May 14, 2010

Company name: Aozora Bank, Ltd.
Name of representative: Brian F. Prince, President and CEO
Listed exchange: TSE, Code 8304
Enquiries: Masaaki Harada
Corporate Communication Group
Financial Management Division (03 3263 1111)

Aozora Bank Returns to Profitability in FY2009;
Exceeds Full Year Profit Forecast;
Forecasts Increased Earnings for FY2010
TOKYO May 14, 2010 – Aozora Bank, Ltd. (“Aozora” or “the Bank”), a leading Japanese commercial bank, today announced its financial results for FY2009 and its earnings forecast for FY2010.

I. FY2009 Financial Results

The Bank recorded positive consolidated net revenue, ordinary profit, and net income following losses in the previous fiscal year, and exceeded the FY2009 full-year earnings forecast. The ability to post positive net income for four consecutive quarters contributed to the Bank’s achievement of its key objective of returning to profitability.
Brian F. Prince, Representative Director, President and Chief Executive Officer of Aozora Bank commented, “We are pleased to have achieved all the major goals we established for ourselves this year. Returning to profitability was a top priority. We were able to post four consecutive quarters of positive profits in the face of a difficult operating environment. We also exceeded our earnings target for the year. Our liquidity and funding situation has continued to improve, with retail funding now representing 63% of total core funding. General and administrative expenses were reduced 6.5% this year and are 13.3% lower than they were two years ago. We ended the year with one of the highest capital ratios in Japan – a major source of strength. As we enter FY2010, we expect that economic conditions will remain challenging. That being said, we feel confident that by continuing to focus on our core businesses, controlling operational expenses, and continuing to be disciplined from a risk management perspective, we can achieve our profit targets for FY2010.”

Summary of Full-Year Results (Consolidated)

Despite difficult economic conditions, the Bank reported ordinary profit of 6.5 billion
yen and net income of 8.3 billion yen. The favorable results reflected growth in core earnings, strict cost controls and a decrease in the Bank’s credit-related expenses. The Bank’s FY2009 full-year results exceeded its revised forecast for ordinary profit and net income of 5.0 billion yen and 7.0 billion yen, respectively.


The Bank’s capital position remained among the highest in the Japanese banking
industry. The consolidated capital adequacy ratio was 14.03% and the Tier 1 ratio was 15.23% (both on a preliminary basis), increasing 2.43% and 2.66%, respectively, relative to March 31, 2009. The ‘Core Tier 1’ ratio (which excludes the net amount of deferred tax assets) was 14.06%. The tangible equity ratio (defined on page 14) was 10.43%.

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
Retail funding increased by 449.5 billion yen, or 23.5%, to 2,360.3 billion yen from
end-FY2008, and the percentage of retail funding to total core funding expanded from 42.2% to 62.9%. The Bank resumed issuance of debentures in September 2009, having previously suspended issuance in October 2008. While the Bank maintained a strong liquidity reserve of 828.2 billion yen as of March 31, 2010, it intends to gradually reduce the level of the reserve as its funding sources and the markets continue to improve.


The Bank’s net interest margin showed a steadily improving trend and increased
5 bps to 0.90%. This improvement reflected a decrease in the yield on funding which exceeded the decrease in the yield on total investments.


Net fees and commissions increased 3.7 billion yen (+36.4%) year on year to 13.7
billion yen, contributing to net revenue growth. The improvement was due to increased fees on the Bank’s loan related business associated with new loan disbursements and roll-overs, as well as steady fees from the sale of investment trusts and annuity insurance.


General and administrative expenses decreased 3.1 billion yen (-6.5%) year on year
to 44.8 billion yen, reflecting continued strict cost controls.


Credit-related
expenses
decreased by 109.7 billion yen year on year to 24.7 billion
yen. This result was in contrast to the significant expenses recorded in FY2008, including the costs related to addressing legacy and non-core assets and the decisive action taken by the Bank to provide for existing credit going forward and a strengthening of preventative measures. The main factor in the fourth quarter increase of 12.5 billion yen, following the first nine months result of 12.3 billion yen, was credit related to the Aiful Group. The ratio of loan loss reserves to total loans was 3.87% as of March 31, 2010. This ratio continued to be one of the highest among major Japanese banks.


