Sumitomo Mitsui Financial Group Inc
Annual Report 2002

Plain-text annual report

S U M I T O M O M I T S U I B A K I G C O R P O R A T I O A N N U A L R E P O R T 2 0 0 2 A N N U A L R E P O R T 2002 Y E A R E N D E D M A R C H 3 1 , 2 0 0 2 OUR MISSION • To provide optimum added value to our customers and together with them achieve growth • To create sustainable shareholder value through business growth • To provide a challenging and professionally rewarding work environment for our dedicated employees PROFILE (As of March 31, 2002) Total Assets Deposits Loans and Bills Discounted Capital Stock ¥102,082.5 billion Number of Employees 25,027 ¥61,051.8 billion * ¥59,928.3 billion ¥1,326.7 billion Network (As of June 30, 2002) Domestic: Branches 1,482 locations** 595 (including 28 specialized deposit account branches) Consolidated Capital Ratio 10.45% (BIS Guidelines) Shares Issued and Outstanding Subbranches Agencies Ordinary Shares 5,709 million Offices handling nonbanking business Series 1 Type 1 Preference Shares Series 2 Type 1 Preference Shares Type 5 Preference Shares 67 million 100 million 800 million Automated service centers Overseas: Branches Subbranches Long-Term Credit Ratings (As of June 30, 2002) Representative offices 99 4 6 778 38 locations 21 2 15 Moody’s S&P Fitch R&I JCR A3 BBB A– A+ AA– * Excluding negotiable certificates of deposit ** Excluding the number of ATMs installed at corporate client facilities and convenience stores CONTENTS Foreword .................................................................... President’s Message ................................................. Topics ........................................................................ Financial Highlights ................................................... Fiscal 2001 Results Asset Quality ........................................................... Progress Report on the Plan for Strengthening 1 2 4 6 8 Individual Business Unit Strategies .......................... 30 Consumer Banking Unit .......................................... 32 Middle Market Banking Unit .................................... 36 Corporate Banking Unit ........................................... 40 International Banking Unit ........................................ 42 Treasury Unit ........................................................... 44 Investment Banking Unit ......................................... 46 e-Business ................................................................. 48 the Financial Base of the Bank .............................. 14 Environmental Preservation Initiatives ..................... 50 Management Issues Social Contribution .................................................... 52 IT Systems Integration ............................................. 15 Initiatives to Strengthen the Bank’s Earnings Base ... 16 Corporate Governance ............................................ 18 Internal Audit System .............................................. 19 Compliance ............................................................. 20 Risk Management ................................................... 22 This material contains certain forward-looking statements. Such forward-looking statements are not guarantees of future performance and involve risks and uncertainties, and actual results may materially differ from those contained in the forward-looking statements as a result of various factors. Important factors that might cause such a material difference include, but are not limited to, those economic conditions referred to in this material as assumptions. In addition, the following items are among the factors that could cause actual results to differ materially from the forward-looking statements in this material: business conditions in the banking industry, the regulatory environment, new legislation, competition with other financial services companies, changing technology and evolving banking industry standards and similar matters. Financial Section ....................................................... 53 Corporate Data .......................................................... 119 Sumitomo Mitsui Banking Corporation Public Relations Department 1-2, Yurakucho 1-chome, Chiyoda-ku, Tokyo 100-0006, Japan TEL: +81-3-3501-1111 August 2002 Printed on recycled paper Foreword As the founding executives of Sumitomo Mitsui Banking Corporation, we are deeply honored to present this Annual Report 2002, covering the fiscal period following the Bank’s inception in April 2001. SMBC’s first year of operations not only posed challenges but also paved the way for future accomplishments. We would like to express our sincere gratitude to the Bank’s customers, shareholders, and other stakeholders for their support throughout the fiscal year ended March 31, 2002. Although the business climate remains severe, we are determined to persist and prevail. To this end, we have reaffirmed our commitment to the following fundamental management precepts: (1) to provide optimum added value to our customers and together with them achieve growth, and (2) to create sustainable shareholder value through busi- ness growth. With this commitment, we pledge to remain focused on meeting the high expectations of all our stakeholders. We look forward to your continuing support and encouragement as SMBC takes bold and decisive steps toward a future of renewed growth and prosperity. August 2002 Akishige Okada Chairman of the Board Yoshifumi Nishikawa President and Chief Executive Officer SMBC 2002 — 1 Key Issues for Fiscal 2002 I firmly believe the real magnitude of the benefits of merger will surface in fiscal 2002. Capitalizing on the former banks’ speedy strategy execution, strong business base and comprehensive range of services, we will reap significant competitive advan- tages and realize maximum profits. Our strengths will not stop there, as we will continue to take deci- sive actions to fur ther improve asset quality and enhance earnings, which I have set out as two top priorities for this year. Improvement in Asset Quality Here, our actions center on dealing resolutely with problem assets and reducing the risks from exces- sive stock price volatility. In fiscal 2001, SMBC was proactive in revitalizing financial soundness by accel- erating the resolution of problem loans. In fiscal 2002, we continue to focus on minimizing the occurrence of new problem loans, while quickly executing work-outs on existing ones. To that end, we have in place a department specifically assigned to undertake these tasks. Concurrently, in our quest for ever-greater speed, we will continue to effect and indeed accelerate the reduction in our risks from equity exposures so as to more than meet the equity investment restriction on banks due to become effec- tive in September 2004. President’s Message SMBC’s First Year in Review Fiscal 2001 marked the first year for SMBC during which we laid down a solid foundation and quickly reaped the benefits of the merger. Amid the continued adverse macroeconomic conditions in Japan, we resolved to quickly build a formidable institution with a sound financial base and fortitude required to meet the challenges ahead. On this backdrop, I am pleased to report a number of achievements. 1. The former corporate cultures were unified under SMBC, and we now boast a new corporate organi- zation of integrated Group companies and systems. 2. We reaped synergies from our substantially broad- ened base of customers, products, and services: a case in point was the banking profit of over ¥1 tril- lion contributed by our profit centers, like Treasury Unit. To maintain momentum, we set up the Business Reform Committee to revamp our former business practices across the board. 3. We posted significant cost cuts by focusing on: customer convenience, through the expansion of remote channels and the consolidation of branches; and streamlining infrastructure, espe- cially in administrative processing and facilities. 4. We acted to revitalize our financial condition so we would post strong earnings from fiscal 2002. Our focus was on problem loans, where we insti- gated the reorganization of borrowers with large exposures for which reserves were raised, and also proactively reexamined the categor y of borrowers and elevated the reser ve ratio. Therefore, our credit costs amounted to ¥1,543.1 billion, marking a significant step toward a solid resolution to loan nonperformance and protection against potential risks. 2 — SMBC 2002 Further Enhancement of Earnings We are totally committed to building an earnings structure that can generate consistent long-term growth. To achieve this, we have set the following goals. (1) Consistently Achieve Greater Operational Efficiency While SMBC has benefited from the momentum of aggressive cost cutting by the two former banks, with SMBC now commanding one of the most efficient cost structures within the Japanese banking industry, we still aim much higher. For example, as we accom- plished the integration of our domestic accounting system in July 2002, we will advance the schedule for consolidating branches. Therefore, we stand to reap much greater cost savings ahead. (2) Continuously Reform Business Practices As an ongoing process to achieve stronger earnings, we continuously reform our business practices in major fields and our actions are being reflected in our positive performance. A case in point is our corporate banking business. Intense competition led to ingrained lending prac- tices within the industry that tended to veer away from a profit focus and risk rationality based on total loan por tfolio management, whereby margins eroded. Therefore, such legacies from the past are overdue for reform. Based on the philosophy that risk-taking is the main role of a lending institution, and a bank and a customer should together share a common recognition of credit risk, we at SMBC adopt a multilateral approach by offering financial solutions meeting the clients’ fund-raising, corporate restructuring and streamlining needs in a more consultative way to enhance the cor porate customers’ net worth, thereby allowing us to gain rewards more commensurate with the corresponding risks. Through such initiatives, we will enhance our bottom line while developing new relationships with our customers. In Closing I believe one of the issues facing not only SMBC but also the whole Japanese banking industry is to quickly reform outdated business practices, and we at SMBC are taking the strong lead by challenging the status quo and offering unprecedented solutions through our innovative and dynamic approaches. Taking the wide view, it is my firm conviction that SMBC’s current initiatives are conducive to consis- tently raising the net worth for our shareholders and contributing positively to the long-term prosperity of the Japanese economy. All of us at SMBC stand united in our full commit- ment to and dedication in achieving all our goals. We respectfully continue to seek your valued support and guidance as SMBC marches forward with the changing times. Yoshifumi Nishikawa President and Chief Executive Officer August 2002 SMBC 2002 — 3 Topics 2001 April Former Sakura Bank Former Sumitomo Bank Inception of Sumitomo Mitsui Banking Corporation 2002 January ❍ Reached ATM usage agreement with IYBANK ➀ March ❍ Transferred legal reserves to retained earnings ❍ Started full-scale marketing of Business Select Loan ➁ April ❍ Launched Asset Management Plaza network ➂ Introduced loans for newly built housing ➃ ❍ Reached basic agreement on merger of Mitsui and Sumitomo group asset management subsidiaries ➄ June ❍ Established Business Promotion Office ➅ ❍ Published disclosure pamphlet for individual depositors ➆ July ❍ Signed UNEP Statement by Financial Institutions on the Environment & Sustainable Development ➇ 4 — SMBC 2002 ➀ ATM usage agreement with IYBANK The @B^NK ATM network is SMBC’s core 24-hour ATM service, established and operated through a collaboration between the Bank and am/pm Japan Co., Ltd., a convenience store operator. @B^NK ATMs are currently located at more than 1,100 am/pm stores. In an effort to extend the customer convenience offered by its @B^NK ATM network, SMBC has entered into various agreements to expand its convenience store based service channel. In January 2002, for example, the Bank formed an agreement with IYBANK Co., Ltd, whereby SMBC account holders can withdraw cash and check account balances 24 hours a day at ATMs located at nation- wide outlets of SEVEN-ELEVEN JAPAN CO., LTD. Prior to the IYBANK agreement, SMBC had already established ATM usage agreements with convenience store operator LAWSON, INC., and with ATM provider E-net Co., Ltd.* As a result of its ATM-use agree- ments with LAWSON, E-net, and IYBANK, SMBC now offers customers round-the-clock cash-withdrawal convenience via a network of ATMs at more than 9,800 convenience stores. * E-net ATMs are located at outlets of FamilyMart Co., Ltd., and other convenience store operators in Japan. ➁ Full-scale marketing of Business Select Loan To establish and develop a greater number of relationships with small and medium-sized companies, SMBC began full-scale marketing of its Business Select Loan in March 2002. Rapid loan application processing is the key feature of this product, and eligible companies are allowed to borrow a maximum of ¥50 million with a repayment period of up to five years (three years for uncollateralized loans). Unlike conventional business loans of this type, where the application of funds is limited to working capital, the Business Select Loan may be applied also to capital expendi- tures. The product is one example of how SMBC is enabling managers of small and medium-sized businesses to capitalize on business opportunities in a timely manner. ➂ Asset Management Plaza network After reviewing the organization, infrastructure, and business model of its former Investment Service Plaza network, SMBC in April 2002 renamed these offices Asset Management Plazas, enhancing service capacity and expanding the network from 21 to 64 locations. These offices provide information on managing and raising funds. In addition, Asset Management Plazas offer a TV conference service that includes seminars on taxes, legal issues, and various other topics of interest to clients. Looking ahead, we intend both to add to the Bank’s accu- mulated know-how in a wide range of fields and to keep supplying customers with increas- ingly higher quality asset management services. Asset Management Plaza TV conference service ❍ ➃ Loans for newly built housing SMBC is committed to offering simple, convenient loans with ➆ Disclosure pamphlet for individual depositors Following a series of financial bankruptcies in Japan in recent rapid loan application processing to assist customers in years, the April 2002 partial termination of full protection of purchasing homes. A recent example is our low-interest-rate loan deposits and other liabilities has sparked heightened concerns limited to purchases of newly built housing introduced in April about the soundness of financial institutions. We strongly believe 2002. The Bank structured this product at a comparatively low that a bank has a public responsibility to provide timely, easy-to- cost thanks to the cooperation of real estate developers, understand information. SMBC has published To Increase Your enabling us to offer customers record-low interest rates. We also Understanding of SMBC Management for individual depositors as extended the marketing campaign for our housing loans with a supplement to the Bank’s standard disclosure materials. The reduced interest rates for borrowers meeting certain conditions. pamphlet explains in layman’s terms the Bank’s recent financial condition and management policies. We will continue to implement proactive, comprehensive disclosure initiatives to keep customers and the public informed of our operations to further strengthen their confidence and trust. ➄ Basic agreement on merger of Mitsui and Sumitomo group asset management subsidiaries In November 2001, SMBC signed an agreement with Mitsui Mutual Life Insurance Company, Sumitomo Life Insurance Company, and Mitsui Sumitomo Insurance Company, Limited, to form a comprehensive alliance to bolster the insurance busi- nesses of the Mitsui and Sumitomo groups. The four companies agreed to merge their asset management subsidiaries into a new entity, to be named Sumitomo Mitsui Asset Management Company, Limited, by December 2002. Synergizing the various strengths of the former companies in offering high value-added asset management services with outstanding operational effi- ciency, the new company aims to become one of Japan’s highest-ranking asset management companies with a strong customer orientation. ➅ Business Promotion Office Since the April 2001 merger, SMBC has been relentlessly refining its organization, optimizing operating efficiency, and building a framework that fully reflects customer needs. This effort has included the use of mass media and other means to attract potential customers. To enhance our abilities to identify the needs of such customers and take timely actions, we opened the Business Promotion Office on a trial basis in October 2001. We subsequently expanded the office’s functions and made it a busi- ness department within the Middle Market Banking Unit. One of the office’s main activities is handling general inquiries and responses to advertisements. Complementing the conventional marketing activities carried out by SMBC branches, the office also uses external and internal databases for customer- segmented direct marketing and telemarketing to increase our customer base. ➇ UNEP Statement by Financial Institutions Reflecting the growing consensus behind the need for environ- mental protection and the accelerating spread of environmental preservation initiatives worldwide, financial institutions are expected to play an expanding and increasingly important role in environmental preservation. To this end, SMBC has signed the United Nations Environment Programme (UNEP) Statement by Financial Institutions on the Environment & Sustainable Development, reaffirming its commitment to environmental preservation globally. SMBC 2002 — 5 Financial Highlights (cid:11) Consolidated Sumitomo Mitsui Banking Corporation and Subsidiaries Year ended March 31 For the Year: 2002 2001 Millions of yen 2000 1999 1998 Total income .............................................................. Total expenses........................................................... Net income (loss)....................................................... ¥ 3,809,130 4,413,469 (463,887) ¥ 4,501,200 4,095,685 132,408 At Year-End: Total stockholders’ equity .......................................... Total assets................................................................ Risk-monitored loans................................................. Reserve for possible loan losses............................... Net unrealized gains (losses) on securities ............... ¥ 2,912,619 108,005,001 6,484,367 2,159,649 (495,507) ¥ 4,012,960 119,242,661 3,256,418 1,268,853 (301,106) ¥ ¥ 5,170,720 4,828,078 124,456 ¥ 5,042,021 6,507,309 (1,048,155) 4,012,912 102,263,112 3,864,758 1,632,687 1,834,215 ¥ 3,931,609 103,988,877 4,107,498 1,934,627 / ¥ ¥ 5,584,031 6,153,710 (339,597) 3,398,330 117,529,874 / 2,343,038 / Sakura Sumitomo Bank Bank Sakura Sumitomo Bank Bank Sakura Sumitomo Bank Bank Sakura Sumitomo Bank Bank Capital ratio (BIS guidelines) ..................................... ROE........................................................................... PER (Times) .............................................................. Number of employees ............................................... 10.45% — — 43,793 11.31% 10.94% 12.53% 11.60% 12.33% 10.95% — 3.74% 4.55% 2.67% 6.05% / 82.23 62.08 43.92 62.36 / 19,364 23,837 22,222 24,184 — / / 9.12% 9.23% — / / — / / Per Share (Yen): Stockholders’ equity .................................................. Net income (loss)....................................................... Net income – diluted.................................................. ¥282.85 (84.12) — ¥333.46 ¥426.32 25.50 24.93 9.22 9.21 ¥340.98 ¥415.77 18.61 — 18.17 12.58 ¥331.28 ¥400.71 (124.72) (181.48) — — ¥446.47 ¥532.18 (80.00) — (25.51) — Notes: 1. Figures for the years ended March 31, 2001, 2000, 1999, and 1998, are combined figures for the former Sakura Bank and the former Sumitomo Bank. 2. Total stockholders’ equity as of March 31, 2002, includes net unrealized losses on “other securities” of ¥304,837 million. 3. Unrealized gains (losses) on securities represent the difference between the market prices and acquisition costs (or amortized costs) of “other securities” for 2002 and 2001, and of listed or over-the-counter securities for 2000, 1999, and 1998. In principle, the values of stocks are calculated using the average market prices during the final month for 2002 and 2001. For details, please refer to page 56. 4. Number of employees for the former Sumitomo Bank has been reported on the basis of full-time workers since 2000 and for the former Sakura Bank since 2001. Number of employees includes locally hired overseas staff members but excludes contract employees, temporary staff, and executive officers who are not also Board members. (Year ended March 31) (March 31) Banking Profit (excluding transfer to general reserve for possible loan losses) [Nonconsolidated] (Billions of yen) 1,200 900 600 300 0 1,183.4 803.1 633.1 670.6 702.9 1998 1999 2000 2001 2002 Capital Ratio (BIS guidelines) [Consolidated] (%) 16 12 8 4 0 12.33 12.53 10.95 11.60 11.31 10.94 10.45 9.23 9.12 1998 Sakura Bank 1999 2000 Sumitomo Bank 2001 2002 SMBC (Year ended March 31) (March 31) Expenses and Expense Ratio (excluding nonrecurring losses) [Nonconsolidated] Problem Assets Based on the Financial Reconstruction Law [Nonconsolidated] (Billions of yen) (%) (Billions of yen) 800 600 400 200 0 808.7 56.1 778.9 727.6 53.7 50.7 700.1 670.1 46.6 36.2 1998 1999 2000 2001 2002 Expenses Expense Ratio 60 45 30 15 0 6,000 4,500 3,000 1,500 0 5,900.0 3,813.8 3,640.5 2,822.5 1999 2000 2001 2002 6 — SMBC 2002 (cid:11) Nonconsolidated Sumitomo Mitsui Banking Corporation Year ended March 31 For the Year: 2002 2001 Millions of yen 2000 1999 1998 Total income ....................................................... ¥ 2,818,189 3,354,826 Total expenses.................................................... Net income (loss)................................................ (322,852) (Appendix) Gross banking profit (A)................................ ¥ 1,853,515 Banking profit................................................ 678,811 Banking profit (excluding transfer to general reserve for possible loan losses) ................. Expenses (excluding nonrecurring 1,183,369 losses) (B)................................................... Expense ratio (B)/(A) .................................... 670,145 36.2% At Year-End: Total stockholders’ equity.................................... ¥ 3,196,492 Total assets......................................................... 102,082,581 67,629,353 Deposits.............................................................. 59,928,368 Loans and bills discounted ................................. 20,442,996 Securities............................................................ Risk-monitored loans.......................................... 5,816,452 Problem assets based on the Financial Reconstruction Law........................... Reserve for possible loan losses........................ Net unrealized gains (losses) on securities ........ 5,900,043 1,971,849 (481,654) ¥ ¥ 3,292,668 3,019,557 137,835 1,503,203 991,670 803,073 700,128 46.6% ¥ 4,199,937 113,727,498 70,729,773 61,747,880 27,059,978 2,732,590 2,822,459 1,095,841 (429,844) ¥ 4,115,276 3,812,705 105,935 ¥ 1,434,480 678,662 702,897 727,556 50.7% ¥ 4,132,926 97,648,823 67,572,486 63,298,512 15,893,846 3,556,458 3,640,530 1,569,493 1,564,155 ¥ 4,118,467 5,400,579 (749,438) ¥ 1,449,532 393,104 670,616 778,915 53.7% ¥ 4,069,991 98,740,013 65,966,930 66,008,121 12,897,462 3,720,423 3,813,771 1,788,520 311,474 ¥ ¥ 5,247,243 5,946,472 (842,211) 1,441,767 601,855 633,116 808,650 56.1% ¥ 2,436,127 109,727,181 73,770,814 71,014,073 13,706,303 2,944,524 / 2,301,294 338,680 Sakura Bank Sumitomo Bank Sakura Bank Sumitomo Bank Sakura Bank Sumitomo Bank Sakura Bank Sumitomo Bank Preferred stock ................................................... ¥ Number of shares issued (Thousands)......... Common stock.................................................... ¥ Number of shares issued (Thousands)......... Pay-out ratio ....................................................... Capital ratio (BIS guidelines) .............................. ROE.................................................................... PER (Times) ....................................................... Number of employees ........................................ 650,500 967,000 676,246 5,709,424 — 11.50% — — 22,464 ¥402,577 802,577 ¥640,129 4,118,077 34.71% 11.91% 4.86% 33.27 12,558 ¥250,500 167,000 ¥502,348 3,141,062 36.15% 11.80% 3.72% 67.49 12,173 ¥402,772 802,772 ¥639,934 4,117,297 53.42% 12.50% 3.23% 69.48 14,930 ¥250,500 167,000 ¥502,348 3,141,062 41.63% 12.46% 3.32% 106.17 12,982 ¥411,307 811,307 ¥631,399 4,083,121 — 12.38% — / 16,330 ¥250,500 167,000 ¥502,348 3,141,062 — 11.94% — / 14,995 — ¥ 26,883 — 26,883 ¥572,562 ¥502,348 3,747,134 3,141,062 — / — / 15,111 — / — / 17,420 Per Share (Yen): Stockholders’ equity ........................................... Dividends: Common stock.............................................. Preferred stock (Series I).............................. Preferred stock (Series II)............................. Preferred stock (Series III) (Type 2).............. Preferred stock (First series Type 1)............. Preferred stock (Second series Type 1) ....... Preferred stock (Type 5) ............................... Net income (loss)................................................ Net income – diluted........................................... ¥332.02 ¥358.43 ¥451.35 ¥351.38 ¥439.23 ¥343.09 ¥428.35 ¥332.07 ¥362.30 4.00 / / / 10.50 28.50 13.70 (59.20) — 6.00 / 15.00 13.70 / / / 17.28 17.24 6.00 / / / 10.50 28.50 / 16.59 16.25 6.00 / 15.00 13.70 / / / 11.24 — 6.00 / / / 10.50 28.50 / 14.41 14.12 7.25 / 15.00 0.04 / / / (97.62) — 6.00 / / / 0.03 0.08 / (119.11) — 8.50 22.50 15.00 / / / / (62.92) — 8.50 / / / / / / (197.93) — Notes: 1. Figures for the years ended March 31, 2001, 2000, 1999, and 1998, are combined figures for the former Sakura Bank and the former Sumitomo Bank. 2. As a result of the merger of the two banks, total stockholders’ equity as of April 1, 2001, stood at ¥3,772,889 million. 3. Total stockholders’ equity as of March 31, 2002, includes net unrealized losses on “other securities” of ¥297,950 million. 4. Please refer to page 107 for the definitions of risk-monitored loans and problem assets based on the Financial Reconstruction Law. 5. Unrealized gains (losses) on securities represent the difference between the market prices and acquisition costs (or amortized costs) of “other securities” for 2002 and 2001, and of listed or over-the-counter securities for 2000, 1999, and 1998. The values of stocks are calculated using the average market prices during the final month for 2002 and 2001. For details, please refer to page 60. 6. Number of employees for the former Sumitomo Bank has been reported on the basis of full-time workers since 2000 and for the former Sakura Bank since 2001. Number of employees includes locally hired overseas staff members but excludes contract employees, temporary staff, and executive officers who are not also Board members. 7. Money delivered due to the merger (the amount equivalent to dividends from October 1, 2000 to March 31, 2001) has been included in the former Sakura Bank’s 2001 dividends. 8. Effective from the year ended March 31, 2002, treasury stock is disclosed as a deductible item from common stock. As a result, stockholders’ equity per share and net income (loss) per share are calculated on the basis of the number of shares outstanding, less treasury stock. SMBC 2002 — 7 Fiscal 2001 Results Asset Quality SMBC provides information about the status of its assets in three different ways. First, we conduct self-assessment to calculate ❑ Self-Assessment Self-assessment is a preparatory task prior to calculating the appropriate write-offs and reserves by classifying borrowers appropriate level of write-offs and reserves to ensure the Bank’s according to their financial soundness. Second, disclosure based asset quality. Each asset is assessed individually for its security on “The Law Concerning Measures for the Reconstruction of the and verity. Depending on its current condition, each borrower is Functions of the Financial System” (the Financial Reconstruction assigned to one of five categories: Normal Borrowers, Borrowers Law) is used to classify problem assets. (Note: Disclosure on the Requiring Caution, Potentially Bankrupt Borrowers, Effectively basis of the Financial Reconstruction Law is related to self- Bankrupt Borrowers, or Bankrupt Borrowers. The risk of default assessment in terms of borrower category.) Third, we disclose the and noncollection and the risk of asset devaluation are then value of Risk-Monitored Loans based on the Banking Law, which assessed on a scale from I to IV. As part of our efforts to bolster excludes non-loan assets such as foreign exchange, accrued risk management throughout the Group, our consolidated interest, and suspense payments. subsidiaries, in principle, employ the same standards. Disposal of Problem Assets for Fiscal 2001 SMBC makes appropriate write-offs and reserves based on semi- annual self-assessments conducted in compliance with the Financial Inspection Manual prepared by the Financial Services Agency and the Practical Guideline published by the Japanese Institute of Certified Public Accountants. Total credit cost for fiscal 2001, the year ended March 31, 2002, mainly reflects our preparations for coping with possible risks accompanying claims to Borrowers Requiring Caution, including raising the reserve ratio due to the prolonged economic slump, and additional reserves for the possible reorganization costs of problematic corporate borrowers. Moreover, borrowers’ deteriorating financial condition, ongoing declines in collateral values, and the Bank’s aggressive program of off-balancing problem assets also affected the total credit cost. As a result, nonconsolidated total credit cost amounted to ¥1,543.1 billion for fiscal 2001, bringing the total reserve for possible loan losses to ¥1,971.8 billion at the fiscal year-end.* On a consolidated basis, total credit cost amounted to ¥1,703.4 billion for fiscal 2001, including the amount transferred to the general reserve for possible loan losses, bringing the total reserve for possible loan losses to ¥2,159.6 billion as of March 31, 2002.** * All Classification IV assets are basically directly written off using the direct reduc- tion method even if the assets were not classified as tax-free write-offs. The amount of direct reduction totaled ¥1,405.1 billion. ** The amount of direct reduction totaled ¥1,824.3 billion. Borrower Categories, Defined Normal Borrowers Borrowers with good business performance and in good financial standing without identified problems Borrowers Requiring Borrowers identified for close monitoring Caution Potentially Bankrupt Borrowers perceived to have a high risk of falling Borrowers into bankruptcy Effectively Bankrupt Borrowers Borrowers that may not have legally or formally declared bankruptcy but are essentially bankrupt Bankrupt Borrowers Borrowers that have been legally or formally declared bankrupt Asset Classifications, Defined Classification I Assets not classified under Classifications II, III, or IV Classification II Classification III Assets perceived to have an above-average risk of noncollectibility Assets for which final collection or asset value is very doubtful and which pose a high risk of incurring a loss Classification IV Assets assessed as uncollectible or worthless 8 — SMBC 2002 (cid:11) Credit Cost (Nonconsolidated; year ended March 31, 2002) (Billions of yen) Credit cost Write-off of loans Transfer to specific reserve Transfer to reserve for losses on loans sold Losses on loans sold to CCPC Losses on sale of delinquent loans Transfer to loan loss reserve for specific overseas countries Transfer to general reserve for possible loan losses Total credit cost 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@@ @@ @@ @@ @@ @@ @@ @@ @@ @@ @@ @@ @@ @@ @@ @@ @@ @@ @@ @@ @@ @@ @@ @@ @@ @@ @@ @@ @@ @@ @@ @@ @@ @@ @@ @@ @@ @@ @@ @@ @@ @@@@@@@@e? @@@@@@@@e? @@h? @@h? @@h? @@h? @@h? @@h? @@ @@ @@ @@ @@ @@ @@ @@ @@ @@ @@ @@ @@ @@ @@ @@ @@ @@ @@ @@ @@ @@ @@ @@ @@ @@ @@ @@ @@ @@ @@ @@ @@ @@ @@ @@ @@ @@ @@ @@ @@ @@ @@ @@ @@ @@ @@ @@ @@@@@@@@e? @@@@@@@@e? @@h? @@h? @@h? @@h? @@h? @@h? @@ @@ @@ @@ @@ @@ @@ @@ @@ @@ @@ @@ @@ @@ @@ @@ @@ @@ @@ @@ @@ @@ @@ @@ @@ @@ @@ @@ @@ @@ @@ @@ @@ @@ @@ @@ @@ @@ @@ @@ @@ @@ @@ @@ @@ @@ @@ @@ @@ @@ @@ @@ @@ @@ @@ @@ @@@@@@@@e? @@@@@@@@e? @@h? @@h? @@h? @@h? @@h? @@h? @@ @@ @@ @@ @@ @@ @@ @@ @@ @@ @@ @@ @@ @@ @@ @@ @@ @@ @@ @@ @@ @@ @@ @@ @@ @@ @@ @@ @@ @@ @@ @@ @@ @@ @@ @@ @@ @@ @@ @@ @@ @@ @@ @@ @@ @@ @@ @@ @@ @@ @@ @@ @@ @@ @@ @@ @@ @@ @@ @@ @@ @@ @@ @@ @@ @@ @@ @@ @@ @@ @@ @@ @@ @@ @@ @@ @@ @@ @@ @@ @@ @@ @@ @@ @@ @@ @@ @@ @@ @@ @@ @@ @@ @@ @@ @@ @@ @@ @@ @@ @@ @@ @@ @@ ?@@ ?@@ ?@@ ?@@ ?@@ ?@@ ?@@@@@@@@ ?@@@@@@@@ @@ @@ @@ @@ @@ @@ @@ @@ @@ @@ @@ @@ @@ @@ @@ @@ @@ @@ @@ @@ @@ @@ @@ @@ @@ @@ @@ @@ @@ @@ @@ @@ @@ @@ @@ @@ @@ @@ @@ @@ @@ @@ @@ @@ @@ @@ @@ @@ ?@@ ?@@ ?@@ ?@@ ?@@ ?@@ ?@@@@@@@@ ?@@@@@@@@ @@ @@ @@ @@ @@ @@ @@ @@ @@ @@ @@ @@ @@ @@ @@ @@ @@ @@ @@ @@ @@ @@ @@ @@ @@ @@ @@ @@ @@ @@ @@ @@ @@ @@ @@ @@ @@ @@ @@ @@ @@ @@ @@ @@ @@ @@ @@ @@ @@ @@ @@ @@ @@ @@ @@ @@ ?@@ ?@@ ?@@ ?@@ ?@@ ?@@ ?@@@@@@@@ ?@@@@@@@@ @@ @@ @@ @@ @@ @@ @@ @@ @@ @@ @@ @@ @@ @@ @@ @@ @@ @@ @@ @@ @@ @@ @@ @@ @@ @@ @@ @@ @@ @@ @@ @@ @@ @@ @@ @@ @@ @@ @@ @@ @@ @@ @@ @@ @@ @@ @@ @@ @@ @@ @@ @@ @@ @@ @@ @@ ?@@ ?@@ ?@@ ?@@ ?@@ ?@@ ?@@@@@@@@ ?@@@@@@@@ (cid:11) Reserve for Possible Loan Losses (March 31, 2002) Reserve for possible loan losses (a) General reserve Specific reserve Loan loss reserve for specific overseas countries Risk-monitored loans (b) Reserve ratio (a) / (b) ❑ Write-Offs and Reserves Assessments Nonconsolidated Consolidated (Billions of yen) ¥1,971.8 872.3 1,084.1 15.4 ¥5,816.5 33.9% ¥2,159.6 929.5 1,214.7 15.4 ¥6,484.4 33.3% Under self-assessment, each borrower is evaluated and assigned to one of five categories—Normal Borrowers, Borrowers Requiring Caution, Potentially Bankrupt Borrowers, Effectively Bankrupt Borrowers, or Bankrupt Borrowers—and standards for write-offs and reserves are applied to each category. Self-Assessment Borrower Categories Standards for Write-Offs and Reserves Normal Borrowers Borrowers Requiring Caution Potentially Bankrupt Borrowers Effectively Bankrupt/Bankrupt Borrowers Amounts are recorded as general reserves in proportion to the expected losses over the next 12 months based on the actual past bankruptcy rate for each category. These assets are divided into groups according to the risk of default. Amounts are recorded as general reserves in proportion to the expected losses based on the actual past bankruptcy rate for each group. The groups are “substandard borrowers” and “other.” The latter group is further divided according to credit situation, etc. The Bank sets specific reserves for possible loan losses on the portion of Classification III assets (calculated for each borrower) not secured by collateral, guarantee, or other means. Of each borrower’s assets classified as Classification III or IV assets, in principle, the Bank writes off the full amount of Classification IV assets (deemed to be uncollectible or of no value) and sets aside specific reserves for possible loan losses against the full amount of Classification III assets. As part of our overall measures to strengthen risk management throughout the Group, all consolidated subsidiaries, in principle, use the same standards as the parent Bank for write-offs and reserves. SMBC 2002 — 9 Disclosure of Problem Assets 1. Problem Assets Based on the Financial Reconstruction Law Under the Financial Reconstruction Law, assets are assessed and classified into four categories: Bankrupt and Quasi-Bankrupt Assets, Doubtful Assets, Substandard Loans, and Normal Assets. On a nonconsolidated basis, the total value of assets in all categories other than Normal Assets amounted to ¥5,900.0 billion as of March 31, 2002, a ¥3,077.5 billion increase compared with March 31, 2001. This increase is mainly due to three factors: (1) measures taken toward borrowers with large exposures accompa- nying their progress in restructuring, (2) the classification as Potentially Bankrupt Borrowers of certain borrowers requiring a significant amount of time to regain financial health, and (3) the expansion of the scope of restructured loans for inclusion in the Substandard Loans category. On a consolidated basis, the total value of assets in all categories other than Normal Assets was ¥6,567.7 billion. (cid:11) Problem Assets Based on the Financial Reconstruction Law (March 31, 2002) Bankrupt and quasi-bankrupt assets Doubtful assets Substandard loans Subtotal Normal assets Total @@@@@@@@e?@@@@@@@@?e@@@@@@@@e?@@@@@@@@?e@@@@@@@@e?@@@@@@@@?e@@@@@@@@e?@@@@@@@@?e@@@@@@@@e?@@@@@@@@?e@@@@@@@@e?@@@@@@@@?e@@@@@@@@e?@@@@@@@@?e@@@@@@@@e?@@@@@@@@?e@@@@@@@@e?@@@@@@@@?e@@@@@@@@e?@@@@@@@@?e@@@@@@@@e?@@@@@@@@?e@@@@@@@@e?@@@@@@@@?e@@@@@@@@e?@@@@@@@@?e@@@@@@@@e?@@@@@@@@?e@@@@@@@@e?@@@@@@@@?e@@@@@@@@e?@@@@@@@@?e@@@@@@@@e?@@@@@@@@?e@@@@@@@@e?@@@@@@@@?e@@@@@@@@e?@@@@@@@@?e@@@@@@@@e?@@@@@@@@?e@@@@@@@@e?@@@@@@@@?e@@@@@@@@e?@@@@@@@@?e@@@@@@@@e?@@@@@@@@?e@@@@@@@@e?@@@@@@@@?e@@@@@@@@e?@@@@@@@@?e@@@@@@@@e?@@@@@@@@?e@@@@@@@@e?@@@@@@@@?e@@@@@@@@e?@@@@@@@@?e@@@@@@@@e?@@@@@@@@?e@@@@@@@@e?@@@@@@@@?e@@@@@@@@e?@@@@@@@@?e@@@@@@@@e?@@@@@@@@?e@@@@@@@@e?@@@@@@@@?e@@@@@@@@e?@@@@@@@@?e@@@@@@@@e?@@@@@@@@?e@@@@@@@@e?@@@@@@@@?e@@@@@@@@e?@@@@@@@@?e@@@@@@@@e?@@@@@@@@? @@@@@@@@e?@@@@@@@@?e@@@@@@@@e?@@@@@@@@?e@@@@@@@@e?@@@@@@@@?e@@@@@@@@e?@@@@@@@@?e@@@@@@@@e?@@@@@@@@?e@@@@@@@@e?@@@@@@@@?e@@@@@@@@e?@@@@@@@@?e@@@@@@@@e?@@@@@@@@?e@@@@@@@@e?@@@@@@@@?e@@@@@@@@e?@@@@@@@@?e@@@@@@@@e?@@@@@@@@?e@@@@@@@@e?@@@@@@@@?e@@@@@@@@e?@@@@@@@@?e@@@@@@@@e?@@@@@@@@?e@@@@@@@@e?@@@@@@@@?e@@@@@@@@e?@@@@@@@@?e@@@@@@@@e?@@@@@@@@?e@@@@@@@@e?@@@@@@@@?e@@@@@@@@e?@@@@@@@@?e@@@@@@@@e?@@@@@@@@?e@@@@@@@@e?@@@@@@@@?e@@@@@@@@e?@@@@@@@@?e@@@@@@@@e?@@@@@@@@?e@@@@@@@@e?@@@@@@@@?e@@@@@@@@e?@@@@@@@@?e@@@@@@@@e?@@@@@@@@?e@@@@@@@@e?@@@@@@@@?e@@@@@@@@e?@@@@@@@@?e@@@@@@@@e?@@@@@@@@?e@@@@@@@@e?@@@@@@@@?e@@@@@@@@e?@@@@@@@@?e@@@@@@@@e?@@@@@@@@?e@@@@@@@@e?@@@@@@@@?e@@@@@@@@e?@@@@@@@@?e@@@@@@@@e?@@@@@@@@?e@@@@@@@@e?@@@@@@@@?e@@@@@@@@e?@@@@@@@@?e@@@@@@@@e?@@@@@@@@? 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@@@@@@@@e?@@@@@@@@?e@@@@@@@@e?@@@@@@@@?e@@@@@@@@e?@@@@@@@@?e@@@@@@@@e?@@@@@@@@?e@@@@@@@@e?@@@@@@@@?e@@@@@@@@e?@@@@@@@@?e@@@@@@@@e? @@@@@@@@e? @@@@@@@@e? @@h? @@h? @@h? @@h? @@h? @@h? @@ @@ @@ @@ @@ @@ @@ @@ @@ @@ @@ @@ @@ @@ @@ @@ @@ @@ @@ @@ @@ @@ @@ @@ @@ @@ @@ @@ @@ @@ @@ @@ @@ @@ @@ @@ @@ @@ @@ @@ @@ @@ @@ @@ @@ @@ @@ @@ @@ @@ @@ @@ @@ @@ @@ @@ @@g @@g @@g @@g @@g @@g @@@@@@@@ @@@@@@@@ Amount of direct reduction ?@@@@@@@@?e@@@@@@@@e?@@@@@@@@?e@@@@@@@@e?@@@@@@@@?e@@@@@@@@e?@@@@@@@@?e@@@@@@@@e?@@@@@@@@?e@@@@@@@@e?@@@@@@@@?e@@@@@@@@e?@@@@@@@@?e@@@@@@@@e?@@@@@@@@?e@@@@@@@@e?@@@@@@@@?e@@@@@@@@e?@@@@@@@@?e@@@@@@@@e?@@@@@@@@?e@@@@@@@@e?@@@@@@@@?e@@@@@@@@e?@@@@@@@@?e@@@@@@@@e?@@@@@@@@?e@@@@@@@@e?@@@@@@@@?e@@@@@@@@e?@@@@@@@@?e@@@@@@@@e?@@@@@@@@?e@@@@@@@@e?@@@@@@@@?e@@@@@@@@e?@@@@@@@@?e@@@@@@@@e?@@@@@@@@?e@@@@@@@@e?@@@@@@@@?e@@@@@@@@e?@@@@@@@@?e@@@@@@@@e?@@@@@@@@?e@@@@@@@@e?@@@@@@@@?e@@@@@@@@e?@@@@@@@@?e@@@@@@@@e?@@@@@@@@?e@@@@@@@@e?@@@@@@@@?e@@@@@@@@e?@@@@@@@@?e@@@@@@@@e?@@@@@@@@?e@@@@@@@@e?@@@@@@@@?e@@@@@@@@e?@@@@@@@@?e@@@@@@@@e?@@@@@@@@?e@@@@@@@@e?@@@@@@@@?e@@@@@@@@e?@@@@@@@@?e@@@@@@@@e?@@@@@@@@?e@@@@@@@@e?@@@@@@@@?e@@@@@@@@e?@@@@@@@@?e@@@@@@@@e?@@@@@@@@?e@@@@@@@@ ?@@@@@@@@?e@@@@@@@@e?@@@@@@@@?e@@@@@@@@e?@@@@@@@@?e@@@@@@@@e?@@@@@@@@?e@@@@@@@@e?@@@@@@@@?e@@@@@@@@e?@@@@@@@@?e@@@@@@@@e?@@@@@@@@?e@@@@@@@@e?@@@@@@@@?e@@@@@@@@e?@@@@@@@@?e@@@@@@@@e?@@@@@@@@?e@@@@@@@@e?@@@@@@@@?e@@@@@@@@e?@@@@@@@@?e@@@@@@@@e?@@@@@@@@?e@@@@@@@@e?@@@@@@@@?e@@@@@@@@e?@@@@@@@@?e@@@@@@@@e?@@@@@@@@?e@@@@@@@@e?@@@@@@@@?e@@@@@@@@e?@@@@@@@@?e@@@@@@@@e?@@@@@@@@?e@@@@@@@@e?@@@@@@@@?e@@@@@@@@e?@@@@@@@@?e@@@@@@@@e?@@@@@@@@?e@@@@@@@@e?@@@@@@@@?e@@@@@@@@e?@@@@@@@@?e@@@@@@@@e?@@@@@@@@?e@@@@@@@@e?@@@@@@@@?e@@@@@@@@e?@@@@@@@@?e@@@@@@@@e?@@@@@@@@?e@@@@@@@@e?@@@@@@@@?e@@@@@@@@e?@@@@@@@@?e@@@@@@@@e?@@@@@@@@?e@@@@@@@@e?@@@@@@@@?e@@@@@@@@e?@@@@@@@@?e@@@@@@@@e?@@@@@@@@?e@@@@@@@@e?@@@@@@@@?e@@@@@@@@e?@@@@@@@@?e@@@@@@@@e?@@@@@@@@?e@@@@@@@@e?@@@@@@@@?e@@@@@@@@ ?@@@@@@@@?e@@@@@@@@e?@@@@@@@@?e@@@@@@@@e?@@@@@@@@?e@@@@@@@@e?@@@@@@@@?e@@@@@@@@e?@@@@@@@@?e@@@@@@@@e?@@@@@@@@?e@@@@@@@@e?@@@@@@@@ ?@@@@@@@@?e@@@@@@@@e?@@@@@@@@?e@@@@@@@@e?@@@@@@@@?e@@@@@@@@e?@@@@@@@@?e@@@@@@@@e?@@@@@@@@?e@@@@@@@@e?@@@@@@@@?e@@@@@@@@e?@@@@@@@@?e@@@@@@@@e?@@@@@@@@?e@@@@@@@@e?@@@@@@@@?e@@@@@@@@e?@@@@@@@@?e@@@@@@@@e?@@@@@@@@?e@@@@@@@@e?@@@@@@@@?e@@@@@@@@e?@@@@@@@@?e@@@@@@@@e?@@@@@@@@?e@@@@@@@@e?@@@@@@@@?e@@@@@@@@e?@@@@@@@@?e@@@@@@@@e?@@@@@@@@?e@@@@@@@@e?@@@@@@@@?e@@@@@@@@e?@@@@@@@@?e@@@@@@@@e?@@@@@@@@?e@@@@@@@@e?@@@@@@@@?e@@@@@@@@e?@@@@@@@@?e@@@@@@@@e?@@@@@@@@?e@@@@@@@@e?@@@@@@@@?e@@@@@@@@e?@@@@@@@@?e@@@@@@@@e?@@@@@@@@?e@@@@@@@@e?@@@@@@@@?e@@@@@@@@e?@@@@@@@@?e@@@@@@@@e?@@@@@@@@?e@@@@@@@@e?@@@@@@@@?e@@@@@@@@e?@@@@@@@@?e@@@@@@@@e?@@@@@@@@?e@@@@@@@@e?@@@@@@@@?e@@@@@@@@e?@@@@@@@@?e@@@@@@@@e?@@@@@@@@?e@@@@@@@@e?@@@@@@@@?e@@@@@@@@e?@@@@@@@@?e@@@@@@@@e?@@@@@@@@?e@@@@@@@@ ?@@@@@@@@?e@@@@@@@@e?@@@@@@@@?e@@@@@@@@e?@@@@@@@@?e@@@@@@@@e?@@@@@@@@?e@@@@@@@@e?@@@@@@@@?e@@@@@@@@e?@@@@@@@@?e@@@@@@@@e?@@@@@@@@?e@@@@@@@@e?@@@@@@@@?e@@@@@@@@e?@@@@@@@@?e@@@@@@@@e?@@@@@@@@?e@@@@@@@@e?@@@@@@@@?e@@@@@@@@e?@@@@@@@@?e@@@@@@@@e?@@@@@@@@?e@@@@@@@@e?@@@@@@@@?e@@@@@@@@e?@@@@@@@@?e@@@@@@@@e?@@@@@@@@?e@@@@@@@@e?@@@@@@@@?e@@@@@@@@e?@@@@@@@@?e@@@@@@@@e?@@@@@@@@?e@@@@@@@@e?@@@@@@@@?e@@@@@@@@e?@@@@@@@@?e@@@@@@@@e?@@@@@@@@?e@@@@@@@@e?@@@@@@@@?e@@@@@@@@e?@@@@@@@@?e@@@@@@@@e?@@@@@@@@?e@@@@@@@@e?@@@@@@@@?e@@@@@@@@e?@@@@@@@@?e@@@@@@@@e?@@@@@@@@?e@@@@@@@@e?@@@@@@@@?e@@@@@@@@e?@@@@@@@@?e@@@@@@@@e?@@@@@@@@?e@@@@@@@@e?@@@@@@@@?e@@@@@@@@e?@@@@@@@@?e@@@@@@@@e?@@@@@@@@?e@@@@@@@@e?@@@@@@@@?e@@@@@@@@e?@@@@@@@@?e@@@@@@@@e?@@@@@@@@?e@@@@@@@@e?@@@@@@@@?e@@@@@@@@ ?@@@@@@@@?e@@@@@@@@e?@@@@@@@@?e@@@@@@@@e?@@@@@@@@?e@@@@@@@@e?@@@@@@@@?e@@@@@@@@e?@@@@@@@@?e@@@@@@@@e?@@@@@@@@?e@@@@@@@@e?@@@@@@@@ Nonconsolidated ¥ 493.5 2,970.2 2,436.3 5,900.0 60,558.9 ¥66,458.9 @@@@@@@@e?@@@@@@@@?e@@@@@@@@e?@@@@@@@@?e@@@@@@@@e?@@@@@@@@?e@@@@@@@@e?@@@@@@@@?e@@@@@@@@e?@@@@@@@@?e@@@@@@@@e?@@@@@@@@?e@@@@@@@@e?@@@@@@@@?e@@@@@@@@e?@@@@@@@@?e@@@@@@@@e?@@@@@@@@?e@@@@@@@@e?@@@@@@@@?e@@@@@@@@e?@@@@@@@@?e@@@@@@@@e?@@@@@@@@?e@@@@@@@@e?@@@@@@@@?e@@@@@@@@e?@@@@@@@@?e@@@@@@@@e?@@@@@@@@?e@@@@@@@@e?@@@@@@@@?e@@@@@@@@e?@@@@@@@@?e@@@@@@@@e?@@@@@@@@?e@@@@@@@@e?@@@@@@@@?e@@@@@@@@e?@@@@@@@@?e@@@@@@@@e?@@@@@@@@?e@@@@@@@@e?@@@@@@@@?e@@@@@@@@e?@@@@@@@@?e@@@@@@@@e?@@@@@@@@?e@@@@@@@@e?@@@@@@@@?e@@@@@@@@e?@@@@@@@@?e@@@@@@@@e?@@@@@@@@?e@@@@@@@@e?@@@@@@@@?e@@@@@@@@e?@@@@@@@@?e@@@@@@@@e?@@@@@@@@?e @@@@@@@@e?@@@@@@@@?e@@@@@@@@e?@@@@@@@@?e@@@@@@@@e?@@@@@@@@?e@@@@@@@@e?@@@@@@@@?e@@@@@@@@e?@@@@@@@@?e@@@@@@@@e?@@@@@@@@?e@@@@@@@@e?@@@@@@@@?e@@@@@@@@e?@@@@@@@@?e@@@@@@@@e?@@@@@@@@?e@@@@@@@@e?@@@@@@@@?e@@@@@@@@e?@@@@@@@@?e@@@@@@@@e?@@@@@@@@?e@@@@@@@@e?@@@@@@@@?e@@@@@@@@e?@@@@@@@@?e@@@@@@@@e?@@@@@@@@?e@@@@@@@@e?@@@@@@@@?e@@@@@@@@e?@@@@@@@@?e@@@@@@@@e?@@@@@@@@?e@@@@@@@@e?@@@@@@@@?e@@@@@@@@e?@@@@@@@@?e@@@@@@@@e?@@@@@@@@?e@@@@@@@@e?@@@@@@@@?e@@@@@@@@e?@@@@@@@@?e@@@@@@@@e?@@@@@@@@?e@@@@@@@@e?@@@@@@@@?e@@@@@@@@e?@@@@@@@@?e@@@@@@@@e?@@@@@@@@?e@@@@@@@@e?@@@@@@@@?e@@@@@@@@e?@@@@@@@@?e@@@@@@@@e?@@@@@@@@?e @@@@@@@@e? @@@@@@@@e? @@h? @@h? @@h? @@h? @@h? @@h? @@@@@@@@ @@@@@@@@ @@ @@ @@ @@ @@ @@ @@ @@ @@ @@ @@ @@ @@ @@ @@ @@ @@ @@ @@ @@ @@ @@ @@ @@ @@ @@ @@ @@ @@ @@ @@ @@ @@ @@ @@ @@ @@ @@ @@ @@ @@ @@ @@ @@ @@ @@ @@ @@ @@ @@ @@ @@ @@ @@ @@ @@ @@ @@ @@ @@ @@ @@ @@ @@ @@ @@ @@ @@ @@ @@ @@ @@ @@ @@ @@ @@ @@ @@ @@ @@ @@ @@ @@ @@ @@ @@ @@ @@ @@ @@ @@ @@ @@ @@ @@ @@ @@ @@ @@ @@ @@ @@ @@ @@ @@ @@ @@ @@ @@ @@ @@ @@ @@ @@ @@ @@ @@ @@ ?@@ ?@@ ?@@ ?@@ ?@@ ?@@ ?@@@@@@@@ ?@@@@@@@@ @@g @@g @@g @@g @@g @@g @@@@@@@@ @@@@@@@@ ¥ 1,405.1 ?@@@@@@@@?e@@@@@@@@e?@@@@@@@@?e@@@@@@@@e?@@@@@@@@?e@@@@@@@@e?@@@@@@@@?e@@@@@@@@e?@@@@@@@@?e@@@@@@@@e?@@@@@@@@?e@@@@@@@@e?@@@@@@@@?e@@@@@@@@e?@@@@@@@@?e@@@@@@@@e?@@@@@@@@?e@@@@@@@@e?@@@@@@@@?e@@@@@@@@e?@@@@@@@@?e@@@@@@@@e?@@@@@@@@?e@@@@@@@@e?@@@@@@@@?e@@@@@@@@e?@@@@@@@@?e@@@@@@@@e?@@@@@@@@?e@@@@@@@@e?@@@@@@@@?e@@@@@@@@e?@@@@@@@@?e@@@@@@@@e?@@@@@@@@?e@@@@@@@@e?@@@@@@@@?e@@@@@@@@e?@@@@@@@@?e@@@@@@@@e?@@@@@@@@?e@@@@@@@@e?@@@@@@@@?e@@@@@@@@e?@@@@@@@@?e@@@@@@@@e?@@@@@@@@?e@@@@@@@@e?@@@@@@@@?e@@@@@@@@e?@@@@@@@@?e@@@@@@@@e?@@@@@@@@?e@@@@@@@@e?@@@@@@@@?e@@@@@@@@e?@@@@@@@@?e@@@@@@@@e?@@@@@@@@?e@@@@@@@@ ?@@@@@@@@?e@@@@@@@@e?@@@@@@@@?e@@@@@@@@e?@@@@@@@@?e@@@@@@@@e?@@@@@@@@?e@@@@@@@@e?@@@@@@@@?e@@@@@@@@e?@@@@@@@@?e@@@@@@@@e?@@@@@@@@?e@@@@@@@@e?@@@@@@@@?e@@@@@@@@e?@@@@@@@@?e@@@@@@@@e?@@@@@@@@?e@@@@@@@@e?@@@@@@@@?e@@@@@@@@e?@@@@@@@@?e@@@@@@@@e?@@@@@@@@?e@@@@@@@@e?@@@@@@@@?e@@@@@@@@e?@@@@@@@@?e@@@@@@@@e?@@@@@@@@?e@@@@@@@@e?@@@@@@@@?e@@@@@@@@e?@@@@@@@@?e@@@@@@@@e?@@@@@@@@?e@@@@@@@@e?@@@@@@@@?e@@@@@@@@e?@@@@@@@@?e@@@@@@@@e?@@@@@@@@?e@@@@@@@@e?@@@@@@@@?e@@@@@@@@e?@@@@@@@@?e@@@@@@@@e?@@@@@@@@?e@@@@@@@@e?@@@@@@@@?e@@@@@@@@e?@@@@@@@@?e@@@@@@@@e?@@@@@@@@?e@@@@@@@@e?@@@@@@@@?e@@@@@@@@e?@@@@@@@@?e@@@@@@@@ ?@@ ?@@ ?@@ ?@@ ?@@ ?@@ ?@@@@@@@@ ?@@@@@@@@ Compared with March 31, 2001 ¥ (96.4) 1,027.1 2,146.9 3,077.5 (5,598.9) ¥(2,521.4) @@@@@@@@ @@@@@@@@ @@ @@ @@ @@ @@ @@ @@ @@ @@ @@ @@ @@ @@ @@ @@ @@ @@ @@ @@ @@ @@ @@ @@ @@ @@ @@ @@ @@ @@ @@ @@ @@ @@ @@ @@ @@ @@ @@ @@ @@ @@ @@ @@ @@ @@ @@ @@ @@ @@ @@ @@ @@ @@ @@ @@ @@ @@ @@ @@ @@ @@ @@ (Billions of yen) Consolidated ¥ 638.2 3,263.4 2,666.1 6,567.7 61,896.4 ¥68,464.1 @@@@@@@@e?@@@@@@@@?e@@@@@@@@e?@@@@@@@@?e@@@@@@@@e?@@@@@@@@?e@@@@@@@@e?@@@@@@@@?e@@@@@@@@e?@@@@@@@@?e@@@@@@@@e?@@@@@@@@?e@@@@@@@@e?@@@@@@@@?e@@@@@@@@e?@@@@@@@@?e@@@@@@@@e?@@@@@@@@?e@@@@@@@@e?@@@@@@@@?e@@@@@@@@e?@@@@@@@@?e@@@@@@@@e?@@@@@@@@?e@@@@@@@@e?@@@@@@@@?e@@@@@@@@e?@@@@@@@@?e@@@@@@@@e?@@@@@@@@?e@@@@@@@@e?@@@@@@@@?e@@@@@@@@e?@@@@@@@@?e@@@@@@@@e?@@@@@@@@?e@@@@@@@@e?@@@@@@@@?e@@@@@@@@e?@@@@@@@@?e@@@@@@@@e?@@@@@@@@?e@@@@@@@@e?@@@@@@@@?e@@@@@@@@e?@@@@@@@@?e@@@@@@@@e?@@@@@@@@?e@@@@@@@@e?@@@@@@@@?e@@@@@@@@e?@@@@@@@@?e@@@@@@@@e?@@@@@@@@?e@@@@@@@@e?@@@@@@@@?e@@@@@@@@e?@@@@@@@@?e@@@@@@@@e?@@@@@@@@?e @@@@@@@@e?@@@@@@@@?e@@@@@@@@e?@@@@@@@@?e@@@@@@@@e?@@@@@@@@?e@@@@@@@@e?@@@@@@@@?e@@@@@@@@e?@@@@@@@@?e@@@@@@@@e?@@@@@@@@?e@@@@@@@@e?@@@@@@@@?e@@@@@@@@e?@@@@@@@@?e@@@@@@@@e?@@@@@@@@?e@@@@@@@@e?@@@@@@@@?e@@@@@@@@e?@@@@@@@@?e@@@@@@@@e?@@@@@@@@?e@@@@@@@@e?@@@@@@@@?e@@@@@@@@e?@@@@@@@@?e@@@@@@@@e?@@@@@@@@?e@@@@@@@@e?@@@@@@@@?e@@@@@@@@e?@@@@@@@@?e@@@@@@@@e?@@@@@@@@?e@@@@@@@@e?@@@@@@@@?e@@@@@@@@e?@@@@@@@@?e@@@@@@@@e?@@@@@@@@?e@@@@@@@@e?@@@@@@@@?e@@@@@@@@e?@@@@@@@@?e@@@@@@@@e?@@@@@@@@?e@@@@@@@@e?@@@@@@@@?e@@@@@@@@e?@@@@@@@@?e@@@@@@@@e?@@@@@@@@?e@@@@@@@@e?@@@@@@@@?e@@@@@@@@e?@@@@@@@@?e@@@@@@@@e?@@@@@@@@?e @@@@@@@@e? @@@@@@@@e? @@h? @@h? @@h? @@h? @@h? @@h? @@ @@ @@ @@ @@ @@ @@ @@ @@ @@ @@ @@ @@ @@ @@ @@ @@ @@ @@ @@ @@ @@ @@ @@ @@ @@ @@ @@ @@ @@ @@ @@ @@ @@ @@ @@ @@ @@ @@ @@ @@ @@ @@ @@ @@ @@ @@ @@ @@ @@ @@ @@ @@ @@ @@ @@ @@g @@g @@g @@g @@g @@g @@@@@@@@ @@@@@@@@ ¥ 1,803.2 ?@@@@@@@@?e@@@@@@@@e?@@@@@@@@?e@@@@@@@@e?@@@@@@@@?e@@@@@@@@e?@@@@@@@@?e@@@@@@@@e?@@@@@@@@?e@@@@@@@@e?@@@@@@@@?e@@@@@@@@e?@@@@@@@@?e@@@@@@@@e?@@@@@@@@?e@@@@@@@@e?@@@@@@@@?e@@@@@@@@e?@@@@@@@@?e@@@@@@@@e?@@@@@@@@?e@@@@@@@@e?@@@@@@@@?e@@@@@@@@e?@@@@@@@@?e@@@@@@@@e?@@@@@@@@?e@@@@@@@@e?@@@@@@@@?e@@@@@@@@e?@@@@@@@@?e@@@@@@@@e?@@@@@@@@?e@@@@@@@@e?@@@@@@@@?e@@@@@@@@e?@@@@@@@@?e@@@@@@@@e?@@@@@@@@?e@@@@@@@@e?@@@@@@@@?e@@@@@@@@e?@@@@@@@@?e@@@@@@@@e?@@@@@@@@?e@@@@@@@@e?@@@@@@@@?e@@@@@@@@e?@@@@@@@@?e@@@@@@@@e?@@@@@@@@?e@@@@@@@@e?@@@@@@@@?e@@@@@@@@e?@@@@@@@@?e@@@@@@@@e?@@@@@@@@?e@@@@@@@@e?@@@@@@@@?e@@@@@@@@ ?@@@@@@@@?e@@@@@@@@e?@@@@@@@@?e@@@@@@@@e?@@@@@@@@?e@@@@@@@@e?@@@@@@@@?e@@@@@@@@e?@@@@@@@@?e@@@@@@@@e?@@@@@@@@?e@@@@@@@@e?@@@@@@@@?e@@@@@@@@e?@@@@@@@@?e@@@@@@@@e?@@@@@@@@?e@@@@@@@@e?@@@@@@@@?e@@@@@@@@e?@@@@@@@@?e@@@@@@@@e?@@@@@@@@?e@@@@@@@@e?@@@@@@@@?e@@@@@@@@e?@@@@@@@@?e@@@@@@@@e?@@@@@@@@?e@@@@@@@@e?@@@@@@@@?e@@@@@@@@e?@@@@@@@@?e@@@@@@@@e?@@@@@@@@?e@@@@@@@@e?@@@@@@@@?e@@@@@@@@e?@@@@@@@@?e@@@@@@@@e?@@@@@@@@?e@@@@@@@@e?@@@@@@@@?e@@@@@@@@e?@@@@@@@@?e@@@@@@@@e?@@@@@@@@?e@@@@@@@@e?@@@@@@@@?e@@@@@@@@e?@@@@@@@@?e@@@@@@@@e?@@@@@@@@?e@@@@@@@@e?@@@@@@@@?e@@@@@@@@e?@@@@@@@@?e@@@@@@@@e?@@@@@@@@?e@@@@@@@@ @@@@@@@@ @@@@@@@@ @@ @@ @@ @@ @@ @@ @@ @@ @@ @@ @@ @@ @@ @@ @@ @@ @@ @@ @@ @@ @@ @@ @@ @@ @@ @@ @@ @@ @@ @@ @@ @@ @@ @@ @@ @@ @@ @@ @@ @@ @@ @@ @@ @@ @@ @@ @@ @@ @@ @@ @@ @@ @@ @@ @@ @@ @@ @@ @@ @@ @@ @@ ?@@ ?@@ ?@@ ?@@ ?@@ ?@@ ?@@@@@@@@ ?@@@@@@@@ (cid:11) Classification under Self-Assessment, Disclosure of Problem Assets, and Write-Offs/Reserves (Nonconsolidated; March 31, 2002) Category of borrowers under self-assessment Problem assets based on the Financial Reconstruction Law Classification under self-assessment Classification I Classification II Classification III Classification IV Reserve for possible loan losses Reserve ratio (Billions of yen) Bankrupt Borrowers Bankrupt and quasi-bankrupt assets (1) Portion of claims secured by collateral or guarantees, etc. (4) Fully reserved Effectively Bankrupt Borrowers ¥493.5 ¥474.8 ¥18.7 Doubtful assets (2) Portion of claims secured by collateral or guarantees, etc. (5) ¥2,970.2 ¥1,572.1 Necessary amount reserved ¥1,398.1 Direct write-offs (Note 1) Specific reserve ¥22.4 (Note 2) 100% (Note 3) ¥1,061.7 (Note 2) 75.9% (Note 3) Potentially Bankrupt Borrowers Borrowers Requiring Caution Substandard loans (3) ¥2,436.3 (Claims to substandard borrowers) Normal Borrowers Normal assets ¥60,558.9 Portion of substandard loans secured by collateral or guarantees, etc. (6) ¥1,099.3 Claims to borrowers requiring caution, excluding claims to substandard borrowers Claims to normal borrowers Total ¥66,458.9 (A)=(1)+(2)+(3) ¥5,900.0 Loan loss reserve for specific overseas countries Total reserve for possible loan losses (B) Specific reserve + General reserve for substandard loans Portion secured by collateral or guarantees, etc. (C)=(4)+(5)+(6) ¥3,146.2 Unsecured portion (D)=(A)-(C) Notes: 1. Includes amount of direct reduction totaling ¥1,405.1 billion. 2. Includes reserves for assets that are not subject to disclosure under the Financial Reconstruction Law disclosure standards. (Bankrupt/effectively bankrupt borrowers: ¥3.7 billion; Potentially bankrupt borrowers: ¥11.9 billion) 3. Reserve ratios for claims to Bankrupt/Effectively Bankrupt Borrowers, Potentially Bankrupt Borrowers, Substandard Borrowers, and Borrowers Requiring Caution: The proportion of each category’s total unsecured claims covered by reserve for possible loan losses. 4. Reserve ratios for claims to Normal Borrowers and Borrowers Requiring Caution (excluding claims to Substandard Borrowers): The proportion of each category’s total claims covered by reserve for possible loan losses. The reserve ratio of unsecured claims to Borrowers Requiring Caution (excluding claims to Substandard Borrowers) is shown in brackets. 5. Reserve ratio = (Specific reserve + General reserve for substandard loans)÷(Bankrupt and quasi-bankrupt assets + Doubtful assets + Substandard loans – Portion secured by collateral, guarantee, etc.) Coverage ratio {(B)+(C)} / (A) 76.6% 10 — SMBC 2002 General reserve for substandard loans ¥290.8 General reserve ¥872.3 21.8% (Note 3) 5.1% [9.4%] (Note 4) 12.9% (Note 3) 0.2% (Note 4) ¥15.4 ¥1,971.8 ¥1,374.9 ¥2,753.8 Reserve ratio (Note 5) (B) / (D) 49.9% Classification of Problem Assets Based on the Financial Reconstruction Law Bankrupt and Quasi-Bankrupt Assets This category is defined as the sum of assets to Bankrupt Borrowers and Effectively Bankrupt Borrowers as categorized by self-assessment, excluding Classification IV assets, which are fully written off. Classification III assets are fully covered by reserves, and Classification I and II assets, the collectible portion, are secured by collateral or guarantees, etc. Doubtful Assets Substandard Loans Normal Assets This category is defined as the assets to Potentially Bankrupt Borrowers under self-assessment. Specific reserves are set aside for Classification III assets, and Classification I and II assets, the collectible portion, are secured by collateral or guarantees, etc. This category is defined as the sum of the loans extended to Borrowers Requiring Caution under self-assessment. This category includes past due loans (three months or more) and restructured loans. This category is defined as the sum, as of the term-end, of loans, securities lending, foreign exchange, accrued interest, suspense payments, and customers’ liabilities for acceptances and guarantees that are not included in the other three categories. 2. Risk-Monitored Loans In addition to the disclosure of problem assets in accordance with Law. On a nonconsolidated basis, Risk-Monitored Loans amounted to ¥5,816.5 billion as of March 31, 2002, a ¥3,083.9 the Financial Reconstruction Law, we separately disclose the billion increase compared with March 31, 2001. On a consolidated balance of Risk-Monitored Loans in accordance with the Banking basis, Risk-Monitored Loans amounted to ¥6,484.4 billion. (cid:11) Risk-Monitored Loans (March 31, 2002) Nonconsolidated Ratio to total loans Compared with March 31, 2001 Consolidated Ratio to total loans Bankrupt loans Non-accrual loans Past due loans (3 months or more) Restructured loans Total ¥ 195.7 3,184.5 92.3 2,344.0 ¥5,816.5 0.3% 5.3 0.2 3.9 9.7% ¥ (40.0) 977.0 (10.9) 2,157.8 ¥3,083.9 ¥ 227.5 3,599.7 102.8 2,554.4 ¥6,484.4 0.4% 5.7 0.2 4.0 10.2% (Billions of yen) Compared with March 31, 2001 ¥ (45.7) 1,022.2 (23.0) 2,274.4 ¥3,227.9 @@@@@@@@e? @@@@@@@@e? @@h? @@h? @@h? @@h? @@h? @@h? @@ @@ @@ @@ @@ @@ @@ @@ @@ @@ @@ @@ @@ @@ @@ @@ @@ @@ @@ @@ @@ @@ @@ @@ @@ @@ @@ @@ @@ @@ @@ @@ @@ @@ @@ @@ @@ @@ @@ @@ @@ @@ @@ @@ @@ @@ @@ @@ @@ @@ @@ @@ @@ @@ @@ @@ @@g @@g @@g @@g @@g @@g @@@@@@@@ @@@@@@@@ @@@@@@@@e?@@@@@@@@?e@@@@@@@@e?@@@@@@@@?e@@@@@@@@e?@@@@@@@@?e@@@@@@@@e?@@@@@@@@?e@@@@@@@@e?@@@@@@@@?e@@@@@@@@e?@@@@@@@@?e@@@@@@@@e?@@@@@@@@?e@@@@@@@@e?@@@@@@@@?e@@@@@@@@e?@@@@@@@@?e@@@@@@@@e?@@@@@@@@?e@@@@@@@@e?@@@@@@@@?e@@@@@@@@e?@@@@@@@@?e@@@@@@@@e?@@@@@@@@?e@@@@@@@@e?@@@@@@@@?e@@@@@@@@e?@@@@@@@@?e@@@@@@@@e?@@@@@@@@?e@@@@@@@@e?@@@@@@@@?e@@@@@@@@e?@@@@@@@@?e@@@@@@@@e?@@@@@@@@?e@@@@@@@@e?@@@@@@@@?e@@@@@@@@e?@@@@@@@@?e@@@@@@@@e?@@@@@@@@?e@@@@@@@@e?@@@@@@@@?e@@@@@@@@e?@@@@@@@@?e@@@@@@@@e?@@@@@@@@?e@@@@@@@@e?@@@@@@@@?e@@@@@@@@e?@@@@@@@@?e@@@@@@@@e?@@@@@@@@?e@@@@@@@@e?@@@@@@@@?e@@@@@@@@e?@@@@@@@@?e@@@@@@@@e?@@@@@@@@?e@@@@@@@@e?@@@@@@@@?e@@@@@@@@e?@@@@@@@@?e@@@@@@@@e?@@@@@@@@?e@@@@@@@@e?@@@@@@@@?e@@@@@@@@e?@@@@@@@@?e@@@@@@@@e?@@@@@@@@?e@@@@@@@@e?@@@@@@@@? @@@@@@@@e?@@@@@@@@?e@@@@@@@@e?@@@@@@@@?e@@@@@@@@e?@@@@@@@@?e@@@@@@@@e?@@@@@@@@?e@@@@@@@@e?@@@@@@@@?e@@@@@@@@e?@@@@@@@@?e@@@@@@@@e?@@@@@@@@?e@@@@@@@@e?@@@@@@@@?e@@@@@@@@e? @@@@@@@@e?@@@@@@@@?e@@@@@@@@e?@@@@@@@@?e@@@@@@@@e?@@@@@@@@?e@@@@@@@@e?@@@@@@@@?e@@@@@@@@e?@@@@@@@@?e@@@@@@@@e?@@@@@@@@?e@@@@@@@@e?@@@@@@@@?e@@@@@@@@e?@@@@@@@@?e@@@@@@@@e?@@@@@@@@?e@@@@@@@@e?@@@@@@@@?e@@@@@@@@e?@@@@@@@@?e@@@@@@@@e?@@@@@@@@?e@@@@@@@@e?@@@@@@@@?e@@@@@@@@e?@@@@@@@@?e@@@@@@@@e?@@@@@@@@?e@@@@@@@@e?@@@@@@@@?e@@@@@@@@e?@@@@@@@@?e@@@@@@@@e?@@@@@@@@?e@@@@@@@@e?@@@@@@@@?e@@@@@@@@e?@@@@@@@@?e@@@@@@@@e?@@@@@@@@?e@@@@@@@@e?@@@@@@@@?e@@@@@@@@e?@@@@@@@@?e@@@@@@@@e?@@@@@@@@?e@@@@@@@@e?@@@@@@@@?e@@@@@@@@e?@@@@@@@@?e@@@@@@@@e?@@@@@@@@?e@@@@@@@@e?@@@@@@@@?e@@@@@@@@e?@@@@@@@@?e@@@@@@@@e?@@@@@@@@?e@@@@@@@@e?@@@@@@@@?e@@@@@@@@e?