Isao Kobayashi President

Since its establishment in 1951, the Tokyo Tomin Bank has pursued the overarching business objective of fulfilling its duties as a responsible corporate citizen by providing financial services that help small and medium-sized enterprises, as well as individuals in Tokyo and surrounding areas, to develop and prosper. In this way, we have made, and will continue to make, a significant contribution to the healthy development of society in our home region. At the same time, we are always seeking to enhance our marketing systems and other functions so that we can offer our customers services that meet all of their needs.

We aim to raise the Bank’s enterprise value substantially by December 2011, when we celebrate the 60th anniversary of the Bank’s founding. In this way, we will earn the trust of all our stakeholders, including our shareholders and customers, as well as financial market players and the regional community at large.

The key business strategies we are pursuing under the Challenge 60 medium-term plan are the implementation of customer satisfaction management, the strengthening of our marketing capabilities, and the development of an appealing corporate culture. The Tokyo Tomin Bank’s base of operation is the Tokyo metropolitan area. Our core mission is to provide essential financial services to small businesses (including sole proprietorships) in this region, taking advantage of the wealth of business opportunities offered by the Tokyo market. To meet this mission, all members of the Tokyo Tomin Bank will make every effort to maintain sound business operations, enhance management practices and further raise the Bank’s enterprise value, as part of its relationship banking service.

We look forward to the continued support and encouragement of our shareholders and all other stakeholders.

During fiscal 2010, the Japanese economy showed signs of an export and production rally amid overseas economic improvement and broke free of its economic standstill with higher corporate earnings and a rebound in capital investment, and staged a modest recovery. However, the Great East Japan Earthquake inflicted enormous damage to the Japanese economy, causing rapid economic decline and overall weakness, and leading to fears that strong downward pressure on production and decreased exports and personal consumption would negatively affect corporate earnings. Further, harsh employment conditions continued, with high levels of unemployment.

Looking at the economy of Tokyo, which constitutes the Bank’s business base, prior to the earthquake disaster, there had been signs of a pick up in exports and production, but despite the cautious stance of companies regarding business conditions, such as the trend toward improved capital and home investment, the economy staged a partial comeback. Nevertheless, after the disaster, along with the suspension of production activities due to electric power shortages, supply chain disruption, and declining exports, there came a sudden plunge in corporate and household confidence caused by supply shortages and a growing mood of voluntary restraint. As a result, capital investments were curtailed and consumer spending was weak. Against this backdrop, there remained a strong sense of future uncertainty and harsh business conditions continued for Tokyo’s small and medium-sized enterprises (SMEs).

In the financial sector, despite signs of declining corporate bankruptcies amid such factors as a persistent deflationary recession and delayed economic recovery, the business environment surrounding banks remained very difficult due to deteriorating business conditions for SMEs caused by the disaster. Against this backdrop, each financial institution has taken steps to effectively fulfill their financial intermediary functions based on the Law to Facilitate the Flow of Funds to SMEs,. In addition to a wide variety of measures taken to improve our products and services, we have been working to strengthen the management system to ensure legal compliance and customer information protection. Further, the Bank has established a support system to help earthquake victims. As part of this system the Bank has received public donations for earthquake victims, handled the repayment of deposits from other banks to victims who have evacuated from devastated areas, and assisted companies whose businesses were affected by the devastation by setting up a new financing system and enhancing its loan consultation service. In response to societal needs, the Bank has implemented energy-saving measures to deal with electric power shortages.

Amid this operating environment, we are now in the second year of our Challenge 60 three-year business plan, under which we aim to raise the Bank’s enterprise value and realize a recovery in business performance by December 2011, the 60th anniversary of the Bank’s founding. By doing so, we will earn the trust of all our stakeholders, including our shareholders and customers, as well as financial market players and the regional community at large.

During fiscal 2010 we took steps to increase loan transactions, the number of customers, and non-interest income such as fees and commissions on foreign currency exchange dealing and the over-the-counter sale of investment trusts and insurance policies. However, slack demand for loans from business corporations, the slow recovery of the investment environment for individuals’ assets under management, and other factors, caused both interest income (principally the margin between interest paid on deposits and interest earned on loans) and non-interest income, to fall short of our planned figures.

While earnings from investment securities were largely favorable and we reduced expenses，profit on core banking operations decreased \3,000 million year on year, to \10,700 million. Credit costs declined \1,600 million from the previous fiscal year, to \3,800 million. This was attributable largely to steps taken to strengthen banking systems, as well as further efforts to help customers with business support consulting.

As a result of the above, the Bank recorded ordinary income of \1,500 million and net income of \900 million.

