OREANDA-NEWS. July 31, 2012. Aozora Bank, Ltd. (“Aozora” or “the Bank”), a leading Japanese commercial bank, announced its financial results for the first three months of FY2012.

Financial results for the first three months of FY2012

Aozora reported consolidated net revenue of 20.5 billion yen, business profit of 10.8 billion yen, and net income of 10.4 billion yen, for the first three months of FY2012. These results represented progress of 24.8%, 24.5%, and 26.1% towards the full-year forecasts of 83 billion yen, 44 billion yen, and 40 billion yen.

Brian F. Prince, Representative Director, President and Chief Executive Officer of Aozora Bank commented, “We were able to make a good start to the year despite facing a difficult operating environment around the world. Net income of 10.4 billion yen in the first quarter places us on track to achieve our full-year earnings forecast. While loan demand in general during the quarter remained sluggish, we were able to continue to make improvements in our business operations while continuing our disciplined balance sheet management, further expanding our net interest margin, as well as maintaining strict risk management. We expect to face many challenges over the balance of the year but remain confident that we will achieve our major goals and continue to strengthen our business.”

1. Summary of the first three months results (Consolidated)

■          The Bank recorded net revenue of 20.5 billion yen, an increase of 2.1 billion yen, or 11.4%, year on year, and business profit of 10.8 billion yen, an increase of 2.0 billion yen, or 22.8%. Net income was 10.4 billion yen, representing steady progress of 26.1% towards the full-year forecast of 40.0 billion yen and a 13th consecutive quarterly profit.

•           Net interest income was 12.1 billion yen, reflecting continued improvement of the net interest margin, while the Bank continued its disciplined balance sheet management. This represented a year on year increase for the third consecutive quarter. Funding costs were reduced 10 bps from 0.65% to 0.55% in the first three months of FY2012. The net interest margin improved 4 bps to 1.13%.

•           General and administrative expenses were almost unchanged year on year at 9.8 billion yen, reflecting the Bank’s continued strict control on costs. The overhead ratio, or OHR (general and administrative expenses as a percentage of net revenues) was 47.5%, remaining well within the Bank's mid-term target of 50% or below.

•           Credit-related expenses were a net profit of 0.4 billion yen, compared with a net profit of 1.9 billion yen in the first three months of FY2011. This reflected the Bank’s continued disciplined risk management and preventative measures taken by the Bank to date including the conservative allocation of reserves, as well as the absence of significant credit events during the term.

•           Comprehensive income was 13.3 billion yen, and net assets per common share were 284.08 yen, as compared to 284.22 yen as of March 31, 2012.

■          The percentage of retail funding to total core funding (the sum of deposits, negotiable certificates of deposit, debentures and bonds) remained high at 70.7%. The Bank maintained sufficient liquidity reserves of approximately 620 billion yen as of end-June 2012.

■          Non-performing claims as defined by the Financial Reconstruction Law (FRL) decreased

4.9 billion yen, or 4.5%, to 104.3 billion yen from March 31, 2012. The FRL ratio

increased slightly to 4.10% as total credit decreased. The percentage of FRL claims covered by reserves, collateral and guarantees remained high at 88.4% as of June 30, 2012, and the ratio of loan loss reserves to total loans outstanding was 3.06%, remaining one of the highest among major Japanese banks.

■          Aozora will announce its Tier 1 ratio and capital adequacy ratio as of end-June 2012, at

a later date. As of March 31, 2012, these ratios were 19.37% and 17.86%, respectively,

and are expected to remain high.