@@@@@@@@?e@@@@@@@@e?@@@@@@@@?e@@@@@@@@e?@@@@@@@@?e@@@@@@@@e?@@@@@@@@?e@@@@@@@@e?@@@@@@@@?e@@@@@@@@e?@@@@@@@@?e@@@@@@@@e?@@@@@@@@? @@@@@@@@e?@@@@@@@@?e@@@@@@@@e?@@@@@@@@?e@@@@@@@@e?@@@@@@@@?e@@@@@@@@e?@@@@@@@@?e@@@@@@@@e?@@@@@@@@?e@@@@@@@@e?@@@@@@@@?e@@@@@@@@e?@@@@@@@@?e@@@@@@@@e?@@@@@@@@?e@@@@@@@@e? Amount of direct reduction @@ @@ @@ @@ @@ @@ @@ @@ @@ @@ @@ @@ @@ @@ @@ @@ @@ @@ @@ @@ @@ @@ @@ @@ @@ @@ @@ @@ @@ @@ @@ @@ @@ @@ @@ @@ @@ @@ @@ @@ @@ @@ @@ @@ @@ @@ @@ @@ @@ @@ @@ @@ @@ @@ @@ @@ @@@@@@@@ @@@@@@@@ @@ @@ @@ @@ @@ @@ @@@@@@@@e? @@@@@@@@e? @@h? @@h? @@h? @@h? @@h? @@h? @@ @@ @@ @@ @@ @@ @@ @@ @@ @@ @@ @@ @@ @@ @@ @@ @@ @@ @@ @@ @@ @@ @@ @@ @@ @@ @@ @@ @@ @@ @@ @@ @@ @@ @@ @@ @@ @@ @@ @@ @@ @@ @@ @@ @@ @@ @@ @@ @@ @@ @@ @@ @@ @@ @@ @@ @@@@@@@@e?@@@@@@@@?e@@@@@@@@e?@@@@@@@@?e@@@@@@@@e?@@@@@@@@?e@@@@@@@@e?@@@@@@@@?e@@@@@@@@e?@@@@@@@@?e@@@@@@@@e?@@@@@@@@?e@@@@@@@@e?@@@@@@@@?e@@@@@@@@e?@@@@@@@@?e@@@@@@@@e?@@@@@@@@?e@@@@@@@@e?@@@@@@@@?e@@@@@@@@e?@@@@@@@@?e@@@@@@@@e?@@@@@@@@?e@@@@@@@@e?@@@@@@@@?e@@@@@@@@e?@@@@@@@@?e@@@@@@@@e?@@@@@@@@?e@@@@@@@@e?@@@@@@@@?e@@@@@@@@e?@@@@@@@@?e@@@@@@@@e?@@@@@@@@?e@@@@@@@@e?@@@@@@@@?e@@@@@@@@e?@@@@@@@@?e@@@@@@@@e?@@@@@@@@?e @@@@@@@@e?@@@@@@@@?e@@@@@@@@e?@@@@@@@@?e@@@@@@@@e?@@@@@@@@?e@@@@@@@@e?@@@@@@@@?e@@@@@@@@e?@@@@@@@@?e@@@@@@@@e?@@@@@@@@?e@@@@@@@@e?@@@@@@@@?e@@@@@@@@e?@@@@@@@@?e@@@@@@@@e?@@@@@@@@?e@@@@@@@@e?@@@@@@@@?e@@@@@@@@e?@@@@@@@@?e@@@@@@@@e?@@@@@@@@?e@@@@@@@@e?@@@@@@@@?e@@@@@@@@e?@@@@@@@@?e@@@@@@@@e?@@@@@@@@?e@@@@@@@@e?@@@@@@@@?e@@@@@@@@e?@@@@@@@@?e@@@@@@@@e?@@@@@@@@?e@@@@@@@@e?@@@@@@@@?e@@@@@@@@e?@@@@@@@@?e@@@@@@@@e?@@@@@@@@?e ¥1,373.7 @@@@@@@@ @@@@@@@@ @@ @@ @@ @@ @@ @@ @@ @@ @@ @@ @@ @@ @@ @@ @@ @@ @@ @@ @@ @@ @@ @@ @@ @@ @@ @@ @@ @@ @@ @@ @@ @@ @@ @@ @@ @@ @@ @@ @@ @@ @@ @@ @@ @@ @@ @@ @@ @@ @@ @@ @@ @@ @@ @@ @@ @@ @@ @@ @@ @@ @@ @@ ?@@@@@@@@?e@@@@@@@@e?@@@@@@@@?e@@@@@@@@e?@@@@@@@@?e@@@@@@@@e?@@@@@@@@?e@@@@@@@@e?@@@@@@@@?e@@@@@@@@e?@@@@@@@@?e@@@@@@@@e?@@@@@@@@?e@@@@@@@@e?@@@@@@@@?e@@@@@@@@e?@@@@@@@@?e@@@@@@@@e?@@@@@@@@?e@@@@@@@@e?@@@@@@@@?e@@@@@@@@e?@@@@@@@@?e@@@@@@@@e?@@@@@@@@?e@@@@@@@@e?@@@@@@@@?e@@@@@@@@e?@@@@@@@@?e@@@@@@@@e?@@@@@@@@?e@@@@@@@@e?@@@@@@@@?e@@@@@@@@e?@@@@@@@@?e@@@@@@@@e?@@@@@@@@?e@@@@@@@@e?@@@@@@@@?e@@@@@@@@e?@@@@@@@@?e@@@@@@@@e?@@@@@@@@?e@@@@@@@@e?@@@@@@@@?e@@@@@@@@e?@@@@@@@@?e@@@@@@@@e?@@@@@@@@?e@@@@@@@@e?@@@@@@@@?e@@@@@@@@e?@@@@@@@@?e@@@@@@@@e?@@@@@@@@?e@@@@@@@@e?@@@@@@@@?e@@@@@@@@e?@@@@@@@@?e@@@@@@@@e?@@@@@@@@?e@@@@@@@@e?@@@@@@@@?e@@@@@@@@e?@@@@@@@@?e@@@@@@@@e?@@@@@@@@?e@@@@@@@@e?@@@@@@@@?e@@@@@@@@e?@@@@@@@@?e@@@@@@@@e?@@@@@@@@?e@@@@@@@@e?@@@@@@@@?e@@@@@@@@ ?@@@@@@@@?e@@@@@@@@e?@@@@@@@@?e@@@@@@@@e?@@@@@@@@?e@@@@@@@@e?@@@@@@@@?e@@@@@@@@e?@@@@@@@@?e@@@@@@@@e?@@@@@@@@?e@@@@@@@@e?@@@@@@@@?e@@@@@@@@e?@@@@@@@@?e@@@@@@@@e?@@@@@@@@ ?@@@@@@@@?e@@@@@@@@e?@@@@@@@@?e@@@@@@@@e?@@@@@@@@?e@@@@@@@@e?@@@@@@@@?e@@@@@@@@e?@@@@@@@@?e@@@@@@@@e?@@@@@@@@?e@@@@@@@@e?@@@@@@@@?e@@@@@@@@e?@@@@@@@@?e@@@@@@@@e?@@@@@@@@?e@@@@@@@@e?@@@@@@@@?e@@@@@@@@e?@@@@@@@@?e@@@@@@@@e?@@@@@@@@?e@@@@@@@@e?@@@@@@@@?e@@@@@@@@e?@@@@@@@@?e@@@@@@@@e?@@@@@@@@?e@@@@@@@@e?@@@@@@@@?e@@@@@@@@e?@@@@@@@@?e@@@@@@@@e?@@@@@@@@?e@@@@@@@@e?@@@@@@@@?e@@@@@@@@e?@@@@@@@@?e@@@@@@@@e?@@@@@@@@?e@@@@@@@@e?@@@@@@@@?e@@@@@@@@e?@@@@@@@@?e@@@@@@@@e?@@@@@@@@?e@@@@@@@@e?@@@@@@@@?e@@@@@@@@e?@@@@@@@@?e@@@@@@@@e?@@@@@@@@?e@@@@@@@@e?@@@@@@@@?e@@@@@@@@e?@@@@@@@@?e@@@@@@@@e?@@@@@@@@?e@@@@@@@@e?@@@@@@@@?e@@@@@@@@e?@@@@@@@@?e@@@@@@@@e?@@@@@@@@?e@@@@@@@@e?@@@@@@@@?e@@@@@@@@e?@@@@@@@@?e@@@@@@@@e?@@@@@@@@?e@@@@@@@@e?@@@@@@@@?e@@@@@@@@e?@@@@@@@@?e@@@@@@@@ ?@@@@@@@@?e@@@@@@@@e?@@@@@@@@?e@@@@@@@@e?@@@@@@@@?e@@@@@@@@e?@@@@@@@@?e@@@@@@@@e?@@@@@@@@?e@@@@@@@@e?@@@@@@@@?e@@@@@@@@e?@@@@@@@@?e@@@@@@@@e?@@@@@@@@?e@@@@@@@@e?@@@@@@@@ ?@@ ?@@ ?@@ ?@@ ?@@ ?@@ ?@@@@@@@@ ?@@@@@@@@ @@g @@g @@g @@g @@g @@g @@@@@@@@ @@@@@@@@ ?@@@@@@@@?e@@@@@@@@e?@@@@@@@@?e@@@@@@@@e?@@@@@@@@?e@@@@@@@@e?@@@@@@@@?e@@@@@@@@e?@@@@@@@@?e@@@@@@@@e?@@@@@@@@?e@@@@@@@@e?@@@@@@@@?e@@@@@@@@e?@@@@@@@@?e@@@@@@@@e?@@@@@@@@?e@@@@@@@@e?@@@@@@@@?e@@@@@@@@e?@@@@@@@@?e@@@@@@@@e?@@@@@@@@?e@@@@@@@@e?@@@@@@@@?e@@@@@@@@e?@@@@@@@@?e@@@@@@@@e?@@@@@@@@?e@@@@@@@@e?@@@@@@@@?e@@@@@@@@e?@@@@@@@@?e@@@@@@@@e?@@@@@@@@?e@@@@@@@@e?@@@@@@@@?e@@@@@@@@e?@@@@@@@@?e@@@@@@@@e?@@@@@@@@?e@@@@@@@@ ?@@@@@@@@?e@@@@@@@@e?@@@@@@@@?e@@@@@@@@e?@@@@@@@@?e@@@@@@@@e?@@@@@@@@?e@@@@@@@@e?@@@@@@@@?e@@@@@@@@e?@@@@@@@@?e@@@@@@@@e?@@@@@@@@?e@@@@@@@@e?@@@@@@@@?e@@@@@@@@e?@@@@@@@@?e@@@@@@@@e?@@@@@@@@?e@@@@@@@@e?@@@@@@@@?e@@@@@@@@e?@@@@@@@@?e@@@@@@@@e?@@@@@@@@?e@@@@@@@@e?@@@@@@@@?e@@@@@@@@e?@@@@@@@@?e@@@@@@@@e?@@@@@@@@?e@@@@@@@@e?@@@@@@@@?e@@@@@@@@e?@@@@@@@@?e@@@@@@@@e?@@@@@@@@?e@@@@@@@@e?@@@@@@@@?e@@@@@@@@e?@@@@@@@@?e@@@@@@@@ ?@@ ?@@ ?@@ ?@@ ?@@ ?@@ ?@@@@@@@@ ?@@@@@@@@ @@@@@@@@e? @@@@@@@@e? @@h? @@h? @@h? @@h? @@h? @@h? @@@@@@@@e?@@@@@@@@?e@@@@@@@@e?@@@@@@@@?e@@@@@@@@e?@@@@@@@@?e@@@@@@@@e?@@@@@@@@?e@@@@@@@@e?@@@@@@@@?e@@@@@@@@e?@@@@@@@@?e@@@@@@@@e?@@@@@@@@?e@@@@@@@@e?@@@@@@@@?e@@@@@@@@e?@@@@@@@@?e@@@@@@@@e?@@@@@@@@?e@@@@@@@@e?@@@@@@@@?e@@@@@@@@e?@@@@@@@@?e@@@@@@@@e?@@@@@@@@?e@@@@@@@@e?@@@@@@@@?e@@@@@@@@e?@@@@@@@@?e@@@@@@@@e?@@@@@@@@?e@@@@@@@@e?@@@@@@@@?e@@@@@@@@e?@@@@@@@@?e@@@@@@@@e?@@@@@@@@?e@@@@@@@@e?@@@@@@@@?e@@@@@@@@e? @@@@@@@@e?@@@@@@@@?e@@@@@@@@e?@@@@@@@@?e@@@@@@@@e?@@@@@@@@?e@@@@@@@@e?@@@@@@@@?e@@@@@@@@e?@@@@@@@@?e@@@@@@@@e?@@@@@@@@?e@@@@@@@@e?@@@@@@@@?e@@@@@@@@e?@@@@@@@@?e@@@@@@@@e?@@@@@@@@?e@@@@@@@@e?@@@@@@@@?e@@@@@@@@e?@@@@@@@@?e@@@@@@@@e?@@@@@@@@?e@@@@@@@@e?@@@@@@@@?e@@@@@@@@e?@@@@@@@@?e@@@@@@@@e?@@@@@@@@?e@@@@@@@@e?@@@@@@@@?e@@@@@@@@e?@@@@@@@@?e@@@@@@@@e?@@@@@@@@?e@@@@@@@@e?@@@@@@@@?e@@@@@@@@e?@@@@@@@@?e@@@@@@@@e? @@@@@@@@ @@@@@@@@ @@ @@ @@ @@ @@ @@ @@ @@ @@ @@ @@ @@ @@ @@ @@ @@ @@ @@ @@ @@ @@ @@ @@ @@ @@ @@ @@ @@ @@ @@ @@ @@ @@ @@ @@ @@ @@ @@ @@ @@ @@ @@ @@ @@ @@ @@ @@ @@ @@ @@ @@ @@ @@ @@ @@ @@ @@ @@ @@ @@ @@ @@ @@g @@g @@g @@g @@g @@g @@@@@@@@ @@@@@@@@ ¥1,768.8 ?@@@@@@@@?e@@@@@@@@e?@@@@@@@@?e@@@@@@@@e?@@@@@@@@?e@@@@@@@@e?@@@@@@@@?e@@@@@@@@e?@@@@@@@@?e@@@@@@@@e?@@@@@@@@?e@@@@@@@@e?@@@@@@@@?e@@@@@@@@e?@@@@@@@@?e@@@@@@@@e?@@@@@@@@?e@@@@@@@@e?@@@@@@@@?e@@@@@@@@e?@@@@@@@@?e@@@@@@@@e?@@@@@@@@?e@@@@@@@@e?@@@@@@@@?e@@@@@@@@e?@@@@@@@@?e@@@@@@@@e?@@@@@@@@?e@@@@@@@@e?@@@@@@@@?e@@@@@@@@e?@@@@@@@@?e@@@@@@@@e?@@@@@@@@?e@@@@@@@@e?@@@@@@@@?e@@@@@@@@e?@@@@@@@@?e@@@@@@@@e?@@@@@@@@ ?@@@@@@@@?e@@@@@@@@e?@@@@@@@@?e@@@@@@@@e?@@@@@@@@?e@@@@@@@@e?@@@@@@@@?e@@@@@@@@e?@@@@@@@@?e@@@@@@@@e?@@@@@@@@?e@@@@@@@@e?@@@@@@@@?e@@@@@@@@e?@@@@@@@@?e@@@@@@@@e?@@@@@@@@?e@@@@@@@@e?@@@@@@@@?e@@@@@@@@e?@@@@@@@@?e@@@@@@@@e?@@@@@@@@?e@@@@@@@@e?@@@@@@@@?e@@@@@@@@e?@@@@@@@@?e@@@@@@@@e?@@@@@@@@?e@@@@@@@@e?@@@@@@@@?e@@@@@@@@e?@@@@@@@@?e@@@@@@@@e?@@@@@@@@?e@@@@@@@@e?@@@@@@@@?e@@@@@@@@e?@@@@@@@@?e@@@@@@@@e?@@@@@@@@ @@ @@ @@ @@ @@ @@ @@ @@ @@ @@ @@ @@ @@ @@ @@ @@ @@ @@ @@ @@ @@ @@ @@ @@ @@ @@ @@ @@ @@ @@ @@ @@ @@ @@ @@ @@ @@ @@ @@ @@ @@ @@ @@ @@ @@ @@ @@ @@ @@ @@ @@ @@ @@ @@ @@ @@ ?@@ ?@@ ?@@ ?@@ ?@@ ?@@ ?@@@@@@@@ ?@@@@@@@@ ❑ Problem Assets Based on the Financial Reconstruction Law, and Risk-Monitored Loans Category of borrowers under self-assessment Problem assets based on the Financial Reconstruction Law Risk-monitored loans Total loans Other assets Bankrupt Borrowers Effectively Bankrupt Borrowers Potentially Bankrupt Borrowers Borrowers Requiring Caution Normal Borrowers Bankrupt and quasi- bankrupt assets Doubtful assets Substandard loans (Normal assets) Total loans Bankrupt loans Non-accrual loans Past due loans (3 months or more) Restructured loans (A) (B) (C) The disclosure of Risk-Monitored Loans corresponds exactly to the disclosure of Other assets problem assets based on the Financial Reconstruction Law, except for such non-loan assets as securities lending, foreign exchange, accrued interest, (C) suspense payments, and customers’ liabilities for acceptances and guaran- tees, which are not included in the Risk- Monitored Loans category. Since overdue interest from borrow- ers classified under self-assessment as Potentially Bankrupt Borrowers, Effectively Bankrupt Borrowers, and Bankrupt Borrowers is, as a rule, not recorded as accrued interest, the amount is not included in the problem assets disclosed on the basis of the Financial Reconstruction Law. SMBC 2002 — 11 (cid:11) Problem Assets, by Domicile of Borrowers (Nonconsolidated; March 31, 2002) Domestic Overseas Asia Indonesia Hong Kong India China Others North America Central and South America Western Europe Eastern Europe Financial Reconstruction Law Basis Percentage Risk-Monitored Loans ¥5,732.7 97.2% ¥5,671.2 167.3 103.6 40.8 16.0 7.0 12.3 27.5 46.4 2.1 11.4 3.8 2.8 1.7 0.7 0.3 0.1 0.2 0.4 0.8 0.0 0.2 0.1 145.3 89.3 39.1 13.9 4.8 12.0 19.5 38.9 2.1 11.2 3.8 (Billions of yen) Percentage 97.5% 2.5 1.5 0.7 0.2 0.1 0.2 0.3 0.7 0.0 0.2 0.1 Total ¥5,900.0 100.0% ¥5,816.5 100.0% Note: “Domestic” means the total for domestic branches, excluding the special account for international financial transactions. “Overseas” means the total for overseas branches, including the special account for international financial transactions. The above countries and areas are categorized by the obligor’s domicile. (cid:11) Problem Assets, by Type of Borrowers (Nonconsolidated; March 31, 2002) (Billions of yen) Financial Reconstruction Law Basis Percentage Risk-Monitored Loans Percentage Domestic Manufacturing Agriculture, forestry, fishery and mining Construction Wholesale and retail Finance and insurance Real estate Transportation, communications, and other public enterprises Services Municipalities Others Overseas Public sector Financial institutions Commerce and industry Others Total ¥5,732.7 317.6 5.2 1,035.5 736.6 219.3 2,046.5 66.3 998.5 — 307.2 ¥ 167.3 13.6 2.9 150.8 — ¥5,900.0 97.2% 5.4 0.1 17.6 12.5 3.7 34.7 1.1 16.9 — 5.2 2.8% 0.2 0.0 2.6 — 100.0% ¥5,671.2 314.6 5.2 1,014.6 725.4 216.9 2,042.6 65.1 995.5 — 291.3 ¥ 145.3 13.6 2.9 128.8 — ¥5,816.5 97.5% 5.4 0.1 17.5 12.5 3.7 35.1 1.1 17.1 — 5.0 2.5% 0.2 0.1 2.2 — 100.0% Note: “Domestic” means the total for domestic branches, excluding the special account for international financial transactions. “Overseas” means the total for overseas branches, including the special account for international financial transactions. 12 — SMBC 2002 Off-Balancing Problem Assets Under the provisions of the Emergency Economic Package required in line with progress in business restructurings by borrowers with large exposures, and to the classification as enacted in April 2001, we are publishing the results of measures Potentially Bankrupt Borrowers of borrowers that are likely to take taken for the off-balancing of problem assets, as well as the longer to regain financial soundness. As a result, we off-balanced amount of assets that were newly classified as Bankrupt and ¥696.7 billion in the first half of fiscal 2001, and ¥584.5 billion in Quasi-Bankrupt Assets or Doubtful Assets. the second half of fiscal 2001. In this way, the Bank has adopted The amount of doubtful assets rose owing to higher reserves an aggressive program with regard to off-balancing. (cid:11) Term-End Balance of Bankrupt and Quasi-Bankrupt Assets, and Doubtful Assets (Nonconsolidated) September 30, 2000 March 31, 2001 Off-balanced during first half of fiscal 2001 September 30, 2001 Off-balanced during second half of fiscal 2001 March 31, 2002 (Billions of yen) (1) Problem assets existing prior to and during the first half of fiscal 2000 Bankrupt and quasi-bankrupt assets Doubtful assets Total ¥ 621.7 2,567.9 ¥3,189.6 ¥ 472.7 1,353.1 ¥1,825.8 (2) Problem assets classified during the second half of fiscal 2000 Bankrupt and quasi-bankrupt assets Doubtful assets Total ¥ 117.2 590.1 ¥ 707.3 (3) Problem assets classified during the first half of fiscal 2001 (399.7) (297.0) Bankrupt and quasi-bankrupt assets Doubtful assets Total (4) Problem assets newly classified during the second half of fiscal 2001 ¥ 376.9 1,049.2 ¥1,426.1 ¥ 141.6 268.7 ¥ 410.3 ¥ 55.5 327.8 ¥ 383.3 (301.6) (208.8) (74.1) Bankrupt and quasi-bankrupt assets Doubtful assets Total Total((1)+(2)+(3)+(4)) Bankrupt and quasi-bankrupt assets Doubtful assets Total ¥ 621.7 2,567.9 ¥3,189.6 ¥ 589.9 1,943.1 ¥2,533.0 ¥ 574.0 1,645.7 ¥2,219.7 (696.7) (584.5) ¥ 281.1 843.4 ¥1,124.5 ¥ 57.3 144.2 ¥ 201.5 ¥ 76.0 233.2 ¥ 309.2 ¥ 79.1 1,749.4 ¥1,828.5 ¥ 493.5 2,970.2 ¥3,463.7 (cid:11) Breakdown of Off-Balancing (Nonconsolidated) Off-balanced during first half of fiscal 2001 Off-balanced during second half of fiscal 2001 Disposition by borrowers’ liquidation Reconstructive disposition Improvement in debtors’ performance due to reconstructive disposition Loan sales to market Direct write-offs Others Collection/repayment, etc. Improvement in debtors’ performance Total (9.5) (48.1) — (200.1) (82.3) (356.7) (290.8) (65.9) (696.7) (68.3) (34.8) — (234.7) 120.2 (366.9) (281.4) (85.5) (584.5) Notes: 1. “Disposition by borrowers’ liquidation” refers to the abandonment or write-off of loans involved in bankruptcy liquidation proceedings (bankruptcy or special liquidations). 2. “Reconstructive disposition” refers to the abandonment of loans involved in rehabilitative bankruptcy proceedings (corporate reorganization, civil rehabilitation, composition, and arrangement), loan forgiveness involving special mediation or other types of civil mediation, or loan forgiveness for restructuring involving a private reorganization. SMBC 2002 — 13 Progress Report on the Plan for Strengthening the Financial Base of the Bank SMBC has been raising its competitiveness and profitability through restructuring and rationalization based on the Plan for Rationalization Plan As of March 31, 2002, SMBC employees numbered 25,027, well Strengthening the Financial Base of the Bank. The Plan was below the target of 26,200. Meanwhile, the number of domestic drawn up in March 1999, when the two former banks accepted branches was reduced by 14 during fiscal 2001 to 564, exceeding infusions of public funds through subscriptions to preferred stock, our target of 573 by nine branches. To accelerate the rationaliza- and was revised in December 2000 when the merger application tion of the domestic branch network, in an area with overlapping was filed. The following is summary of the Bank’s progress in branches, we relocated the excess branches to a core branch, fiscal 2001, the year ended March 31, 2002, toward achieving the and now have joint-branches at 20 locations. Including these targets laid out in the Plan. Earnings Plan On a nonconsolidated basis, gross banking profit amounted to ¥1,853.5 billion, ¥425.5 billion higher than the target of ¥1,428.0 billion. Major factors contributing to this increase were strong consolidations, the domestic branch network was reduced by a total of 34 branches during the fiscal year. Overseas, the consoli- dation of 12 overlapping branches was completed, thereby reducing the overseas branch network to 21 branches, exceeding the target of 23 by two branches. profits from foreign-currency treasuries due to robust asset liability Number of Employees management (ALM) operations on declining U.S. interest rates, and higher dividends received from overseas subsidiaries, etc. Expenses were ¥670.1 billion, ¥57.9 billion lower than the target of ¥728.0 billion. Despite the rise in IT systems integration- related expenses from the merger, SMBC achieved this reduction in expenses by various measures, including a reduction in head- count, the consolidation of both domestic and overseas branches, and a reduction of operating expenses by the revision of procure- ment practices through the merger. As a result, banking profit, excluding transfer to general reserve for possible loan losses, was ¥1,183.4 billion, ¥483.4 billion higher than the target of ¥700.0 billion. Return on equity (ROE; banking profit basis) was 33.95%, well above the original target of 15.60%. The Bank recorded a net loss of ¥322.8 billion, which fell short of the original income target of ¥210.0 billion. The primary cause was the large increase in total credit cost, including transfer to general reser ve for possible loan losses. Such cost totaled ¥1,543.1 billion, or ¥1,343.1 billion higher than targeted, a result of the positive measures taken to resolve the asset quality problem. Going forward, SMBC will increase retained earnings by expense reductions through additional restructuring, restrictions of payouts, and other measures. By these means, SMBC intends to maintain its resources for redemption of the preferred stock held by the government. (Persons) 33,000 31,000 29,000 27,000 25,000 31,325 29,298 27,142 25,027 Mar. 1999 Mar. 2000 Mar. 2001 Mar. 2002 Number of Domestic Branches (Branches) 700 696 653 650 600 550 500 578 564 Mar. 1999 Mar. 2000 Mar. 2001 Mar. 2002 Number of Overseas Branches (Branches) 40 39 36 35 30 25 20 33 Mar. 1999 Mar. 2000 Mar. 2001 Mar. 2002 21 14 — SMBC 2002 Management Issues IT Systems Integration Initial Merger Date Advanced The initial plan of the merger agreement between the two former and running smoothly at all domestic branches, suppor ting SMBC’s seamless service and continuous convenience to all banks called for the implementation of the merger, including the customers. After the merger and throughout fiscal 2001, we integration of the two banks’ IT systems, by the beginning of April worked on systems development and on formulating plans for 2002. After considering the need to realize the merger benefits as integrating the two former banks’ operational procedures with the quickly as possible and succeed in the competitive global financial aim of safely and efficiently achieving full IT systems integration. services market, the management decided to advance the initial plan’s schedule by one year, to April 1, 2001. To implement the integration of the main systems at all Phase 2: Full Integration After making all necessary preparations, we then proceeded to domestic branches, we adopted a two-phased program: phase 1 the second phase, the full integration of the main systems at all to install a provisional computer relay system, and phase 2 to domestic branches. With a view to minimizing the risk of disrup- achieve full IT systems integration. Regarding the systems for tions to our customer service during the second phase, we international banking and treasury businesses, we had already followed a seven-part integration schedule, with the first integra- completed their integration during the first half of fiscal 2001, the tion taking place on April 8 and the last on July 22. As scheduled, year ended March 31, 2002. we gradually phased out the relay system connecting the two former IT systems and have fully configured them into a unified Phase 1: Provisional Connection of the Two system. Banks’ Existing IT Systems Systems peripheral to our main system are scheduled to be In the first phase, we configured a provisional computer relay integrated in stages from August to September 2002. system to connect the two former banks’ existing IT systems. From the Bank’s first day of operation, this relay system was up Toward a Fully Integrated IT System Phase 1: IT Systems Connection (Fiscal 2001) Phase 2: Full IT Systems Integration (Fiscal 2002) ·Adoption of single financial institution code (0009) ·Adoption of new bank branch numbers and names ·Integration of main IT systems at all domestic branches ·Integration of products, services, and operational procedures Former Sakura Bank main system Computer relay system (Employed from April 1, 2001) Former Sumitomo Bank main system Former Sakura Bank branches Former Sumitomo Bank branches Former Sakura Bank main system Computer relay system (Phased out, April–July 2002) Fully integrated main system Branches (not integrated) All branches (integrated) SMBC 2002 — 15 Initiatives to Strengthen the Bank’s Earnings Base Reinforcing Earnings Power through Business Reforms In December 2001, SMBC established the Business Reform Second, to bolster our ability in taking greater risks, it is necessary to actively increase loan assets with better risk-return profiles. To that end, SMBC has been introducing a new type of Committee to fundamentally refor m business practices. loan product using original scoring models for small and medium- The primary goal of the committee, headed by the president, sized companies, and actively extending loans based on the cash is to pursue bankwide reforms based on two principal initiatives: flows generated by borrowers’ business operations and assets. (1) reform lending practices in corporate banking to enhance Third, to strengthen the ability to provide financial solutions, profitability as well as the soundness of its loan business, and (2) SMBC will respond to clients’ needs for restructuring and for fund firmly establish competitive advantages and improve profitability in raising by providing comprehensive financial services through consumer banking. Corporate Banking Business SMBC is aggressively implementing reforms in corporate banking. debt capital market financing such as syndication and debt securi- tization. We will also reinforce our services related to business revitalization and M&A in order to enhance customer net worth. Furthermore, to tap new business opportunities arising from These include (1) reexamining domestic lending practices to customers’ needs to improve efficiency in cash management and improve its risk-return profile, (2) enhancing the capacity to take accounting operations, SMBC will provide outsourcing services for greater risks, and (3) strengthening the ability to provide financial settlement. solutions. First, with respect to the reexamination of lending practices, SMBC is developing new relationships with customers, based on Consumer Banking Business The reform initiatives in consumer banking include (1) the devel- sharing a mutual recognition of the credit risk. With this common opment of a new transaction model to suppor t customers’ yardstick, SMBC is changing the ter ms and conditions and changing consumption patter ns, and (2) the simultaneous lending style, applying risk-based pricing so that both parties will improvement of customer convenience and cost-performance to mutually consent to the new terms. Here, the goal is not simply to make the “mass-retail” business an ever-larger profit center. share risk acknowledgement, but to emphasize the provision of SMBC is developing standardized and specialized transaction financial solutions that will improve the customers’ financial condi- models based on the principle that customers can select the tion and enhance their corporate value. On the premise of a financial services they need at each stage of life and the Bank will common recognition of credit risk, SMBC will review its lending be compensated according to the type of service provided. In approach to make it more suitable for the use of proceeds and addition, SMBC will continue to build a settlement infrastructure source of repayment of the loan, clarify the terms and conditions jointly with its Group firms in response to the market’s need for of the loan agreement preparing for future changes in the sophisticated and complex financial services. customers’ financial condition, and apply a loan spread reflecting SMBC will also actively promote consumer-financing services the credit risk, the due date, and the source of repayment. to support their diversifying consumption patterns of our retail customer base. Enhancing cost-performance continues to be the central issue in consumer banking. SMBC is actively imple- menting several initiatives toward this goal. In addition to stream- lining the internal systems, including productivity gains achieved through restructuring of human resource capabilities, SMBC is simplifying administrative procedures leading to enhanced customer convenience. 16 — SMBC 2002 Cutting Expenses by Raising Operational Efficiency Expense Reduction Plan Annual Expense Plan (Announced in November 2001) Fiscal year ended March 31, 2002 Original target ¥728.0 billion Plan for Strengthening the Financial Base of the Bank (Submitted in December 2000) ¥98.0 billion reduction Implementing restructuring initiatives Result ¥670.1 billion Fiscal year ending March 31, 2005 Original target ¥680.0 billion Additional ¥50.0 billion reduction Projected target ¥630.0 billion On course to quickly achieving a ¥600.0 billion cost structure Major Restructuring Initiatives (Annual Expense Plan, announced in November 2001) (1) Cutting distribution channel expenses by streamlining manned branch network •To reduce by March 31, 2003 the number of domestic (4) Workforce streamlining •To reduce by March 31, 2004 the headcount from 27,142 at the time of the merger (March 31, 2001) to 22,600 (a branches from 578 at the time of the merger (March 31, reduction of 4,542) 2001) to 401 (reduction of 177 branches, or a reduction of •Staff reductions of 2,115 were already achieved in fiscal 69 more branches than targeted in the Plan for 2001 (employees as of March 31, 2002: 25,027). Strengthening the Financial Base of the Bank) •Within the reduction of 177 branches, integration of 34 branches was advanced from fiscal 2002 to fiscal 2001, the year ended March 31, 2002 (Domestic branches as of March 31, 2002: 544) (2) Cuts in facility-related expenses •To reduce facility-related expenses by terminating the lease of the Kudan Head Office, integrating the system and back-office centers, and selling company housing (3) Cuts in processing system-related expenses •To exploit merger-related opportunities to streamline our systems infrastructure and use Business Process Reengineering to rationalize processing operations (5) Compensation •To review remuneration of directors (SMBC plans to make further cuts in the number of directors and their compen- sation) •To reduce the provision of reserve for employee bonuses (6) Other actions •To reduce expenses related to outsourcing services within the Group through the enhancement of management effi- ciency of SMBC Group companies SMBC 2002 — 17 Corporate Governance SMBC takes many steps to ensure that the Bank’s corporate ❍ Nominating Committee governance system is effective and transparent. By establishing 1. Issues related to the selection of candidates for Board an executive officer system at the operations level, we have directorships divided functions between executive officers and the Board of Directors, resulting in a strengthened role for the Board. In addi- tion, by establishing an Advisory Board we have ensured that we listen to the opinions of external advisors and incorporate them in our management. 2. Issues related to the appointment of managing directors having specific management responsibilities, and issues related to the appointment of representative directors 3. Other major personnel issues related to directors Oversight System SMBC’s Board of Directors has two functions: setting policy for Separate Operations System Executive officers are selected by the Board to manage each of SMBC’s businesses. As of June 30, 2002, there were 66 execu- important management issues and overseeing the execution of tive officers, including the president, 13 of whom are concurrently business activities. At SMBC, we place particular emphasis on the appointed as directors. latter function. We employ an executive officer system that sepa- rates decision making at the operations level from the Board’s The Management Committee is the highest decision-making body at the operations level. The president chairs the committee oversight functions. In particular, the Chairman of the Board is and selects its members from the executive officers. The prohibited from assuming direct responsibility for operational committee members debate important management issues, and duties and is primarily charged with their oversight. the president has the authority to make final decisions after Moreover, we have reinforced the Board’s oversight functions considering the committee’s recommendations. by setting up three subcommittees: the Risk Management The president designates cer tain members of the Committee, the Compensation Committee, and the Nominating Management Committee as Authorized Management Committee Committee. Two outside directors, one a certified public accoun- Members in charge of particular Head Office departments and tant and the other a lawyer, have been appointed to each particular credit departments within each business unit, and committee. In particular, an outside director has been appointed charges them with implementing the directives from the as the Chairman of the Compensation Committee. This system Management Committee within the businesses they oversee. allows the supervision of operations to be conducted from a suit- ably objective perspective. The Board has authorized the respective committees to debate the following issues and submit reports to the Board: ❍ Risk Management Committee Risk Management and Compliance Advisory Board SMBC requires external directors to attend meetings of the Board of Directors and its internal committees to debate issues related to the supervision of the Bank’s operations system. To provide an additional forum for prominent individuals from outside SMBC to extend advice to the chairman and president on management 1. Issues related to comprehensive risk management policies issues of all types, we have also established the Advisory Board. and the risk management system 2. Issues related to market and liquidity risk management poli- cies and the risk management system 3. Issues related to credit risk management policy and the risk management system 4. Other issues with a potential material impact on operations ❍ Compensation Committee Board Member and Executive Officer Remuneration 1. Issues related to remuneration, salaries, and incentive plans 2. Issues related to the stock option plan 3. Other remuneration issues 18 — SMBC 2002 Internal Audit System The Internal Audit Unit has the responsibility to conduct objec- Department. Responsibility of each department is determined tively internal audits for the Bank in a process separate from the according to the auditee and the type of risk management under oversight exercised by the Board of Directors on the shareholders’ its charge. behalf. The Internal Audit Unit acts independently of the Bank’s The Audit Depar tment audits compliance as well as the business units, the Corporate Staff Unit, and the Corporate management of market risk, liquidity risk, processing risk, and Services Unit to ensure that the internal audit function is executed systems risk at Head Office departments, domestic Group compa- in an unbiased, objective fashion. nies, and the Bank’s Asian branches and Group companies. The Internal Audit Unit conducts internal audits to assess the The Audit Depar tment for the Americas and the Audit soundness of banking operations and assets, as well as to verify Department for Europe audit overall compliance and risk manage- that the Bank’s internal control system, including compliance and ment at the Bank’s branches and Group companies in the risk management, is appropriate and effective. The results of Americas and Europe, respectively. these audits are periodically reported to the Board of Directors The Inspection Department audits compliance and processing and the Management Committee. Based on the findings of its risk management at the Bank’s domestic branches. examination, the Internal Audit Unit also recommends improve- The Credit Review Department monitors credit risk manage- ments to the internal control systems of the concerned or related ment, including the appropriateness of ratings and self-assessment, departments, branches, and Group companies. at the Bank’s domestic and Asian branches and Group companies. The Internal Audit Unit comprises the Audit Department, the Working closely with the Audit Department for the Americas and the Audit Department for the Americas, the Audit Department for Audit Department for Europe, the department globally supervises Europe, the Inspection Depar tment, and the Credit Review the Bank’s internal audit for credit risk management. Shareholders’ Meeting Chairman of the Board Board of Directors Advisory Board (composed of distinguished individuals from outside the Bank) Risk Management Committee Compensation Committee Nominating Committee Directors from outside companies President Management Committee (composed of executive officers) [Subject of Audit] Head Office Head Office Corporate Staff Unit Corporate Services Unit Consumer Banking Unit Middle Market Banking Unit Corporate Banking Unit International Banking Unit Treasury Unit Investment Banking Unit Business Units Corporate Auditors Board of Corporate Auditors Head Office Internal Audit Unit Audit Dept. Audit Dept. for the Americas Audit Dept. for Europe Inspection Dept. Credit Review Dept. Internal Audit SMBC 2002 — 19 Compliance Strengthening the Compliance System: A Top Management Priority Compliance with laws, regulations, and other social standards is a SMBC’s Compliance System To implement a strict compliance system, it is first necessary to clarify the framework for observing laws and regulations. matter of course for corporations. Ensuring compliance is a partic- SMBC employs a dual structure whereby, firstly, each depart- ularly important issue for banks because of their central role in the ment and office is individually responsible for ensuring that its financial system and socioeconomic infrastructure. Moreover, conduct complies with laws and regulations, and secondly, our demand for banks to behave responsibly and transparently has independent Internal Audit Unit conducts impartial audits of grown significantly as competition intensifies across national and department and office compliance. To make this basic structure industrial boundaries and the market becomes increasingly selec- effective, we established a Compliance Committee that encom- tive. Accordingly, strengthening the compliance system is one of passes the entire organization. The Committee is chaired by the our top management priorities at SMBC. director responsible for compliance issues and includes the heads In this context, we expect and demand that all of our directors, of 16 departments. In addition, with a view to enhancing objectivity, officers, and other employees give utmost value to people’s trust the Committee has legal advisors from outside the Bank as its in the Bank, abide by laws and regulations, maintain a high ethical council. This framework ensures that each section of the Bank is viewpoint, and act fairly and sincerely. SMBC firmly believes that examined for compliance from an impartial, neutral perspective. adherence to these aspects of compliance in our daily operations will support our prosperity, together with that of our shareholders, customers, other stakeholders, and society in general. Audit Reports Management Directions Auditing Role (Internal Audit Unit) Strict Check as Independent Unit Directions Autonomous Role (Business Units) Thorough Advance Check Based on Self-Regulation Support Role (Compliance Group, General Affairs Department) Compliance System Oversight and Legal Support Audits of Operations Compliance System Oversight and Legal Support Conducts audits of all operations. Reports directly to top management. Each department is responsible for conducting compliance checks under the supervision of the branch or department manager. Bears responsibilities for planning the compliance system. Investigates legal issues in support of each unit. 20 — SMBC 2002 Compliance Manual To fur ther enhance the Bank’s compliance system, we have Compliance Program SMBC’s Compliance Program is a detailed, four-phased imple- provided each and every director, officer, and employee with a mentation plan formulated and resolved by the Board of Directors Compliance Manual. Set out in a resolution of the Board of to strengthen the Bank’s compliance system. The Program’s basic Directors, this proprietary document is more than simply a list of objective is to get the compliance system running effectively both applicable laws and regulations. Starting off with a statement of in the Bank and in all consolidated subsidiaries. We have made the Bank’s “Business Mission,” the Compliance Manual then lays concrete plans for each phase of the Program and are currently out specific “Rules of Action.” Based on “Objectives” and “Guiding enhancing training programs and the auditing system. In addition, Rules,” these “Rules of Action” comprise 60 items describing rele- a compliance officer has been assigned to each department and vant laws and regulations as well as providing procedural guide- branch to ensure the integrity of the Bank’s compliance frame- lines and specific examples of conduct. work, as well as to ensure that the Bank’s conduct is in conformity In addition, we have established supplementary compliance with our Compliance Manual. rules applicable to specific organizations and operations, such as Department Rules, Business Office Rules, and Group Company Rules, in order to make sure that our operations are conducted in accordance with the Compliance Manual. Compliance Manual Business Mission Rules of Conduct 1. Plan (Documentation) Create the Bank’s Compliance Manual and rules 4. Review 2. Implementation Improve the Compliance Program and revise the Manual and rules Establish training and educational systems to inform employees about compliance 3. Evaluation Conduct independent compliance inspections in every department and branch Breakdown Four Objectives Rules of Action Five Guiding Rules for Each Objective = 20 Guiding Rules Three Rules for Each Guiding Rule = 60 Rules of Action Supplementary Compliance Rules • Department Rules • Business Office Rules • Group Company Rules (Other supplementary compliance rules are also provided, as appropriate.) SMBC 2002 — 21 Risk Management Basic Principles Financial and economic deregulation, globalization, and advances established the Corporate Risk Management Department to be completely independent of the business units to manage these in IT are generating new business opportunities for financial risks on a bankwide basis. This depar tment works with the institutions. The risks accompanying these new business opportu- Corporate Planning Department to comprehensively and system- nities are not only increasing in number but also growing in diver- atically manage risk. sity and complexity. Accordingly, identifying, measuring, and The Bank’s top management plays an active role in controlling risks have never been more important in banking. determining basic principles for risk management, reflecting the At SMBC, we have established Regulations on Risk importance of risk management at SMBC. The system works as Management, encompassing all the fundamentals required of a follows: The risk management departments supervising each risk risk management framework. In addition to specifying the types category draft a principal policy for risk management for that cate- and areas of the risks that are to be managed according to our gory, which is then presented for approval by the Management strategic objectives, these rules define the basic principles for Committee and considered by the Board’s Risk Management appropriately controlling each type of risk. These principles include Committee before being finalized by the Board. The Management “risk management on a consolidated basis,” “risk management Committee, the Board members, and the relevant risk manage- based on quantification,” “ensuring consistency with the business ment department heads perform risk management according to strategy,” “framework for checks and balances,” and “verification of the principal policy. the actual situation by independent audit departments.” To control market, liquidity, and credit risk, in particular, we Risk Management System Within the Bank, we classify risk into the following categories for control purposes: (1) credit risk, (2) market risk, (3) liquidity risk, (4) processing risk, (5) systems risk, and (6) other risk (settlement risk, legal risk, reputational risk, and others). Each department is charged with the control of risks at an appropriate level within its own business line. To control the risks included in items (1)–(5) above as well as settlement risk, we have designated certain departments as risk management departments to oversee specific risk control measures within each risk category. In addition, we have strengthened the decision-making system at the operating level through the Market Risk Management Committee and the Credit Risk Management Committee, which are subcommittees formed under the Management Committee that comprise the exec- utive members of the Management Committee and the heads of the departments related to risk management. Also, to prepare for extraordinary events with the potential to have a crucial impact on the Bank’s management and financial condition (stress situation), we are improving and strengthening our risk management system throughout the Bank. Board of Directors Endorsement of principal policies for risk management Approval for exceptional treatments that might have a significant impact on management Risk Management Committee Discussion on principal policies Discussion on exceptional treatments that might have a significant impact on management Management Level Management Committee Market Risk Management Committee Credit Risk Management Committee Board member in charge Board member in charge of Corporate Risk Management Dept. Board member in charge of Credit Risk Management Dept. Sections in Charge of Risk Management Corporate Planning Dept./Corporate Risk Management Dept. Market Risk Credit Risk Processing Risk Systems Risk Other Risks Bankwide risk management Liquidity Risk Settlement Risk Corporate Risk Management Dept. Credit Risk Management Dept. Operations Planning Dept. IT Planning Dept. Corporate Auditors External Auditors (an auditing firm) Audit Dept. Inspection Dept. Credit Review Dept. Audit/verification of the actual situation of risk management 22 — SMBC 2002 Risk Management Methodologies The risk management departments revise the basic risk manage- Credit Risk Credit risk is the possibility of a loss arising from a credit event, ment principles for each risk category on a regular basis, and such as deterioration in the financial condition of a borrower, that whenever necessary, to ensure that the Bank’s specific risk causes an asset (including off-balance sheet transactions) to lose management policies promptly and accurately reflect new develop- value or become worthless. Overseas credits also include an ments in the operating environment. Furthermore, in order to element of country risk, which is closely related to credit risk. This maintain a balance between risk and return as well as ensure the is the risk that changes in currency values or political or economic soundness of the Bank from an overall perspective, we employ the situations cause a loss. Credit risk is the most significant risk to risk capital-based management method, which allocates capital which banks are exposed. Without adequate credit risk manage- effectively to each department according to its role in our business ment, the impact of the corresponding losses on a bank’s opera- strategies to keep total exposure to credit, market, processing, and tions can be overwhelming. systems risk within the scope of our management resources, i.e., The purpose of credit risk management should be to avoid capital. In the credit and market risk categories, in particular, the such credit events, to keep credit risk exposure within a bank’s maximum risk capital that can be allocated during a period is capital, to maintain the soundness of a bank’s assets, and to predetermined and risk capital guidelines are set as necessary ensure returns commensurate with risk. This allows a bank to within this limit to manage these risks. Liquidity risk is managed build a loan portfolio that achieves highly efficient returns on within a framework that includes plans for money gap and treasury capital and assets. funding. Other risk categories are managed with procedures closely attuned to the nature of the risk, as described in the following paragraphs. (cid:11) Correlation between Risk Management Framework and Risk Category Framework Category 1. Credit Policy SMBC’s credit policy comprises clearly stated universal and basic operating concepts, policies, and standards for credit operations, in accordance with the Bank’s corporate philosophy and code of conduct. By promoting the understanding of and strict adherence to our credit policy among all Bank managers and employees, we aim to achieve the global standards of credit risk management stipulated in the New Basel Capital Accord and provide high value- added financial services. 2. Credit Risk Assessment and Quantification To effectively manage the risk of individual loans as well as the credit portfolio as a whole, we first acknowledge that every credit poses risks. We then assess the credit risk posed by each borrower and loan using our internal rating system and quantify Credit Risk Banking Account Risk Trading Account Risk Management Based on Risk Capital Market Risk Risk of Strategic Equity Investment that risk for control purposes. Other Market-Related Risks Processing Risk/Systems Risk Money Gap/ ALM Liquidity Risk Other Risks (Settlement Risk, Legal Risk, and Others) SMBC 2002 — 23 (1) Internal Rating System The Bank’s internal rating system consists of two indicators: the (2) Quantification of Credit Risk Quantifying credit risk is more than just calculating the probability obligor grading, which indicates the creditwor thiness of a of default for a par ticular obligor. It must also reflect the borrower; and the facility grading, which shows the probability of concentration of risk toward a specific customer or industry and collecting for each facility. Facility gradings are assigned based on fluctuations in the value of collateral, such as real estate and a borrower’s obligor grading in consideration of transaction terms securities. This range of data must be analyzed to quantify the such as guarantee, tenor, and collateral. Overseas credits are risk of an entire portfolio or an individual loan. subjected to a further analysis that takes into account the country To calculate credit risk, historical data for the obligor and ranking, an indicator derived from analyses of a country’s political facility are entered into a database, such parameters as the prob- and economic situation, international balance of payments, and ability of a grade migration and the recovery ratio are set, and external debt burden. In order to maintain the consistency of the then the probability distribution of losses for the entire portfolio grading system as a whole, self-assessment is conducted to (amount of loss for a particular probability) is computed to deter- grade borrowers of low creditworthiness. mine the maximum potential loss in the future. We obtain an understanding of the risk dispersion effect and concentration risk by running a simulation of approximately 10,000 iterations. The quantified credit risk results are then used to formulate business plans and provide a standard against which individual credit applications are assessed. (cid:11) Internal Rating System Grading Subrating Obligor’s Grading Definition Debtor Classification in Self-Assessment System Facility Grading Grading Financial Reconstruction Law Based Disclosure Category Subrating (Domestic) 1 2 3 4 5 6 7 8 9 a b c a b c a b c A B C A B C Extremely high certainty of redemption High certainty of redemption Reasonable certainty of redemption Redemption is likely, but the debtor may be affected by large shifts in business conditions or its industry. No problem at present with redemption, but the future prospects are not solid and the debtor may be affected by trends in business conditions or its industry. No problem at present with redemption, but there are reasons for concern about the debtor’s financial condition and the possibility of future problems with recovery. Normal Borrowers A B C R Requires management because there are problems meeting loan conditions or with collection, the business is weak or unstable, or the financial condition is poor. (Customers requiring caution among this rating) Borrowers Requiring Caution A Borrowers Requiring Caution B Borrowers Requiring Caution C Substandard Borrowers Although the debtor is not bankrupt, its business is in difficulty, restructuring progress is poor, and it is recognized that the business may fall into bankruptcy. Potentially Bankrupt Borrowers Although the debtor is not legally or formally in a state of bankruptcy, it is virtually bankrupt because its business is in deep trouble and there are no prospects for restructuring. Effectively Bankrupt Borrowers 10 The debtor is legally and formally bankrupt. Bankrupt Borrowers a b c a b c a b c A B C A B C A B C S I II III IV V VI VII VIII IX Normal Assets Substandard Loans Doubtful Assets Bankrupt and Quasi-Bankrupt Assets 24 — SMBC 2002 3. Framework for Managing Individual Loans (1) Credit Assessments Credit assessments involve a variety of financial analyses, 4. Framework for Credit Portfolio Management In addition to managing individual loans, we apply the following basic policies to the management of the entire credit portfolio to including cash flow, to predict an enterprise’s capabilities for loan maintain and improve its soundness and profitability over the repayment and its growth prospects. These quantitative medium- to long-term. measures, when combined with qualitative analyses of industrial trends, the enterprise’s R&D capabilities, the competitiveness of its products or services, and its management caliber, result in a comprehensive credit assessment. The loan application is also analyzed in terms of the intended utilization of the funds, the repayment schedule, and the state of its collateral. In this way, we are able to arrive at an accurate and fair credit decision based on an objective examination of all relevant factors. Increasing the transparency of loan conditions and approval standards for specific borrowing purposes and loan categories is a part of our ongoing review of lending practices, and we are revising all loan contracts with the chief aim of clarifying the contractual conditions of the Bank’s loans. We are making steady progress in rationalizing our credit assessment process. For example, our Business Suppor t Offices now offer the highly convenient Business Select Loan, which employs a credit-scoring model. In this and other ways, the Bank is building a system capable of efficiently meeting the funding requirements of busi- nesses, especially small and medium-sized enterprises. (2) Credit Monitoring System In addition to analyzing loans at the application stage, the Credit Monitoring System is implemented in order to reassess the obligor’s grading and review self-assessment so that problems can be detected at an early stage and quick and effective action can be taken. The system includes periodic monitoring carried out each time an obligor enterprise discloses financial results, as well as continuous monitoring performed each time the credit condi- tions change, as indicated in the diagram below. (1) Risk-Taking within the Scope of Capital To control credit risk within the scope of our capital, we calculate the required credit risk capital through regular quantification of credit risk, and then set credit risk capital limits for internal control purposes and manage risk-taking activities within these limits. (2) Controlling Concentration Risk Because concentration of credit risk in an industry or corporate group has the potential to severely impact a bank’s capital, SMBC implements credit control on those industries with excessive concentration risk. In addition to regular risk control and loan reviews, the Bank has also established other effective risk control methods such as credit limit guidelines for large-scale borrowers and corporate groups. To manage country risk, we also set up credit limit guidelines based on a country’s creditworthiness. (3) Balancing Risk and Return We run our credit operations on the basic principle of earning returns that are commensurate with credit risk. From fiscal 2002, the year ending March 31, 2003, the Bank began to negotiate with borrowers to gain their acceptance of suitable interest rate spreads based on a standardized interest rate structure. This is par t of the Bank’s program to fir mly establish a balanced risk/return management system, thereby ensuring that we are able to consistently generate an adequate profit after deducting the costs of credit and capital, as well as expenses. Obligor information processing Creation and Revision of Corporate Card/ Registration of Financial Statements Obligor’s grading/grading outlook/credit policies (action plan)/facility grading decision-making flow Nonconsoli- dated Financial Grade Consolidated Financial Grade Nonconsoli- dated Effective Financial Grade Flagging According to Self- Assessment Criteria Not Flagged Self-Assessment Logic Quantitative Assessment Financial Assessment Credit Status Qualitative Assessment Flagged Normal Borrowers Borrowers Requiring Caution Potentially Bankrupt Borrowers Effectively Bankrupt Borrowers Bankrupt Borrowers Grading Outlook Assessment Industry Trends + Qualitative Risk Factors Final Obligor Grade •Positive •Flat •Negative Determination of Credit Policies Credit Policy Segment Policy for Handling Each Individual Company Action Plan Formulation Restructuring Feasibility Basic Approach Specific Action Plan Facility Grading Assignment SMBC 2002 — 25 (4) Reduction of Problem Loans In order to counter concer ns of increasing losses from the The Corporate Research Department within the Corporate Services Unit performs research on industries as well as investi- deterioration of existing problem loans or the appearance of new gates the business situations of borrower enterprises to detect early ones, we are striving to quickly reduce problem loans by conducting signs of problems or growth potential. loan reviews to set new responses and clarify action plans, and by Each business unit’s credit departments conduct credit risk strengthening our recovery and asset value maintenance strategies. management for loans handled by their business units and manage (5) Toward Active Portfolio Management In addition to controlling the individual loan approval process, we also actively manage our loan portfolio on an aggregate basis. The Portfolio Management Department spearheads the Bank’s use of loan securitization in the markets to proactively manage our portfolio. 