If we reflect this change in accounting treatment on the first half of FY2011, net other ordinary income (6) increased 1,449 million yen (of which, 1,449 million yen was an increase in gains (losses) on bond transactions (7)), while loss on disposition of loans (19) increased 1,449 million yen. (Note) The amounts are rounded down to the nearest JPY millions. - 2 -
2. Profit Margins Non-consolidated (Total) FY FY 2011 (A) (A)-(B) (B) (1)Yield on total investments (A) 1.60% (0.06%) 1.66% Yield on loans (B) 1.87% (0.04%) 1.91% Yield on securities 1.16% 0.15% 1.01% (2)Rate of funding cost(including general and administrative expenses) (C) 1.47% (0.09%) 1.56% Cost of debentures, deposits & certificates of deposit (including general and administrative expenses) (D) 1.68% (0.10%) 1.78% Yield on debentures, deposits & certificates of deposit (E) 0.54% (0.12%) 0.66% Yield on borrowings 0.19% 0.04% 0.15% (3)Profit margins (A)-(C) 0.13% 0.04% 0.09% (4)Loan margin (B)-(D) 0.19% 0.06% 0.13% (5)Yield spread (B)-(E) 1.33% 0.08% 1.25% (Note) The figures are calculated in the method specified in "Kessan Jokyohyo". (Domestic operations) FY FY 2011 (A) (A)-(B) (B) (1)Yield on total investments (A) 1.36% (0.10%) 1.46% Yield on loans (B) 1.73% (0.06%) 1.79% Yield on securities 0.82% 0.06% 0.76% (2)Rate of funding cost(including general and administrative expenses) (C) 1.46% (0.09%) 1.55% Cost of debentures, deposits & certificates of deposit (including general and administrative expenses) (D) 1.61% (0.11%) 1.72% Yield on debentures, deposits & certificates of deposit (E) 0.54% (0.12%) 0.66% Yield on borrowings 0.17% 0.02% 0.15% (3)Profit margins (A)-(C) (0.09%) (0.01%) (0.08%) (4)Loan margin (B)-(D) 0.11% 0.05% 0.06% (5)Yield spread (B)-(E) 1.18% 0.06% 1.12% (Note) The figures are calculated in the method specified in "Kessan Jokyohyo". 3. Business Profit Non-consolidated FY FY 2011 (A) (A)-(B) (B) Business profit before general allowance for loan losses 22,541 3,513 19,028 per employee (unit:jpy thousands) 15,077 2,417 12,660 If the reclassification, which is mentioned in Note 1 on page 2, is retroactively applied to the first half of FY2011, business profit before general allowance for loan losses would have been 20,477 million yen, 13,624 thousand yen per employee. 4. ROE Non-consolidated FY FY 2011 (A) (A)-(B) (B) Business profit before general allowance for loan losses basis 10.41% 0.85% 9.56% Net income basis 9.51% (1.84%) 11.35% (Net income - Dividends paid on preferred stock) 365 183 ROE= {(Total net assets at beginning of term - Number of preferred + (Total net assets at end of term - Number of preferred shares outstanding at the beginning of the term Issue price) shares outstanding at the end of the term Issue price)} If the reclassification, which is mentioned in Note 1 on page 2, is retroactively applied to the first half of FY2011, ROE based on business profit before general allowance for loan losses would have been 10.28%. 5. Gains(losses) on Securities Transactions Non-consolidated FY FY 2011 (A) (A)-(B) (B) Gains (losses) on bond transactions 7,912 1,729 6,183 Gain on sale 8,175 (668) 8,843 Gain on redemption - - - Loss on sale (89) 2,547 (2,636) Loss on redemption - - - Loss on devaluation (174) (151) (23) Gains (losses) on stock transactions (393) (681) 288 Gain on sale 69 (322) 391 Loss on sale (10) (10) - Loss on devaluation (452) (350) (102) If the reclassification, mentioned in Note 1 on page 2, is retroactively applied to the first half of FY2011, loss on sale of bonds was 1,186 million yen. - 3 -
