Annual Report 2006

Corporate Data

As of May 1, 2006

Date of Establishment

October 19, 1895

Head office

23, Tohriyoko-cho, Numazu,
Shizuoka, Japan

Number of Branches and offices

Domestic: 120

Paid-in Capital

30,043 million yen

The Greater Tokyo Area

Mt. Fuji

Kanagawa

Shizuoka
Numazu(Head Office)

Major markets
Shizuoka Prefecture
Kanagawa Prefecture
The Greater Tokyo Area

Message from the President

Suruga Bank was founded in the fertile area around
Suruga Bay in the shadow of majestic Mount Fuji. Since ourfounding, we have always listened closely to the opinionsof our customers, the community we serve and the spiritof the times, and have done our best to reflect them in ourmanagement. Now the needs of nature are also on our
agenda. We are creating an environmental management
system and are proactively engaged in environmental
protection activities. Our environmental role, involving
support activities for our local community, is highly
visible, as befits a bank that began operations in one of
the most beautiful areas of Japan. I believe we can fully
justify the trust placed in us as a bank that plays a usefulrole for the customer, for society and for the environment.
Our role is not limited to providing advanced services.
It goes without saying that we meet public expectationsin terms of compliance, ethical conduct of business,accountability, and sound corporate governance. We also
contribute to the public good through community andphilanthropic activities and support of the arts, and we
regard it as an important basic mission to fulfill these CSR
responsibilities. We also see environmental protection as
one of our important services, in terms of enriching thelifestyles of our customers through a healthier environment.
By continuing to view the world through our customers’eyes, we will fulfill our customers’ expectations throughour actions, so that they continue to hold us in high regard.

May 19, 2006

Mitsuyoshi Okano
President and Chief Executive Officer
1Review of Operations (Non-consolidated)
The Company’s results for this period are shown below.

Gross Operating Income

Gross Operating Income
73.1
68.2

68.0

2003

2004

58.5

(¥ Billion)

2002

2005

(FY)

Expenses & OHR(Overhead Ratio)

Expenses & OHR (Overhead Ratio)
Personnel
expensesNon-personnel
expenses

Taxes

OHR

Total 36.7

Total 36.4

Total 36.0

Total 36.4

1.7

1.8

2.0

2.0

20.4

20.3

20.8

53.4%

52.9%

13.5

14.2

13.6

49.8%

2003

2004

2005

Despite increased investments tostrengthen marketing activities,
expenses increased by only ¥400 million year-on-year, thanks to cost-savings
activities. The OHR (overhead ratio)
improved 3.1 percentage points yearon-year to 49.8% on the increase ingross operating income.

62.7%

20.7

14.1
(¥ Billion)

2002

OHR (Overhead Ratio) = Expenses / Gross operating income

2

The gross operating income indicatesthe Bank’s earnings from basic banking
operations. This figure comprises threeelements: “Net Interest Income,” which
is based on interest payments on loans;“Net Fees and Commissions”; and“Other Operating Income,” which
includes proceeds from foreign transactions. Gross operating income
increased ¥5.0 billion year-on-year to¥73.1 billion due to an increase in interest on loans and discounts on steady
growth in consumer loans and anincrease of fees and commissions
resulting from enhanced marketing
activities to increase the balance ofindividuals’ assets.

(FY)

Net Operating Income & Core Net Operating Income
Net operating income

35.7Core net operating income

36.6 35.9

34.6
31.3

30.2
24.2
21.8

(¥ Billion)

2002

2003

2004

2005

(FY)

Net Operating Income &Core Net Operating Income
Core net operating income rose ¥4.5
billion year-on-year on a ¥4.9 billion
increase in core gross operating
income, including a ¥3.3 billion
increase in net interest income. Net
operating income increased ¥2.0 billion
year-on-year due to a rise in net interest
income (¥3.3 billion) and net fees andcommissions (¥1.7 billion), despite
increased provisions to the generalreserve for possible loan losses (¥2.6
billion). Both net operating income andcore net operating income were record
highs.

Net operating income = Gross operating income - Expenses - Transfer to general reserve for possible loan losses
Core net operating income = Net operating income (before transfer to general reserve for possible loan losses)- Proceeds from bonds, including JGBs (5 accounts)

Ordinary Profit & Net Income

Ordinary Profit & Net Income
Ordinary profit

Ordinary profit increased ¥4.4 billion
year-on-year, on a ¥2.0 billion increasein net operating income, a ¥700 million
fall in the costs of disposal of non-performing loans and a ¥1.5 billion
increase in the sale of equities. Net
income for the period increased ¥3.8
billion, reflecting a ¥4.4 billion increasein ordinary profit and a ¥2.3 billion
extraordinary gain (including a ¥1.6 billion increase in gain on collection ofbad debt written off). Both ordinary
profit and net income posted record
profits for two consecutive years.

Net income

22.7
18.3

17.4

14.3
10.4
8.6

7.4

8.7

(¥ Billion)

2002

2003

2004

2005

(FY)

3

Review of Operations

Loan Balance & Yield on Outstanding Domestic Loans
Loan balance

As a result of strong growth inconsumer loans, the Bank’s year-end
loan balance increased by ¥53.5 billion
year-on-year to ¥2,183.1 billion.
Likewise, the yield on outstanding
domestic loans also increased 0.05
percentage points over the previous
year, to 3.24%, due chiefly to anincrease in consumer loans.

Yield on outstanding domestic loans

2,072.8

2,034.1

2,129.6

Loan Balance & Yield on
Outstanding Domestic Loans

2,183.1
3.24%

3.19%
3.17%
3.11%

(¥ Billion)

2002

2003

2004

2005

(FY)

Consumer Loans

Consumer Loans
Consumer loans(

represents proportion of mortgage loans )Yield on consumer loans

1,572.2
1,472.7
1,377.8
1,375.8
1,303.6
1,299.5
1,207.9
1,127.4
72.0%
69.1%
66.4%
63.8%
(¥ Billion)

2002

4

2003

2004

2005

(FY)

The year-end balance of consumer
loans increased by ¥99.5 billion to¥1,572.2 billion with an increase inmortgage loans and personal loans. The
proportion of consumer loans as a percentage of all loans was up 2.9 percentage points at 72.0%.

Deposits & Yield on Domestic
Deposits

Deposits & Yield on Domestic Deposits
Deposits

2,673.3(

Deposits from individuals)

2,767.6

2,702.9

1,819.7

Yield on domestic deposits

1,873.7

2,796.6

1,934.8

1,957.0

0.08%
0.07%

The year-end balance of deposits rose
¥29.0 billion year-on-year to ¥2,796.6
billion, due chiefly to a steady increasein deposits from individuals. The balance of deposits from individuals rose
¥22.1 billion to ¥1,957.0 billion. The
increase was posted even after the ending of remaining unlimited government
guarantees on deposits.

0.05%
0.04%
(¥ Billion)

2002

2003

2004

2005

(FY)

Interest Margin between Loans and Deposits & Net Interest Margin
Interest margin
between loans and deposits

Interest margin between loans
and deposits (Domestic)

1.77%

1.84%

1.66%

Net interest margin

The interest margin between loans anddeposits is calculated by subtracting theyield on deposits and the expense ratio
from the yield on outstanding loans.
The net interest margin indicates thedifference between the yield on total
managed funds and total procured
funds. Due to a rise in the interest margin between loans and deposits arisingfrom an increase in total yields on outstanding loans, the total net interest
margin saw a year-on-year increase of
0.08 percentage points to 1.07%.

1.93%
1.88%

1.77%
1.59%

1.64%

0.99%
0.78%

2002

1.07%

0.85%

2003

2004

2005

Interest Margin between Loans
and Deposits & Net Interest
Margin(FY)

5

Review of Operations

Owned Capital & Capital Adequacy Ratio (Domestic Standard)
Owned capital

Capital adequacy ratio

Tier I capital adequacy ratio

159.3
137.4

146.4

124.1

10.73%
10.14%
9.46%

10.12%
9.53%

8.50%
8.85%
7.89%
(¥ Billion)

2002

2003

2004

2005

(FY)

Capital adequacy ratio = [Owned Capital (Basic items + Supplementary items) /Risk assets] X 100
Tier I capital adequacy ratio = [Owned Capital (Basic items: Tier I) /Risk assets] X 100

Deferred tax assets

Deferred tax assets/Tier I

The ratio of deferred tax assets to TierI capital fell 9.0 percentage points to
11.6%, showing qualitative improvement in capital adequacy. Deferred tax
assets declined ¥10.8 billion, and Tier I
capital increased ¥12.5 billion.
A figure is recorded for deferred tax
assets that represents anticipated future
returns on taxes already paid.

150.2

43.2%
128.6

137.6

115.2
29.1%
20.6%
49.8
37.4

11.6%
28.3
17.5

(¥ Billion)

2002

6

2003

2004

2005

The Bank’s owned capital comprises
the Tier I capital (including its capitalstock, surpluses, and reserves) and Tier
II capital (including the general reservefor possible loan losses). With anincrease in internal reserves, the Bank’s
capital adequacy ratio (domestic standard) at the end of this period
increased 0.59 percentage points yearon-year to 10.73%. Only the maximum
amount for the reserve for possible
loan losses is recorded as a Tier II itemin our statements. Qualifying capitaland gains on the revaluation of land notrecorded.

