Aozora Bank Reports Financial Results for the Six Months Ended September 30, 2006 -- Record First Half Net Revenue and Net Income Exceed Forecasts with Growing Contributions from Specialty Finance and Corporate Lending Businesses

Aozora Bank Reports Financial Results for the Six Months Ended September 30, 2006 -- Record First Half Net Revenue and Net Income Exceed Forecasts with Growing Contributions from Specialty Finance and Corporate Lending Businesses

November 22, 2006

 
    TOKYO, Nov. 22 /Xinhua-PRNewswire/ -- Aozora Bank, Ltd.
("Aozora" or the "Bank"), a leading
Japanese commercial bank, today reported strong financial
results for the six months ended September 30, 2006. Aozora
posted record first half net income for the second
consecutive year, helped by growing contributions from the
Bank's specialty finance and corporate lending businesses,
combined with prudent cost controls. 

    CONSOLIDATED 2006 FIRST HALF FINANCIAL HIGHLIGHTS

    -- Net income climbed 18.8% to 53.4 billion yen for the
half from a year 
       earlier. This improvement exceeded our forecast of
50.9 billion yen.

    -- Net revenue grew 8.3% to 58.1 billion yen for the
half from a year 
       earlier.

    -- The loan book continued to expand, reaching 3,489.3
billion yen, 
       representing an increase of 11.3% since March 31,
2006.

    -- Core net interest income (excluding the impact of
the macro hedge, 
       funding of additional non-interest bearing assets
and increased 
       liquidity reserves) increased 11% for the half from
a year earlier.

    -- Non-interest income continued to grow, up 36.5% for
the half from a 
       year earlier.

    -- The overhead ratio was 45.3% for the half. 

    -- Operating profits increased 29.5% to 33.4 billion
yen for the half
       from a year earlier, demonstrating the earnings
efficiency of our 
       relatively low overhead ratio.

    -- ROA for the half was 1.6% on an annualized basis. 
ROE for the 
       half was 14.0% on an annualized basis.

    -- Basic EPS for the half was 37.64 yen and fully
diluted EPS for the 
       half was 25.22 yen.

    -- We are maintaining our full year March 31, 2007
forecasts of 81.0 
       billion yen for net income and 65.2 billion yen for
operating profits.

    Aozora Bank Chairman and CEO Michael E. Rossi said:
"This business performance is the result of strong
execution of our strategy of being a wholesale bank that
delivers superior growth and returns through a
client-focused organization dedicated to excellence in risk
management, innovation and agility. As a newly-listed
company on the Tokyo Stock Exchange we reaffirm our
commitment to deliver shareholder and customer value by
aggressively pursuing opportunities in the Japanese
corporate and commercial banking and finance
markets."

    EARNINGS REVIEW

    Net revenue rose 8.3% to 58.1 billion yen compared with
the same period a year earlier. This increase reflects
Aozora's strategy of diversifying earnings into areas such
as specialty finance, derivative sales and fund investments
where the Bank can more effectively leverage its core
structuring and risk management expertise.

    Our average yield on consolidated loans improved to
2.05% in the half from a 1.92% average in the second half
of last year. The average margin on our consolidated loans
above our average interest cost of debentures and deposits
rose to 1.59% in the half from 1.54% in the second half of
last year. This 5 basis point margin increase, together
with an overall 353 billion yen increase in consolidated
loan volume since March 31, 2006, drove our underlying net
interest income improvement.

    Core net interest income increased 2.4 billion yen, or
11%, to 24.7 billion yen compared with the same period a
year earlier, after adjusting for the absence of our
macro-hedge income (4.7 billion yen), a net increase in
funding costs on non-interest bearing assets (2.6 billion
yen) and increases in our liquidity reserves for the half. 
Reported net interest income declined by 5.3 billion yen to
21.7 billion yen compared with the same period a year
earlier.  