6. Investments and Funding Non-consolidated (Total) FY 2011 (B) Average balance Yield Average balance Yield Average balance Yield Total investments 4,145,772 1.60% (23,698) (0.06%) 4,169,470 1.66% Due from banks 33,578 0.20% (5,484) 0.00% 39,062 0.20% Call loans 78,205 0.11% 7,903 0.00% 70,302 0.11% Receivables under securities borrowing transactions 195,600 0.09% 171,049 (0.01%) 24,551 0.10% Securities 1,331,563 1.16% 14,179 0.15% 1,317,384 1.01% Loans and bills discounted 2,475,196 1.90% (193,637) (0.02%) 2,668,833 1.92% Total funding 3,732,582 0.52% (94,603) (0.10%) 3,827,185 0.62% Deposits 2,699,707 0.54% (26,932) (0.12%) 2,726,639 0.66% Negotiable certificates of deposit 182,610 0.12% (32,850) (0.01%) 215,460 0.13% Debentures 204,397 0.81% (58,596) (0.24%) 262,993 1.05% Call money 104,461 0.16% (6,907) 0.02% 111,368 0.14% Payables under repurchase agreements - - (6,459) (0.26%) 6,459 0.26% Payables under securities lending transactions 337,103 0.26% 77,376 0.06% 259,727 0.20% Borrowed money 206,920 0.20% (31,929) 0.04% 238,849 0.16% Bonds payable - - (10,465) (1.77%) 10,465 1.77% (Domestic operations) FY 2011 (B) Average balance Yield Average balance Yield Average balance Yield Total investments 3,789,967 1.36% (82,819) (0.10%) 3,872,786 1.46% Due from banks 262 0.01% 121 0.00% 141 0.01% Call loans 78,114 0.11% 7,814 0.00% 70,300 0.11% Receivables under securities borrowing transactions 195,600 0.09% 171,049 (0.01%) 24,551 0.10% Securities 859,709 0.82% (70,663) 0.06% 930,372 0.76% Loans and bills discounted 2,144,815 1.77% (120,215) (0.05%) 2,265,030 1.82% Total funding 3,439,122 0.50% (142,304) (0.11%) 3,581,426 0.61% Deposits 2,690,265 0.54% (17,231) (0.13%) 2,707,496 0.67% Negotiable certificates of deposit 182,610 0.12% (32,850) (0.01%) 215,460 0.13% Debentures 204,397 0.81% (58,596) (0.24%) 262,993 1.05% Call money 90,655 0.12% (7,339) 0.00% 97,994 0.12% Payables under repurchase agreements - - - - - - Payables under securities lending transactions 71,166 0.10% 18,220 0.00% 52,946 0.10% Borrowed money 202,645 0.20% (36,204) 0.04% 238,849 0.16% Bonds payable - - (10,465) (1.77%) 10,465 1.77% Consolidated (Total) FY (A) FY (A) (A) - (B) (A) - (B) FY FY 2011 (A) (A) - (B) (B) Average balance Yield Average balance Yield Average balance Yield Total investments 4,131,632 1.61% (22,613) (0.07%) 4,154,245 1.68% Due from banks 42,481 0.21% (6,626) 0.01% 49,107 0.20% Call loans and bills bought 78,205 0.11% 7,903 0.00% 70,302 0.11% Receivables under securities borrowing transactions 195,600 0.09% 171,049 (0.01%) 24,551 0.10% Securities 1,294,389 1.20% 16,813 0.15% 1,277,576 1.05% Loans and bills discounted 2,465,275 1.92% (191,541) (0.04%) 2,656,816 1.96% Total funding 3,726,503 0.52% (92,245) (0.10%) 3,818,748 0.62% Deposits 2,692,166 0.55% (26,029) (0.11%) 2,718,195 0.66% Negotiable certificates of deposit 182,610 0.12% (32,850) (0.01%) 215,460 0.13% Debentures 204,397 0.81% (58,596) (0.24%) 262,993 1.05% Call money and bills sold 104,461 0.16% (6,907) 0.02% 111,368 0.14% Payables under repurchase agreements - - (6,459) (0.26%) 6,459 0.26% Payables under securities lending transactions 337,103 0.26% 77,376 0.06% 259,727 0.20% Borrowed money 208,381 0.21% (30,468) 0.05% 238,849 0.16% Bonds payable - - (10,465) (1.77%) 10,465 1.77% - 4 -