5. Credit Risk Management System The Credit Risk Management Department within the Corporate Staff Unit is responsible for the comprehensive management of credit risk. This department determines credit policies, establishes the internal grading system, develops credit risk quantification methods, sets credit limits and approval limits, and manages problem loans and other aspects of the loan portfolio administration. their business units’ portfolios. The credit limits they use are based on the baseline amounts established for each grade category, with particular attention paid to evaluating and managing customers or loans perceived to have particularly high credit risk. Bankrupt or effectively bankrupt companies are in principle handled by the Credit Administration Department, which works to recover nonperforming loans as quickly as possible. The Credit Review Department, the Audit Department for the Americas, and the Audit Department for Europe operate indepen- dently of the business units, the Corporate Staff Unit, and the Corporate Services Unit. These departments audit the asset quality, accuracy of gradings, self-assessments, and state of credit opera- tions, and report their audit results directly to the Board of Directors and the Management Committee. Management Committee Designated Officers Internal Audit Unit Credit Review Dept., Audit Dept. for the Americas/Europe •Formulates and proposes credit inspections •Self-assessments, gradings (obligors and loans), audits of write-offs and reserves •Reports credit review results to the Board of Directors and the Management Committee Designated Officers Corporate Staff Unit Corporate Risk Management Dept. •Aggregates risk for comprehensive management •Plans and proposes risk quantification methods Credit Risk Management Dept. •Aggregates credit risk for unified management •Plans and proposes basic credit policies Portfolio Management Dept. •Plans, proposes, implements, and administers active portfolio management •Analyzes and researches active portfolio management Consumer Banking Unit Middle Market Banking Unit Business Units Corporate Banking Unit International Banking Unit Investment Banking Unit Corporate Services Unit Supervisory Officers Deputy Supervisory Officers Designated Officers Supervisory Officers Head of Department Supervisory Officers Designated Officers Designated Officers Credit Dept., Consumer Banking Unit Credit Dept. I – III, Middle Market Banking Unit Credit for Individuals General, Small, and Medium-Sized Businesses Credit Supervision Dept. I, II, Middle Market Banking Unit Individually Monitored Small and Medium-Sized Businesses Audit Depart- ments Credit Dept. I, Corporate Banking Unit Credit Dept. II, III, Corporate Banking Unit Credit Dept., The Americas Division/ Europe Division Credit Dept., International Banking Unit Structured Finance Credit Dept. Credit Administration Dept. Corporate Research Dept. Large Domestic Corporations (General) Large Corporations (Special Monitoring) Non-Japanese Corporations/ Overseas Structured Finance (Americas/Europe) Non-Japanese Corporations/ Overseas Structured Finance (Asia, Oceania/Domestic) Domestic Structured Finance Virtually Bankrupt and Bankrupt Customers from All Units ·Industry trend research ·Credit assessment of major industry players, grade revision directives 26 — SMBC 2002 Market/Liquidity Risk Market/Liquidity Risk Management System The Corporate Risk Management Department, which is indepen- dent of the business units that handle market transactions, is constructing an integrated system to manage market and liquidity risk together. The department sends daily risk reports to senior management via e-mail. To prevent operational errors or the manipulation of transac- tion data, it is important to establish a system of checks and balances in the business units (front office). At SMBC, both the processing departments (back office) and the administrative departments (middle office) conduct backup checks. In addition, the Bank’s independent Internal Audit Unit periodically performs comprehensive internal audits to verify that our risk management system is functioning properly. To enhance our most sophisticated risk management methodologies, we adopt advanced financial theories, technologies, and infrastructures, develop systems, and hire and train experts. Board of Directors Risk Management Committee Market Risk Manage- ment Management Committee Market Risk Management Committee Liquidity Risk Manage- ment ALM Committee Board member in charge of Corporate Risk Management Dept. Policy Reporting Corporate Auditors External Auditors (an auditing firm) Audit Dept. Back Office (Capital Markets and Treasury Operations Dept. and back offices of overseas branches) Middle Office (Corporate Risk Management Dept. and middle offices of overseas branches) Inspection and verification of transactions Model and new products approval, Final approval, Management Managing Departments Other market- related operations processing Market operations (Treasury Unit) International Banking Unit (ALM of overseas branches and subsidiaries) Consolidated subsidiaries’ market operations Front Office Front/Back/Middle Offices Market Risk Market risk is the possibility that fluctuations in interest rates, foreign exchange rates, or stock prices will change the market value of financial products, leading to a loss. The value-at-risk (VaR) method has proven effective in controlling market risk. This method predicts the maximum poten- tial loss for a given probability. The SMBC VaR model calculates the maximum loss through a Monte Carlo simulation of changes in profits and losses, i.e., 10,000 scenarios of market fluctuations based on historical data for one year. This method accurately measures the risk of products that have option risk and calculates the VaR for trading operations making active use of derivatives. Market risk can be divided into various factors: foreign exchange rate, interest rate, equity price, and option risk. At SMBC, we achieve fine-tuned management for each risk category by employing the VaR method in conjunction with such suitable indicators for managing the risk of individual financial instruments as the basis-point-value (BPV) indicator, which measures the potential change in earnings stated at market value for every 0.01-percentage-point fluctuation in interest rates. Whenever the VaR is likely to exceed the guidelines owing to sharp changes in the markets, we put contingency plans into effect and the ALM Committee convenes extraordinary meetings. The market risk of our strategic equity holdings held by the units not in charge of market-related activities and the market risk taken by our major subsidiaries are also included in the integrated risk measurement performed by the Corporate Risk Management Department. The VaR is regularly calculated and reported to the Board of Directors and Management Committee. The VaR results of the trading and banking accounts on a consolidated basis for fiscal 2001 were as follows: (cid:11) VaR Results Maximum Minimum Average Last Day of Term (Billions of yen) Trading Accounts 2.4 0.7 1.4 0.9 Banking Accounts 56.8 30.4 43.8 46.3 (Daily ALM risk level for the VaR model with one-sided confidence interval of 99.0%. Figures for trading exclude specific risks.) The VaR model for trading includes major consolidated subsidiaries. SMBC 2002 — 27 change in earnings (interest rate spread) for a set period at a given probability. Because strategy and budgetary planning is based on the earnings for a period, we use the EaR model to supplement the VaR model. Using Monte Carlo simulations to generate 1,000 scenarios, we test the magnitude of the effect that new deposits and loans will have on a period’s earnings. In fiscal 2001, mark-to-market accounting was introduced, and the effect of stock price fluctuations on the Bank’s financial statements increased. Based on this, we recognize that strength- ening the management of stock price fluctuation risk is one of the Bank’s most important management goals. To lessen the impact of stock price fluctuations, we are working to reduce strategic equity holdings to a suitable level in accordance with our financial strength, as shown by such indicators as the Bank’s shareholders’ equity. More precisely, the Corporate Risk Management Department strictly establishes guidelines for limits on total allowable market risk, including risk related to strategic equity holdings, and manages those guidelines. (cid:11) Composition, by Industry, of Listed Securities Portfolio (%) 30 25 20 15 10 5 0 F i s h e r i e s / F a r m i n g / F o r e s t r y (March 31, 2002) SMBC Portfolio TOPIX Nikkei Average T e x t i l e s P u l p / P a p e r C h e m i c a l s M i n i n g C o n s t r u c t i o n F o o d P r o d u c t s S t e e l P h a r m a c e u t i c a l s P e t r o l e u m / C o a l R u b b e r P r o d u c t s G l a s s / M i n e r a l s M a c h i n e r y M e t a l P r o d u c t s N o n f e r r o u s M e t a l s O t h e r P r o d u c t s E l e c t r i c M a c h i n e r y T r a n s p o r t M a c h i n e r y P r e c i s i o n M a c h i n e r y A i r T r a n s p o r t M a r i n e T r a n s p o r t O v e r l a n d T r a n s p o r t E l e c t r i c i t y / G a s U t i l i t i e s T e l e c o m m u n i c a t i o n s W a r e h o u s i n g / D i s t r i b u t i o n W h o l e s a l e R e t a i l B a n k i n g S e c u r i t i e s I n s u r a n c e S e r v i c e s R e a l E s t a t e O t h e r F i n a n c i a l Liquidity Risk Liquidity risk is the possibility of encountering an obstacle to raising the funds required for settlement due either to a mismatch between the use and procurement of funds or to an unexpected outflow of funds, or being forced to borrow at higher interest rates than usual. At SMBC, we consider liquidity risk to be one of the major risks. We manage liquidity risk so that we are not overly dependent on market-based funding to cover short-term cash outflows. Our liquidity risk management is based on a framework consisting of setting limits and guidelines for funding gap, main- taining a system of highly liquid supplementary funding sources, and establishing contingency plans. (cid:11) Marginal Profit or Loss/Daily VaR Results (Trading Accounts, for fiscal 2001) (Billions of yen) 3 Marginal profit or loss Daily VaR 2 1 0 -1 -2 -3 Apr. 2001 May June July Aug. Sep. Oct. Nov. Dec. Feb. Mar. Apr. Jan. 2002 The market occasionally undergoes extreme fluctuations that exceed expectations. To manage market risk, therefore, it is impor- tant to run simulations (stress tests) of situations that may occur only once in many years. At SMBC, we run periodic stress tests to prepare for unforeseeable swings. The internal model used by the Bank (SMBC VaR) has been periodically evaluated by an independent auditing firm and certified to be appropriate. In addition, we perform back-testing on the rela- tionship between the VaR calculated with the model and the actual profit and loss data. The back-testing results for the trading accounts for fiscal 2001 are shown below. A data point below the diagonal line indicates a loss in excess of the predicted VaR for that day. On only one day during the period did an actual loss exceed our model’s predicted VaR. This fact demonstrates that our VaR model, with a one-sided confidence interval of 99%, is sufficiently reliable. (cid:11) Back-Testing Results (Trading Accounts) Marginal Profit or Loss (Billions of yen) 2.5 2.0 1.5 1.0 0.5 0 -0.5 -1.0 -1.5 -2.0 -2.5 0 1.0 2.0 VaR (Billions of yen) 30 To manage the risk of our yen-denominated banking accounts, we use gap analysis employing maturity ladders and the earnings- at-risk (EaR) model, in addition to the VaR model. In the case where an external factor, such as interest rates, moves in an unfa- vorable direction, the EaR model can indicate the largest estimated 28 — SMBC 2002 In our daily risk management operations, we avoid a gradual increase in liquidity risk by adjusting the funding gap limits and Settlement Risk Settlement risk is the possibility of a loss arising from a transac- guidelines. For emergency situations, we have contingency plans tion that cannot be settled as planned. Because this risk in place to reduce the funding gap limits and guidelines and take comprises elements of several types of risk, including credit risk, other measures. To prevent the possibility of market crises inter- liquidity risk, processing risk, and systems risk, it requires interdis- fering with funding, we carry highly liquid assets, such as U.S. ciplinary management. The Operations Planning Department is Treasury bonds, and have emergency borrowing facilities in place, charged with coordinating the management of settlement risk with which also facilitates foreign-currency-denominated liquidity the Credit Risk Management Department, which oversees credit management. Processing Risk Processing risk is the possibility of losses arising from negligent administration by employees, accidents, or unauthorized activities. In our administrative regulations, the basic administrative policies are summarized as “comprehending the risks and costs of administration and transaction processing, and managing them accordingly,” and “seeking to raise the quality of administration to risk, and the Corporate Risk Management Department, which oversees liquidity risk. We are continuing to upgrade settlement risk management through such measures as participation in the CLS (Continuous Linked Settlement) Bank International settle- ment service, which aims to eliminate the settlement risk that arises from foreign exchange transactions. Systems Risk Systems risk is the possibility of a loss arising from the failure, deliver high-quality service to customers.” We have organized the malfunction, or unauthorized use of a computer system. We have Bank’s systems to achieve these goals. instituted a number of basic policies to manage systems risk, Adding new policies or making major revisions to existing including a security policy, usage regulations, and specific ones with regard to processing risk management requires the management procedures. We are further strengthening safety approval of both the Management Committee and the Board of measures based on a needs assessment drawing on such refer- Directors. ences as the Financial Inspection Manual prepared by the In our operating regulations, we have also defined specific Financial Services Agency, and the Security Guidelines published rules for processing risk management. The rules allocate by the Center for Financial Industry Information Systems. processing risk management tasks among six types of depart- Because computer-related trouble at financial institutions now ments: the Operations Planning Depar tment, compliance has greater potential to impact the public, and with systems risk departments, operations departments, transaction execution diversifying owing to the IT revolution and the resulting expansion departments (primarily front-office departments and branches), of networks and rise in numbers of personal computer users, we the Internal Audit Depar tment, and the Customer Relations have taken the necessary steps to ensure the smooth, secure Department. In addition, we have set up a specialized group operation of our information systems. We have duplicated each within the Operations Planning Department to strengthen admin- system and infrastructure and fully proofed our east and west istrative procedures throughout the SMBC Group. computer centers against earthquakes and other disasters. To We include processing risk in our calculation of risk capital maintain the confidentiality of customer information and prevent requirements and have allocated a certain percentage of risk information leaks, we encrypt sensitive information, block unau- capital to cover it, based on the quantification of the risk for fiscal thorized external access, and implement all known countermea- 2002. sures to secure our data. We have also established contingency plans and conduct training as required to ensure that we are fully prepared in the event of an emergency. To maintain security, we will continue to revise our countermeasures as new technologies and usage patterns emerge. We include systems risk in our calculation of risk capital requirements and have allocated a certain percentage of risk capital to cover it, based on the quantification of the risk for fiscal 2002. SMBC 2002 — 29 Individual Business Unit Strategies Major Accomplishments in Fiscal 2001, the Year Ended March 31, 2002, and Key Goals for Fiscal 2002, the Year Ending March 31, 2003 Consumer Banking Unit Major Accomplishments Key Goals • Expanded our network of Money Lifestyle Consulting Desks (MC Desks) offering financial advice geared to the stage of life and lifestyle of individual customers to 240 locations as of March 31, 2002, a year-on-year increase of 122 • Introduced a full range of new and attractive products and services geared to meeting the needs of individual customers • 2.4 million hits received on our One’s Direct online service in March 2002, a year-on-year increase of 900,000 • Strengthen consumer banking profitability by refining customer segmentation, increasing sales of highly profitable products and services, and further improving operational efficiency • Build the brand value of and enhance customer trust in the SMBC Group by offering the highest level of service in consumer banking • Reduce the manned branch network from 578 branches at the time of the merger in April 2001 to 401, mainly by consolidating existing branches Middle Market Banking Unit Major Accomplishments Key Goals • Actively promoted the Business Select Loan, a financing product expressly designed for small and medium-sized enterprises ⇒Outstanding loan balance was ¥45.9 billion as of March 31, • Expand solutions-driven marketing backed by the collective resources of Head Office departments, branches, and Group companies 2002, a year-on-year increase of ¥30.8 billion • Registered corporate users of Perfect, SMBC’s patented recon- ciliation support service, increased to 3,400 as of March 31, 2002 ⇒Year-on-year increase of 1,000 companies • Actively promote the Business Select Loan, backed by an in- house developed credit risk assessment model designed espe- cially for small and medium-sized businesses, with enhanced credit risk evaluation capabilities and rapid processing of unse- cured loan applications • Group companies’ factoring and management consulting busi- • Spearhead the development of efficient settlement systems to nesses recorded robust growth meet the rationalization needs of businesses ⇒In factoring, the number of customers tripled and the balance of guarantees nearly doubled to ¥53.0 billion year-on-year ⇒SMBC Consulting Co., Ltd., became the largest bank-affiliated management consulting firm in Japan, with approximately 35,000 member companies • Further collaborate with Group companies to expand business ⇒Promote factoring services as a solution for hedging risks asso- ciated with the collection of trade receivables Corporate Banking Unit Major Accomplishments Key Goals • Unified front-office operations to maximize synergies inherent in the two former banks’ combined expertise ⇒Achieved higher fee-based income, a central goal of the unit, despite the adverse economic climate • Enhance our ability to offer solutions for business restructuring by bolstering cooperation with Daiwa Securities SMBC Co. Ltd. and by strengthening the operations of the Financial Solutions Department, Investment Banking Unit • Established an efficient operating structure, with no overlapping • Strengthen settlement services, particularly cash management functions or resources ⇒Achieved significant cost reductions as a result • Completed work on a data management infrastructure ⇒Introduced customer relationship management (CRM) for corporate customers immediately upon the formation of SMBC, thereby facilitating increased information-sharing services (CMS) • Further reinforce our prominence in the arrangement of such credit instruments as nonrecourse loans, commitment lines, and syndicated loans, fields where the two former banks already had competitive advantages 30 — SMBC 2002 International Banking Unit Major Accomplishments Key Goals • Reaped merger benefits at an early stage by quickly consoli- dating the two former banks’ overseas offices and implementing other streamlining initiatives • Increased business with the overseas offices and subsidiaries of Japanese companies through greater collaboration with the Bank’s domestic operations • Expanded CMS • Enhanced relationships with the multinational corporations’ offices and subsidiaries in Japan • Further improve return on assets and increase fee-based business • Enhance liabilities-related services • Implement “right-sizing” to create a strategic global network Treasury Unit Major Accomplishments Key Goals • Increased transaction volume by establishing a Treasury • Increase convenience and speed of customer services to Marketing Department expand the volume of transactions ⇒Significant rise in direct dealing with counterparts and in the ⇒Proactive use of the Asia Sales Desks, and creation of i-Deal, number of customers per treasury officer an Internet dealing system for customers • Implemented a dynamic operating system to respond more • Manage a broad array of risks, particularly taking into account quickly to market trends in Japan and overseas the difficult market conditions in Japan ⇒Generated a sharp increase in earnings from foreign currency- denominated asset liability management (ALM) operations, and maintained high profitability in yen-denominated ALM and trading operations Investment Banking Unit Major Accomplishments Key Goals • Offered several new products that meet the demands of our customers, both in Japan and overseas ⇒Developed quicker, computerized methods of securitizing debt ⇒Arranged several large-scale nonrecourse loans for real estate financing transactions ⇒Developed new types of derivatives • Further strengthen existing businesses ⇒Continue to expand loan syndications ⇒Promote securitization as an integral part of streamlining accounting operations, using such systems as Notes Captor, a system that simultaneously processes multiple notes receivable ⇒Work with other SMBC Group companies to capture more • Expanded loan syndications (syndicated loans, transferable cross-border business loans, and others) • Daiwa Securities SMBC placed first in the domestic straight bond league table for fiscal 2001 • Cultivate new business fields ⇒Promote investment management services, particularly for defined contribution pension plans ⇒Promote services that correspond to corporate restructuring requirements, including management buyout (MBO) financing [Reference] (cid:11) Banking Profit, by Business Unit Year ended March 31, 2002 Banking Profit (excluding transfer to general reserve for possible loan losses) Year-on-year increase (decrease) Consumer Banking Unit Middle Market Banking Unit Corporate Banking Unit Billions of yen International Banking Unit ¥34.5 27.3 ¥377.8 23.2 ¥134.8 7.2 ¥25.0 (7.7) Treasury Unit ¥481.3 243.5 Others Total ¥130.0 86.8 ¥1,183.4 380.3 Notes: 1. Year-on-year comparisons are those used for internal reporting and exclude changes due to interest rate and foreign exchange rate fluctuations. 2. “Others” consists of (1) dividend income from subsidiaries and affiliates, (2) financing costs on preferred securities and subordinated debt, (3) profit earned on investing the Bank’s own capital, and (4) adjustment of inter-unit transactions, etc. SMBC 2002 — 31 Increased opportunities to diversify and pursue new business models afforded by deregulation and advances in information technology (IT) have made consumer banking one of the most attractive markets for banks in recent years. At the same time, competition has intensified as a result of financial group mergers and entrants from other sectors. With these factors at play, it is significant that SMBC currently ranks No. 1 in consumer banking in Japan in investment trust balance, individual loan balance, and number of individual customer accounts*. We intend to leverage this advantageous position to offer higher value-added financial services. To sustain our lead, we will continue to draw upon our formidable product and service expertise, our channel develop- ment capabilities, and our highly skilled financial consultants. Our frontline operations are positioned in line with our main customer segments: asset building, asset management, and private banking. For each of these segments, we have developed sophisticated business models. Our Block Consumer Business Offices, branch network, Consumer Loan Promotion Offices, and Call Centers provide the most appropriate channels and processes to meet each customer’s needs. * As of March 31, 2002, the investment trust balance for individuals was ¥1.4 trillion, loans to individuals stood at ¥13.5 trillion, and the number of ordinary bank accounts held by individuals was 27 million. Brand Strategy The central theme of SMBC’s consumer banking operations is “O ne’s next,” which refers to our goal of helping customers develop the next step of their financial plans according to stage of life. To implement a detailed brand-building strategy, in fiscal 2002, the year ending March 31, 2003, we began assigning brand managers to all branches. With a brand-value-enhancing strategy that focuses on providing individualized customer attention, we aim to make SMBC the most trusted of the leading banks. Consumer Banking Unit 32 — SMBC 2002 Strategic Transformation of the Manned Branch Network We have been strategically transforming the Bank’s branches In July 2001, we introduced the Comprehensive Report Service as part of the Monthly Voice newsletter. These monthly reports contain all information related to individual customers’ from operational processing centers to marketing and sales SMBC accounts, including data on the distribution of assets, bases by reviewing the branch network from the perspective of account balances, deposits and withdrawals, and investment market location, nature, and scale to determine the most suitable gains and losses. functions and configuration. In fiscal 2001, we reduced 14 Drawing on the latest advances in financial IT, the Bank branches. In addition, prior to the completion of IT systems inte- provides services to increase customer convenience in day-to-day gration of our domestic branch network in July 2002, in an area banking transactions. A highly popular example is our O ne’s with overlapping branches, we relocated the excess branches to a core branch, and now have joint-branches at 20 locations. By continuing our strategy of consolidating overlapping branches, we intend to reduce the number of branches from 578 as of the merger in April 2001 to 401. Broad Lineup of Products and Services To enhance convenience and meet the needs of customers at D irect online service, which allows registered customers to access such services as fund transfers, balance inquiries, time deposit and foreign currency deposit transactions, and investment trust transactions via the telephone, Inter net, or Inter net- accessible mobile phone. In March 2002, O ne’s Direct logged 2.4 million hits, a year-on-year increase of 900,000 hits. SMBC also provides a lineup of loan products corresponding to customers’ changing financial requirements at different stages of life. Our Consumer Loan Promotion Office network plays a key role by matching information and loan proposals to individual requirements. As a result of our individualized approach and comprehensive offerings, the Bank’s loans to individuals totaled ¥13,472.5 billion as of March 31, 2002. In April 2002, we intro- each stage of life, SMBC offers a wide-ranging lineup of products duced a loan for newly built housing featuring preferential interest and services. rates, attracting a growing number of home buyers. We intend to SMBC provides numerous savings and investment products, continue offering consumer banking products and services that including the most extensive selection of investment trusts of any set SMBC apart from the competition. Japanese bank. We introduced two new trusts in fiscal 2001—one in June 2001 and another in January 2002—and enhanced our investment trust sales capabilities. As a result, investment trust sales to individuals totaled ¥1,485.3 billion as of March 31, 2002. As of June 30, 2002, our roster comprised 53 investment trusts managed by 25 companies. We also offer a diverse array of time deposits that match indi- vidual customers’ savings plans. Our introduction of a new type of time deposit, offered in combination with other financial product such as investment trust or foreign currency deposit, met with extremely favorable customer response, recording sales of approximately ¥670.0 billion in fiscal 2001. We also offer foreign currency time deposits bearing high interest rates (1.0 percentage point higher than our nor mal rates for such products when customers par ticipate via SMBC’s online ser vice, and 0.8 percentage point higher when these deposits are initiated at branches) for a limited six-month campaign running through September 2002. Consumer Loan Promotion Office SMBC 2002 — 33 Asset-Building Segment The asset-building segment is primarily composed of customers As of June 30, 2002, SMBC had established a network of 64 Asset Management Plazas as the main channel for offering asset- with relatively long-term horizons, that is, customers accumulating management services to clients. These facilities feature private assets either for down payments on housing loans or for retirement. consultation spaces, seminar rooms equipped with TV conference We offer a flexible range of service delivery options to accommo- systems, and plasma display panels providing financial and date our customers’ diverse lifestyles, from manned branches and promotional information to customers. Call Centers, the Bank’s marketing and sales promotion hubs, to By providing individualized service and satisfying a broad telephone banking, Internet banking, and other remote channels. range of customer needs, we aim to establish SMBC as the To increase flexibility and promptness in meeting customers’ leading brand for asset-management services. requirements, SMBC began assigning an Area Marketing Officer to each Block Consumer Business Office in fiscal 2002. Moreover, specially trained professionals at the Bank’s Money Lifestyle Consulting Desks (MC Desks) offer financial advice geared to each individual customer’s stage of life and lifestyle. As of March 31, 2002, the Bank had established 240 MC Desks, an increase of 122 compared with a year earlier. Located at selected Private-Banking Segment In the private-banking segment, the Bank caters chiefly to high net worth individuals and to owners of high-growth businesses who are planning or have already completed public offerings or listings. We offer such individuals customized, long-ter m consulting with strategic capital planning and investment manage- manned branches, MC Desks are a one-stop source of financial ment components. counseling and investment and loan vehicles, including investment trusts, foreign currency deposits, and such loan products as primary and secondary mortgages, loans for home renovation, and loans for education and other needs. By offering suitable products and services tailored to the asset- building needs of individual customers at each stage of life, we are confident of ensuring that SMBC remains the main, lifelong bank for our customers. Money Lifestyle Consulting Desk Asset-Management Segment The Bank assigns highly skilled financial consultants to Block Consumer Business Offices to meet the needs of customers seeking sophisticated, objective investment advice. Our financial consultants employ the Bank’s Total Portfolio Plan for Financial Assets to offer tailor-made solutions for comprehensive manage- ment of each customer’s assets and debts. 34 — SMBC 2002 In our strategic capital planning business, we advise on public offerings, succession planning, and the many other requirements of high net wor th individuals, drawing on our staff of private bankers with experience in complex corporate transactions and advanced inter national product knowledge. On the asset- management side, we develop and provide customized products and services based on each customer’s market perspective. Our services in all areas of the private-banking business are based on building long-term relationships and becoming each customer’s trusted partner. Payment and Settlement Services The ways individuals settle their financial obligations are changing in line with rapid technological progress in the information and communications fields and the increasing diversification of lifestyles. In response, we have been enhancing our One’s Direct online banking service to accommodate customer transactions via remote channels (such as the telephone, Internet, and Internet- accessible mobile phone), and strengthening and expanding remote channel functions to further complement the Bank’s tradi- tional branch network. Our customers increasingly use remote channels for everyday banking transactions. As of March 31, 2002, SMBC’s remote channel service had 4.6 million registered users. Through an alliance with convenience store operator am/pm Japan Co., Ltd., we offer our @B^NK ATM service, which is now available 24 hours a day at more than 1,100 am/pm outlets throughout Japan. Moreover, as a result of alliances with E-net Co., Ltd., LAWSON, INC., and IYBANK Co., Ltd, SMBC customers At-Loan Co., Ltd., SMBC’s joint venture (founded in June are able to access their bank accounts via a growing number of 2000 and called the Sakura Loan Partner, Limited, until adopting ATMs located at several convenience store chains throughout Japan. its present name in August 2001) offers the precedent-setting SMBC currently provides round-the-clock cash-withdrawal conve- @Loan product group of small-sum, unsecured loans for individ- nience via a network of ATMs at more than 9,800 convenience uals, which differ from traditional bank loans in Japan. To market stores. these loans, Japan Net Bank started deploying @LoanBOX, an We will continue to proactively expand our ATM network and advanced loan consultation ATM, at am/pm convenience stores in strengthen the One’s Direct online service to firmly establish the the Tokyo metropolitan area. As of June 30, 2002, the @LoanBOX SMBC brand as the bank offering the highest degree of conve- network had expanded to 406 locations. At-Loan plans to continue nience for ever yday banking needs, while at the same time slashing costs. promoting and enhancing customer recognition of the @LoanBOX network via television and other media. At the same time, the @LoanBOX network is being extended to the western region of Japan. SMBC and its Group companies will continue to implement new business models for financing and settlement ser vices, particularly in the areas of credit cards and unsecured loans. Call Center Drawing on the Financial Service Capabilities of the SMBC Group SMBC first reorganized its credit card business in April 2001, changing the name of the Sumitomo Credit Service Company, Limited, to Sumitomo Mitsui Card Company, Limited. Then in July, we transferred the UC Card Division of Sakura Card CO., Ltd., to Sumitomo Mitsui Card. Having merged our credit card busi- nesses, and, as Japan’s pioneering Visa™ card issuer, SMBC @BVNK ATM (left) and @LoanBOX ATM V (cid:11) Remote Channels: Registered Users and now boasts one of the nation’s leading credit card operations with Number of Transactions its Mitsui Sumitomo Visa Card. By offering the most widely accepted credit card in the world, featuring safety, convenience, and reassurance, we will continue to raise the value of the Mitsui Sumitomo Visa Card brand. In October 2000, we inaugurated the Japan Net Bank, Limited, Japan’s first exclusively Internet-based bank. Japan Net Bank combines the convenience of 24-hour accessibility seven days a week with high interest rates on deposits and low service charges. Together with our joint-venture partners and affiliated companies, we will leverage the Internet and related IT to maxi- mize the convenience of Japan Net Bank. As a result, we expect Japan Net Bank to become the bank of choice for Internet-based customers, as well as a key banking model for the 21st century. (Transactions, in thousands) 3,000 (Registered users, in thousands of persons) 5,000 Total registered users Remote channel transactions (total SMBC) Total Internet and mobile phone transactions Total telephone-banking transactions Merger June 1997: SMBC becomes the first among Japanese city banks to offer a telephone-banking service Jan. 1997: SMBC becomes the first among Japanese banks to offer an Internet-banking service 2,500 2,000 1,500 1,000 500 0 Mar. 1997 Mar. 1998 Mar. 1999 Mar. 2000 4,500 4,000 3,500 3,000 2,500 2,000 1,500 1,000 500 0 Apr. 2001 Mar. 2002 SMBC 2002 — 35 Middle Market Banking Unit Leveraging the largest banking customer base in Japan, the Middle Market Banking Unit is focused on building a solutions- driven business capable of quickly addressing the diversifying needs of customers by deploying the resources of the Bank’s Head Office departments and branches, and by further enhancing competitiveness. Solutions-Driven Marketing Experts at Corporate Business Offices throughout Japan and the Bank’s Head Office specialists function as a unified team to offer sophisticated financial services to small and medium-sized enter- prises. Our solutions-driven marketing activities respond quickly to a broad spectrum of management and financial needs, including derivatives, electronic banking (EB), overseas business support, M&A, MBO, factoring, securitization, syndication, and initial public offerings (IPO). In fiscal 2001, the year ended March 31, 2002, the Business Reengineering Depar tment, within the Business Promotion Department, was established to provide assistance to the rapidly growing number of small and medium-sized companies restruc- turing their businesses amid the protracted recession in Japan by advising them on strategies for increasing corporate net worth. To this end, in addition to our core banking services including securi- tization and syndication, we draw on the resources of Group companies to provide financial advice and consulting services. SMBC’s Head Office departments, branches, and Group companies will continue to focus their collective resources on solutions-driven marketing to firmly reinforce the SMBC brand. 36 — SMBC 2002 Serving Growth Enterprises Creating new businesses and industries is required to revitalize We developed an in-house credit risk assessment model designed especially for small and medium-sized businesses. Our the Japanese economy. Within the Business Promotion promotion of the Business Select Loan, backed by enhanced Department, the New Business Promotion Department focuses credit risk evaluation capabilities and attractive features such as on developing business with customers in such high-growth fields an increased loan ceiling of ¥50 million and a lengthened as IT, biotechnology, environmental services, and health care. maximum repayment period of three years for unsecured loans, Drawing on the Bank’s extensive knowledge and experience, our was particularly fruitful. During the March–May 2002 period, we staff first analyze and evaluate a company’s technological capabil- conducted a promotional campaign consisting of TV commercials ities, marketability, and growth prospects and then suggest appro- and newspaper advertisements aimed at increasing customer priate sources of capital such as a new business support fund, an unsecured financing system. The Group’s venture-capital wing, brand recognition of the Business Select Loan. As a result, the combined balance of the Business Select Loan and the Business SMBC Capital Co., Ltd., actively supports companies in the start- Fast Loan as of March 31, 2002, stood at ¥45.9 billion, a year-on- up stages with their capital requirements. For clients planning to year increase of ¥30.8 billion. take their companies public, our IPO specialists join forces with Another theme is identifying the special needs of small and Daiwa Securities SMBC Co. Ltd. to advise on and implement medium-sized businesses and sole proprietorships participating in appropriate capital-raising strategies and to offer other services. franchise chains. SMBC’s Business Owner Banking Department Services for Small Businesses SMBC’s Business Support Offices exclusively serve small and medium-sized companies and sole proprietorships in Japan. This focus enables us to provide products and services that accurately offers fund-raising arrangements that are in line with the business structure of each franchising operation. SMBC will continue to expand the ser vices provided by Business Support Offices, as well as enhance the Business Select Loan to attract more small and medium-sized business target the needs of these clients. clients. In fiscal 2001, in addition to offering loans guaranteed by credit guarantee corporations, we particularly promoted two loan products that facilitate quick responses to small and medium- sized companies’ funding needs: the Business Select Loan and the Business Fast Loan. Business Support Office Advertisement for Business Select Loan Poster promoting SMBC to small and medium-sized businesses SMBC 2002 — 37 (cid:11) Perfect Reconciliation Support Service Performance (¥ millions) 1,400 (Companies) 4,000 1,200 1,000 800 600 400 200 0 Total commissions Registered users (companies) 3,500 3,000 2,500 2,000 1,500 1,000 500 0 FY2000 2nd half FY2001 1st half FY2001 2nd half (cid:11) EB Registered Users (Thousands of companies) 100 90 80 70 60 50 0 Mar. 2001 Sep. 2001 Mar. 2002 EB registered users (excluding companies using ANSER homeuse service) Spearheading the Development of Efficient Settlement Systems Our settlement and cash management professionals deliver sophisticated solutions to meet the requirements of individual businesses. In February 2000, we were granted a patent on the business model for our Perfect reconciliation support service, which entails establishing incoming remittance accounts for the collection of trade receivables and using account number information instead of names to confirm incoming payments, thereby greatly expe- diting the account reconciliation process. This service has been well received since its launch, with the number of companies using the service rising to approximately 3,400 as of March 31, 2002, a year-on-year increase of some 1,000 companies. To facili- tate further innovations, we have established the e-Business Patent Depar tment within the Electronic Commerce Banking Department. We also established the Global Cash Management Department within the Electronic Commerce Banking Department to enhance our cash management services for global corporate groups seeking to improve the efficiency of their cash manage- ment operations. We offer a range of solutions based on our conviction that effective group management begins with cash management. More than ever before, domestic businesses are also working to raise the efficiency of their payment systems. To tap into this demand, we have assembled a full lineup of PC-based banking services that meet the needs of various business scales. In autumn 2001, we introduced the PC Navi Web, an Internet banking system that is being warmly received by the market for its 24-hour accessibility. As of March 31, 2002, approximately 9,000 companies were using this service. To promote business-to-business (B2B) e-commerce, SMBC in cooperation with the Japan Research Institute, Limited (JRI), set up the SMBC Global e-Trade Consortium in December 2001. After conducting initial field tests, we are now considering commercializing this system in cooperation with approximately 150 participating companies. Furthermore, plans for fiscal 2002, the year ending March 31, 2003, call for the establishment of an electronic authentication bureau compliant with Identrus, an international provider of digital identities, to develop various digital certification and settlement systems for e-commerce as well as electronic data interchange services for international trade finance. 38 — SMBC 2002 Leveraging the Group’s Total Strengths SMBC is strengthening cooperation among Group companies and Our strategic subsidiary Financial Link Company, Limited, is a one-stop source of financial ser vices such as outsourcing pooling the Group’s financial resources to deliver sophisticated services for settlement and cash management, areas taking solutions to meet customer needs and maximize the Group’s on increasing impor tance in line with the growth in B2B and consolidated income. business-to-consumer (B2C) e-commerce. Our goal is to coordi- SMBC Finance Co., Ltd., and SMBC FACTORS CO., LTD., for nate SMBC and Group companies’ resources to provide a instance, are enhancing their factoring services to meet the complete range of optimal settlement ser vices for diverse growing need among corporations for credit-enhancing instru- customer needs. ments. Group companies showed strong performances in the In addition to the above, JRI provides management consulting factoring business in fiscal 2001, with the client base tripling and the balance of guarantees doubling to ¥53.0 billion compared with services; SMBC Leasing Company, Limited, handles customers’ leasing needs; and Mitsui Finance Service Co., Ltd., Sakura the previous fiscal year. Group companies are continuing to strive Finance Service Co., Ltd., and QUOQ Inc. serve as collection ahead in fiscal 2002 by providing quick responses to customers’ agents. Finally, through Daiwa Securities SMBC, the Bank factoring needs, including payment guarantees for hedging the provides top-flight investment banking services. risk of possible losses on trade receivables and debt securitization Acting as a single unit, SMBC and Group companies provide to meet their off-balancing needs. a comprehensive range of products and services for consistently Furthermore, we are deepening our cooperation with SMBC meeting all of our customers’ needs. Consulting Co., Ltd., the largest bank-affiliated management consulting firm in Japan, with some 35,000 member clients. SMBC Consulting provides quick and value-added solutions to all problems concerning corporate management by offering manage- ment consulting and information services for everything from simple management issues to human resource development support, in addition to holding management seminars for client companies. Close ties with SMBC Capital enable SMBC to meet growing businesses’ full range of needs, from financial support to the development of IPO strategies. Corporate Business Office SMBC 2002 — 39 Corporate Banking Unit 40 — SMBC 2002 Since SMBC’s formation, the Corporate Banking Unit has focused on establishing a single point of contact where customers can gain access to all of the Bank’s services. The Corporate Banking Unit’s mission is to continuously extend the highest-quality solu- tions to Japan’s leading corporations. To achieve this, it was first of all necessary to assemble an effective marketing framework. Here, the goal was the formation of a strong front-office organiza- tion freed of all barriers that separated the two former banks. Most of the measures required to establish a new and fully integrated SMBC service platform for corporate customers were completed during fiscal 2001, the year ended March 31, 2002. Looking ahead, we intend to carry out a dramatic revision of our asset-based businesses to make them more competitive, as well as to undertake further initiatives to increase our volume of fee-based businesses. At the same time, we will implement further cost-cutting measures to bolster SMBC’s ability to compete in all markets. Highlights of Fiscal 2001 With the inauguration of a unified front-office system during fiscal 2001, the Corporate Banking Unit concentrated on three vital strategies: (1) fostering a single corporate culture for the new bank, (2) establishing a unified transaction approach to customers toward which the two for mer banks had taken divergent approaches, and (3) combining synergistically the expertise in selling products and services that each of the former banks brought to SMBC. Our main objective as a new bank was to quickly reinforce the relationships with each customer, while creating greater value and more innovation than the sum total of the two banks before the merger. We have achieved this through customer relationship management (CRM). After analyzing information on more than 10,000 prominent corporate customers, we came up with solu- tions drawing equally on the resources of both former banks. This approach was instrumental to many of SMBC’s first-year accom- plishments in asset securitization, corporate customer alliances, and other areas. Strategic Themes for Fiscal 2002 During fiscal 2002, we will continue to focus on increasing fee- based income. At the same time, we plan to further restructure our lending business, the most fundamental element of the banking operations. To increase income from fees and commissions, we are focusing on providing customized solutions for corporate alliances, corporate business reorganizations, and restructuring programs, a strategy we began implementing in the second half of fiscal 2001. Balance sheet management is another area where we anticipate higher fee-based income. We intend to emphasize these activities during fiscal 2002 in an effor t to extend ser vices that offer income levels that are commensurate with the level of risk taken. increasing value to customers. Regarding settlement services, a All of these offerings imply enhanced customer services, which in core banking business, we will actively leverage our cash manage- turn mean increased business opportunities for the Bank in the ment services (CMS) expertise to serve more customers. future. This future-oriented perspective necessitates that we In the lending business, we aim both to set interest rates that acquire information now even in areas where customers’ needs accurately reflect the risks associated with each loan and to will not soon become evident. Only by viewing each customer supply sophisticated services that match the requirements of relationship from medium- and long-term standpoints can we each borrower. Our lending business entails much more than extend services that cover a broadened and enhanced array of conventional loans; also included is the arrangement of such solutions. credit instruments as nonrecourse loans, commitment lines, and syndicated loans. The goal here is to provide customers with a broad selection of credit alternatives to match their needs. With computer systems integration scheduled for completion Leveraging the Financial Power of the SMBC Group The Corporate Banking Unit works closely with leasing, financing, in the first half of fiscal 2002, the front-office organization will soon and consulting companies within the SMBC Group as well as with become unified in every sense. We will use this base to offer Daiwa Securities SMBC Co. Ltd. to provide customers with solu- products and services that precisely address the requirements of tions that cannot be developed independently. each corporate customer. Medium-Term Strategy The objective of the Corporate Banking Unit is the consistent and Cooperation with various divisions of the Bank and SMBC Group companies is essential to providing solutions in those areas that we intend to emphasize, such as corporate restruc- turing and balance sheet management. SMBC Group companies continuous creation of value for customers, not merely the provi- are specialists in their respective business fields and have the sion of individual products and services on an ad hoc basis. To know-how to provide solutions that meet the exacting demands of realize this goal, we must skillfully deploy IT. As well, we must customers. accumulate information about each customer’s needs and utilize This does not mean that the business departments with direct that information to supply a large volume of highly sophisticated contact with customers simply act as conduits to pass on solutions. customer requirements. They work closely with the Financial Reflecting this theme, each of our strategic business initia- Solutions Department within the Investment Banking Unit and tives in fiscal 2002 comprises more than one-off services. Rather, capitalize on the Bank’s database to formulate optimal solutions. our integrative, proactive approach ensures that we offer compre- Taking advantage of the total capabilities of Group compa- hensive, far-sighted solutions for business reorganizations and nies, SMBC will continue to respond with the right solutions to restructurings, a full range of settlement-related services, and meet the increasingly sophisticated needs of large corporations. Formulating sophisticated solutions that work for customers SMBC 2002 — 41 International Banking Unit 42 — SMBC 2002 The International Banking Unit is responsible mainly for serving two customer segments: (1) all customers outside Japan, including Japanese and non-Japanese companies, financial insti- tutions, sovereign governments, and public entities; and (2) the Japanese offices and subsidiaries of multinational corporations. Major accomplishments in fiscal 2001, the year ended March 31, 2002, and key goals for fiscal 2002 are outlined below. Major Accomplishments (1) Reaped merger benefits early on by quickly consoli- dating the two former banks’ overseas offices and implementing other streamlining initiatives After the merger of the two for mer banks, we consolidated overseas offices with overlapping functions and raised the efficiency of the resulting operations. At the same time, we consolidated offices and liquidated equity instruments with less strategic significance. As a result, we substantially reduced expenses without sacrificing the quality of our customer service. (2) Increased business with the overseas offices and subsidiaries of Japanese companies through greater collaboration with the Bank’s domestic operations In an effort to translate SMBC’s large, integrated base of blue-chip domestic companies into increased overseas business volume, we worked more closely with the Bank’s domestic operations. Specifically, we established an effective information-sharing system with the Bank’s Corporate Banking Unit and Middle Market Banking Unit, and created a system for obtaining the support of other business units such as the Investment Banking Unit. As a result, we were able to increase the volume of transac- tions with Japanese clients overseas, especially in foreign exchange and deposits. (3) Expanded the cash management service business In another move to expand our fee-based business, we effectively marketed services for improving corporate cash management, as well as enhanced our processing capabilities. One benefit of these efforts was a large increase in the number of international cash management service (CMS) contracts, particularly in Asia. We were also able to achieve increases in fees and commissions from clearing services and custody business. (4) Enhanced relationships with multinationals expanding into Japan To fully leverage our business with multinational corporations based outside Japan, we are prioritizing the promotion of closer ties with their Japanese offices and subsidiaries. The unit’s Global Client Business Department, responsible for servicing these offices and subsidiaries, maintains close contact with the Bank’s overseas offices serving the head offices of these customers in In sum, during fiscal 2002, we will continue to conduct order to quickly identify their specific needs in Japan, and, in exhaustive reviews of our conventional asset-based businesses certain cases, directly negotiates with the head offices. By capital- and profit structure. Throughout this undertaking, we will remain izing on the Bank’s global relationships, the Global Client focused on our goal of significantly raising the Bank’s return on Business Department expanded its volume of transactions. assets. At the same time, we will establish a more efficient plat- For the International Banking Unit, fiscal 2001 was a period of form for serving customers worldwide. great significance. With our rapid implementation of merger- related initiatives, we were able to quickly benefit from a newly unified and efficient operating structure, as well as broaden our customer base. Key Goals (1) Further improve return on assets and expand fee- based business The International Banking Unit will continue to improve asset effi- ciency by aggressively restructuring its asset portfolio while proactively strengthening its fee-based business to maximize profits. One important activity is the review of the Bank’s lending practices with an eye to realizing returns that are commensurate with associated risks, while rapidly increasing the asset portfolio’s liquidity. To build assets