Interim FY2006 Business Results Presentation · 2. Profitability : Overview Consolidated Net Revenue 362 423 465 536 581 0 100 200 300 400 500 600 700 Interim FY2002 Interim FY2003

December 1, 2006 (Friday)

Interim FY2006 Business Results Presentation　　　　　　　　　　　　　　　　　　　　　　　　　　

1Copyright（C) 2006 Aozora Bank, Ltd．All Rights Reserved.

Table of Contents

Aozora Bank Business Strategy

Outline of Interim FY2006 Results


1. Aozora Bank at a Glance

Cerberus NCB Acquisition, L.P. 62% 41% 35% 28%ORIX Corporation 15% 10% 9% 7%Tokio Marine & Nichido Fire Insurance Co., Ltd. 15% 10% 9% 7%Other 88 financial institutions 8% 5% 7% 5%Deposit Insurance Corporation of Japan / The Resolution and Collection Corporation(3) - 33% - 22%

Founded in April 1957(The Nippon Fudosan Bank, ltd.)Temporarily nationalized in December 1998 (state control under Financial Revitalization Law) Re-privatized in September 2000Changed name from Nippon Credit Bank to Aozora Bank in January 2001Changed status from a Long-Term Credit Bank to an “ordinary” commercial bank on April 1, 2006Listed on TSE on November 14th

Overview (as of September 2006)History

Headquarter in Chiyoda-ku, TokyoHeadquarters and domestic branches: 19(Nov. 30th)Overseas offices: 4Interim FY06 Net Income: JPY 53.4 billionNet Assets: JPY 762.8 billion; ROE: 14.0% Total Assets: JPY 6,438.8 billion; ROA: 1.6% Credit Rating: Baa1 (Moody’s); BBB+ (S&P); A- (Fitch); A- (R&I); A (JCR) (Nov. 30th)

Shareholders

(1) Interim Net Income / Term-end Net Asset (Annual Basis)(2) Interim Net Income / Term-end Total Net Asset (Annual Basis)(3) Assumes conversion rate of 1 to 5 for Series 4 Preferreds and conversion price of JPY450 for Series 5 Preferreds(4) Post Greenshoe option exercised

Post IPO (4)Prior to IPO

Fully-DilutedCommonFully-DilutedCommon


2. Growth in Corporate Business

3,489.3

3,136.3

2,655.02,666.32,965.5

0

1,000

2,000

3,000

4,000

3/04 3/05 9/05 3/06 9/06

Impact in Six Months (4/2006 – 9/2006) Refocus on Loan Growth (1)

63 new client relationships

– JPY 1.75 billion of fees and commissions from new customers

Increase of JPY 353.0 billion in loans

– Loan growth of 11.3% (1) vs. 0.8% average for key major City and Trust banks (2)

Refocus

(2) Based on publicly available information published by MUFG, Mizuho, SMFG, Resona, Mitsui Trust, and Sumitomo Trust and Banking

Loans Outstanding

3/04 3/05 9/05 3/06 9/06

(1) Consolidated basis (1) Consolidated basis

– Approx. 120bil. Increase in total assets

Focusing on MEs

– Sales for MEs and financial consulting of its owner

– Advisory on capital policy, Utilization of PE fund


4.58.8

15.5 13.1

10.9

10.5

10.69.3

1.8

6.3

4.3

2.5

2.6

8.7

4.1

17.9

23.7

41.0

30.7

0

5

10

15

20

25

30

35

40

45

50

FY3/04 FY3/05 FY3/06 FY9/06

3. Major Player in High-Margin Specialty Finance Market

Investment Banking(1)

(1) Consolidated Managerial Accounting Basis

(JPY in billions)

RealEstateFinance

StructuredCredit

GlobalFinance (Europe)

LeveragedFinance (Japan and Asia)

CAGR 51.5%

•S■Real Estate Finance

－ Non-recourse real estate finance, mezzanine, equity and J-REITs

Structured Credit

－ Asset Finance, Special Situations, Recovery Finance, Credit Trading and Hospital Finance