7. Unrealized Gains and Losses on Securities 1 Valuation standards Held-for-trading securities Held-to-maturity bonds Available-for-sale securities With fair value available Without fair value available Stocks in subsidiaries and affiliates Fair value Amortized cost Fair value (Unrealized gains (losses) recorded in net assets, net of taxes.) Acquisition cost Acquisition cost 2 Unrealized gains and losses Non-consolidated September 30, March 31, Unrealized gains and losses Unrealized gains and losses gains losses (A) (A)-(B) (B) Held-to-maturity bonds - - - - - - - Stocks in subsidiaries and affiliates - - - - - - - Available-for-sale securities 12,659 6,634 15,518 2,859 6,025 10,143 4,118 Japanese stocks 66 103 103 37 (37) 120 157 Japanese debt securities 6,202 498 7,024 821 5,704 6,349 645 Other 6,390 6,032 8,391 2,000 358 3,673 3,315 total 12,659 6,634 15,518 2,859 6,025 10,143 4,118 Japanese stocks 66 103 103 37 (37) 120 157 Japanese debt securities 6,202 498 7,024 821 5,704 6,349 645 Other 6,390 6,032 8,391 2,000 358 3,673 3,315 (Note) The gain or loss from revaluation of 'Securities' on the balance sheet is included in the table above. A portion of beneficial interests in investment trust within 'monetary claims bought' are marked to market, but the valuation loss of JPY 325 million(gain JPY 160 million, loss JPY 486 million) as of September 30, and the valuation loss of JPY 453 million(gain JPY 72 million, loss JPY 526 million) as of March 31, are not included in the table above Available-for-sale securities are marked-to-market, and above figures are difference between balance sheet amount and acquisition cost. Floating rate JGBs were valued on the basis of internal calculations pursuant to Practical Issues Task Force No. 25, Practical Solution on Measurement of Fair Value for Financial Assets issued by the Accounting Standards Board of Japan. gains losses Consolidated September 30, March 31, Unrealized gains and losses Unrealized gains and losses gains losses (A) (A)-(B) (B) Held-to-maturity bonds 0 (0) 0-0 0 - Available-for-sale securities 12,641 6,622 15,522 2,881 6,019 10,167 4,148 Japanese stocks 66 103 103 37 (37) 120 157 Japanese debt securities 6,193 492 7,027 834 5,701 6,355 653 Other 6,381 6,026 8,391 2,009 355 3,692 3,336 total 12,641 6,622 15,522 2,881 6,019 10,168 4,148 Japanese stocks 66 103 103 37 (37) 120 157 Japanese debt securities 6,193 492 7,027 834 5,701 6,355 653 Other 6,381 6,026 8,391 2,009 355 3,692 3,336 (Note) The gain or loss from revaluation of 'Securities' on the consolidated balance sheet is included in the table above. A portion of beneficial interests in investment trust within 'monetary claims bought' are marked to market, but the valuation loss of JPY 325 million(gain JPY 160 million, loss JPY 486 million) as of September 30, and the valuation loss of JPY 453 million(gain JPY 72 million, loss JPY 526 million) as of March 31, are not included in the table above Available-for-sale securities are marked-to-market, and above figures are difference consolidated between balance sheet amount and acquisition cost. Floating rate JGBs were valued on the basis of internal calculations pursuant to Practical Issues Task Force No. 25, Practical Solution on Measurement of Fair Value for Financial Assets issued by the Accounting Standards Board of Japan. gains losses - 5 -
8. Employees' Retirement Benefits 1 Provision for retirement benefits Non-consolidated September 30, March 31, (A) (A) - (B) (B) Retirement benefit obligations (A) (36,463) 2,924 (39,387) Pension assets (B) 27,285 62 27,223 Unfunded retirement benefit obligations (C)=(A)+(B) (9,177) 2,987 (12,164) Unrecognized net transition obligations (D) - - - Unrecognized actuarial loss (E) 812 (627) 1,439 Unrecognized prior service cost (F) (2,866) (2,866) - Net liability recognized (G)=(C)+(D)+(E)+(F) (11,231) (506) (10,725) Prepaid pension cost (H) - - - Provision for retirement benefits (G)-(H) (11,231) (506) (10,725) Consolidated September 30, March 31, (A) (A) - (B) (B) Retirement benefit obligations (A) (36,534) 2,921 (39,455) Pension assets (B) 27,285 62 27,223 Unfunded retirement benefit obligations (C)=(A)+(B) (9,249) 2,983 (12,232) Unrecognized net transition obligations (D) - - - Unrecognized