that yield higher returns, we are concen- trating increasingly on specialized financing products such as trade finance, structured finance, and project finance. To expand our fee-based business, we will continue to invest our manage- ment resources in personnel and information management systems in order to enhance our services in such key fields as CMS, clearing, custody, and foreign exchange. (2) Strengthen liabilities-related services Liabilities-related services are another priority. In concert with the Treasury Unit, we are expanding our deposit base to ensure stable fund raising. In particular, we are emphasizing liabilities- related services, which mainly entails marketing our CMS busi- ness, especially in Asia, to increase the volume of deposits. (3) Implement “right-sizing” to create a strategic global network Right-sizing is another important theme of the International Banking Unit. To utilize our network more efficiently and flexibly, we are building an infrastructure that corresponds to the scale of our operations by aggressively allocating our resources into strategic regions, as exemplified by the Bank’s recent opening of a branch in Taipei. At the same time, we are reviewing business processes from the perspective of enhancing productivity. Accordingly, we are creating an increasingly strategic and dynamic global service network. Regional Structure and Collaboration with Other Business Units and SMBC Group Companies The Bank’s international banking operation is conducted by three divisions: the Asia Pacific Division, the Americas Division, and the Europe Division. This tripartite structure enables each division to extend services that accurately correspond to the distinctive char- acteristics and requirements of its market. In the Americas and in Europe, marketing activities are segmented by business rather than by region. There are three businesses: (1) business with Japanese companies, a diverse sector that includes many blue-chip corporations; (2) business with non-Japanese companies with whom the Bank has devel- oped solid relationships over the years through marketing activi- ties; and (3) marketing of sophisticated financial products. Each business is conducted by a corporate banking department. In each of these businesses, we provide solutions of the highest level by applying our specialized knowledge and by collaborating with other business units and SMBC Group companies. In the Asia Pacific region, customer needs and associated risks vary greatly from country to country. We maintain the largest presence of all Japanese banks in this region, as we respond to a wide range of demands with speed and agility. Strategic Outlook In the medium and long term, the International Banking Unit will continue to focus on building a solid profit structure that is more fee-based. Concurrently, we will pursue new types of business models with a view to contributing to the advancement of such business models throughout SMBC. Finally, we will continue to form alliances with overseas financial institutions offering comple- mentary types of services in an effort to provide an ever-widening range of services to our customers around the world. Brochures highlighting SMBC’s custodian services Yen Clearing Web Reporting Service Overseas financial institutions holding SMBC Yen Clearing Accounts can access their accounts via the Internet. SMBC 2002 — 43 Treasury Unit 44 — SMBC 2002 The Treasury Unit operates in the domestic and international money, foreign exchange, securities, and derivatives markets to serve the hedging and dealing needs of our customers and take advantage of arbitrage opportunities, while controlling market and liquidity risk at appropriate levels. Highlights of Fiscal 2001 The two former banks’ detailed preparations for the merger, which ensured that computer systems and risk management structures were fully integrated and functional, enabled the Treasury Unit to start operating from a single dealing room immediately upon SMBC’s formation at the beginning of April 2001. This positive start paved the way for the Treasury Unit’s strong performance during the Bank’s first year of operations. To meet the significant increase in the number of transactions with customers, we established the Treasur y Marketing Depar tment, an organization dedicated solely to improving customer services and boosting sales activities. The new depart- ment provides an all-in-one service for market-based products, with accelerated response time and in-depth market information for customers. We also increased the number of treasury officers specializing in foreign exchange-related services and strength- ened our ability to process customer requests for foreign exchange forward agreements on a 24-hour basis. In addition, we focused actively on developing new products—small-lot transac- tions using weather derivatives, for example—to broaden our lineup. In our banking and trading operations, we effectively managed the increase in market and liquidity risk arising from the merger, as well as conducted trading operations on our own account to take full advantage of evolving market trends. In the banking field, this resulted in new position-taking in anticipation of falling interest rates in Japan and overseas as well as a timely shift in positions from yen to foreign currencies. Our trading operation, for its part, successfully forecast market trends and enjoyed increased prof- itability. As a result of these and other actions, the Treasury Unit ear nings for fiscal 2001, the year ended March 31, 2002, increased more than ¥200.0 billion as compared to fiscal 2000 (the combined figure of the two former banks). Strategic Themes for Fiscal 2002 For fiscal 2002, the Treasur y Unit is totally committed to responding to the increasingly diversified and sophisticated demands of our clients. One major advance has been to offer even more value by adding new products and bolstering the unit’s ability to handle a broadened array of transactions. In Asia, we maintain sales desks in Tokyo, Hong Kong, and Singapore, forming a solid base for supporting customers in funding, foreign exchange, and derivatives. Our customers can rely on us to provide a wide range of information and advice on a global scale. These desks also enhance our ability to rapidly handle customer transactions. Furthermore, we plan to introduce i-Deal, an Internet dealing system that will allow customers to directly purchase foreign exchange forward agreements, revise the terms of certain agreements, and access a host of market data, including SMBC research reports. Much more than just a direct-trading channel, i-Deal offers many complementary func- tions that will enhance its value to customers in many aspects of their operations. In Japan, market participants have become highly sensitive to credit risk. Accordingly, we will pay increased attention to Key Goals The Treasury Unit has two basic goals: (1) to capture the No. 1 share of market-based products by supplying customers with services of the highest quality in the industry, and (2) to generate a steady flow of high-level earnings from trading activities by dynamically managing our market positions. With these goals in mind, we will continuously increase our expertise in financial engi- neering techniques, invest in state-of-the-art information manage- ment systems, and enhance our ability to monitor and analyze markets. Underpinning these activities is our personnel system, which enables the Bank to attract talented and motivated individ- uals by consistently offering remuneration packages tailored exclusively to each individual’s performance. Finally, because infrastructure and our ability to deploy it are also important, we will continue to upgrade systems and refine expertise in risk manage- managing market and liquidity risk in the conduct of our trading ment, compliance, and back-office operations. operations. In our banking operations, we will continue to maintain positions that afford adequate protection in the event of an upturn in interest rates. In trading operations, we intend to increase profit- generating opportunities presented by customer transactions and asset liability management (ALM) operations. Finally, we will continually enhance our ability to take on risk by fine-tuning our risk management framework. (cid:2) Treasury Unit Operation Chart Customers Corporate Business Office and branches Front office Planning Dept., Treasury Unit Treasury Marketing Dept. Deposits Treasury Dept. International Treasury Dept. Upgrading services in pursuit of enhanced customer satisfaction Loans ALM operations and liquidity management Planning/Research Customer transactions Banking services Treasury Unit ALM Operations, etc. Money/ Securities transactions Customer Order Flows Foreign exchange trading Derivatives trading CD-CP trading Trading Dept. Efficient operations based on customer order flows and ALM hedging flows Trading Interbank Market SMBC 2002 — 45 Investment Banking Unit 46 — SMBC 2002 Highlights of Fiscal 2001 Upon SMBC’s inception, the Investment Banking Unit immediately embarked on building a solid foundation by integrating a highly skilled team of specialists with a lineup of advanced financial products and services. From the start, our goal has been to provide corporate customers with optimal solutions, particularly for the raising of capital, risk-hedging tools, and business restructuring. During fiscal 2001, the year ended March 31, 2002, SMBC’s name value within the investment banking business was firmly established. Of particular note was growth in syndicated loans: SMBC achieved an increase of more than 40% in the total amount of domestic arrangements as compared to fiscal 2000 (the combined figure of the two former banks). In addition, we made progress in our services for securitizing debt by developing cutting-edge balance sheet management mechanisms. Specifically, leveraging the information-gathering capacity of the Internet we developed a mechanism that simulta- neously achieves pooling of small receivables, revolving credit, and consolidation to maximize the benefits of securitization. This mechanism has been particularly well received by our customers. Nonrecourse loans, where cash flows of a specific business are the sole source of loan repayment, is another strategic field. We are playing a leading role in financing for the Roppongi 6- chome District Redevelopment Project (photo, left), an immense undertaking in metropolitan Tokyo, which demonstrates SMBC’s expertise in raising huge funds for large projects. To meet the critical risk-management needs of clients, our derivatives sales engineers stationed at 11 major operating bases in Japan can propose sophisticated risk-hedging tools based not only on interest rates and currencies but also on weather patterns and commodities. No matter what our customers need, we stand prepared to provide optimal solutions. In the field of weather derivatives, ahead of other banks we have developed small-lot standardized products for each season of the year that meet our customers’ requirements for managing weather-related risks in various types of business. Strategic Focus on Growing Markets We will continue to position loan syndications as one of our core businesses. In this regard, we are taking steps to achieve further growth in this area in fiscal 2002. The securitization business is another strategic market, as it offers various means to help customers use their capital as efficiently as possible. Accordingly, we will place increasing importance on developing new mecha- nisms and concomitant systems to bring securitization services to a broader spectrum of customers. In other market sectors where we maintain solid positions, notably, derivatives and corporate bond trustee ser vices, SMBC will strengthen its standing among leading financial institutions. (cid:2) Investment Banking Unit Organization Domestic Business restructuring is a growing Planning Dept., Investment Banking Unit need among corporate customers. In this field, we have been pooling our resources Structured Finance Credit Dept. Asset Management Planning Dept., Investment Banking Unit with other Group companies to make Structured Finance Dept. • Planning for investment banking services • Inspection of investment banking transactions • Planning for defined contribution pension funds, investment management services • Securitization, project finance, institutional finance, lease financing, leveraged buyouts/ management buyouts, nonrecourse loans further inroads in such areas as M&A advisory services and MBO financings. Another business that we are expanding into is cross-border transactions. Drawing on Groupwide Resources Daiwa Securities SMBC Co. Ltd., estab- lished through an alliance between SMBC and Daiwa Securities Group Inc., for ms the nucleus of our investment banking strategy. The company’s activi- ties, ranging from wholesale securities distribution and M&A advisory services to securitization, have more recently expanded into such businesses as prin- cipal financing. During fiscal 2001, Daiwa Securities SMBC made steady progress toward fir mly establishing itself as Japan’s most powerful investment bank. A significant achievement in this regard was the company’s first-place ranking in the domestic straight bond league table for fiscal 2001. Building deeper ties with SMBC is likely to be a key factor in Daiwa Securities SMBC’s ability to further improve its stature and operating results. Financial Solutions Dept., Investment Banking Unit • Provision of total solution services Derivatives and Financial Engineering Dept. • Development and sales of derivatives Syndications Dept. • Syndicated loan origination and placements Corporate Finance Services Dept. • Corporate bond trustee services M&A Advisory Services Dept. • Mergers and acquisitions e-Business, Media and Telecom Dept. • Business support for IT-related companies Daiwa Securities SMBC Co. Ltd. • Wholesale securities business Sakura Friend Securities Co., Ltd. Meiko National Securities Co., Ltd. • Securities retailing DLJdirect SFG Securities Inc. • Online securities retailing SAKURA INVESTMENT MANAGEMENT CO., LTD. Daiwa SB Investments Ltd. • Investment advisory services, investment trust services Japan Pension Navigator Co., Ltd. • Consulting on and administration of defined contribution pension plans Overseas Structured Finance Dept. (Americas, Europe and Asia) • Project finance Syndications Dept. (Americas, Europe and Asia) • Syndication SMBC Capital Markets, Inc. SMBC Capital Markets Limited SMBC Derivative Products Limited • Derivatives business SMBC Securities, Inc. Overseas subsidiaries of Daiwa Securities SMBC Co. Ltd. • Wholesale securities business SMBC Leasing and Finance, Inc. • Lease financing We are responding quickly to oppor tunities arising from In investment management services, we have been restruc- changes in Japan’s pension systems. Dramatic changes in turing our business with the goal of establishing an operation pension regulations are currently a pressing management issue worthy of a leading bank. To this end, in December 2002 we will for many Japanese companies. In response, Japan Pension form Sumitomo Mitsui Asset Management Company, Limited, by Navigator Co., Ltd., formed chiefly by financial companies in the combining our 100%-owned subsidiary SAKURA INVESTMENT Mitsui and Sumitomo groups, is assisting companies in setting up MANAGEMENT CO., LTD., and four asset-management corporate defined contribution pension plans, now attracting much subsidiaries of Mitsui Mutual Life Insurance Company, Sumitomo attention in Japan. Meanwhile, we also serve individuals who are Life Insurance Company, and Mitsui Sumitomo Insurance considering the establishment of individual defined contribution Company, Limited. pension plans, allowed since January 4, 2002, by providing a full line of information and services, including asset management, at 99 branches throughout Japan. SMBC 2002 — 47 e-Business e-Business and IT Strategy One of our chief goals is to firmly establish SMBC as Japan’s leading financial institution in e-business. To this end, we are committed to providing the highest-caliber services on the Internet. SMBC and its Group companies have moved quickly to form alliances with corporate partners with cutting-edge IT, content, intranet and extranet infrastructures, and extensive customer bases. Through these alliances, SMBC has established portal sites, e-money, an Internet bank and an Internet securities house, and many other e-business models. Moreover, our business alliances have provided access to new marketing techniques. As a result, SMBC is successfully enhancing its banking functions in step with Japan’s increasingly Internet-based society. Looking ahead, growth in the business-to-business (B2B) and business-to-consumer (B2C) e-commerce shows no signs of slowing. At the core of our current online initiatives are the Bank’s two main Internet banking gateways: One’s Direct for individual consumers, and Value Door for corporate clients. To meet new business requirements certain to accompany the growing role of the Internet, the Bank intends to draw on the collective resources of Group companies. Importantly, we remain poised to respond to the emergence of new kinds of e-business, in all cases committed to offering settlement, credit, and other Internet services that promise to be secure as well as user-friendly. Initiatives for Corporate Clients SMBC Financial Link SMBC Financial Link is SMBC’s comprehensive package of corpo- rate financial services launched in August 2001 with the aim of creating a unified brand image for the entire range of B2B services offered by the SMBC Group. As a one-stop portal site, SMBC Financial Link offers a full line of financial services, including settle- ments, extensions of credit, authorizations, and bill collections, to corporate clients either conducting Internet-based businesses or using the Internet for specific business purposes. To establish this new brand of ser vice package, in May 2002 SMBC founded Financial Link Company, Limited, as a strategic subsidiary. Some selected financial products already began to be in service under the name of SMBC Financial Link in March 2002.* The new products employ uniform data specifications by XML in the provision of all products and services to minimize the systems development requirements of clients. This uniformity also stream- lines and accelerates clearing and settlement operations. Looking forward, SMBC Financial Link plans to bolster ties with other SMBC Group companies to offer clients an even broader array of products and services. * Five products currently in service are Corporate Net Settlement Service (EBPP; Electronic Bill Presentment and Payment), Invoice Combining Service, Accounts Receivable Reconciliation Service, Transfer Service of Factoring Request, and Transfer Service of Bill Collection Request. New Internet business initiatives (cid:2) SMBC Financial Link DLJdirect SFG Securities Inc. The Japan Net Bank, Limited Alliances with other banks and business sectors Electronic authentication, switching to electronic settlements Consumer-oriented portal site linked to all NetDebit member merchants Shopping Square Business support portal site for small and medium-sized companies NETdeBIZ.com Digital broadcasting network-based e-money service incorporating contactless IC technology Edy SMBC Financial Link Buyer e-Commerce market operator Seller Financial Link Company, Limited Financing Factoring, Charges forward, net lease Settlement Complete, Perfect, B2B house card, escrow Servicer Collection service, PAYWEB Authentication Electronic authentication, switching to electronic settlements B2C B2B SMBC Group Settlement service for Internet transactions NetDebit Comprehensive Corporate Financial Package SMBC Financial Link e-Payment service that eliminates the need for promissory notes Smart Clear O ne’s Direct Gateway to Internet banking services for individual consumers Value Door Gateway to Internet banking services for companies Supporting the transition to an Internet-based society SMBC Leasing Company, Limited SMBC Finance Co., Ltd. Sumitomo Mitsui Card Company, Limited SMBC QUOQ Inc. Mitsui Finance Service Co., Ltd. Group companies Smart Clear to Replace Bills Payable In January 2002, SMBC became the first Japanese bank to offer Smart Clear service, a cash advance mechanism without bills payable and bills discounted. The service enables supplier companies to apply for cash advances on their accounts receiv- able to SMBC via Internet without either preparing and sending any application form via facsimile or presenting any document. This service also helps a paying company to reduce the issuance of bills payable by simply transmitting data of its accounts payable to SMBC in place of issuing the bills payable to suppliers. Furthermore, the Smart Clear service automatically returns trade payable data to the paying company, furthering the reengineering 48 — SMBC 2002 of accounting operations. In addition, operating hours for dramatic growth in both the purchase amount and the number of accepting requests for cash advances on accounts receivable transactions by NetDebit. from suppliers have been extended. Thus, the convenient features Shopping Square, the portal site of all NetDebit member of Smart Clear make this service extremely user-friendly. merchants, is provided by SMBC on its Website so that SMBC intends to vigorously promote the Smart Clear service consumers can enjoy Internet shopping with the convenience to both paying and supplier companies. provided by NetDebit. Eliminating the need for promissory notes to make payments Paying company Internet (1) Transmission of payment data SMBC Smart Clear e-payment service Rationalization of accounting process Internet (2) Request for quick collection (3) Payment Quick collection Supplier company NETdeBIZ.com As a new marketing challenge using the Internet, SMBC collabo- rates with prominent companies in various industries such as NEC Corporation, Mitsui Sumitomo Insurance Company, Limited, MITSUI & CO., LTD., and Nikkei Business Publications, Inc., to offer NETdeBIZ.com, an innovative business support site to extend assistance to small and medium-sized companies. On the NETdeBIZ.com site and via e-mail, SMBC and other participating companies provide corporate clients with solutions that help to expand sales channels and support operational effi- ciency. The site also offers specialized information on taxation, accounting, and legal affairs. Currently, NETdeBIZ.com serves approximately 20,000 regis- tered members, chiefly company top management and executives. (http://www.netdebiz.com/) Membership (free registration) NETdeBIZ.com site Member database Information-gathering Content (information on member firms) Access Approach by e-mail Sales staff Business Web Marketing Consortium members (currently, 25 enterprises and trade associations) Small and medium- sized businesses (key person) B2C Market NetDebit@Shopping Square SMBC provides NetDebit, an Internet settlement service for consumers that enables simple and secured real-time debiting of Internet shoppers’ bank accounts at the point of purchase. In fiscal 2001, the year ended March 31, 2002, SMBC widened the scope of this service to the Internet-accessible mobile phone plat- for m. At the same time, many merchants, including major consumer electronics retailers and large travel agencies, newly joined as NetDebit members as a result of our effor t to spur Drawing on the SMBC Group’s strengths to fully develop NetDebit, we are working together with Sumitomo Mitsui Card Company, Limited, to encourage other financial institutions to join and offer this service to their customers. Through this alliance, SMBC aims to establish NetDebit as the de facto standard among Internet settlement services in Japan. In fiscal 2001, four banks newly began providing the NetDebit service. (cid:2) NetDebit Internet Settlement Service for Consumers NetDebit service customer (1) Order NetDebit-registered merchant (7) Order and settlement notice (3) Settlement processing screen (2) Settlement request (4) Enter ID and password to execute settlement (6) Settlement notice (5) Execution of fund transfer NetDebit service banks (SMBC, Japan Net Bank, and others) Edy Prepaid e-Money Service Edy is a prepaid electronic money (e-money) service incorpo- rating a contactless IC system, which is being applied extensively in public transport tickets and passes. One of the advantages of Edy is that it can be used for paying for purchases not only at convenience stores and fast-food restaurant chains but also for purchases of digital contents on the Internet, such as music, games, and software. Edy is currently based on a contactless IC card, that has no exposed communication terminal on its surface and requires no physical contact for processing data between IC reader/writers. Contactless IC can be incorporated in devices of any shape. In Japan, for example, the mobile phone is one of the most popular consumer electronics products and is a highly promising candidate for incorporating Edy. Furthermore, contact- less IC, with its enormous data storage and quick processing capabilities, has much room for adding functions to e-money. To exploit the technological advantages of Edy and contactless IC, we plan to eventually offer Edy as something more than just a new method of micropayment. Our goal is to create a more comprehensive and universal e-money service that also incorpo- rates, for example, a security pass, company employee ID, points program, and many other applications that correspond to what consumers want. SMBC 2002 — 49 Environmental Preservation Initiatives With the enactment of SMBC’s proprietary Environmental Policy, which lays out the guiding principles for our environmental initia- Supporting Customers’ Environmental Measures 1. In cooperation with the Japan Research Institute, Limited (JRI), tives, we have reaffirmed the Bank’s commitment to environ- the Bank offers consulting services on all aspects of environ- mental preservation. In 1998, we became the first Japanese bank mental management. to acquire ISO14001 certification for our environmental manage- ment system (EMS).* In our environmental policies, we empha- size environmental risk management and support our customers’ environmental measures. With this basic policy orientation, and under the leadership of our internal Environmental Initiatives Committee, which has overall responsibility for the Bank’s environ- mental initiatives, we conduct environmental preservation activi- ties throughout our entire organization. SMBC’s holistic approach to preserving the environment focuses on three initiatives: (1) reducing our own environmental impact, (2) assessing environmental risks, and (3) supporting our customers’ environmental measures. *SMBC’s Headquarters, Otemachi Head Office, and Kobe Head Office are ISO14001 certified. Reducing Our Environmental Impact 1. We employ electronic record-keeping to reduce our use of Customers SMBC JRI •Assistance in acquiring ISO certification •Environmental accounting •Soil contamination •Energy conservation •Environmental PFI (Private Finance Initiative) and other initiatives 2. We provide easy access to environment-related information via the bimonthly environmental magazine SAFE. Since March 2002, this magazine has been accessible through SMBC’s Website*, where we also make available one year’s worth of paper, recycle to the extent possible the paper that we use, and back issues of SAFE. vigorously implement various programs aimed at reducing our consumption of electricity, gas, and water. Starting March 2002, SAFE is accessible through SMBC’s Website. (Back issues for one year can also be viewed.) Wastepaper recycling for fiscal 2001, the year ended March 31, 2002 (Headquarters and four Head Office buildings): Quantity recycled Recycling ratio 1,260 tons 83.2 % 2. The Bank offers an environmental education program to all employees at domestic offices, departments, and branches. 3. We par ticipate in the Green Power cer tification system, whereby we purchase electricity that is derived from renewable energy sources. http://www.smbc.co.jp/aboutus/html/kankyo/kankyo.html *Available on SMBC’s Japanese-language Website only 3. We extend loans to fund environmental programs. 4. SMBC conducts corporate environmental seminars. Seminars held at our Otemachi Head Office and Osaka Head Office in March 2002 drew participants representing nearly 400 companies. ISO14001 certification Green Power certification Assessing Environmental Risks SMBC actively par ticipates in joint seminars with financial institutions and other companies to collect and study data and analyses of environmental risks such as soil contamination and other forms of environmental degradation. 50 — SMBC 2002 SMBC corporate environmental seminar During fiscal 2002, we are focusing especially on the following (4) Investor relations In North America and Europe, corporate environmental ratings are now commonly employed as a factor in evaluating compa- nies. Specifically, pension funds and other institutional investors are increasingly taking into account individual companies’ environmental activities when making investment decisions. In this context, the Bank will continue to pursue a proactive investor relations program targeted at investors and research organizations. Environmental Business Promotion System (1) Services for corporate clients Services for corporate clients Planning Department, Corporate Banking Unit; Business Promotion Department, Middle Market Banking Unit Planning Department, Investment Banking Unit; Derivatives and Financial Engineering Department; Structured Finance Department (4) Investor relations Investor relations Investor Relations Department, Corporate Planning Department; Public Relations Department JRI Public Relations Department (3) Services related to Services related to emission rights emission rights and other and other environment-related environment-related product markets product markets Planning Department, Treasury Unit (2) Services for consumers Services for consumers Planning Department, Consumer Banking Unit Monthly plenary reporting sessions Reflecting the Bank’s conviction that the environment is a key management issue, we will continue to pursue these and a range of other environment-oriented initiatives. By maintaining the focus of these initiatives on global environmental preservation, SMBC intends to reduce the economic risks associated with environ- mental degradation and gain society’s increasing trust as a responsible corporate citizen. activities: Participation in Tokyo Metropolitan Government’s Project to Establish a CO2-Reduction Voucher Market In an effort to slow the advance of global warming, the Tokyo Metropolitan Government has initiated a project to establish a market for trading CO2-reduction certificate vouchers. We have been an active participant in this project since its inception, and we also assist the Tokyo Metropolitan Government in an advisory capacity. Environmental Business Forum: Pursuing Environment-Related Business Opportunities To deepen SMBC’s involvement in environment-related businesses, we formed the Environmental Business Forum jointly with JRI, with whom we have also formed an advisory alliance. Under the auspices of the Bank’s Public Relations Department, this in-house project team aims to examine and capitalize on opportunities arising from public- and private-sector initiatives to preserve the environment as well as from individuals’ growing environmental consciousness. Specifically, the Environmental Business Forum intends to cultivate a new profit profile for the Bank. To fully realize the potential business opportunities outlined in (1) to (4), below, the Environmental Business Forum has set up investigative committees as required to study designated fields, and monthly meetings are held to facilitate information-sharing. (1) Corporate client services We will energetically provide information, extend credit, and offer other relevant support to those corporate clients proactively addressing environmental issues and developing proprietary environment-related businesses. a. Conduct surveys and other research regarding eco-businesses b. Develop loan products specifically geared to eco-financing c. Form sales strategies that prioritize environmental issues d. Produce an environmental awareness manual for distribution to all sales personnel (2) Consumer services We will investigate the range of consumer-oriented financial products and services linked to environmental issues, offered by financial institutions both in Japan and overseas. (3) Markets for environment-related financial products and services The Kyoto Protocol, a 1997 agreement calling for the global- scale reduction of greenhouse gas emissions, is expected to result in the creation of new environment-related financial markets. To the Bank, such markets represent increased investment and loan oppor tunities. Accordingly, we will examine investment opportunities and business prospects arising from newly established markets for environment- related financial products. SMBC 2002 — 51 Social Contribution Aiming to grow and develop together with society, SMBC makes we place at all of our branches, as well as from collection boxes at social contributions through a wide range of activities. Carried out such locations as airports. SMBC also has created a UNICEF under the leadership of the Corporate Citizenship Department, Donation Account, through which participating Bank customers these activities encompass two main areas: social welfare and donate their net interest to UNICEF and the Bank donates an international cooperation. SMBC also encourages and supports amount equivalent to customer donations. In these ways, SMBC employees’ participation in volunteer activities. supports UNICEF’s programs designed to help needy children in Social Welfare SMBC not only organizes and participates in a diverse range of social welfare activities, but also supports organizations devoted to social welfare causes to promote the creation of a more benev- olent society. SMBC Volunteer Fund developing countries. SMBC Global Foundation The SMBC Global Foundation provides scholarships to university students in Asian countries. Currently, the foundation is providing educational suppor t in Thailand, China, Indonesia, and Singapore. In addition, the foundation is expanding its social contribution and other activities in the United States. The SMBC Volunteer Fund makes donations both to domestic SMBC Foundation and international volunteer organizations dedicated to providing assistance in case of disasters and economic difficulties. This fund is financed by willing SMBC employees who make a volun- tary contribution of ¥100 per month. In fiscal 2001, the year ended March 31, 2002, SMBC donated approximately 16,000 of the two founding banks’ uniforms to African countries suffering from clothing shortages, with the shipping cost paid for out of this fund. Volunteering for the Japan Braille Library Under the guidance of voice-recording specialists, retired and Through its education and international exchange programs, the SMBC Foundation aims to help nurture the human resources neces- sary to achieve sustainable development in developing countries. To this end, the foundation offers scholarships to students and provides subsidies to researchers and research institutions around the world undertaking projects related to developing countries. Supporting Employees’ Volunteer Activities Believing that volunteer service gives employees an enhanced current SMBC employees and their family members volunteer understanding of society, SMBC actively supports employees’ their time to make tape-recorded readings for hearing- and participation in volunteer activities. speech-impaired persons, which the Bank then donates to the YUI Volunteer Organization Japan Braille Library, in Tokyo. As of April 30, 2002, SMBC had YUI is an SMBC volunteer organization conceived and managed presented 669 titles, totaling 3,231 audiotapes, to the library. collectively by member employees. The organization takes its Donating Voided Postcards and Unused Telephone Cards name from “yui,” a word used during the Edo period (1603 – 1868) SMBC encourages employees of the Bank and Group companies to refer to the cooperative to donate voided or otherwise unusable postcards and unused nature of agricultural work, telephone cards to volunteer groups. International Cooperation As a global financial institution, SMBC engages in a variety of international cooperation activities through its worldwide network of branches. Aiding Victims of September 11 Terrorist Attacks In addition to official donations made by the Bank, the members of management and employees of SMBC and other Group compa- nies made private donations to aid victims of the September 11 terrorist attacks in the United States. Moreover, the Bank estab- lished a special account for donations from the general public. Supporting UNICEF The Bank is an active promoter of UNICEF Coin Aid, a foreign coin collection donation program. In cooperation with Group company SMBC Green Service Co., Ltd., we periodi- cally collect and sor t by currency the coins from the UNICEF collection boxes that 52 — SMBC 2002 Coins collected by SMBC for UNICEF are sorted into their respective currencies. which relied for success on positive, mutually supportive relations among all community members. During fiscal 2001, proceeds from bazaars and movie screenings sponsored by YUI were donated to various social welfare organizations. Sign-Language Courses Member-donated goods are sold in order to raise funds for various social welfare organizations. SMBC offers annual sign-language courses to interested employees, thereby promoting communication with and enhanced understanding of persons with hearing disabilities. These courses not only contribute to improving the level of SMBC’s customer service but also enable and encourage employees to engage in volunteer activities requiring the use of sign language. Seminars for Experiencing Volunteer Activities SMBC holds after-work seminars that allow employees to experi- ence an array of volunteer activities, such as preparing picture books for children in developing countries and “experiencing” life as an elderly person. As a further step to encourage employees’ participation in volunteer activities, the Bank provides a variety of information related to volunteering. Financial Section CONTENTS Financial Review (Consolidated) ............................... 54 Summary of Significant Differences Financial Review (Nonconsolidated) ......................... 57 Consolidated Balance Sheet ..................................... 61 Consolidated Statement of Operations..................... 62 Consolidated Statement of between Japanese GAAP and U.S. GAAP .............. 89 Income Analysis (Consolidated) ................................ 92 Assets/Liabilities (Consolidated) ............................... 95 Income Analysis (Nonconsolidated) .......................... 97 Stockholders’ Equity ................................................ 63 Deposits (Nonconsolidated) ...................................... 102 Consolidated Statement of Cash Flows.................... 64 Loans (Nonconsolidated) ........................................... 104 Notes to Consolidated Financial Statements ........... 66 Securities (Nonconsolidated)..................................... 108 Report of Independent Public Accountants.............. 86 Capital Ratio ............................................................... 110 Supplemental Information.......................................... 87 Ratios (Nonconsolidated)........................................... 111 Combined Consolidated Capital (Nonconsolidated) ......................................... 113 Balance Sheet (Unaudited) ................................... 87 Combined Consolidated Statement of Income (Unaudited) ......................... 88 Others (Nonconsolidated) .......................................... 117 SMBC 2002 — 53 The following is a summary of the consolidated and nonconsolidated financial statements for the year ended March 31, 2002. Figures for the year ended March 31, 2001, are combined figures for the former Sakura Bank and the former Sumitomo Bank. Financial Review (Consolidated) 1. Operating Results Consolidated results for fiscal 2001, the year ended March 31, 2002, include the results of 144 consolidated sub- sidiaries (98 in Japan and 46 overseas) and 38 subsidiaries and affiliates accounted for by the equity method (10 in Japan and 28 overseas). Compared with fiscal 2000, the number of consolidated subsidiaries declined by five and that of affiliates by three. Consolidated gross profit posted a year-on-year increase of ¥239.8 billion, to ¥2,077.7 billion. The deduction of gen- eral and administrative expenses, total credit cost, and other items resulted in an operating loss of ¥580.6 billion, a ¥1,075.2 billion decrease compared with the figure for the previous fiscal year. This loss was chiefly the result of lower nonconsolidated earnings due to an increase in credit cost, including off-balancing, or the removal of nonperforming loans from the balance sheet. Extraordinary losses, income taxes, and minority interests resulted in a net loss of ¥463.9 billion, a ¥596.3 billion decrease compared with the figure for the previous fiscal year. Deposits (excluding negotiable certificates of deposit) as of March 31, 2002, were ¥64,986.0 billion, a ¥1,936.9 billion increase over the figure as of March 31, 2001. Loans and bills discounted as of March 31, 2002, declined ¥1,891.5 billion from the figure at the previous fiscal year-end, to ¥63,645.6 billion, and securities decreased ¥6,617.9 billion, to ¥20,694.6 billion. For fiscal 2001, the Bank newly adopted mark-to-market accounting for other securities and other money held in trust. (Please refer to Note 29, beginning on page 75 of the “Notes to Consolidated Financial Statements,” for more information.) As a result, other securities are valued at the market prices on the consolidated balance sheet, and the dif- ference between acquisition costs and market values (unreal- ized gains or losses) is itemized as “Net unrealized losses on other securities” under “Stockholders’ equity” on the consol- idated balance sheet. As of March 31, 2002, net unrealized losses on other securities and other money held in trust totaled ¥499.3 billion, and net unrealized losses on other securities was ¥304.8 billion. Consequently, total assets as of March 31, 2002, declined ¥11,237.7 billion from the previous fiscal year-end, to ¥108,005.0 billion. Number of Consolidated Subsidiaries, and Subsidiaries and Affiliates Accounted for by the Equity Method March 31 Consolidated subsidiaries................................................................................................... Subsidiaries and affiliates accounted for by the equity method.......................................... 2002 (A) 144 38 2001 (B) 149 41 Increase (decrease) (A)–(B) (5) (3) 54 — SMBC 2002 Income Summary Year ended March 31 Consolidated gross profit .................................................................................................... Net interest income........................................................................................................ Net fees and commissions ............................................................................................ Net trading income ........................................................................................................ Net other operating income ........................................................................................... General and administrative expenses ................................................................................ Total credit cost .................................................................................................................. Write-off of loans ........................................................................................................... Transfer to specific reserve ........................................................................................... Transfer to general reserve for possible loan losses ..................................................... Others ............................................................................................................................ Gains (losses) on stocks..................................................................................................... Equity in earnings of affiliates .............................................................................................. Other income (expenses) ................................................................................................... Operating profit (loss) ......................................................................................................... Extraordinary gains (losses) ............................................................................................... Income (loss) before income taxes and minority interests.................................................. Income taxes, current ........................................................................................................ deferred ....................................................................................................... Minority interests in net income .......................................................................................... 2002 (A) ¥2,077,681 1,449,783 319,532 129,432 178,932 ¥ (935,553) (1,703,363) (391,923) (681,457) (527,445) (102,537) ¥ (17,808) 2,964 (4,547) ¥ (580,628) (23,710) (604,338) (101,860) 289,305 (46,993) Millions of yen 2001 (B) ¥1,837,905 1,323,534 316,315 109,036 89,016 ¥ (940,889) (992,909) (814,423) (258,539) 209,539 (129,484) ¥ 468,467 44,362 77,681 ¥ 494,617 (89,102) 405,514 (65,530) (198,227) (9,346) Increase (decrease) (A)–(B) ¥ 239,776 126,249 3,217 20,396 89,916 ¥ 5,336 (710,454) 422,500 (422,918) (736,984) 26,947 ¥ (486,275) (41,398) (82,228) ¥(1,075,245) 65,392 (1,009,852) (36,330) 487,532 (37,647) Net income (loss)................................................................................................................ ¥ (463,887) ¥ 132,408 ¥ (596,295) [Reference] Consolidated banking profit (Billions of yen)....................................................................... ¥ 991.9 ¥ 833.2 ¥ 158.7 Notes: 1. Consolidated gross profit = (Interest income – Interest expenses) + (Fees and commissions (income) – Fees and commissions (expenses)) + (Trading profits – Trading losses) + (Other operating income – Other operating expenses) 2. Consolidated banking profit = Nonconsolidated banking profit (excluding transfer to general reserve for possible loan losses) + Subsidiaries’ operating profit (excluding temporary factors) + Affiliates’ operating profit x Ownership ratio – Internal transactions (dividends, etc.) Assets, Liabilities, and Stockholders’ Equity Millions of yen March 31 Assets ................................................................................................................................. Loans and bills discounted ............................................................................................ Securities ....................................................................................................................... Liabilities ............................................................................................................................. Deposits (excluding negotiable certificates of deposit).................................................. Minority interests................................................................................................................. Stockholders’ equity............................................................................................................ Increase (decrease) (A)–(B) 2002 (A) 2001 (B) ¥108,005,001 ¥119,242,661 ¥(11,237,660) (1,891,505) 65,537,091 (6,617,866) 27,312,498 (10,130,570) 114,239,104 1,936,925 63,049,051 (6,748) 990,595 (1,100,341) 4,012,960 63,645,586 20,694,632 104,108,534 64,985,976 983,847 2,912,619 SMBC 2002 — 55 2. Unrealized Gains (Losses) on Securities As of March 31, 2002, net unrealized losses on securities were ¥498.4 billion, an ¥823.9 billion decline compared with the figure as of April 1, 2001, at the time of the merger. Net unrealized losses on other securities and other money held in trust amounted to ¥499.3 billion as of March 31, 2002, an ¥824.9 billion decline compared with the figure as of April 1, 2001. This significant amount of unrealized losses Unrealized Gains (Losses) on Securities on other securities is attributable to a ¥603.4 billion decline in the March 31, 2002, market value of stocks compared with their April 1, 2001, market value. This drop reflects Japan’s persistent economic downturn as well as the fall in stock prices sparked by global economic uncertainty in the wake of the September 2001 terrorist attacks in the United States. March 31, 2002, and April 1, 2001 Held-to-maturity securities............ Other securities ........................... Stocks...................................... Bonds ...................................... Others...................................... Other money held in trust ............. Total.............................................. Stocks...................................... Bonds ...................................... Others...................................... March 31, 2002 April 1, 2001* Millions of yen Net unrealized gains (losses) (A) ¥ 892 (495,507) (509,305) 36,459 (22,661) (3,825) (498,440) (509,305) 36,634 (25,769) (A)–(B) ¥ 972 (824,657) (603,394) (73,994) (147,266) (211) (823,894) (603,394) (73,822) (146,676) Unrealized gains ¥ 1,262 260,042 192,620 58,810 8,610 135 261,440 192,620 59,303 9,515 Unrealized losses ¥ (370) (755,549) (701,926) (22,351) (31,271) (3,960) (759,881) (701,926) (22,669) (35,284) Net unrealized gains (losses) (B) ¥ (80) 329,150 94,089 110,453 124,605 (3,614) Unrealized gains ¥ 49 661,071 408,737 113,651 138,680 811 325,454 94,089 110,456 120,907 661,931 408,737 113,654 139,538 Unrealized losses ¥ (130) (331,920) (314,648) (3,195) (14,074) (4,426) (336,478) (314,648) (3,196) (18,630) Notes: 1. The figures above include unrealized gains (losses) on negotiable certificates of deposit in “deposits with banks” and commercial papers as well as claims on loan trust in “commercial paper and other debt purchased.” 2. In principle, the values of stocks as of March 31, 2002, are calculated using the average market prices during the final month of the year ended March 31, 2002. The values of bonds and others are calculated using market prices as of March 31, 2002. 3. Unrealized gains (losses) as of April 1, 2001 (after the merger), are calculated by evaluating the book values of the former Sakura Bank’s other secu- rities that had unrealized losses at the market prices as of March 31, 2001. 4. “Other securities” and “other money held in trust” as of March 31, 2002, are valued at market price. Consequently, the figures in the above table indicate the differences between the acquisition costs (or amortized costs) and the balance sheet amounts. * Figures reflects adjustments for merger accounting. 3. Consolidated Capital Ratio (BIS Guidelines) As of March 31, 2002, the Bank’s consolidated capital ratio (BIS guidelines) was 10.45%. (Please refer to the “Capital Ratio” section on page 110 for more information.) Total capital, which constitutes the numerator in the capi- tal ratio calculation equation, was ¥7,060.8 billion as of March 31, 2002. This decline resulted from the adjustment for merger accounting and the inclusion of unrealized losses Consolidated Capital Ratio (BIS Guidelines) on other securities in Tier I capital. Risk-adjusted assets, the denominator in the equation used to calculate the capital ratio, stood at ¥67,548.0 billion. This decline is mainly attributable to the adjustment for merger accounting and a decline in balance sheet assets resulting chiefly from the Bank’s adoption of mark-to-market accounting for other securities. March 31 Tier I capital (A)............................................................................................................................ ¥ 3,719,366 3,504,772 Tier II capital (B)........................................................................................................................... (163,331) Deductions (C) ............................................................................................................................. Sakura Bank Sumitomo Bank ¥ 2,496,449 ¥ 2,258,261 1,995,364 (103,632) 1,351,627 (13,752) Total capital (D) = (A) + (B) – (C) ................................................................................................. ¥ 7,060,807 ¥ 3,834,324 ¥ 4,149,993 Risk-adjusted assets (E) .............................................................................................................. ¥67,548,012 Capital ratio (BIS guidelines) = (D)/(E) × 100............................................................................... 10.45% ¥33,891,414 ¥37,925,221 11.31% 10.94% Millions of yen 2002 2001 56 — SMBC 2002 Financial Review (Nonconsolidated) 1. Operating Results Banking profit (excluding transfer to general reserve for pos- sible loan losses) increased ¥380.3 billion to ¥1,183.4 bil- lion, the result of a ¥350.3 billion year-on-year increase in gross banking profit and a ¥30.0 billion decrease in expenses (excluding nonrecurring losses). The operating loss, calculated by adjusting banking profit (excluding transfer to general reserve for possible loan losses) for nonrecurring items including total credit cost and losses on stocks, was ¥522.1 billion. Total credit cost (including transfer to general reserve for possible loan losses) amounted to ¥1,543.1 billion, the result of accelerated off-balancing of problem assets during the period as well as a review of classifications of borrowers and associated increases in reserve ratios to prepare the Bank for possible future deterioration in asset quality. Losses on stocks totaled ¥130.7 billion. After deducting extraordinary losses and income taxes from the operating loss, the net loss amounted to ¥322.8 billion. 2. Income Analysis Gross Banking Profit Gross banking profit increased ¥350.3 billion over the previ- ous fiscal year’s figure, to ¥1,853.5 billion. Gross banking profit from domestic operations decreased ¥2.8 billion from the figure for the previous fiscal year. Although net gains on bonds increased ¥47.0 billion compared with the previous fiscal year’s figure, net interest income declined ¥29.8 billion Banking Profit as the loan balance fell owing to a downturn in demand for loans among corporate borrowers. Meanwhile, gross banking profit from international operations rose ¥353.1 billion over the previous fiscal year’s result, largely owing to a ¥265.6 billion increase in net interest income, including favorable gains on foreign currency denominated treasuries due to the decline in U.S. dollar based interest rates and growth in divi- dends from overseas subsidiaries. A ¥34.1 billion increase in trading profit is also a contribution to a favorable perfor- mance in international operations. Expenses Expenses (excluding nonrecurring losses) decreased ¥30.0 billion compared with the figure for the previous fiscal year, to ¥670.1 billion. This was mainly attributable to a ¥22.2 billion decline in personnel expenses largely due to a reduc- tion in employees, which offset a ¥16.6 billion rise in sys- tems integration expenses related to the merger. The integration of branches within Japan and overseas and revi- sions to the procurement system led to a ¥4.0 billion decrease in nonpersonnel expenses. The remainder of the decrease in expenses was due to a ¥3.8 billion decline in taxes. Banking Profit Banking profit (excluding transfer to general reserve for pos- sible loan losses) increased ¥380.3 billion over the previous fiscal year’s figure, to ¥1,183.4 billion. Banking profit decreased ¥312.9 billion, to ¥678.8 billion. Year ended March 31 Gross banking profit............................................................................................................ Gross banking profit (excluding gains (losses) on bonds) .................................................. Net interest income........................................................................................................ Net fees and commissions ............................................................................................ Net trading income ........................................................................................................ Net other operating income ........................................................................................... Gross domestic banking profit ....................................................................................... Gross international banking profit .................................................................................. Transfer to general reserve for possible loan losses .......................................................... Expenses (excluding nonrecurring losses) ......................................................................... Personnel expenses ...................................................................................................... Nonpersonnel expenses ................................................................................................ Taxes ............................................................................................................................. Banking profit...................................................................................................................... Banking profit (excluding transfer to general reserve for possible loan losses)........................ Banking profit (excluding transfer to general reserve for possible loan losses and gains (losses) on bonds) .......................................................... 2002 (A) ¥1,853,515 1,786,954 1,476,512 165,272 121,289 90,440 1,256,373 597,141 ¥ (504,558) (670,145) (271,788) (366,637) (31,719) ¥ 678,811 1,183,369 Millions of yen 2001 (B) ¥1,503,203 1,494,407 1,240,731 150,692 95,385 16,393 1,259,215 243,987 ¥ 188,596 (700,128) (294,004) (370,589) (35,533) ¥ 991,670 803,073 Increase (decrease) (A)–(B) ¥ 350,312 292,547 235,781 14,580 25,904 74,047 (2,842) 353,154 ¥(693,154) 29,983 22,216 3,952 3,814 ¥(312,859) 380,296 1,116,808 794,277 322,531 SMBC 2002 — 57 Nonrecurring Losses (Credit Costs, etc.) Nonrecurring losses amounted to ¥1,200.9 billion, with a credit cost of ¥1,038.5 billion as the main component. (Total credit cost, including transfer to general reserve for possible loan losses, amounted to ¥1,543.1 billion.) Other nonrecurring items included losses on stocks of ¥130.7 billion, mainly attributable to the devaluation of stocks based on the Bank’s self-assessment of its stock portfolio. (Please refer to the “Asset Quality” section beginning on page 8 for more information on problem-loan balances and progress in reducing such loans.) Operating Profit (Loss) As a result of the foregoing, the operating loss amounted to ¥522.1 billion, an ¥881.3 billion decrease compared with the figure for the previous fiscal year. Extraordinary Gains (Losses) The major components of extraordinary gains (losses) of ¥14.5 billion were a gain of ¥22.2 billion from distributions received from the dissolution of subsidiaries and ¥14.2 bil- lion in losses on the disposition of premises and equipment. The loss was largely due to restructuring and merger-related measures that were implemented ahead of schedule. In par- ticular, the Bank recorded losses on sales of closed branches and abolished employee housing, as well as losses related to their restoration or disposition. Another component of the loss was amortization of ¥20.2 billion in net transition obligations from initial application of the new accounting standard for employee retirement benefits. Net Income (Loss) The current portion of income taxes totaled ¥32.7 billion, while the deferred portion was ¥246.5 billion under tax-effect accounting. As a result, the net loss was ¥322.8 billion, a ¥460.7 billion decrease compared with the figure for the previ- ous fiscal year. Operating Profit and Net Income Year ended March 31 Banking profit (excluding transfer to general reserve for possible loan losses).................. Transfer to general reserve for possible loan losses .......................................................... Banking profit...................................................................................................................... Nonrecurring gains (losses)................................................................................................ Total credit cost ............................................................................................................. Write-off of loans ...................................................................................................... Transfer to specific reserve ...................................................................................... Transfer to reserve for losses on loans sold............................................................. Losses on loans sold to CCPC................................................................................. Losses on sale of delinquent loans .......................................................................... Transfer to loan loss reserve for specific overseas countries................................... Gains (losses) on stocks ............................................................................................... Gains on sale of stocks ............................................................................................ Losses on sale of stocks .......................................................................................... Losses on devaluation of stocks............................................................................... Operating profit (loss) ......................................................................................................... Extraordinary gains (losses) ............................................................................................... Gains (losses) on disposition of premises and equipment ............................................ Amortization of net transition obligation from initial application of the new accounting standard for employee retirement benefits ........................................ Income taxes, current ......................................................................................................... Income taxes, deferred ....................................................................................................... Effect of the introduction of enterprise taxes on the banking industry 2002 (A) ¥ 1,183,369 (504,558) ¥ 678,811 (1,200,917) (1,543,078) (283,895) (663,184) (37,034) (8,363) (50,589) 4,546 (130,689) 54,196 (54,300) (130,585) ¥ (522,106) (14,531) (14,201) (20,167) (32,737) 246,522 Millions of yen 2001 (B) ¥ 803,073 188,596 ¥ 991,670 (632,502) (819,103) (741,432) (156,496) (52,917) (31,745) (25,108) 2 311,421 496,241 (66,761) (118,057) ¥ 359,167 (86,056) (30,533) (56,528) (9,526) (125,747) Increase (decrease) (A)–(B) ¥ 380,296 (693,154) ¥(312,859) (568,415) (723,975) 457,537 (506,688) 15,883 23,382 (25,481) 4,544 (442,110) (442,045) 12,461 (12,528) ¥(881,273) 71,525 16,332 36,361 (23,211) 372,269 by the Osaka Prefectural Government ........................................................................ — (32,038) 32,038 Net income (loss)................................................................................................................ ¥ (322,852) ¥ 137,835 ¥(460,687) Note: Total credit cost includes transfer to general reserve for possible loan losses. 58 — SMBC 2002 3. Assets, Liabilities, and Stockholders’ Equity Assets Nonconsolidated bank assets as of March 31, 2002, were ¥102,082.6 billion, an ¥11,644.9 billion decrease compared with the figure as of March 31, 2001. Loans and bills dis- counted decreased ¥1,819.5 billion, to ¥59,928.4 billion, owing to weak corporate loan demand amid the prolonged economic slump. Securities decreased ¥6,617.0 billion, to ¥20,443.0 billion, owing to the sale and redemption of short-term Japanese government bonds purchased in the sec- ond half of the year ended March 31, 2001, as interest rates declined. Liabilities Liabilities as of March 31, 2002, were ¥98,886.1 billion, a ¥10,641.5 billion decrease from the figure as of March 31, 2001. The termination of full deposit insurance caused deposits to increase ¥2,010.5 billion, to ¥61,051.8 billion. Negotiable certificates of deposit decreased ¥5,110.9 billion, to ¥6,577.5 billion. Stockholders’ Equity Stockholders’ equity was ¥3,196.5 billion as of March 31, 2002, a ¥1,003.4 billion decrease compared with the figure as of March 31, 2001. A partial reason for this decline was the ¥427.0 billion reduction in equity of the former Sakura Bank prior to the transfer of its equity to SMBC upon the merger. This reduction comprised two items: charges result- ing from the revaluation of land used for business operations and the application of mark-to-market accounting on securi- ties where unrealized losses existed, and the provision of a reserve for unrecognized obligation for payments of employ- ees’ prior-service retirement benefits. Also contributing to the decline in stockholders’ equity were the net loss of ¥322.8 billion as well as net unrealized losses on other secu- rities of ¥298.0 billion, the result of tax-effect accounting adjustments to net unrealized losses on other securities and other money held in trust, in accordance with the newly adopted mark-to-market accounting standard. On the other hand, the conversion of yen-denominated convertible bonds maturing in 2001 to common stock contributed ¥100.0 bil- lion to stockholders’ equity. As of March 31, 2002, there were 5,709 million shares of common stock and 967 million shares of preferred stock of the Bank outstanding. Excluding preferred stock, stockhold- ers’ equity per share was ¥332.02. Assets, Liabilities, and Stockholders’ Equity Millions of yen March 31 Assets ................................................................................................................................. Loans and bills discounted ............................................................................................ Securities ....................................................................................................................... Liabilities ............................................................................................................................. Deposits......................................................................................................................... Negotiable certificates of deposit................................................................................... Stockholders’ equity............................................................................................................ Increase (decrease) (A)–(B) 2002 (A) 2001 (B) ¥102,082,581 ¥113,727,498 ¥(11,644,917) (1,819,512) 61,747,880 59,928,368 (6,616,982) 20,442,996 27,059,978 (10,641,471) 98,886,088 109,527,559 2,010,500 59,041,313 61,051,813 (5,110,920) 11,688,459 6,577,539 (1,003,445) 4,199,937 3,196,492 SMBC 2002 — 59 4. Unrealized Gains (Losses) on Securities As of March 31, 2002, net unrealized losses on securities amounted to ¥484.4 billion, a ¥679.1 billion decline com- pared with the figure as of April 1, 2001, at the time of the merger. Net unrealized losses on other securities and on other money held in trust, which are deducted from stock- holders’ equity beginning from the fiscal year under review in accordance with the adoption of mark-to-market account- ing, amounted to ¥485.5 billion, a ¥682.3 billion decline Unrealized Gains (Losses) on Securities compared with the figure as of April 1, 2001. The significant amount of unrealized losses on other secu- rities is attributable to a ¥594.7 billion decline in net unre- alized gains on stocks compared with the figure as of April 1, 2001. This drop reflects Japan’s persistent economic downturn as well as the fall in stock prices sparked by global economic uncertainty in the wake of the September 2001 terrorist attacks in the United States. March 31, 2002 April 1, 2001* Millions of yen Net unrealized gains (losses) (A) March 31, 2002, and April 1, 2001 Held-to-maturity securities.................... ¥ 1,146 (101) Stocks of subsidiaries and affiliates ..... (481,654) Other securities .................................... Stocks ............................................. (500,897) 37,783 Bonds .............................................. (18,540) Others ............................................. (3,825) Other money held in trust ..................... Total ................................................... Stocks ............................................. Bonds .............................................. Others ............................................. (484,434) (500,999) 38,214 (21,650) (A)–(B) ¥ 1,206 2,000 (682,065) (594,680) (67,182) (20,204) (211) (679,069) (592,680) (66,751) (19,638) Unrealized gains ¥ 1,165 12,740 244,238 180,943 55,597 7,696 135 258,279 193,684 56,029 8,566 Unrealized losses ¥ (19) (12,841) (725,892) (681,841) (17,814) (26,236) (3,960) (742,714) (694,683) (17,814) (30,216) Net unrealized gains (losses) (B) ¥ (60) (2,101) 200,411 93,783 104,965 1,664 (3,614) Unrealized gains ¥ 1 6,249 505,260 387,839 107,521 9,899 811 194,635 91,681 104,965 (2,012) 512,324 394,089 107,521 10,713 Unrealized losses ¥ (61) (8,351) (304,849) (294,056) (2,556) (8,236) (4,426) (317,690) (302,408) (2,556) (12,725) Notes: 1. The figures above include unrealized gains (losses) on negotiable certificates of deposit in “deposits with banks” and commercial papers as well as claims on loan trust in “commercial paper and other debt purchased.” 2. The values of stocks excluding stocks of subsidiaries and affiliates as of March 31, 2002, are calculated using average market prices during the final month of the year ended March 31, 2002. The values of bonds and others are calculated using market prices at March 31, 2002. 3. Unrealized gains (losses) as of April 1, 2001 (after the merger), are calculated by evaluating the book values of the former Sakura Bank’s other secu- rities that had unrealized losses at the market prices as of March 31, 2001. 4. “Other securities” and “other money held in trust” as of March 31, 2002, are valued at market prices. Consequently, the figures in the above table indicate the differences between the acquisition costs (or amortized costs) and the balance sheet amounts. * Figures reflect adjustments for merger accounting. 5. Dividend Policy Given its public nature and respecting the interests of stock- holders, the Bank subscribes to a fundamental policy of pay- ing dividends as deemed appropriate in view of the need to increase capital and preserve sound management. After appropriating retained earnings to increase capital and in recognition of the year’s large net loss, the Bank paid an annual dividend of ¥4.00 per share of common stock, ¥2.00 less than for the previous fiscal year. Annual dividends for preferred stock were set at ¥10.50 per share for First series Type 1, ¥28.50 per share for Second series Type 1, and ¥13.70 per share for Type 5, unchanged from the previous fiscal year. 60 — SMBC 2002 Consolidated Balance Sheet Sumitomo Mitsui Banking Corporation and Subsidiaries March 31, 2002 Assets Cash and due from banks (Note 9) ................................................................................................ Deposits with banks (Notes 9, 29) ................................................................................................. Call loans and bills bought ............................................................................................................. Receivables under resale agreements........................................................................................... Commercial paper and other debt purchased (Note 29) ................................................................ Trading assets (Notes 3, 9, 29) ...................................................................................................... Money held in trust (Note 29) ......................................................................................................... Securities (Notes 4, 9, 29).............................................................................................................. Loans and bills discounted (Notes 5, 9) ......................................................................................... Foreign exchanges......................................................................................................................... Other assets (Notes 6, 9) ............................................................................................................... Premises and equipment (Notes 7, 9, 16)...................................................................................... Lease assets (Note 8) .................................................................................................................... Deferred tax assets (Note 25) ........................................................................................................ Deferred tax assets for land revaluation (Note 16) ........................................................................ Goodwill ......................................................................................................................................... Customers’ liabilities for acceptances and guarantees .................................................................. Reserve for possible loan losses ................................................................................................... Total assets .................................................................................................................................. Liabilities, minority interests and stockholders’ equity Liabilities Deposits (Notes 9, 10) ................................................................................................................... Call money and bills sold (Note 9) ................................................................................................. Payables under repurchase agreements (Note 9) ......................................................................... Commercial paper .......................................................................................................................... Trading liabilities (Notes 9, 11)....................................................................................................... Borrowed money (Notes 9, 12) ...................................................................................................... Foreign exchanges......................................................................................................................... Bonds (Note 13) ............................................................................................................................. Convertible bonds (Note 14) .......................................................................................................... Pledged money for securities lending transactions (Note 9) .......................................................... Other liabilities (Notes 9, 15) .......................................................................................................... Reserve for employee bonuses ..................................................................................................... Reserve for employee retirement benefits (Note 26) ..................................................................... Reserve for possible losses on loans sold ..................................................................................... Other reserves ............................................................................................................................... Deferred tax liabilities (Note 25) ..................................................................................................... Deferred tax liabilities for land revaluation (Notes 16, 25) ............................................................. Acceptances and guarantees (Note 9)........................................................................................... Total liabilities .............................................................................................................................. Millions of yen Millions of U.S. dollars (Note 1) ¥ 2,128,742 3,503,554 720,154 793,266 461,879 3,278,105 33,860 20,694,632 63,645,586 795,755 6,447,644 1,207,589 927,120 1,882,464 726 18,518 3,625,047 (2,159,649) ¥108,005,001 ¥ 71,648,073 10,775,484 1,468,504 1,167,500 2,331,500 2,889,907 299,610 3,505,820 1,106 3,174,799 2,861,669 21,606 147,972 86,371 336 39,206 64,015 3,625,047 ¥104,108,534 $ 15,976 26,293 5,405 5,953 3,466 24,601 254 155,307 477,640 5,972 48,388 9,063 6,958 14,127 5 139 27,205 (16,208) $810,544 $537,697 80,867 11,021 8,762 17,497 21,688 2,248 26,310 8 23,826 21,476 162 1,110 648 3 294 480 27,205 $781,302 Minority interests (Note 17) ......................................................................................................... ¥ 983,847 $ 7,384 Stockholders’ equity (Note 18) Preferred stock; authorized 970,000,000 shares and issued 967,000,000 shares ........................ Common stock; authorized 15,000,000,000 shares and issued 5,709,424,395 shares ................ Capital surplus (Note 18) ............................................................................................................... Land revaluation excess (Note 16) ................................................................................................ Retained earnings (Note 18) .......................................................................................................... Net unrealized losses on other securities (Note 29) ...................................................................... Foreign currency translation adjustments ...................................................................................... Treasury stock................................................................................................................................ Parent bank stock held by subsidiaries .......................................................................................... Total stockholders’ equity........................................................................................................... Total liabilities, minority interests and stockholders’ equity................................................... ¥ 650,500 676,246 1,326,758 121,244 475,357 (304,837) (15,174) (283) (17,191) ¥ 2,912,619 ¥108,005,001 See accompanying notes to consolidated financial statements. $ 4,882 5,075 9,957 910 3,567 (2,288) (114) (2) (129) $ 21,858 $810,544 SMBC 2002 — 61 Consolidated Statement of Operations Sumitomo Mitsui Banking Corporation and Subsidiaries Year ended March 31, 2002 Income Interest income: Millions of yen Millions of U.S. dollars (Note 1) Interest on loans and discounts ................................................................................................ Interest and dividends on securities.......................................................................................... Interest on receivables under resale agreements ..................................................................... Interest on deposits with banks................................................................................................. Other interest income................................................................................................................ Fees and commissions (Note 19) .................................................................................................. Trading profits (Note 20) ................................................................................................................ Other operating income (Note 21).................................................................................................. Other income (Note 22).................................................................................................................. Total income ................................................................................................................................. Expenses Interest expenses: Interest on deposits................................................................................................................... Interest on borrowings and rediscounts .................................................................................... Interest on payables under repurchase agreements................................................................. Interest on bonds and convertible bonds .................................................................................. Other interest expenses ............................................................................................................ Fees and commissions (Note 19) .................................................................................................. Trading losses (Note 20) ................................................................................................................ Other operating expenses (Note 23) .............................................................................................. General and administrative expenses ............................................................................................ Transfer to reserve for possible loan losses .................................................................................. Other expenses (Notes 24, 25) ...................................................................................................... Total expenses ............................................................................................................................. Loss before income taxes and minority interests .................................................................... Income taxes (Note 25): Current ...................................................................................................................................... Deferred .................................................................................................................................... Minority interests in net income...................................................................................................... Net loss ......................................................................................................................................... ¥1,426,139 318,508 8,399 186,892 236,745 387,280 129,450 845,583 270,130 ¥3,809,130 ¥ 347,077 75,989 29,238 86,926 187,670 67,747 17 666,651 935,553 1,204,335 812,261 ¥4,413,469 ¥ 604,338 ¥ 101,860 (289,305) ¥ (187,445) ¥ 46,993 ¥ 463,887 $10,703 2,390 63 1,402 1,777 2,907 971 6,346 2,027 $28,586 $ 2,605 570 219 652 1,409 508 0 5,003 7,021 9,038 6,096 $33,121 $ 4,535 $ 764 (2,171) $ (1,407) $ 353 $ 3,481 Per share data: Net loss ..................................................................................................................................... Declared dividends on common stock ...................................................................................... Declared dividends on preferred stock (First series Type 1)..................................................... Declared dividends on preferred stock (Second series Type 1) .............................................. Declared dividends on preferred stock (Type 5) ...................................................................... ¥84.12 4.00 10.50 28.50 13.70 $0.63 0.03 0.08 0.21 0.10 See accompanying notes to consolidated financial statements. Yen U.S. dollars (Note 1) 62 — SMBC 2002 Consolidated Statement of Stockholders’ Equity Sumitomo Mitsui Banking Corporation and Subsidiaries Millions of yen Preferred stock Common stock Capital surplus Land revaluation excess Retained earnings Net unrealized losses on other securities Foreign currency translation adjustments ¥250,500 400,309 ¥502,348 ¥ 643,080 991,326 123,542 ¥167,613 42,690 ¥319,924 ¥ — ¥(32,171) 296,313 Other* Total ¥(14,144) ¥1,837,151 1,854,139 (42) 20,366 (96,404) (20,939) (4,555) (101,533) Year ended March 31, 2002 Balance at March 31, 2001 .......................... Merger with The Sakura Bank, Limited ....... Change due to increase/decrease of subsidiaries and affiliates ....................... Conversion of preferred stock to common stock ............................................ (309) 309 Conversion of convertible bonds to common stock ............................................ Change of effective tax rates and others...... Cash dividends paid .................................... Transfer from capital surplus to retained earnings (Note 18)........................ Revaluation of land....................................... Transfer from land revaluation excess to retained earnings........................................ Merger with a subsidiary .............................. Net loss ........................................................ Adoption of accounting standards for financial instruments................................... Change of foreign currency translation adjustments ................................................ Change of treasury stock and parent bank stock held by subsidiaries .......................... Balance at March 31, 2002 ......................... 50,045 49,954 (444) (48,848) (60,132) (11,199) 357,614 60,132 12,864 (463,887) (357,614) 11 (304,837) 37,935 ¥650,500 ¥676,246 ¥1,326,758 ¥121,244 ¥475,357 ¥(304,837) ¥(15,174) 1,267 1,267 ¥(17,475) ¥2,912,619 Year ended March 31, 2002 Balance at March 31, 2001 .......................... Merger with The Sakura Bank, Limited ....... Change due to increase/decrease of subsidiaries and affiliates ........................... Conversion of preferred stock to Preferred stock Common stock $1,880 3,004 $3,770 927 Capital surplus $4,826 7,440 common stock ............................................ (2) 2 Millions of U.S. dollars (Note 1) Net unrealized losses on other securities Retained earnings Land revaluation excess Foreign currency translation adjustments $1,258 320 $2,401 2,224 $ — $(242) Other* $(106) (1) Total $13,787 13,914 153 (724) (157) (34) (762) Conversion of convertible bonds to common stock ............................................ Change of effective tax rates and others...... Cash dividends paid .................................... Transfer from capital surplus to retained earnings (Note 18)........................ Revaluation of land....................................... Transfer from land revaluation excess to retained earnings........................................ Merger with a subsidiary .............................. Net loss ........................................................ Adoption of accounting standards for financial instruments................................... Change of foreign currency translation adjustments ................................................ Change of treasury stock and parent bank stock held by subsidiaries .......................... Balance at March 31, 2002 ......................... 376 375 (3) (367) (451) (85) 2,684 451 97 (3,481) (2,684) 0 (2,288) 285 $4,882 $5,075 $9,957 $ 910 $3,567 $(2,288) $(114) 10 $(131) 10 $21,858 See accompanying notes to consolidated financial statements. *Other includes treasury stock and parent bank stock held by subsidiaries. SMBC 2002 — 63 — 100,000 (444) (11,199) — (48,848) — 12,876 (463,887) (304,837) 37,935 — 751 (3) (85) — (367) — 97 (3,481) (2,288) 285 Consolidated Statement of Cash Flows Sumitomo Mitsui Banking Corporation and Subsidiaries Year ended March 31, 2002 1. Cash flows from operating activities: Millions of yen Millions of U.S. dollars (Note 1) Loss before income taxes and minority interests ................................................................. Depreciation of premises, equipment and others ................................................................ Depreciation of lease assets ............................................................................................... Amortization of goodwill ....................................................................................................... Equity in earnings of affiliates .............................................................................................. Net change in reserve for possible loan losses ................................................................... Net change in reserve for possible losses on loans sold ..................................................... Net change in reserve for employee bonuses ..................................................................... Net change in reserve for employee retirement benefits ..................................................... Interest income .................................................................................................................... Interest expenses................................................................................................................. Net gains on securities......................................................................................................... Net loss from money held in trust ........................................................................................ Net exchange gains ............................................................................................................. Net losses from disposition of premises and equipment...................................................... Net losses from disposition of lease assets ......................................................................... Gain on sale of business operation...................................................................................... Net change in trading assets ............................................................................................... Net change in trading liabilities ............................................................................................ Net change in loans and bills discounted............................................................................. Net change in deposits ........................................................................................................ Net change in negotiable certificates of deposit .................................................................. Net change in borrowed money (excluding subordinated debt)........................................... Net change in deposits with banks ...................................................................................... Net change in call loans, bills bought and receivables under resale agreements ............... Net change in pledged money for securities borrowing transactions................................... Net change in call money, bills sold and payables under repurchase agreements ............. Net change in commercial paper ......................................................................................... Net change in pledged money for securities lending transactions....................................... Net change in foreign exchanges (assets)........................................................................... Net change in foreign exchanges (liabilities) ....................................................................... Issuance and redemption of bonds (excluding subordinated bonds)................................... Interest received .................................................................................................................. Interest paid ......................................................................................................................... Other, net ............................................................................................................................. Subtotal............................................................................................................................... Income taxes paid................................................................................................................ Net cash used in operating activities .................................................................................. ¥ (604,338) 96,374 306,044 4,806 (2,964) 884,174 (58,895) 21,606 (42,469) (2,176,685) 726,901 (64,057) 56 (160,717) 23,052 995 (5,000) (757,328) 1,030,514 1,794,503 1,887,932 (4,989,141) (456,519) 2,018,942 1,904,425 (2,196,808) (3,020,667) (569,827) (1,715,984) (56,299) 48,749 359,901 2,342,208 (829,888) (1,070,901) ¥(5,327,304) (54,205) ¥(5,381,510) $ (4,535) 723 2,297 36 (22) 6,635 (442) 162 (319) (16,335) 5,455 (481) 0 (1,206) 173 7 (38) (5,684) 7,734 13,467 14,168 (37,442) (3,426) 15,152 14,292 (16,486) (22,669) (4,276) (12,878) (422) 366 2,701 17,578 (6,228) (8,037) $(39,980) (407) $(40,387) 64 — SMBC 2002 (Continued) Millions of yen Millions of U.S. dollars (Note 1) 2. Cash flows from investing activities: Purchases of securities ........................................................................................................ Proceeds from sale of securities .......................................................................................... Proceeds from maturity of securities.................................................................................... Purchases of money held in trust......................................................................................... Proceeds from sale of money held in trust........................................................................... Purchases of premises and equipment................................................................................ Proceeds from sale of premises and equipment.................................................................. Purchases of lease assets ................................................................................................... Proceeds from sale of lease assets ..................................................................................... Purchases of stock of subsidiaries....................................................................................... Proceeds from sale of stock of subsidiaries......................................................................... Proceeds from sale of business operation ........................................................................... Net cash provided by investing activities ........................................................................... 3. Cash flows from financing activities: Proceeds from issuance of subordinated debt..................................................................... Repayment of subordinated debt......................................................................................... Proceeds from issuance of subordinated bonds, convertible bonds and notes................... Repayment of subordinated bonds, convertible bonds and notes ....................................... Dividends paid ..................................................................................................................... Payment of delivered money due to merger ........................................................................ Capital contributions from minority stockholders ................................................................. Dividends paid to minority stockholders............................................................................... Purchases of treasury stock................................................................................................. Proceeds from sale of treasury stock................................................................................... Proceeds from sale of parent bank stocks held by subsidiaries .......................................... Net cash used in financing activities ................................................................................... 4. Effect of exchange rate changes on cash and due from banks ........................................ 5. Net change in cash and due from banks ............................................................................. 6. Cash and due from banks at beginning of year.................................................................. ¥(39,722,661) 32,828,672 12,828,207 (5,011) 42,663 (73,354) 134,704 (342,964) 37,736 (599) 416 5,000 ¥ 5,732,808 ¥ ¥ ¥ ¥ 128,000 (278,000) 201,198 (262,361) (11,101) (17,839) 9,000 (39,064) (8,539) 8,286 1,607 (268,813) 3,595 86,079 868,132 7. Change in cash and due from banks due to merger .......................................................... 1,075,527 8. Change in cash and due from banks due to merger of consolidated subsidiaries......... 9. Change in cash and due from banks due to newly consolidated subsidiaries ............... 2,544 96,459 $(298,106) 246,369 96,272 (38) 320 (551) 1,011 (2,574) 283 (4) 3 38 $ 43,023 $ 961 (2,086) 1,510 (1,969) (83) (134) 67 (293) (64) 62 12 $ (2,017) $ $ 27 646 6,515 8,072 19 724 10. Cash and due from banks at end of year............................................................................. ¥ 2,128,742 $ 15,976 See accompanying notes to consolidated financial statements. SMBC 2002 — 65 Notes to Consolidated Financial Statements Sumitomo Mitsui Banking Corporation and Subsidiaries Year ended March 31, 2002 1. Basis of Financial Statements On April 1, 2001, The Sumitomo Bank, Limited merged with The Sakura Bank, Limited and succeeded its assets, liabilities, all the claims, obligations and employees, and changed its corporate name to Sumitomo Mitsui Banking Corporation (the “Bank”). The Bank and its consolidated domestic subsidiaries maintain their official accounting records in Japanese yen and in accordance with the provisions set forth in the Japanese Commercial Code and accounting principles and practices generally accepted in Japan (“Japanese GAAP”). The accounts of overseas consolidated subsidiaries are based on their accounting records maintained in conformity with generally accepted accounting principles and practices prevailing in the respective coun- tries of domicile. Certain accounting principles and practices generally accepted in Japan are different from International Accounting Standards and stan- dards in other countries in certain respects as to application and disclo- sure requirements. Accordingly, the accompanying financial statements are intended for use by those who are informed about Japanese account- ing principles and practices. The accompanying consolidated financial statements have been restructured and translated into English (with some expanded descrip- tions and the inclusion of consolidated statements of stockholders’ equity) from the consolidated financial statements of the Bank prepared in accordance with Japanese GAAP. Some supplementary information included in the statutory Japanese language consolidated financial statements, but not required for fair presentation is not presented in the accompanying consolidated finan- cial statements. In the elimination of investments in subsidiaries, the assets and liabilities of the subsidiaries, including the portion attrib- utable to minority stockholders, are evaluated using the fair value at the time the Bank acquired control of the respective subsidiaries. Goodwill on Sumitomo Mitsui Card Company, Limited, is amortized using the straight-line method over five years. Goodwill on the other entities is charged or credited to income directly. Japanese accounting standards also require any non- consolidated subsidiaries and affiliates on which the Bank is able to exercise material influence over their financial and oper- ating policies are to be accounted for by the equity method. Equity in earnings of affiliates was ¥2,964 million ($22 mil- lion) recorded as other income for the year ended March 31, 2002. (2) Statement of cash flows For the purposes of the consolidated statement of cash flows, cash and cash equivalents represent cash and due from banks. “Depreciation of premises and equipment” and “Depreciation of other assets” in “Other” in operating activi- ties were separately presented for the year ended March 31, 2001, but are included in “Depreciation of premises, equip- ment and others” from this fiscal year. Depreciation of premises and equipment was ¥59,459 million ($446 million) and Depreciation of other assets was ¥36,914 million ($277 million) for the year ended March 31, 2002. Significant non-money transactions consisted of the Amounts less than one million yen have been omitted. As a result, following: the totals in Japanese yen shown in the financial statements do not necessarily agree with the sum of the individual amounts. For the convenience of the readers, the accompanying U.S. dollar financial statements have been translated from Japanese yen, as a mat- ter of arithmetical computation only, at the rate of ¥133.25 to US$1, the exchange rate prevailing at March 31, 2002. The translations should not be construed as a representation that Japanese yen have been or could have been converted into U.S. dollars at that rate. 2. Significant Accounting Policies (1) Consolidation The consolidated financial statements include the accounts of the Bank and its significant subsidiaries. All significant inter- company balances and transactions have been eliminated. Japanese accounting standards on consolidated financial statements require a company to consolidate any subsidiaries of which the company substantially controls the operations, even if it is not a majority owned subsidiary. Control is defined as the power to govern the decision making body of an enterprise. The consolidated financial statements include the accounts of consolidated subsidiaries, of which the fiscal year ends on or after December 31. In case that these subsidiaries have a signif- icant transaction during the period from their fiscal year-end to March 31, the Bank makes certain adjustments to the consoli- dated financial statements to be comprehensive. 66 — SMBC 2002 (i) Merger with The Sakura Bank, Limited Assets and liabilities that were succeeded due to the merger with The Sakura Bank, Limited, consisted of the following: Millions of Millions of yen U.S. dollars Assets.......................................................... ¥48,245,020 9,743,394 30,575,498 Securities ................................................ Loans and bills discounted ...................... Liabilities.................................................... ¥46,390,838 33,534,079 Deposits.................................................. $362,064 73,121 229,460 $348,149 251,663 (ii) Conversion of convertible bonds Millions of Millions of yen U.S. dollars Increase of capital stock due to conversion of convertible bonds .................................. Increase of capital surplus due to conversion of convertible bonds................. Decrease of convertible bonds due to conversion ...................................... ¥ 50,045 $376 49,954 375 ¥100,000 $751 (iii) As mentioned in Note 18, the Bank transferred Capital surplus of ¥357,614 million ($2,684 million) to Retained earnings during the year ended March 31, 2002. (3) Trading assets and liabilities Financial instruments, such as derivatives and trading securi- ties, which are held for the short term in anticipation of mar- ket gains, are recorded at fair value. Such gains and losses are included in trading profits or losses on the consolidated state- ment of operations. Trading assets and liabilities are recorded at trade date. (4) Securities As for securities other than those in the trading portfolio, debt securities that the Bank and consolidated subsidiaries have the intent and ability to hold to maturity (held-to-maturity secu- rities) are carried at amortized cost using the moving-average method. Investments in nonconsolidated subsidiaries and affiliates that are not accounted for by the equity method are carried at cost using the moving-average method. Securities excluding those classified as trading securities, held-to-maturity or investments in nonconsolidated sub- sidiaries and affiliates are defined as other securities. Prior to April 1, 2001, debt securities in other securities were carried at amortized cost using the moving-average method and equity securities classified as other securities were carried at cost using the moving-average method. Effective April 1, 2001, the accounting standard for finan- cial instruments was adopted on other securities. Stocks classi- fied as other securities that have market value are carried at the average market value during the final month of the fiscal year, and other securities excluding such marketable stocks that have market value are carried at market value at the bal- ance sheet date. Other securities that do not have market value are carried at cost or amortized cost, using the moving-average method. Net unrealized gains (losses) on other securities are recognized, net of applicable income taxes, as a separate com- ponent of stockholders’ equity. Securities included in money held in trust account are car- ried in the same manner as for securities mentioned above. As a result of the adoption of the accounting standard for financial instruments on other securities, the total amount of Securities and Money held in trust decreased by ¥499,332 million ($3,747 million) and Net unrealized losses on other securities of ¥304,837 million ($2,288 million) is reported on the consolidated balance sheet. Declines in the fair value of other securities are charged to earnings when declines are determined to be other than temporary. (5) Derivative transactions Derivative transactions, excluding those classified as trading derivatives, are carried at fair value, though some consolidated overseas subsidiaries account for derivative transactions in accordance with local accounting standards. (6) Hedge accounting In accordance with the Industry Audit Committee Report No. 15 “Temporary Treatment for Accounting and Auditing of Application of Accounting Standard for Financial Instruments in Banking Industry,” issued by JICPA in 2000, the Bank applies hedge accounting, abiding by the following requirements: (i) Loans, deposits and other interest-bearing assets and liabilities as a whole shall be recognized as the hedged portfolio. (ii) Derivatives as hedging instruments shall effectively reduce the interest rate exposure of the hedged portfolio. (iii) Effectiveness of hedging activities shall be evaluated on a quarterly basis. Certain derivatives for the purpose of hedging are recorded on an accrual basis using the short-cut method (exceptional treatment for interest rate swaps) in view of consistency with the risk management policy. In accordance with the Industry Audit Committee Report No. 19 “Temporary Treatment for Accounting and Auditing of Application of Accounting Standard for Financial Instruments in Leasing Industry,” issued by JICPA in 2000, one of the consolidated domestic subsidiaries in the leasing industry applies a deferred hedge accounting related to portfo- lio hedge on liabilities. Other domestic subsidiaries use the deferred hedge account- ing or the short-cut method for interest rate swaps. Net amount of deferred unrealized gains on hedging instru- ments to which hedge accounting is applied is reported in Other liabilities. Gross deferred unrealized losses and gross deferred unrealized gains on hedging instruments at March 31, 2002, were ¥1,071,749 million ($8,043 million) and ¥1,156,384 million ($8,678 million), respectively. (7) Non-accrual loans Loans are generally placed on non-accrual status when such loans are classified as Bankrupt, Effectively Bankrupt or Potentially Bankrupt by the self-assessment rule (see (10) Reserve for possible loan losses). (8) Premises and equipment Premises and equipment are generally stated at cost less accu- mulated depreciation. The Bank computes depreciation for premises using the straight-line method over the estimated useful lives of the respective assets. The depreciation for equip- ment is computed using the declining-balance method over the estimated useful lives of the respective assets. The esti- mated useful lives of major items are as follows: Buildings 7 to 50 years Equipment 3 to 20 years Depreciation of premises and equipment owned by consoli- dated domestic subsidiaries is mainly computed using the declining-balance method, while depreciation of those owned by consolidated overseas subsidiaries is mainly computed using the straight-line method over the estimated useful lives of respective assets. (9) Software costs Capitalized software for internal use is depreciated using the straight-line method over its estimated useful life (mainly five years) at the Bank and consolidated domestic subsidiaries, and is included in other assets. SMBC 2002 — 67 (10) Reserve for possible loan losses Reserve for possible loan losses of the Bank and its major con- solidated subsidiaries is provided based on the internal rules for write-offs and reserves for loans. Based on the self-assessment rule for the credit quality of the assets (“self-assessment rule”), the Bank and its major con- solidated subsidiaries classify a borrower into one of the fol- lowing five risk categories according to the borrower’s credit risk: Bankrupt Borrowers who are legally bankrupt, Effectively Bankrupt Borrowers who are regarded as substan- tially in the same situation as legally bankrupt borrowers, Potentially Bankrupt Borrowers who are not currently in the status of bankrupt but are likely to become bankrupt in future, Borrowers Requiring Caution or Normal Borrowers. For collateral and/or guaranteed loans to Bankrupt Borrowers and Effectively Bankrupt Borrowers, the Bank rec- ognizes a portion exceeding the appraised value of collateral and/or the amount deemed collectible from guarantees of those loans as irrecoverable, and writes off the portion. For the year ended March 31, 2002, the Bank and the consolidated sub- sidiaries made such write-offs of ¥1,824,274 million ($13,691 million). For loans to Bankrupt Borrowers and Effectively Bankrupt Borrowers, the Bank provides specific reserves. The amounts of the specific reserves are calculated by deducting the estimated disposal value of collateral and/or the amount deemed col- lectible from guarantees, from the book balances of those loans which remain after the write-offs. The Bank also provides specific reserves for loans to Potentially Bankrupt Borrowers based on the estimated amount of recoveries from the collateral and/or guarantees and other pertinent indicators specific to the borrowers. The Bank also provides general reserves for loans to Borrowers Requiring Caution and Normal Borrowers. The ratio of the general reserves is determined based on the Bank’s loan loss experiences and economic conditions. The Bank provides additional reserve for the loans origi- nated in certain countries based on management’s assessment of economic or political conditions of such countries. Reserve for possible loan losses of other consolidated sub- sidiaries is provided for general claims by the amount deemed necessary based on the historical loan-loss ratio, and for doubt- ful claims by the amount deemed uncollectible based on respective assessments. (11) Reserve for possible losses on loans sold Reserve for possible losses on loans sold is provided for contin- gent losses arising from decline of market value of underlying collateral for loans sold to the Cooperative Credit Purchasing Company, Limited. (12) Reserve for employee bonuses Reserve for employee bonuses is provided, in provision for payment of bonuses to employees, by the amount of estimated bonuses, which are attributable to respective fiscal year. Prior to April 1, 2001, accrued bonuses to employees were included in Other liabilities, but effective April 1, 2001, Reserve for employee bonuses is reported in accordance with “Concerning Financial Statement Titles to Be Used for Accrued Bonuses for Employees” (Research Center Review Information No. 15 issued by JICPA). Consequently, Other liabilities decreased by ¥21,606 million ($162 million) and Reserve for employee bonuses increased by the same amount at March 31, 2002 as compared with the former manner. Prior to April 1, 2001, change of accrued bonuses to employees was included in “Other” in the consolidated state- ment of cash flows, but effective April 1, 2001, Net change in reserve for employee bonuses is reported. Consequently, Other decreased by ¥21,606 million ($162 million) and Net change in reserve for employee bonuses increased by the same amount for the year ended March 31, 2002 as compared with the for- mer manner. (13) Reserve for employee retirement benefits Under the terms of the Bank’s retirement plan, substantially all employees are entitled to a lump-sum payment at the time of retirement. The amount of the lump-sum payment is, in general, calculated based on length of service, basic salary at the time of retirement and reason for retirement. In addition, the Bank has defined benefit pension plans which cover sub- stantially all employees. Reserve for employee retirement benefits and prepaid pen- sion cost are recorded based on an actuarial computation, which uses the present value of the projected benefit obliga- tion and pension assets, due to employee’s credited years of services at the balance sheet date. Prior service costs are amor- tized using the straight-line method over certain years (mainly 10 years) within the average remaining service period of active employees. Unrecognized net actuarial gain or loss is amor- tized from the next fiscal year using the straight-line method over certain years (mainly 10 years) within the average remain- ing service period of active employees. Unrecognized net obligation from initial application of the new accounting stan- dard for employee retirement benefits is amortized using the straight-line method over five years. (14) Translation of foreign currencies The Bank’s assets and liabilities denominated in foreign cur- rencies and overseas branches’ accounts are translated into Japanese yen mainly at the exchange rate prevailing at the consolidated balance sheet date, with the exception of stocks of subsidiaries and affiliates translated at rates prevailing at the time of acquisition. Consolidated subsidiaries’ assets and liabilities denominated in foreign currencies are translated into Japanese yen at the exchange rate prevailing at their respective balance sheet dates. (15) Lease transactions Financing leases where the ownership of the property is deemed to be transferred to the lessee are capitalized, while other financing leases are allowed to be accounted for in the same manner as operating leases. Lease assets are depreciated using the straight-line method over the lease term with estimated salvage value. 