Status of Tier I and Deferred Tax
AssetsStatus of Tier I and Deferred Tax Assets
Tier I

Owned Capital & Capital
Adequacy Ratio (Domestic
Standard)(FY)Status of Non-Performing Loans

Balance and Ratio of Loans Disclosed under the Financial Rehabilitation Law
Substandard claims

Doubtful claims

Bankrupt and substantially bankrupt claims

Ratio of loans disclosed under the Financial Rehabilitation Law

Total 174.9
23.6
8.52%
72.6

Total 142.7

Total 138.0

26.8

25.0

61.6

69.7

6.82%
6.42%
78.5

2002

2003

16.7
54.9
5.11%

54.2

(¥ Billion)

Total 112.7

43.2

41.0

2004

2005

(FY)

Ratio of loans disclosed under the Financial Rehabilitation Law = Balance of loans disclosed/Total extended credit

Actual Credit Cost
Actual credit cost

10.6

0.66%

During the term under review, theBank made good progress in final disposal of nonperforming loans as well as
corporate rehabilitation programs. As aresult, the non-consolidated balance ofclaims disclosed in accordance with thestandards stipulated under the Financial
Rehabilitation Law decreased ¥25.3 billion year-on-year, to ¥112.7 billion at
the end of the reporting term comparedwith the previous term-end. Of thistotal, bankrupt and substantially bankrupt claims accounted for ¥16.7 billion,
Doubtful claims accounted for ¥54.9 billion, and substandard claims amounted
to ¥41.0 billion of the total. The ratio ofclaims disclosed under the Financial
Rehabilitation Law improved 1.31 percentage points year-on-year to 5.11%.

Actual Credit Cost

Ratio of actual credit cost to average loan balance

13.4

Balance and Ratio of Loans
Disclosed under the Financial
Rehabilitation Law

12.5

12.8

0.61%

0.61%

2004

2005

In line with substantial progress in thedisposal of non-performing loans, actual
credit costs increased ¥200 million yearon-year to ¥12.8 billion.

0.53%(¥ Billion)

2002

2003

(FY)

Actual credit cost = transfer to general reserve + amount for non-performing loan disposal - collection of claims written off
Ratio of actual credit cost to average loan balance = actual credit cost divided by average loan balance

7

Status of Non-Performing Loans(As of March 31, 2006)

Dis c losure of Problem Assets(¥ Billion)

Classification under Self-Assessment
Target: Total balance of extended credit

Legally bankrupt borrowers

Problem Assets Based on the Financial Rehabilitation Law
Target: Total balance of extended credit, except substandard
claims (only loans are counted in.)

Borrowers requiring caution

Potentially bankrupt borrowers

16.7

54.9

196.9

Doubtful Claims

Substandard Claims

Sub-total

54.9

41.0

112.7

Normal borrowers

1,872.3

Normal assets

2,090.8

Total

2,203.5

Total

2,203.5

Total balance of extended credit: Loans, Customers’ Liabilities for Acceptance and Guarantees, Foreign exchange, Securities loaned, Suspense payments on loans, Accrued loan interests.

Classifications of Borrowers under Self-Assessment

8

11.8

4.9

Risk-Managed Loans
Target: Loans

Loans to bankrupt borrowers

2.4

Loans past due

68.4

Past due for 3 months or longer

1.2

Restructured

39.7

Total

111.9

100%

13.9

Borrowers under supervision 62.5

Other borrowers
requiring caution

Covered byreserves Coverage ratio

2.7
Bankrupt and Substantially
Bankrupt Claims

Substantially bankrupt borrowers

Covered by collateraland guarantees

Legally bankrupt borrowers:

Borrowers who have been legally or formally declared bankrupt.

Substantially bankrupt borrowers:

Borrowers who have not been legally or formally declared bankrupt, but
who are suffering from serious management difficulties with no prospectof revitalization, and are therefore substantially bankrupt.

Potentially bankrupt borrowers:

Borrowers who are not bankrupt, but who are suffering from management
difficulties, who have not made progress with business improvement
plans, and who are found to have a rather high risk of bankruptcy in the
future.

Borrowers requiring caution:

Borrowers with problematic lending conditions such as interest waivers
and the like, borrowers who are having problems fulfilling their obligations and who are already in arrears for repayments of principal or interest, borrowers facing poor or unstable business conditions, andborrowers with a problematic financial status are those that require future
caution.

Borrowers under supervision:

Those borrowers – within the category of borrowers requiring caution –who are three or more months in arrears or have had loans restructured(Borrowers whose loans in part or in full constitute loans requiring supervision under the Financial Rehabilitation Law.)

Other borrowers requiring caution:

Borrowers requiring caution other than those classified as substandard.

Normal borrowers:

Borrowers whose business results are favorable and who are found not tohave any particular problems in terms of their financial status.

34.3

22.5

68.7

16.8

93.20%

6.3

70.60%

28.1

85.99%

Loans disclosed in accordance with the Financial
Rehabilitation Law ...112.7 billion yen

Risk-managed loans to total loans ...111.9 billion yen

5.11%

85.99%

5.12%

85.84%

Ratio to total balance ofextended credit

Coverage ratio

Ratio of risk-managedloans to total loans

Coverage ratio

Overview of write-offs and reserves under self-assessment
Legally bankrupt borrowers and sub- The amount remaining after the deduction of the amount of collateral constantially bankrupt borrowers:
sidered to be disposable and the amount recoverable under guarantees
from the loan balance is either written off or is recorded as a reserve forbad debt.
Potentially bankrupt borrowers:

A portion of the reserve as deemed necessary is provided based on theamount remaining after deduction of the amount of collateral considered tobe disposable and the amount recoverable under guarantees after giving
full consideration to the percentage of actual defaults over a fixed period in
the past.

Borrowers requiring caution(Borrowers under supervision andother borrowers requiring caution):

Based on the predicted loss ratio where any necessary adjustments for
future expectations have been incorporated into an appropriate loan loss
ratio calculated for the average remaining period, the anticipated loss overthe next three years in the case of substandard borrowers, and over the
next one year in the case of other borrowers, are recorded as a generalreserve for possible loan losses.

Normal borrowers:

Based on the predicted loss ratio where any necessary adjustments for
future expectations have been incorporated into an appropriate loan loss
ratio calculated for the average remaining period, the anticipated loss overthe next one year is recorded as a general reserve for possible loan losses.

Topics

Strengthened Security Functions for Greater Peace of Mind
To increase the security of banking transactions without affecting customer convenience, the Bank is taking measures to prevent misuse of bank cards, and has
developed its own security measures and related services.
Suruga Bank’s Security Measures at a Glance(1) Products and services that prevent banking fraud☞ Biosecurity system:
Maximizing peace of mind and security with the leading biosecurity technologies☞ Services to prevent fraudulent withdrawals from ATMs:
Two kinds of security for bank card and mobile phone(2) Cash card antifraud measures☞ Service enabling changes to the terms of use of bank cards:
Allowing setting of ATM withdrawal limits for bank cards☞ Changing your bank card security code:
We recommend that you regularly change your security code
☞ “Shuffle” function for rejigging keys used for entering personal security codes into ATMs:
Stopping others from reading your security code from your finger movements(3) Internet banking antifraud measures☞ Changing remittance limits for Internet and mobile phone banking:
Minimizing losses from fraud☞ Touch-screen keypad:
Preventing losses from spyware fraud

Information Security Management System
In January 2006, the Bank’s “access center” call center
department strengthened its information management
system further by becoming the first Japanese regional bank to acquirecertification under the Conformity Assessment Scheme for Information
Security Management System (ISMS) (developed in Japan) and theBS7799 standard (developed in the UK).
SURUGA VISA Debit Card
In January 2006, the Bank launched sales of the SURUGA VISA Debit Card. This card, which requires neither
membership nor annual usage fee payment, can be used in Visa global ATMs
and Plus System ATMs in over 150 countries and territories for withdrawal of
cash in local currency from a Suruga Bank account in Japan. This worry-freedebit card has many advantages over cash purchases, including compensation
for loss or theft of items purchased under its Worry-free Shopping Service.
Applies only to costs of stay overseas where no permit or report is needed
under foreign exchange and foreign trade legislation.
9

CSR

Suruga Bank has steadily evolved from community
banking centered on the Numazu, Shizuoka and Shonancommunities into personal banking serving the greater
Tokyo area and direct banking serving customers allover Japan. As a result, expectations of the Bank havechanged, and its social responsibilities are no longer
what they were.
As a financial institution with a strong awareness of its
public role, we meet all expectations naturally placed on
us with regard to compliance, ethical behavior, accountability, and corporate governance. We are also involved ina range of vital community activities such as contributions
to regional development, and support for the arts andphilanthropy. By continuing to deliver superior customer
services and maintain our profile in the local economy
while we meet these demands, we will carry out oursocial responsibilities, meeting the expectations of stakeholders such as our community, our employees and ourshareholders.

Environmental Initiatives
We are committed to developing financial products that are friendly to the environment, and to engaging
in environment protection activities.

