JOYO BANKPROFILE
The Joyo Bank, Ltd., was established in 1935 out of the merger of theTokiwa Bank and Goju Bank (both founded in 1878), and celebrating its
125th year in Business.
As a leading financial institution in Ibaraki Prefecture and surrounding
regions, the Bank, with the philosophy of “Practicing sound management,
creation of values, and partnership with the home region,” is contributing
to the growth of its home region by providing stable and comprehensive
financial services.

Management Philosophy“Sound management, creation of value, and partnership with the home region”(1) Focusing on retail banking as our core business, Joyo Bank will pursue sound management and steady banking activities.
(2) Joyo Bank will create high-value business together with our customers, regional communities, and shareholders.
(3) By providing financial services in our base territory of Ibaraki Prefecture and adjacent areas, Joyo Bank will contribute to socialand economic progress in the home region.

Action Guidelines
We will— Provide the most appropriate products and services based on a keen understanding of our customers.
— Undertake steady banking activities and grow together with our customers.
— Seek to further improve our financial skills.

CONTENTS
1 Financial Highlights
2 Message from the President
4 70th Anniversary Commemorative Events
5 Business Highlights (non-consolidated basis)
6 Management Philosophy, Management Policy
8 Tackling Management Tasks
16 Corporate Social Responsibility (CSR)
21 Consolidated Balance Sheets
22 Consolidated Statements of Income/Consolidated Statements of Capital Surplus andRetained Earnings
23 Consolidated Statements of Cash Flows

24 Notes to the Consolidated Financial Statements
35 Report of Independent Certified Public Accountants
36 Non-Consolidated Balance Sheets
37 Non-Consolidated Statements of Income/Non-Consolidated Statements of Retained Earnings
38 Notes to the Non-Consolidated Financial Statements
43 Report of Independent Certified Public Accountants
44 Organization
45 Board of Directors and Corporate Auditors/
Market Business Group and Overseas Office
46 Service Network/Affiliated Companies
47 Corporate Data

FINANCIAL HIGHLIGHTS
Consolidated
THE JOYO BANK, LTD. and Consolidated Subsidiaries
Millions of Yen
Years Ended March 31

Thousands of
U.S. Dollars

2006

2005

2006

For the Year Ended
Total Income
Total Expenses
Income before Income Taxes and Minority Interests
Net Income¥ 182,781
138,874
43,907
24,815¥ 173,271
127,71245,55926,198$ 1,555,985
1,182,209
373,776
211,252

At the Year End
Total Assets
Deposits
Loans and Bills Discounted
Securities
Shareholders’ Equity
Capital Ratio¥7,352,922
6,166,008
4,391,666
2,489,550
488,80912.01%¥7,347,520
6,182,549
4,333,198
2,430,935
437,31711.75%$62,594,047
52,490,072
37,385,429
21,193,074
4,161,140¥¥ 213,397(160,154)(5,969)47,276
192,016$

For the Year Ended
Net Cash (Used in) Provided by Operating Activities
Net Cash Provided by (Used in) Investing Activities
Net Cash Used in Financing Activities
Net (Decrease) Increase in Cash and Cash Equivalents
Cash and Cash Equivalents at End of Year(73,506)
11,692(12,527)(74,322)
117,694(625,751)
99,540(106,645)(632,690)
1,001,910

Notes: 1. Japanese yen amounts are rounded down to the nearest million yen.
2. U.S. dollar amounts represent translation of Japanese yen at the exchange rate of ¥117.47 to US$1.00 on March 31, 2006.

Non-Consolidated
THE JOYO BANK, LTD.
Millions of Yen
Years Ended March 31

Thousands of
U.S. Dollars

2006

2005

2006

For the Year Ended
Total Income
Total Expenses
Income before Income Taxes
Net Income¥ 160,079
118,093
41,986
24,721¥ 151,464
107,705
43,75926,123$ 1,362,731
1,005,310
357,420
210,450

At the Year End
Total Assets
Deposits
Loans and Bills Discounted
Securities
Shareholders’ Equity¥7,340,658
6,181,063
4,433,701
2,489,359
488,207¥7,330,713
6,197,265
4,375,901
2,430,824
436,836$62,489,646
52,618,234
37,743,268
21,191,450
4,156,017

Notes: 1. Japanese yen amounts are rounded down to the nearest million yen.
2. U.S. dollar amounts represent translation of Japanese yen at the exchange rate of ¥117.47 to US$1.00 on March 31, 2006.

1

MESSAGE FROM THE PRESIDENT

Our aim is to provide high-quality comprehensive
financial services while doing our part to contributeto the development of our region.

The leap towards providing high-quality
comprehensive financial services
Following the expansion of our industry following deregulation and the emergence of new players from outside
the industry, the level of competition in the banking
sector has intensified beyond mere regional rivalry.
Here at Joyo Bank, we have been able to takethese changes in stride and strengthen our relationshipwith our customers, our neighbors and our shareholders
alike. In order to make the leap towards providing highquality comprehensive financial services, we are working
hard to hit the targets that we set out in our ninth
medium-term management plan (FY2005 to FY2007).
The current medium-term management plan features
three basic targets: strengthen profitability (increase
gross profits), attain a higher level of management control, and improve organizational strength. In addition tomaintaining a healthy financial structure and improving
profitability, we are working to improve the security offinancial transactions and ensure thorough compliance(complying with laws and regulations), because in thefinancial services industry, a bank’s business is dependent on the level of trust it enjoys with its clients.
Moreover, to provide a sufficient level of financial
services to customers in our region, we are following
our relational banking program called the RegionallyBased Financing Promotion Program (FY2005 to
FY2006), which calls on the Bank to contribute to therevitalization of the region in which it operates, provide a
sufficient level of financing for small- and medium-sizedbusinesses, and make the Bank more convenient forour customers.

2

Meeting a Variety of Needs: A Complete Range of
Products and Services
The customer is at the heart of every service we provide. At Joyo Bank, our products and services arecustomer-focused. We have put in place various policies to ensure that we know our customers’ needs andwork to satisfy them.
For our corporate customers, this means that we
make a positive effort to respond to their financial needs
and provide a variety of financial products. We support
all manner of financing methods, serving as an underwriter of private placement bonds and an organizer ofsyndicated loans. Moreover, we are able to offer assistance and solutions to issues involving public stock
offerings, business succession, M&A, and others. We
are strengthening our sales support and businessmatching activities through the Joyo Business Exchange
Society, which works on manufacturing topics, and theagribusiness-related Shoku no Business Meeting.
Moreover, we added a new service in October 2005:
our online banking portal for business clients, known as
JWEB OFFICE.
For our individual customers, we are expanding
sales of mortgage loan products, such as our complete
fixed-interest mortgage loan. We also make a positiveeffort to respond to customers’ needs in every stage of
their lives through other loan products, such as loans for
car purchases and education. We have already opened
12 Loan Plazas where customers can come in and talkto us about their loan needs and submit applications.
We opened our first Loan Plaza outside of Ibaraki
Prefecture in the city of Oyama, in neighboring Tochigi
Prefecture. We have also improved convenience forcustomers by opening for business on Sundays.
Moreover, we have started issuing our JOYO CARD
Plus credit card, along with a new credit provision service called Joyo Cash Pitstop, and are providing newservices in the card sector.

We are also continuing to increase the range of
products we offer to respond to the diverse asset management needs of our customers, from relatively lowrisk investment trusts to variable pension insurance forindividuals. In addition, we offer securities brokerage
services at five offices in Ibaraki Prefecture.
In response to the threat of theft and unauthorized
use of ATM cards, we have set up a new toll-free number — the Financial Crime Hotline — for customers tocall when their cards are lost or stolen. We have also
created an IC ATM card with a finger vein authentication
function, the Joyo IC Ace Card.
In the future, we will continue to put all of our effort
into providing a full range of information, products andservices for increased customer satisfaction.
Kunio Onizawa
President

Robust, Cooperative Banking at One with
the Community
Here at Joyo Bank, we aim to provide a wide range ofefficient and competent financial services and functions
in our region. We believe it is our duty as a regional
financial institution to contribute to the society andeconomy in our region. Now and in the future, we aredetermined to realize this contribution by providing highquality, comprehensive financial services, based on ourmanagement philosophy of robust, cooperative banking
at one with the community.
In July 2005, Joyo Bank celebrated the 70th
anniversary of its establishment. We would not havemade it this far without the loyal support and continued
patronage of all of those supporting us, and for this, wewould like to offer our most sincere appreciation. As aregional financial organization, our business is based on
the mutual harmony and prosperity of the region andcommunity that we serve. As part of this community, we
will continue to work together with our neighbors andmake strides towards further growth in the future.

We look forward to meeting your future expectations: each and every employee at Joyo Bank is putting
forth every effort to meet this challenge. I offer my sincere gratitude for your continued support.
Thank you,

Kunio Onizawa
President3

70TH ANNIVERSARY COMMEMORATIVE EVENTSIt has been 70 years last year since the Bank wasfounded on July 30, 1935, through a merger
between Tokiwa Bank (based in Mito City) andGojyu Bank (in Tsuchiura City). This great milestone
is a manifestation of the support and patronage of
our local customers and our shareholders all of us
here at the Bank wish to thank you. We will set our
70th year as a new starting line from which we will
spring forward into the future. And as a way toexpress our thanks to our customers, we held
several commemorative events last year.

Major Commemorative Events
Emergency Medical Service Activities
As a part of our efforts to contribute to the local community, we sponsored an “emergency response seminar” forBank employees so they can provide appropriate emergency care for the ill and injured in the event of a natural
disaster or accident. We also are encouraging Bank
employees to attend the “Emergency Medical Personnel
Developmental Course” and acquire the “Emergency
Medical Personnel Certification” offered by the Red Crossof Japan.
Crime-Preventing Personal Alarms
As part of our efforts to contribute to the creation of a
local community where we can live safely, we donatedcrime preventing personal alarms to 1st year elementary
school students in Ibaraki Prefecture and Iwaki City,
Fukushima Prefecture. We plan to continue this project
into the future.
“Joyo Loan Pass”
We initiated our new service, “Joyo Loan Pass” for individual customers. This pass contains the user’s credit
limit and is issued to certain mortgage loan customers
that have met specific criteria.
“Financial Seminar for High School Students”
We sponsored seminars oriented towards local highschool students. The objective of the seminars is to help
the students learn before they go out on their own about“saving,” “using,” “borrowing” and other banking services, as well as the importance of a household budget
and personal financial planning that focuses on theirlives ahead.
4

Environmentally-Friendly Lending, “Joyo Eco SelectLoans”
These are lending products with “the environment” as atheme that respond to a variety of financing needs andoffer preferred interest rates as a way to support customers who conduct environmentally-conscious
management.
Donations to the environmental preservation fund
Eco Ibaraki, a public trust
The fund was established to support environmental
protection work in Ibaraki Prefecture. Its purpose is tocreate a lush, green natural environment and pleasantliving environment, and to contribute to the promotion
and development of the regional community.
As part of our efforts to support the preservation of
the natural environment, we have donated ¥15 million to
the fund.
“Joyo Business Exchanges”
We sponsored “Joyo Business Exchanges,” which have amanufacturing theme and are aimed at the further revitalization of the local economy.
Various companies involved in manufacturing participated in this event and it served as a place for information exchange, company PR, technical consulting, andthe chance for interaction between many customers.
Joyo Corporate Internet Banking “JWEB OFFICE”“JWEB OFFICE,” a new service for our corporate andsole proprietorship customers, was initiated. This lowcost, highly convenient service allows customers to
conduct balance inquiries, transfers, etc., via the internet.

BUSINESS HIGHLIGHTS (NON-CONSOLIDATED BASIS)
Revenues and Earnings
Our business profits increased ¥6.2 billion (12.8%) fromthe previous year to ¥55.3 billion (US$471 million). Thiswas due to steady interest income and income from fees
and commissions, and increases in gains on bond transactions, mainly government bonds.
Furthermore, our core business profit*, which is anindicator of our base profitability, increased ¥1.0 billion(1.9%) to ¥53.7 billion (US$457 million).
Ordinary profit decreased ¥400 million (1.0%) from theprevious year, to ¥41.0 billion (US$349 million). This wasdue to a decline in gains on stock trading and an increasein expenses for bad debt disposal.
Net income for the term decreased ¥1.4 billion (5.3%)
from the previous year, to ¥24.7 billion (US$210 million),
due to the application of the new accounting standards
for the impairment of fixed assets.
*Core business profit is the amount derived by adding gains and losses
made from government bond trading and the amounts transferred toreserves for possible loan losses to business profits.

Deposits, Loans and Securities
Deposits for the term increased by ¥6.6 billion to a termend balance of ¥6,146.4 billion (US$52,323 million). Of
this amount, time deposits decreased by ¥96.4 billion toa term-end total of ¥2,545.2 billion (US$21,667 million),but ordinary deposits increased by ¥166.3 billion for aterm-end balance of ¥3,176.2 billion (US$27,038 million).
As we look to respond aggressively to the diversifying
asset management needs of our customers, we haveincreased our balance of assets in custody (investment
trusts, public bonds, etc.).
Loans for the term increased by ¥57.7 billion to aterm-end balance of ¥4,433.7 billion (US$37,743 million).
Of this amount, individual loans, mainly mortgage loans,increased by ¥36.0 billion to ¥967.3 billion (US$8,234
million). On the other hand, loans to small and mediumsized businesses for the term decreased by ¥17.9 billion
to a term-end balance of ¥1,909.6 billion (US$16,256
million).
Security holdings increased ¥58.5 billion during theyear to stand at ¥2,489.3 billion (US$21,191 million). We
have focused on investing in high-yield bonds. While
government bonds decreased by ¥92.5 billion to ¥730.1

billion (US$6,215 million), local government and corporate
bonds more than offset the decline. Thanks to a rise in
the stock market, our equity holdings grew by ¥118
billion during the year, to end at ¥308.7 billion (US$2,628
million).
Assets in custody saw steady increases in investment
trusts, government bonds designated for individual
investors, and pension insurance. Total assets in custodyincreased year-on-year by ¥177.2 billion to ¥851.9 billion(US$7,252 million).
Mortgage loans continue to be strong and increasedby ¥43.4 billion year-on-year to ¥816.0 billion (US$6,946
million). Consumer loans increased by ¥11.8 billion to¥337.6 billion (US$2,874 million).

Capital Ratio
The capital ratio is one of the most important indicators indetermining the health and stability of banking operations.
On a consolidated basis (including consolidated subsidiaries) the Bank’s capital was 12.01%, and on a nonconsolidated basis it was 11.84%, indicating that we
continue to maintain a high level in this area.
It should be noted that the level required for banks
complying to domestic standards is 4% or greater.

Consolidated Accounts
The Bank currently has ten consolidated subsidiaries.
Total income for the year increased by ¥10.2 billion to¥180.0 billion (US$1,532 million). Total expenses
increased by ¥10.8 billion to ¥137.2 billion (US$1,168
million). As a result of the above, gross business profit
was ¥42.7 billion (US$363 million) and net income was¥24.8 billion (US$211 million).
Cash and cash equivalents decreased by ¥74.3 billion
during the term to ¥117.6 billion (US$1,001 million) at theterm-end. This was a mixed result of a ¥73.5 billion
decrease from operating activities, mainly due todecrease in call money and increase in loans and a ¥11.6
billion increase from investing activities in securities operations as well as a ¥12.5 billion decrease from financing
activities due to the acquisition of own shares and dividend payments.

5

MANAGEMENT PHILOSOPHY, MANAGEMENT POLICY—9th Medium-Term Management Plan, Regionally-Based Financing Promotion Program—Management Philosophy“Stability, Cooperation, Partnership with the Home Region”
As a community-based financial institution, we think and act based on what we can do for our customers and ourcommunity.
With a management philosophy of “Stability, Cooperation, Partnership with the Home Region,” we will continue tocontribute to the development of the local society and economy by being diligent in our sales activities, conduct
healthy, stable operations, and be consistent in providing our local customers with high-quality, comprehensive financial services. We believe that staying true to our primary business of offering financial services is the best way for us tocontribute to the regional community.
In the idea of “putting the customer first,” by providing high-quality financial services that meet the needs of ourcustomers, we hope to maintain a high level of customer satisfaction as well as improve our health, profitability, andenterprise value.

Management Policy
9th Medium-Term Management Plan “Leaping toward a new growth stage”
The competitive environment has become significantly more intense as a new financial framework is constructed, one
which includes the introduction of new regulations for capital ratios, progress with deregulation has resulted in banks
greatly expanding the scope of their business activities, resulting in the reorganization of financial institutions and theemergence of other industry businesses into the financial sector. In response, in April 2005 we drafted and initiatedour 9th medium-term management plan which will help us improve the level of trust we receive from our customers
and shareholders, as well as to create an even firmer business foundation.

Plan Duration
April 1, 2005 – March 31, 2008 (3 years)

Our
Goal

To be a high-quality, comprehensive financial services provider

Through our 9th medium-term management plan, our goal is to be a comprehensive supplier of high-quality financial
services to support the reality of regional and business development and bountiful household finances.
• Understanding of our customers’ needs and acting on these sensitively(Increasing customer satisfaction)• Increasing profitability and stability and achieving increased shareholder value(Raising shareholder satisfaction)• Working toward individual growth and improving organizational vitality(Raising employee satisfaction)

6

Basic Goals

Regionally-Based Financing Promotion Program

In order to achieve sustained growth, improve enterprisevalue, and become a high-quality comprehensive financial
services provider, we have set three fundamental goals:
Improved profitability (by increasing gross profits);
improved operations management; and increased organizational vitality.
Also, as a financial service with a foundation built on
trust, we are working hard to improve security throughout
all our financial operations and to consolidate our compliance capabilities.

The local economy is the founding element of a regionalbank, and our mission is to contribute to the development of the local society and economy by providing the
local community with smooth financial services. Based on
this awareness, we have established our relationshipbanking program, the Regionally-Based Financing
Promotion Program over FY2005 and FY2006, and will
work on the following items in order to strengthen retailsales within our local community and contribute to therejuvenation of the regional economy.

Improved Profitability (Increased Gross Profits)
To ensure we provide a service that is trustworthy in theeyes of our customers and that we are able to live up to
the expectations of our shareholders, we must maintain astable and profitable financial position. We will work
toward improving profitability (increasing gross profits) by
focusing on local small to medium-sized businesses andindividual customers as our targets for increased lending
and asset deposit sales activities, and by expanding thescope of our business.