68 — SMBC 2002 Lease-related income is recognized on a straight-line basis over the full term of the lease, based on the contractual amount of lease fees per month. (16) Amounts per share Net income (loss) per share is computed by deducting divi- dends for preferred stock from net income (loss), divided by the weighted average number of shares of common stock, excluding treasury stock and parent bank stock held by sub- sidiaries, outstanding during each fiscal year. Declared dividends represent the cash dividends declared applicable to respective years, including dividends to be paid after the end of the year. (17) Adoption of new accounting standards Prior to April 1, 2001, unsecured borrowed securities and securities under resale agreements were reported on the consol- idated balance sheet as Securities in custody in Other assets and Trading account securities borrowed or Securities bor- rowed in Other liabilities by the same amounts. Effective April 1, 2001, they are not reported on the consolidated bal- ance sheet in accordance with the revision of the accounting standards for financial instruments. Consequently, Other assets and Other liabilities decreased by ¥3,098,200 million ($23,251 million) at March 31, 2002, as compared with the former manner. 3. Trading Assets Trading assets at March 31, 2002 consisted of the following: March 31, 2002 Trading securities ............................................................. Derivatives on trading securities ....................................... Derivatives on securities related to trading transactions..... Trading-related financial derivatives ................................. Other trading assets .......................................................... Millions of Millions of yen U.S. dollars ¥ 122,808 91 12 2,291,438 863,755 ¥3,278,105 $ 922 1 0 17,196 6,482 $24,601 4. Securities Securities at March 31, 2002 consisted of the following: Millions of Millions of yen U.S. dollars March 31, 2002 Japanese government bonds* ............................................ ¥10,113,872 500,052 Japanese local government bonds ...................................... 1,430,388 Japanese corporate bonds................................................... 5,223,394 Japanese stocks**.............................................................. 3,426,924 Other**............................................................................ ¥20,694,632 $ 75,901 3,753 10,735 39,200 25,718 $155,307 * Includes ¥999 million ($7 million) of unsecured loaned securities for which borrowers have rights to sell or pledge and loaned securities of ¥827 million ($6 million) for which borrowers have rights to pledge but no rights to sell. As for the unsecured borrowed securities for which the Bank has rights to sell or pledge and the securities which the Bank purchased under resale agreements, that are permitted to sell or pledge without restrictions, ¥3,534,532 million ($26,526 mil- lion) of securities are pledged, ¥533,241 million ($4,002 million) of securities are held in hand as of the consolidated balance sheet date. The Bank may pledge the bor- rowed securities as well. ** Japanese stocks and other include investments in nonconsolidated subsidiaries and affiliates of ¥187,937 million ($1,410 million). 5. Loans and Bills Discounted Loans and bills discounted at March 31, 2002 consisted of the following: Millions of Millions of yen U.S. dollars March 31, 2002 Bills discounted ................................................................ ¥ Loans on notes................................................................... Loans on deeds .................................................................. Overdrafts......................................................................... 940,422 8,408,524 42,655,561 11,641,078 ¥63,645,586 $ 7,057 63,103 320,117 87,363 $477,640 The following summarizes the non-accrual loans at March 31, 2002: March 31, 2002 Bankrupt loans.................................................................. Non-accrual loans ............................................................. Total non-accrual loans ................................................. Millions of Millions of yen U.S. dollars ¥ 227,484 3,599,750 ¥3,827,234 $ 1,707 27,015 $28,722 In addition to the non-accrual loans, the Bank also classifies loans overdue by three months or longer as substandard loans, and such loan balances at March 31, 2002 were ¥102,762 million ($771 million). Restructured loans are loans for which the Bank has adjusted the terms of the loans in favor of borrowers as a means of financial assis- tance. These restructured loans are also classified as substandard and amounted to ¥2,554,371 million ($19,170 million) at March 31, 2002. 6. Other Assets Other assets at March 31, 2002 consisted of the following: March 31, 2002 Accrued income ................................................................ Deferred assets .................................................................. Financial derivatives.......................................................... Pledged money for securities borrowing transactions......... Other................................................................................ Millions of Millions of yen U.S. dollars ¥ 316,826 453,059 1,397,056 3,020,519 1,260,182 ¥6,447,644 $ 2,378 3,400 10,485 22,668 9,457 $48,388 7. Premises and Equipment Premises and equipment at March 31, 2002 consisted of the following: Millions of Millions of yen U.S. dollars March 31, 2002 Land* ............................................................................... Buildings.......................................................................... Equipment and others....................................................... Total............................................................................. Accumulated depreciation................................................. ¥ 674,355 558,503 635,777 ¥1,868,636 (661,047) ¥1,207,589 $ 5,061 4,192 4,771 $14,024 (4,961) $ 9,063 * Includes land revaluation excess for land referred to in Note 16. 8. Lease Assets Lease assets at March 31, 2002 were as follows: March 31, 2002 Equipment and others....................................................... Accumulated depreciation................................................. Millions of Millions of yen U.S. dollars ¥2,330,602 (1,403,481) ¥ 927,120 $17,491 (10,533) $ 6,958 SMBC 2002 — 69 9. Assets Pledged as Collateral Assets pledged as collateral at March 31, 2002 consisted of the following: March 31, 2002 Assets pledged as collateral Millions of Millions of yen U.S. dollars Cash and due from banks and Deposits with banks ....... Trading assets ............................................................... Securities ...................................................................... Loans and bills discounted ............................................ Other assets .................................................................. Premises and equipment ............................................... ¥ 63,325 621,047 9,062,227 3,239,033 1,311 547 Liabilities corresponding to assets pledged as collateral Deposits........................................................................ Call money and bills sold .............................................. Payables under repurchase agreements .......................... Trading liabilities ......................................................... Borrowed money........................................................... Pledged money for securities lending transactions......... Other liabilities ............................................................ Acceptances and guarantees .......................................... 9,621 8,394,800 1,118,531 39,986 117,463 2,517,123 10,888 45,571 $ 475 4,661 68,009 24,308 10 4 72 63,000 8,394 300 882 18,890 82 342 In addition to the assets presented above, the following assets were pledged as collateral for exchange settlements, initial margins of futures markets and certain other purposes at March 31, 2002: March 31, 2002 Cash and due from banks and Deposits with banks ........... Trading assets ................................................................... Securities .......................................................................... Loans and bills discounted ................................................ Millions of Millions of yen U.S. dollars ¥ 101,722 296 2,880,100 58,095 $ 763 2 21,614 436 Premises and equipment included surety deposits and intangibles of ¥125,258 million ($940 million) at March 31, 2002. Other assets included initial margins of futures markets of ¥20,984 million ($157 million). 10. Deposits Deposits at March 31, 2002 consisted of the following: Millions of Millions of yen U.S. dollars March 31, 2002 Current deposits................................................................ ¥ 4,765,722 25,150,251 Ordinary deposits.............................................................. 1,412,372 Savings deposits ................................................................ 6,074,691 Deposits at notice ............................................................. 23,472,643 Time deposits ................................................................... 6,662,097 Negotiable certificates of deposit ...................................... 4,110,293 Other deposits .................................................................. ¥71,648,073 $ 35,765 188,745 10,599 45,589 176,155 49,997 30,847 $537,697 11. Trading Liabilities Trading liabilities at March 31, 2002 consisted of the following: March 31, 2002 Trading securities ............................................................. Derivatives on trading securities ....................................... Trading-related financial derivatives ................................. Millions of Millions of yen U.S. dollars ¥ 12,811 79 2,318,608 ¥2,331,500 $ 96 1 17,400 $17,497 12. Borrowed Money Borrowed money at March 31, 2002 consisted of the following: March 31, 2002 Bills rediscounted............................. Other borrowings**......................... ¥ Millions of yen 58,784 2,831,122 ¥2,889,907 $ Millions of U.S. dollars 441 21,247 $21,688 Average rate* 3.98% 2.01 2.05% * Average rate represents the weighted average rate based on the balances and rates at respective year-end of the Bank and consolidated subsidiaries. ** Includes subordinated debt obligation of ¥1,001,047 million ($7,513 million). The repayment schedule within five years on borrowed money at March 31, 2002 is shown as follows: 1 year or less ¥1,059,676 1 to 2 years ¥228,513 Millions of yen 2 to 3 years ¥392,209 3 to 4 years ¥252,090 4 to 5 years ¥101,658 1 year or less $7,953 1 to 2 years $1,715 Millions of U.S. dollars 2 to 3 years $2,943 3 to 4 years $1,892 4 to 5 years $763 13. Bonds Bonds at March 31, 2002 consisted of the following: March 31, 2002 Issuer The Bank: Description Straight bonds, payable in Yen Straight bonds, payable in Euro Yen Straight bonds, payable in U.S. dollars Subordinated bonds, payable in Yen Subordinated bonds, payable in Euro Yen Subordinated bonds, payable in U.S. dollars Consolidated subsidiaries: Straight bonds, payable in Yen Straight bonds, payable in U.S. dollars Straight bonds, payable in Australian dollars Straight bonds, payable in other foreign currency Subordinated bonds, payable in Yen Subordinated bonds, payable in U.S. dollars Subordinated bonds, payable in other foreign currency Millions of yen* ¥1,337,923 8,000 159,900 ($1,200,000 thousand) 413,000 193,000 19,854 ($149,000 thousand) 181,195 34,273 ($261,300 thousand) [22,801] 113 (A$2,000 thousand) 4,373 [1,532] 787,709 [1,000] 364,198 ($2,733,200 thousand) 2,279 ¥3,505,820 Millions of U.S. dollars $10,041 60 1,200 Rate (%) 0.51—2.117 1.685—3.00 4.32—6.10 Due May 2003—Mar. 2013 Nov. 2009—Mar. 2012 Nov. 2003—Sep. 2005 3,099 1,448 149 1,360 257 0 32 5,912 2,735 17 $26,310 0.64063—2.36 0.64—2.72 5.93—8.10 Nov. 2007—perpetual Sep. 2008—Mar. 2017 Mar. 2009—Nov. 2011 0.13—3.15 0—12.00 Mar. 2002—Dec. 2021 Jan. 2002—Jun. 2021 7.00 Oct. 2005 5.22—6.34 Oct. 2002—Jul. 2013 0—5.15 Feb. 2003—perpetual 2.37—8.50 Jul. 2007—perpetual 5.62—7.50 Perpetual * Figures in ( ) are the balances in the original currency of the foreign currency denominated bonds, and figures in [ ] are the amounts to be redeemed within one year. 70 — SMBC 2002 The redemption schedule within five years on bonds at March 31, 2002 is shown as follows: 1 year or less ¥88,723 1 to 2 years ¥127,825 Millions of yen 2 to 3 years ¥402,580 3 to 4 years ¥643,062 4 to 5 years ¥409,522 1 year or less $666 1 to 2 years $959 Millions of U.S. dollars 2 to 3 years $3,021 3 to 4 years $4,826 4 to 5 years $3,073 14. Convertible Bonds Convertible bonds at March 31, 2002 consisted of the following: March 31, 2002 Convertible bonds payable in U.S. dollars: Millions of Millions of yen U.S. dollars 31⁄8% due 2004, convertible into common stock at ¥3,606.90 per share ......................... ¥1,106 $8 15. Other Liabilities Other liabilities at March 31, 2002 consisted of the following: March 31, 2002 Accrued expenses .............................................................. Unearned income .............................................................. Income taxes payable......................................................... Financial derivatives.......................................................... Other................................................................................ Millions of Millions of yen U.S. dollars ¥ 191,853 134,785 100,150 904,873 1,530,006 ¥2,861,669 $ 1,440 1,011 752 6,791 11,482 $21,476 16. Land Revaluation Excess Pursuant to the Enforcement Ordinance for the Law Concerning Land Revaluation (the “Law”) effective March 31, 1998, the Bank and its domestic subsidiary recorded their own land for business activities at fair value at March 31, 1998 and March 31, 1999, respectively. According to the Law, net unrealized gains are reported in a separate component of stockholders’ equity net of applicable income taxes as Land revaluation excess, and the related deferred tax liabilities are reported in liabilities as Deferred tax liabilities for land revaluation. The unrecorded revaluation losses at March 31, 2002 were ¥91,507 million ($687 million). Pursuant to the Law, as amended, effective March 31, 2001, the Bank revalued the land for business activities that was succeeded from SMBC Property Management Service Co., Ltd. at March 31, 2002 due to the merger with it. The net unrealized losses on the land, net of applicable income taxes, was deducted from Land revalu- ation excess, and the related deferred tax assets were deducted from Deferred tax liabilities for land revaluation. The book value of the land of ¥248,659 million ($1,866 million) before the revaluation was revaluated at ¥169,520 million ($1,272 million) at March 31, 2002. In addition, a consolidated subsidiary revaluated its land for busi- ness activities and the income taxes corresponding to the revaluated losses is recognized as Deferred tax assets for land revaluation and the revaluated losses, net of the corresponding taxes, are deducted from Land revaluation excess. The book value of the land of ¥4,280 million ($32 million) before the revaluation was revaluated at ¥2,541 million ($19 million) at March 31, 2002. 17. Minority Interests SB Treasury Company, L. L. C., a subsidiary of the Bank, issued float- ing noncumulative preferred securities, totaling $1,800 million in February 1998. SB Equity Securities (Cayman), Limited, a subsidiary of the Bank, issued floating noncumulative preferred securities, total- ing ¥340,000 million in February and March 1999. Sakura Preferred Capital (Cayman) Limited, a subsidiary of the Bank, issued noncumu- lative preferred securities, totaling ¥283,750 million in December 1998 and March 1999. These subsidiaries are consolidated and the preferred securities are accounted for as minority interests. 18. Stockholders’ Equity Prior to October 1, 2001, under the Banking Law of Japan, the Bank was required to appropriate as an earned surplus reserve an amount equal to at least 20 percent of cash disbursements in each period until the earned surplus reserve equaled 100 percent of the amount of capi- tal (total amount of preferred stock and common stock). Capital sur- plus and earned surplus reserve were not available for distribution as dividends but may be used to reduce a deficit by resolution of the stockholders or may be capitalized by resolution of the Board of Directors. The Commercial Code of Japan provided that at least one-half of the proceeds from shares issued at prices in excess of par value be included in capital. In conformity therewith, the Bank has divided the paid-in amount of the stock issued upon conversion of bonds and notes into common stock equally between common stock and capital surplus. Effective October 1, 2001, pursuant to the Article 289-2 of the amended Commercial Code and the Article 18-2 of the amended Banking Law, Earned surplus reserve is appropriated until the total amount of both Earned surplus reserve and Capital surplus equals to the amount of capital. The excess of the total amount over the amount of capital may be transferred to retained earnings by resolu- tion of stockholders. The Bank transferred Capital surplus of ¥357,614 million ($2,684 million) to retained earnings during the year ended March 31, 2002. As for the nonconsolidated balance sheet, the Bank transferred capital surplus of ¥357,614 million ($2,684 million) and earned surplus reserve of ¥241,421 million ($1,812 million) to retained earnings of ¥599,035 million ($4,496 million) during the year ended March 31, 2002. In accordance with the Law Concerning Emergency Measures for the Early Strengthening of the Functions of the Financial System, Sumitomo and Sakura issued noncumulative preferred stock in the aggregate amount of ¥1,301,000 million (the first issuance of 67 mil- lion shares at total amount of ¥201,000 million and the second issuance of 100 million shares at total amount of ¥300,000 million by Sumitomo and the issuance of 800 million shares at total amount of ¥800,000 million by Sakura). All of the preferred stock had been subscribed by The Resolution and Collection Corporation, Limited on March 30, 1999. The noncumulative preferred stocks are redeemable at the option of the Bank at any time. ¥201,000 million of the preferred stock are convertible into common stock of the Bank at any time from May 1, 2002 until February 26, 2009, ¥300,000 million of the preferred stock are convertible into common stock of the Bank at any time from August 1, 2005 until February 26, 2009 and ¥800,000 million of the preferred stock are convertible into com- mon stock of the Bank at any time from October 1, 2002 until September 30, 2009, in each case subject to certain adjustments to the conversion period. SMBC 2002 — 71 19. Fees and Commissions Fees and commissions for the year ended March 31, 2002 consisted of the following: 23. Other Operating Expenses Other operating expenses for the year ended March 31, 2002 con- sisted of the following: Year ended March 31, 2002 Fees and commissions (income): Deposits and loans ........................................................ Remittances and transfers ............................................. Securities-related business............................................. Agency ......................................................................... Safe deposits ................................................................. Guarantees.................................................................... Credit card business ...................................................... Investment trusts .......................................................... Other............................................................................ Fees and commissions (expenses): Remittances and transfers ............................................. Other............................................................................ Millions of Millions of yen U.S. dollars ¥ 30,346 104,827 24,299 16,100 6,080 26,167 84,849 17,892 76,716 ¥387,280 ¥ 21,052 46,695 ¥ 67,747 $ 228 787 182 121 45 197 637 134 576 $2,907 $ 158 350 $ 508 20. Trading Income Trading income for the year ended March 31, 2002 consisted of the following: Year ended March 31, 2002 Trading profits: Gains on trading securities............................................ Gains on trading-related financial derivatives................ Other............................................................................ Millions of Millions of yen U.S. dollars ¥ 6,654 121,752 1,043 ¥129,450 $ 50 913 8 $971 Year ended March 31, 2002 Losses on sale of bonds ...................................................... Losses on redemption of bonds .......................................... Losses on devaluation of bonds .......................................... Bond issuance costs ........................................................... Lease-related expenses ....................................................... Other................................................................................ Millions of Millions of yen U.S. dollars ¥ 51,270 3,202 7,082 2,161 500,908 102,026 ¥666,651 $ 385 24 53 16 3,759 766 $5,003 24. Other Expenses Other expenses for the year ended March 31, 2002 consisted of the following: Year ended March 31, 2002 Write-off of loans.............................................................. Losses on sale of stocks and other securities ....................... Losses on devaluation of stocks and other securities ........... Losses on money held in trust............................................ Transfer to reserve for possible losses on loans sold ............ Losses on delinquent loans sold ......................................... Losses on disposition of premises and equipment............... Amortization of unrecognized net transition obligation for employee retirement benefits .................... Losses on disposal of software ............................................ Other................................................................................ Millions of Millions of yen U.S. dollars ¥391,923 60,759 148,537 1,867 38,712 64,504 27,478 23,493 2,166 52,819 ¥812,261 $2,941 456 1,115 14 291 484 206 176 16 397 $6,096 25. Income Taxes Trading losses: (1) Significant components of deferred tax assets and liabilities at Losses on securities related to trading transactions ........ ¥ 17 $ 0 March 31, 2002 were as follows: March 31, 2002 Deferred tax assets: Millions of Millions of yen U.S. dollars Reserve for possible loan losses ........................ Write-off of loans............................................ Write-off of securities ..................................... Net unrealized losses on other securities .......... Net operation loss carryforwards ..................... Reserve for employee retirement benefits ........ Reserve for possible losses on loans sold........... Depreciation ................................................... Other .............................................................. Subtotal .......................................................... Valuation allowance ........................................ Total deferred tax assets .................................. ¥ 864,823 411,374 216,211 192,753 127,307 109,651 33,547 11,084 94,746 2,061,500 (110,435) ¥1,951,065 $ 6,490 3,087 1,623 1,447 955 823 252 83 711 15,471 (829) $14,642 Deferred tax liabilities: Leveraged lease................................................ Gains on securities contributed to employee retirement benefits trust................................ Undistributed earnings of subsidiaries............. Other .............................................................. Total deferred tax liabilities ............................ Net deferred tax assets......................................... ¥ (48,644) $ (365) (23,660) (10,209) (25,293) (107,807) ¥1,843,257 (177) (77) (190) (809) $13,833 21. Other Operating Income Other operating income for the year ended March 31, 2002 consisted of the following: Year ended March 31, 2002 Gains on foreign exchange transactions ............................. Gains on financial derivatives............................................ Gains on sale of bonds....................................................... Gains on redemption of bonds........................................... Lease-related income ......................................................... Other................................................................................ Millions of Millions of yen U.S. dollars ¥ 17,290 14,908 134,493 26 567,884 110,980 ¥845,583 $ 130 112 1,009 0 4,262 833 $6,346 22. Other Income Other income for the year ended March 31, 2002 consisted of the following: Year ended March 31, 2002 Gains on sale of stocks and other securities........................ Gains on money held in trust ............................................ Equity in earnings of affiliates........................................... Gains on disposition of premises and equipment ............... Collection of written-off claims......................................... Gain on liquidation of a subsidiary.................................... Gain on sale of business operation ..................................... Other................................................................................ Millions of Millions of yen U.S. dollars ¥191,487 1,810 2,964 4,426 1,305 18,381 5,000 44,755 ¥270,130 $1,437 14 22 33 10 138 37 336 $2,027 72 — SMBC 2002 (2) A reconciliation of the effective income tax rate reflected in 26. Employee Retirement Benefits the accompanying consolidated statement of operations to the statutory tax rate for the year ended March 31, 2002 was as follows: Statutory tax rate .................................................. Valuation allowance........................................ Dividends from overseas subsidiaries............... Other.............................................................. Effective income tax rate ....................................... (3) With the implementation of the “Metropolitan ordinance 38.62 % (4.45)% (4.11)% 0.96 % 31.02 % regarding the imposition of enterprise taxes through external standards taxation on banks in Tokyo” (Tokyo Metropolitan Ordinance No. 145, April 1, 2000) (“the metropolitan ordi- nance”), enterprise taxes relating to banks in Tokyo which had been hitherto levied on income were changed to be levied on gross banking profit. The Bank recorded enterprise tax of ¥19,862 million ($149 million) in Other expenses for the year ended March 31, 2002 as a result of the metropolitan ordinance. The implementation of the metropolitan ordinance resulted in a reduction of the effective statutory tax rate used by the Bank to calculate deferred tax assets and liabilities. Consequently, Deferred tax assets, Deferred tax liabilities for land revaluation and stock- holders’ equity at March 31, 2002 decreased by ¥96,420 mil- lion ($724 million), ¥3,694 million ($28 million) and ¥92,726 million ($696 million), respectively, as compared with the amount that would be if the metropolitan ordinance had not been implemented. With the implementation of the “Municipal Ordinance regarding the imposition of enterprise taxes through external standards taxation on banks in Osaka” (Osaka Municipal Ordinance No. 131, June 9, 2000) (“the municipal ordi- nance”), enterprise taxes relating to banks in Osaka which had been hitherto levied on income were also changed to be levied on gross banking profit. The Bank recorded enterprise tax of ¥10,137 million ($76 million) in Other expenses for the year ended March 31, 2002 as a result of the municipal ordinance. The implementation of the municipal ordinance also resulted in a reduction of the effective statutory tax rate used by the Bank to calculate deferred tax assets and liabilities. Consequently, Deferred tax assets, Deferred tax liabilities for land revaluation and stock- holders’ equity at March 31, 2002 decreased by ¥46,396 million ($348 million), ¥1,798 million ($13 million) and ¥44,597 million ($335 million), respectively, as compared with the amount that would be if the municipal ordinance had not been implemented. (1) Outline of employee retirement benefits The Bank and consolidated subsidiaries in Japan have contrib- utory funded defined benefit pension plans such as contribu- tory pension plans, qualified pension plans and lump-sum severance indemnity plans. They may grant additional benefits in cases where certain requirements are met when employees retire. The Bank and some consolidated subsidiaries in Japan contributed certain marketable equity securities to an employee retirement benefit trust. (2) Projected benefit obligation March 31, 2002 Projected benefit obligation Pension assets Unfunded projected benefit obligation Unrecognized net transition obligation for application of new accounting standard Unrecognized actuarial gain or loss Unrecognized past service liabilities Net amount recorded on the consolidated balance sheet Prepaid pension cost (other assets) Reserve for employee retirement benefits (3) Pension expenses Millions of Millions of yen U.S. dollars (A) .............................. (B) .............................. ¥(1,175,959) 777,088 $(8,825) 5,832 (C)=(A)+(B) ................ ¥ (398,871) $(2,993) (D).............................. 70,280 528 (E)............................... 241,353 1,811 (F)............................... (60,707) (456) (G)=(C)+(D)+(E)+(F)... ¥ (147,944) $(1,110) (H).............................. 27 0 (G)–(H)....................... ¥ (147,972) $(1,110) March 31, 2002 Service cost.......................................................... Interest cost on projected benefit obligation ........ Expected return on plan assets............................. Amortization of net transition obligation ............ Amortization of unrecognized actuarial loss......... Amortization of past service liabilities................. Other (non-recurring additional retirement allowance paid and other)................. Pension expenses ................................................. Millions of Millions of yen U.S. dollars ¥26,338 38,164 (34,633) 23,493 5,660 (4,884) 10,414 ¥64,553 $198 286 (260) 176 43 (37) 78 $484 (4) Assumptions The principal assumptions used in determining benefit obliga- tion and pension expenses at or for the year ended March 31, 2002 were as follows: (a) Discount rate: 2.5% to 3.5% (b) Expected rate of return on plan assets: 0.0% to 5.3% (c) Allocation of estimated amount of retirement benefits: Allocated to each period by the straight-line method (d) Period of amortization of prior service costs: Mainly 10 years (e) Term to amortize unrecognized net actuarial gain or loss: Mainly 10 years (f ) Term to amortize unrecognized net obligation from initial application of new accounting standard: Mainly 5 years SMBC 2002 — 73 27. Lease Transactions (1) Financing leases A summary of assumed amounts of acquisition cost, accumu- lated depreciation and net book value for financing leases without transfer of ownership at March 31, 2002 was as follows: (a) Lessee side March 31, 2002 Acquisition cost.................. Accumulated depreciation ... Net book value ................... Equipment ¥17,475 8,663 ¥ 8,812 Millions of yen Other ¥237 157 ¥ 80 Total ¥17,713 8,820 ¥ 8,893 March 31, 2002 Acquisition cost.................. Accumulated depreciation ... Net book value ................... Equipment $131 65 $ 66 Millions of U.S. dollars Other $2 1 $1 Total $133 66 $ 67 Future minimum lease payments excluding interests at March 31, 2002 were as follows: March 31, 2002 Due within one year ............................................ Due after one year ............................................... Millions of Millions of yen U.S. dollars ¥3,055 6,130 ¥9,185 $23 46 $69 Total lease expenses for the year ended March 31, 2002 were ¥4,210 million ($32 million). Assumed depreciation charges for the year ended March 31, 2002 amounted to ¥3,848 million ($29 million). Assumed depreciation charges is calculated using the straight-line method over the lease term of the respective assets. The difference between the mini- mum lease payments and the acquisition costs of the lease assets represents interest expenses. The allocation of such interest expenses over the lease term is computed using the effective interest method. Interest expenses for the year ended March 31, 2002 amounted to ¥325 million ($2 million). (b) Lessor side March 31, 2002 Acquisition cost.................. Accumulated depreciation ... Net book value ................... Equipment ¥2,019,480 1,241,098 ¥ 778,382 Millions of yen Other ¥279,759 145,377 ¥134,381 Total ¥2,299,239 1,386,476 ¥ 912,763 March 31, 2002 Acquisition cost.................. Accumulated depreciation ... Net book value ................... Equipment $15,156 9,314 $ 5,842 Millions of U.S. dollars Other $2,099 1,091 $1,008 Total $17,255 10,405 $ 6,850 Future lease payments receivable excluding interests at March 31, 2002 were as follows: March 31, 2002 Due within one year ............................................ Due after one year ............................................... Millions of Millions of yen U.S. dollars ¥286,293 654,334 ¥940,628 $2,148 4,911 $7,059 Total lease income for the year ended March 31, 2002 was ¥368,795 million ($2,768 million). Assumed depreciation charges for the year ended March 31, 2002 amounted to ¥305,584 million ($2,293 million). Depreciation is calculated using the straight-line method over the lease term of the respective assets without salvage values. The difference between the lease payments receivable and the acquisition costs of the lease assets represents interest income. The alloca- tion of such interest income over the lease term is computed using the effective interest method. Interest income for the year ended March 31, 2002 was ¥60,569 million ($455 million). (2) Operating leases (a) Lessee side Future minimum lease payments at March 31, 2002 were as follows: March 31, 2002 Due within one year ............................................ Due after one year ............................................... Millions of Millions of yen U.S. dollars ¥ 20,698 126,186 ¥146,885 $ 155 947 $1,102 (b) Lessor side Future lease payments receivable at March 31, 2002 were as follows: March 31, 2002 Due within one year ............................................ Due after one year ............................................... Millions of Millions of yen U.S. dollars ¥ 366 900 ¥1,266 $ 3 7 $10 Future lease payments receivable of ¥117,699 million ($883 million) on the lessor side referred to in (1) and (2) above were pledged as collateral for borrowings at March 31, 2002. 28. Loan Commitments Commitment line contracts on overdrafts and loans are agreements to lend to customers when they apply for borrowing, to a prescribed amount, as long as there is no violation of any condition established in the contracts. The amount of unused commitments was ¥27,038,063 million ($202,912 million), and the amount of unused commitments whose original contract terms are within one year or unconditionally cancelable at any time was ¥24,508,364 million ($183,928 million) at March 31, 2002. Since many of these commit- ments are expected to expire without being drawn upon, the total amount of unused commitments does not necessarily represent actual future cash flow requirements. Many of these commitments have clauses that the Bank and consolidated subsidiaries can reject an application from customers or reduce the contract amounts in case economic conditions are changed, the Bank and consolidated sub- sidiaries need to secure claims or other events occur. In addition, the Bank and consolidated subsidiaries request the customers to pledge collateral such as premises and securities at the conclusion of the con- tracts, and take necessary measures such as grasping customers’ finan- cial positions, revising contracts when need arises and securing claims after the conclusion of the contracts. 74 — SMBC 2002 29. Market Value of Marketable Securities (1) Securities The market value of marketable securities at March 31, 2002 was as follows: In addition to Securities in the consolidated balance sheet, trading securities, negotiable certificates of deposit and commercial paper in Trading assets, negotiable certificates of deposit in Deposits with banks, and commercial papers and claims on loan trust in Commercial paper and other debt purchased are included in the amounts of following tables. (i) Securities classified as trading March 31, 2002 Consolidated balance sheet amount......................................................................................... Losses included in profit/loss during the year .......................................................................... Millions of yen ¥986,563 15,011 Millions of U.S. dollars $7,404 113 (ii) Bonds classified as held-to-maturity with market value March 31, 2002 Japanese government bonds ........................................... Japanese local government bonds ................................... Corporate bonds............................................................. Other............................................................................. Total.............................................................................. March 31, 2002 Japanese government bonds ........................................... Japanese local government bonds ................................... Corporate bonds............................................................. Other............................................................................. Total.............................................................................. Consolidated balance sheet amount ¥157,807 23,330 — 32,980 ¥214,118 Consolidated balance sheet amount $1,185 175 — 247 $1,607 Note: Market value is calculated by using market prices at the fiscal year-end. (iii) Other securities with market value March 31, 2002 Stocks ............................................................................ Bonds ............................................................................ Japanese government bonds...................................... Japanese local government bonds.............................. Corporate bonds ....................................................... Other............................................................................. Total.............................................................................. March 31, 2002 Stocks ............................................................................ Bonds ............................................................................ Japanese government bonds...................................... Japanese local government bonds.............................. Corporate bonds ....................................................... Other............................................................................. Total.............................................................................. Acquisition cost ¥ 5,364,801 ¥11,265,202 9,919,406 468,707 877,088 ¥ 3,039,987 ¥19,669,991 Acquisition cost $ 40,261 $ 84,542 74,442 3,518 6,582 $ 22,814 $147,617 Millions of yen Net unrealized gains (losses) ¥415 (240) — 717 ¥892 Millions of U.S. dollars Net unrealized gains (losses) $3 (2) — 6 $7 Gains ¥ 493 — — 769 ¥1,262 Gains $ 4 — — 6 $10 Millions of yen Net unrealized gains (losses) ¥(509,305) ¥ 36,459 36,658 8,013 (8,212) ¥ (22,661) ¥(495,507) Millions of U.S. dollars Net unrealized gains (losses) $(3,822) $ 274 275 60 (61) $ (170) $(3,718) Gains ¥192,620 ¥ 58,810 41,284 9,887 7,638 ¥ 8,610 ¥260,042 Gains $1,446 $ 441 310 74 57 $ 65 $1,952 Market value ¥158,223 23,089 — 33,697 ¥215,011 Market value $1,188 173 — 253 $1,614 Consolidated balance sheet amount ¥ 4,855,495 ¥11,301,661 9,956,064 476,721 868,875 ¥ 3,017,326 ¥19,174,483 Consolidated balance sheet amount $ 36,439 $ 84,816 74,717 3,578 6,521 $ 22,644 $143,899 Losses ¥ 77 240 — 52 ¥370 Losses $1 2 — 0 $3 Losses ¥701,926 ¥ 22,351 4,626 1,873 15,851 ¥ 31,271 ¥755,549 Losses $5,268 $ 167 35 14 118 $ 235 $5,670 Note: Market value is calculated by using the average market price for one month before the consolidated fiscal year-end as for stocks and using the market prices at the con- solidated fiscal year-end as for bonds and others. SMBC 2002 — 75 (iv) Bonds sold during the year ended March 31, 2002 that are classified as held-to-maturity There are no corresponding items. (v) Other securities sold during the year ended March 31, 2002 Year ended March 31, 2002 Other securities ................... Sales amount ¥32,067,887 (vi) Securities with no available market value March 31, 2002 Bonds classified as held-to-maturity Millions of yen Gains on sales ¥321,317 Losses on sales ¥95,118 Sales amount $240,660 Millions of U.S. dollars Gains on sales $2,411 Losses on sales $714 Millions of yen Consolidated balance sheet amount Millions of U.S. dollars Consolidated balance sheet amount Nonlisted foreign securities............................................................................................... Other................................................................................................................................ Other securities Nonlisted foreign securities............................................................................................... Nonlisted bonds................................................................................................................ Nonlisted stocks (excluding OTC stocks).......................................................................... Other................................................................................................................................ ¥ 13,080 18,246 ¥349,227 561,512 179,961 109,478 (vii) Change of classification of securities There are no corresponding items. (viii) Redemption schedule of other securities with maturities and bonds classified as held-to-maturity $ 98 137 $2,621 4,214 1,351 822 March 31, 2002 Bonds ............................................................................................................ Japanese government bonds...................................................................... Japanese local government bonds ............................................................. Japanese corporate bonds.......................................................................... Other............................................................................................................. Total.............................................................................................................. March 31, 2002 Bonds ............................................................................................................ Japanese government bonds...................................................................... Japanese local government bonds ............................................................. Japanese corporate bonds.......................................................................... Other............................................................................................................. Total.............................................................................................................. (2) Money held in trust (i) Money held in trust classified as trading Millions of yen 1 year or less ¥2,315,514 2,179,224 25,647 110,643 ¥ 469,356 ¥2,784,871 1 to 5 years ¥7,488,398 6,340,438 130,937 1,017,022 ¥2,044,658 ¥9,533,057 5 to 10 years ¥1,966,674 1,324,773 342,159 299,741 ¥ 153,680 ¥2,120,354 Millions of U.S. dollars 1 year or less 1 to 5 years $17,377 16,354 193 830 $ 3,523 $20,900 $56,198 47,583 983 7,632 $15,345 $71,543 5 to 10 years $14,759 9,942 2,568 2,249 $ 1,154 $15,913 Over 10 years ¥273,699 269,435 1,307 2,956 ¥517,756 ¥791,456 Over 10 years $2,054 2,022 10 22 $3,886 $5,940 March 31, 2002 Consolidated balance sheet amount......................................................................................... Gains included in profit/loss during the year .......................................................................... Millions of yen ¥3,715 — Millions of U.S. dollars $28 — (ii) Money held in trust classified as held-to-maturity There are no corresponding items. (iii) Other money held in trust March 31, 2002 Other money held in trust.............................................. March 31, 2002 Other money held in trust.............................................. Acquisition cost ¥33,969 Acquisition cost Consolidated balance sheet amount ¥30,144 Consolidated balance sheet amount $255 $226 Millions of yen Net unrealized gains (losses) ¥(3,825) Millions of U.S. dollars Net unrealized gains (losses) $(29) Gains ¥135 Losses ¥3,960 Gains $1 Losses $30 (3) Net unrealized gains (losses) on other securities and other money held in trust March 31, 2002 Net unrealized gains (losses) ................................................................................................... Other securities................................................................................................................. Other money held in trust................................................................................................. (+) Deferred tax assets............................................................................................................. Net unrealized gains (losses) on other securities (before following adjustment)........................ (–) Minority interests ............................................................................................................. (+) Parent company’s interest in net unrealized gains (losses) on valuation of other securities held by affiliates accounted for by the equity method ............................................ Net unrealized gains (losses) on other securities ...................................................................... Millions of yen ¥(499,280) (495,455) (3,825) 191,016 ¥(308,264) (4,225) ¥ (797) ¥(304,837) Millions of U.S. dollars $(3,747) (3,718) (29) 1,434 $(2,313) (31) $ (6) $(2,288) Note: Net unrealized gains (losses) included foreign currency translation adjustments on non-marketable securities denominated in foreign currency. 76 — SMBC 2002 30. Derivative Transactions Interest rate derivatives (1) March 31, 2002 Transactions listed on exchange Interest rate futures: Millions of yen Contract amount Total Over 1 year Market value Net valuated gains (losses) Sold.......................................................................................................... Bought..................................................................................................... Interest rate options: Sold.......................................................................................................... Bought..................................................................................................... ¥ ¥ 8,943,374 6,928,597 ¥ 542,286 341,900 574,331 ¥ 701,914 — — ¥ ¥ 3,429 (3,190) (22) 48 ¥ ¥ 3,429 (3,190) (22) 48 Over-the-counter transactions Forward rate agreements: Sold.......................................................................................................... Bought..................................................................................................... Interest rate swaps: ........................................................................................ Receivable fixed rate/payable floating rate ................................................ Receivable floating rate/payable fixed rate ................................................ Receivable floating rate/payable floating rate............................................ ¥ 9,174,207 3,024,390 ¥268,046,524 128,429,893 124,541,252 14,722,791 ¥ 580,000 780,000 ¥169,004,153 79,655,118 76,679,066 12,361,681 ¥ ¥ 13 (248) 37,188 2,593,978 (2,548,948) (5,459) ¥ ¥ 13 (248) 37,188 2,593,978 (2,548,948) (5,459) Swaptions: Sold.......................................................................................................... Bought..................................................................................................... Caps: Sold.......................................................................................................... Bought..................................................................................................... Floors: Sold.......................................................................................................... Bought..................................................................................................... Other: Sold.......................................................................................................... Bought..................................................................................................... Total.............................................................................................................. March 31, 2002 Transactions listed on exchange Interest rate futures: ¥ ¥ ¥ ¥ ¥ ¥ ¥ ¥ 1,118,152 952,425 5,446,040 4,622,975 400,233 621,113 14,352 188,333 / 523,065 592,115 ¥ (21,895) 19,321 ¥ (21,895) 19,321 4,319,041 3,586,333 235,877 325,744 13,852 62,889 / ¥ ¥ ¥ ¥ (7,950) 11,040 (9,240) 12,622 (9,170) 2,390 34,335 ¥ ¥ ¥ ¥ (7,950) 11,040 (9,240) 12,622 (9,170) 2,390 34,335 Millions of U.S. dollars Contract amount Total Over 1 year Market value Net valuated gains (losses) Sold.......................................................................................................... Bought..................................................................................................... Interest rate options: Sold.......................................................................................................... Bought..................................................................................................... $ $ 67,117 51,997 4,310 5,268 $ $ 4,070 2,566 — — $ $ 26 (24) (0) 0 $ $ 26 (24) (0) 0 Over-the-counter transactions Forward rate agreements: Sold.......................................................................................................... Bought..................................................................................................... Interest rate swaps: ........................................................................................ Receivable fixed rate/payable floating rate ................................................ Receivable floating rate/payable fixed rate ................................................ Receivable floating rate/payable floating rate............................................ $ 68,850 22,697 $2,011,606 963,827 934,644 110,490 $ 4,353 5,854 $1,268,324 597,787 575,453 92,771 $ $ 0 (2) 279 19,467 (19,129) (41) $ $ 0 (2) 279 19,467 (19,129) (41) Swaptions: Sold.......................................................................................................... Bought..................................................................................................... Caps: Sold.......................................................................................................... Bought..................................................................................................... Floors: Sold.......................................................................................................... Bought..................................................................................................... Other: Sold.......................................................................................................... Bought..................................................................................................... Total.............................................................................................................. $ $ $ $ 8,391 7,148 40,871 34,694 3,004 4,661 108 1,413 / $ $ $ $ 3,925 4,444 32,413 26,914 1,770 2,445 104 472 / $ (164) 145 $ (164) 145 $ $ $ $ (60) 83 (69) 95 (69) 18 258 $ $ $ $ (60) 83 (69) 95 (69) 18 258 Notes: 1. The above transactions are valuated at market value and the valuated gains (losses) are accounted for in the consolidated statement of operations. Derivative transactions to which the hedge accounting method is applied are not included in the amounts above. Some consolidated overseas subsidiaries account for interest rate derivatives in accordance with local accounting standards and such transactions are not included in the figures above, of which their net unrealized gains amount to ¥490 million ($4 million). 