Global Finance

－ Syndicated loans in European and U.S. Markets

Leveraged Finance

－ One of leading players in emerging leveraged finance market in Japan

－ Recently expanded in non-Japan Asia with opening of subsidiary in Hong Kong


4. Leveraging Existing Relationships with Financial Institutions

Non-performing loan investment

Ship finance

Hospital-relatedfinance

Total Universe(1)

Number Total(2)

DepositsTotal

Loans

Aozora Coverage

Ratio(3)

City and Trust Banks(4)

10 324.3 238.9 100%

243.0

109.2

15.9

--

--

181.6

62.7

100%

93%

55%

53%

79%

9.3

--

--

Regional Banks 111

Cooperative Banks

292

Credit Cooperatives

172

Others(5) 98

Financial Institution Relationship Managers

60

Total 683

Financial Institutions CoverageAs of March 2006 Key Opportunities

Sourcing Distribution Advisory

Asset-backedsecurities

Asset-backedcommercial paper

Collateralizedloan obligations

Privately placed fund products

Structured debt instruments

Arranger of syndicated loans

Loan portfolios for securitization

Other Asset-backedsecuritizations

(JPY in trillions)

(1) Source: Bank of Japan(2) Including CDs(3) % of financial institutions that have completed transactions with Aozora(4) Bank of Tokyo-Mitsubishi UFJ, Mizuho Bank, SMBC, Resona Bank, Mizuho Corporate Bank, Saitama Resona Bank, Mitsubishi UFJ Trust & Banking, Mizuho Trust & Banking, Chuo Mitsui Trust &

Banking, Sumitomo Trust & Banking(5) Governmental financial institutions, insurance companies, other banks, etc.


5. Targeted Expansion of Retail Banking

Almost doubled retail deposits to JPY 1,271.7 billion in 5 years (19.2% CAGR); funds over 20% of the total liabilitiesImportant source of funding

Affluent customer base

Growth in fee and commission income

Strategy for growth

Over 200,000 customers with average deposits of over JPY 6.5 millionHigh potential cross-selling of investment products

Demonstrated growth in sales of investment trusts and variable annuities

19 branches, in Tokyo and 10 other major cities in JapanNew flagship branch in Nihonbashi in central Tokyo in November 2006National account access through Japan Post’s ATM networkCentralized loan center and back office functions for efficiencyPlans to provide 24/7 access through call center, ATMs and internetSelective expansion of branch networkRelocation of some branches and branch refurbishment based on the new Nihonbashi flagship branch


Michael E. Rossi(1)

Chairman

Former Vice Chairmanof Bank of America Corporation

Hirokazu Mizukami(1)

President

Former Managing Executive Officer of The Sumitomo Trust & Banking Co., Ltd.

Kimikazu Noumi(1)

Vice Chairman

Former President of Nourinchukin Zenkyoren Asset Management Co., Ltd.

Office of Chief Executive Senior Managing Executive Officer

Katsutoshi Ishida

CCOCredit

Takeyoshi Morikawa

Retail Banking

David Hackett

CFOFinance

Former Managing Director at Nikko Citigroup

Izumi Ogura

Financial Markets

Former Branch Manager of Dresdner Bank AG Tokyo

Lee Millstein(1)

Corporate & InvestmentBanking

Former Managing Director of Morgan Stanley Japan

Carlos A. Erchuck

CRORisk

Former Executive Director and Senior Credit Risk Officer for the Asia Pacific of UBS AG Tokyo

Yuji Inagaki

CMOMarketing

William Chute

CTOTechnology & Operations

Former Managing Director and Chief Information Officer of Nikko Citigroup

Hiroshi Jinno

Financial Institutions

Former Managing Director at J.P. Morgan Partners Asia Pte., Ltd

(1) Denotes a Board member

6. Experienced Management Team

Diverse Blend of Skills and Experience


Former Chairman of Lehman Brothers Japan

Former Vice Chairman of Merrill Lynch

Former Vice President of the United States (1989-1993)

Chairman & CEO of ORIX Corporation

Former Assistant to President Bush for Economic Policy and Director of National Economic Council of United States