Revitalization of Local Businesses and Financing
for Small and Medium-Sized Businesses• Achieving a sufficient level of financing for small- andmedium-sized businesses and expanding our transactions with them
• Strengthening our support of start-ups and new
businesses• Strengthening our management consulting functions• Supporting our customers’ management reform andbusiness revitalization programs• Strengthening the training of personnel in the field ofcorporate rehabilitation

Improved Operations Management
As part of our efforts to increase our profitability, we willtake on appropriate levels of risk and invest in promising
sectors, and at the same time work toward “improving
operations management” by efforts that include strengthening our risk management functions and cost management structures.
Furthermore, to gain an even greater level of trustfrom our customers, we are working to ensure thoroughcompliance and improving security throughout our financial products and services. We also are working to standardize our main systems and improve the efficiency of
our system infrastructure.
Increased Organizational Vitality
It is a bank’s personnel, and their unified actions as anorganization, that supports the quality and competitiveness of financial services. In addition to focusing on personnel development and improving personnel expertise,
we focus on placing personnel in their optimal posts as away to establish a personnel structure that promotes
business expansion. By increasing organizational vitality
we will increase our ability to conduct sales activities.

Strengthening our Management Capability• Strengthening of compliance measures• Implementing risk management systems that are compliant with Basel II (the new capital adequacy regulatory
framework)• Implementing profit management systems, strategic
use of IT• Establishment of internal control system for financial
reporting
Improving Convenience for Regional Customers• Use our website to increase the disclosure of
information• Survey clients on the level of their customer satisfaction,and reflect the findings in our management policy(treatment of customers, service at branches and via
automated equipment, products, etc.)• Support regional revitalization

7

TACKLING MANAGEMENT TASKS
Asset Soundness
Results of Processing Non-Performing Loans in
FY2005
We have calculated write-offs and reserve amounts for
non-performing loans based on results from selfassessment and established rules on write-offs andprovision of reserves. The total credit costs for nonperforming loans processed in FY2005 totaled ¥16.1
billion (US$137 million).
In the following table, reversal of possible loan lossesof ¥8.2 billion for the previous term was offset by provision for specific reserves. Therefore total credit cost forthe previous term would amount to ¥18.4 billion prior tothe offset processing. Compared with this amount, total
credit cost for the reporting term is smaller by ¥2.3 billion.

March 31

Write-off of claims
Net provision for specific reserves
Provision for specific foreign borrowers
Losses on bulk sale of loans
Provision for other contingent losses
Other
Total

2006

Millions of Yen
2005 Change

8,182 8,032
150
7,454
— 7,454———226 1,442 (1,215)
290
225
64
0
481
(481)
16,153 10,181 5,971

Reserve for Possible Loan Losses
For debtors deemed to be in a state of bankruptcy andquasi-bankruptcy based on self-assessment, we
deducted the value of collateral amounts from the loan
amounts. After that, we provided reserves in an amountof 100% of the amount of claims thought to be unrecoverable. Furthermore, for debtors who are at risk, we took
into consideration the percentage of debtors who wentbankrupt and processed reserves to the value of 72.88%
for claims at risk of being unrecoverable. As a result,compared to the ¥41.5 billion total of non-performing
loans for which there is a risk of no recovery, we haveprovided reserves for bad debts totaling ¥30.2 billion(US$257 million), a reserve ratio of 72.96%.
Claims deemed to be unrecoverable or valueless8(¥43.7 billion) based on self-assessment have been executed on a “partial direct write-offs” basis and have been
deducted within the balance sheet.
For the general reserve for bad debts, we have conducted an appropriate reserve provision following theguidelines of the Financial Inspection Manual prepared by
the Financial Services Agency. For debtors requiring
attention, we have divided these into three categories toinclude debtors requiring management, and have provided reserves after consideration of the historical default
ratio of each category.
Moving forward, we will continue to improve our credit
risk management system, and conduct appropriate writeoffs and provide reserves, and work toward improving thehealth and stability of our assets.
Reserve Based on Self-Assessment

March 31, 2006

Claims of balance (i)Claims secured
by collateral (ii)Claims with uncertain
collectibility (A)=(i)-(ii)Specific reserve (B)Reserve ratio (B)/(A)Billions of Yen
Potentially Substantially
Legallybankrupt
bankrupt
bankrupt
borrowers borrowers borrowers

Total

121.7

11.9

4.8

138.5

80.3

11.9

4.8

97.1

41.4
0
30.1
0
72.88% 100.00%

0
41.5
0
30.2
100.00% 72.96%

Reserve for Possible Loan Losses
March 312006

General loan loss reserve
Specific reserve
Reserve for specific foreign borrowers
Reserve for possible loan losses
Reserve for assistance to specific borrowers
Reserve for possible losses on sale of loans
Reserve for other contingent losses

20.9
30.2
—
51.2
—
—
0.4

Billions of Yen
2005 Change

21.7
34.5
—
56.3
—
—
0.3

(0.8)
(4.2)
—
(0.5)
—
—
0

Enhanced Managerial and Financial Support for
Businesses
To increase the quality of assets, not only must weaggressively proceed with the disposal of non-performing
loans, but also strengthen our efforts to resolve problemson the debtor side such as declining performance resulting from changes in the economic climate or industrial
structure and declining financial positions resulting fromfalling asset values. This is the vital role we are expected
to fulfill in the revitalization and development of the local
economy and it is something that the entire Bank is
working toward.
Specifically, the “Company Management Support
Office” (19 people) has closely cooperated with ourbranch staff to provide management analysis, advice on
improvement strategies, support for the drafting of operational reform plans and, where necessary, support basedon external partnerships such as the Small to MediumEnterprise Rehabilitation Support Association. Throughthese activities, we are working toward supporting thecorporate rehabilitation and operational improvement ofour corporate customers.
As a result of strengthening our support activities
since FY2005, based on the Regionally-Based Financing
Promotion Program, we have seen improvements in the
borrower classifications for 31 of our debtors (debtors’
credit ratings based upon the financial positions of thecompanies in question). FY2006 is the final year of theProgram and this phase of the plan calls for further
improvements in the classification of our debtors, as well
as for emphasis to be placed on local revitalization funds
and financial support for small and medium-sized businesses. We aim to make our best efforts to energize theregional economy.

Risk-Monitored Claims Following the Banking Law
For risk-monitored claims subject to mandatory disclosure under the Banking Law, the Bank classified nonperforming loans as “loans in bankruptcy and dishonored
bills,” “delinquent loans,” “loans past due with respect tointerest payments for more than three months,” and“restructured loans,” based on asset self-assessment.
Based on the Regionally-Based Financing Promotion
Program, we have strengthened our stance on local
business revitalization, and applied more strict standards
for classification of our debtors. As a result, bad loans
subject to mandatory disclosure under the Banking Law
increased ¥25.0 billion year-on-year, to stand at ¥198.7
billion (US$1,691 million) at the term-end. Furthermore,
we maintained a high coverage ratio of 76.87%.
Risk-Monitored Assets under the Banking Law(Non-consolidated)
March 31

2006

Billions of Yen
2005 Change

Loans in bankruptcy and dishonored bills
4.8
4.3
Delinquent loans
133.4 109.0
Loans past due with respect to interest
payments for more than three months
2.2
1.6
Restructured loans
58.1
58.5
Total (a)198.7 173.6
Loans and bills discounted (b)4,433.7 4,375.9
Ratio of risk-monitored assets toloans outstanding (a)/(b)4.48% 3.96%
Portion covered by collateraland guarantees (c)152.8 131.9
Coverage ratio (c)/(a)76.87% 75.97%(Consolidated)
March 31

Loans in bankruptcy and dishonored bills
Delinquent loans
Loans past due with respect to interest
payments for more than three months
Restructured loans
Total

2006

0.4
24.4
0.5
(0.3)
25.0
57.7
0.51%
20.8
0.89%

Billions of Yen
2005 Change

4.9
134.9

4.5
111.0

0.4
23.8

2.4
58.5
200.8

1.9
58.9
176.5

0.4
(0.3)
24.3

Disclosure of the Bank’s Assets
We continue to view the improvement of asset quality asa major management issue and in addition to working
toward the disposal of non-performing loans and increasing the health of our assets, we endeavor to provide
disclosure of all information.

9

Claims Disclosed in Accordance with the Financial
Revitalization Law
Disclosure of the results of an asset assessments isrequired under the Financial Revitalization Law. The Bank
regards non-performing loans determined through asset
self-assessment to be loans in bankruptcy and quasibankruptcy as “bankrupt claims and the equivalent,”delinquent loans as “risk debt,” loans past due withrespect to interest payments of more than three months
and restructured loans as “claims requiring monitoring.”
In FY2005, we strengthened our support efforts for
local business revitalization. At the same time, we appliedstricter standards to the classification of our debtors.
As a result, claims subject to mandatory disclosure under
the Financial Revitalization Law increased ¥25 billion
year-on-year, to ¥199.0 billion (US$1,694 million). The
ratio of claims to total claims increased 0.50 percentage
points to 4.43%. Furthermore, the ¥0.3 billion differential
between the ¥199.0 billion in claims for disclosure, which
excludes “normal” assets, and the ¥198.7 billion in claims
for mandatory disclosure in accordance with Banking
Law represents non-loan claims including customers’
liabilities for acceptances and guarantees, unearned
interest, foreign exchange, and suspense payments.

10

Problem Assets under the Financial Revitalization Law
March 312006

Bankrupt and quasi-bankrupt assets (a)Doubtful assets (b)Substandard loans (c)Problem assets (A)=(a)+(b)+(c)Normal assets (d)Total (B)=(A)+(d)Ratio of problem assets (A)/(B)Billions of Yen
2005 Change

16.9
16.3
0.5
121.7
97.5
24.3
60.5
60.3
0.2
199.0 174.0
25.0
4,289.9 4,257.8
32.2
4,489.0 4,431.8
57.2
4.43% 3.92% 0.50%

Coverage Status at Fiscal 2005 Year-End

March 31, 2006

Problem assets (a)Assets secured bycollateral andguarantees (b)Reserve for possible
loan losses (c)Coverage ratio{(b)+(c)}/(a)Billions of Yen
Bankrupt andquasi-bankrupt Doubtful Substandard
assetsassets
loans
Total

16.9

121.7

60.5

199.0

16.8

80.3

16.6

113.7

0

30.2

9.1

39.3

100.00%90.77%

42.52%

76.89%

The disclosure-based assets for each borrower classification of self-assessment are summarized below.

Self-Assessment: Classification of Borrowers and Disclosure-Based Assets (Billions of Yen)
Self-Assessment
Classificationof Borrowers
Legally Bankrupt
Substantially Bankrupt
Potentially Bankrupt

Borrowers Requiring Caution

Normal Borrowers

Problem Assets
under Financial
Revitalization Law
Bankrupt andQuasi-Bankrupt
Assets 16.9

Legally
Bankrupt 4.9
Substantially
Bankrupt 12.0

Doubtful Assets
121.7

Risk-Monitored
Assets underthe Banking Law
Loans in Bankruptcy andDishonored Bills 4.8

Delinquent Loans
133.4

Substandard Loans
60.5

Loans Past Due with Respect
to Interest Payments forMore than Three Months 2.2
Restructured Loans 58.1

Subtotal 199.0

Subtotal 198.7

Normal Loans
4,289.9

Note: Assets covered by disclosure standards

Note: Categorization of Disclosure Standards

Financial Revitalization Law:
Loans, securities lending, foreign exchange, interest receivable,suspense payments, and customers’ liabilities for acceptanceand guarantees

Financial Revitalization Law:
Categorized by borrower basis, in accordance with selfassessment results. (As an exception, Substandard Loans are
categorized on individual loan basis.)

Banking Law:
Loans and bills discounted

Banking Law:
Loans to Legally Bankrupt Borrowers, Substantially Bankrupt
Borrowers, and Potentially Bankrupt Borrowers are categorized
on an individual borrower basis, in accordance with selfassessment results. Loans to Borrowers Requiring Caution aredisclosed on an individual loan basis.

11

Policies Regarding Capital
We are purchasing our own shares in the market with theaim of raising capital efficiency and improving shareholder
return. As announced in November 2005, the Bank’s
policy on shareholder return for the time being sets thegoal of returning an amount equivalent to at least 40% of
net income on a non-consolidated basis for the year, inthe form of cash dividends and acquisition cost of own
shares combined. Of this, at least a 20% equivalent
should be appropriated for dividends alone. In FY2005, in
accordance with the Bank’s policy, we purchased 9.95
million own shares at an acquisition cost of ¥7,223 million, including the purchase of shares less than the minimum trading unit. Moreover, in November 2005, in
accordance with Article 212 of the Commercial Code, weretired 13 million shares in treasury at a total disposal
cost of ¥4,549 million. As a result, the total number ofissued shares at year-end was 852,230,000.

Addressing the Start of Deposit Insurance Caps
Deposit insurance caps were implemented in April 2005.
“Deposit insurance caps” refers to a system where, in theevent that a financial institution falls into a state of bankruptcy and becomes unable to refund deposits, theprincipal deposit and subsequent interest up to a value of¥10 million will be returned to each depositor institution
by way of the Deposit Insurance Corporation of Japan.
In addition to improving products and services as wellas banking performance, we will continue to provide

timely and appropriate disclosure of management related
and other relevant information to ensure that our customers can feel secure when using our banking services.
Furthermore, we will begin offering “Settlement
Accounts (non-interest bearing ordinary deposit accounts
for payment settlements)”* beginning March 1, 2005.
* Settlement accounts are deposit accounts that meet theconditions of being “non-interest bearing, for payment on
demand, and providing a settlement service.” Deposit
accounts that meet these conditions are insured for their fullvalue. Settlement accounts include “checking accounts.”

The Deposit Insurance System
What is the deposit insurance system and the Deposit
Insurance Corporation of Japan?
The “deposit insurance system” is a system in which
insurance premiums are collected in accordance with the
Deposit Insurance Law from private financial institutions(financial institutions enrolled in the deposit insurance
system) and these premiums are used as funds to protect depositors in the event of a bankruptcy at an enrolled
financial institution where it becomes unable to refund
deposits. Management of the deposit insurance system isconducted by the Deposit Insurance Corporation ofJapan, which was established under joint capitalizationby the government, the Bank of Japan, and private financial institutions.
What is the scope of protection offered by the deposit
insurance system?

The Deposit Insurance System
Products eligible for deposit
insurance

Products not eligible for deposit
insurance

Settlement deposits (checking accounts, ordinaryaccounts that do not accrue interest)

Fully insured

Interest-bearing ordinary deposits, time deposits,
installment deposits, deposits at notice, savings
deposits, monetary trusts with guaranteed principal
recovery, financial debentures (debentures
deposited in the Bank’s custody only)

Up to ¥10 million of the principal deposit andsubsequent interest will be returned to each depositorof each institution. (*)

Foreign deposits, negotiable certificates of deposit,
monetary trusts without guaranteed principal
recovery, financial debentures (other than thosementioned above)

Not eligible for insurance protection (Refundedbased on the financial situation of the failed financial
institution. In some cases, the amount may bepartially reduced.)(*) Principal amounts over ¥10 million and said interest refunded based on the financial situation of the failed financial institution. In some case, the amount may be partially reduced.

12

Risk Management
While the industry has grown due to deregulation and theadvancement of financial technology, the risks carried bybanks continue to diversify and become ever more complicated. In this environment, we are working to meet thehighly advanced and various needs of our customers,
and we also have placed emphasis on the subject of “riskmanagement” to ensure the maintenance and improvement of healthy operations which is one of the most vital
issues facing management.
The Risk Management System
In our fundamental rules regarding risk management wehave outlined our fundamental thinking and management
procedures including policies regarding risk management, organizational structure, and responsibilities.
In business management, the departments that carryrisks when conducting transactions (marketing departments) and the departments that internally manage theresults of transactions (business administration departments) are separated, thus creating an organizational

structure that allows for mutual checks and balances.
The various risks that are incurred during banking operations are managed by specific risk management departments depending on the type of risk.
We also have established a risk management supervision department, which supervises the management
systems for all risks, and is responsible for holding meetings of the Risk Management Committee, which is anorgan for the examination of Bank-wide solutions torisks. The department also provides regular reports on
the overall status of risks to the Board of Directors.
Additionally, internal auditing staff verify that risk
management is functioning appropriately and effectively
in Risk Management Supervision Department and eachrisk management related department, thereby increasing
the effectiveness of the system.
Furthermore, during risk control, we operate a system
in which we first draft a plan, which is then tested. We
check the results of the test, and incorporate new findings in the system before full-scale implementation. (Thissystem conforms to the conception of the Deming Cycle.)

Risk Management System
Auditing by Corporate
Auditors

External Auditing

Risk Management
Departments
Management Strategy
Risk• Risk Management
Committee• ALM Committee• Sound Asset Committee

Board of Directors

Credit Risk
Market Risk
Risk Management
Supervision Dept.

Business Promotion
Departments

Liquidity Risk
Customers/
FinancialMarkets

Operational Risk

Executive Officer
Committee

Administrative Risk
Verification of suitability
and validity of the risk
management system

System Risk

Internal Auditing Dept.

Event Risk

Legal Risk

Administrative
Control Departments

Reputational Risk

13

Consolidated Risk Management
Not only do we individually manage the various diversifying and increasingly complicated risks that must be
assumed by a bank, we also statistically quantify thevarying risks and manage them as consolidated risks todetermine whether or not the burden is too large for ouroperational capacity.
Furthermore, every six months, we review our allocation of risk capital (the allowable amount of funds subject
to the various categories of risk) to the extent allowed on
the basis of the Bank’s owned capital. This allows us toensure healthy operations while allowing us to work
toward improving profitability and the efficient utilization ofcapital.
Credit Risk Management
Credit risk is the risk of not receiving principal or loan
payments as promised on loans due to a decline in thecredit situation of the debtor. This is seen as one of themost serious risks undertaken within banking operations.
In order to prevent the occurrence of non-performing
loans and increase the health of our assets, we pour all
our efforts into credit risk management.
• Credit Risk Management System
We have separated inspection departments frommarketing departments, and constantly work towardmaking inspections stricter while also focusing on
credit management before due date to prevent thestatus of a claim from deteriorating.
During self-assessments, which evaluate the healthof our loans, we employ a system where we conduct
an initial assessment at branch level. The head office
department in charge of credit screening (Department
of Inspections) checks this (the secondary assessment)
and then the asset auditing department (Corporate
Audit Division) audits the results. Based on theseresults, the Bank provides appropriate reserves andwrites down problem loans based on the assessments.