Suruga Bank Environmental Policy
1. By providing environmentally-friendly financial products and services, we support those of ourcustomers who are involved in environmental-protection activities and contribute to improvement of the local environment
2. We work to continuously upgrade environment-management systems and prevent environmental pollution
3. We will abide by environmental laws and regulations, and comply with other environmental
requirements that Suruga Bank accepts
4. We have set environmental goals and targets, and regularly review progress
5. We take every measure to familiarize all our employees and others working at the Bank withthese basic policies, and to operate in an environmentally-friendly way
6. We publicly disclose details of these policies(compiled June 1, 2005)10

Corporate Governance

Basic Policy
To hasten and clarify management strategy-making, Suruga Bank considers more-effective corporate governance to be a priority in hastening and clarifying management strategy-making. By improving our record incompliance, disclosure, accountability and risk management, we are creating a management model that puts
customers, shareholders and other stakeholders first.

Auditing System
Suruga Bank has a traditional corporate governance system based on corporate auditors. We have established
an internal audit department separate from the headquarters organization to further strengthen internal controls. As of March 31, 2005, three of our ten directors, and two of our four corporate auditors, were external.
Diagram of Suruga Bank’s Corporate Governance System(As of March, 2006)

General Meeting of Stockholders
Appointment/
dismissal

Appointment/dismissal
Appointment/dismissal

Board of Corporate Auditors
Audit

Audit

Ratify appointments/dismissals

ReportReportReportReportBoard of Directors
Oversight

Oversight
ReportReportManagement Council

Executive Council

Accounting
audits

Accounting
auditors

LegaladviceLegal counsel

ReportVarious committees

Internal Audits

ReportExecutive Council

All offices and branches

Environmental Management System (EMS)
Suruga Bank is proactively engaged in environmental protection. In 2000, the Bank’s Suruga Daira headquarters acquired ISO14001 certification. To effectively harness the benefits of this standard, we have set up anenvironment-management system headed by the CEO and operated under the guidance of the ISO office.
Environmental measures undertaken under this program include reduction of the amount of copying paper
used and cuts in electricity consumption.

11

Compliance

Basic Policy
As a bank with a public mission and social responsibilities, we take compliance very seriously. In a financial
environment of ever-accelerating liberalization and globalization, banks are expected to operate on a basis of
maximum accountability and transparency. In response, we have positioned compliance as a top management priority and are continuously engaged in efforts to firm up and refine our compliance posture. Our inhouse compliance procedures include an ethical code, a code of conduct and compliance regulations. In
addition we have made available our manual of business guidelines in digital format, which features casestudies that offer an easy-to-understand approach to rules and regulations that must be observed by all
employees, regardless of rank, in the course of their work. These rules can be accessed by all staff throughtheir computer terminals.

Enhancing Corporate Ethics and Compliance
Basic compliance policies are drawn up at the Board of
Directors and Executive Committee level, and we have
set up a compliance committee as an advisory body. To
strengthen compliance, we have drawn up an annualcompliance program featuring e-learning, e-newslettersand group training sessions, with progress reviews. Basedon the compliance program and under the supervision of
the management planning department’s complianceframework, all compliance managers and internal officers
have been deployed in all of the Bank’s offices andbranches, enabling us to respond swiftly and appropriately to compliance issues as they arise.

Ethical Code (abstract)
1. Be aware of the Bank’s public role
Always be aware of the Bank’s public natureand social mission

2. Observe the law
Observation of all laws and regulations

3. Accountability
Sound management based on accountability of
individual employees

4. Corporate conduct
Behave in a rigorously correct and fair way

Customer Relationships Based on Reliable Service
To contribute to the financial rehabilitation of struggling smaller firms and the revitalization of the region, weoffer startup support, management consultation, and corporate rehabilitation services to SMEs and customers
who are sole proprietors. We have also improved our asset assessment and credit-risk management systems, tocreate a more stable operating base and raise profitability.
By providing high-quality comprehensive financial services, we are determined to meet our obligations as aregional financial institution to fulfill our social mission and responsibilities.

12

Risk Management

Basic Approaches to Risk Management
Rapid progress in financial deregulation innovations in financial technologies, and the widening scope ofbusiness operations available have changed the operating environment faced by banks, increasing the diversity and complexity of the risks they face. The management of Suruga Bank regards development of moresophisticated approaches to risk management as a priority issue, as it is essential to accurately understandthe risks inherent in all banking operations, and to establish a management system capable of addressing
them appropriately.

Board of Corporate Auditors

Board of Directors

Outside statutory auditors

Outside directors

Management Council

Internal auditing

Risk Management Committee

Executive Council
Risk Management

Compliance Risk

BranchCredit Risk

BranchMarket &Liquidity Risk

Operational Risk

BranchSystem Risk

BranchData Security
Risk

Subsidiaries

13

Net Branches
An all-new mileage + banking service that lets users accrue mileage points through bank transactions.

ANA Branch
http://www.surugabank.co.jp/ana/(24 hours a day, 365 days a year)
Toll free (from within Japan only): 0120-029-589(From overseas: 055-98-02988)
Telephone reception hours

9:30 am - 5:00 pm Monday - Friday(excluding holidays)
Providing access to leading Internet-based financial services

Softbank Branch
http://www.surugabank.co.jp/softbank/(24 hours a day, 365 days a year)
Toll free (from within Japan only): 0120-708-807
Telephone reception hours

9:00 am - 7:00 pm Monday - Friday(excluding holidays)

9:00 am - 5:00 pm Saturday

Branch exclusively for system engineers (SEs)

SE Bank Branch
http://www.surugabank.co.jp/sebank/(24 hours a day, 365 days a year)
Toll free (from within Japan only): 0120-803-689
Telephone reception hours

9:00 am - 7:00 pm Monday - Friday(excluding holidays)

9:00 am - 5:00 pm Saturday

A banking site tailored to women

So-net Branch
http://www.surugabank.co.jp/so-net/(24 hours a day, 365 days a year)
Toll free (from within Japan only): 0120-50-2189
Telephone reception hours

9:00 am - 7:00 pm Monday - Friday(excluding holidays)

9:00 am - 5:00 pm Saturday

Japan’s first direct branchDream Direct Branch
http://www.surugabank.co.jp/dream/(24 hours a day, 365 days a year)
Toll free (from within Japan only): 0120-89-1016
Telephone reception hours

9:00 am - 7:00 pm Monday - Friday(excluding holidays)

9:00 am - 5:00 pm Saturday

Direct banking specializing in loans

Direct One Branch
http://www.surugabank.co.jp/directone/(24 hours a day, 365 days a year)
Toll free (from within Japan only): 0120-60-1616
Telephone reception hours

10:00 am - 8:00 pm Monday - Friday(excluding holidays)

10:00 am - 5:00 pm Saturday

Providing access to high value-added business loan services

e-Business Direct Branch
http://www.surugabank.co.jp/ebusinessdirect/(24 hours a day, 365 days a year)
Toll free (from within Japan only): 0120-185-285
Telephone reception hours

10:00 am - 8:00 pm Monday - Friday(excluding holidays)
Catering to B-to-B and B-to-C needs

NetBank Branch
http://www.surugabank.co.jp/sofmap/(24 hours a day, 365 days a year)
Toll free (from within Japan only): 0120-89-5189
Telephone reception hours

9:00 am - 5:00 pm Monday - Friday(excluding holidays)
http://www.surugabank.co.jp/axa-direct/(24 hours a day, 365 days a year)
Toll free (from within Japan only): 0120-788-017

14Telephone reception hours

9:00 am - 7:00 pm Monday - Friday(excluding holidays)

9:00 am - 5:00 pm SaturdayFinancial Section
Consolidated Balance Sheets

16

Consolidated Statements of Income

17

Consolidated Statements of Stockholders’ Equity

18

Consolidated Statements of Cash Flows

19

Notes to Consolidated Financial Statements

20

Report of Independent Auditors

30

Non-Consolidated Balance Sheets

31

Non-Consolidated Statements of Income

32

Non-Consolidated Statements of Stockholders’ Equity

33

Notes to Non-Consolidated Financial Statements

34

Report of Independent Auditors

36

15

Consolidated Balance Sheets
Suruga Bank Ltd. and consolidated subsidiaries

Thousands of
U.S. dollars(Note2)Millions of yen

2006

2005

Change from
2005

2006

ASSETS:Cash and Due from Banks
Call Loans and Bills Bought
Monetary Claims Bought
Trading Account Securities
Money Held in Trust
Securities
Loans and Bills Discounted
Foreign Exchanges
Other Assets
Premises and Equipment
Deferred Tax Assets
Customers’ Liabilities for Acceptances and Guarantees
Reserve for Possible Loan Losses

71,543200,601
397
499
2,246
468,056
2,179,120
3,156
26,461
55,36918,2597,584(40,790)

71,620217,982
404
500
1,868
464,330
2,123,505
705
27,336
51,59928,9799,002(43,686)(76)(17,380)
(7)
(0)
378
3,726
55,614
2,451
(874)
3,769
(10,719)(1,418)2,896

609,039
1,707,685
3,384
4,249
19,126
3,984,477
18,550,441
26,872
225,265
471,346
155,439
64,565(347,243)

Total Assets

2,992,507

2,954,148

38,35825,474,650

LIABILITIES, MINORITY INTEREST AND STOCKHOLDERS’ EQUITY:
Liabilities
Deposits
2,795,835
Call Money and Bills Sold
822
Borrowed Money
9,252
Foreign Exchanges
14
Other Liabilities
19,781
Reserve for Employees’ Bonus
526
Reserve for Employee Retirement Benefits
360
Reserves under Special Laws
0
Acceptances and Guarantees
7,584

2,766,312—
9,248
7
26,171
518
487
0
9,002

29,522822
3
7(6,390)8(126)—(1,418)23,800,420
7,000
78,761
123
168,394
4,481
3,070
0
64,565

Total Liabilities

2,834,177

2,811,748

22,42824,126,817

306

287

19

2,611

Stockholders’ Equity
Common Stock
Capital Surplus
Retained Earnings
Net Unrealized Gains (Losses) on Securities, Net of Taxes
Treasury Stock

30,04318,640105,886
7,306(3,854)30,043
18,585
93,136
4,935(4,587)—54
12,7502,371
733

255,752
158,685
901,390
62,202(32,810)

Total Stockholders’ Equity

158,023

142,112

15,9101,345,221

2,992,507

2,954,148

38,35825,474,650

As of March 31,

Minority Interest

Total Liabilities, Minority Interest and Stockholders’ Equity
See notes to consolidated financial statements.