actuarial loss (E) 812 (627) 1,439 Unrecognized prior service cost (F) (2,866) (2,866) - Net liability recognized (G)=(C)+(D)+(E)+(F) (11,303) (510) (10,793) Prepaid pension cost (H) - - - Provision for retirement benefits (G)-(H) (11,303) (510) (10,793) 2 Net periodic benefit costs Non-consolidated FY FY 2011 (A) (A) - (B) (B) Net periodic benefit costs 1,095 (76) 1,171 Service cost 569 (68) 637 Interest cost 355 (22) 377 Expected investment revenue (374) 52 (426) Charge off of prior service cost (81) 13 (94) Charge off of actuarial loss 626 (19) 645 Other - (31) 31 Consolidated FY FY 2011 (A) (A) - (B) (B) Net periodic benefit costs 1,099 (75) 1,174-6 -
9. Capital Adequacy Ratio (under Japanese domestic standards) Consolidated September 30, March 31, (A) (preliminary) September 30, 2011 (A) - (B) (A) - (C) (B) (C) (1) Capital adequacy ratio 19.18% 1.32% 1.11% 17.86% 18.07% Tier I ratio 20.44% 1.07% 1.07% 19.37% 19.37% (2) Tier I 607,657 20,359 29,535 587,298 578,122 (3) Tier II (qualifying as capital) 18,576 (367) (69) 18,943 18,645 (a) General allowance for loan losses 18,576 (367) (69) 18,943 18,645 (b) Subordinated debt - - - - - (a) + (b) 18,576 (367) (69) 18,943 18,645 (4) Deductions 56,115 (8,748) (1,396) 64,863 57,511 Amounts equivalent to funding of other financial institutions 15,037 (3,992) (4,063) 19,029 19,100 (5) Regulatory Capital (2)+(3)-(4) 570,118 28,739 30,862 541,379 539,256 (6) Risk-weighted assets 2,972,277 (58,674) (10,942) 3,030,951 2,983,219 Non-consolidated September 30, March 31, (A) (preliminary) September 30, 2011 (A) - (B) (A) - (C) (B) (C) (1) Capital adequacy ratio 19.22% 1.26% 0.98% 17.96% 18.24% Tier I ratio 20.37% 1.05% 1.03% 19.32% 19.34% (2) Tier I 606,766 20,598 27,952 586,168 578,814 (3) Tier II (qualifying as capital) 18,612 (344) (90) 18,956 18,702 (a) General allowance for loan losses 18,612 (344) (90) 18,956 18,702 (b) Subordinated debt - - - - - (a) + (b) 18,612 (344) (90) 18,956 18,702 (4) Deductions 52,828 (7,306) 1,176 60,134 51,652 Amounts equivalent to funding of other financial institutions 15,037 (3,992) (4,063) 19,029 19,100 (5) Regulatory Capital (2)+(3)-(4) 572,551 27,561 26,686 544,990 545,865 (6) Risk-weighted assets 2,978,066 (55,002) (14,307) 3,033,068 2,992,373. - 7 -
II. Status of Loans, etc. Aozora Bank, Ltd. 1. Risk Monitored Loans After partial and direct written-off Non-consolidated Risk Monitor ed Loans September 30, March 31, September 30, 2011 Loans to bankrupt companies 4,687 (1,697) (2,681) 6,384 7,368 Past due loans 74,829 9,838 22,709 64,991 52,120 Loans overdue for 3 months or more 363 52 363 311 - Restructured loans 19,519 (17,841) (12,855) 37,360 32,374 Total 99,400 (9,648) 7,537 109,048 91,863 Loan balance (end of period basis) 2,575,013 (109,167) (140,438) 2,684,180 2,715,451 Ratio to Loan balance Loans to bankrupt companies 0.2% (0.1%) (0.1%) 0.2% 0.3% Past due loans 2.9% 0.5% 1.0% 2.4% 1.9% Loans overdue for 3 months or more 0.0% 0.0% 0.0% 0.0% - Restructured loans 0.8% (0.6%) (0.4%) 1.4% 1.2% Total 3.9% (0.2%) 0.5% 4.1% 3.4% After partial and direct written-off Consolidated Risk Monitor ed Loans September 30, March 31, September 30, 2011 Loans to bankrupt companies 4,687 (1,697) (2,681) 6,384 7,368 Past due loans 77,256 11,436 23,582 65,820 53,674 Loans overdue for 3 months or more 363 52 363 311 - Restructured loans 19,519 (17,841) (12,855) 37,360 32,374 Total 101,826 (8,051) 8,409 109,877 93,417 Loan balance (end of period basis) 2,565,632 (106,523) (135,932) 2,672,155 2,701,564 Ratio to Loan balance Loans to bankrupt companies 0.2% (0.1%) (0.1%) 0.2% 0.3% Past due loans 3.0% 0.5% 1.0% 2.5% 2.0% Loans overdue for 3 months or more 0.0% 0.0% 0.0% 0.0% - Restructured loans 0.8% (0.6%) (0.4%) 1.4% 1.2% Total 4.0% (0.1%) 0.5% 4.1% 3.5% - 8 -