14

The Bank has adopted a basic credit screening
procedure to speed up the process of the decision
making and to ensure implementation of risk management. At the same time, we are building an asset selfassessment system capable of responding effectively
to each change in the borrower’s business performance or in the fair-market value of the collateral.
The Bank has also adopted an automated scoring
system for small loans to unify credit screening standards and improve efficiency.
• Quantification of Credit Risk Management
We quantify credit risk on the basis of individual borrowers’ corporate rating, which represents the financial conditions and quantitative evaluation. The size ofthe credit risk is recognized in terms of the normal
credit risk based on the average default ratio in thepast and additional credit risk caused by external
factors such as a substantial deterioration in Japan’s
economy as a whole.
• Loan Portfolio Management
We approach the entire loan assets as a portfolio andconduct credit risk management from a macro perspective. Based on quantitative data, we regularly
monitor credit risk exposure to avoid overconcentration on specific industries or corporations.
By diversifying our credit provisions, we strive to
reduce the amount of credit risk, which allows us to
improve our profitability and risk-taking capabilities.

Market Risk Management
Market risk refers to fluctuation in revenues caused byinterest rate changes, foreign exchange rate fluctuations,changes in the demand for funds, etc. within the financial
industry. Assets such as loans and securities and liabilities such as deposits are constantly influenced by suchchanges.
We manage all assets and liabilities (deposits, loans,securities, and others) comprehensively based on ALM:
asset and liability management, to manage market risks.
• Market Risk Management System
The Market Business Group has separated front andback office departments, and established middleoffice risk management sections to create a system ofmutual checks and balances.
• Market Risk Control
The scale of risks involved in assets and liabilities(deposits, loans, securities) go through a multifaceted
analysis — gap analysis, basis point value (BPV),
simulation of interest fluctuation, and Value at Risk
(VaR) — in order to clarify the state of risks and conduct asset allocation effectively and implement risk
control measures.
The Bank engages in financial derivative transactions to meet the diverse needs of its customers andhedge its own risks arising from interest fluctuations.
For the risks associated with financial derivatives, inaddition to conducting daily market price management and BPV analyses to accurately grasp the size
and nature of the risk, we also manage risk appropriately by establishing limits according to objectives.
Operational Risk Management
Operational risk is the risk of damages due improper
administration resulting in accidents or improprieties.
To avoid problems with customers, we provide guidance and training for quick and accurate clerical processing and also work to prevent accidents by reinforcing
internal audits.

System Risk Management
The Bank’s computer systems store customer transaction and other information and the realization of systemrisk could result in causing great harm to banking
customers.
We have implemented measures for basic guidelines
regarding information security and to promote tight security and protection.
• Management of Customer Information
In view of the importance of retained information, we
drafted our “Rules Regarding the Management of Vital
Information,” which clarifies our fundamental policies
regarding our information management system, conduct standards, roles, and responsibilities.
Furthermore, in conjunction with the full implementation of the “Law Concerning the Protection ofPrivate Information,” we have enhanced our information management system and improved security forbuilding access and building management in order tocontrol access by external parties. In addition, we
have varied the access privileges to customers
depending on the type of information and limitedaccess to the locations where information is stored.
Fundamentally we have banned the removal of
information from the premises and have enforced
transmission of faxes by internal lines and dataencryption in order to create a system that prevents
information from being leaked externally due to inappropriate actions or administrative errors. We plan toevaluate these measures as necessary.
• Backup Systems
In addition to establishing a remote backup center toensure that customers feel at ease when conducting
transactions, even during emergency situations, suchas a large-scale earthquake, we have drawn up
detailed contingency plans that specify emergency
contact information and other business procedures.

15

CORPORATE SOCIAL RESPONSIBILITY (CSR)
Corporate GovernanceFundamental Approach
In order to gain a greater level of trust from ourcustomers, the local region, and our shareholders, we
believe it is vital that we conduct efficient sound management that is transparent and based on the ideal of strict
compliance. Always aware of the importance of the corporate philosophy, we have established eight fundamental
principles and are working for the continuous strengthening and improvement of corporate governance.
Corporate Governance System of Joyo Bank
Joyo Bank employs the conventional Japanese statutory
auditor system for corporate governance. The Bank
appoints directors, statutory auditors and accounting auditors. Our corporate governance bodies are as follows:
General Meetings of Shareholders, Board of Directors, andBoard of Corporate Auditors (made up by statutory auditors). There are 11 members on the Board of Directors. The
two senior executives responsible for guiding the Bank are
the Bank President, who acts as the Chairman of the Board,and the Managing Director, who is in charge of all internalbank matters (such as internal audits and risk management).
The other nine members of the Board are regular executive
directors of the Bank. No external directors have been
appointed to the Board. The Bank has five statutory auditors(beginning with June 29, 2006). Three of the five are external
auditors who meet the legal requirements.
With respect to the functions of decision-making andsupervision by the management, the Bank’s Board of
Directors meets twice a month. The Executive Officer
Committee meets at least once a month to deliberate anddecide on important operational matters.

General Meetingof Shareholders

Decision-making/
Management
supervision
Board of Directors

To determine the major themes for management
audits, special committees (Compliance Committee,
General Budget Committee, ALM Committee, Risk
Management Committee, Sound Asset Committee, andJoint Systems Promotion Committee) are established anddecisions are made by these committees. The auditor
attends important meetings such as Board of Directors’
meetings and Executive Officer Committee meetings andcarry out business and asset status inspections, which
are based on the auditing policies and plans outlined at
Board of Corporate Auditors meetings (in principle, meeting once a month), to fulfill the audit duties by directors.

The Joyo Bank Corporate Philosophy
The Bank’s Corporate Social Responsibly (CSR) andPublic Mission
Always keep in mind the Bank’s CSR and public mission,and establish greater trust through sound and open
business management.
Compliance
Comply with the legal and social code and executehonest and open business activities.
Fight Against Crime
Ensure that the Bank has no relationship with organizedcrime.
Provide Valuable Financial Services
We will contribute to the development of the region inwhich we operate by responding to our customers’
needs and providing valuable financial services, taking
security issues into due consideration.

Internal Control Department
Operating execution
Executive Officer
Committee

Business Section

Retail Banking Business Group
Corporate Banking Business Group

Corporate Auditors

Credit Risk Management Group

Board of Corporate
Auditors

Operation Systems Group
Corporate Management Section

16

Public Business Group
Market Business GroupRelationship with the Local Community
We will communicate openly and freely with the community where we do our business, raising our transparency
through active disclosure of corporate information.
Respecting the Individual Rights of our Employees
We will provide a work environment that respects individuality and protects the rights of all employees.
Initiatives on Environmental Issues
We will work to reduce the burden on the environment
generated by our business activities, and will contributeto environmental preservation efforts by the local community through our core banking operations.
Involvement in Activities that Contribute to the Region
Our efforts to be a good corporate citizen mean that weare making a positive effort, involving ourselves in activities that contribute to the region.

Our Internal Control System
Compliance System• Based upon our management philosophy of robust,cooperative banking at one with the community, we aregiving the utmost precedence to compliance in ourmanagement approach. We have established codes ofcorporate ethics and business behavior. Moreover, wehave established a new set of guidelines to ensure thatevery director and employee complies with the law andwith the Bank’s Articles of Incorporation. Every company within Joyo Bank Group follows the same strict
guidelines. We have put standards into place to establish a compliance system across the Group as a whole.
• To ensure the best standards in terms of compliance,
we have established a Compliance Office that oversees the compliance program as defined by the Boardof Directors. The Office makes regular reports to theBoard. Moreover, we have established a whistleblower
hotline for the entire Group, called the Compliance
Hotline.
• In addition to the Compliance Committee, we haveappointed outside experts to form Compliance
Monitoring Committees, which monitor complianceissues on a regular basis.
• To ensure that our internal controls perform theirintended functions, our Corporate Audit Division,
which is independent from business execution departments, carries out internal audits across the Group.
Risk Management Standards and other Controls• In addition to establishing risk management standards
pertaining to all categories of risk, it is our aim to build
an internal risk management structure to ensure ourselves of a sound financial position and stable earnings
in the future. Moreover, we also have business contingency plans in place should any event disrupt our coresystems, such as natural disasters or a systems failure.
• The management of risk is the responsibility of various
risk management departments, as set down in the inhouse regulations. Comprehensive risk management
is carried out by one department that oversees risk
management for the entire Bank. The Board of
Directors has appointed one high-ranking officer tooversee the risk management program.
• We have established a Risk Management Committee
to measure the extent of various risks and make decisions on risk management policies. This committee
will meet regularly to ensure an accurate grasp of thesituation regarding risk management issues across the
Bank. The officer in charge of risk management will
make regular reports to the Board of Directors on thecurrent state of risk management and the countermeasures that the Bank is taking against risks.
System to Ensure the Effective Execution of theirDuties by the Directors of Joyo Bank
• We have put in place a business plan to clarify ouroperational targets, as well as an overall budget every
year, to define specific policies.
• We have determined the scope of decision-making
responsibilities for each director, to achieve efficient
operations.
• The Bank has also set up an Executive Officer Committee
to discuss important management issues of the Bank.
This committee is made up of executive directors andnon-board member executive officers. Moreover, whenrequired by the project at hand, special sub-committees
are convened, made up of the above-mentioned executive directors and non-board member executive officers,
as well as managers of headquarters divisions.
17Effective Auditing System• One experienced and competent staff member isassigned to assist the corporate auditors.
• To ensure the independence of this assistant from theinfluence of the business execution departments, theexecutive director in charge of all personnel transfers
should inform the corporate auditors of the decision.
The corporate auditors are entitled to express theiropinions and advice regarding the transfer of the staff
member who has been being selected for the duties.
• The corporate auditors attend meetings of the
Executive Officer Committee and offer their opinions
on the audit process and all related matters.
• The directors and employees of the Bank offer any
and all information the corporate auditors deem necessary to complete the audit.
• In order to improve the efficiency of the audit system,
the corporate auditors maintain open communication
channels with all headquarters departments other thanthe Internal Audit Department.
• The Chairman of the Board, President, and accounting auditors meet regularly with corporate auditors andexchange opinions on the complete range of issues
related to the audits.

Compliance System
The Bank places a high priority on strengthening its
compliance system to ensure sound banking operations,fulfill its social responsibility and public mission, andmaintain the trust of customers, shareholders and otherstakeholders.
We will push ahead with efforts to improve our compliance system, by means of the measures laid out below.
• Draft a compliance program each year and ensurethat executives are fulfilling their roles in compliance.
• Create a compliance system whose ultimate supervisory organ is the Board of Directors and place dedicated compliance officers in each major division toundertake wide-ranging inspections to address how
division are addressing legal issues.
• Internal compliance activities should be supplemented
by outside audits to inject the required professional
knowledge and objectivity. Accordingly, the Bank will
set up a Compliance Audit Committee, consisting ofoutside professionals including a lawyer and a CPA.
The Committee evaluates and audits the Bank’s compliance activities. The Bank is striving to further
strengthen and improve its compliance activities.

Our Conduct Guidelines
We will● get to know our customers and offer optimal products and services● expand business scale and grow with our customers● increase our financial expertise

Policy Regarding Solicitations for Financial Products
In accordance with Article 8 of the Law Concerning the Sale of Financial Products, our solicitations for products are basedon the following policies.
1. Our appropriate solicitations for financial products are conducted by matching the products with the knowledge,
experience, and financial status of the customer.
2. To ensure that our customers make choices based on their own judgment and at their own liability, we will provide
easy-to-understand explanations so that the customer has sufficient understanding of financial products and therisks attached.
3. We assure that sales are never based on the provision of misleading or false statements or information, nor do we act
in a manner leading to any misunderstanding by our customers.
4. Our solicitations will not be conducted at times or in locations that cause inconvenience.
5. We are setting up a training system within the Bank to ensure proper solicitation to our customers.
18

Protection of Confidential Private Information
As our policy to address the Law Concerning theProtection of Private Information, which was fully enacted
on April 1, 2005, we have drafted and published a privacy
policy. Under this policy, we will designate an administrator to assume the responsibility of handling information
appropriately as well as create a system for the protection and management of private information, including
the drafting of rules and measures to ensure securemanagement.
Furthermore, we will establish a customer service
desk to receive enquiries from customers regarding
private information, to ensure we offer an appropriate
response without delay.
Privacy Policy
We are working to build on the mutual trust we have withour customers, the region, and our shareholders, stressthe importance of our social responsibility, and offer highquality financial services. For the handling of personaldata, we have established the following policy based on
our respect for all individuals, and will put all our efforts
into the protection of private information.
Financial Crime Prevention
We are putting every effort into preventing crimes involving accounts held at our banks, and to protect the financial assets of our customers. We require identification
when a new account is set up or for a large-amounttransaction. In addition to working to prevent inappropriate transactions, when an account is used, we will cancel
transactions when considered necessary and will work
hard toward crime prevention. We also have implemented
measures to prevent the use of forged ATM cards.
Measures to Prevent Forged ATM Cards
We are taking the following steps to address the problem
of forged ATM cards.
• Single day maximum limit reduced to ¥2 million• Creation of a financial crime hotline (toll free)• Passwords to be changed at ATMs
• Contact customers in the event of an abnormaltransaction involving an ATM• ATM slips will no longer have account numbers
printed on them.
• Issue of biometric IC ATM cards
Thus far we have implemented measures such as
front and back mirrors near the ATM/CD, covered the CDwith a panel design to constrict viewing from otherangles, and other measures to ensure security.
As additional measures, we will take steps to protect
customer assets from criminals and improve overall
security.

Contributions to the Home Region
With a management philosophy of “Stability,
Cooperation, Partnership with the Home Region,” we willcontinue to contribute to the development of the local
society and economy through our marketing activities,
conducting healthy, stable operations, and comprehensively providing our local customers with high-quality,
comprehensive financial services.
We believe staying true to offering financial services isthe best way for us to contribute to the local region, andwe are actively displaying various information related toour contributions to the region.
* 1. “Region” refers to Ibaraki Prefecture and adjacent areas.
This area has the highest number of branches. We also havebranches in Fukushima, Tochigi, Saitama, Chiba, and Miyagi.
2. Lending to customers outside the local region is mainly
limited to individual lending to customers in Tokyo or Osaka
who have factories or offices in the area and who have a
deep relationship with local business.

Lending to Local Customers
Regional Lending and SME Lending
Regional loans total ¥3,513.5 billion (US$29,910 million),
representing over 80% of all loans.
Loans to SMEs reached ¥1,909.7 billion (US$16,257
million), which was 43% of all loans. Moreover, approximately half of the money that we loan out to companies
in the region goes to support small and medium-sizedbusinesses operating in our region.
Furthermore, the total number of SME borrowers is
33,272, 98.5% of those are local SMEs.
Individual Loans
Loans to individual customers remained buoyant in part19

due to steady mortgage loans, increasing to ¥967.3
billion. 99.7% of this was lending to local individuals,
which accounted for ¥964.6 billion. The percentage ofindividual loans to total loans was 21.8%, but the percentage of loans to local individuals out of all locallyprovided loans was 27.4%.
Provision of Optimal Financial Services to Local
Customers
Ibaraki Prefecture continued to hold more than a 40%
share of deposit and loan transactions.
Furthermore, 97.9% of deposits are deposits fromlocal customers, or a total of ¥6,022.7 billion (US$51,270
million), and 99.6% of assets in custody are from local
customers. Investment trusts, government bonds forindivisuals, and pension insurance premiums showed all
steady increase.

Revitalization of the Local Region
Corporate Development Efforts
Bank Funding
We provide financial support to companies developing
new business areas and customers working to start a
new business via the “Ibaraki Venture Business
Development Partnership” and the “Nikko Region-Based
Industry, Education, and Government-Partnered
Investment Partnership.”
Dealing with Agri-Business
Ibaraki Prefecture is an agricultural region, and there aremany developments taking place in the farming business.
As such, we are contributing to this regional industry andthe local economy by developing and supporting individuals and corporations who work in the agricultural field.
Tie-Ups with External Institutions
While working toward partnerships with industry, universities and local governments such as at university andindustry research centers, the Foundation for the
Promotion of Small and Medium Enterprises, theDevelopment Bank of Japan, the Shoko Chukin Bank,
the Norinchukin Bank, and the Japan FinanceCorporation for Small Businesses, we work to develop
and support new business.
20

Local Area Contributions through Regional Public
BodiesJoyo Bank is the designated financial institution for Ibaraki
Prefectural Government and 42 municipalities of thePrefecture, two municipalities in Tochigi Prefecture, andone municipality in Fukushima Prefecture (as of March
31, 2006). Joyo Bank has helped to develop and energize the region in many ways, such as by handling publicfunds and undertaking municipal bonds.

Environmental Preservation“Eco Ibaraki” Charitable Trust Environmental
Conservation FundIn October 1992, along with Nippon Fire and Marine(currently NIPPONKOA Insurance) and others we jointly
invested ¥100 million to establish the Charitable Trust“Eco Ibaraki,” an environmental conservation fund. This
fund is used to support environmental conservation
projects in Ibaraki Prefecture. Its purpose is to assist inbuilding a lifestyle that is in harmony with nature, and tocontribute to the expansion and development of the local
society.
After the establishment of the fund, we received many
contributions from companies and individuals who support the fund’s purpose of helping protect the environment. The balance of the fund as of March 2006 hadreached ¥182 million (US$1.5 million). In FY2005, thefund donated ¥2.5 million in grants to 21 recipients. The
fund has donated ¥35.91 million for the aggregate of 263
requests from universities and organizations.
Products Related to the Environment
To contribute to the preservation of the environment, wehave introduced environmental products (such as the
Joyo Eco Select Loan and the Eco Preferred-Rate
Mortgage Loan) and have implemented a financing system for environmental needs (funding for pollution control
facilities and a fund to remove asbestos from residential
facilities, among others). We are also investing in thestock of companies that have excellent environmental
records through our Eco Fund, an investment trust.
Moreover, in June 2006, Joyo Bank received anaward from the Ibaraki Prefectural Government in the“Environmental Project Division” for being a “Company
that is Kind to the Earth.”