    Non-interest income advanced 36.5% to 36.4 billion yen
compared with the same period a year earlier.  The main
contributors were net fees and commissions (7.8 billion
yen), net trading revenues (3.1 billion yen) and net other
operating income (25.4 billion yen).  The principal
components of net other operating income in the first half
were generated at the Bank on a non-consolidated basis from
returns on investments in real estate investment
partnerships (6.2 billion yen), gains on sales of REIT
investments (4.4 billion yen), gains on hedge fund
investments (4.0 billion yen), returns from NPL-related
investment partnerships (2.6 billion yen) and gains on
sales of foreign debt investments (2.5 billion yen).  Net
non-interest income accounted for 62.6% of net revenue for
the half, versus 49.7% a year earlier. 

    General and administrative expenses increased 6.9% to
26.3 billion yen for the half compared to a year earlier. 
Personnel costs and information technology spending rose as
we continued to invest in our technology platform and
people. At the same time, management continued to push
forward with efficiency initiatives and cost control
measures as our costs increased, producing an overhead
ratio of 45.3% for the half. 

    Business profit grew 9.6% to 31.8 billion yen and
operating profits rose 29.5% to 33.4 billion yen for the
half compared to a year earlier. 

    Income before income taxes rose 23.1% to 53.3 billion
yen for the half compared to a year earlier. 
   
    Net income rose 18.8% to 53.4 billion yen for the half
compared to a year earlier. 

    ROA, ROE and EARNINGS PER SHARE

    Our annualized Return on Assets ratio for the first
half was 1.6%, based on a 0.8% ROA for the interim period
calculated by dividing first half net income by total
assets as of September 30, 2006.

    Our annualized Return on Equity ratio for the first
half was 14.0%, based on a 7.0% ROE for the interim period
calculated by dividing first half net income by total
stockholders' equity as of September 30, 2006.  

    Basic earnings per share for the half was 37.64 yen,
based on net income of 53.4 billion yen and the number of
shares of common stock outstanding as of September 30,
2006.

    Fully diluted earnings per share for the half was 25.22
yen, based on net income of 53.4 billion yen and the number
of shares of common stock that would have been outstanding
as of September 30, 2006 assuming full conversion of our
outstanding preferred stock.

    BALANCE SHEET SUMMARY

    Total assets were 6,438.8 billion yen as of September
30, 2006, a gain of 442.8 billion yen, or 7.4%, over total
assets as of March 31, 2006. Increases in loans and bills
discounted and securities contributed to asset growth for
the half. 

    Loans and bills discounted increased 353.0 billion yen,
or 11.3%, to 3,489.3 billion yen as of September 30, 2006.
The main drivers were non-recourse loans, funding to the
information technology and telecommunications sectors, and
additional international lending.

    Securities holdings increased 190.3 billion yen, or
11.7%, to 1,818.5 billion as of September 30, 2006, due
principally to increased holdings of treasury bills and
financing bills as we increased our liquidity reserves.

    On the funding side, deposits (excluding negotiable
CDs) rose 13.9 billion yen, or 0.6%, to 2,339.3 billion yen
as of September 30, 2006, as net inflows from retail
customers offset a reduction in the level of corporate
deposits. Our primary sources of funding for asset growth
in the half were negotiable CDs, debentures and retained
earnings.

    Our consolidated regulatory capital was 774.1 billion
yen as of September 30, 2006, up 42.8 billion yen, or 5.8%,
from six months earlier.  Risk-weighted assets stood at
4,129.3 billion yen as of September 30, 2006, up 374.4
billion yen, or 10.0%, from March 31, 2006.  As growth in
risk assets exceeded growth in regulatory capital, our
capital adequacy ratio declined to 18.74%, versus 19.47%
six months earlier. In addition, our Tier-1 capital ratio
declined to 18.52% from 19.12%. While these ratios
decreased slightly during the half they remain among the
highest within Aozora's peer group in Japan.

    RECENT DEVELOPMENTS

    -- Aozora shares were successfully listed on the First
Section of the 
       Tokyo Stock Exchange on November 14, 2006. 

    -- On October 23, 2006, Fitch Ratings Ltd. raised its
long-term rating on 
       Aozora from "BBB+", to "A-" and
its short-term rating from "F2" 
       to "F1". Fitch cited its favorable view of
Aozora's balance sheet, 
       the solid recovery in our financial performance and
our robust 
       capitalization.  Fitch maintains a "stable
outlook" on Aozora. 