Senior Advisor of Cerberus Global Investment Advisors, LLCFormer Chairman of the Supervisory Board of the Netherlands Pensions and Insurance Supervisory Authority and Chairman of the Supervisory Board to the Dutch Central Bureau of Statistics

Former Director of the Domestic Monetary Affairs of the Netherlands Ministry of Finance

Director & President of Tokio Marine Asset Management

President of Cerberus Global Investment Advisors, LLC

Kiyoshi Tsugawa

John L. Steffens

James Danforth Quayle

Yoshihiko Miyauchi

Lawrence B. Lindsey

Pieter Korteweg

Marius J.L. Jonkhart

Yoichiro Iwama

Frank W. Bruno

7. Global Standard Corporate Governance

9 out of 13 Board Members are Outside Directors

The Audit and Compliance Committee is comprised solely of non-executive directors


8. Management Targets

Low double digit % growth in Net Revenue

High single digit % growth in costs

Loan book growth to exceed industry average

Ultimately capital adequacy

　　　　　　Tier 1 8～10%


M & A

Provision for BaselⅡ

Repayment of Public Fund

Return to Shareholders

Consolidated Shareholder’s Equity

Track Record of Success in Delivering Corporate Value

9. Delivering Corporate Value

Capital Utilization

461477

498527

612

763

723

200

300

400

500

600

700

800

End Mar.2001

End Mar.2002

End Mar.2003

End Mar.2004

End Mar.2005

End Mar.2006

End Sep.2006

（Bil. yen）


GMAC Deal

10. Recent Achievement

Investment amount : USD 500 million

Ownership of GMAC : over 3%　

3 types of benefit・Capital gain on exit

　　　・Annual earnings accretion based on holding

　　　・Synergistic business opportunities


11. Aozora Spirit

Corporate

Governance,

Control

and Risk

Management

global best

practices

Increasing

Corporate

Value

Partnership

with our

counter-parts

for mutually

beneficial

solutions

Keep Challenging Every Possibility in Financial Market

Multi -C

ultural

Pursuit of Targeted

Markets

Flexibility and R

esponsiveness

Challenge the

conventional

Entrepreneurship

Mistakes are

acceptable

Sophisticated and Strict Risk Management Hard Financial Ground


Aozora Bank Business Strategy

Outline of Interim FY2006 Results


Record consolidated Net Income of JPY53.4 bil. with 18.8% increase from the previous year:

・Consolidated Net revenue increased by 8.3%・Consolidated Operating profit increased by 29.5%・Consolidated Overhead ratio (OHR) lowered to 45.3% from 45.9%

Continued loan growth and further improvement in asset quality:

・Consolidated loan balance increased by JPY353.0 bil. at end Sep. 2006　・Non-consolidated NPL ratio at 0.69% as at end Sep. 2006

・Non-consolidated coverage ratio of reserve and collateral etc. stood at 91.1%,remaining at a very high level

High capital adequacy ratio:・Consolidated Tier 1 ratio decreased by 0.60 point to 18.52%・Consolidated capital adequacy ratio decreased by 0.73 point to 18.74%

1. Interim FY2006 Financial Highlights


Record Consolidated Net Income from substantial increase in Net Revenue

Strong non-interest income growth drive 8.3% growth in Net revenue, 29.5% growth in Operating Profit, and 18.8% growth in Net income

2. Profitability : Overview

Consolidated Net Revenue

362423

465536

581

0

100

200

300

400

500

600

700

InterimFY2002

InterimFY2003

InterimFY2004

InterimFY2005

InterimFY2006

(100 mil. Yen)

Consolidated Operating Profit

31 47

184

257

334

0

50

100

150

200

250

300

350

400

InterimFY2002

InterimFY2003

InterimFY2004

InterimFY2005

InterimFY2006

(100 mil. Yen)

Consolidated Net income

104 129

336

449

534

0

100

200

300

400

500

600

InterimFY2002

InterimFY2003

InterimFY2004

InterimFY2005

InterimFY2006

(100 mil. Yen)