F

I

N

A

N

C

I

A

L

S

T

A

T

E

M

E

N

T

S

Consolidated Balance Sheets
THE JOYO BANK, LTD. and Consolidated Subsidiaries

Millions of yen
March 31,

AssetsCash and due from banks (Note 3)
Call loans and bills purchased
Receivables under securities borrowing transactions
Commercial paper and other debt purchased
Trading assets (Note 4)
Money held in trust
Securities (Notes 5, 7 and 22)
Loans and bills discounted (Notes 6, 8 and 10)
Foreign exchanges
Other assets
Premises and equipment (Notes 3 and 19)
Deferred tax assets (Note 12)
Customers’ liabilities for acceptances and guarantees
Reserve for possible loan losses
Reserve for devaluation of investment securities
Total assets
Liabilities, minority interests and shareholders’ equity
Liabilities:
Deposits (Notes 7 and 13)
Call money and bills sold (Note 7)
Payables under securities lending transactions
Trading liabilities (Note 14)
Borrowed money (Note 9)
Foreign exchanges
Bonds
Due to trust account
Other liabilities
Reserve for employees’ retirement benefits (Note 11)
Reserve for other contingent losses
Deferred tax liabilities (Note 12)
Deferred tax liabilities for land revaluation (Notes 3 and 12)
Acceptances and guarantees
Total liabilities
Minority interests
Shareholders’ equity (Note 15):
Common stock:
Authorized — 2,167,515 thousand shares
Issued —852,231 thousand shares
Capital surplus
Retained earnings
Land revaluation reserve, net of taxes (Notes 3 and 12)
Unrealized gain on available-for-sale securities
Less, treasury stock at cost
Total shareholders’ equity
Total liabilities, minority interests and shareholders’ equity

2006

2005

Thousands of
U.S. dollars (Note 2)2006¥ 154,597 ¥ 247,082
11,998582—
25,95995,19757,427
29,342
15,762
2,725
1,012
2,489,550
2,430,935
4,391,666
4,333,198
1,084
1,112
55,41387,361
124,628
127,182—
27,87951,602
52,185(54,811)(60,022)(73)(140)¥7,352,922 ¥7,347,520$ 1,316,060
102,140—
810,398
249,786
23,206
21,193,074
37,385,429
9,231
471,728
1,060,936—
439,285(466,599)(626)$62,594,047¥6,166,008
157,118
280,759
117
87,3402,536
15,00017
57,9836,640
412
18,647
14,22751,602
6,858,412
5,700¥6,182,549
292,968
162,303
97
93,562134
15,00017
89,422
7,044
342
—
9,853
52,185
6,905,481
4,722$52,490,072
1,337,524
2,390,054
1,001
743,509
21,590127,692146
493,60256,532
3,515
158,739
121,118
439,285
58,384,379
48,52985,113
85,11358,58158,577
242,080
227,756
11,00014,585
107,086
63,726(15,052)(12,441)
488,809437,317¥7,352,922 ¥7,347,520

724,552
498,6932,060,787
93,641
911,610(128,143)
4,161,140$62,594,047

See accompanying notes to the consolidated financial statements.

21

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Consolidated Statements of Income
THE JOYO BANK, LTD. and Consolidated Subsidiaries

Millions of yen
Years ended March 31,

Income:Interest and dividend income:Interest on loans and discounts
Interest and dividends on securities
Other interest income
Fees and commissions
Trading income (Note 16)
Other operating income
Other income (Note 18)
Total income
Expenses:
Interest expenses:
Interest on deposits
Interest on borrowings and rediscounts (Note 17)
Other interest expenses
Fees and commissions
Other operating expenses
General and administrative expenses
Other expenses (Note 19)
Total expenses
Income before income taxes and minority interests
Income taxes:
Current
Deferred (Note 12)
Minority interests in net income of consolidated subsidiaries
Net income
Net income per share (in yen and dollars)

Thousands of
U.S. dollars (Note 2)

2006

2005

2006

¥ 80,963
43,6191,144
25,013429
4,474
27,137
182,781¥ 83,877
34,1801,072
23,471496
3,276
26,896173,271$ 689,228
371,323
9,743
212,931
3,656
38,089231,014
1,555,985

3,608
5,765
9,767
6,452
2,467
71,12539,686
138,874
43,907

2,745
4,005
5,985
6,305
5,432
70,13833,099127,71245,55930,72149,07983,15354,93021,002605,482
337,842
1,182,209
373,776702
17,462926¥ 24,815¥ 29.92577
17,886897¥ 26,198¥ 31.45

5,979
148,658
7,887$ 211,252$
0.255

See accompanying notes to the consolidated financial statements.

Consolidated Statements of Capital Surplus and Retained Earnings
Millions of yen
Years ended March 31,

Capital surplus:
Balance at beginning of year
Gains on disposal of treasury stock
Balance at end of year
Retained earnings:
Balance at beginning of year
Net income
Reversal of land revaluation reserve
Appropriation:
Cash dividends
Cancellation of shares in treasury
Reversal of land revaluation reserve
Bonuses to directors
Balance at end of year
See accompanying notes to the consolidated financial statements.

22

Thousands of
U.S. dollars (Note 2)

2006

2005

2006

¥ 58,577
4¥ 58,581¥ 58,574
3¥ 58,577$ 498,658
35$ 498,693¥227,756
24,815—¥205,464
26,198235$1,938,846
211,252—(5,370)(4,549)(521)(50)¥242,080(4,142)———¥227,756(45,717)(38,730)(4,440)(426)$2,060,787

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Consolidated Statements of Cash Flows
THE JOYO BANK, LTD. and Consolidated Subsidiaries

Millions of yen
Years ended March 31,

Thousands of
U.S. dollars (Note 2)

2006

2005

2006

Income before income taxes and minority interests
Depreciation
Amortization of goodwill
Net decrease in reserve for possible loan losses
Net decrease in reserve for devaluation of investment securities
Net increase in reserve for other contingent losses
Net (decrease) increase in reserve for employees’ retirement benefits
Interest and dividend income
Interest expenses
Net losses related to securities transactions
Net gains on money held in trust
Foreign exchange (gains), net
Losses on disposal of premises and equipment
Net increase in trading assets
Net increase in trading liabilities
Net increase in loans and bills discounted
Net increase in deposits
Net decrease in negotiable certificates of deposit
Net decrease in borrowed money excluding subordinated debt
Net decrease (increase) in due from banks excluding cash equivalents
Net increase in call loans and others
Net decrease (increase) in receivables under securities borrowing transactions
Net (decrease) increase in call money and bills soldNet increase in payables under securities lending transactions
Net decrease in foreign exchange (assets)
Net increase (decrease) in foreign exchange (liabilities)
Net increase in due to trust accountInterest and dividends received
Interest paid
Others, net
Subtotal
Income taxes paid
Net cash (used in) provided by operating activities¥ 43,907
16,281
1,194(5,211)
(66)
70
(403)
(132,578)
19,142
5,736(153)(31,783)383(13,579)
19(58,467)
5,847(22,387)(6,222)
18,162(49,185)
25,959(135,849)
118,45628
2,401—
131,211(19,416)
13,664(72,840)(666)(73,506)¥ 45,559
16,560—(6,398)
(126)
198
80
(126,451)
12,7368,647(0)(14,295)
1,083(1,047)
94(12,694)
68,258(45,964)(39)(15,254)(6,033)(25,959)
185,173
8,921
448
(62)
2
126,689(12,563)
6,335
213,900(503)
213,397$ 373,776
138,597
10,165(44,362)(568)
603(3,439)(1,128,618)
162,953
48,831(1,303)(270,571)
3,263(115,603)
167(497,724)
49,780(190,584)(52,967)
154,614(418,708)
220,988(1,156,460)
1,008,396
241
20,445—
1,116,978(165,286)
116,321(620,076)(5,674)(625,751)

Cash flows from investing activities
Purchases of securities
Proceeds from sales of securities
Proceeds from redemption of securities
Increase in money held in trust
Purchases of premises and equipment
Proceeds from sales of premises and equipment
Net cash (used in) provided by investing activities(865,873)
551,278
341,870(1,000)(14,653)72
11,692(884,315)
437,013304,228(1,000)(16,179)
98(160,154)(7,371,022)
4,692,929
2,910,279(8,513)(124,747)
614
99,540Cash flows from financing activities:
Proceeds from issuance of subordinated debt
Repayment of subordinated debt
Cash dividends paid
Cash dividends paid to minority shareholders
Purchases of treasury stock
Proceeds from sales of treasury stock
Net cash used in financing activities
Translation adjustment for cash and cash equivalents
Net (decrease) increase in cash and cash equivalents
Cash and cash equivalents at beginning of year
Cash and cash equivalents at end of year (Note 3)

15,000(15,000)(5,370)(0)(7,223)
66(12,527)
19(74,322)
192,016¥117,694——(4,142)(0)(1,859)31(5,969)3
47,276
144,739¥192,016

127,692(127,692)(45,717)(1)(61,492)
565(106,645)
166(632,690)
1,634,600$1,001,910

Cash flows from operating activities:

See accompanying notes to the consolidated financial statements.

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Notes to the Consolidated Financial Statements
THE JOYO BANK, LTD. and Consolidated Subsidiaries

1. Basis of Presentation of Consolidated Financial
Statements
The Joyo Bank, Ltd. (the “Bank”) maintains its accounting records
and prepares its consolidated financial statements in accordancewith accounting principles and practices generally accepted andapplied in Japan, the Commercial Code of Japan (the “Code”)
and the Banking Law of Japan, which are different in material
respects as to the application and disclosure requirements ofInternational Financial Reporting Standards. The accompanying
consolidated financial statements have been compiled from theconsolidated financial statements filed with the Prime Minister as
required by the Securities and Exchange Law of Japan.
For the convenience of readers outside Japan, certain items
presented in the original consolidated financial statements havebeen reclassified and rearranged.
In addition, the notes to the consolidated financial statements
include information which is not required under accounting
principles generally accepted in Japan but is presented herein as
additional information.

2. Japanese Yen and U.S. Dollar Amounts
As permitted by the Securities and Exchange Law of Japan,
amounts of less than one million yen have been rounded off. As aresult, the totals shown in the accompanying consolidated financial
statements (both in yen and U.S. dollars) do not necessarily agreewith the sums of the individual amounts. Solely for the convenienceof the reader, the U.S. dollar amounts represent a translation of theJapanese yen amounts at ¥117.47 = US$1.00, the exchange rate
prevailing on March 31, 2006.

3. Significant Accounting Policies(a) Consolidation
The accompanying consolidated financial statements include theaccounts of the Bank and 10 significant subsidiaries.
Nonconsolidated subsidiary: 1
Joyo No.1 Investment Limited Partnership was excluded from thescope of consolidation because its assets, ordinary income, net
income and retained earnings have no material impact on the
Bank’s financial position and results of operations.
All significant intercompany transactions have been eliminatedin consolidation. The difference between the cost of investments
and the equity in their net assets has been fully charged toincome in the year of acquisition.
(b) Translation of foreign currencies
Foreign currency-denominated assets and liabilities are translated
into Japanese yen at the rates prevailing at the balance sheet date.
No foreign currency-denominated assets and liabilities were heldby the consolidated subsidiaries.
(c) Transactions for trading purposes
Transactions for “trading purposes” (seeking to capture gains
arising from short-term changes in interest rates, currency
exchange rates or market prices of securities and other marketrelated indices or from arbitrage between markets) are valued atmarket or fair value, and have been included in trading assets andtrading liabilities on a trade date basis. Gain or loss on such tradingtransactions are reflected as trading income or trading expenses in
the consolidated statements of income.
Among the trading assets and liabilities, securities and monetaryclaims are carried at market value as of the balance sheet date.
24

Derivatives including swaps, futures, and options are valued
assuming settlement on the balance sheet date.
Trading income or trading expenses include interest received or
paid during the fiscal year. The year-on-year valuation differences of
securities and monetary claims are also recorded in the abovementioned accounts. As for the derivatives, assuming that thesettlement will be made in cash, the year-on-year valuationdifferences are also recorded in the above-mentioned accounts.
No consolidated subsidiaries have engaged in trading activities
or other transactions in order to generate profit from short-term
price fluctuations.
(d) Securities
Securities other than trading securities have been accounted
for by the following methods:
Marketable debt securities held to maturity are stated atamortized cost by the moving-average cost method. Other
available-for-sale securities of which market prices are available
are stated at fair value based on the market prices, etc. at the
fiscal year end, whereas those of which fair value is notavailable are stated at cost or amortized cost by the movingaverage cost method.
Unrealized gain or loss on available-for-sale securities (net ofthe related tax effect) has been reported as a component ofshareholders’ equity.
Investments in securities held in money trusts whose
investment is operated solely by the Bank on behalf of thetrustors, are stated at fair value.
(e) Derivatives
Derivatives positions held by the Bank (not includingtransactions for trading purposes) are stated at fair value.
(f) Depreciation of premises and equipment
Depreciation of premises and equipment held by the Bank iscalculated by the declining-balance method, except for buildings
acquired on or after April 1, 1998 of which depreciation is
calculated by the straight-line method. The estimated useful lives
are as follows:
Buildings: 6~50 years
Equipment: 3~20 years
Depreciation of premises and equipment held by the
consolidated subsidiaries is calculated principally by the decliningbalance method, based on the respective estimated useful lives of
the assets.
Depreciation of the leased assets of a consolidated subsidiaryis calculated by the straight-line method over the lease terms.
(g) Reserve for possible loan losses
The reserve for possible loan losses of the Bank is provided as
detailed below, in accordance with the internal rules for providing
reserves for possible loan losses:
For claims to debtors who are legally bankrupt (as a result ofbankruptcy, special liquidation, etc.) or who are substantiallybankrupt, a reserve is provided based on the amount of theclaims, net of the amounts expected to be collected by thedisposal of collateral or as a result of the execution of guarantees.
For claims to debtors who are not currently bankrupt, but arelikely to become bankrupt, a reserve is provided based on theamount considered necessary based on an overall solvency
assessment of the amount of claims net of the amounts expected
to be collected by the disposal of collateral or as a result of theexecution of guarantees.
For other claims, a reserve is provided based on the Bank’s
historical loan-loss experience.
All claims are assessed by the Business Section (at thebranches and the related head office divisions) based on the
Bank’s internal rules for the self-assessment of asset quality. The
Corporate Audit Department, which is independent of theBusiness Section, subsequently conducts audits of suchassessments, and a reserve is provided based on the audit
results.
The reserves of the consolidated subsidiaries are provided forgeneral claims at an amount based on the actual historical rate ofloan losses and for specific claims (from potentially bankrupt
customers, etc.) at an estimate of the amounts deemed
uncollectible based on the respective assessments.
For collateralized or guaranteed claims from debtors who arelegally or substantially bankrupt, the amounts of the claims
deemed uncollectible in excess of the estimated value of thecollateral or guarantees have been written off in aggregate
amounts of ¥48,367 million and ¥50,720 million as of March 31,
2006 and 2005, respectively.
(h) Reserve for devaluation of investment securities
A reserve for the devaluation of investment securities is provided
at the amount deemed necessary to cover estimated possible
losses on investments which the Bank and its consolidated
subsidiaries may incur in the future.
(i) Reserve for employees’ retirement benefits
Reserve for employees’ retirement benefits of the Bank and its
subsidiaries is provided for the amount deemed necessary, basedon estimated pension benefits obligations and pension plan
assets at the fiscal year end, to cover required retirement benefits
for eligible employees.
Prior service cost is deferred and amortized using the straightline method over certain years (10 years) within the averageremaining service period of the eligible employees.
Unrealized actuarial losses are deferred and amortized using
the straight-line method over a ten-year period commencing withthe following year, which is shorter than the average remaining
service period of the eligible employees.
Effective from the reporting term, the Bank has credited to
expenses the amount posted under “unrecognized plan assets”
resulting from changes in actuarial assumptions on retirement
benefit obligations pursuant to stipulations in the “Guidelines on
Implementation of Amendments to Accounting Standards for
Retirement Benefits” (Guidelines on Implementation of BusinessAccounting Standard No.7, issued on March 16, 2005). The term
“unrecognized plan assets” refers to the excess portion ofpension plan assets over retirement benefit obligations held by
the company in question, which resulted from changes in
actuarial assumptions on plan assets or recognition of priorservice obligations. Previously the Bank did not credit the amountposted under unrecognized plan assets to expenses. This change
has no effect on the Bank’s results of operations on aconsolidated basis.
(j) Reserve for other contingent losses
The Bank provides reserve for contingent liabilities not covered byother reserves in an amount deemed necessary based on
estimated losses in the future.