16

Consolidated Statements of Income
Suruga Bank Ltd. and consolidated subsidiaries

Thousands of
U.S. dollars(Note2)Millions of yen

For the Years Ended March 31,

2006

2005

Change from
2005

2006

Ordinary Income
Interest Income
Interest on Loans and Discounts
Interest and Dividends on Securities
Interest on Call Loans and Bills BoughtInterest on Receivables Under Resale Agreements
Interest on Deposits with Banks
Other Interest Income
Fees and Commissions
Other Operating Income
Other Income

98,75375,492
71,417
3,493
38
0
0
541
12,9107,717
2,633

90,39069,931
66,718
3,076
49
0
1
85
11,025
7,605
1,828

8,363
5,560
4,698
417
(10)
(0)
(0)
456
1,884
112
805

840,673642,650
607,964
29,740
329
1
3
4,611
109,901
65,69922,421

Ordinary Expenses
Interest Expenses
Interest on Deposits
Interest on Negotiable Certificates of Deposit
Interest on Call Money and Bills Sold
Interest on Borrowings and Rediscount
Other Interest Expenses
Fees and Commissions
Other Operating Expenses
General and Administrative Expenses
Other Expenses
Transfer to Reserve for Possible Loan Losses
Losses on Write-offs of Loans
Others75,760
6,746
1,759
—
14
151
4,821
6,567
5,693
37,641
19,112
8,430
7,256
3,426

71,353
4,400
1,461
1
0
157
2,780
6,511
5,659
37,273
17,507
7,638
6,750
3,118

4,407
2,345
298
(1)
14
(6)
2,040
55
33
367
1,605
791
505
308

644,935
57,42814,980—119
1,287
41,04055,904
48,466
320,432
162,703
71,76561,76829,168

Ordinary Profits

22,993

19,037

3,956

195,737

Extraordinary Profits
Gains on Dispositions of Premises and Equipment
Recoveries of Written-off Claims
Other Extraordinary Profits
Extraordinary Losses
Losses on Dispositions of Premises and Equipment
Loss on Impairment of Fixed Assets
Other Extraordinary Losses

2,956
240
2,716
—
683
249
433
—

1,403
337
1,044
20
1,469
630
—
839

1,553
(97)
1,672
(20)
(786)
(380)
433
(839)

25,172
2,043
23,128
—
5,815
2,122
3,692
—

Income before Income Taxes and Others
Provision for Income Taxes and Others
Deferred Income Taxes
Minority Interest

25,267
1,841
9,100
48

18,970
1,369
6,740
125

6,296
472
2,360
(77)

215,094
15,674
77,469410

Net Income

14,277

10,735

3,541

121,540

See notes to consolidated financial statements.

17

Consolidated Statements of Stockholders’ Equity
Suruga Bank Ltd. and consolidated subsidiaries

Thousands of
U.S. dollars(Note 2)Millions of yen

Change from2005

For the Years Ended March 31,

2006

2005

Capital Surplus
Balance of Capital Surplus at Beginning of Year
Increase
Gains on Sales of Treasury Stock
Decrease
Losses on Sales of Treasury Stock

18,58554
54——

18,586
—
—
0
0

(0)
54
54
(0)
(0)

158,217
467
467
—
—

Balance of Capital Surplus at End of Year

18,64018,585

54

158,685

Retained Earnings
Balance of Retained Earnings at Beginning of Year
Increase
Net Income
Decrease
Dividends
Bonus for Directors and Corporate Auditors
Losses on Sales of Treasury Stock93,136
14,277
14,277
1,527
1,426
30
71

83,735
10,735
10,735
1,334
1,295
30
8

9,401
3,541
3,541
192
130
—
62

792,852
121,540
121,540
13,001
12,139255
606

Balance of Retained Earnings at End of Year105,886

93,136

12,750901,390

See notes to consolidated financial statements.

18

2006

Consolidated Statements of Cash Flows
Suruga Bank Ltd. and consolidated subsidiaries

Thousands of
U.S. dollars(Note 2)Millions of yen

For the Years Ended March 31,

Change from
2005

2006

2005

25,267
7,041
433(2,896)
8
245
—
(30)
(75,492)
6,746(2,689)(93)
918,970
7,282
—
1,768
(61)
972
(20)
(30)
(69,931)
4,400
(911)
(66)
292

6,296
(240)
433
(4,664)
69
(727)
20
—
(5,560)2,345(1,777)(26)(283)

215,094
59,946
3,692(24,655)
70
2,086
—
(255)
(642,650)
57,428(22,891)
(795)
78

0
(55,614)
29,522—
3
4,457
17,387822(2,451)
7
74,813(6,589)(5,207)(456)(56,637)
63,975(6,000)82(1,668)(77,370)—(28)(8)
69,690(3,984)
7,892

457
1,022
(34,452)
6,000
(79)
6,125
94,758822(2,422)15
5,122(2,605)(13,100)

7(473,438)
251,323—
27
37,942148,016
7,000(20,865)63
636,869(56,099)(44,331)

Subtotal

15,701(41,848)

57,549133,664

Income Taxes Paid

(2,089)(893)(1,196)(17,788)

Net Cash Provided by (Used in) Operating Activities

13,611(42,741)

56,353

115,876(551,817)
35,517519,772(284)(12,659)
1,005(768,256)
81,013
743,473(773)(8,621)
644

216,438(45,496)(223,701)
489(4,038)360(4,697,518)
302,349
4,424,721(2,422)(107,766)
8,555

Net Cash Provided by (Used in) Investing Activities(8,467)47,480(55,947)(72,080)

Cash Flows from Financing Activities
Dividends Paid
Purchase of Treasury Stock
Proceeds from Sales of Treasury Stock(1,426)(164)815(1,295)
(173)
104

(130)
9
710

(12,139)(1,400)6,938

Net Cash Used in Financing Activities

Cash Flows from Operating Activities
Income before Income Taxes and Others
Depreciation and Amortization
Loss on Impairment of Fixed Assets
Increase (Decrease) in Reserve for Possible Loan Losses
Increase (Decrease) in Reserve for Employees’ Bonus
Increase in Reserve for Employee Retirement Benefits
Gain on Contribution of Securities to Employee Retirement Benefit Trusts
Bonus for Directors and Corporate Auditors
Interest Income
Interest Expenses
Loss (Gain) on Investment Securities, Net
Loss (Gain) on Money Trusts, Net
Loss (Gain) on Sales of Premises and Equipment
Changes in Operating Assets and Liabilities:
Trading Securities
Loans
Deposits
Negotiable Certificates of Deposit
Borrowings Excluding Subordinated Debt
Due from Banks Other Than BOJ
Call Loans
Call Money
Foreign Exchange Assets
Foreign Exchange Liabilities
Interest Received
Interest Paid
Other, Net

Cash Flows from Investing Activities
Purchase of Securities
Proceeds from Sales of Securities
Proceeds from Redemption of Securities
Increase in Money Trusts
Purchase of Premises and Equipment
Proceeds from Sales of Premises and Equipment

2006

(775)

(1,365)590(6,601)

Effect of Exchange Rate Changes on Cash and Cash Equivalents
Net Increase in Cash and Cash Equivalents
Cash and Cash Equivalents at Beginning of Year

11
4,380
59,8201
3,374
56,446

10
1,006
3,374

101
37,294509,243

Cash and Cash Equivalents at End of Period

64,201

59,8204,380

546,537

See notes to consolidated financial statements.

19

Notes to Consolidated Financial Statements
Suruga Bank Ltd. and consolidated subsidiaries

1. Summary of Significant Accounting Policies(f) Derivatives(a) Basis of preparation

Derivatives positions are stated at their market value as of the fiscal
year-end.

The accompanying consolidated financial statements of Suruga Bank
Ltd. (the “Bank”) and consolidated subsidiaries are prepared on thebasis of accounting principles generally accepted in Japan, which are
different in certain respects as to the application and disclosure
requirements of International Financial Reporting Standards, and arecompiled from the consolidated financial statements prepared by theCompany as required by the Securities and Exchange Law of Japan.
For the convenience of readers outside Japan, certain items presented in the original statements have been reclassified andrearranged.
Certain reclassifications of the prior year’s consolidated financial
statements and the related footnote amounts have been made to conform with the presentation in the current year.

(g) Premises and equipment
Depreciation of premises and equipment of the Bank is computed by
the declining-balance method at rates principally based on the following estimated useful lives:
Buildings

15 years to 50 years

Equipment and furniture

4 years to 20 years

Costs of software developed or obtained for internal use are amortized by the straight-line method over an estimated useful life of 5 years.
Certain subsidiaries apply the straight-line method for the depreciation of premises and equipment.