2. Market value of transactions listed on exchange is calculated mainly using the closing prices on the Tokyo International Financial Futures Exchange and others. Market value of OTC transactions is calculated mainly using discounted present value and option pricing models. SMBC 2002 — 77 (2) Currency derivatives March 31, 2002 Over-the-counter transactions Currency swaps .............................................................................................. Forward foreign exchange .............................................................................. Currency options Sold.......................................................................................................... Bought..................................................................................................... Other Sold.......................................................................................................... Bought..................................................................................................... Total.............................................................................................................. March 31, 2002 Over-the-counter transactions Currency swaps .............................................................................................. Forward foreign exchange .............................................................................. Currency options Sold.......................................................................................................... Bought..................................................................................................... Other Sold.......................................................................................................... Bought..................................................................................................... Total.............................................................................................................. Millions of yen Contract amount Total Over 1 year Market value Net valuated gains (losses) ¥15,732,720 ¥ 1,319,768 ¥8,809,028 ¥ 336,625 ¥ ¥ 11,641 10,956 ¥ 2,362 4,209 293,341 457,727 / ¥ 293,341 457,727 / ¥(46,698) ¥ (2,439) ¥ (877) 931 ¥ (3,163) 6,145 ¥(46,102) ¥(46,698) ¥ (2,439) ¥ (877) 931 ¥ (3,163) 6,145 ¥(46,102) Millions of U.S. dollars Contract amount Total Over 1 year Market value Net valuated gains (losses) $118,069 9,904 $ $ $ 87 82 2,201 3,435 / $66,109 $ 2,526 $ 18 32 $ 2,201 3,435 / $(350) $ (18) $ (7) 7 $ (24) 46 $(346) $(350) $ (18) $ (7) 7 $ (24) 46 $(346) Notes: 1. The above transactions are valuated at market value and the valuated gains (losses) are accounted for in the consolidated statement of operations. Derivative transactions to which the hedge accounting method is applied and the transaction referred to in Note 3 below, are not included in the amounts above. Some consolidated overseas subsidiaries account for currency derivatives in accordance with local accounting standards and such transactions are not included in the figures above, of which their net unrealized gains amount to ¥715 million ($5 million). 2. Market value is calculated mainly using discounted present value. 3. Forward foreign exchange and currency options which are of the following types are not included in the figures above: (a) Those that are revaluated at fiscal year-end and the revaluated gains (losses) are accounted for in the consolidated statement of operations. (b) Those that are allotted to financial assets/liabilities denominated in foreign currency and whose market values are already reflected in the amount of the financial assets/liabilities on the consolidated balance sheet. (c) Those that are allotted to financial assets/liabilities denominated in foreign currency and the financial assets/liabilities are eliminated in the process of consolidation. The contract amount of currency derivatives which are revaluated at the consolidated balance sheet date are as follows: March 31, 2002 Transactions listed on exchange Currency futures: Millions of yen Contract amount Millions of U.S. dollars Contract amount Sold........................................................................................................................ Bought................................................................................................................... Currency options: Sold........................................................................................................................ Bought................................................................................................................... Over-the-counter transactions Forward foreign exchange ............................................................................................ Currency options: Sold........................................................................................................................ Bought................................................................................................................... ¥ ¥ — — — — ¥42,123,544 ¥ 3,161,699 3,736,356 $ $ — — — — $316,124 $ 23,728 28,040 78 — SMBC 2002 (3) Equity derivatives March 31, 2002 Transactions listed on exchange Stock price index futures: Sold.......................................................................................................... Bought..................................................................................................... Stock price index options: Sold.......................................................................................................... Bought..................................................................................................... Over-the-counter transactions Equity options: Sold.......................................................................................................... Bought..................................................................................................... Stock price index swaps: Receivable equity index/payable floating rate ........................................... Receivable floating rate/payable equity index ........................................... Other: Sold.......................................................................................................... Bought..................................................................................................... Total.............................................................................................................. March 31, 2002 Transactions listed on exchange Stock price index futures: Sold.......................................................................................................... Bought..................................................................................................... Stock price index options: Sold.......................................................................................................... Bought..................................................................................................... Over-the-counter transactions Equity options: Sold.......................................................................................................... Bought..................................................................................................... Stock price index swaps: Receivable equity index/payable floating rate ........................................... Receivable floating rate/payable equity index ........................................... Other: Sold.......................................................................................................... Bought..................................................................................................... Total.............................................................................................................. Millions of yen Contract amount Total Over 1 year Market value Net valuated gains (losses) ¥ 55 211 ¥ — — ¥ — — ¥ — 11,664 ¥98,375 69,016 / ¥ — — ¥ — — ¥ — — ¥ — — ¥21,566 — / ¥ 0 0 ¥ — — ¥ — — ¥ — 25 ¥(4,531) 796 ¥(3,709) ¥ 0 0 ¥ — — ¥ — — ¥ — 25 ¥(4,531) 796 ¥(3,709) Millions of U.S. dollars Contract amount Total Over 1 year Market value Net valuated gains (losses) $ 0 2 $ — — $ — — $ — 88 $738 518 / $ — — $ — — $ — — $ — — $162 — / $ 0 0 $ — — $ — — $ — 0 $(34) 6 $(28) $ 0 0 $ — — $ — — $ — 0 $(34) 6 $(28) Notes: 1. The above transactions are valuated at market value and the valuated gains (losses) are accounted for in the consolidated statement of operations. Derivative transactions to which the hedge accounting method is applied are not included in the amounts above. 2. Market value of transactions listed on exchange is calculated mainly using the closing prices on the Tokyo Stock Exchange. Market value of OTC transactions is calculated mainly using discounted present value and option pricing models. SMBC 2002 — 79 (4) Bond derivatives March 31, 2002 Transactions listed on exchange Bond futures: Millions of yen Contract amount Total Over 1 year Market value Net valuated gains (losses) Sold.......................................................................................................... Bought..................................................................................................... Bond futures options: Sold.......................................................................................................... Bought..................................................................................................... ¥13,300 13,300 ¥ — 5,000 ¥ — — ¥ — — Over-the-counter transactions Bond options: Sold.......................................................................................................... Bought..................................................................................................... Total.............................................................................................................. ¥23,064 28,155 / ¥17,384 4,953 / ¥(78) 90 ¥ — 11 ¥(11) 0 ¥ 11 ¥(78) 90 ¥ — 11 ¥(11) 0 ¥ 11 March 31, 2002 Transactions listed on exchange Bond futures: Sold.......................................................................................................... Bought..................................................................................................... Bond futures options: Sold.......................................................................................................... Bought..................................................................................................... Over-the-counter transactions Bond options: Sold.......................................................................................................... Bought..................................................................................................... Total.............................................................................................................. Millions of U.S. dollars Contract amount Total Over 1 year Market value Net valuated gains (losses) $100 100 $ — 38 $173 211 / $ — — $ — — $130 37 / $(1) 1 $— 0 $(0) 0 $ 0 $(1) 1 $— 0 $ (0) 0 $ 0 Notes: 1. The above transactions are valuated at market value and the valuated gains (losses) are accounted for in the consolidated statement of operations. Derivative transactions to which the hedge accounting method is applied are not included in the amounts above. 2. Market value of transactions listed on exchange is calculated mainly using the closing prices on the Tokyo Stock Exchange. Market value of OTC transactions is calculated mainly using option pricing models. (5) Commodity derivatives March 31, 2002 Over-the-counter transactions Commodity swaps: Millions of yen Contract amount Total Over 1 year Market value Net valuated gains (losses) Receivable fixed price/payable floating price ............................................ Receivable floating price/payable fixed price ............................................ Commodity options: Sold.......................................................................................................... Bought..................................................................................................... Total.............................................................................................................. ¥1,918 1,918 ¥5,026 5,026 / ¥1,796 1,796 ¥4,469 4,469 / ¥ 504 (361) ¥(1,070) 1,107 ¥ 180 ¥ 504 (361) ¥(1,070) 1,107 ¥ 180 March 31, 2002 Over-the-counter transactions Commodity swaps: Millions of U.S. dollars Contract amount Total Over 1 year Market value Net valuated gains (losses) Receivable fixed price/payable floating price ............................................ Receivable floating price/payable fixed price ............................................ Commodity options: Sold.......................................................................................................... Bought..................................................................................................... Total.............................................................................................................. $14 14 $38 38 / $13 13 $34 34 / $ 4 (3) $(8) 8 $ 1 $ 4 (3) $(8) 8 $ 1 Notes: 1. The above transactions are valuated at market value and the valuated gains (losses) are accounted for in the consolidated statement of operations. Derivative transactions to which the hedge accounting method is applied are not included in the amounts above. 2. Market value is calculated based on factors such as price of the relevant commodity and contract term. 80 — SMBC 2002 (6) Credit derivative transactions March 31, 2002 Over-the-counter transactions Credit default options: Millions of yen Contract amount Total Over 1 year Market value Net valuated gains (losses) Sold.......................................................................................................... Bought..................................................................................................... Other: Sold.......................................................................................................... Bought..................................................................................................... Total.............................................................................................................. ¥ 51,166 49,684 ¥ 16,354 223,044 / ¥43,807 37,903 ¥14,514 80,496 / ¥ (774) 1,428 ¥ (2,584) 14,895 ¥12,965 ¥ (774) 1,428 ¥ (2,584) 14,895 ¥12,965 March 31, 2002 Over-the-counter transactions Credit default options: Millions of U.S. dollars Contract amount Total Over 1 year Market value Net valuated gains (losses) Sold.......................................................................................................... Bought..................................................................................................... Other: Sold.......................................................................................................... Bought..................................................................................................... Total.............................................................................................................. $ 384 373 $ 123 1,674 / $329 284 $109 604 / $ (6) 11 $ (20) 112 $ 97 $ (6) 11 $ (20) 112 $ 97 Notes: 1. The above transactions are valuated at market value and the valuated gains (losses) are accounted for in the consolidated statement of operations. Derivative transactions to which the hedge accounting method is applied are not included in the amounts above. 2. Market value is calculated based on factors such as the price of the reference assets and contract term. 3. “Sold” represents transactions in which the credit risk is accepted; “Bought” represents transactions in which the credit risk is transferred. SMBC 2002 — 81 31. Segment Information (1) Business segment information Year ended March 31, 2002 I. Operating income Banking business Leasing Other Total Elimination Consolidated Millions of yen (1) External customers ....................... (2) Intersegment ................................ Total ................................................. Operating expenses .............................. ¥ ¥ 2,698,303 264,276 2,962,579 3,536,635 ¥ 585,108 5,262 ¥ 590,370 565,781 ¥ 496,291 205,584 ¥ 701,875 504,598 ¥ ¥ 3,779,702 475,123 4,254,825 4,607,015 ¥ — ¥ (475,123) ¥ (475,123) (246,684) 3,779,702 — 3,779,702 4,360,330 (580,628) ¥ ¥ Operating profit (loss).......................... ¥ (574,055) ¥ 24,589 ¥ 197,277 ¥ (352,189) ¥ (228,438) II. Assets, depreciation and capital expenditure Assets ................................................ Depreciation...................................... Capital expenditure ........................... Year ended March 31, 2002 I. Operating income ¥105,898,627 79,019 101,295 ¥1,723,850 345,405 305,198 ¥6,766,939 19,623 25,238 ¥114,389,418 444,048 431,732 ¥(6,384,416) — — ¥108,005,001 444,048 431,732 Banking business Leasing Other Total Elimination Consolidated Millions of U.S. dollars (1) External customers ....................... (2) Intersegment ................................ Total ................................................. Operating expenses .............................. $ 20,250 1,983 $ 22,233 26,541 Operating profit (loss).......................... $ (4,308) II. Assets, depreciation and capital expenditure Assets ................................................ Depreciation...................................... Capital expenditure ........................... $794,736 593 760 $ 4,391 39 $ 4,430 4,246 $ 184 $12,937 2,592 2,291 $ 3,724 1,543 $ 5,267 3,787 $ 1,480 $50,784 147 189 $ 28,365 3,565 $ 31,930 34,574 $ (2,644) $858,457 3,332 3,240 $ — (3,565) $ (3,565) (1,851) $ (1,714) $ 28,365 — $ 28,365 32,723 $ (4,358) $(47,913) — — $810,544 3,332 3,240 Notes: 1. The business segmentation is determined based on the Bank’s internal administrative purposes. 2. “Other” includes securities, credit card, investment banking, loans, factoring, mortgage securities, venture capital, system development and information processing. 3. As mentioned in Note 2 (17) “Adoption of new accounting standards,” prior to April 1, 2001, unsecured loaned securities and securities under repurchase agree- ments were recognized as “Securities in custody” in Other assets and “Trading account securities borrowed” or “Securities borrowed” in Other liabilities by the same amounts. Effective April 1, 2001, they are not reported on the consolidated balance sheet in accordance with the revision of the accounting standards for financial instruments. Consequently, Assets of “Banking business” decreased by ¥3,098,200 million ($23,251 million) at March 31, 2002, as compared with the former manner. 4. As mentioned in Note 2 (4) “Securities,” effective April 1, 2001, the method of valuation on other securities and other money held in trust complied with the accounting standards for financial instruments. Consequently, Assets of “Banking business,” “Leasing” and “Other” decreased by ¥301,413 million ($2,262 mil- lion), ¥999 million ($7 million) and ¥4,325 million ($32 million) at March 31, 2002, as compared with the former manner, respectively. 5. Operating income represents total income excluding gains on disposition of premises and equipment, collection of written-off claims, gain on sale of business opera- tion and reversals of other reserves. Operating expenses represent total expenses excluding losses on disposition of premises and equipment, amortized cost of unrecognized net transition obligation for employee retirement benefits and other extraordinary expenses. 82 — SMBC 2002 (2) Geographic segment information Year ended March 31, 2002 I. Operating income Japan The Americas Europe Millions of yen Asia and Oceania Total Elimination Consolidated (1) External customers ........ (2) Intersegment................. ¥ 2,934,322 276,404 Total.................................. Operating expenses............... ¥ 3,210,727 3,895,821 ¥ 418,104 85,450 ¥ 503,554 290,884 ¥ 210,831 122,428 ¥ 333,260 304,545 ¥ 216,443 76,812 ¥ 293,256 240,295 Operating profit (loss) .......... ¥ (685,093) ¥ 212,670 ¥ 28,714 ¥ 52,961 ¥ ¥ ¥ 3,779,702 561,096 4,340,799 4,731,546 ¥ — ¥ 3,779,702 — (561,096) ¥ (561,096) ¥ (371,215) 3,779,702 4,360,330 (390,746) ¥ (189,881) ¥ (580,628) II. Assets ................................. ¥96,551,202 ¥7,122,548 ¥3,210,741 ¥4,057,313 ¥110,941,806 ¥(2,936,804) ¥108,005,001 Year ended March 31, 2002 I. Operating income Japan The Americas Europe Millions of U.S. dollars Asia and Oceania Total Elimination Consolidated (1) External customers ........ (2) Intersegment................. Total.................................. Operating expenses............... $ 22,021 2,075 $ 24,096 29,237 Operating profit (loss) .......... $ (5,141) II. Assets ................................. $724,587 $ 3,138 641 $ 3,779 2,183 $ 1,596 $53,452 $ 1,582 919 $ 2,501 2,286 $ 215 $24,096 $ 1,624 576 $ 2,200 1,803 $ 397 $30,449 $ 28,365 4,211 $ 32,576 35,509 $ (2,933) $832,584 $ — (4,211) $ (4,211) (2,786) $ (1,425) $(22,040) $ 28,365 — $ 28,365 32,723 $ (4,358) $810,544 Notes: 1. The geographic segmentation is decided based on the degrees of following factors: geographic proximity, similarity of economic activities and relationship of busi- ness activities among regions. 2. The Americas includes the United States, Brazil and others; Europe includes the United Kingdom, France and others; Asia and Oceania includes Hong Kong, Singapore and others except Japan. 3. As mentioned in Note 2 (17) “Adoption of new accounting standards,” prior to April 1, 2001, unsecured loaned securities and securities under repurchase agree- ments were recognized as “Securities in custody” in Other assets and “Trading account securities borrowed” or “Securities borrowed” in Other liabilities by the same amounts. Effective April 1, 2001, they are not reported on the consolidated balance sheet in accordance with the revision of the accounting standards for financial instruments. Consequently, Assets of “Japan” decreased by ¥3,098,200 million ($23,251 million) at March 31, 2002, as compared with the former manner. 4. As mentioned in Note 2 (4) “Securities,” effective April 1, 2001, the method of valuation on other securities and other money held in trust complied with the accounting standards for financial instruments. Consequently, Assets of “Japan,” “The Americas” and “Europe” decreased by ¥307,871 million ($2,310 million), ¥562 million ($4 million) and ¥696 million ($5 million) at March 31, 2002 and “Asia and Oceania” increased by ¥2,391 million ($18 million) at March 31, 2002, as compared with the former manner, respectively. 5. Operating income represents total income excluding gains on disposition of premises and equipment, recoveries of written-off claims, gain on sale of business opera- tion and reversals of other reserves. Operating expenses represent total expenses excluding losses on disposition of premises and equipment, amortized cost of unrecognized net transition obligation for employee retirement benefits and other extraordinary expenses. (3) Operating income from overseas operations Year ended March 31, 2002 Operating income from overseas operations (A)....................................................................... Consolidated operating income (B) ......................................................................................... Millions of yen ¥ 845,379 3,779,702 (A)/(B) .................................................................................................................................... 22.4% Millions of U.S. dollars $ 6,344 28,365 22.4% Note: The above table shows operating income from transactions of the Bank’s overseas branches and overseas consolidated subsidiaries, excluding internal income. 32. Subsequent Event Appropriations of retained earnings The following appropriations of retained earnings of the Bank at March 31, 2002 were approved by the ordinary general meeting of sharehold- ers held on June 27, 2002: Cash dividends, ¥4.00 per share on common stock ........................................................................ ¥10.50 per share on preferred stock (First series Type 1)....................................... ¥28.50 per share on preferred stock (Second series Type 1) ................................... ¥13.70 per share on preferred stock (Type 5) ........................................................ Millions of yen ¥22,835 703 2,850 10,960 Millions of U.S. dollars $171 5 21 82 SMBC 2002 — 83 33. Parent Company (1) Nonconsolidated Balance Sheet Sumitomo Mitsui Banking Corporation March 31, 2002 Assets Millions of yen Millions of U.S. dollars Cash and due from banks................................................................................................ ¥ 1,871,121 Deposits with banks ......................................................................................................... 3,587,308 Call loans and bills bought ............................................................................................... Receivables under resale agreements ............................................................................ Commercial paper and other debt purchased.................................................................. 620,406 432,730 146,650 Trading assets ................................................................................................................. 2,705,648 Money held in trust........................................................................................................... 33,858 Securities ......................................................................................................................... 20,442,996 Loans and bills discounted............................................................................................... 59,928,368 Foreign exchanges .......................................................................................................... 779,142 Other assets..................................................................................................................... 5,344,106 Premises and equipment ................................................................................................. Deferred tax assets.......................................................................................................... Customers’ liabilities for acceptances and guarantees.................................................... 890,981 1,741,114 5,529,996 Reserve for possible loan losses ..................................................................................... (1,971,849) Total assets .................................................................................................................... ¥102,082,581 $ 14,042 26,922 4,656 3,247 1,101 20,305 254 153,418 449,744 5,847 40,106 6,687 13,066 41,501 (14,798) $766,098 Liabilities and stockholders’ equity Liabilities Deposits ........................................................................................................................... ¥ 67,629,353 $507,537 Call money and bills sold ................................................................................................. 10,752,791 Payables under repurchase agreements ......................................................................... Commercial paper............................................................................................................ Trading liabilities .............................................................................................................. Borrowed money.............................................................................................................. Foreign exchanges .......................................................................................................... 1,100,446 1,001,000 1,797,086 3,406,286 300,162 Bonds............................................................................................................................... 2,133,754 Convertible bonds ............................................................................................................ 1,106 Other liabilities ................................................................................................................. 4,962,176 Reserve for employee bonuses ....................................................................................... Reserve for employee retirement benefits ....................................................................... Reserve for possible losses on loans sold....................................................................... Other reserves ................................................................................................................. Deferred tax liabilities for land revaluation ....................................................................... 11,342 116,854 80,576 18 63,137 80,696 8,258 7,512 13,487 25,563 2,253 16,013 8 37,240 85 877 605 0 474 Acceptances and guarantees .......................................................................................... 5,529,996 Total liabilities ................................................................................................................ ¥ 98,886,088 41,501 $742,109 Stockholders’ equity Preferred stock; authorized 970,000,000 shares and issued 967,000,000 shares.......... ¥ 650,500 $ 4,882 Common stock; authorized 15,000,000,000 shares and issued 5,709,424,395 shares ..... 676,246 Capital surplus ................................................................................................................. 1,326,758 Land revaluation excess .................................................................................................. Retained earnings............................................................................................................ 100,346 740,874 Net unrealized losses on other securities ........................................................................ (297,950) Treasury stock ................................................................................................................. (283) Total stockholders’ equity ............................................................................................ ¥ 3,196,492 Total liabilities and stockholders’ equity..................................................................... ¥102,082,581 5,075 9,957 753 5,560 (2,236) (2) $ 23,989 $766,098 Note: For the convenience of the readers, the accompanying U.S. dollar financial statements have been translated from Japanese yen, as a matter of arithmetical computation only, at the rate of ¥133.25 to US$1, the exchange rate prevailing at March 31, 2002. 84 — SMBC 2002 (2) Nonconsolidated Statement of Operations Sumitomo Mitsui Banking Corporation Year ended March 31, 2002 Income Interest income: Millions of yen Millions of U.S. dollars Interest on loans and discounts...................................................................... ¥1,261,307 $ 9,466 Interest and dividends on securities ............................................................... Other interest income ..................................................................................... Fees and commissions............................................................................................ Trading profits ......................................................................................................... Other operating income........................................................................................... Other income........................................................................................................... 504,732 426,920 239,645 121,414 150,886 113,281 3,788 3,204 1,799 911 1,132 850 Total income .......................................................................................................... ¥2,818,189 $21,150 Expenses Interest expenses: Interest on deposits ........................................................................................ ¥ 337,679 $ 2,534 Interest on borrowings and rediscounts ......................................................... Other interest expenses ................................................................................. Fees and commissions............................................................................................ Trading losses ......................................................................................................... Other operating expenses ....................................................................................... General and administrative expenses ..................................................................... Transfer to reserve for possible loan losses............................................................ Other expenses ....................................................................................................... Total expenses ...................................................................................................... Loss before income taxes ....................................................................................... Income taxes: Current ........................................................................................................... Deferred ......................................................................................................... Net loss .................................................................................................................. 147,932 231,064 74,373 125 60,445 696,775 1,158,947 647,482 ¥3,354,826 ¥ 536,637 ¥ 32,737 (246,522) ¥ 322,852 1,110 1,734 558 1 454 5,229 8,698 4,859 $25,177 $ 4,027 $ 246 (1,850) $ 2,423 Year ended March 31, 2002 Per share data: Yen U.S. dollars Net loss .......................................................................................................... ¥ 59.20 $ 0.44 Declared dividends on common stock............................................................ Declared dividends on preferred stock (First series Type 1).......................... Declared dividends on preferred stock (Second series Type 1)..................... Declared dividends on preferred stock (Type 5) ............................................ 4.00 10.50 28.50 13.70 0.03 0.08 0.21 0.10 Note: For the convenience of the readers, the accompanying U.S. dollar financial statements have been translated from Japanese yen, as a matter of arithmetical computation only, at the rate of ¥133.25 to US$1, the exchange rate prevailing at March 31, 2002. SMBC 2002 — 85 Report of Independent Public Accountants To The Board of Directors of Sumitomo Mitsui Banking Corporation We have audited the accompanying consolidated balance sheet of Sumitomo Mitsui Banking Corporation and sub- sidiaries as of March 31, 2002, and the related consolidated statements of operations, stockholders’ equity and cash flows for the year then ended, expressed in Japanese yen. Our audit was made in accordance with generally accepted auditing standards in Japan and, accordingly, included such tests of the accounting records and such other auditing procedures as we considered necessary in the circumstances. In our opinion, the consolidated financial statements referred to above present fairly the consolidated financial posi- tion of Sumitomo Mitsui Banking Corporation and subsidiaries as of March 31, 2002, and the consolidated results of their operations and their cash flows for the year then ended in conformity with accounting principles generally accepted in Japan (Note 1) applied on a basis consistent with that of the preceding year, except as noted in the fol- lowing paragraph. As explained in Note 2, effective April 1, 2001, Sumitomo Mitsui Banking Corporation and subsidiaries prospectively adopted the Japanese accounting standard for financial instruments on Other securities. Also, in our opinion, the U.S. dollar amounts in the accompanying consolidated financial statements have been trans- lated from Japanese yen on the basis set forth in Note 1. Tokyo, Japan June 27, 2002 86 — SMBC 2002 Supplemental Information Combined Consolidated Balance Sheet (Unaudited) Sumitomo Mitsui Banking Corporation and Subsidiaries March 31, 2001 Assets Cash and due from banks............................................................................................................................................. Deposits with banks ...................................................................................................................................................... Call loans and bills bought .......................................................................................................................................... Receivables under resale agreements ......................................................................................................................... Commercial paper and other debt purchased .............................................................................................................. Trading assets .............................................................................................................................................................. Money held in trust ....................................................................................................................................................... Securities ...................................................................................................................................................................... Loans and bills discounted ........................................................................................................................................... Foreign exchanges ....................................................................................................................................................... Other assets ................................................................................................................................................................. Premises and equipment .............................................................................................................................................. Lease assets................................................................................................................................................................. Deferred tax assets....................................................................................................................................................... Goodwill ........................................................................................................................................................................ Customers’ liabilities for acceptances and guarantees................................................................................................. Reserve for possible loan losses .................................................................................................................................. Total assets ................................................................................................................................................................. Liabilities, minority interests and stockholders’ equity Liabilities Deposits ........................................................................................................................................................................ Call money and bills sold .............................................................................................................................................. Payables under repurchase agreements ...................................................................................................................... Commercial paper ........................................................................................................................................................ Trading liabilities ........................................................................................................................................................... Borrowed money........................................................................................................................................................... Foreign exchanges ....................................................................................................................................................... Bonds............................................................................................................................................................................ Convertible bonds ......................................................................................................................................................... Pledged money for securities lending transactions ...................................................................................................... Other liabilities .............................................................................................................................................................. Reserve for employee retirement benefits .................................................................................................................... Reserve for possible losses on loans sold.................................................................................................................... Other reserves .............................................................................................................................................................. Deferred tax liabilities .................................................................................................................................................. Deferred tax liabilities for land revaluation .................................................................................................................... Acceptances and guarantees ...................................................................................................................................... Total liabilities ............................................................................................................................................................. Millions of yen ¥ 3,764,400 3,755,464 507,614 2,905,306 259,016 2,490,982 75,120 27,312,498 65,537,091 738,761 5,657,250 1,566,892 827,134 1,156,514 6,224 3,951,237 (1,268,853) ¥119,242,661 ¥ 74,696,023 9,941,070 5,262,187 1,736,153 1,270,014 3,460,782 250,907 3,195,061 101,106 4,607,098 5,413,152 39,688 145,266 651 24,640 144,055 3,951,237 ¥114,239,104 Minority interests ........................................................................................................................................................ ¥ 990,595 Stockholders’ equity Capital stock ................................................................................................................................................................. Capital surplus .............................................................................................................................................................. Land revaluation excess ............................................................................................................................................... Retained earnings......................................................................................................................................................... Foreign currency translation adjustments ..................................................................................................................... Treasury stock .............................................................................................................................................................. Parent bank stock held by subsidiaries ........................................................................................................................ Total stockholders’ equity ......................................................................................................................................... Total liabilities, minority interests and stockholders’ equity ................................................................................. ¥ 1,795,554 1,542,601 230,669 515,984 (53,110) (46) (18,692) ¥ 4,012,960 ¥119,242,661 Notes: 1. Amounts less than one million yen have been omitted. 2. Amounts are prepared for the former Sakura Bank and the former Sumitomo Bank on a combined basis. SMBC 2002 — 87 Combined Consolidated Statement of Income (Unaudited) Sumitomo Mitsui Banking Corporation and Subsidiaries Year ended March 31, 2001 Income Interest income: Interest on loans and discounts................................................................................................................................... Interest and dividends on securities ............................................................................................................................ Interest on receivables under resale agreements ....................................................................................................... Other interest income .................................................................................................................................................. Fees and commissions ..................................................................................................................................................... Trading profits................................................................................................................................................................... Other operating income .................................................................................................................................................... Other income .................................................................................................................................................................... Total income.................................................................................................................................................................... Expenses Interest expenses: Interest on deposits ..................................................................................................................................................... Interest on borrowings and rediscounts....................................................................................................................... Interest on payables under repurchase agreements ................................................................................................... Other interest expenses .............................................................................................................................................. Fees and commissions ..................................................................................................................................................... Trading losses .................................................................................................................................................................. Other operating expenses ................................................................................................................................................ General and administrative expenses .............................................................................................................................. Transfer to reserve for possible loan losses ..................................................................................................................... Other expenses ................................................................................................................................................................ Transfer to other reserves ................................................................................................................................................ Total expenses................................................................................................................................................................ Income before income taxes and minority interests................................................................................................... Income taxes: Current ........................................................................................................................................................................ Deferred ...................................................................................................................................................................... Minority interests in net income ........................................................................................................................................ Net income ...................................................................................................................................................................... Notes: 1. Amounts less than one million yen have been omitted. 2. Amounts are prepared for the former Sakura Bank and the former Sumitomo Bank on a combined basis. Millions of yen ¥1,659,745 328,449 10,861 436,827 412,097 111,183 649,681 892,350 ¥4,501,200 ¥ 643,840 178,210 22,224 268,071 95,781 2,146 560,664 940,889 48,973 1,334,874 2 ¥4,095,685 ¥ 405,514 ¥ 65,530 198,227 ¥ 263,757 9,346 ¥ ¥ 132,408 88 — SMBC 2002 Summary of Significant Differences between Japanese GAAP and U.S. GAAP The consolidated financial statements of the Bank and its subsidiaries presented in this annual report conform with generally accepted accounting principles in Japan (“Japanese GAAP”). Such principles vary from the accounting principles generally accepted in the United States (“U.S. GAAP”). Significant differences between Japanese GAAP and U.S. GAAP are summarized as follows: Japanese GAAP U.S. GAAP Consolidated Subsidiaries The consolidated financial statements include all enterprises that are controlled by the parent, irrespective of the percent- age of the voting shares owned. Control is defined as the power to govern the decision making body of an enterprise. Equity Method of Accounting Affiliates are enterprises over which the Bank has material influences over their financial and operating policies. Investments in nonconsolidated subsidiaries or affiliates are accounted for by the equity method in the consolidated financial statements. Business Combinations Currently, there are no established accounting principles for business combinations. Accounting treatment that is similar to the pooling-of- interest method is normally used for business combinations in accordance with the Commercial Code of Japan. Under the accounting treatment, the balance sheet items of the acquired company are combined with those of the acquiring company at their carrying amount or fair value, and the effect of such pooling shall not be reflected in prior years’ financial statements. Securities Prior to April 1, 2001, debt securities that the Bank has the intent and ability to hold to maturity (held-to-maturity securities) are carried at amortized cost. Trading securities are carried at market value with gains or losses included in the current period income. Securities of subsidiaries and affiliates are carried at cost in the nonconsolidated financial statements. Other securities (available-for-sale securities) can be carried at cost. Effective April 1, 2001, other securities (available-for- sale securities) are carried at fair value with unrealized gains or losses recorded directly to equity, net of taxes. Accounting for Derivatives and Hedging Activities Prior to April 1, 2000, derivative instruments for trading purposes were accounted for at fair values, while other deriv- ative instruments were accounted for on an accrual basis. Effective April 1, 2000, derivative instruments are car- ried at fair value with changes included in the current period income unless certain hedge accounting criteria are met. In general, if derivative instruments are used as hedges and meet certain hedging criteria, a company defers recognition of gains or losses resulting from changes in fair value of Consolidated Subsidiaries Statement of Financial Accounting Standards (“SFAS”) No. 94 requires, with a few exceptions, a parent company to consolidate all of its majority-owned subsidiaries with more than 50% of outstanding voting shares. Equity Method of Accounting Investments representing ownership of 20% to 50% of the outstanding voting shares are accounted for by the equity method. Business Combinations Effective July 1, 2001, SFAS No. 141, Accounting for Business Combinations, prescribes the purchase method for all business combinations. The purchase method requires the valuation of the acquired assets and liabilities based on fair market values at the time of combination. The difference between the fair market values of the net assets and the con- sideration paid represents goodwill. Previously, there were two mutually exclusive methods of accounting for business combinations – purchase method and pooling-of-interests method. Securities Investments in marketable equity and all debt securities are classified at acquisition, according to management’s intent, into one of the following categories: trading, available-for- sale or held-to-maturity. Trading securities are marked to fair value, with the resulting unrealized gain or loss recog- nized to income. Available-for-sale securities should be marked to fair value, with the resulting unrealized gain or loss recorded to other comprehensive income. Held-to- maturity securities are carried at amortized cost. Accounting for Derivatives and Hedging Activities Effective for all fiscal years beginning after June 15, 2000, SFAS No. 133, Accounting for Derivative Instruments and Hedging Activities, as amended, requires the recognition of all derivatives as assets or liabilities in the balance sheet measured at fair value. Changes in the fair values of deriva- tives are included in earnings unless the derivative qualifies for hedge accounting criteria. The changes in the fair value of derivatives qualifying for hedge accounting criteria depend on the intended use. SMBC 2002 — 89 derivative instruments as either an asset or liability until the related losses or gains on the hedged items are recognized. Also effective April 1, 2000, a bank is permitted to adopt “Macro Hedge Accounting” as a hedge accounting method, under which the bank manages the total interest rate risk arising from various financial assets and liabilities as a whole by using financial derivative transactions. Accounting for Sales of Loans with Recourse Certain loan participations which meet specified criteria are allowed to be accounted for as sales, even though the loans are not legally isolated from the transferor. Restructured Loans Discounted present value is not usually used to measure impairment of a loan. Reserve for restructured loans is com- puted based on historical loss experience. For derivatives designated as hedging the exposure to changes in the fair value of an asset or liability or a firm commitment, the gain or loss is recognized in earnings in the period of change together with the offsetting loss or gain on the hedged item. For derivatives designated as hedging the exposure to variable cash flows of a forecasted transaction, the effective portion of the derivative’s gain or loss is initially reported as a component of other comprehensive income. For derivatives designated as hedging the foreign cur- rency exposure of a net investment in a foreign operation, the gain or loss is reported in other comprehensive income as part of the cumulative translation adjustment. Such “Macro Hedge Accounting” under Japanese GAAP is not permissible. Accounting for Sales of Loans with Recourse Under U.S. GAAP, pursuant to SFAS No. 140, financial assets are recorded as sold and removed from the balance sheet only when legal title has passed and the purchaser obtains the asset free of conditions that constrain it from taking advantage of the right to pledge or sell the asset. Sales that are not free of such constraints are recorded as a financing. A transfer of assets qualifying as a sale under U.S. GAAP but in connection with which the seller has retained recourse would result in recording liability for the estimated recourse. Restructured Loans SFAS No. 114 requires that impaired loans, including trou- bled debt restructurings, be measured based on the present value of expected future cash flows discounted at the loan’s effective interest rate or, as is practically expedient, at the loan’s observable market price or the fair value of the collat- eral if the loan is collateral-dependent. Accrued Interest on Non-Performing Loans The Bank places into the non-accrual status the loans which management assessed as “Bankrupt,” “Effectively Bankrupt” or “Potentially Bankrupt.” Accrued interest related to such loans is written-off. Accrued Interest on Non-Performing Loans Loans are generally placed on non-accrual status when they become 90 days past due or when they are deemed uncol- lectible based on management’s assessment. Accrued interest related to such loans is reversed against interest income. Impairment of Long-Lived Assets Currently, there is no requirement for considering the impairment of long-lived assets. Goodwill Goodwill that is the excess of investment cost over the par- ent’s share of the underlying equity in net assets of the sub- sidiary at the date of acquisition and that is created in consolidation procedures shall be amortized within 20 years. 