(k) Land revaluation reserve
In accordance with the Law concerning the Revaluation of Land,
the Bank revalued the land held for its operations on March 31,
1998. The net unrealized gain is presented in shareholders’ equity
net of the applicable income taxes as land revaluation reserve, netof taxes.
(l) Leases
Finance leases other than those which transfer the ownership ofthe leased property to the Bank and its consolidated subsidiaries
are accounted for as operating leases.
(m) Hedging
Hedging against interest rate changes
The deferred method of hedge accounting is applied totransactions to hedge against the interest rate risks associatedwith monetary claims and debt in accordance with the regulations
set out in the “Accounting and Auditing Treatment of AccountingStandards for Financial Instruments in the Banking Industry”(JICPA Industry Audit Committee Report No. 24).
The Bank assesses the effectiveness of such hedges in
offsetting movement of the fair value with the changes in interest
rates, by classifying the hedged items (loans) and the hedging
instruments (interest swaps) by their maturity. As to cash flow
hedges, the Bank assesses the effectiveness of such hedges infixing cash flows by verifying the correlation between the hedged
items and the hedging instruments.
In addition, a portion of deferred hedge losses and gains, which
was previously under the “macro hedge,” i.e., the management ofinterest rate risk arising from large-volume transactions in loans,
deposits and other interest-earning assets, and interest-bearing
liabilities as a whole using derivatives, in accordance with theregulations set out in the “Accounting and Auditing Treatment ofPreliminary Accounting Standards for Financial Instruments in the
Banking Industry” (JICPA Industry Audit Committee Report No.
15) is no longer subject to hedge accounting effective the year
ended March 31, 2005. The deferred hedge losses and gains
related to hedge instruments to which the Bank discontinued theapplication of hedge accounting, or applied fair value hedge
accounting as a result of the change mentioned above, areperiodically charged to interest expenses or interest income
effective fiscal 2003 by maturity and notional principal of eachhedging instrument.
Deferred hedge losses under macro hedge stood at ¥3,632
million and ¥4,975 million at March 31, 2006 and 2005, respectively.
Hedging against foreign exchange fluctuation risk
The deferred method of hedge accounting is applied totransactions to hedge against the foreign exchange fluctuation
risks associated with monetary claims and liabilities denominatedin foreign currencies, in accordance with the regulations set out inthe “Accounting and Auditing Treatment of Accounting Standards
for Foreign Currency Transactions in the Banking Industry” (JICPA
Industry Audit Committee Report No. 25).
To minimize foreign exchange fluctuation risk on monetaryclaims and liabilities, the Bank engages in currency swaps, foreignexchange swaps, and similar transactions. The effectiveness ofthese transactions in the hedging of the foreign exchange risks ofmonetary claims and liabilities denominated in foreign currencies
is assessed through comparison of the foreign currency positionof the hedged monetary claims and liabilities, with that of thehedging instruments.
25

(n) Consumption tax
Consumption tax is excluded from transactions reported by the
Bank and its consolidated subsidiaries. However, non-deductible
consumption tax on premises and equipment is charged toincome as incurred.
(o) Earnings per share
The computation of earnings per share of common stock isbased on the weighted average number of shares outstanding
during each year.
(p) Statements of cash flows
Cash and cash equivalents in the statements of cash flows
represent cash and due from banks in the consolidated balance
sheets, excluding deposits with banks other than the Bank ofJapan as well as the time deposits of certain consolidated
subsidiaries.
Millions of yen
March 31,

Cash and due from banks
Deposits with banks other thanthe Bank of Japan
Time deposits of the consolidated subsidiaries
Cash and cash equivalents

2006

2005

¥154,597¥247,082(36,853)(55,015)(50)(50)¥117,694 ¥192,016(q) Application of newly established accounting standard for
impairment of fixed assets
Effective April 1, 2005, Joyo Bank has applied the “AccountingStandards for Impairment of Fixed Assets” (“Opinion Concerning
Establishment of Accounting Standard for Impairment of Fixed
Assets,” issued by the Business Accounting Council on August 9,2002) and the “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 a result, income before income taxes and minority interests
decreased by ¥1,194 million on a consolidated basis.
Regarding banking operations, fixed assets are stated at cost lessaccumulated depreciation, pursuant to the Enforcement Ordinanceof the Banking Law, and the accumulated impairment loss is also
deducted from the book value of each asset.

4. Trading Assets
Millions of yen
March 31,

Trading securities
Trading securities-related financial derivatives
Trading-related financial derivatives
Other trading assets
Total

26

2006

2005

¥ 2,033
5
304
26,998¥29,342¥ 2,536—
227
12,998¥15,762

5. Securities
Millions of yen
March 31,

Japanese government bonds
Japanese local government bonds
Corporate bonds
Corporate stocks
Other securities
Total

2006

2005

¥ 730,151 ¥ 822,681
317,583
282,789
341,167
330,631
308,979
190,815
791,668
804,016¥2,489,550 ¥2,430,935

Note: 2005: Securities held by the Bank under cash-collateralized securities loantransactions that the Bank has the right to freely dispose of through selloffs or re-collateralization, amounted to ¥26,016 million as of the year-end.
2006: Securities include ¥66 million of investments in nonconsolidated subsidiaries.

6. Bills Discounted
Bills discounted are accounted for as financial transactions inaccordance with JICPA Industry Audit Committee Report No. 24.
The Bank has the rights to sell or pledge bank acceptancesbought, commercial bills discounted, documentary bills andforeign exchanges bought without restrictions. The face value atMarch 31, 2006 and 2005 totaled ¥48,468 million and ¥52,729
million, respectively.

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

Pledged assets:
Securities
Loans
Liabilities covered by pledged assets:
Deposits
Call money
Payables under securities
lending transactions

2006

2005

¥422,069
52,044¥447,698—

30,29350,00026,581
107,000

280,759

162,303

In addition to the above, securities amounting to ¥56,550 millionand ¥59,661 million at book value were pledged as collateral inconnection with exchange settlements and futures transactions
as of March 31, 2006 and 2005, respectively.
One consolidated subsidiary had pledged its lease receivables
amounting to ¥4,652 million and ¥5,375 million as collateral forborrowed money of ¥3,390 million and ¥4,062 million as of March
31, 2006 and 2005, respectively.
Lease deposits as of March 31, 2006 and 2005 of ¥4,079
million and ¥4,161 million, respectively, have been included in
premises and equipment. Initial margins on futures transactions
as of March 31, 2006 and 2005 of ¥160 million and ¥160 million,
respectively, have been included in other assets.

8. Commitments and Contingent Liabilities

11. Employees’ Retirement Benefits

Overdraft facilities and line-of-credit contracts are agreements
under which, subject to compliance with the contractual
conditions, the Bank or consolidated subsidiaries pledge toprovide clients with funds up to a fixed limit upon submission of aloan application to the Bank. The unused amount related to such
facilities/contracts stood at ¥1,381,900 million and ¥1,327,114
million at March 31, 2006 and 2005, respectively. Of this amount,facilities/contracts which expires within one year or which areunconditionally cancelable at any time, totaled ¥1,289,385 millionand ¥1,250,064 million at March 31, 2006 and 2005, respectively.
Most of these agreements will expire without the clients’ having
utilized the financial resources available to them, and the amountof the nonexecuted financing will not necessarily impact on the
Bank or its consolidated subsidiaries’ future cash flows. Most ofthese facilities/contracts contain a clause which allows the Bankor its consolidated subsidiaries to reject a loan application or to
reduce the upper limit requested in view of changing financial
conditions, credit maintenance and other reasonable concerns.
When necessary, the Bank will demand collateral such as realestate or marketable securities at the date on which an
agreement is entered into. In addition, after facilities/contracts areset forth the Bank will regularly assess the business status of theclients, based on predetermined internal procedures and, when
prudent, will revise the agreements or reformulate their policies tomaintain creditworthiness.

(a) Outline of current retirement benefit system
The Bank and its consolidated subsidiaries have adopted defined
employees’ retirement benefit plans, i.e., the employees’ welfare
pension fund supplemented by the employees’ public pension
system and lump-sum retirement benefits. In addition, extra
benefits may be paid on a case-by-case basis. The Bank has
established a employees’ retirement benefit trust. As of the end of
the year under review, the Bank and 10 consolidated subsidiaries
have lump-sum severance payment systems for employees. The
Bank and its consolidated subsidiaries have jointly established afund under a defined benefit pension plan.

9. Borrowed Money
Borrowed money at March 31, 2006 and 2005 included
subordinated debt of ¥57,000 million and ¥57,000 million,
respectively.

(b) The following tables set forth the changes in the net retirement
benefit obligation, the plan assets and the funded status of the
Bank and its consolidated subsidiaries at March 31, 2006 and2005:
Millions of yen
March 31,Retirement benefit obligation
Fair value of plan assets
Unfunded retirement benefit obligation
Unrecognized net retirement benefit
obligation at transition
Unrecognized actuarial loss
Unrecognized prior service cost
Net retirement benefit obligation
Prepaid pension costReserve for employees’ retirement benefits

2006

2005

¥(59,333)
64,5195,185¥(58,653)
44,406(14,247)—(8,957)860(2,911)
3,728¥ (6,640)

—
9,537
959
(3,750)3,294¥ (7,044)

Notes: 1. The above amounts do not include any extra benefits.
2. The consolidated subsidiaries have adopted a simplified method for the
calculation of their retirement benefit obligation.

10. Non-Performing Loans
In accordance with the disclosure requirements under the Rules
for Bank Accounting in Japan, the balance of loans and bills
discounted at March 31, 2006 and 2005 included the following
non-performing loans:
Millions of yen
March 31,

Loans in bankruptcy and dishonored bills
Delinquent loans
Loans past due with respect to interest
payments for more than 3 months
Restructured loans
Total

2006

¥

2005

4,993
134,921¥4,568
111,080

2,436
58,512¥200,863

1,975
58,901¥176,527

Notes: 1. Loans in bankruptcy and dishonored bills refers to loans (excluding
charged-off amounts) stipulated in Article 96, Paragraph 1, Item 3 (a) to (e)or Item 4 of the Enforcement Regulation to Corporation Tax Law (1965
Enforcement Regulation No. 97) to which accrued interest receivables are
not recognized as accruals for accounting purposes as no repayment ofprincipal or payment of interest have been made for a considerable period.
Delinquent loans refers to loans with respect to which accrued interest
receivables are not recognized as accruals for accounting purposes,
excluding loans falling into the category of restructured loans.
Loans past due with respect to interest payments for more than 3 months
refers to loans with respect to which repayment of principal or payment ofinterest are past due three months or more, excluding loans falling into thecategories of loans in bankruptcy and dishonored bills or delinquent loans.
Restructured loans refers to loans to borrowers to whom financial support isgiven in the form of reduction in interest, waiver of repayment of the principal or payment of interest, or debt forgiveness with the aim of corporate
rehabilitation, excluding loans falling into loan categories mentioned above.

(c) Cost for retirement benefits of the Bank and its consolidated
subsidiaries included the following components for the years
ended March 31, 2006 and 2005:
Millions of yen
Years ended March 31,

2006

2005

Service cost
Interest cost
Expected return on plan assets
Amortization:
Amortization of prior service cost
Amortization of unrecognized actuarial loss
Total retirement benefit cost
Gains resulting from adoption of new accounting
standards for the new accounting system forenterprise pension funds
Total¥1,9171,000(561)¥2,088
989
(549)

98
1,388
3,843

24
1,101
3,654

—
¥3,843(74)¥3,579Note: Retirement benefit cost of consolidated subsidiaries which is calculated bysimplified method has been included in “service cost” referred to above.

2. The above amounts are stated before the deduction of the reserve forpossible loan losses.

27

(d) The assumptions used in accounting for the defined benefit
plans for the years ended March 31, 2006 and 2005 were as
follows:
Years ended March 31,

2006

Discount rate
Expected rate of return on plan assets
Periodical allocation of estimatedretirement benefits
Amortization period of prior service cost
Amortization period of actuarial gain/loss

2.0%
3.5%

2005

2.0%
3.5%

Straight-line method
10 years
10 years
10 years
10 years

12. Deferred Tax Assets
Millions of yen
March 31,

Deferred tax assets:
Reserve for possible loan losses
Reserve for employees’ retirement benefits
Devaluation of securities
Net operating loss carry forwards
OthersValuation allowance
Total
Deferred tax liabilities:
Unrealized gain on available-for-sale securities
Retirement benefit trust
Reversal of reserve for possible loan losses
after elimination of intercompany balances
OthersTotal
Net deferred tax (liabilities) assets

2006

2005

¥33,621
10,592
4,898
323
15,883(1,990)¥63,328¥33,922
10,534
5,258
16,184
15,967(1,361)¥80,505¥(72,424)(9,495)¥(43,093)(9,495)(21)(33)(81,975)¥(18,647)

(24)
(12)
(52,625)¥27,879

Note: Description is omitted as the difference between the statutory tax rate and theeffective tax rate under tax-effect accounting is smaller than one-twentieth of
the statutory tax rate.

The Code provides that neither additional paid-in capital nor the legal
reserve had been available for dividends, but both might be used toreduce or eliminate a deficit by resolution of the shareholders or may betransferred to common stock by resolution of the Board of Directors. On
October 1, 2001, an amendment (the “Amendment”) to the Codebecame effective. The Amendment provides that if the total amount of
capital surplus and the legal reserve exceeds 100% of the common
stock, the excess may be distributed to the shareholders either as areturn of capital or as dividends subject to the approval of theshareholders. In addition, the Amendment eliminates the stated parvalue of the Bank’s outstanding shares, which resulted in all outstanding
shares having no par value as of October 1, 2001. The Amendment
also provides that all share issuances after September 30, 2001 will beof shares with no par value. Prior to the date on which the Amendment
came into effect, the Bank’s shares had a par value of ¥50.

16. Trading Income
Millions of yen
Years ended March 31,

2006

2005

Revenue from trading securities
Revenue from trading-related financial derivatives
Other trading revenue
Total

¥302
104
21
¥429

¥351
133
11
¥496

17. Interest on Borrowings and Rediscounts
Millions of yen
Years ended March 31,

Call money and bills sold
Securities lending transactions
Borrowings
Total

2006

2005

¥2,838
1,668
1,257¥5,765¥1,1391,458
1,408¥4,005

13. Deposits
Millions of yen
March 31,

Current deposits
Time deposits
Negotiable certificates of deposit
Others
Total

2006

2005

¥3,420,281 ¥3,260,011
2,539,831 2,634,939
29,94952,336
175,946
235,261¥6,166,008 ¥6,182,549

14. Trading Liabilities
Millions of yen
March 31,

2006

2005

Trading securities-related financial derivatives
Trading-related financial derivatives
Total

¥ —
117
¥117

¥ 3
94
¥97

15. Shareholders’ Equity
In accordance with the Banking Law of Japan, the Bank has provided
a legal reserve by appropriation of retained earnings, which is included
in retained earnings. The Banking Law of Japan provides that an
amount equivalent to at least 20% of the amount to be disbursed as
distributions of earnings be appropriated to the legal reserve until the
total of such reserve and the capital surplus equals 100% of thecommon stock.

28

18. Other Income
Millions of yen
Years ended March 31,

Other ordinary income
Gain on disposal of premises and equipment
Gains on collection of loan assets
Reversal of reserve for possible loan losses
Gains on liquidation of the employees’ welfare
pension fund resulting from the establishmentof a defined benefit pension plan
Total

2006

2005

¥24,414—
2,722—¥23,454
5
2,617
744

—
¥27,137

74¥26,896

19. Other Expenses
Millions of yen
Years ended March 31,

Losses on disposal of premises and equipment
Losses on impairment
Write-offs of claims
Write down of equity shares
Losses on sale of claims
Others
Total

2006

2005

383
1,194
9,881
135
226
27,867¥39,686¥ 1,089
—
9,787
281
1,448
20,492¥33,099¥

Effective from the current year, the Bank and its consolidated
subsidiaries have adopted the standard for impairment of fixed
assets.
Impairment losses were recorded in an aggregate amountdeemed irrecoverable on idle assets, primarily located in Ibaraki
Prefecture.
The impairment losses consisted of ¥1,056 million classified
under land, ¥135 million classified under buildings and ¥2 million
classified under equipment. Concerning facilities for business,every branch is, in principle, designated by the Bank as thesmallest unit for recognition and measurement of impairment loss,
taking into consideration cash flows in the region in question. In
the case of idle assets, individual assets are assessed asmeasurement units. Regarding head office buildings, operation
centers, dormitories, and housing and welfare facilities, thesefacilities are classified as the Bank’s common property, as theygenerate no cash flows.
The recoverable amounts used for the measurement of such
impairment losses are net sales prices, which are calculated on
the basis of appraisal values after deduction of the estimated costof disposal. In the case of calculation of the recoverable amounts
using future cash flows, the present value of the discounted cash
flows is employed. The annualized discount rate is currently 4.3%.

20. Accumulated Depreciation of Premises and Equipment
Accumulated depreciation of premises and equipment at March
31, 2006 and 2005 amounted to ¥141,531 million and ¥138,658
million, respectively.
Accumulated advanced depreciation on premises and equipment
amounted to ¥5,835 million.(No advanced depreciation wasrecorded for the current year.)

21. Segment Information(a) Business segment information
Segment information by type of business for the years ended
March 31, 2006 and 2005 are summarized as follows:
Millions of yen
Year ended
March 31, 2006

Banking
operations

Leasing

Other

Total

Millions of yen
Year ended
March 31, 2005

Banking
operations

Leasing

Other

Total

Eliminations Consolidated

Ordinary income:Ordinary income
from externalcustomers¥ 147,482 ¥17,055 ¥ 5,292 ¥ 169,830 ¥— ¥ 169,830
Ordinary income
from internaltransactions
626
2,331 5,551
8,510(8,510)—
Total
148,109 19,387 10,843
178,340(8,510)169,830
Ordinary expenses
106,596 18,557 9,870
135,025(8,534)
126,491
Ordinary income(loss), net¥ 41,512 ¥ 829 ¥ 972 ¥ 43,314 ¥(23) ¥ 43,338
Assets¥7,333,540 ¥51,987 ¥31,208 ¥7,416,736 ¥(69,216) ¥7,347,520
Depreciation
2,936 13,507
116
16,560(0)
16,560Capital expenditures
2,994 13,603
513
17,111—
17,111
Notes: 1. Classification is made according to nature of businesses of consolidated subsidiaries. In addition; “other” is guarantee business etc.
2. Instead of the net sales and the operating income of a non-financial company,
ordinary income and ordinary expenses are indicated, respectively.

As stated in the Notes 3 and 19, effective April 1, 2005, Joyo Bank
has applied the “Accounting Standards for Impairment of Fixed Assets”(“Opinion Concerning Establishment of Accounting Standard for
Impairment of Fixed Assets,” issued by the Business Accounting
Council on August 9, 2002) and the “Guidelines on Implementation of
Accounting Standard 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 and minority interests decreased by¥1,194 million on a consolidated basis.
(b) Geographic segment information
Segment information by geographic area has not been disclosed
since over 90% of the total consolidated ordinary income andassets of the Bank and consolidated subsidiaries reside in Japan.
(c) Ordinary income from foreign operations
Segment information related to the Bank’s foreign operations forthe years ended March 31, 2006 and 2005 are as follows:

Eliminations Consolidated

Ordinary income:Ordinary income
from externalcustomers¥ 157,044 ¥17,317 ¥ 5,696 ¥ 180,058 ¥— ¥ 180,058
Ordinary income
from internaltransactions
623
2,234 5,608
8,466(8,466)—
Total
157,668 19,551 11,305
188,525(8,466)
180,058
Ordinary expenses
116,593 18,535 10,894
146,022(8,725)
137,296

Millions of yen
Years ended March 31,

Ordinary income from foreign operations (A)Ordinary income (B)(A)/(B)

2006

2005

¥ 26,188
180,058
14.54%¥ 21,126
169,830
12.43%

Note: Ordinary income arising from foreign operations refers to ordinary income fromforeign currency-denominated transactions and yen-denominated transactions
with non-residents in Japan, as well as offshore transactions (excluding intersegment transactions).