(h) Reserve for possible loan losses(b) Principles of consolidation
The accompanying consolidated financial statements include theaccounts of the Bank and its significant subsidiaries and certain affiliates, which are as follows:
Suruga Business Service Co., Ltd.
Suruga Staff Service Co., Ltd.
A.P.I. Co., Ltd.
Suruga Capital Co., Ltd.
Suruga Computer Service Co., Ltd.
Suruga Card Co., Ltd.
Suruga Credit Service Co., Ltd.
All significant intercompany accounts and transactions have been
eliminated in consolidation.

(c) Trading account securities
Trading account securities are stated at their market value as of the fiscal year end.

(d) Investment securities
Debt securities being held to maturity are stated at amortized costcomputed by the moving-average method.
Other securities (available-for-sale securities) whose current value
can be estimated are stated at their market value as of the fiscal year
end and other non-marketable securities are stated at cost or amortizedcost computed by the moving-average method.
Unrealized gain or loss on available-for-sale securities areincluded in shareholders’ equity, net of income taxes.

(e) Securities in money trusts
Securities included in money trusts are stated by the same method as
those described in (c) and (d) above.

20

The reserve for possible loan losses of the Bank is provided in accordance with the policies regarding write-offs and reserve standards
stipulated in “Auditing of Write-offs and Loan Loss Provisions”
issued as part of the “Fourth Report by the Auditing Subcommittee forBanks and Other Financial Institutions” by the Japanese Institute ofCertified Public Accountants. The reserve for loans to borrowers whoare classified as substantially bankrupt or who are bankrupt in the formal legal sense is provided based on the amount remaining after
deduction of the amount of their collateral considered to be disposable
and of the amount recoverable under guarantees.
In addition, a reserve is provided for loans to borrowers who,
although not actually bankrupt in the legal sense, are experiencing
serious management difficulties and whose failure is imminent. In
such cases, a portion of the reserve is provided based on the amountremaining after deduction of the amount of their collateral considered
to be disposed and of the amount recoverable under guarantees, andthe balance of this reserve is provided after giving full consideration
to the amount the borrower is capable of repaying. In the case of allother loans, the reserve is based on the percentage of actual defaults
over a fixed period.
For claims of “substantial bankruptcy” and “legal bankruptcy,” anamount exceeding the estimated value of the collateral or of the guarantees deemed uncollectible is charged off. For the years ended March
31, 2006 and 2005, the amounts deducted were ¥9,797 million(US$83,407 thousand) and ¥11,331 million, respectively.
Provisions for possible loan losses at the consolidated subsidiaries
have been made as deemed necessary with reference to the historicalloan loss experience of these companies.

(i) Reserve for employees’ bonuses

The reserve for possible losses on sales of loans provides for contingent losses arising from any decline in the market value of the collateral posted on corporate mortgage loans sold to the Cooperative Credit
Purchasing Company, Ltd.

The deferred method of hedge accounting is applied to transactions to hedge against the foreign exchange fluctuation risks associated with monetary claims and liabilities denominated in foreign
currencies, in accordance with the regulations set out in the“Accounting and Auditing Treatment of Accounting Standards for
Foreign Currency Transactions in the Banking Industry” (JICPA
Industry Audit Committee Report No. 25). The effectiveness of currency swap and foreign exchange swap transactions is assessed bycomparing foreign currency position of the hedged assets or liabilities
with that of the hedging instruments.

(k) Pension and severance costs(m) Consumption tax

Accrued pension and severance costs is provided for the future payment of employees’ retirement benefits based on estimated amounts of
the actuarially calculated retirement benefit obligation and the pension
plan assets. Prior service cost is amortized by the straight-line method
over 5 years. Net actuarial gain (loss) is amortized by the decliningbalance method over 13 years commencing the year following theyear in which the gain or loss is incurred.

Consumption tax and local consumption tax of the Bank and its
domestic consolidated subsidiaries are excluded from the transaction
amounts presented. The portions of consumption tax and local consumption tax paid on the purchases of premises and equipment which
are not deductible as tax credits have been included in other assets andare being amortized over a five-year period.

The reserve for employees’ bonuses is provided for the payment ofbonuses to employees, an estimate of which is determined as of thebalance sheet date.

(j) Reserve for possible losses on sales of loans(n) Accounting standards for impairment of fixed assets(l) Hedge accounting
The Bank applies the deferred method to account for its derivative
instruments which hedge the interest rate risk on various financial
assets and liabilities in accordance with the general provisions of“Accounting and Auditing Treatment of Accounting Standards for
Financial Instruments in the Banking Industry” (JICPA Industry Audit
Committee Report No.24). Effective the year ended March, 2005, thegeneral provisions of JICPA Industry Audit Committee Report No.24
are applied. Under the general provisions, the effectiveness of a fairvalue hedge is assessed by each of identified (i) group of hedge
deposits, loans and similar instruments and (ii) corresponding group ofhedging instruments such as interest rate swaps in the same maturity
bucket. Also, under the general provisions, the effectiveness of a cash
flow hedge is assessed based on the correlation between a base interest
rate index of the hedged cash flow and that of the hedging instrument.

For the year ended March 31, 2006, the Bank applies “AccountingStandards for Impairment of Fixed Assets” (“Opinion Concerning
Establishment of Accounting Standard for Impairment on Fixed
Assets,” issued by the Business Accounting Deliberation Council on
August 9, 2002) and “Guidelines on Implementation of AccountingStandard for Impairment of Fixed Assets” (Guidelines on
Implementation of Business Accounting Standard No. 6, issued by the
Accounting Standards Board of Japan on October 31, 2003). As aresult, income before income taxes for the reporting period decreasedby ¥433 million compared with the former method.
In the banking industry, fixed assets are stated at cost less accumulated depreciation, pursuant to the Enforcement Ordinance of the
Banking Law (Ministry of Finance Ordinance No.10, 1982), and theaccumulated impairment loss is also deducted from the book value ofeach asset.

In addition, deferred hedge gains and losses on the macro hedges
recognized in the previous periods are amortized as interest income or
expenses over the remaining maturity (5 years of the hedging instruments in accordance with the regulations set out in the “Accounting
and Auditing Treatment of Preliminary Accounting Standards for
Financial Instruments in the Banking Industry” (JICPA Industry Audit
Committee Report No. 15).
“Macro hedge” refers to the management of interest rate risk inwhich overall interest rate risks inherent in loans, deposits, and otherinterest earning assets and interest-bearing liabilities are managed on a
net basis using derivatives. The unamortized amounts of GrossDeferred Hedge Losses and Gains on the macro-hedge method at
March 31, 2006 were ¥344 million and ¥328 million, respectively.

21

2. Japanese Yen and U.S. Dollar Amounts
The Japanese yen amounts in the accompanying consolidated financial
statements are presented in millions, with fractions omitted.
Amounts stated in U.S. dollars are translated from Japanese yenamounts, solely for convenience, at ¥117.47 = U.S.$1.00, theexchange rate prevailing on March 31, 2006. The translation should
not be construed as a representation that Japanese yen could be converted into U.S. dollars at the above or any other rate.

3. Loans and Bills Discounted(1) Loans and bills discounted at March 31, 2006 and 2005 included
the following:

Loans to companies underbankruptcy procedures
Delinquent loans
Loans past due 3 months or more
Restructured loans
Total

Millions of yen
2006
2005

Thousands of
U.S. dollars
2006

2,665 ¥ 2,493
69,591
90,9701,246
1,390
39,796
41,900¥113,299 ¥ 136,753$ 22,686
592,415
10,606
338,775$964,493¥

Loans to companies under bankruptcy procedures consist of nonaccrual loans on which the payment of principal or interest is well pastdue or there is no prospect of recovery of the principal or interest fromthe borrower or from a third party guaranteeing the loan (the balancedoes not include any written-down portion of the loan). These loans
hereafter are referred to as “non-accrual loans.” This category also
includes the loans cited in Article 96-1-3 and 1-4 of the Corporation
Tax Law (Government Ordinance No. 97 of 1965).
Delinquent loans are defined as loans which are past due and notaccruing interest, but which are categorized neither as “Loans to companies under bankruptcy procedures” nor as “Restructured loans” asdefined below.
Loans past due for 3 months or more are classified as such when 3months or more have elapsed since the due date without the paymentof principal or interest. Loans to companies under bankruptcy procedures and delinquent loans are not included in this category.
Restructured loans include loans whose repayment conditions
have been renegotiated, (such as by reducing the rate of interest or byproviding a grace period for the payment of principal/interest, etc.) tosupport the rehabilitation of certain borrowers who are encountering
financial difficulties, with the intention of ensuring the recovery of theloans. Excluded from this category are loans to companies underbankruptcy procedures, delinquent loans and loans past due for 3
months or more.

22(2) Bills discounted is accounted for as financial transactions on thebasis of “Accounting and Auditing Treatment of Accounting Standard
for Financial Instruments in Banking Industry” (JICPA Industry Audit
Committee Report No. 24). The Bank has rights to sell or pledge certain commercial bills and foreign exchange bills discounted. The principal amount of these bills amounted to ¥4,281 million (US$36,446
thousand).

4. Accumulated Depreciation
Accumulated depreciation on premises and equipment at March 31,
2006 and 2005 totaled ¥50,491 million (US$429,822 thousand) and¥51,475 million, respectively.

