Message from the President

Working to become a fully trusted financial group by providing finely
tailored services to our customers in the region

Looking back over the six months since the merger
Following the legal merger of The Kiyo Bank, Ltd. and The Wakayama Bank, Ltd. into the new Kiyo Bank, the full and successful business integration of the two banks resulted from the swift integration of their computer systems and the streamlining of the branch network.
    I think most financial organizations that have integrated in the past took time to integrate their computer systems and streamline their branch networks after completing their legal mergers. In recent years, however, the business environment in which financial organizations operate has changed dramatically. In view of this, we believed that we needed to quickly establish the operating structure of the new Kiyo Bank and create a robust organization that would adapt to change and beat off the competition.
    On the other hand, a financial organization that has a duty to serve the public cannot prioritize a merger to the extent that it inconveniences its customers. Therefore, in our preparations for the merger, we constantly kept in mind the need to minimize the burden on our customers.
    Especially when it came to the integration of our computer systems, a single problem could affect all our customers, and we had to be extremely careful in our preparations. The fact that, depending on the situation, all our banking functions might also be paralyzed, put us in a perpetual state of tension from start to finish. In the end, however, thanks to the tremendous cooperation we received from everyone, we were able to integrate our computer systems without difficulty, and have maintained stable system operations ever since.
    Similarly, when it came to streamlining our branch network, the synergies of our business integration was fully demonstrated when we simultaneously integrated 25 branches belonging to either Kiyo Bank or Wakayama Bank, whose marketing areas overlapped. This integration inconvenienced some of our customers because the branches they had dealt with in the past were closed, and they were forced to use branches further away. Since the merger, however, we have responded with initiatives designed to quickly give our customers a real sense of the advantages of doing business at our new, integrated branches.
    Specifically, we have opened new types of branches, such as those exclusively for individuals, and have worked to expand our network, including the setting up of ATM booths outside our branches, the expansion of co-branded ATMs with convenience stores and other partners, and the opening of Internet branches.
    The improvement of our network of branches and ATMs alone, however, will not enable us to truly satisfy our customers. As one might expect, there is nothing more important than face-to-face contact with the customer. In January 2007, through the reassignment of our staff, we sought to increase points of contact with our customers, including new sales and marketing sections.
    To give our customers a real sense of the advantages of doing business with Kiyo Bank, the staff with whom our customers come into contact are important. I feel that since the merger, the staff of the two banks have meshed better than anyone anticipated, and their abilities have developed through friendly competition. On the staffing front, the synergies of the merger are starting to make themselves felt.

Progress with the medium-term business plan
Last October we made a fresh start as the new Kiyo Bank, and at the same time launched our first medium-term business plan to steer us towards an aggressive strategy.
    In the year ended March 2007, which was the first year of the plan, we were able to expand our business operations and improve our financial position according to plan. I would like to express my sincere appreciation to all our stakeholders, as this was only possible with their support.
    The plan, which will end on March 31, 2009, is called the Heart & Brain Action Plan, and is based on the concept of putting a premium on our hearts — which put customer satisfaction first — exerting our brains to make ourselves into good customer advisors, and putting our backs into our work. The plan also states that we aim to remain the bank of first choice for our customers.
    In the first fiscal year of the Plan, we managed to attain our numerical targets on all fronts, including our volume and profit targets. Despite these accomplishments, we recognize that, in an environment of fierce competition with other financial organizations, we have to constantly ask ourselves how we are going to improve our profitability. We must also never forget that it is our special role as a regional financial organization to facilitate financing for the local small-and medium-sized businesses and sole proprietorships that do business with us.

Future business expansion
I have said time and time again that regional financial organizations like our bank cannot develop without the invigoration of the local economy. It is, therefore, our role to provide the best services we can to the people in the region and contribute to the development of the regional economy to the best of our ability.
    In the past, Kiyo Bank, the core company in the Kiyo Financial Group, carried out restructuring aimed at lowering costs. As a result, through measures such as branch closures and workforce downsizing, we inadvertently reduced the number of avenues through which customers can access our services, even though this is normally a prime characteristic and strength of a regional bank.
    In our first medium-term business plan, we positioned the strengthening of our business foundations as the first point in our basic strategy, because we intend to make it our top priority to increase the number of customer contact points.
    Prior to the merger, Kiyo Bank and the former Wakayama Bank were in fierce competition with each other in the same operating area. Through the merger, however, we streamlined our branches and gained more than 300 staff members. Under our marketing strategy we consider our 300-strong team of staff members — who are familiar with the local area — to be an indispensable asset. Already, we have begun to strengthen links with our customers through initiatives such as the reassignment of these employees as specially trained public relations staff at the head office, and asset management advisors who deal with inquiries from customers over the counter at sales offices.
    In terms of the number of branches, which we have reduced in recent years, we aim to shift towards an aggressive strategy, and plan to actively increase the number of our business units. We intend to open not only branches with a full range of banking that can provide functions as in the past, but also sales offices that offer a lineup of products and services tailored to the particular needs of the customers in each region. We also plan to open branches specializing in private banking, especially asset management advice to private customers in residential areas, and branches specializing in providing business advice and lending in commercial districts. In April and May this year we opened such branches in Wakayama and Izumiotsu, Osaka. These branches are nicknamed “Kiyo Heartful Plazas,” because the staff put a premium on heartfelt sincerity. We will continue to open new branches of this kind.
    In addition to the new branches, we also opened business support centers in Tanabe, Wakayama and Kishiwada, Osaka that specialize in handling comparatively small loans. These business units are designed to expand our commercial services. We have also opened a mortgage loan center in Yamato-Takada (a satellite town of Osaka) in Nara Prefecture, where there is a strong potential demand for housing loans.
    We will use this network to provide services that put a premium on customer contact and that satisfy our customers’ requirements.
    In the ongoing shake-up of Japanese companies, including financial organizations like the Bank, the distinction between those destined to survive and those fated to fall by the wayside is becoming clear. I believe that the key to survival in this tough environment lies in a company’s sensitivity to the demands of the times and the needs of its customers, and in how quickly it can adapt.
    For example, I believe we must offer multi-dimensional business support services to our corporate customers, not simply lending services. We also need to be the first to anticipate new customer requirements and speedily design proposals to address them.
    In my opinion, regional banks absolutely must contribute to the development of the regional community and play the crucially important role of working with their corporate customers to solve business problems through various support services. Such services include business matching and assistance with project handovers; M&A intermediation; and support for business start-ups, entry into new areas, and IPOs. The key concept behind the provision of these services must be a quick and effective response to customer needs based on comprehensive analysis of each customer’s circumstances. We are currently setting up a specialist department to support such initiatives, and we need to step up our efforts in this area still further.
    By working to increase customer contact points both in terms of branches and ATMs and in terms of staffing and skills, while at the same time meeting the expectations of the local community and contributing to the revitalization of the regional economy, we will realize our vision of being trusted and supported, and will become our customers’ bank of first choice.

Hiroomi Katayama
President