Ordinary income(loss), net¥ 41,074 ¥ 1,016 ¥ 411 ¥ 42,502 ¥ (259) ¥ 42,761
Assets¥7,343,485 ¥48,823 ¥31,360 ¥7,423,669 ¥(70,746) ¥7,352,922
Depreciation
2,760 13,380
141
16,281(0)
16,281
Losses on impairment
1,194
—
—
1,194
—
1,194
Capital expenditures
2,581 12,256
657
15,496—
15,49629

(a) Securities held for trading purposes

22. Leases(a) Finance leases
Finance leases, as lessee, at March 31, 2006 and 2005 aresummarized as follows:
Millions of yen
March 31,

2006

2005

Equipment
Accumulated depreciation
Total

¥50
(19)
¥30

¥25
(8)
¥16

Lease payments for finance leases:
Within one year
Over one year
Total

Millions of yen
March 31,

Carrying value
Holding gains charged to income

¥ 6
10
¥16

Note: Acquisition cost and minimum lease payment presented above include interest
amounts calculated under the interest method, as the balances of acquisition
cost and minimum lease payment are small as a percentage of the book valueof total tangible fixed assets.

2005¥29,0312¥15,53510(b) Marketable debt securities held to maturity
Millions of yen
March 31, 2006

¥14
16
¥30

2006

Book
value

Japanese government
bonds
¥
—
Japanese local
government bonds
5,325
Corporate bonds
22,819Others23,091
Total¥51,237

Marketvalue¥

Unrealized
gain (net)Unrealized
gain (gross)

Unrealized
loss (gross)

—

¥ —

¥

—

¥ —

5,652
22,27523,148¥51,076

326
(544)
57
¥(160)

326
31
82
¥ 440

—
576
25
¥601

Unrealized
gain (gross)

Unrealized
loss (gross)

Millions of yen

Total lease payments under finance leases for the year ended
March 31, 2006 and 2005 were ¥11 million and ¥3 million,
respectively. Depreciation which would have been recorded underfinance leases for the year ended March 31, 2006 and 2005 were
¥11 million and ¥3 million, respectively.
Finance leases, as lessor, at March 31, 2006 and 2005 aresummarized as follows:
Millions of yen
March 31,

2006

2005

Equipment
Others
Accumulated depreciation
Total¥63,501
4,212(32,941)¥34,773¥63,302
4,534(31,958)¥35,877

Lease payments receivable for finance leases:
Within one year
Over one year
Total

¥12,476
27,929¥40,406¥12,659
29,016¥41,676

Note: Minimum lease payment receivable presented above includes interest amounts,
as the total balance at minimum lease payment receivable and residual value ofleased assets is small as a percentage of the book value of receivables.

Total lease payments received under finance leases for the year
ended March 31, 2006 and 2005 were ¥13,586 million and¥13,761 million, respectively. Depreciation under finance leases
for the year ended March 31, 2006 and 2005 were ¥11,697
million and ¥11,812 million, respectively.
(b) Operating leases
Future minimum lease payments for operating leases at March 31,
2006 and 2005 were ¥573 million and ¥4 million, of which ¥37 millionand ¥3 million were due within one year.
No impairment losses have been recognized on leased assets.

23. Securities Information
The information includes trading account securities andcommercial paper in trading assets and trust beneficiary rights incommercial paper and other debt purchased in addition tosecurities.

30

March 31, 2005

Book
value

Japanese government
bonds
¥
—
Japanese local
government bonds
8,006
Corporate bonds
15,449Others33,480Total¥56,936

Marketvalue¥

Unrealized
gain (net)

—

8,760
15,72033,693¥58,174

¥

—

753
270
213
¥1,237

¥

—

¥—

753
271
213
¥1,239—10¥ 1

Note: Market value is based on the market prices at the fiscal year end.

(c) Marketable available-for-sale securities
Millions of yen
March 31, 2006

Cost

Book
value

Unrealized
gain (net)Unrealized
gain (gross)

Equity securities¥ 117,940 ¥ 304,847 ¥186,907 ¥186,945
Debt securities:
Japanesegovernment bonds
748,031
730,151 (17,879)
292
Japanese local
government bonds
313,699
312,257(1,441)2,926
Corporate bonds
320,966
318,347(2,618)780
Others823,945
838,024
14,07920,196Total¥2,324,582 ¥2,503,629 ¥179,047 ¥211,141

Unrealized
loss (gross)¥38

18,171
4,368
3,399
6,117
¥32,094

Millions of yen
Unrealized
gain (gross)

Unrealized
loss (gross)

Equity securities¥ 112,719 ¥ 186,761 ¥ 74,041 ¥ 75,582
Debt securities:
Japanesegovernment bonds
816,092
822,6816,589
6,964Japanese local
government bonds
266,102274,7828,679
8,716
Corporate bonds
311,418
315,181
3,763
3,783
Others806,396820,187
13,791
15,397
Total¥2,312,730 ¥2,419,595 ¥106,865 ¥110,445¥1,541March 31, 2005

Cost

Book
value

Unrealized
gain (net)

375
36
20
1,606
¥3,580Notes: 1. Book value is based on the market prices at the fiscal year end.
2. Pursuant to “Practical Guidelines for Accounting for Financial Instruments”(JICPA Accounting Committee Report No. 14, amended on July 3, 2001),
the Bank recognized the impairment losses on listed equity shares whosemarket price at the balance sheet date declined 30% or more comparedwith acquisition cost, taking into consideration the recoverability. As of
March 31, 2006 and 2005, the Bank devaluated the marketable availablefor-sale securities and recognized as a loss of ¥22 million and ¥9 million,
respectively.

(d) Marketable available-for-sale securities sold(h) Unrealized gain on available-for-sale securities

Millions of yen
Years ended March 31,

Proceeds from sales of marketableavailable-for-sale securities
Gains
Losses2006

2005¥504,941
4,294
2,596

¥448,879
4,729
5,511

(e) Major components and balance sheet amounts of nonmarketable securities

Millions of yen
March 31,

Unrealized gain:
Available-for-sale securities
Other money held in trust
Deferred tax liabilities
Net unrealized gains onavailable-for-sale securities
Minority interests
Unrealized gains on available-for-sale securities

2006

2005

¥179,047 ¥106,865
573
12(72,424)(43,093)
107,196
63,783(109)(57)¥107,086 ¥ 63,726

Millions of yen
Book value
March 31,

Non-marketable debt securities held to maturity:
Trust beneficiary rights
Non-marketable available-for-sale securities:
Unlisted equity securities
Investments in investment partnerships

2006

2005

¥13,713¥2,524

4,131
1,245

4,053
1,316

(f) Schedule of redemption of available-for-sale securities
with maturity dates and debt securities being held tomaturity
Millions of yen
March 31, 2006

Debt securities:
Japanesegovernment bonds
Japanese local
government bonds
Corporate bonds
OthersTotal

One yearor less

One tofive years

Five toten yearsOverten years¥ 92,883¥201,432 ¥320,333 ¥115,501

27,07153,32890,373¥263,656

153,633 136,878—
175,705 85,042
27,092309,792 199,963 217,387¥840,564 ¥742,217 ¥359,981

Millions of yen
March 31, 2005

Debt securities:
Japanesegovernment bonds
Japanese local
government bonds
Corporate bonds
OthersTotal

One yearor less

One tofive years

Five toten yearsOverten years¥111,798 ¥ 314,950 ¥209,180 ¥186,752
27,631
195,243 59,914—
62,301
157,373 94,523
16,433102,190
367,593 166,527 171,057¥303,921 ¥1,035,160 ¥530,146 ¥374,244(g) Money held in trust classified as available-for-sale securities
Millions of yen
March 31,

2006

2005

Cost
Book value
Unrealized gain (net)Unrealized gain (gross)
Unrealized loss (gross)¥2,152
2,725
573
573
—

¥ 999
1,012
12
12
—

24. Derivatives(a) Transactions(1) The Bank conducts derivative transactions related to fluctuationsin interest rates, currency exchanges and bond prices, which areclassified into hedging and non-hedging purposes.
One of the Bank’s consolidated subsidiaries engages ininterest-related derivative transactions for hedging purposes.
(2) Policies: The Bank enters into derivative transactions to: (1) meetcustomer needs for hedging of risks involved in fluctuations inforeign exchanges and interest rates; (2) mitigate risks involved in
the Bank’s operations in the context of efficiently managing its
overall assets and liabilities, and; (3) hedge individual transactionsof the Bank. For trading in derivatives for the purpose ofincreasing earnings over a short-term period, the Bank has set
certain position limits and loss-cut rules.
The above-mentioned consolidated subsidiary follows trading
policies similar to those of the Bank.
(3) Purposes: The Bank conducts derivatives transactions inaccordance with the above-mentioned policies. The Bank
employs hedge accounting in some of its derivatives transactions.
a. Methods of hedge accounting
The Bank has adopted ordinary treatment for deferred hedges
and special treatment for interest-rate swaps.
b. Policies and implementation of hedging transactions
The Bank uses hedging transactions to mitigate its exposure tointerest rate risk, risk involving fluctuations in foreign exchange
rates and stock prices, and credit risk, in accordance with its
internal rules (Rules on Transactions under Hedge Accounting)based on the Practical Guidelines on Accounting for Financial
Instruments.
During the prior and current years, hedge accounting has
been applied to the following financial instruments and assets
and liabilities hedged:
Hedging instruments: Interest-rate swaps, currency swaps
and foreign exchange swaps
Assets and liabilities hedged:(Yen-denominated) Loans and bills discounted, deposits, andborrowed money(Foreign-currency denominated) Bonds and deposits

Note: Book value is based on the market prices at the fiscal year end.

31

c. Assessment of hedging effectivenessThe effectiveness of hedging was assessed in accordance with
Rules on Transactions under Hedge Accounting. As forhedging against interest rate changes by means of offsetting
fluctuations in fair value arising from changes in interest rates,
the Bank assesses the hedge effectiveness by correlating agroup of hedged items (i.e. loans) with hedging instruments(such as interest rate swaps) classified by remaining maturity
bucket. As for cash flow hedges, the Bank assesses theeffectiveness of such hedges in fixing cash flows by verifying
the correlation between the hedged items and hedging
instruments. As for hedging foreign exchange fluctuations, theBank assesses the effectiveness of utilizing currency andexchange swap transactions as hedging instruments throughconfirmation of the fact that there exists a sufficient balance ofhedging instruments in the form of foreign exchanges,
corresponding to the hedged items in the form of monetaryclaims and obligations denominated in foreign currencies.
In addition, the Bank confirmed that its hedging methods for
its special treatment of interest-rate swaps met the required
criteria.
(4) Nature of Risks: Derivative transactions involve market risk andcredit risk. Market risk refers to the risk of losses from fluctuationsin interest rates and currency exchanges, etc. Credit risk is the riskthat a position cannot be settled according to the original contract
terms due to the bankruptcy or insolvency of the counterparty.
(5) Risk Management System: The Board of Directors (the “Board”) is
responsible for determining policies on the basis of in-house
regulations on risk management, taking due account of the
maximum transaction volumes, the maximum allowable loss
amounts, and loss-cutting rules on derivative transactions, which
are reported to the Board on a regular basis. For credit risk
management, the current exposure method is applied for risk
control, by setting credit lines by counterparty.
Regarding the organizational structure, the Bank clearly
segregates back-office work from front-office work. Furthermore,
the Bank has established middle-office sections to ensure that thesystem of checks and balances works effectively.
(6) Supplementary Explanation of Quantitative Information: The
contract amounts presented are the notional contract amounts or
the principal for calculation purpose. Accordingly, they do not
represent the actual market risk exposure relating to all derivative
positions.

(b) Interest-rate derivatives

March 31, 2006

Millions of yen
Contract amounts
MarketUnrealized

Total

Over 1 year

value

gain (loss)

¥

—
—

¥ —
—

¥ —
—

—
—

—
—

—
—

—
—

—
—

—
—

17,43711

11

17,437

175

175

—

—

—

—
—

—
—

—
—

3,058
3,058

(52)
52

23
5

5,320
5,320

(378)
378

(172)
378

—
—

—
—

—
—

—

¥186

¥421

Millions of yen
Contract amounts
MarketUnrealized

Total

Transactions listed on exchanges:
Interest-rate futures:
Sold¥—
Bought—Interest-rate options:
Sold—
Bought—Over-the-counter transactions:
Forward rate agreements:
Sold—
Bought—Interest-rate swaps:
Receivable fixed/
payable floating
30,350Receivable floating/payable fixed
30,350Receivable floating/payable floating—
Interest-rate options:
Sold—
Bought
—
Caps:
Sold
3,174
Bought3,174
Swaption:Sold17,130Bought17,130
Others:Sold—
Bought
—
Total

¥

—

March 31, 2005

Transactions listed on exchanges:
Interest-rate futures:Sold¥ —Bought—Interest-rate options:
Sold—
Bought—Over-the-counter transactions:
Forward rate agreements:
Sold—
Bought—Interest-rate swaps:
Receivable fixed/
payable floating
7,065
Receivable floating/payable fixed
7,065
Receivable floating/payable floating—
Interest-rate options:
Sold—
Bought—Others:Sold
1,185
Bought
1,185
Total

¥

—

¥

Over 1 year

value

gain (loss)

¥

—
—

¥ —
—

¥ —
—

—
—

—
—

—
—

—
—

—
—

—
—

6,747

223

223

6,747

(90)

(90)

—

—

—

—
—

—
—

—
—

1,101
1,101

(3)
3

19
(11)

—

¥132

¥140

¥

Notes: 1. The above derivatives are valued at market and unrealized gain (loss) is
accounted for in the consolidated statements of income. Derivatives to which
hedge accounting is applied have not been included in the above table.

32

2. Calculation of market value
The market value of transactions listed on exchanges has been calculatedon the basis of the closing prices on the Tokyo International Financial
Futures Exchange, etc. The market value of over-the-counter transactions
has been calculated at their discounted current value or by utilizing calculation models for options prices.

March 31, 2006

Millions of yen
Contract amounts
MarketUnrealized

Total

value

gain (loss)

¥ —
—

¥ —
—

—
—

—
—

909

909

(108)
82

(108)
82

(318)
320

(24)
4

—
—

—
—

¥885

¥ 863

Millions of yen
Contract amounts
MarketUnrealized

Totalgain (loss)

Over 1 year

Listed:Currency futures:
Sold
¥
— ¥
—
Bought——Currency options:
Sold——
Bought——Over-the-counter transactions:
Currency swaps
334,268 324,375
Forward foreignexchange contracts:
Sold
4,093
332
Bought3,223
228
Currency options:Sold26,560—Bought26,560—
Others:Sold——
Bought——¥March 31, 2005

— ¥—Over 1 year

Listed:Currency futures:
Sold
¥
— ¥
—
Bought——Currency options:
Sold——
Bought——Over-the-counter transactions:
Currency swaps
164,526 164,526
Forward foreignexchange contracts:
Sold
847
—
Bought686—
Currency options:Sold39,238—
Bought39,238—Others:Sold——
Bought——Total

Not applicable as of March 31, 2006 and 2005.

(e) Bond Derivatives
March 31, 2006(c) Currency Derivatives

Total(d) Stock Derivatives

¥

— ¥

—

Listed:Bond futures:
Sold
BoughtBond future options:
Sold
BoughtOver-the-counter transactions:
Bond options:
Sold
BoughtOthers:Sold
Bought
Total

value

¥ —
—

¥ —
—

—
—

—
—

March 31, 2005

Listed:Bond futures:
Sold
BoughtBond future options:
Sold
BoughtOver-the-counter transactions:
Bond options:
Sold
BoughtOthers:Sold
BoughtTotal

Millions of yen
Contract amounts
MarketTotal Over 1 year
value

Unrealized
gain (loss)

¥539
—

¥—
—

¥ 5
—

¥ 5
—

—
—

—
—

—
—

—
—

—
—

—
—

—
—

—
—

—
—

—
—

—
—

—
—

¥ —

¥—

¥ 5

¥ 5

Millions of yen
Contract amounts
MarketTotal Over 1 year
value

Unrealized
gain (loss)

¥200
—

¥—
—

¥ (3)
—

¥ (3)
—

—
—

—
—

—
—

—
—

—
—

—
—

—
—

—
—

—
—

—
—

—
—

—
—

¥ —

¥—

¥ (3)

¥ (3)

635

635

Notes: 1. The transactions described above are marked to market, and the unrealized gains and losses are charged to income. Derivatives under hedge
accounting are excluded from the above tables.

(7)
6

(7)
6

2. Calculation of fair market value
Financial derivatives listed on securities exchanges are stated using theclosing prices on the Tokyo Stock Exchange as of the balance-sheet date,
and those traded over the counter are stated using discounted present
value or option price calculation models.

(610)
612

(93)
124

—
—

—
—

¥635

¥ 665

Notes: 1. The transactions in this table have been revalued at the market rate prevailing on the balance sheet date, and unrealized gain (loss) is accounted
for in the consolidated statements of income. Derivatives which qualify as
hedges have been excluded from this table.

(f) Commodity Derivatives
Not applicable as of March 31, 2006 and 2005.

(g) Credit Derivatives
Not applicable as of March 31, 2006 and 2005.

2. Calculation of market valueMarket value is calculated at discount present value, etc.

33

(h) Related-Party Transactions
For the year ended March 31, 2006, material transactions with major individual shareholders are as follows:
Nature of relationship
Relationshipwith the
Bank

Name

Location

A company
Usui Setsubi Hitachi-Omiya,in which
Kogyo Co. Ltd. Ibaraki Pref.
majority voting
rights areheld byrelatives of adirector of
the Bank

Paid-in capital(Millions of yen)

Businessline

Voting rights
ownership (%)

10

Hygiene facility
installation forwater supply
and wastewater treatment—

Directors
and statutory
auditors

Businesstie-ups

Details oftransaction

NotapplicableNot
applicable

Lending ofmoneyTransaction
amount(Millions of yen)2

Accounting
title
Loans
receivable

Year-endbalance(Millions of yen)
9

Policies on and terms and conditions of the transaction
Interest is reasonably determined in a manner similar to ordinary transactions, taking into account the prevailing market interest rates. The loan period
shall not exceed 5 years. Repayment of principal shall be made on a straight-line basis every month or in lump-sum on the due date. However, repayment before the due date shall be allowed.
Nature of relationship
Relationshipwith theBank
A companyin whichmajority voting
rights areheld byrelatives of adirector of
the Bank

Name

Location

Rarara Ltd.

Mito,
Ibaraki Pref.

