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| Shinichi Koide, President |
Business Results and Financial Position
During the period under review, the Japanese economy sustained a moderately paced expansion led by the corporate sector, as solid corporate earnings and other factors fueled increases in capital investment and improvement in the employment situation.
In Aichi prefecture and the surrounding region, exports and production increased, despite concern over the deceleration of the U.S. economy, and capital investment also grew steadily across an array of industries including the automotive industry and the general machinery sector. Bolstered by brisk corporate earnings and other factors, the employment and income situation also improved, and consumer spending is on the road to recovery.
Meanwhile, in the financial sector, following termination of the zero interest rate policy in July 2006, in February the Bank of Japan raised its target for the unsecured overnight call rate from 0.25% to 0.50% on the grounds that the economy is expected to continue expanding moderately and there is little risk of an economic downturn.
On the stock market, in spite of temporary share price downturns due to the impact of price declines on stock markets in the United States, Western Europe and newly emerging markets, the Nikkei Average has generally held steady because the domestic economy is in expansionary mode.
Earnings
Against this backdrop, the Aichi Bank continued to pursue its sixth medium-term management plan (covering the period from April 2004 to March 2007) under the theme of creating a solid earnings base. In line with this plan, we worked to improve profitability and the soundness of our financial position by strengthening various aspects of our operating base — our customers, employees, marketing system, computer systems, and risk-return management — to meet projected future needs.
Our consolidated financial results, achieved through such collective efforts, are as follows.
Net interest income increased ¥647 million from the previous year to ¥36,183 million (US$306 million), in spite of a decline in the yield on loans, as the yield on securities rose due to such factors as an increase in the balance of bond holdings and the restructuring of the Bank’s securities portfolio, as well as an increase in net profit from fees and commissions of ¥210 million year-on-year, to ¥6,190 million (US$52 million).
Total income climbed ¥3,052 million from the previous year, to ¥60,768 million (US$514 million), while net income hit an all-time high, rising ¥1,129 million to ¥8,111 million (US$68 million).
By segment, ordinary income of the banking segment rose ¥1,589 million year-on-year to ¥50,531 million (US$428 million), ordinary income of the lease segment decreased ¥248 million to ¥8,255 million (US$69 million), and ordinary income of the other businesses segment declined ¥1 million to ¥111 million (US$0.9 million).
Cash Flows
There was a net cash inflow from operating activities of ¥12,873 million (US$109 million), mainly attributable to a decrease in call loans and trading securities, a net cash outflow from investment activities of ¥19,549 million (US$165 million), mainly attributable to aggressive investment in securities, and a net cash outflow from financing activities of ¥416 million (US$3 million).
As a result, cash and cash equivalents at the term-end stood at ¥42,548 million (US$360 million), a decline of ¥7,092 million from the previous term-end.
Medium-term Strategy
We have now launched our seventh medium-term management plan, for the three-year period starting April 2007. The theme of the new plan is to become a company that offers truly comprehensive financial services. By working to improve our financial services, we will endeavor to further strengthen our earning base and seek to transform ourselves into a provider of truly comprehensive financial services that is indispensable to the economic life of Aichi Prefecture and the surrounding region.
More specifically, we will listen intently to the views of our customers regarding both our corporate services and our private banking services, and will provide the sort of financial services that our customers want.
We will also establish a more robust internal control system, to expand earning opportunities and deliver appropriate return based on appropriate risk management, as well as dealing with various management risks.
By achieving these goals, we aim to become a financial services company that local corporations and private customers will trust and continue to use. This, we believe is the true role of a regional financial institution.
The key business indicators on a consolidated basis targeted under the seventh medium-term management plan ending March 31, 2010 are as follows.
| Net income |
¥8.0 billion |
| Core banking profit |
¥17.0 billion |
| Balance of loans at term-end |
¥1,600 billion |
| Yield on loans |
2.00% |
| ROE |
6.00% |
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Shinichi Koide
President |
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