5. Assets Pledged
Assets pledged as collateral at March 31, 2006 and 2005 were as
follows:
Millions of yen
2006
2005

Investment securities
Treasury stock (common stock
held by subsidiaries)
Customers’ notes and others

Thousands of
U.S. dollars
2006¥ 7,691¥28,046$65,4781,788¥10,107

1,788¥10,395

15,221$86,041

Liabilities related to the above pledged assets were as follows:
Millions of yen
2006
2005

Borrowed money¥ 8,502¥1,612Thousands of
U.S. dollars
2006$72,376

In addition, investment securities totaling ¥141,899 million(US$1,207,967 thousand) and ¥147,149 million at March 31, 2006
and 2005, respectively, were pledged as collateral for the settlement of
exchange, treasury transactions or in lieu of margin money.

6. Loan Commitments

7. Employees’ Retirement Benefits

Contracts for overdraft facilities and loan commitments refer to contracts under which the Bank and its consolidated subsidiaries lend totheir customers funds up to certain prescribed limits in response to
their customers’ loan applications as long as there is no violation of
any of the conditions stipulated in the contracts. The unused portion
within the set limits of such contracts totaled ¥910,751 million(US$7,753,057 thousand) and ¥924,721 million at March 31, 2006
and 2005, respectively.

The funded status and amounts recognized in the consolidated balance
sheets as of March 31, 2006 and 2005 were as follows:

Since many of these commitments expire without the available lineof credit being fully utilized, the unused amount does not necessarily
represent a future commitment. Most of these contracts specify terms
and conditions permitting the Bank and its consolidated subsidiaries torefuse customers’ loan applications or decrease their credit limits forappropriate reasons (e.g., a change in their financial situation, a deterioration in their creditworthiness, etc.). At the inception of the contracts,
the Bank and its consolidated subsidiaries obtain real estate and securities, etc. as collateral if deemed necessary. Subsequently, the Bank andits consolidated subsidiaries perform periodic reviews of the customers’ business results based on their internal rules, and take the necessary measures to reconsider the conditions stipulated in the contracts
and/or require additional collateral and guarantees.

Projected benefit obligation
Fair value of plan assets
Projected benefit obligationin excess of plan assets
Unrecognized net obligation at transition
Unrecognized net actuarial loss
Unrecognized plan assets
Net liability recognizedPrepaid pension costAccrued pension and severance costs

Millions of yen
2006
2005

Thousands of
U.S. dollars
2006¥(18,174) ¥(17,813)
20,851
15,478$(154,717)
177,507

2,677(2,335)——(2,704)
2,553
—
—
(27)
217
333
705
¥ (360) ¥ (487)22,789—(23,022)
—
(232)
2,838
$ (3,070)

8. Amounts per Share
The computation of basic net income per share is based on theweighted average number of shares of common stock outstanding during each year, less treasury stock.
Amounts per share of net assets are computed based on the number ofshares of common stock outstanding at each balance sheet date, lesstreasury stock and shares of common stock of the Bank held by thesubsidiaries.
yen

U.S. dollars
2006

March 31

2006

2005

Net income¥ 54.72¥ 41.24

Net assets

606.06547.16

5.159

Diluted net income¥ 54.64¥ 41.21$0.465$0.465

Diluted net income per share is no presented for the year ended March
31, 2005, since the Bank did not have any potentially dilutive stock.

23

9. Other Income and Expenses

10. Leases

Other income and expenses for the years ended March 31, 2006 and2005 were as follows:(Lessor side)

Thousands of
U.S. dollars
2006

Millions of yen
2006
2005

Other income:Gain on sales of stocks and othersecurities
Gain on disposition of premises andEquipmentCollection of claims written-off
Other
Total
Other expenses:
Provision for possible loan losses
Loss on devaluation of stocks andother securities
Write-offs of loans
Loss on disposition of premises andequipment
Loss on sales of stocks and othersecurities
Cost of amortization ofdifferences resulting fromchanges in accounting standards
Other
Total

¥ 1,957¥931$ 16,663

240
2,716
676
¥ 5,590

337
1,044
917
¥ 3,231

2,043
23,1285,758$ 47,593¥ 8,430¥ 7,638$ 71,765

26
7,256

640
6,750

229
61,768

249

630

2,122

3

0

30

—
3,833
¥19,795

839
2,478¥18,976—
32,631$168,519

The pro forma information such as acquisition costs, accumulated
depreciation and obligations on property leased under finance leases
currently accounted for as operating leases is summarized as follows:
Millions of yen
2006
2005

Thousands of
U.S. dollars
2006

Acquisition cost
MovablesOthersTotal¥27,139 ¥ 25,539
3,207
2,957
¥30,346 ¥ 28,496$231,030
27,306$258,336

Accumulated depreciation expenses
MovablesOthersTotal¥18,941 ¥ 17,649
2,238
2,044
¥21,179 ¥ 19,694$161,241
19,057$180,298

Net book value
MovablesOthersTotal¥ 8,198 ¥ 7,889
968
913¥ 9,167 ¥ 8,802$69,789
8,248$78,037

Millions of yen
2006
2005

Minimum lease payment
under finance leases
Due within one year
Due after one year
Total

¥ 3,699 ¥ 4,157
6,794
7,290
¥10,493 ¥ 11,447

Thousands of
U.S. dollars
2006$31,490
57,837$89,327(Note) Interest income is added to calculate future lease payment receivables due to thesmall ratio of the balance of future lease payment receivables to trade receivables at
the term-end.

Millions of yen
2006
2005

Lease revenue and depreciation
expense for the term
Lease revenue
Depreciation expense24¥4,359¥3,569¥4,652¥3,801Thousands of
U.S. dollars
2006$37,110$30,389

(Lessee side)

11. Impairment Losses

The pro forma information such as acquisition costs, accumulated
depreciation and obligations on property leased under finance leases
currently accounted for as operating leases is summarized as follows:

For the year ended March 31, 2006, the Bank recorded impairment
losses on idle assets (land) at eight locations in Shizuoka Prefecture
and one in Kanagawa Prefecture.

Millions of yen
2006
2005

Thousands of
U.S. dollars
2006

Acquisition cost
MovablesOthers
Total

¥410
—
¥410

¥114
—
¥114

$3,493—$3,493

Accumulated depreciation expenses
MovablesOthers
Total

¥ 30
—
¥ 30

¥

2
—
¥ 2

$ 258
—
$ 258

Net book value
MovablesOthers
Total

¥379
—
¥379

¥111
—
¥111

$3,234—$3,234(Note) Amounts corresponding to interest expenses are added to calculate the assumed
amount of acquisition costs due to the small ratio of the balance of future minimum
lease payments to the net book value of premises and equipment at the term-end.

Minimum lease payment
under finance leases
Due within one year
Due after one year
Total

Millions of yen
2006

Thousands of
U.S. dollars
2006

¥ 95
284
¥379

$ 814
2,420
$3,234

Because of the significant decrease in the market value of these
fixed assets, book values were reduced to the recoverable amounts,
recognizing impairment loss of ¥433 million. The losses are included
in extraordinary losses. In general, the Bank regards each of its
branches as an unit of asset group for recognition and measurement of
impairment loss, but jointly managed branches are regarded as a single unit. The head office, administrative center, employee dormitory,
and some other premises are considered to be common assets. The
Bank treats each consolidated subsidiary as one unit of asset group.
Recoverable amounts are estimated on the basis of net realizablevalue. Net realizable value is calculated based on amounts computed
using the method laid down by the National Tax Agency for calculation of land prices used as the basis for computing taxable amounts inland tax as set forth in Article 16 of the Land Tax Law.

(Note) Interest expenses are added to calculate future minimum lease payments due to thesmall ratio of the balance of future minimum lease payments to net book value ofpremises and equipment at the term-end.

Total lease payments and assumed
depreciation expenses for the term
Total lease payments
Assumed depreciation expenses

Millions of yen
2006

Thousands of
U.S. dollars
2006

¥27
¥27

$233
$233

Method utilized for calculation of assumed depreciation expenses:
straight-line method assuming the lease period as useful lives of assets
and a residual value of zero.