Financial Reconstruction Law (FRL) claims (non-consolidated) increased 31.7 billion
yen year on year to 171.8 billion yen. The FRL ratio (non-consolidated) was 5.52%, representing an increase of 1.19% from March 31, 2009. The majority of this increase consisted of claims to the Aiful Group, whose ADR plan was approved in December 2009. However, as compared to end-December 2009, FRL claims as of end-March 2010 decreased by 17.5 billion yen and the FRL ratio decreased 0.82%. The percentage of FRL claims covered by reserves, collateral and guarantees was 85.4%, a 13.9% improvement from the end-December 2009 level of 71.5%.
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FY2009 Performance (April 1, 2009 to March 31, 2010): Consolidated basis
Ordinary
Income
Net
Revenue
Business
Profit
Ordinary
Profit
Net
Income
Net Income per
common share
(100 million yen)
1,461 784
336
65
83
4.10
Yen
FY2009 (a)
1,826 -50
-529
-2,321
-2,426
-150.92
Yen
FY2008 (b)
-365 833
865
2,385
2,509
155.02
Yen
Change (a) - (b)
Percentage change ((a)-(b)) / (b)
-20.0%
-
-
-
-
-
FY2009 Full-Year Forecast (c)
1,350 720
280
50
70
3.23
Yen
Achievement (a) / (c)
108.2%
108.9%
119.8%
129.6%
118.6%

126.9%
Non-Consolidated basis
Ordinary
Income
Business Profit
before general
loan-loss reserve
Ordinary

Profit
Net Income
Net Income per
common share
(100 million yen)
1,408 335
50
76
3.66
Yen
FY2009 (a)
1,778 -196
-2,359
-2,453
-152.61
Yen
FY2008 (b)
-370 531
2,409
2,529
156.27
Yen
Change (a)-(b)
Percentage change ((a)-(b)) / (b)
-20.8%
-
-
-
-
FY2009 Full-Year Forecast (c)
1,300 245
25
50
1.89
Yen
Achievement (a) / (c)
108.3%
136.7%
200.4%
152.9%

193.7%

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II. Earnings Forecast for FY2010

Aozora also announced today its fiscal year 2010 earnings forecast. FY2009 Financial Results and FY2010 Earnings Forecast (Consolidated)
Ordinary
Income
Net
Revenue
Business
Profit
Ordinary
Profit
Net
Income
Net Income per
common share
(100 million yen)
FY2010
Forecast (a)
1,250

760
310
110
140

7.91 Yen
FY2009
Actual Result (b)
1,461 784
336
65
83
4.10
Yen
-211

-24
-26
45
57 3.81
Yen
Change (a)-(b)
Percentage
Change
-14.4%

-3.0%
-7.6%
69.7%
68.6%

92.9%
FY2008
Actual Results
1,826 -50
-529
-2,321
-2,426
-150.92
Yen
FY2009 Financial Results and FY2010 Earnings Forecast (
Non-consolidated
)

Ordinary
Income
Business Profit
before general
loan-loss reserve
Ordinary

Profit
Net Income
Net Income per
common share
(100 million yen)
FY2010
Forecast (a)
1,200

300
110
140

7.91 Yen
FY2009
Actual Result (b)
1,408 335
50
76
3.66
Yen
-208

-35
60
64
4.25 Yen
Change (a)-(b)
Percentage
Change
-14.8%

-10.4%
119.5%
83.2%
116.1%
FY2008
Actual Results
1,778 -196
-2,359
-2,453
-152.61
Yen
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III
．
Comparison of FY2009 Full-Year Earnings Forecast and Actual Results
1. Difference between FY2009 Full-Year Earnings Forecast and Actual Results Consolidated basis

Ordinary
Income
Net
Revenue
Business
Profit
Ordinary
Profit
Net
Income
Net Income per
common share
(100 million yen)
1,461 784
336
65
83 4.10
Yen
Actual Results (a)
1,350 720
280
50
70

3.23 Yen
Full-Year Forecast (b)
111 64
56
15
13
0.87
Yen
Difference (a)-(b)
Percentage difference ((a)-(b))/ (b)
8.2% 8.9%
19.8%
29.6%
18.6% 26.9%
Non-consolidated basis
Ordinary
Income
Business Profit
before general
loan-loss reserve
Ordinary
Profit
Net Income
Net Income per
common share
(100 million yen)
1,408
335
50
76 3.66
Yen
Actual Results (a)
1,300
245
25
50 1.89
Yen
Full-Year Forecast (b)
108
90
25
26 1.77
Yen
Difference (a)-(b)
Percentage difference ((a)-(b))/ (b)
8.3%
36.7%
100.4%
52.9% 93.7%
2. Reasons for differences The Bank announced its revised consolidated earnings forecast on January 29, 2010 and its non-consolidated earnings forecast on May 15, 2009. Major factors in the difference between the Bank’s non-consolidated earnings forecast on May 15, 2009 and the FY2009 actual results include strong growth related to the domestic corporate lending business, such as increased fees related to the Bank’s loan business, an increase in gains on securities transactions, and the continuation of strict cost controls.
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