The Year in Review

Overview of the Group’s Business Performance

During the reporting term, the Kiyo Financial Group made efforts to reorganize its marketing capabilities and cut costs through investment in new computer systems. We focused on increasing loans to and deposits from small and medium-sized enterprises (SMEs) as well as expanding income from fees and commissions.
    In line with our policy of strengthening our relationships with our customers by providing more points of contact, we opened the Shin-Osaka Branch in Osaka Prefecture, which is dedicated to corporate loan operations, as well as three Heartful Plazas, which are dedicated to personal banking services, the Kita-Noda branch in Osaka Prefecture, the Takamatsu-Chuo branch and the Hashimoto-Ayanodai branch in Wakayama Prefecture. We also opened a consulting desk under the name of the Kiyo Oshiro-no-Mae Consulting Bureau and increased the number of employees in our marketing units. All these measures were part of our plans for expansion of opportunities for face-to-face interaction with our customers and the development and launching of new financial products and services.
    As a result, the term-end balances of business loans to SMEs and mortgage loans recorded increases over the previous term-end figures, and the Group, on a consolidated basis, recorded a steady increase in interest income. Despite a worsening of business confidence in the region, credit costs improved thanks to the improvement of the Bank’s credit loan portfolio. As a result, the ratio of bad debt under the Financial Reconstruction Law recorded a decline. In this way, the performance of the Bank’s core banking operations was generally favorable, but a loss was nonetheless posted on securities holdings due to the weakness of capital markets worldwide.
    As a result of the foregoing, the Kiyo Financial Group’s total income amounted to ¥92.9 billion, total expenses ¥96.7 billion, loss before income taxes and minority interests ¥3.8 billion and net income ¥1.4 billion.
    However, a reversal of loan-loss reserves was recognized thanks to the success of our efforts to turn around ailing businesses and the improvement of the Bank’s credit portfolio. This resulted in a net income of ¥1.4 billion on a consolidated basis.
    Regarding the Company’s business performance on a nonconsolidated basis, Kiyo Holdings recorded operating income (primarily dividends received from the subsidiary bank) of ¥3.6 billion, ordinary profit of ¥3.1 billion and net income of ¥3.1 billion.

Deposits and Assets under Custody

We developed and marketed new deposit products to meet diversifying customer needs and assets-under-custody products with more attractive features. Thanks to these measures, as well as investment in additional marketing staff and new branches dedicated to personal banking services, we recorded an increase in deposits from individuals and firm sales of individual pension insurance products.

Deposits
The balance of deposits as of March 31, 2009 was ¥3,214.0 billion, representing a decrease of ¥28.1 billion from the previous term-end. Of this, however, personal deposits accounted for ¥2,448.3 billion for a year-on-year increase of ¥5.4 billion.

Assets under Custody
Sales of pension insurance products held firm thanks to the marketing of new products that met customers’ diversifying needs. The balance of assets-under-custody as a whole, however, posted a year-on-year decrease of ¥7.1 billion to ¥375.0 billion, owing to the weakness of the financial markets.

Loans

Measures to strengthen the Bank’s marketing system and increase the number of marketing staff, as well as the opening of new branches dedicated to corporate banking services, led to improved relationships with local customers. As a result, corporate loans grew at a favorable pace, centered on loans to small and medium-sized enterprises. In addition, personal loans, principally mortgage loans, also increased as anticipated. The term-end balance of loans and bills discounted posted a year-on-year increase of ¥113.1 billion.

Loan Balance

Personal Loans

Capital Ratio

As of March 31, 2009, the regulatory capital of Kiyo Holdings stood at ¥194.0 billion on a consolidated basis, representing an increase of ¥15.6 billion over the previous term-end. Due to aggressive efforts to meet the fund procurement needs of SMEs, the Company’s risk-weighted assets increased by ¥95.7 billion over the previous term-end. As a result, the capital ratio of Kiyo Holdings (in line with the standards for the holding companies of regional banks operating only in Japan) stood at 10.96% at term-end, increase of 0.31 percentage points over the previous term-end.
    The capital ratio of Kiyo Bank on a nonconsolidated basis (in line with the standards for regional banks operating only in Japan) stood at 10.43%, increase of 0.35 percentage points over the previous term-end.

Nonperforming Loans (Loans Disclosed under the Financial Reconstruction Law)

Thanks to the Bank’s efforts to upgrade borrower classifications through support for business reconstruction and management improvement at customer corporations, as well as measures for the final disposal of nonperforming loans to bring down the NPL Ratio, we succeeded in reaching our target for the NPL ratio for March 31, 2009 under the 1st medium-term management plan of below the 4% line, at 3.96%. The balance of nonperforming loans posted a year-on-year decrease of ¥21.8 billion to ¥96.1 billion.

Coverage of Nonperforming Loans
Out of total nonperforming loans of ¥96.1 billion, the percentage covered by means such as collateral and reserves for possible loan losses was 91.4%.