    -- On September 26, 2006, Standard & Poor's
upgraded its outlook on 
       Aozora from "stable", to
"positive". S&P cited earnings improvement, 
       strong capitalization levels and asset quality.

    -- On November 20, 2006, Aozora opened its first new
retail branch in 15 
       years, in Nihonbashi, Tokyo. The branch is targeted
at delivering 
       wealth management services through consultants
trained to offer
       diverse financial products and services to meet the
asset management 
       needs of individual customers.

    OPERATIONAL HIGHLIGHTS

    -- In May 2006, we announced the establishment of our
Aozora Securities 
       Ltd. brokerage subsidiary. The new subsidiary is
part of our ongoing 
       effort to expand the range and quality of the
services we offer to 
       clients and will play a key role in the Bank's plans
to grow non-
       interest income and further diversify our earnings
base. Headquartered 
       in Tokyo, Aozora Securities launched operations in
August 2006. Headed 
       by President and Representative Director Masaya
Mizobuchi, Aozora 
       Securities will initially offer a range of
structured debt products to 
       financial institutions and public service
corporations.  

    -- In April 2006, Aozora raised 100 billion yen through
the Bank's first 
       corporate bond offering. The 5-year bond offered
investors a 1.65% 
       interest rate and was rated "A-" by Rating
and Investment Information, 
       Inc. ("R&I") and Japan Credit Rating,
Ltd. ("JCR"). The offering 
       reflects Aozora's ongoing strategy of diversifying
our fund-raising 
       activities and highlights a key benefit of our
change of status to a 
       full-service commercial bank.

    -- On April 1, 2006, Aozora completed the transition
from long-term 
       credit bank status to become an "ordinary
bank'' -- a major step 
       forward in enhancing our capabilities for existing
and new clients.  
       Aozora is now able to be more flexible in meeting
the needs of our 
       clients based on the removal of restrictions
applicable only to 
       long-term credit banks.

    -- Our Global Finance Unit has expanded its operations
through Aozora 
       Investment Management Limited, a new London-based
subsidiary company 
       established to pursue growth in participations in
the European and 
       North American syndicated loan markets.

    OUTLOOK

    We are maintaining our current forecasts for the full
fiscal year ending March 31, 2007 of net income of 81.0
billion yen and operating profits of 65.2 billion yen on a
consolidated basis. 

    INTERIM RESULTS GLOBAL CONFERENCE CALL

    Aozora will hold a global conference call to discuss
the interim financial results and answer questions on
Tuesday, November 21, 2006.  The call will begin at 10:00
PM in Tokyo, 8:00 AM in New York and 1:00 PM in London. 
For conference call dial-in information, please visit our
website ( http://www.aozorabank.co.jp/english ) or call our
IR agent Taylor Rafferty in Tokyo at 81-3-5444-2730 (attn:
Mr. Yuhau Lin), in New York at 212-889-4350 (attn: Mr. Tom
Meyers), or in London at 44-20-7614-2900 (attn: Ms. Laura
Martin).

    Aozora Bank, Ltd. is a leading provider of lending,
securitization, business and asset revitalization, asset
management, loan syndication and investment advisory
services to financial institutions, corporate and retail
customers. Originally established in 1957 as the Nippon
Fudosan Bank, Ltd., the Bank changed its name to Aozora
Bank, Ltd. in 2001. In 2003, it become majority owned by
Cerberus NCB Acquisition, L.P. Aozora is proud of its
heritage and the long-term relationships it has developed
with corporate, financial and individual customers over the
years. Building on this heritage, Aozora has created a
strong customer-oriented and performance-based culture that
will contribute to both innovative business solutions for
customers and sustainable earnings growth for investors and
shareholders. On November 14, 2006, Aozora successfully
listed its shares on the First Section of the Tokyo Stock
Exchange. 

    News and other information about Aozora Bank, Ltd. is
available at http://www.aozorabank.co.jp/en/company/ .

    For more information, please contact:

     Mr. Yuhau Lin, Tokyo     
     Taylor Rafferty
     Tel:   [phone]

     Mr. Tom Meyers, New York
     Taylor Rafferty
     Tel:   [phone]
     
     Ms. Laura Martin, London     
     Taylor Rafferty
     Tel:   [phone]

SOURCE  Aozora Bank, Ltd.