2. Allowance for Loan Losses After partial and direct written-off Non-consolidated September 30, March 31, September 30, 2011 Allowance for loan losses 67,982 (8,778) (25,415) 76,760 93,397 General allowance 42,006 (13,080) (21,098) 55,086 63,104 Specific allowance 25,976 4,302 (4,317) 21,674 30,293 Allowance for loans to restructuring countries - - - - - After partial and direct written-off Consolidated September 30, March 31, September 30, 2011 Allowance for loan losses 68,427 (8,576) (25,711) 77,003 94,138 General allowance 41,950 (13,008) (21,129) 54,958 63,079 Specific allowance 26,476 4,432 (4,582) 22,044 31,058 Allowance for loans to restructuring countries - - - - - - 9 -
3. Disclosed Claims under the Financial Reconstruction Law ("FRL Credit") After partial and direct written-off Non-consolidated September 30, March 31, September 30, 2011 Bankrupt and similar credit 5,154 (2,325) (2,215) 7,479 7,369 Doubtful credit 74,437 10,465 21,713 63,972 52,724 Special attention credit 19,883 (17,789) (12,491) 37,672 32,374 Total (a) 99,475 (9,649) 7,008 109,124 92,467 4. Allowance and Coverage for FRL Credit After partial and direct written-off Non-consolidated September 30, March 31, September 30, 2011 Allowance & Coverage (b) 90,578 (2,556) 9,024 93,134 81,554 Allowance for loan losses (c) Collateral / guarantee coverage (d) (Note) Allowance for loan losses (c) is the sum of specific allowance for loan losses and general allowance for loan losses for FRL Credit. 33,812 (2,495) (2,406) 36,307 36,218 56,765 (62) 11,429 56,827 45,336 Coverage Ratio (b)/(a) September 30, March 31, September 30, 2011 After partial and direct written-off 91.1% 5.8% 2.9% 85.3% 88.2% - 10 -
5. Coverage for FRL Credit by Borrowers' Category After partial and direct written-off Non-consolidated (Unit: JPY 100 millions) Borrower categories for self-assessment FRL Credit Loans other Allowance & Coverage Allowance Ratio Coverage Ratio Risk Monitored Loans Bankrupt borrowers De facto bankrupt borrowers Bankrupt and similar credit 52 Collateral / Guarantee coverage 52 100.0% 100.0% Loans to bankrupt companies 47 In Danger of Bankruptcy borrowers Doubtful credit 744 Collateral / Guarantee coverage 433 Allowance 258 82.9% 92.8% Past due loans 748 Need Attention borrowers Estimated collections 53 Collateral / Guarantee Special coverage attention credit 83 Allowance 199 80 69.1% 82.0% Estimated collections 36 Loans overdue for three months or more 4 Restructured loans 195 Normal borrowers (Normal credit) (25,144) FRL Credit, total 995 Collateral / Guarantee coverage 568 Allowance 338 FRL Credit Allowance Ratio FRL Credit Coverage Ratio Risk Monitored loans 79.2% 91.1% 994 Estimated collections 89 Total credit Total allowance 26,139 680 Allowance ratio = Allowance / (Credit-Collateral, Guarantees, etc.) Coverage ratio = (Collateral, Guarantees+Allowance) / Credit The reserve ratio for the non-secured potion of special attention credit : 68.2%. The reserve ratio for the need attention credit : 5.8%. The reserve ratio for the normal credit : 0.7%. (Note) The amounts are rounded to the nearest JPY 100 millions. - 11 -