25

12. Segment Information
Information regarding the business segments and total income of the Bank and its consolidated subsidiaries for the years ended March 31, 2006
and 2005 is summarized as follows:(a) Business segment information
Millions of yen
Banking
operations

Other
operations¥

90,421
260
90,68265,741
24,940¥11,289
2,848
14,138
13,625¥ 513

Total assets
Depreciation and amortization
Loss on impairment of fixed assets
Capital expenditures¥2,966,266
2,999
392
8,965

¥36,025
4,042
40
3,694

Year ended March 31, 2005

Banking
operations

Other
operations¥

80,798343
81,141
63,251
17,890¥10,9942,514
13,50912,359¥ 1,149¥

Total assets
Depreciation and amortization
Capital expenditures¥ 2,930,459
3,181
4,960

¥ 35,416
4,100
3,660

¥ 2,965,875
7,282
8,621

Year ended March 31, 2006

Banking
operations

Other
operations$

769,738
2,221
771,960
559,649
212,311$ 96,106
24,251
120,357
115,990$ 4,367$$25,251,269
25,5303,344
76,318$306,682
34,416348
31,448Year ended March 31, 2006

Total income and income before income taxes:
Total income from outside customers
Total income from intersegment transactions
Total
Total expenses
Income before income taxes

¥

¥

Total

Eliminations

101,710
3,109
104,820
79,367¥ 25,453¥¥3,002,292
7,041
433
12,659¥(9,785)———¥2,992,507
7,041
433
12,659Eliminations

Consolidated—(3,109)(3,109)(2,923)¥ (186)

Consolidated¥

101,710—
101,71076,443¥ 25,267

Millions of yen

Total income and income before income taxes:
Total income from outside customers
Total income from intersegment transactions
Total
Total expenses
Income before income taxes

¥

Total

—
(2,857)(2,857)(2,787)¥(69)¥¥ (11,726)——¥2,954,148
7,282
8,621

Total

Eliminations

Consolidated

865,845
26,472
892,318
675,639
216,678$—(26,472)(26,472)(24,888)$ (1,583)$$25,557,951
59,946
3,692
107,766$(83,301)———$25,474,650
59,946
3,692
107,766¥

91,793
2,857
94,651
75,61019,040¥¥91,793—
91,79372,822
18,970Thousands of U.S. dollars

Total income and income before income taxes:
Total income from outside customers
Total income from intersegment transactions
Total
Total expenses
Income before income taxes
Total assets
Depreciation and amortization
Loss on impairment of fixed assets
Capital expenditures

26

$

$

$

865,845—865,845
650,750
215,09413. Market Value of Securities(a) The market value of, and the valuation difference on, available-for-sale marketable securities at March 31, 2006 and2005 are summarized as follows:
Millions of yen

March 31, 2006

StocksBonds:
Government bonds
Municipal bonds
Corporate bonds
Other
Total

Cost

Corresponding
amount in thebalance sheet

Valuationdifference

Gain

Loss

¥ 34,395
379,179
343,243
20,335
15,601
37,349¥450,924¥ 54,061
371,575
336,086
19,98915,49937,605¥463,242¥19,666(7,604)(7,156)
(345)
(102)
256
¥12,318¥20,065
69
2
2
64
1,850
¥21,985

¥ 398
7,674
7,159
348
166
1,594
¥9,666

Cost

Corresponding
amount in thebalance sheet

Valuationdifference

Gain

Loss

¥ 37,051
365,441
343,924
16,4005,116
44,891¥447,384¥ 45,086
366,579
344,913
16,492
5,173
44,006¥455,673¥ 8,035
1,137
989
91
57
(884)
¥ 8,288¥ 9,296
1,161
1,012
91
57
723
¥11,181¥1,260
23
23
0
0
1,608
¥2,892Millions of yen

March 31, 2005

StocksBonds:
Government bonds
Municipal bonds
Corporate bonds
Other
Total

March 31, 2006

Cost

$ 292,800
3,227,887
2,921,966
173,109132,811
317,946$3,838,634

StocksBonds:
Government bonds
Municipal bonds
Corporate bonds
Other
Total

Thousands of U.S. dollars
Corresponding
amount in the
Valuationbalance sheet
difference$ 460,217
3,163,149
2,861,043
170,165
131,940
320,130$3,943,496$167,416(64,737)(60,922)(2,944)(870)
2,183$104,862

Gain

Loss

$170,809
591
21
20
549
15,754$187,155$ 3,393
65,32960,944
2,965
1,419
13,570$82,293(b) Available-for-sale securities sold during the years ended March 31, 2006 and 2005 were as follows:
Millions of yen
2006
2005

Proceeds from sales
Gain
Loss

¥35,5172,179
24¥81,013
2,090
514

Thousands of
U.S. dollars
2006$302,349
18,554212

27

14. Repayment Schedule for Bonds
The repayment schedule for bonds classified as available-for-sale securities which have definite maturities are summarized as follows:
March 31, 2006

Due within
1 year or less

¥35,406
4,896
18,455
12,055
5,830¥41,237

Due after
10 years¥ 6,073
3,150
484
2,438
9,095
¥15,169¥138,015
138,015——
13,424¥151,440

March 31, 2006

Due within
1 year or lessThousands of U.S. dollars
Due in 1 toDue in 5 to
5 years
10 years

Due after
10 years

Bonds
Government bonds
Municipal bonds
Corporate bonds
Other
Total

$1,640,714
1,617,642
8,936
14,134
5,813$1,646,527$301,409
41,682
157,104
102,62149,634$351,043

Bonds
Government bonds
Municipal bonds
Corporate bonds
Other
Total

¥192,734
190,024
1,049
1,660
682
¥193,417

Millions of yen
Due in 1 toDue in 5 to
5 years
10 years$51,702
26,818
4,124
20,75977,430$129,132$1,174,899
1,174,899——
114,283$1,289,183

15. Money Trusts
A classification of money trusts by purpose at March 31, 2005 and 2004 is summarized as follows:
March 31, 2006

Money trusts for trading purposes

March 31, 2005

Money trusts for trading purposes

Millions of yen
Amount in the
Valuationbalance sheet
difference¥1,129¥129

Thousands of U.S. dollars
Amount in the
Valuationbalance sheet
difference$9,618Millions of yen
Amount in the
Valuationbalance sheet
difference¥1,072¥72

The net valuation loss on money trusts for trading purposes has been included in “Income before income taxes and other.”28$1,106

16. Subsequent Events
Appropriations of retained earnings
At a shareholders’ meeting held on June 27, 2006, the Bank’s shareholders duly approved the following year-end appropriations of retained
earnings, which have not been reflected in the accompanying consolidated financial statements for the year ended March 31, 2006:
Year-end cash dividends (¥5.0 = US$0.042 per share)
Bonuses to directors and corporate auditors
Transfer to voluntary reserve

Millions of yen

Thousands of
U.S. dollars¥ 1,31450
11,000$11,193425
93,64017. Cash and Cash Equivalents
A reconciliation between cash and due from banks in the consolidated balance sheets at March 31, 2006 and 2005 and cash and cash equivalentsin the consolidated statements of cash flows for the year then ended is as follows:

Cash and due from banks
Time deposits
Ordinary deposits
Other deposits
Cash and cash equivalents

Millions of yen
2006
2005

Thousands of
U.S. dollars
2006¥71,543 ¥71,620
(350)
(550)
(2,977) (2,664)(4,014) (8,584)¥64,201 ¥59,820$609,039(2,981)(25,348)(34,171)$546,53729

30

Non-Consolidated Balance Sheets
Suruga Bank Ltd.

Thousands of
U.S. dollars(Note 2)Millions of yen

2006

2005

Change from
2005

2006

ASSETS:Cash and Due from Banks
Call Loans
Bills Bought
Monetary Claims Bought
Trading Account Securities
Money Held in Trust
Securities
Loans and Bills Discounted
Foreign Exchanges
Other Assets
Premises and Equipment
Deferred Tax Assets
Customers’ Liabilities for Acceptances and Guarantees
Reserve for Possible Loan Losses

70,215
200,601
—
397
499
2,246
467,2172,183,198
3,156
19,06845,137
17,532
7,590(38,854)

70,406
191,282
26,700
404
500
1,868
463,5222,129,649
705
20,42040,31528,365
9,008(42,189)

(190)
9,319
(26,700)
(7)
(0)
378
3,694
53,5482,451(1,352)
4,821(10,832)(1,418)3,334

597,733
1,707,685
—
3,384
4,249
19,126
3,977,335
18,585,154
26,872
162,329384,244
149,250
64,616(330,761)

Total Assets

2,978,008

2,940,961

37,04625,351,221

LIABILITIES AND STOCKHOLDERS’ EQUITY:
Liabilities
Deposits
Call Money
Borrowed Money
Foreign Exchanges
Other Liabilities
Reserve for Employees’ Bonus
Reserve for Employee Retirement Benefits
Reserves under Special Laws
Acceptances and Guarantees

2,796,672
822—
14
13,402
482
223
0
7,590

2,767,671—
5
7
20,240
477
328
0
9,008

29,000822(5)
7(6,838)5(104)—(1,418)23,807,545
7,000
—
123
114,089
4,108
1,902
0
64,616

Total Liabilities

2,819,207

2,797,738

21,46923,999,385

Stockholders’ Equity
Common Stock
Capital Surplus
Capital Surplus Reserve
Retained Earnings
Earned Surplus Reserve
Voluntary Reserves
Unappropriated Profits at the End of the Term
Net Unrealized Gains (Losses) on Securities, Net of Taxes
Treasury Stock

30,043
18,585
18,585
105,01330,04359,872
15,0977,202(2,044)30,043
18,585
18,58592,25330,04351,072
11,137
4,896(2,555)———12,759
—
8,800
3,959
2,305
511

255,752
158,217
158,217
893,957
255,752
509,680
128,523
61,309(17,401)

Total Stockholders’ Equity

158,800

143,223

15,576

1,351,836

2,978,008

2,940,961

37,04625,351,221

As of March 31,

Total Liabilities and Stockholders’ Equity
See notes to non-consolidated financial statements.

31

Non-Consolidated Statements of Income
Suruga Bank Ltd.