Net revenue of 58.1 bil. yen8.3% increase year-on-year

General and administrative expenses increased but tight cost controls led to low Overhead Ratio

• Consolidated Overhead Ratio down to 45.3%, notwithstanding robust investments in people and technology for future growth

Positive Developments in Revenue Growth andDiversification Support Gains in Earnings

（100 million yen）

Consolidated net revenue (*1) 581 45 536

Net interest income 217 -53 270

Non-interest income 364 97 267

Net fees and commissions 78 12 66

Net trading revenues 31 1 30

Net other operating income 254 83 170

Gains (losses) on bond transactions 71 20 51

General and administrative expenses -263 -17 -246

Business profit (*2) 318 28 290

Write-off/loss on disposition of loans -31 -3 -28

Write-off of loans -31 4 -36

Provision for General loan-loss reserve etc. (*3) - 1 -1

Loss on disposition of loans - -8 8

Gains (losses) on stock transactions 33 24 9

Other 15 28 -13

Operating profits 334 76 257

Extraordinary profits (losses) 199 24 176

Reversal of reserve for possible loan losses 170 11 159

Reversal of general reserve for possible loan losses 151 -62 213

Reversal of specific reserve for possible loan losses 17 72 -55

Reversal of reserve for loans to restructuring countries 3 1 1

Recoveries of written-off claims 5 -13 17

Reversal of reserve for credit losses on off-balance sheet instruments 4 4 -

Other extraordinary profits (losses) 20 21 -1

Income before income taxes and others 533 100 433

Current and deferred taxes 2 -15 16

Minority interest in net income -1 -0 -0

Net income 534 85 449

Credit-related expenses　(*4) 143 12 131

(*1) Consolidated net revenue：（Interest income - Interest expenses）+（Fees and commisssions income - fees and commissions expenses）+ （trading revenue - trading expenses）+（Other operating income - other operating expenses）

(*2) Business profit = Consolidated net revenue - General and administrative expenses(*3) Provision for General loan-loss reserve includes reserve for credit losses on off-balance sheet instruments.(*4) Credit related expenses =Expenses on problem loan disposals + Provision for general loan losses, including reversal amount posted as Extraordinary profits.

Interim FY 2005Interim FY 2006 Change

2. Profitability : Earnings Review


Overhead Ratio at a stable, Low Level

Overhead Ratio excluding deferred profit from macro-hedging decreased by 5%

2. Profitability : Overhead Ratio

Average yield on loans improved to 2.05% (consolidated)

Average yield spread (margin) rose to 1.59%(consolidated)

(*1) "Yield on loans" minus "Yield on debentures, deposits & certificates of deposit"

1.92%

2.05%

1.54%1.59%

1.00%

1.20%

1.40%

1.60%

1.80%

2.00%

2.20%

Second Half of FY2005 First Half of FY2006

Average yield on loans (consolidated)

Average yield spread (margin)*1 (consolidated)

Operating Efficiency (OHR)

234

246

263

56.1%

50.4%

45.9%

50.3%

45.3%

200

220

240

260

280

Interim FY2004 Interim FY2005 Interim FY200640%

45%

50%

55%

60%

65%G&A (Consolidated)

OHR

OHR (excluding deferred profit from macro-hedging)

100 mil. yen


Consolidated Non-interest income as percentage of total Net Revenue up 12.9 points year-on-year （to 62.6% from 49.7%）

Consolidated Net Fees and Commissions up 18.6%

Consolidated Net Other Operating Income up 49.0%

　　　

　・ Largely from gains on bondtransactions and gains on limited partnership investments

Continued Execution of Strategy to Enhance Earnings Quality and Diversity

2. Profitability :　Breakdown of Net Revenue

Breakdown of Consolidated Net Revenue

26 37 43 66 7815 2042

30 31

1851

72

170

254

47

47

47

302

267

261

223

217

0

100

200

300

400

500

600

InterimFY2002

InterimFY2003

InterimFY2004

InterimFY2005

InterimFY2006

Net interest income (excluding def erred hedge gains re priormacro-hedging)Def erred hedge gains re prior macro-hedging (accounted asNet interest income)