6. Off-Balancing of FRL Credit Non-consolidated 1 Balance of doubtful credit and bankrupt and similar credit Newly added within: (Unit: JPY 100 millions) As of As of As of As of As of As of As of As of Mar. 31, 2009 Sep. 30, 2009 Mar. 31, 2010 Sep. 30, 2010 Mar. 31, 2011 Sep. 30, 2011 Mar. 31, increase (decrease) Sep. 30, -Mar. 31, 2009 Bankrupt and similar credit (B) (A)-(B) (A) 437 461 331 91 88 74 47-47 Doubtful credit 813 316 285 259 212 50 49 (8) 41 subtotal Apr. 1, 2009 Bankrupt and -Sep. 30, 2009 similar credit 1,250 777 616 351 300 124 96 (8) 88-0 12 11 17 - - - - Doubtful credit - 146 56 52 21 18 0 (0) - subtotal Oct. 1, 2009 Bankrupt and -Mar. 31, 2010 similar credit - 147 68 63 38 18 0 (0) - - - 75 70 14-0 4 4 Doubtful credit - - 539 457 416 225 149 (91) 58 subtotal Apr. 1, 2010 Bankrupt and -Sep. 30, 2010 similar credit - - 615 528 430 225 149 (86) 63 - - - 2 0 - - - - Doubtful credit - - - 45 44 44 9 (0) 9 subtotal Oct. 1, 2010 Bankrupt and -Mar. 31, 2011 similar credit - - - 47 45 44 9 (0) 9 - - - - 0 - - - - Doubtful credit - - - - 110 101 78 (7) 71 subtotal Apr. 1, 2011 Bankrupt and -Sep. 30, 2011 similar credit - - - - 111 101 78 (7) 71 - - - - - - 17 (17) - Doubtful credit - - - - - 90 51 (20) 31 subtotal Oct. 1, 2011 Bankrupt and -Mar. 31, similar credit - - - - - 90 67 (36) 31 - - - - - - 12 (11) 0 Doubtful credit - - - - - - 304 (24) 280 subtotal Apr. 1, Bankrupt and -Sep. 30, similar credit - - - - - - 315 (35) 280 - - - - - - - - - Doubtful credit - - - - - - - 255 255 subtotal - - - - - - - 255 255 (Note1) (Note2) The amounts are rounded to the nearest JPY 100 millions. Balance as of Sep. 30, includes those borrowers (JPY 4.7 billion) for whom measures are undertaken which will lead to eventual off-balancing. - 12 -
2 Off-balancing of problem loans (doubtful credit, and bankrupt and similar credit) (Unit: JPY 100 millions) Newly added within: -Mar. 31, 2009 Apr. 1, 2009 -Sep. 30, 2009 Oct. 1, 2009 -Mar. 31, 2010 Apr. 1, 2010 -Sep. 30, 2010 Oct. 1, 2010 -Mar. 31, 2011 Apr. 1, 2011 -Sep. 30, 2011 Oct. 1, 2011 -Mar. 31, Liquidation-type disposition - - - - - - - Restructuring-type disposition 1 - - - - 4 - Loan liquidations 5-24 - - 32 - Direct written-off (3) - 42 0 2 (14) (1) Other 5 0 21 0 5 15 37 Total 8 0 86 0 7 36 35 (Note1) The amounts are rounded to the nearest JPY 100 millions. (Note2) Liquidation-type disposition : debt waiver in event of bankruptcy or special liquidation Restructuring-type disposition : debt waiver in event of restructuring-type proceedings, such as corporate reorganization, civil rehabilitation, composition and winding-up; or debt forgiveness Other : collection by disposition of collateral, business improvement of debtor, etc. (Note3) If legal proceedings such as debt waiver, forgiveness, collection and so on, occur after direct written-off of book cost, relevant amounts are reentered in "Liquidation-type disposition", "Restructuring-type disposition" or "Other" where appropriate and subtracted from "Direct written-off". - 13 -
7. Breakdown of Loans and Bills Discounted Classified by Industry Non-consolidated After partial and direct writte-offs of loans 1 Loans and Bills Discounted Classified by Industry September 30, March 31, September 30, 2011 Loans by domestic offices (excluding Japan Offshore Market accounts) 2,574,769 2,683,915 2,715,154 Manufacturing 264,089 272,886 292,619 Agriculture, forestry & fisheries 2,886 3,380 5,075 Mining, quarry, gravel extraction 2,773 3,112 3,318 Construction 36,943 43,591 38,029 Electricity, gas, heat supply & water 5,825 6,244 6,899 Information & communications 53,750 45,058 44,863 Transport, postal Service 142,681 152,507 165,093 Whole sale & retail trade 110,372 132,840 130,586 Finance & insurance 442,607 414,663 423,833 Real estate 828,126 891,416 884,490 Leasing 61,183 61,291 74,800 Various Services 170,732 172,129 170,805 Local governments 72,650 64,042 66,314 Others 380,147 420,750 408,424 Loans by oversea offices (including Japan Offshore Market accounts) 244 265 297 Government - - - Financial institution - - - Others 244 265 297 Total 2,575,013 2,684,180 2,715,451 2 Risk Monitored Loans Classified by Industry