Paid-in capital(Millions of yen)

Businessline

Voting rights
ownership (%)

3

Beauty salon—

Directors
and statutory
auditors

Businesstie-ups

Details oftransaction

NotapplicableNot
applicable

Lending ofmoneyTransaction
amount(Millions of yen)
10

Accounting
title
Loans
receivable

Year-endbalance(Millions of yen)
8

Policies regarding, and terms and conditions of, the transaction
Interest is reasonably determined in a manner similar to ordinary transactions, taking into account the prevailing market interest rates. The loan period is
5 years. Repayment of principal shall be made on a straight-line basis every month.
Note: For the year ended March 31, 2006 the Bank has made no related-party transactions with parties falling into categories of parent, subsidiary and sister companies, andmajor corporate shareholders. For the previous year ended March 31, 2005 the Bank engaged in no related-party transactions.

(i) Per-share Data
Yen
March 31,

Net assets per share
Earnings per share-basic
Earnings per share-diluted

2006

2005

¥527.11
31.45
31.43

¥596.22
29.92
29.91

Note: Bases for calculation of earnings per share (basic and diluted) are as follows:

Millions of yen
March 31,

Earnings per share
Net income
Earnings not available tocommon shareholders
Of which, bonuses for directors and auditors
Net income after deduction of the
portion described above
Weighted average number of commonshares for the fiscal year (in thousands)
Diluted earnings per share
Adjustment to net income
Increase in common shares (in thousands)
Of which, acquisition of own shares understock option pursuant to provisions in
Article 210-2, Paragraph 2 of theCommercial Code (in thousands)
Share warrants that have no dilutive
effects on earnings per share

34

2006

2005

¥ 26,198¥ 24,815

50
50

50
50

26,14824,765

831,341

827,618

—
411

—
353

411

353

—

—

Report of Independent Certified Public Accountants

35

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Non-Consolidated Balance Sheets
THE JOYO BANK, LTD.

Millions of yen
March 31,

AssetsCash and due from banks
Call loans and bills purchased
Receivables under securities borrowing transactions
Commercial paper and other debt purchased
Trading assets (Note 4)
Money held in trust
Securities (Notes 5 and 6)
Loans and bills discounted (Notes 7, 8 and 9)
Foreign exchanges (Note 10)
Other assets (Note 11)
Premises and equipment (Note 12)
Deferred tax assets (Note 13)
Customers’ liabilities for acceptances and guarantees
Reserve for possible loan losses
Reserve for devaluation of investment securities
Total assets
Liabilities and shareholders’ equity
Liabilities:
Deposits (Note 14)
Call money and bills soldPayables under securities lending transactions
Trading liabilities (Note 15)
Borrowed money
Foreign exchanges (Note 10)
Bonds
Due to trust account
Other liabilities (Note 16)
Reserve for employees’ retirement benefits
Reserve for other contingent losses
Deferred tax liabilities (Note 13)
Deferred tax liabilities for land revaluation (Note 13)
Acceptances and guarantees
Total liabilities
Shareholders’ equity:
Common stock (Note 26):
Authorized — 2,167,515 thousand shares
Issued —852,231 thousand shares
Capital surplus
Legal reserve
Voluntary reserve
Retained earnings
Land revaluation reserve, net of taxes
Unrealized gain on available-for-sale securities
Less, treasury stock at cost
Total shareholders’ equity
Total liabilities and shareholders’ equity
See accompanying notes to the non-consolidated financial statements.

36

2006

2005

Thousands of
U.S. dollars (Note 2)2006¥ 154,302 ¥ 246,741
11,998582—
25,95995,19757,427
29,342
15,762
2,725
1,012
2,489,359
2,430,824
4,433,701
4,375,901
1,084
1,112
39,92971,21782,702
84,428—23,95751,602
52,185(51,236)(56,302)(52)(98)¥7,340,658 ¥7,330,713$ 1,313,549
102,140—
810,398
249,786
23,206
21,191,450
37,743,268
9,231
339,916704,030—
439,285(436,166)(447)$62,489,646¥6,181,063
157,118
280,759
117
80,0002,536
15,00017
42,2196,331
412
22,182
13,08851,602
6,852,451¥6,197,265
292,968
162,303
97
86,000134
15,00017
72,106
6,742
342
—
8,714
52,185
6,893,877$52,618,234
1,337,524
2,390,054
1,001
681,025
21,590127,692146
359,40953,901
3,515
188,837
111,416
439,285
58,333,628

85,113
85,11358,58158,57755,31755,317
163,432
143,432
24,34930,142
9,313
12,898107,079
63,722(14,978)(12,366)
488,207436,836¥7,340,658 ¥7,330,713

724,552
498,693
470,904
1,391,266
207,287
79,281
911,543(127,509)
4,156,017$62,489,646

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Non-Consolidated Statements of Income
THE JOYO BANK, LTD.

Thousands of
U.S. dollars (Note 2)

Millions of yen
Years ended March 31,

Income:Interest income:Interest on loans and discounts
Interest and dividends on securities
Other interest income
Fees and commissions (Note 17)
Trading income (Note 18)
Other operating income (Note 19)
Other income (Note 20)
Total income
Expenses:
Interest expenses:
Interest on deposits
Interest on borrowings and rediscounts (Note 21)
Other interest expenses
Fees and commissions (Note 22)
Other operating expenses (Note 23)
General and administrative expenses
Other expenses (Note 25)
Total expenses
Income before income taxes
Income taxes:
Current
Deferred (Note 13)
Net income
Per share (in yen and dollars):
Net income
Cash dividends applicable to the year

2006

2005

2006

¥ 81,040
43,592
1,183
21,932
429
4,474
7,425
160,079¥ 83,940
34,163
1,113
20,446
496
3,276
8,027
151,464$ 689,885
371,096
10,079186,711
3,656
38,08963,215
1,362,731

3,612
5,765
9,659
7,200
2,467
71,32718,061
118,093
41,986

2,748
4,005
5,868
7,085
5,432
70,515
12,049107,705
43,75930,75149,07982,233
61,29621,002607,197
153,752
1,005,310
357,420

149
17,115¥ 24,721

99
17,536¥ 26,123

1,273
145,697$ 210,450¥29.80
6.00¥31.356.00$0.2540.051

See accompanying notes to the non-consolidated financial statements.

Non-Consolidated Statements of Retained Earnings
Millions of yen
Years ended March 31,

Retained earnings:
Balance at beginning of year
Net income
Reversal of land revaluation reserve
Appropriations:
Cancellation of shares in treasury
Cash dividends (Note 27)
Bonuses to directors
Transfer to voluntary reserve
Balance at end of year

Thousands of
U.S. dollars (Note 2)

2006

2005

2006

¥30,142
24,721(521)¥28,018
26,123160$256,599
210,450(4,440)(4,549)(5,393)(50)(20,000)¥24,349—(4,159)—(20,000)¥30,142(38,730)(45,911)(426)(170,256)$207,287

See accompanying notes to the non-consolidated financial statements.

37

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Notes to the Non-Consolidated Financial Statements
THE JOYO BANK, LTD.

1. Basis of Presentation
The Joyo Bank Ltd. (the “Bank”) maintains its accounting records
and prepares its non-consolidated financial statements inaccordance with accounting principles and practices generally
accepted and applied in Japan, the Commercial Code of Japan(the “Code”), the Banking Law of Japan and the Rules for Bank
Accounting issued by the Ministry of Finance, which are different
in material respects as to the application and disclosure
requirements of International Financial Reporting Standards. The
accompanying non-consolidated financial statements have been
compiled from the non-consolidated financial statements filed with
the Prime Minister as required by the Banking Law and the
Securities and Exchange Law of Japan.
For the convenience of readers outside Japan, certain items
presented in the original non-consolidated financial statements
have been reclassified.

2. Japanese Yen and U.S. Dollar Amounts
As permitted by the Securities and Exchange Law, amounts of lessthan one million yen have been rounded off. As a result, the totals
shown in the accompanying financial statements (both in yen and
U.S. dollars) do not necessarily agree with the sums of theindividual amounts. Solely for the convenience of the reader, theU.S. dollar amounts represent a translation of Japanese yenamounts at ¥117.47 = US$1.00, the exchange rate prevailing on
March 31, 2006.

3. Significant Accounting Policies(a) Transactions for trading purposes
Transactions for “trading purposes” (seeking to capture gains
arising from short-term changes in interest rates, currency
exchange rates or market prices of securities and other marketrelated indices or from arbitrage between markets) are valued atmarket or fair value, and have been included in trading assets andtrading liabilities on a trade date basis. Gain or loss on such tradingtransactions are reflected as trading income or trading expenses inthe statements of income.
Among the trading assets and liabilities, securities and monetaryclaims are carried at market value as of the balance sheet date.
Derivatives including swaps, futures, and options are valued
assuming settlement on the balance sheet date.
Trading income or trading expenses include interest received or
paid during the fiscal year. The year-on-year valuation differences of
securities and monetary claims are also recorded in the abovementioned accounts. As for the derivatives, assuming that thesettlement will be made in cash, the year-on-year valuationdifferences are also recorded in the above-mentioned accounts.
(b) Securities
Securities other than trading securities have been accounted for by
the following methods:
Marketable debt securities held to maturity are stated atamortized cost by the moving-average cost method. Stocks in
subsidiaries are stated at cost by the moving-average cost method.
Other available-for-sale securities of which market prices areavailable are stated at fair value based on their market prices, etc.
at the fiscal year-end, whereas those of which fair value is notavailable are stated at cost or amortized cost by the movingaverage cost method.
Unrealized gain or loss on available-for-sale securities (net of therelated tax effect) has been reported as a component of
38

shareholders’ equity.
Investments in securities held in money trusts whose
investment is operated solely by the Bank on behalf of thetrustors, are stated at fair value.
(c) Derivatives
Derivatives positions held by the Bank (not including transactions
for trading purposes) are stated at fair value.
(d) Depreciation of premises and equipment
Depreciation of premises and equipment held by the Bank iscalculated by the declining-balance method, except for buildings
acquired on or after April 1, 1998 of which depreciation is
calculated by the straight-line method. The estimated useful lives
are as follows:
Buildings: 6~50 years
Equipment: 3~20 years(e) Translation of foreign currencies
Foreign currency-denominated assets and liabilities are translated
into Japanese yen at the rates prevailing at the balance sheet date.
(f) Reserve for possible loan losses
The reserve for possible loan losses of the Bank is provided as
detailed below, in accordance with the internal rules for providing
reserves for possible loan losses:
For claims to debtors who are legally bankrupt (as a result ofbankruptcy, special liquidation, etc.) or who are substantiallybankrupt, a reserve is provided based on the amount of theclaims, net of the amounts expected to be collected by thedisposal of collateral or as a result of the execution of guarantees.
For claims to debtors who are not currently bankrupt, but arelikely to become bankrupt, a reserve is provided based on theamount considered necessary based on an overall solvency
assessment of the amount of claims net of the amounts expected
to be collected by the disposal of collateral or as a result of theexecution of guarantees.
For other claims, a reserve is provided based on the Bank’s
historical loan-loss experience.
All claims are assessed by the Business Section (at thebranches and the related head office divisions) based on the
Bank’s internal rules for the self-assessment of asset quality. The
Corporate Audit Department, which is independent of theBusiness Section, subsequently conducts audits of suchassessments, and a reserve is provided based on the audit
results.
For collateralized or guaranteed claims from debtors who arelegally or substantially bankrupt, the amounts of the claims
deemed uncollectible in excess of the estimated value of thecollateral or guarantees have been written off in aggregate
amounts of ¥43,740 million and ¥46,610 million as of March 31,
2006 and 2005, respectively.
(g) Reserve for devaluation of investment securities
A reserve for the devaluation of investment securities is provided at
the amount deemed necessary to cover estimated possible losses
on investments which the Bank may incur in the future.
(h) Reserve for employees’ retirement benefits
Reserve for employees’ retirement benefits of the Bank is provided
for the amount deemed necessary, based on estimated pension
benefits obligations and pension plan assets at the fiscal year end,
to cover required retirement benefits for eligible employees.

Prior service cost is deferred and amortized using the straightline method over certain years (10 years) within the averageremaining service period of the eligible employees.
Unrealized actuarial losses are deferred and amortized using thestraight-line method over a ten-year period commencing with thefollowing year, which is shorter than the average remaining service
period of the eligible employees.
Effective from the current year, the Bank has credited to
expenses the amount posted under “unrecognized plan assets”
resulting from changes in actuarial assumptions on retirement
benefit obligations pursuant to stipulations in the “Guidelines on
Implementation of Amendments to Accounting Standards for
Retirement Benefits” (Guidelines on Implementation of BusinessAccounting Standard No.7, issued on March 16, 2005). The term
“unrecognized plan assets” refers to the excess portion of pension
plan assets over retirement benefit obligations held by the company
in question, which resulted from changes in actuarial assumptions
on plan assets or recognition of prior service obligations. Previously
the Bank did not credit the amount posted under unrecognizedplan assets to expenses. This change has no effect on the Bank’s
results of operations on a non-consolidated basis.
(i) Reserve for other contingent losses
The Bank provides reserve for contingent liabilities not covered byother reserves in an amount deemed necessary based on
estimated losses in the future.
(j) Leases
Finance leases other than those which transfer the ownership ofthe leased property to the Bank are accounted for as operatingleases.
(k) Hedging
Hedging against interest rate changes
The deferred method of hedge accounting is applied totransactions to hedge against the interest rate risks associated with
monetary claims and debt in accordance with the regulations set
out in the “Accounting and Auditing Treatment of AccountingStandards for Financial Instruments in the Banking Industry” (JICPA
Industry Audit Committee Report No. 24).
The Bank assesses the effectiveness of such hedges in offsetting
movement of the fair value with the changes in interest rates, byclassifying the hedged items (loans) and the hedging instruments(interest swaps) by their maturity. As to cash flow hedges, the Bank
assesses the effectiveness of such hedges in fixing cash flows by
verifying the correlation between the hedged items and the hedging
instruments.
In addition, a portion of deferred hedge losses and gains, which
was previously under the “macro hedge,” i.e., the management ofinterest rate risk arising from large-volume transactions in loans,
deposits and other interest-earning assets, and interest-bearing
liabilities as a whole using derivatives, in accordance with theregulations set out in the “Accounting and Auditing Treatment ofPreliminary Accounting Standards for Financial Instruments in the
Banking Industry” (JICPA Industry Audit Committee Report No. 15)
is no longer subject to hedge accounting effective the year ended
March 31, 2005. The deferred hedge losses and gains related tohedge instruments to which the Bank discontinued the applicationof hedge accounting, or applied fair value hedge accounting as aresult of the change mentioned above, are periodically charged tointerest expenses or interest income effective fiscal 2003 bymaturity and notional principal of each hedging instrument.

Deferred hedge losses under macro hedge stood at ¥3,632
million and ¥4,975 million at March 31, 2006 and 2005, respectively.
Hedging against foreign exchange fluctuation risk
The deferred method of hedge accounting is applied totransactions to hedge against the foreign exchange fluctuation risks
associated with monetary claims and liabilities denominated inforeign 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).
To minimize foreign exchange fluctuation risk on monetary claims
and liabilities, the Bank engages in currency swaps, foreignexchange swaps, and similar transactions. The effectiveness ofthese transactions in the hedging of the foreign exchange risks ofmonetary claims and liabilities denominated in foreign currencies isassessed through comparison of the foreign currency position of
the hedged monetary claims and liabilities with that of the hedging
instruments.
(l) Consumption tax
Consumption tax is excluded from transactions reported by the
Bank. However, non-deductible consumption tax on premises andequipment is charged to income as incurred.
(m) Application of newly established accounting standard for
impairment of fixed assets
Effective April 1, 2005, Joyo Bank has applied the “AccountingStandards for Impairment of Fixed Assets” (“Opinion Concerning
Establishment of Accounting Standard for Impairment of Fixed
Assets,” issued by the Business Accounting Council on August 9,2002) and the “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 a result, income before income taxes decreased by ¥1,194
million. Regarding banking operations, fixed assets are stated atcost less accumulated depreciation, pursuant to the Enforcement
Ordinance of the Banking Law, and the accumulated impairment
loss is also deducted from the book value of each asset.

4. Trading Assets
Millions of yen
March 31,

Trading securities
Trading securities-related
financial derivatives
Trading-related financial derivatives
Other trading assets
Total

2006

2005

¥ 2,033¥2,5365
304
26,998¥29,342—
227
12,998¥15,762

5. Securities
Millions of yen
March 31,

Japanese government bonds
Japanese local government bonds
Corporate bonds
Corporate stocks
Other securities
Total

2006

2005

¥ 730,151 ¥ 822,681
317,583
282,789
341,167
330,631
308,788
190,719
791,668
804,002¥2,489,359 ¥2,430,824

39

6. Pledged Assets

9. Non-Performing Loans

Assets pledged as collateral at March 31, 2006 and 2005 were as
follows:

In accordance with the disclosure requirements under the rules
for Bank Accounting in Japan, the balance of loans and bills
discounted at March 31, 2006 and 2005 included the following
non-performing loans:

Millions of yen
March 31,

Pledged assets:
Securities
Loans
Liabilities covered by pledged assets:
Deposits
Call money
Payables under securities
lending transactions

2006

2005

¥422,069
52,044¥447,698—

30,29350,00026,581
107,000

280,759

162,303

Millions of yen

In addition to the above, securities amounting to ¥56,550 millionand ¥59,661 million at book value were pledged as collateral inconnection with exchange settlements and futures transactions asof March 31, 2006 and 2005, respectively.

7. Commitments and Contingent Liabilities
Overdraft facilities and line-of-credit contracts are agreements
under which, subject to compliance with the contractual
conditions, the Bank pledges to provide clients with funds up to a
fixed limit upon submission of a loan application to the Bank.
The unused amount related to such facilities/contracts stood at¥1,329,850 million and ¥1,271,094 million at March 31, 2006 and2005, respectively. Of this amount, facilities/contracts which
expires within one year or which are unconditionally cancelable atany time totaled ¥1,278,316 million and ¥1,242,327 million atMarch 31, 2006 and 2005, respectively.
Most of these agreements will expire without the clients’ having
utilized the financial resources available to them, and the amountof the nonexecuted financing will not necessarily impact on the
Bank’s future cash flows. Most of these facilities/contracts containa clause which allows the Bank to reject a loan application or to
reduce the upper limit requested in view of changing financial
conditions, credit maintenance and other reasonable concerns.
When necessary, the Bank may demand collateral such as realestate or marketable securities at the date an agreement isentered into. In addition, after facilities/contracts are set forth, theBank will regularly assess the business status of the clients basedon predetermined internal procedures and, when prudent, willrevise the agreements and reformulate new policies to maintaincreditworthiness.