Thousands of
U.S. dollars(Note 2)Millions of yen

For the Years Ended March 31,

2006

2005

Change from
2005

2006

Ordinary Income
Interest Income
Interest on Loans and Discounts
Interest and Dividends on Securities
Trust Fees
Fees and Commissions
Other Operating Income
Other Income

89,89374,01069,9403,489
012,211
1,096
2,576

81,82068,27765,0673,073
010,404
1,328
1,809

8,073
5,732
4,872
415
0
1,806
(232)
766

765,249
630,033
595,388
29,702
0103,955
9,330
21,929Operating Expenses
Interest Expenses
Interest on Deposits
Fees and Commissions
Other Operating Expenses
General and Administrative Expenses
Other Expenses

67,158
6,755
1,759
7,130
263
36,487
16,52063,519
4,322
1,461
7,065
538
36,36815,223

3,639
2,432
298
65
(274)
118
1,296

571,70757,50814,98060,701
2,246
310,612140,637

Ordinary Profits

22,73518,301

4,434

193,542

Extraordinary Profits
Extraordinary Losses

2,927
637

1,382
1,467

1,544
(829)

24,9195,430

Income before Income Taxes and Others
Provision for Income Taxes and Others
Deferred Income Taxes
Net Income
Unappropriated Profits at the Beginning of the Term
Losses on Sales of Treasury Stock
Interim Dividends

25,024
1,437
9,283
14,304
1,652
71
787

18,216
1,058
6,713
10,444
1,357
8
655

6,808
378
2,570
3,859
294
62
131

213,031
12,23679,024
121,770
14,064606
6,704

Unappropriated Profits at the End of the Term

15,097

11,137

3,959

128,523

See notes to non-consolidated financial statements.

32

Non-Consolidated Statements of Stockholders’ Equity
Suruga Bank Ltd.

Thousand

Balance at March 31, 2004

Millions of yen

Number ofsharesCommonstock

CapitalsurplusLegalreserve

Voluntary
reserve

Retained
Net unrealized
Treasury
earnings
gains (losses) on
stock,(deficit) securities, net of taxes at cost

264,939¥30,043¥18,586¥30,043¥43,672¥ 9,443¥1,357¥(2,494)

3,539

(60)

4,896

(2,555)

Net income for the year
ended March 31, 2005

10,444

Cash dividends paid

(1,311)

Reversal of voluntary reserve

7,400(7,400)Bonuses to directors andcorporate auditors(30)

Losses on sales of treasury stock

(0)

(8)

Net change during the year
Balance at March 31, 2005

264,939

30,043

18,58530,04351,072

11,137

Net income for the year
ended March 31, 2006

14,304

Cash dividends paid

(1,443)

Reversal of voluntary reserve

8,800(8,800)Bonuses to directors andcorporate auditors(30)

Losses on sales of treasury stock(71)

Net change during the year
Balance at March 31, 2006

264,939¥30,043¥18,585¥30,043¥59,872¥15,097

2,305

511

¥7,202¥(2,044)

Thousands of U.S. dollars (Note 2)

Balance at March 31, 2005

Commonstock

CapitalsurplusLegalreserve

Voluntary
reserve

Retained
Net unrealized
Treasury
earnings
gains (losses) on
stock,(deficit) securities, net of taxes at cost

$255,752$158,217$255,752$434,768$ 94,814$41,684$(21,756)

19,624

4,355$61,309$(17,401)

Net income for the year
ended March 31, 2006

121,770

Cash dividends paid

(12,286)

Reversal of voluntary reserve

74,912(74,912)Bonuses to directors andcorporate auditors(255)

Losses on sales of treasury stock(606)

Net change during the year
Balance at March 31, 2006

$255,752$158,217$255,752$509,680$128,523

See notes to non-consolidated financial statements.

33

Notes to Non-Consolidated Financial Statements
Suruga Bank Ltd.

1. Summary of Significant Accounting Policies

4. Loans and Bills Discounted(a) Basis of Preparation(a) Loans and bills discounted at March 31, 2006 and 2005
were as follows:

The accompanying non-consolidated financial statements of
Suruga Bank Ltd. (the “Bank”) are prepared on the basis of accounting principles generally accepted in Japan, which are different in certain respects as to the application and disclosure requirements ofInternational Financial Reporting Standards, and are compiled fromthe non-consolidated financial statements prepared by the Company as
required by the Securities and Exchange Law of Japan.
The non-consolidated financial statements have been prepared on
the same basis as the accounting policies discussed in Note 1 to theconsolidated financial statements except that the accompanying financial statements relate to the Bank only, with investments in subsidiaries and affiliates being substantially stated at cost.
Certain reclassifications of the prior year’s non-consolidated
financial statements and the related footnote amounts have been madeto conform with the presentation in the current year.

2. Japanese Yen and U.S. Dollar Amounts
The Japanese yen amounts in the accompanying non-consolidated
financial statements are presented in millions, with fractions omitted.
Amounts stated in U.S. dollars are translated from Japanese yenamounts, solely for convenience, at ¥117.47 = U.S.$1.00, theexchange rate prevailing on March 31, 2006. The translation should
not be construed as a representation that Japanese yen could be converted into U.S. dollars at the above or any other rate.

3. Investment Securities
Investment securities at March 31, 2006 and 2005 were as follows:
Millions of yen
2006
2005

Thousands of
U.S. dollars
2006Japanese government bonds
Local government bonds
Corporate bonds
Corporate stock
Other securities
Total¥336,086
19,98916,11957,75037,272¥467,217¥344,913
21,751
5,763
47,521
43,572¥463,522$2,861,043
170,165
137,218
491,616
317,291$3,977,335

Shares of subsidiaries
included in corporate stock

¥

¥

$

34

712

712

6,067

Thousands of
U.S. dollars
2006

Millions of yen
2006
2005

Bills discounted
Loans on bills
Loans on deeds
Overdrafts
Total

¥

4,274
192,157
1,809,536
177,229¥2,183,198

¥

5,874
207,474
1,757,732
158,568¥2,129,649$

36,3891,635,804
15,404,240
1,508,719$18,585,154(b) Loans and bills discounted at March 31, 2006 and 2005
included the following items:
Thousands of
U.S. dollars
2006

Millions of yen
2006
2005

Loans to companies underbankruptcy procedures
Delinquent loans
Loans past due 3 months or more
Restructured loans
Total

¥

2,451
68,462
1,211
39,796¥111,922$ 20,864
582,804
10,309338,775$952,770¥

2,340
89,824
1,334
41,900¥ 135,398

5. Premises and Equipment
Premises and equipment at March 31, 2006 and 2005 were as follows:
Thousands of
U.S. dollars
2006

Millions of yen
2006
2005

¥15,648
22,04424,752
5,356
7,282
75,084(29,947)¥45,137

Land
Buildings
Furniture and equipment
Guarantee money, net
Software, net
Less: accumulated depreciation
Premises and equipment, net$133,211
187,660
210,716
45,59961,995639,183(254,939)$384,244¥15,397
21,94523,921
5,471
2,489
69,224(28,909)¥40,315

6. Deposits
Deposits at March 31, 2006 and 2005 were as follows:
Thousands of
U.S. dollars
2006

Millions of yen
2006
2005

Current deposits
Ordinary deposits
Deposits at noticeTime deposits
Other deposits
Total

¥

80,4071,183,381
18,0001,366,375
148,507¥2,796,672¥

75,132
1,096,698
11,8501,448,513
135,476¥ 2,767,671$

684,495
10,073,905
153,235
11,631,695
1,264,213$23,807,545

7. Common Stock

10. Other Operating Income and Expenses

Common stock was as follows:

Other operating income and expenses for the years ended March 31,
2006 and 2005 were as follows:(1) Authorized:(2) Issued andoutstanding:

400,000,000 shares no per value at March 31,
2006 and 2005
264,939,248 shares at March 31, 2006 and 2005

(3) Treasury stock: 1,970,000 shares at March 31, 2006

8. Capital Surplus and Legal Reserve
Under the Banking Law of Japan, an amount equivalent to at least 20
percent of cash dividends paid and other cash outflows from retained
earnings must be appropriated to the legal reserve until such reserveand the capital surplus account equal 100 percent of the Bank’s statedcapital.
In the case that the sum of the capital surplus account and the legal
reserve exceed 100 percent of the common stock account, then theamount of the excess is available for appropriation by resolution of theshareholders.

Millions of yen
2006
2005

Other operating income:Gain on foreignexchange transactions
Gain on sales of bonds
Gain on redemption of bonds
Total
Other operating expenses:
Loss on sales of bonds
Loss on redemption of bonds
Other
Total

87
222
786
¥1,096

¥ 169
1,159
—
¥ 1,328

$ 748
1,890
6,691
$9,330

¥

¥ 510
25
2
¥ 538

$ 206
1,913
127
$2,246

24
224
14
¥ 263

General and administrative expenses for the years ended March 31,
2006 and 2005 were as follows:
Millions of yen
2006
2005

Amounts per share of net assets are computed based on the number of shares of common stock outstanding at each balance sheet date,less treasury stock.
yen

Net income
Net assets
Diluted net stock¥

11. General and Administrative Expenses

9. Amounts per Share
The computation of basic net income per share is based on theweighted average number of shares of common stock outstanding during each year.

2006

2005

¥ 54.29603.68¥ 54.21¥ 39.70545.98¥ 39.67

Thousands of
U.S. dollars
2006

Salaries and allowances
Depreciation
Taxes
Other
Total

¥13,561
3,090
2,071
17,764¥36,487¥13,960
3,180
2,038
17,189¥36,368

Thousands of
U.S. dollars
2006$115,446
26,30917,631
151,224$310,612

U.S. dollars
2006$0.462
5.139$0.46135

36

Printed in Japan