September 30, March 31, September 30, 2011 Loans by domestic offices (excluding Japan Offshore Market accounts) 99,155 108,783 91,566 Manufacturing 12,375 12,936 1,428 Agriculture, forestry & fisheries - - - Mining, quarry, gravel extraction - - - Construction 188 462 225 Electricity, gas, heat supply & water - - - Information & communications 107 36 - Transport, postal Service 936 658 438 Whole sale & retail trade 1,830 1,177 978 Finance & insurance 22,436 31,252 33,982 Real estate 25,356 18,707 14,876 Leasing 891 938 - Various Services 2,108 2,377 2,416 Local governments - - - Others 32,925 40,236 37,220 Loans by oversea offices (including Japan Offshore Market accounts) 244 265 297 Government - - - Financial institution - - - Others 244 265 297 Total 99,400 109,048 91,863-14 -
3 Consumer Loans September 30, March 31, September 30, 2011 Consumer loans 6,751 (602) (1,238) 7,353 7,989 Housing loans 6,412 (529) (1,075) 6,941 7,487 Other loans 339 (72) (163) 411 502 4 Loans to Small/Medium-sized corporations September 30, March 31, September 30, 2011 Loans to small/medium-sized corporations 1,694,495 (45,292) (33,018) 1,739,787 1,727,513 Ratio to total loans 65.8% 1.0% 2.2% 64.8% 63.6% 8. Debentures, Deposits and Loans Non-consolidated September 30, March 31, September 30, 2011 Debentures Deposits Deposits & Certificates of deposits Loans and bills discounted Ending balance Ending balance Ending balance Ending balance 184,509 2,735,653 2,955,460 2,575,013 (38,635) 8,053 18,070 (109,167) (83,073) (47,440) (6,443) (140,438) 223,144 2,727,600 2,937,390 2,684,180 267,582 2,783,093 2,961,903 2,715,451 Average balance Average balance Average balance Average balance 204,397 2,699,707 2,882,318 2,475,196 (50,307) (35,640) (58,088) (172,372) (58,596) (26,932) (59,781) (193,637) 254,704 2,735,347 2,940,406 2,647,568 262,993 2,726,639 2,942,099 2,668,833 9. Credits to Major Shareholder Groups September 30, March 31, September 30, 2011 Cerberus Group number 1 (1) (1) 2 2 Credit balance 3,880 (829) (1,102) 4,709 4,982 (Note1) (Note2) Figures for credit balance refer to credits extended by Aozora Bank, its subsidiaries and affiliated companies. Major Shareholder Groups refer to principal shareholders (i.e. those with over 10% of shareholder voting rights of the Bank) and its subsidiaries as well as affiliated companies. (Note3) Credit balance consists of loans, acceptances and guarantees, equity holdings/interest and derivative transactions. - 15 -
Ⅲ. Uniform Questions for the Interim Period Ended September 30, 1.FRL Credit Ratio Aozora Bank, Ltd. Mar. 31, 2007 Sept. 30, 2007 Mar. 31, 2008 Sept. 30, 2008 Mar.31, 2009 Sept. 30, 2009 Non-consolidated 0.96% 1.05% 0.99% 2.47% 4.33% 3.53% Consolidated 1.04% 1.12% 0.98% 2.42% 4.82% 4.04% Mar. 31, 2010 Sept. 30, 2010 Mar. 31, 2011 Sept. 30, 2011 Mar. 31, Sept. 30, Non-consolidated 5.52% 4.92% 4.59% 3.34% 3.99% 3.80% Consolidated 5.68% 5.17% 4.73% 3.41% 4.05% 3.91% 2. Investment Stocks Non-consolidated (1) Investment Stocks (Unit: JPY 100 millions) Acquisition cost(a) Market value(b) (B)-(A) September 30, 2011 379 377 (2) March 31, 386 385 (0) September 30, 383 384 1 (Note) The amounts are rounded to the nearest JPY 100 millions. The same applies in the following tables. (2) Sales of cross-holding stocks None (3) Impairment of stocks (Unit: JPY 100 millions) Gains (losses) on stock transactions Impairment loss 1st Half of FY 2011 3 (1) FY 2011 (0) (4) 1st Half of FY (4) (5) 3.Loans to Small/Medium-sized corporations Non-consolidated Loan Balance Balance (Unit: JPY 100 millions) Increase/Decrea ratio to total loans se September 30, 2011 17,275 (1.4%) 63.6% March 31, 17,398 0.7% 64.8% September 30, 16,945 (2.6%) 65.8% 4. Sales of investment trusts and annuity insurance to retail customers Non-consolidated a.investment trusuts (Unit: JPY 100 millions) FY 2010 236 1st Half of FY 2011 160 FY 2011 244 1st Half of FY 89 b.annuity insurance (Unit: JPY 100 millions) FY 2010 110 1st Half of FY 2011 112 FY 2011 305 1st Half of FY 146 5.Information related to the Earthquake Non-consolidated (Unit: JPY 100 millions) September 30, Increase/Decrease Loans to corporations in Miyagi, Iwate, Fukushima 127 (2.4%) - 16 -