Net other operating income

Net trading rev enues

Net f ees and commissions

100 m il. yen


Consolidated Net Revenue* by Business Group

2. Profitability :　Breakdown of Net Revenue by Business Group

69.2

45.6

31.3

9.7

7.2

3.0

11.2

3.60.2

1.2

0

20

40

60

80

100

120

FY2005 Interim FY2006

Others (unallocated)

RBG

FIG

FMG

CIBG

(Bil. yen)120.1

62.1

**Consolidated net revenue by managerial accounting basis + Gains(Losses) on stock transactions*


Not Overly Reliant on Any Single Source of Non-Interest Income

(Consolidated, 100 mil. yen)

Financial Institutions

Retail Banking Financial Markets

Corporate Banking Investment Banking

■ Syndicated loan related fees■ Securitization related fees■ Fees on issuing private placement bonds■ Sales of private investment trust products

■ Loan related fees (Commitment line,

loan securitization etc.)

■ M&A fee

■ Investment banking business related revenues 　・Real estate finance　・Recovery finance　・Ship finance　・Leveraged finance etc.

■ Investment related revenues　・REIT investment　・Investment partnerships related to recovery finance　・Investment partnerships related to real estate　・Investment partnerships related to venture capital

Corporate & Investment Banking

■ Fees related to sales of investment trust products and annuity insuranace to retail customers

Totalnon-interest

income: 364

■ Trading revenue, including derivatives trading■ FX transactions, including currency options■ Hedge funds

2. Profitability :　Breakdown of Non-interest Income


Maintains Superior Capital Strength while Rebalancing Asset Base

Total increased through accumulation of high quality assets

• Consolidated loans and bills discounted up 11.3% from end Mar. 2006

• 11.7% increase in investment securities, mainly JGBs

Increased both deposits and certificates of deposits, with steady increase in retail deposits

＜Consolidated＞ (100 million yen）

End Sept. 2006 Change End Mar. 2006

〈Assets〉

Cash and due from banks 1,059 -2,601 3,659

Call loans and bills bought 2,307 145 2,162

Trading assts 746 -192 939

Securities 18,185 1,903 16,282

Loans and bills discounted 34,893 3,530 31,363

Deferred tax assets 280 4 276

Reserve for possible loan losses -624 193 -817

Other 7,542 1,446 6,096

Total assets 64,388 4,428 59,959

〈Liabilities〉

Deposits and Certificates of deposit 33,213 1,250 31,963

Debentures 12,325 1,722 10,603

Call money and bills sold 3,294 -551 3,845

Trading liabilities 763 -286 1,049

Other 7,164 1,905 5,258

Total liabilities 56,760 4,041 52,719

Minority interest in consolidated subsidiaries - -7 7

〈Net assets〉

Capital stock 4,198 - 4,198

Capital surplus 333 - 333

Retained earnings 3,183 474 2,709

Treasury stock -0 - -0

Net unrealized losses on available-for-sale securities, net of taxes -74 -67 -7

Net deferred losses on hedging instruments, net of taxes -23 -23 -

Minority interests 6 6 -

Total net assets 7,628 394 7,234

Total liabilities and net assets 64,388 4,428 59,959 (Note) Figure of "Total liabilities and net assets" as of end Mar. 2006 is equivalent amount of "Total liabilities, minority interests and

shareholders' equity" on the respective dates.

3. Balance Sheet : Overview

O uts tanding balance of depos its (by type of deps itor)

530 6731,005 1,101 1,144 1,272 1,355

844944

1,132 952 7191,042 988

373528

418 548515

871 982

0

500

1,000

1,500

2,000

2,500

3,000

3,500

Mar. 2001 Mar. 2002 Mar. 2003 Mar. 2004 Mar. 2005 Mar. 2006 Sep. 2006

(Non-consolidated bas is )

Negotiable certificate of depos itsO ther depos itsRetail depos its

(Bil. yen)


Consolidated Capital Adequacy Ratio: 18.74% at end Sep. 2006, down from 19.47% at end Mar. 2006

Consolidated Tier 1 Ratio: 18.52% at end Sep. 2006, up from 19.12% at end Mar. 2006

Negligible usage of deferred tax assets Government ownership of common stock reduced to approx. 22% from 33%

Increase in Profits and Risk-weighted Assets has kept Consolidated Capital Adequacy Ratio to over 18%

（Note） Figures at end September 2006 are preliminary.