At the Tokyo Tomin Bank we are ever-conscious of the vital importance of improving the soundness of our loan portfolio. Over the last several years, we have worked hard to eliminate bad debts from our books, and in fiscal 2010 we continued to emphasize the accumulation of small-lot loans as an effective means of credit risk diversification. We also applied even stricter criteria to the self-assessment of our loan assets, and made sufficient provisions to reserves for possible loan losses. From here onward, we will continue to apply the principles of free-market competition and accountability by further refining our asset self-assessment system. Our goals will be to increase the transparency of management and ensure that we maintain and improve the soundness of our loan assets.

As of March 31, 2011 the capital ratio of the Tokyo Tomin Bank (calculated according to the new accounting standards compatible with the Basel II capital requirements applied to Japanese banks without overseas operations) stood at 9.77% on a non-consolidated basis and 9.91% on a consolidated basis. The capital ratio, used by the authorities in determining whether to trigger early corrective measures, is a key indicator of the soundness and stability of a bank’s financial position. Banks with overseas operations must adhere to international standards, which stipulate that the capital ratio must not fall below 8%. Banks operating only in Japan adhere to the domestic standard, which specifies a capital ratio of 4% as the minimum acceptable level. If the ratio falls below this level, the Financial Services Agency sets in motion measures for management reforms at the bank in question.

With the existence of many uncertainties including the affects of the earthquake disaster, the trend toward unstable international financial markets, and rising resource prices, such as crude oil, production appears to be at a temporary standstill. However, business is expected to get back on track to recovery due to growing reconstruction demand, including for production and public investment, and a pick up in exports on the back of overseas economic improvement.

Because of economic reconstruction after the earthquake, companies in the financial sector will be expected to more fully perform their financial intermediary functions, particularly by facilitating the supply of funds to corporate customers. They will also be expected to improve their customer service, enhance their corporate social responsibility, establish and properly operate effective internal control systems and business management systems for legal compliance and risk management, and respond to changes to international accounting standards and capital ratio regulations.

Under these business conditions, as key strategies based on our Challenge 60 medium-term business plan, we will make further efforts to implement customer satisfaction management, strengthen our marketing capabilities, and develop an appealing corporate culture. In this milestone year, facing the 60th anniversary of our founding, we will pursue new measures and push vigorously ahead under the mantra of “Giving Thanks Forever.”

In order to become a community-based bank that is trusted and chosen by customers, we will improve customer satisfaction under our “Declaration to Customers.” The Tokyo Tomin Bank always takes the customers’ perspective and offers products and services that are customer focused. For example, one of the positive benefits of the Bank’s consulting capabilities in relationship banking was its sponsorship of the award-winning ECO STYLE exhibition and business forum. We are also further upgrading our branch services that have received high marks from the media. So that customers use our bank with peace of mind, we are making every effort to satisfy customers by strengthening our customer retention efforts and upgrading our branches by making them barrier free and through other features.

To create deeper customer relationships and more precisely respond to customer needs, we have further reinforced sales activities in the areas surrounding our branches, upgraded our business infrastructure, and promoted relationship banking. Moreover, to help SMEs enter the Asian market, we will make more active use of our Shanghai subsidiary’s consulting capabilities. We will also position medical and welfare services, one of our growth areas, as local businesses for the Tokyo metropolitan area, and strengthen operations by increasing the number of employees in our dedicated Medical and Welfare Unit. The Bank received a business method patent for its Maekyu system, an as-needed salary payment service, the banking industries first such service developed by the Tokyo Tomin Bank. The service has already been widely adopted, including by major companies in the restaurant industry. The users of this service are steadily increasing and we expect the number of users will expand in the years ahead. With respect to fortifying our earnings capacity, we are taking steps to raise interest income by increasing high-quality assets and ensuring adequate profit margins. We are also working to increase services income and achieve earnings growth by diversifying our securities services operationｓ. Based on the Law to Facilitate the Flow of Funds to SMEs, the Bank is taking further steps to fulfill its financial intermediary and consulting functions and its business consulting and improvement support service. We will continue to build a stronger asset base through appropriate credit risk management.

With the goal of making the Tokyo Tomin Bank even more appealing to customers, we will put our business resources to more efficient use so that we become a more vital and dynamic bank. The Bank views human resources as an investment in its future, thus it will construct a new training center and undertake various training initiatives. With the goal of providing a "Tokyo Green Fixed-Term Deposit," an eco-friendly fixed-term deposit, and contributing to the local community, the Bank will pursue further CSR initiatives, such as its partnership with the J.League football club F.C. Tokyo.

For the business year ending March 2012, on a non-consolidated basis, we forecast gross profit on core banking operations of \42,900 million thanks to increased interest income resulting from an improvement in the deposit/loan interest margin, as well as an increase in non-interest income due to stronger marketing of financial products. Although we continue to reduce expenses, expenses are forecast to come in at \32,900 million due to increased computer system expenses. As a result, we forecast net profit on core banking operations of \10,000 million, ordinary income of \3,300 million, and net income of \2,000 million.

On a consolidated basis, we project ordinary income of \4,200 million, and net income of \2,400 million.