IV. Deferred Tax Assets 1. Judgement for Realizability of Deferred Tax Asset and Estimation Period of Future Taxable Income Since FY2007, ending March 2008, we have categorized the Bank under the 'proviso of Category No.4 of the judgment guidelines on the realizability of deferred tax assets' (*) and have calculated deferred tax assets based on the estimation of future taxable income for the next 3 years. The tax-loss carryforwards as of September 30, were mainly attributed to the past non-recurring events shown below. - Acceleration of the disposal of non-performing loans under the Financial Revitalization Program - Significant addressing of overseas investments that deteriorated as a result of the turbulence in global financial markets stemming from the subprime loan crisis in the USA (*) 'The audit treatment with respect to the judgment for the realizability of deferred tax assets' (JICPA Audit Committee Report #66) 2. Past Business Performance (Unit: JPY 100 millions) FY 2009 FY 2010 FY 2011 Business Profit before General Loan-loss Reserve 335 354 425 (Reference) Business Revitalization Plan 262 315 360 Income before Income Taxes 62 286 394 (Reference) Business Revitalization Plan 25 175 210 Taxable income (before offsetting of tax loss carryforwards) 80 56 139 Taxable Income before Adjustment 347 472 361 3. Estimated Future Taxable Income (Unit: JPY 100 millions) next 3 years Basis for Estimation Business Profit before General Loan-loss Reserve 1,485 Income before Income Taxes 1,282 Estimated Taxable Income before Adjustment 1,466 4. Temporary Differences and Loss Carryforwards (Unit: JPY 100 millions) Deferred Tax Assets 548 Allowance for loan losses 390 Provision for employees' retirement benefits 41 Securities write-off 335 Unrealized gain on available-for-sale securities - Tax loss carryforwards 329 Other 174 Subtotal 1,270 Less valuation allowance (721) Deferred tax liabilities 55 Unrealized gain on available-for-sale securities 46 Net deferred tax assets 493 note) Deferred tax assets/ liabilities are shown on a non-consolidated basis, as those of consolidated subsidiaries are insignificant. - 17 -
V. Disclosure of exposure to securitized products Aozora Bank,Ltd. 1. CDO, CMBS and RMBS Exposure Exposure of the Group to CDO (Collateralized Debt Obligation), CMBS (Commercial Mortgage-Backed Securities) and RMBS (Residential Mortgage-Backed Securities) is as follows: (Unit: 100 million JPY) /6 /9 CDO 2 2 North America 2 2 CMBS 118 97 Japan 98 78 Asia 20 19 RMBS 18 16 Japan 18 16 2. Leveraged Finance The exposure of the Group to leveraged finance is as follows: The following amount is the aggregated amount of loan balance rendered for M&A finance (including refinance for M&A deals in the past). It excludes loans that are in investment grade or equivalent ratings. (Unit: 100 million JPY) /6 /9 Loan balance 1,954 1,867 Commitment line 81 56 (Unfunded) Total leveraged finance 2,035 1,923 Geographical distribution Total leveraged finance (Unit: 100 million JPY) /6 /9 North America 629 548 Europe 337 290 Asia 17 16 Japan 967 986 Oceania 84 83 Total 2,035 1,923 (Note) The figures stated in 100 million yen are rounded to the nearest 100 million yen. -18-