＜Consolidated＞（100 million yen）

End Sep. 2006 Change End Mar. 2006

　Capital adequacy ratio 18.74% -0.73% 19.47%

　Tier 1 ratio 18.52% -0.60% 19.12%

　Risk-weighted assets 41,293 3,744 37,550

　(1)　Tier 1 7,652 472 7,180

　(2)　Tier 2 (qualifying as capital） 258 23 235

　(3)　Deducted items -169 -68 -101

　Capital 　(1) + (2) + (3) 7,741 428 7,313

(4) Deferred tax assets 280 4 276

Deferred tax assets/Tier 1 (4) / (1) 3.66% -0.18% 3.85%

3. Balance Sheet : Quality of Capital①

5,431 6,1727,313 7,741

5,205 6,0457,180 7,652

37,550

41,293

34,67233,003 19.47%

18.74%

15.66%

18.70%

19.12%18.31%

15.01%

18.52%

0

10,000

20,000

30,000

40,000

End Mar. 2004 End Mar. 2005 End Mar. 2006 End Sep. 200610%

15%

20%

25%

Risk-weighted assets

Regulatory capital

Tier1 capital

Capital adequacy ratio

Tier 1 ratio

(100 million yen)


Current Public Funds

3. Balance Sheet : Quality of Capital②

Net proceed required by governmentPrior to IPO: JPY 355.0 bil.

Proceed at IPO: JPY 127.7 bil.

Post IPO: JPY 227.3 bil. at minimum

Number of shares Per stock

24,072,000

@ 1,000

258,799,500

@ 600

Total JPY 179,351,700,000 - - 465,426,000

5th preferredstock

JPY 155,279,700,000 600 / 450 per stock

Book ValueCurrent number of

common stocksequivalent

Conversion Ratio

JPY 24,072,000,000 5 per stock 120,360,000

345,066,000

4th preferredstock


　　■ Ratio of FRL Credit to Total Credit　Maintained at Low Level of 0.69%*

　　■ High collateral and reserve coverage maintained at 91.1%* *non-consolidated basis

3. Balance Sheet : Quality of Asset

*(*) Quoted from publicly disclosed figures on bank subsidiary basis for Mizuho FG, Sumitomo Mitsui FG, Mitsubishi-UFJ, Resona, Sumitomo Trust and Mitsui Trust.

(At end Sep. 2006)

Aozora 6 major Japanese banks (*)

FRL Credit to total credit　0.69% 0.83～2.52%

Ratio of coverage by reserves, collateraland guarantees to FRL credit 91.1% 73.1～87.5%


Operating Profit and Net Income Trends and Forecast

4. Outlook : Current & Projection

JPY 100 mil.

257 334

357318

449534

752

276(Forecast)

0

200

400

600

800

1,000

1,200

Net Income Operating Profit

2nd Half Net Income

1st Half Net Income

2nd Half Operating Profit

1st Half Operating Profit

Operating Profit Net Income

FY2005 FY2006

614

1,201

652

810 (Forecast)

This presentation material contains information that constitutes forward-looking statements. The statements are not guarantees of future performances and involve risks and uncertainties. The actual results may differ from the forward-looking statements due to factors including changes in economic conditions and market interest rates etc.

< Inquiries >

AOZORA BANK, LTD.

Corporate Communication Group

TEL: 03-5212-9253

FAX: 03-3239-8065

URL: http://www.aozorabank.co.jp

Harada: [email protected]

Sengoku: [email protected]

Documents

Interim FY2006 Business Results Presentation · 2. Profitability : Overview Consolidated Net Revenue 362 423 465 536 581 0 100 200 300 400 500 600 700 Interim FY2002 Interim FY2003