March 31,

Loans in bankruptcy and dishonored bills
Delinquent loans
Loans past due with respect to interest
payments for more than three months
Restructured loans
Total

2006

2005

¥ 4,825
133,495¥ 4,351
109,089

2,278
58,191¥198,791

1,680
58,578¥173,699

Notes: 1. Loans in bankruptcy and dishonored bills refers to loans (excluding
charged-off amounts) stipulated in Article 96, Paragraph 1, Item 3 (a) to (e)or Item 4 of the Enforcement Regulation to Corporation Tax Law (1965
Enforcement Regulation No. 97) to which accrued interest receivables are
not recognized as accruals for accounting purposes as no repayment ofprincipal or payment of interest have been made for a considerable period.
Delinquent loans refers to loans with respect to which accrued interest
receivables are not recognized as accruals for accounting purposes,
excluding loans falling into the category of restructured loans.
Loans past due with respect to interest payments for more than 3 months
refers to loans with respect to which repayment of principal or payment ofinterest are past due three months or more, excluding loans falling into thecategories of loans in bankruptcy and dishonored bills or delinquent loans.
Restructured loans refers to loans to borrowers to whom financial support isgiven in the form of reduction in interest, waiver of repayment of the principal
or payment of interest, or debt forgiveness with the aim of corporate rehabilitation, excluding loans falling into loan categories mentioned above.
2. The above amounts are stated before the deduction of the reserve for possible
loan losses.

10. Foreign Exchanges
Millions of yen
March 31,

2006

2005

Assets:Due from foreign banks
Foreign exchange bills bought
Foreign exchange bills receivable
Total

¥ 576
73
434
¥1,084

¥ 656
41
414
¥1,112

Liabilities:
Foreign exchange bills sold
Foreign exchange bills payable
Total¥2,536—¥2,536

¥ 127
7
¥ 134

11. Other Assets
Millions of yen

8. Loans and Bills Discounted

March 31,
Millions of yen

March 31,

Loans on notes
Loans on deeds
Overdrafts
Bills discounted
Total

40

2006

2005

¥ 514,149 ¥ 574,851
3,329,251 3,227,824
541,750
520,388
48,55052,837¥4,433,701 ¥4,375,901

Domestic exchange settlement
account—debit
Prepaid expenses
Accrued income
Initial margins on future transactions
Variation margins on future transactions
Derivatives
Losses deferred under hedge accounting
Others
Total

2006

¥

65
1,247
13,094
160
—
2,744
3,716
18,902¥39,929

2005

¥

117
1,245
12,079
160
3
7,507
5,042
45,061¥71,217

12. Premises and Equipment

16. Other Liabilities
Millions of yen

March 31,

Land, buildings and equipment
Construction in progress
Leasehold guarantees and deposits
Total
Accumulated depreciation
Net book value

2006

Millions of yen

2005¥147,818 ¥148,570
324
0
5,765
5,827
153,908
154,397(71,205)(69,969)¥ 82,702 ¥ 84,428

13. Deferred Tax Assets
Millions of yen
March 31,

Deferred tax assets:
Reserve for possible loss on loans
Net operating loss carry forwards
Reserve for employees’ retirement benefits
Devaluation of securities
OthersValuation allowance
Total
Deferred tax liabilities:
Unrealized gain on
available-for-sale securities
Retirement benefit trust
OthersTotal
Net deferred tax (liabilities) assets

2006

2005

¥ 30,891
10,493
4,828
274
14,039(838)¥ 59,689¥31,314
15,712
10,4405,188
14,145(284)¥76,516¥(72,342)(9,495)(33)(81,871)¥(22,182)¥(43,051)(9,495)(12)(52,559)¥23,957

14. Deposits
Millions of yen
March 31,

Current deposits
Ordinary deposits
Savings deposits
Deposits at noticeTime deposits
Installment savings
Negotiable certificates of deposit
Others
Total

2006

2005

¥ 130,537 ¥ 127,974
3,176,257 3,009,953
60,942
66,78357,58958,1772,545,211 2,641,637—
11
34,57957,466
175,946
235,261¥6,181,063 ¥6,197,265

March 31,

Domestic exchange settlement
account—credit
Accrued income taxes
Accrued expenses
Unearned income
Employees’ deposits
Allowance for supplement to benefits
Initial margins on futures transactions
Derivatives
Gains deferred under hedge accounting
Others
Total

2006

2005

193
421
7,142
3,246
1,529
—
6
18,7971,567
9,314¥42,219¥ 1,090
596
7,701
3,568
1,670
0
—
9,778
581
47,118¥72,106¥

17. Fees and Commissions (Income)Millions of yen
Years ended March 31,

Exchange settlement
Other fees and commissions
Trust fees
Total

2006

2005

¥ 7,243
14,66623¥21,932¥ 7,364
13,05031¥20,446

18. Trading Income
Millions of yen
Years ended March 31,

2006

2005

Income from trading securities
Income from trading-related
financial derivatives
Other trading income
Total

¥302

¥351

104
21
¥429

133
11
¥496

19. Other Operating Income
Millions of yen
Years ended March 31,

2006

2005

Gain on foreign exchange transactions
Gain on sales of bonds
Gain on financial derivatives
Others
Total

¥ 563
3,325
583
1
¥4,474

¥ 813
1,831
630
1
¥3,276

15. Trading Liabilities
20. Other Income

Millions of yen
March 31,

Trading securities-related financial derivatives
Trading-related financial derivatives
Total

2006

¥ —
117
¥117

2005

¥ 3
94
¥97

Millions of yen
Years ended March 31,

2006

2005

Gain on sales of stocks and other securities
Gain on trust fund operations
Other ordinary income
Others
Total

¥ 968
153
3,892
2,411
¥7,425¥2,897
0
1,774
3,355
¥8,02741

21. Interest on Borrowings and Rediscounts

25. Other Expenses

Millions of yen

Millions of yen

Years ended March 31,

2006

2005

Years ended March 31,

Call money and bills sold
Securities lending transactions
Borrowings
Total¥2,838
1,668
1,257¥5,765¥1,1391,458
1,408¥4,005

Provision for possible loan losses
Reserve for other contingent losses
Write-offs of claims
Loss on devaluation of stocks andother securities
Loss on sales of stocks
Loss on disposal of premises
and equipment
Impairment loss
OthersTotal

22. Fees and Commissions (Expenses)
Millions of yen
Years ended March 31,

2006

2005

Exchange settlement
Other fees and commissions
Total¥1,413
5,786¥7,200¥1,427
5,658¥7,085

23. Other Operating Expenses
Millions of yen
Years ended March 31,

2006

2005

Loss on sales of bonds
Loss on financial derivatives
Total¥2,467—¥2,467¥5,426
6¥5,432

24. Leases(a) Finance leases
Finance leases at March 31, 2006 and 2005 were as follows:
Millions of yen
March 31,

2006

2005

Equipment
Others
Accumulated depreciation
Total¥6,634517(4,004)¥3,146¥7,070667(3,847)¥3,890

Lease payments for finance leases:
Within one year
Over one year
Total

¥1,384
1,762¥3,146¥1,5732,316¥3,890Total lease payments under finance leases for the year ended
March 31, 2006 and 2005 were ¥1,642 million and ¥1,741
million, respectively. Depreciation which would have beenrecorded under finance leases for the year ended March 31, 2006
and 2005 were ¥1,642 million and ¥1,741 million, respectively.
(b) Operating leases
Future minimum lease payments for operating leases at March 31,
2006 and 2005 were ¥573 million and ¥4 million, of which ¥37 millionand ¥3 million was due within one year.
No impairment losses have been recognized on leased assets.

2006¥ 6,635
290
8,182

2005

¥

—
225
8,032

135
129

274
85

306
1,194
1,187
¥18,061

976
—
2,453
¥12,049

26. Shareholders’ Equity
In accordance with the Banking Law of Japan, the Bank has provided a legal reserve by appropriation of retained earnings, which isincluded in retained earnings. The Banking Law of Japan provides
that an amount equivalent to at least 20% of the amount to be disbursed as distributions of earnings be appropriated to the legal
reserve until the total of such reserve and the capital surplus equals
100% of the common stock.
The Code provides that neither additional paid-in capital nor the legal
reserve had been available for dividends, but both might be used toreduce or eliminate a deficit by resolution of the shareholders or may betransferred to common stock by resolution of the Board of Directors.
On October 1, 2001, an amendment (the “Amendment”) to the Codebecame effective. The Amendment provides that if the total amount of
capital surplus and the legal reserve exceeds 100% of the common
stock, the excess may be distributed to the shareholders either as areturn of capital or as dividends subject to the approval of the shareholders. In addition, the Amendment eliminates the stated par value ofthe Bank’s outstanding shares, which resulted in all outstanding shares
having no par value as of October 1, 2001. The Amendment also provides that all share issuances after September 30, 2001 will be ofshares with no par value. Prior to the date on which the Amendment
came into effect, the Bank’s shares had a par value of ¥50.
There were no change in the common stock account for the twoyears ended March 31, 2006 and 2005. Capital surplus amounted to¥58,581 million and ¥58,577 million as of March 31, 2006 and 2005,
respectively.

27. Dividends and Interim Dividends
The Bank may pay dividends twice a year. Annual dividends may
be paid to shareholders of record as of March 31 and arereflected in the non-consolidated statements of retained earnings
when duly approved and paid. In addition, the Bank may pay
interim dividends to shareholders of record as of September 30.

28. Subsequent EventAppropriation of Retained Earnings
The following appropriations of retained earnings were approved
at a general shareholders’ meeting held on June 29, 2006:
Millions of yen

42

Retained earnings at March 31, 2006
Appropriations:
Cash dividends
Transfer to voluntary reserves
Bonuses to directors and corporate auditors
Retained earnings carried forward¥24,349
2,459
10,00050¥11,840

Report of Independent Certified Public Accountants

43Organization

THE JOYO BANK, LTD.
Internal Administration Group
Compliance and Risk Management Division
Compliance Office
Corporate Audit Division
General Meeting of
Shareholders

Corporate Management Section
Corporate Planning Division
Publicity Office

Board of Corporate Auditors
Corporate Auditors

Tokyo Sub-Headquarters
Corporate Administration Division
Staff Counseling Office

Board of Directors

Affiliated Company Management Office
Executive Secretariat
Credit Risk Management Group

Executive Officer Committee

Credit Management Division
Credit Examination Division
Loan Supervision Office
Company Management Support Office
Operation Systems GroupOperation Planning Division
Data Processing Center
Area Data Processing Center
Joint Systems Promotion OfficeComputer System Division
Business Section
Business Planning Division
Customer Counceling OfficeInternational Business Office
Overseas Representative Office (Shanghai)
Foreign Exchanges Centering Office
Retail Banking Business Group
Retail Banking Division
Custody Business Promotion OfficeCall Center
Loan Operation Center
Consumer Finance Center
Living and Business Consulting Center
Pension Business Promotion Center
Corporate Banking Business Group
Corporate Banking Business Division
Business Information Support Office

Head Office
Tokyo Business Division (Tokyo Main Office)146 Branches, 25 Sub-branches

Quick Business Center
Hokuto District Business Division
Area Corporate Business Division
Public Business Group
Government and Municipal Business DivisionMarket Business Group
Treasury and Securities DivisionMarkets and Business Administration Division

44

Securities Business Office

As of April 3, 2006

Board of Directors and Corporate Auditors

ChairmanIsao Shibuya
President
Kunio Onizawa
Deputy President
Yuto Kawahara
Senior Managing Director
Noboru Ehashi

Managing Directors
Kunio Kurosaki
Tsutomu Tohyama
Takenori Hotate
Kazuo Kuroko
Yoshiyuki Miyanaga
Mitsuo Uchida
Kazuyoshi Terakado

Corporate Auditors
Takashi Iwakami (standing)
Kyohei Tomita (standing)
Akira Yasu
Toshihiko Kawamura
Sanenori Hitomi

As of June 29, 2006

Market Business Group and Overseas Office■ Head Office5-5, Minami-machi 2-chome, Mito,
Ibaraki 310-0021, Japan
Phone: 029-231-2151■ Market Business GroupManaging Director
Tsutomu Tohyama■ Markets and Business Administration
Division
7-2, Yaesu 2-chome, Chuo-ku,
Tokyo 104-0028, Japan
Phone: 03-3273-1741
General Manager
Shigeki Morita
Deputy General Manager
Hirohiko Sato
• Operations Group (Tokyo)
Senior Manager
Osato Aizawa● International Operations Office3-3, Shinhara 1-chome, Mito,
Ibaraki 310-0045, Japan
Phone: 029-255-6671
Telex: J23278 JOYOBANK3632105 JOYOBKSwift: JOYOJPJTGeneral Manager
Hideo Kosaka■ Treasury and Securities Division■ Shanghai Representative Office(Business Planning Division)
Room 1901, Shanghai International Trade
Centre, 2201 Yan An Road (West),
Shanghai 200335 P.R. of China
Phone: 86-21-6209-0258
Chief Representative
Katsunori Suzuki
Deputy Chief Representative
Kenji Kikuchi

7-2, Yaesu 2-chome, Chuo-ku,
Tokyo 104-0028, Japan
Phone: 03-3273-5245
General Manager
Kazuo Komuro
Deputy General Manager
Osamu Midorikawa• Investment Group
Senior Manager
Masahide Takauchi• Business Promotion GroupManager
Hiroshi Komatsuzaki

45Service Network

Miyagi Pref. (1 Branch)
Mito (Head Office, International Business Office,International Operations Office)Ibaraki Pref. (Head Office, 119 Branches,
24 Sub-Branches)
Fukushima Pref. (10 Branches)
Tochigi Pref. (5 Branches, 1 Sub-Branch)

Overseas:
Shanghai Representative Office
As of March 31, 2006

Chiba Pref. (5 Branches)
Tokyo (Tokyo Business Div. (Tokyo Main Office), 3 Branches)
Treasury and Securities Div.
Markets and Business Administration Div.
Saitama Pref. (2 Branches)
Osaka Pref. (1 Branch)

Affiliated Companies■ The Joyo Computer Service Co., Ltd.

■ The Joyo Business Service Co., Ltd.

16-25, Nishihara 2-chome, Mito, Ibaraki
Established 1973, Capital Stock: ¥47.5 million
Share of Voting Rights: 5%

8-1, Sasano-machi 1-chome, Hitachinaka, Ibaraki
Established 1984, Capital Stock: ¥100 million
Share of Voting Rights: 100%

Sale of software and contract of calculation
businesses

Agent in charge of administrative work for the
Bank■ The Joyo Lease Co., Ltd.

■ The Joyo Staff Service Co., Ltd.

4-12, Minami-machi 3-chome, Mito, Ibaraki
Established 1974, Capital Stock: ¥100 million
Share of Voting Rights: 5%

4-12, Minami-machi 3-chome, Mito, Ibaraki
Established 1991, Capital Stock: ¥30 million
Share of Voting Rights: 100%

Leasing of machinery and equipment, claim
acquisition

Temporary staffing business for the Bank

■ The Joyo Credit Guarantee Co., Ltd.
4-12, Minami-machi 3-chome, Mito, Ibaraki
Established 1978, Capital Stock: ¥30 million
Share of Voting Rights: 5%

Credit guarantee of housing loans from theBank■ The Joyo Credit Co., Ltd.
4-12, Minami-machi 3-chome, Mito, Ibaraki
Established 1982, Capital Stock: ¥100 million
Share of Voting Rights: 5%

Credit card services

46■ The Joyo Industrial Research Institute,Ltd.
5-18, Sannomaru 1-chome, Mito, Ibaraki
Established 1995, Capital Stock: ¥100 million
Share of Voting Rights: 5%

Consulting, investigation and research■ The Joyo Equipment Management
Co., Ltd.
5-5, Minami-machi 2-chome, Mito, Ibaraki
Established 1999, Capital Stock: ¥100 million
Share of Voting Rights: 5%

Maintenance and management of operational properties and equipment of the Bank

■ The Joyo Cash Service Co., Ltd.
3-3, Jonan 1-chome, Mito, Ibaraki
Established 1999, Capital Stock: 50 million
Share of Voting Rights: 100%

Management and maintenance of ATMs and
CDs■ The Joyo Total Maintenance Co., Ltd.
5-5, Minami-machi 2-chome, Mito, Ibaraki
Established 2000, Capital Stock: ¥200 million
Share of Voting Rights: 100%

Liquidation of real estate collateralized inrelation to the loans made by the Bank

As of March 31, 2006

Corporate Data

Date of Establishment

July 30, 1935

Head Office5-5, Minami-machi 2-chome, Mito, Ibaraki 310-0021, Japan
Phone: 029-231-2151
URL: http://www.joyobank.co.jp/
http://www.joyobank.co.jp/joyobank/eng/ (English Page)

Domestic Network

Head Office, Tokyo Business Division (Tokyo Main Office), and
146 Branches, 25 Sub-branches

Overseas Network

1 Representative Office: Shanghai

Number of Employees

3,475

Stock Exchange Listing

Tokyo Stock Exchange

Paid-in Capital¥85,113 million

Number of Shares(as of March 31, 2006)

Authorized
2,167,515 thousand
Issued and Outstanding 852,231 thousand

Number of Shareholders(1 trading unit = 1,000 shares)

23,252

Principal Shareholders

The 10 largest shareholders of the Bank and their respective
shareholdings at March 31, 2006 were as follows:
Number of Shares
Held(Thousands)

Percentage of Total
SharesOutstanding(%)

NIPPONKOA Insurance Company, Ltd. ..............................................
The Bank of Tokyo-Mitsubishi UFJ, Ltd. .............................................
Japan Trustee Services Bank, Ltd. (Trust Account) ..............................
Nippon Life Insurance Company .........................................................
The Master Trust Bank of Japan, Ltd. (Trust Account) .........................
Northern Trust Company (AVFC) Sub Account American Client ...........
The Dai-ichi Mutual Life Insurance Company .......................................
Sumitomo Life Insurance Company.....................................................
The Gunma Bank, Ltd. ........................................................................
Meiji Yasuda Life Insurance Company .................................................

40,97339,99232,78728,00323,446
18,74017,04916,448
10,4659,722

4.80 %
4.69
3.84
3.28
2.75
2.19
2.00
1.92
1.22
1.14

Total ............................................................................................

237,62727.88 %
As of March 31, 2006

For further information,please write to:Markets and Business
Administration Division,
The Joyo Bank, Ltd.
7-2, Yaesu 2-chome,
Chuo-ku, Tokyo
104-0028, Japan

47