90 — SMBC 2002 Impairment of Long-Lived Assets SFAS No. 144 requires to recognize an impairment loss only if the carrying amount of a long-lived asset is not recoverable from its undiscounted cash flows and to measure an impair- ment loss as the difference between the carrying amount and fair value of the long-lived assets. The impairment loss shall be included in the current period income. Goodwill Prior to the effective date of SFAS No. 142, goodwill was amortized over its estimated economic life, not to exceed 40 years. Under SFAS No. 142 effective from the fiscal year begin- ning after December 15, 2001, goodwill shall not be amortized but rather shall be tested at least annually for impairment. Earned Surplus Reserve Such earned surplus reserve is not provided for under U.S. GAAP. Land Revaluation Excess Such land revaluation excess is not permissible. Earned Surplus Reserve Under the Banking Law of Japan, an amount equivalent to at least 20% of cash disbursements paid was appropriated and was set aside as earned surplus reserve in the retained earnings up to the amount of common stock. Effective October 1, 2001, such earned surplus reserve is recorded until the total of both earned surplus reserve and capital surplus equals to the amount of common stock. The excess of the total amount over the amount of common stock may be transferred to retained earnings by resolution of stockholders. Land Revaluation Excess Land which had been recorded at acquired cost was allowed to be revalued at fair value at one time during a fiscal year beginning after March 31, 1998. The resulting gains were recorded in land revaluation excess as a separate component in the stockholders’ equity, net of tax. The land shall not be revaluated after the initial revalua- tion even in case that the fair value declined. Guarantees Guarantees, including standby letters of credit and the related reimbursement obligations of customers, are pre- sented on the balance sheet with assets of equal amounts. Guarantees Such guarantees and reimbursement obligations are dis- closed in the footnotes and not presented on the balance sheet. Loan Fees Loan origination fees are recognized when income is received. Loan Fees Loan origination fees are deferred and recognized over the life of the loan as an adjustment of yield based on the effec- tive interest method. Directors’ Bonuses Directors’ bonuses are charged directly to retained earnings by resolution of stockholders. Directors’ Bonuses Directors’ compensation is generally expensed on an accrual basis. Leases Unless transfer of ownership occurs, financing leases may be accounted for as operating leases accompanied with suffi- cient footnote disclosure. Other Comprehensive Income There are no specific accounting principles for reporting comprehensive income. Leases Leases are classified as either capital or operating, based on specified criteria. A lease which transfers substantially all of the benefits and risks of ownership to the lessee is reported as a capital lease. Other leases are accounted for as operating leases. Other Comprehensive Income U.S. GAAP requires that all items that are required to be recognized under accounting standards as components of comprehensive income be reported in a financial statement that is displayed with the same prominence as other finan- cial statements. Comprehensive income includes all changes in stockholders’ equity during an accounting period except those resulting from investments by or distributions to own- ers, including certain items not included in the current results of operations. SMBC 2002 — 91 Income Analysis (Consolidated) Figures for the year ended March 31, 2001, are combined figures for the former Sakura Bank and the former Sumitomo Bank. Operating Income, Classified by Domestic and Overseas Operations 2002 2001 Millions of yen Year ended March 31 Domestic Overseas operations Interest income .................................................... ¥1,819,009 Interest expenses ................................................ 360,290 1,458,719 Net interest income.................................................... ¥589,709 409,743 179,965 Domestic Overseas operations Total ¥(232,032) ¥2,176,685 ¥1,812,813 529,224 726,673 1,283,588 (188,671) 1,450,012 ¥805,881 703,823 102,058 (43,361) operations Elimination Fees and commissions (income) ......................... ¥ 354,832 Fees and commissions (expenses) ..................... 63,414 291,418 Net fees and commissions ........................................ Trading profits...................................................... ¥ 85,097 Trading losses ..................................................... 17 85,080 Net trading income .................................................... Other operating income ....................................... ¥ 816,461 649,877 Other operating expenses ................................... 166,583 Net other operating income ....................................... ¥ 32,591 4,523 28,067 ¥ 55,418 11,066 44,352 ¥ 29,940 16,787 13,153 ¥ (143) ¥ 387,280 ¥ 374,973 86,982 287,990 67,747 319,532 (189) 46 ¥ (11,066) ¥ 129,450 ¥ 66,464 4,745 61,718 (11,066) — 17 129,432 ¥ (818) ¥ 845,583 ¥ 627,753 522,862 104,889 666,651 178,932 (13) (804) ¥ 37,208 8,929 28,279 ¥ 49,464 2,146 47,317 ¥ 22,087 37,884 (15,798) ¥(182,811) ¥2,435,884 1,111,653 1,324,231 (121,394) (61,415) ¥ ¥ ¥ (84) ¥ 412,097 95,781 316,315 (130) 45 (4,744) ¥ 111,183 2,146 (4,744) 109,036 — (158) ¥ 649,681 560,664 89,016 (81) (76) operations Elimination Total Notes: 1. Domestic operations comprise the operations of the Bank (excluding overseas branches) and its domestic consolidated subsidiaries. Overseas operations comprise the operations of the Bank’s overseas branches and its overseas consolidated subsidiaries. 2. Income and expenses for money held in trust are included in “other operating income” and “other operating expenses.” Fund-raising expenses are net of expenses (2002, ¥228 million; 2001, ¥695 million) related to the management of money held in trust. 3. Intracompany transactions are transactions between domestic and international operations. These appear in “Elimination” column. Figures for 2001 (interest income and interest expense resulting from lending and borrowing between domestic and international operations are amounts before eliminations) for the former Sakura Bank included in the total combined figures for the former Sakura Bank and the former Sumitomo Bank are inclusive of eliminations. Elimination amounts are for total combined figures. Fees and commissions income and expenses, trading profits and losses, and other operating income and expenses are amounts net of eliminations between domestic and international operations. Average Balance, Interest, and Earnings Yield of Interest-Earning Assets and Interest-Bearing Liabilities Domestic Operations Millions of yen 2002 2001 Average balance Year ended March 31 Interest-earning assets.................................... ¥84,574,993 Loans and bills discounted......................... 57,973,398 Securities ................................................... 22,156,662 336,582 Call loans and bills bought ......................... 1,197,172 Receivables under resale agreements ...... 1,934,334 Deposits with banks ................................... Interest ¥1,819,009 1,161,518 433,302 2,589 880 75,625 Interest-bearing liabilities ................................ ¥82,843,054 Deposits .................................................... 54,312,471 9,995,709 Negotiable certificates of deposit ............... 9,308,952 Call money and bills sold ........................... 2,100,808 Payables under repurchase agreements ... 953,296 Commercial paper...................................... Borrowed money ........................................ 3,867,103 2,035,170 Bonds ......................................................... ¥ 360,290 125,876 6,273 4,320 870 1,168 96,919 33,250 Earnings yield Average balance 2.15% 2.00 1.96 0.77 0.07 3.91 0.43% 0.23 0.06 0.05 0.04 0.12 2.51 1.63 Interest ¥83,391,233 ¥1,812,813 1,301,637 324,707 6,890 1,137 133,684 60,184,475 19,218,107 569,697 278,995 2,277,637 ¥80,360,198 53,292,606 8,827,824 7,156,390 2,579,529 854,474 5,655,172 887,721 ¥ 529,224 248,589 25,835 20,986 7,512 4,730 139,831 16,844 Earnings yield 2.17% 2.16 1.69 1.21 0.41 5.87 0.66% 0.47 0.29 0.29 0.29 0.55 2.47 1.90 Notes: 1. Domestic operations comprise the operations of the Bank (excluding overseas branches) and its domestic consolidated subsidiaries. 2. As a rule, average balances are computed by using daily balances. However, some domestic consolidated subsidiaries use weekly, monthly, or semiannual balances instead. 3. Interest-earning assets are shown after deduction of the average balances of noninterest earning deposits (2002, ¥760,008 million; 2001, ¥652,763 million). 4. Income and expenses resulting from money held in trust are included in “other income” and “other expenses.” Therefore, interest-earning assets are shown after deduction of the average balances of money held in trust (2002, ¥69,400 million; 2001, ¥136,160 million), and interest-bearing liabilities are shown after deduction of an amount equivalent to the average balance of interest expenses on money held in trust (2002, ¥69,400 million; 2001, ¥136,160 million) and interest (2002, ¥223 million; 2001, ¥688 million). 92 — SMBC 2002 Overseas Operations Average balance Year ended March 31 Interest-earning assets.................................... ¥13,051,522 7,784,038 1,807,077 91,331 290,477 2,579,922 Loans and bills discounted......................... Securities ................................................... Call loans and bills bought ......................... Receivables under resale agreements ...... Deposits with banks ................................... Interest-bearing liabilities ................................ ¥10,748,871 7,459,876 242,460 236,637 1,008,476 9,365 247,734 1,474,464 Deposits .................................................... Negotiable certificates of deposit ............... Call money and bills sold ........................... Payables under repurchase agreements ... Commercial paper...................................... Borrowed money ........................................ Bonds ......................................................... 2002 Interest ¥589,709 302,448 74,060 2,599 7,518 111,428 ¥409,743 205,954 9,133 6,058 28,367 422 10,117 53,710 Millions of yen Earnings yield Average balance 4.52% 3.89 4.10 2.85 2.59 4.32 3.81% 2.76 3.77 2.56 2.81 4.51 4.08 3.64 ¥14,004,309 9,119,275 1,020,045 121,609 249,572 3,044,190 ¥13,116,824 8,664,202 202,877 210,344 349,206 18,831 1,552,967 1,265,359 2001 Interest ¥805,881 456,806 65,388 5,821 9,723 190,438 ¥703,823 364,720 10,192 8,382 14,712 1,179 72,039 43,501 Earnings yield 5.75% 5.01 6.41 4.79 3.90 6.26 5.37% 4.21 5.02 3.98 4.21 6.26 4.64 3.44 Notes: 1. Overseas operations comprise the operations of the Bank’s overseas branches and its overseas consolidated subsidiaries. 2. As a rule, average balances are computed by using daily balances. However, some overseas consolidated subsidiaries use weekly, monthly, or semiannual balances instead. 3. Interest-earning assets are shown after deduction of the average balances of noninterest earning deposits (2002, ¥7,736 million; 2001, ¥24,925 million). 4. Income and expenses resulting from money held in trust are included in “other income” and “other expenses.” Therefore, interest-earning assets are shown after deduction of the average balances of money held in trust (2002, ¥149 million; 2001, ¥139 million), and interest-bearing liabilities are shown after deduction of an amount equivalent to the average balance of interest expenses on money held in trust (2002, ¥149 million; 2001, ¥139 million) and interest (2002, ¥5 million; 2001, ¥7 million). Total of Domestic and Overseas Operations 2002 Millions of yen Average balance Year ended March 31 Interest-earning assets.................................... ¥96,453,607 Loans and bills discounted......................... 64,597,200 Securities .................................................. 23,960,480 427,913 Call loans and bills bought ......................... 1,487,650 Receivables under resale agreements ...... 4,505,131 Deposits with banks ................................... Interest ¥2,176,685 1,420,950 318,508 5,189 8,399 186,892 Interest-bearing liabilities ................................ ¥92,418,184 Deposits .................................................... 61,762,389 Negotiable certificates of deposit ............... 10,238,168 9,545,589 Call money and bills sold ........................... Payables under repurchase agreements ... 3,109,284 Commercial paper...................................... 962,661 2,954,602 Borrowed money ........................................ 3,506,374 Bonds ......................................................... ¥ 726,673 331,670 15,406 10,378 29,238 1,590 64,020 86,779 Earnings yield Average balance 2.26% 2.20 1.33 1.21 0.56 4.15 0.79% 0.54 0.15 0.11 0.94 0.17 2.17 2.47 ¥93,608,730 65,933,881 20,107,211 673,105 528,568 5,054,838 ¥89,961,701 61,741,491 8,995,072 7,348,243 2,928,735 873,306 3,970,746 2,150,889 2001 Interest ¥2,435,884 1,647,263 328,449 12,480 10,861 318,624 ¥1,111,653 607,985 35,855 29,138 22,224 5,908 100,690 60,182 Earnings yield 2.60% 2.50 1.63 1.85 2.05 6.30 1.24% 0.98 0.40 0.40 0.76 0.68 2.54 2.80 Notes: 1. The above figures comprise totals for domestic and overseas operations after intersegment eliminations. 2. As a rule, average balances are computed by using daily balances. However, some consolidated subsidiaries use weekly, monthly, or semiannual balances instead. 3. Interest-earning assets are shown after deduction of the average balances of noninterest earning deposits (2002, ¥766,910 million; 2001, ¥676,935 million). 4. Income and expenses resulting from money held in trust are included in “other income” and “other expenses.” Therefore, interest-earning assets are shown after deduction of the average balances of money held in trust (2002, ¥69,549 million; 2001, ¥136,299 million), and interest-bearing liabilities are shown after deduction of an amount equivalent to the average balance of interest expenses on money held in trust (2002, ¥69,549 million; 2001, ¥136,299 million) and interest (2002, ¥228 million; 2001, ¥695 million). SMBC 2002 — 93 Fees and Commissions Year ended March 31 Fees and commissions (income)............................... Deposits and loans .............................................. Remittances and transfers................................... Securities-related business.................................. Agency................................................................. Safe deposits ....................................................... Guarantees .......................................................... Credit card ........................................................... 2002 2001 Millions of yen Domestic Overseas operations ¥354,832 12,868 98,857 24,269 16,069 6,073 24,176 84,849 operations Elimination ¥(143) — (0) — — — (142) — ¥32,591 17,478 5,970 30 31 6 2,133 — Total ¥387,280 30,346 104,827 24,299 16,100 6,080 26,167 84,849 Domestic Overseas operations ¥374,973 19,449 97,888 31,395 11,470 5,731 24,534 66,110 operations Elimination ¥ (84) — (0) — — — (84) — ¥37,208 20,163 6,120 86 973 5 1,675 — Total ¥412,097 39,613 104,009 31,482 12,445 5,738 26,126 66,110 Fees and commissions (expenses) ........................... Remittances and transfers................................... ¥ 63,414 19,359 ¥ 4,523 1,693 ¥(189) (0) ¥ 67,747 21,052 ¥ 86,982 20,923 ¥ 8,929 2,355 ¥(130) (0) ¥ 95,781 23,280 Notes: 1. Domestic operations comprise the operations of the Bank (excluding overseas branches) and its domestic consolidated subsidiaries. Overseas operations comprise the operations of the Bank’s overseas branches and overseas consolidated subsidiaries. 2. Intracompany transactions, that is, transactions between domestic and international operations are reported in elimination column. Figures for 2001 for the former Sakura Bank included in the total combined figures for the former Sakura Bank and the former Sumitomo Bank are the amounts net of eliminations for transactions between domestic and international operations. Trading Income Year ended March 31 Trading profits............................................................ Gains on trading securities .................................. Gains on securities related to trading transactions ... Gains on trading-related financial derivatives...... Others .................................................................. 2002 2001 Millions of yen Domestic Overseas operations ¥85,097 1,272 — 82,782 1,043 operations Elimination ¥(11,066) — — (11,066) — ¥55,418 5,382 — 50,036 — Total ¥129,450 6,654 — 121,752 1,043 Domestic Overseas operations ¥66,464 7,994 600 53,496 4,370 operations Elimination ¥(4,744) — — (4,744) — ¥49,464 9,708 2,033 37,672 48 Trading losses ........................................................... Losses on trading securities ................................ Losses on securities related to trading transactions... Losses on trading-related financial derivatives.... Others .................................................................. ¥ 17 — 17 — — ¥11,066 — — 11,066 — ¥ ¥(11,066) — — (11,066) — 17 — 17 — — ¥ 4,745 0 — 4,744 — ¥ 2,146 190 — 1,166 789 ¥(4,744) — — (4,744) — Total ¥111,183 17,703 2,634 86,424 4,419 ¥ 2,146 190 — 1,166 789 Notes: 1. Domestic operations comprise the operations of the Bank (excluding overseas branches) and its domestic consolidated subsidiaries. Overseas operations comprise the operations of the Bank’s overseas branches and overseas consolidated subsidiaries. 2. Intracompany transactions, that is, transactions between domestic and international operations are reported in elimination column. Figures for 2001 for the former Sakura Bank included in the total combined figures for the former Sakura Bank and the former Sumitomo Bank are the amounts net of eliminations for transactions between domestic and international operations. 94 — SMBC 2002 Assets/Liabilities (Consolidated) Figures as of March 31, 2001 and 2000, are combined figures for the former Sakura Bank and the former Sumitomo Bank. Deposits and Negotiable Certificates of Deposit Year-End Balance March 31 Domestic operations: Liquid deposits.......................................................................................................... Fixed-term deposits .................................................................................................. Others ...................................................................................................................... Subtotal .................................................................................................................... Negotiable certificates of deposit.............................................................................. Total.......................................................................................................................... Overseas operations: Liquid deposits.......................................................................................................... Fixed-term deposits .................................................................................................. Others ...................................................................................................................... Subtotal .................................................................................................................... Negotiable certificates of deposit.............................................................................. Total.......................................................................................................................... Grand total ..................................................................................................................... 2002 ¥32,824,002 22,837,970 4,099,619 ¥59,761,592 ¥ 6,283,136 ¥66,044,728 ¥ 4,579,035 634,673 10,674 ¥ 5,224,383 ¥ 378,960 ¥ 5,603,344 ¥71,648,073 Millions of yen 2001 ¥24,230,767 25,687,067 3,860,298 ¥53,778,134 ¥11,475,495 ¥65,253,629 ¥ 8,670,224 575,859 24,830 ¥ 9,270,916 ¥ 171,476 ¥ 9,442,392 ¥74,696,023 2000 ¥23,165,366 25,247,331 3,528,595 ¥51,941,294 ¥10,244,222 ¥62,185,516 ¥ 6,073,367 557,186 16,198 ¥ 6,646,753 ¥ 137,670 ¥ 6,784,424 ¥68,969,940 Notes: 1. Domestic operations comprise the operations of the Bank (excluding overseas branches) and its domestic consolidated subsidiaries. Overseas operations comprise the operations of the Bank’s overseas branches and overseas consolidated subsidiaries. 2. Liquid deposits = Current deposits + Ordinary deposits + Savings deposits + Deposits at notice 3. Fixed-term deposits = Time deposits + Installment savings Balance of Loan Portfolio, Classified by Industry Year-End Balance 2002 2001 2000 March 31 Domestic operations: Millions of yen Percent Millions of yen Percent Millions of yen Percent Manufacturing ............................................ ¥ 7,847,614 204,176 Agriculture, forestry, fisheries and mining... 3,148,042 Construction ............................................... Transportation, communications, 2,948,100 and other public enterprises..................... 7,672,699 Wholesale and retail .................................. 4,257,910 Finance and insurance............................... Real estate ................................................. 9,401,219 Services ..................................................... 6,985,944 Municipalities ............................................. 404,860 Others ........................................................ 14,904,395 Subtotal ...................................................... ¥57,774,965 Overseas operations: Public sector .............................................. ¥ 183,344 Financial institutions................................... 355,561 Commerce and industry ............................. 5,119,312 212,401 Others ........................................................ Subtotal ...................................................... ¥ 5,870,621 Total ................................................................ ¥63,645,586 13.58% ¥ 7,842,034 211,637 3,279,569 0.36 5.45 13.27% ¥ 7,600,339 282,521 3,354,636 0.36 5.55 5.10 13.28 7.37 16.27 12.09 0.70 25.80 3,084,005 8,198,397 4,240,797 9,841,488 7,427,651 356,354 14,629,235 100.00% ¥59,111,176 3.12% ¥ 267,485 305,435 6.06 5,739,023 87.20 113,967 3.62 100.00% ¥ 6,425,914 ¥65,537,091 5.22 13.87 7.17 16.65 12.56 0.60 24.75 2,892,707 8,128,809 4,227,814 9,166,841 8,098,068 436,728 14,610,658 100.00% ¥58,799,132 4.16% ¥ 211,045 358,022 4.75 5,786,763 89.31 119,125 1.78 100.00% ¥ 6,474,958 ¥65,274,091 12.93% 0.48 5.71 4.92 13.82 7.19 15.59 13.77 0.74 24.85 100.00% 3.26% 5.53 89.37 1.84 100.00% Notes: 1. Domestic operations comprise the operations of the Bank (excluding overseas branches) and its domestic consolidated subsidiaries. Overseas operations comprise the operations of the Bank’s overseas branches and overseas consolidated subsidiaries. 2. Japan offshore banking accounts are included in overseas offices’ accounts. 3. Percentages indicate the composition ratio. SMBC 2002 — 95 Risk-Monitored Loans March 31 Bankrupt loans............................................................................................................... Non-accrual loans.......................................................................................................... Past due loans (3 months or more) ............................................................................... Restructured loans ........................................................................................................ Total............................................................................................................................... 2002 ¥ 227,484 3,599,750 102,762 2,554,371 ¥6,484,367 Notes: Definition of risk-monitored loans Millions of yen 2001 ¥ 273,127 2,577,517 125,779 279,994 ¥3,256,418 2000 ¥ 263,609 2,936,540 118,985 545,621 ¥3,864,758 1. Bankrupt loans: Credits for which accrued interest is not accounted in revenue; credits extended to borrowers that are undergoing bankruptcy, corporate reorganization, and rehabilitation proceedings; or debtors receiving orders of disposition by suspension of business at bill clearinghouses 2. Non-accrual loans: Credits for which accrued interest is not accounted in revenue; credits, excluding loans to bankrupt borrowers and loans with grace for interest payment, to assist in corporate reorganization or to support business 3. Past due loans (3 months or more): Loans with payment of principal or interest in arrears for more than 3 months, calculated from the day following the contractual due date, excluding borrowers in categories 1. and 2. 4. Restructured loans: Loans to borrowers in severe financial condition given certain favorable terms and conditions to assist in corporate rehabilitation or to support business, excluding borrowers in categories 1. through 3. Securities Year-End Balance March 31 Domestic operations: Japanese government bonds ................................................................................... Japanese local government bonds........................................................................... Japanese corporate bonds ....................................................................................... Japanese stocks....................................................................................................... Others....................................................................................................................... Securities lent ........................................................................................................... Subtotal .................................................................................................................... Overseas operations: Japanese government bonds ................................................................................... Japanese local government bonds........................................................................... Japanese corporate bonds ....................................................................................... Japanese stocks....................................................................................................... Others....................................................................................................................... Securities lent ........................................................................................................... Subtotal .................................................................................................................... Total............................................................................................................................... 2002 ¥10,038,543 500,052 1,430,388 5,216,483 2,043,610 — ¥19,229,077 ¥ 75,329 — — — 1,390,225 — ¥ 1,465,554 ¥20,694,632 Millions of yen 2001 ¥15,519,430 342,889 1,255,179 6,941,634 1,961,317 — ¥26,020,452 ¥ 75,014 — — — 1,217,030 — ¥ 1,292,045 ¥27,312,498 2000 ¥ 5,359,502 496,596 1,161,884 6,908,333 1,124,513 17,974 ¥15,068,807 ¥ — — 442 4,034 824,314 — ¥ 828,791 ¥15,897,599 Notes: 1. Domestic operations comprise the operations of the Bank (excluding overseas branches) and its domestic consolidated subsidiaries. Overseas operations comprise the operations of the Bank’s overseas branches and overseas consolidated subsidiaries. 2. Other securities include foreign bonds and foreign stocks. 3. Securities lent as of March 31, 2002 and 2001, are included in each type of securities by the classification above. Trading Assets and Liabilities 2002 2001 Millions of yen Domestic Overseas March 31 operations Trading assets: ...................................................... ¥2,701,948 20,526 91 — Trading securities ............................................ Derivatives of trading securities.................... Securities related to trading transactions ... Derivatives of securities related to ¥590,902 102,282 — — trading transactions....................................... Trading-related financial derivatives............ Other trading assets........................................ 12 1,817,563 863,755 — 488,620 — operations Elimination Total Domestic Overseas operations operations Elimination Total ¥(14,745) ¥3,278,105 ¥2,334,093 166,613 122,808 19 91 — — — — — ¥165,249 122,175 — 5,403 ¥(8,361) ¥2,490,982 288,789 19 5,403 — — — — 12 (14,745) 2,291,438 863,755 — 18 995,635 1,171,806 — 35,296 2,372 — (8,361) 18 1,022,571 — 1,174,179 Trading liabilities:................................................... ¥1,785,230 50 79 — Trading securities sold for short sales......... Derivatives of trading securities.................... Securities related to trading transactions ... Derivatives of securities related to trading transactions....................................... Trading-related financial derivatives............ Other trading liabilities .................................... 0 1,785,099 — ¥561,014 12,760 — — — 548,254 — ¥(14,745) ¥2,331,500 ¥1,101,038 14,440 12,811 0 79 — — — — — — 0 (14,745) 2,318,608 — — 9 1,086,586 — ¥177,336 3,800 — 3,756 — 169,780 — ¥(8,361) ¥1,270,014 18,240 0 3,756 — — — — (8,361) — 9 1,248,006 — Notes: 1. Domestic operations comprise the operations of the Bank (excluding overseas branches) and its domestic consolidated subsidiaries. Overseas operations comprise the operations of the Bank’s overseas branches and overseas consolidated subsidiaries. 2. Internal transactions between domestic operations and overseas operations are shown in “Elimination” column. Figures for 2001 for the former Sakura Bank included in the total combined figures for the former Sakura Bank and the former Sumitomo Bank are the amounts net of eliminations for transactions between domestic and international operations. 96 — SMBC 2002 Income Analysis (Nonconsolidated) Figures for the years ended March 31, 2001 and 2000, are combined figures for the former Sakura Bank and the former Sumitomo Bank. Gross Banking Profit, Classified by Domestic and International Operations Millions of yen Year ended March 31 Domestic operations Interest income .......................................... ¥1,202,035 2002 International operations ¥994,778 Interest expenses....................................... 122,677 597,623 Net interest income ......................................... 1,079,358 Fees and commissions (income) ............... ¥ 184,996 Fees and commissions (expenses) ........... 62,721 122,274 Net fees and commissions .............................. Trading profits ............................................ ¥ 1,112 107 Trading losses............................................ 1,004 Net trading income .......................................... Other operating income ............................. ¥ 72,655 18,919 Other operating expenses.......................... Net other operating income............................. 53,735 Gross banking profit ........................................ ¥1,256,373 Gross banking profit rate (%) .......................... 1.60% 397,154 ¥ 54,648 11,651 42,997 ¥120,302 17 120,284 ¥ 78,231 41,526 36,705 ¥597,141 Total ¥2,192,961 [3,853] 716,448 [3,853] 1,476,512 ¥ 239,645 74,373 165,272 ¥ 121,414 125 121,289 ¥ 150,886 60,445 90,440 ¥1,853,515 2001 Domestic operations ¥1,301,298 International operations ¥978,265 192,100 846,730 1,109,197 ¥ 179,041 66,045 112,995 ¥ 9,179 — 9,179 ¥ 42,439 14,596 27,841 ¥1,259,215 131,534 ¥ 52,738 15,041 37,697 ¥ 86,204 — 86,204 ¥ 31,047 42,496 (11,450) ¥243,987 Total ¥2,275,679 [3,885] 1,034,946 [3,885] 1,240,731 ¥ 231,780 81,087 150,692 ¥ 95,385 — 95,385 ¥ 73,476 57,082 16,393 ¥1,503,203 3.57% 2.02% 1.71% 1.48% 1.68% Notes: 1. Domestic operations include yen-denominated transactions by domestic branches, while international operations include foreign- currency-denominated transactions by domestic branches and operations by overseas branches. Yen-denominated nonresident transactions and Japan offshore banking accounts are included in international operations. 2. Interest expenses are shown after deduction of an amount equivalent to interest expenses on money held in trust (2002, ¥228 million; 2001, ¥695 million). 3. Figures in brackets [ ] indicate interest payments between domestic and international operations. As net interest figures are shown for interest rate swaps and similar instruments, some figures for domestic and international operations do not add up to their sums. 4. Gross banking profit rate = Gross banking profit/Average balance of interest-earning assets ✕ 100 Average Balance, Interest, and Earnings Yield of Interest-Earning Assets and Interest-Bearing Liabilities Domestic Operations Millions of yen 2002 2001 Year ended March 31 Interest-earning assets.................................... ¥78,080,748 Average balance Interest ¥1,202,035 Loans and bills discounted......................... 53,576,051 Securities ................................................... 19,687,304 Call loans ................................................... 148,181 1,172,550 Receivables under resale agreements ...... 84,967 Bills bought ................................................ 20,383 Deposits with banks ................................... 983,235 178,027 135 873 27 26 Interest-bearing liabilities ................................ ¥72,477,777 [3,387,145] Deposits ..................................................... 47,259,727 9,972,010 Negotiable certificates of deposit ............... Call money ................................................. 3,691,136 Payables under repurchase agreements ... 2,110,550 Bills sold ..................................................... 5,571,248 Commercial paper...................................... 807,392 Borrowed money ........................................ 1,191,746 1,858,675 Bonds ......................................................... ¥ 122,677 [3,853] 44,206 6,218 1,283 873 1,253 970 32,969 31,237 Earnings yield Average balance 1.53% 1.83 0.90 0.09 0.07 0.03 0.13 0.16% 0.09 0.06 0.03 0.04 0.02 0.12 2.76 1.68 Interest ¥73,581,868 ¥1,301,298 [2,326] 1,103,789 185,681 92 1,130 878 30 55,306,043 17,488,774 25,551 277,192 282,060 11,722 ¥70,146,084 ¥ 192,100 [1,559] 80,147 25,801 12,667 5,368 2,041 4,543 39,957 20,883 [591,090] 47,095,702 8,813,953 6,093,793 2,579,529 952,300 794,830 1,695,179 1,147,858 Earnings yield 1.76% 1.99 1.06 0.36 0.40 0.31 0.26 0.27% 0.17 0.29 0.20 0.20 0.21 0.57 2.35 1.81 Notes: 1. Interest-earning assets are shown after deduction of the average balance of noninterest earning deposits (2002, ¥711,320 million; 2001, ¥639,633 million). Interest-bearing liabilities are shown after deduction of amounts equivalent to the average balance of interest expenses on money held in trust (2002, ¥66,057 million; 2001, ¥130,046 million) and corresponding interest (2002, ¥111 million; 2001, ¥369 million). 2. Figures in brackets [ ] indicate the average balances of interdepartmental lending and borrowing activities between domestic and international oper- ations and related interest expenses. As net interest figures are shown for interest rate swaps and similar instruments, some figures for domestic and international operations do not add up to their sums. 3. Bond interest includes amortization of discount on bonds. SMBC 2002 — 97 International Operations Average balance Year ended March 31 Interest-earning assets.................................... ¥16,683,507 [3,387,145] 7,059,547 3,738,953 134,124 69,514 — 4,458,268 Loans and bills discounted......................... Securities ................................................... Call loans ................................................... Receivables under resale agreements ...... Bills bought ................................................ Deposits with banks ................................... 2002 Interest ¥994,778 [3,853] 273,612 326,705 4,296 908 — 185,058 Millions of yen Earnings yield Average balance 5.96% 3.87 8.73 3.20 1.30 — 4.15 ¥16,433,417 [591,090] 7,517,989 2,146,468 167,690 38,209 — 4,977,935 Interest-bearing liabilities ................................ ¥17,842,154 ¥597,623 3.34% ¥15,454,388 Deposits ..................................................... 10,450,595 Negotiable certificates of deposit ............... 214,841 287,094 Call money ................................................. Payables under repurchase agreements ... 684,262 — Bills sold ..................................................... — Commercial paper...................................... Borrowed money ........................................ 2,473,270 — Bonds ......................................................... 279,042 8,211 7,523 16,506 — — 103,931 — 2.67 3.82 2.62 2.41 — — 4.20 — 11,952,437 176,862 291,515 42,859 2,276 — 2,649,024 — 2001 Interest ¥978,265 [1,559] 397,355 162,494 10,135 484 — 313,787 ¥846,730 [2,326] 521,390 10,142 14,060 2,144 53 — 136,294 — Earnings yield 5.95% 5.28 7.57 6.04 1.26 — 6.30 5.47% 4.36 5.73 4.82 5.00 2.34 — 5.14 — Notes: 1. Interest-earning assets are shown after deduction of the average balance of noninterest earning deposits (2002, ¥31,353 million; 2001, ¥27,870 mil- lion). Interest-bearing liabilities are shown after deduction of amounts equivalent to the average balance of interest expenses on money held in trust (2002, ¥3,490 million; 2001, ¥6,248 million) and corresponding interest (2002, ¥116 million; 2001, ¥325 million). 2. Figures in brackets [ ] indicate the average balances of interdepartmental lending and borrowing activities between domestic and international oper- ations and related interest expenses. As net interest figures are shown for interest rate swaps and similar instruments, some figures for domestic and international operations do not add up to their sums. 3. The average balance of foreign-currency-denominated transactions by domestic branches in international operations is calculated by the monthly current method, under which the T T middle rate at the end of the previous month is applied to nonexchange transactions of the month concerned. Total of Domestic and International Operations Average balance Year ended March 31 Interest-earning assets.................................... ¥91,377,110 Loans and bills discounted......................... 60,635,599 Securities ................................................... 23,426,257 282,306 Call loans ................................................... 1,242,064 Receivables under resale agreements ...... 84,967 Bills bought ................................................ 4,478,651 Deposits with banks ................................... Interest-bearing liabilities ................................ ¥86,932,786 Deposits ..................................................... 57,710,322 Negotiable certificates of deposit ............... 10,186,852 3,978,230 Call money ................................................. Payables under repurchase agreements ... 2,794,813 Bills sold ..................................................... 5,571,248 807,392 Commercial paper...................................... Borrowed money ........................................ 3,665,017 1,858,675 Bonds ......................................................... 2002 Interest ¥2,192,961 1,256,848 504,732 4,432 1,781 27 185,085 ¥ 716,448 323,249 14,430 8,807 17,379 1,253 970 136,900 31,237 Millions of yen 2001 Earnings yield Average balance 2.39% 2.07 2.15 1.56 0.14 0.03 4.13 0.82% 0.56 0.14 0.22 0.62 0.02 0.12 3.73 1.68 Interest ¥89,424,194 ¥2,275,679 1,501,144 348,176 10,229 1,614 878 313,817 62,824,034 19,635,244 193,242 315,402 282,060 4,989,658 ¥85,009,383 ¥1,034,946 601,538 35,944 26,729 7,512 2,095 4,543 176,252 20,883 59,048,140 8,990,815 6,385,308 2,622,388 954,576 764,830 4,344,205 1,147,858 Earnings yield 2.54% 2.38 1.77 5.29 0.51 0.31 6.28 1.21% 1.01 0.39 0.41 0.28 0.21 0.57 4.05 1.81 Notes: 1. Interest-earning assets are shown after deduction of the average balance of noninterest earning deposits (2002, ¥742,674 million; 2001, ¥667,505 million). Interest-bearing liabilities are shown after deduction of amounts equivalent to the average balance of interest expenses on money held in trust (2002, ¥69,548 million; 2001, ¥136,294 million) and corresponding interest (2002, ¥228 million; 2001, ¥695 million). 2. Figures in the table above indicate the net average balances of amounts adjusted for interdepartmental lending and borrowing activities between domestic and international operations and related interest expenses. 3. Bond interest includes amortization of discount on bonds. 98 — SMBC 2002 Breakdown of Interest Income and Interest Expenses Domestic Operations Year ended March 31 Interest income................................................ Loans and bills discounted......................... Securities ................................................... Call loans ................................................... Receivables under resale agreements ...... Bills bought ................................................ Deposits with banks ................................... Effect of a change in accounting standard ... Interest expenses............................................ Deposits ..................................................... Negotiable certificates of deposit ............... Call money ................................................. Payable under repurchase agreements ..... Bills sold ..................................................... Commercial paper...................................... Borrowed money ........................................ Bonds ......................................................... Effect of a change in accounting standard ... Volume-related Rate-related 2002 increase (decrease) ¥76,258 (33,749) 21,754 156 1,269 (372) 15 — ¥ 6,190 278 3,008 (3,658) (831) 2,419 70 (13,166) 12,054 — increase (decrease) ¥(175,520) (86,803) (29,408) (113) (1,526) (477) (19) — ¥ (75,614) (36,219) (22,591) (7,725) (3,663) (3,208) (3,642) 6,179 (1,700) — Millions of yen Net increase (decrease) ¥ (99,262) (120,552) (7,654) 43 (257) (850) (3) — ¥ (69,423) (35,941) (19,582) (11,383) (4,494) (788) (3,572) (6,987) 10,354 — Volume-related Rate-related 2001 increase (decrease) ¥67,612 (31,492) 47,381 (10) — 63 (1) — ¥25,955 (4,341) 322 1,227 — 737 1,149 1,271 13,910 — increase (decrease) ¥(171,556) 4,481 (22,459) 7 — 725 (1) — ¥(111,745) (9,131) 12,525 4,603 — 1,120 1,783 (8,508) (54) — Net increase (decrease) ¥(288,456) (27,011) 24,921 (2) — 787 (3) (184,511) ¥(270,301) (13,474) 12,848 5,831 — 1,858 2,933 (7,237) 13,857 (184,511) Notes: 1. Volume/rate variance is prorated according to changes in volume and rate. 2. Effect of a change in accounting standard is due to an application of a new accounting standard on financial instruments, effective April 1, 2000, which requires that income and expenses on derivatives for hedge be presented by net method instead of gross method. 3. Each figure for 2001 in the columns of volume-related increase (decrease) and rate-related increase (decrease) does not include effect of a change in accounting standard. International Operations Year ended March 31 Interest income................................................ Loans and bills discounted......................... Securities ................................................... Call loans ................................................... Receivables under resale agreements ...... Bills bought ................................................ Deposits with banks ................................... Effect of a change in accounting standard ... Interest expenses............................................ Deposits ..................................................... Negotiable certificates of deposit ............... Call money ................................................. Payable under repurchase agreements ..... Bills sold ..................................................... Commercial paper...................................... Borrowed money ........................................ Bonds ......................................................... Effect of a change in accounting standard ... Volume-related Rate-related 2002 increase (decrease) ¥ 14,909 (23,027) 135,949 (1,744) 408 — (30,138) — ¥116,360 (59,295) 1,893 (210) 16,028 (26) — (8,602) — — increase (decrease) ¥ 1,603 (100,713) 28,261 (4,095) 15 — (98,589) — ¥(365,468) (183,051) (3,824) (6,326) (1,666) (26) — (23,760) — — Millions of yen Net increase (decrease) ¥ 16,512 (123,741) 164,210 (5,839) 423 — (128,727) — ¥(249,108) (242,347) (1,930) (6,536) 14,361 (53) — (32,363) — — Volume-related Rate-related 2001 increase (decrease) ¥199,975 (40,910) 6,670 1,102 — — 150,425 — ¥168,316 75,672 (2,619) 3,925 — 33 — (12,032) — — increase (decrease) ¥ 44,026 81,114 62,183 1,533 — — 53,951 — ¥ 30,809 115,330 972 653 — (6) — 23,661 — — Net increase (decrease) ¥(187,875) 40,202 68,853 2,635 — — 204,377 (431,879) ¥(232,753) 191,004 (1,647) 4,580 — 26 — 11,629 — (431,879) Notes: 1. Volume/rate variance is prorated according to changes in volume and rate. 2. Effect of a change in accounting standard is due to an application of a new accounting standard on financial instruments, effective April 1, 2000, which requires that income and expenses on derivatives for hedge be presented by net method instead of gross method. 3. Each figure for 2001 in the columns of volume-related increase (decrease) and rate-related increase (decrease) does not include effect of a change in accounting standard. SMBC 2002 — 99 Total of Domestic and International Operations Millions of yen Year ended March 31 Interest income................................................ Loans and bills discounted......................... Securities ................................................... Call loans ................................................... Receivables under resale agreements ...... Bills bought ................................................ Deposits with banks ................................... Effect of a change in accounting standard ... Interest expenses............................................ Deposits ..................................................... Negotiable certificates of deposit ............... Call money ................................................. Payable under repurchase agreements ..... Bills sold ..................................................... Commercial paper...................................... Borrowed money ........................................ Bonds ......................................................... Effect of a change in accounting standard ... Volume-related Rate-related 2002 increase (decrease) ¥48,913 (50,848) 74,062 3,401 2,000 (372) (29,604) — ¥22,921 (13,334) 4,254 (7,966) 524 2,462 70 (26,105) 12,054 — increase (decrease) ¥(131,631) (193,447) 82,493 (9,198) (1,834) (477) (99,127) — ¥(341,419) (264,954) (25,767) (9,955) 9,342 (3,303) (3,642) (13,245) (1,700) — Net increase (decrease) ¥ (82,718) (244,296) 156,555 (5,797) 166 (850) (128,732) — ¥(318,498) (278,289) (21,513) (17,921) 9,867 (841) (3,572) (39,351) 10,354 — Volume-related Rate-related 2001 increase (decrease) ¥178,634 (57,204) 80,262 (960) — 63 149,750 — ¥111,713 2,190 1,203 3,005 — 829 1,149 (6,485) 13,910 — increase (decrease) ¥ (39,634) 70,396 13,513 3,593 — 725 54,622 — ¥ 565 175,339 9,997 7,405 — 1,055 1,783 10,878 (54) — Net increase (decrease) ¥(479,718) 13,190 93,776 2,632 — 787 204,374 (618,718) ¥(506,440) 177,530 11,200 10,412 — 1,884 2,933 4,391 13,857 (618,718) Notes: 1. Volume/rate variance is prorated according to changes in volume and rate. 2. Effect of a change in accounting standard is due to an application of a new accounting standard on financial instruments, effective April 1, 2000, which requires that income and expenses on derivatives for hedge be presented by net method instead of gross method. 3. Each figure for 2001 in the columns of volume-related increase (decrease) and rate-related increase (decrease) does not include effect of a change in accounting standard. Fees and Commissions Year ended March 31 Fees and commissions (income) .................... Deposits and loans .................................... Remittances and transfers ......................... Securities-related business ........................ Agency ....................................................... Safe deposits ............................................. Guarantees ................................................ Millions of yen Domestic operations ¥184,996 10,889 80,077 12,801 13,625 5,779 3,427 2002 International operations ¥54,648 17,916 20,432 1,032 — — 4,204 Total ¥239,645 28,805 100,509 13,834 13,625 5,779 7,631 2001 Domestic operations International operations ¥179,041 14,605 80,204 14,532 9,767 5,600 2,233 ¥52,738 22,666 21,434 47 1,025 0 4,356 Total ¥231,780 37,272 101,639 14,580 10,792 5,600 6,590 Fees and commissions (expenses)................. Remittances and transfers ......................... ¥ 62,721 15,088 ¥11,651 5,545 ¥ 74,373 20,634 ¥ 66,045 15,516 ¥15,041 7,026 ¥ 81,087 22,543 Trading Income Year ended March 31 Trading profits ................................................. Gains on trading securities ........................ Gains on securities related to trading transactions.................................. Gains on trading-related financial derivatives.................................. Others ........................................................ Trading losses................................................. Losses on trading securities ...................... Losses on securities related to trading transactions.................................. Losses on trading-related financial derivatives.................................. Others ........................................................ Millions of yen 2002 International operations ¥120,302 — Total ¥121,414 — 2001 Domestic operations International operations ¥9,179 5,267 ¥86,204 0 Total ¥95,385 5,267 — — — 606 606 120,302 — 120,302 1,112 — 3,911 85,598 — 85,598 3,911 Domestic operations ¥1,112 — — — 1,112 ¥ 107 107 ¥ — — — 17 — 17 — — ¥ 125 107 ¥ — — ¥ 17 — — — — — — — — — — ¥ — — — — — Note: Figures represent net gains (losses) after offsetting income against expenses. 100 — SMBC 2002 Net Other Operating Income Year ended March 31 Net other operating income............................. Gains (losses) on bonds ............................ Gains (losses) on foreign exchange transactions ............................. General and Administrative Expenses Millions of yen Domestic operations ¥53,735 55,358 2002 International operations ¥36,705 11,202 Domestic operations ¥27,841 8,368 2001 International operations ¥(11,450) 427 Total ¥16,393 8,794 Total ¥90,440 66,560 — 10,439 10,439 — (10,258) (10,258) Year ended March 31 Salaries and related expenses ...................................................................................... Retirement payment ...................................................................................................... Transfer to reserve for retirement allowance ................................................................. Retirement benefit cost.................................................................................................. Welfare expenses .......................................................................................................... Depreciation .................................................................................................................. Rent and lease expenses .............................................................................................. Building and maintenance expenses ............................................................................. Supplies expenses ........................................................................................................ Water, lighting, and heating expenses .......................................................................... Traveling expenses ....................................................................................................... Communication expenses ............................................................................................. Publicity and advertising expenses ............................................................................... Taxes, other than income taxes .................................................................................... Others ............................................................................................................................ Total............................................................................................................................... 2002 ¥223,215 — — 31,555 34,705 65,577 82,134 4,412 9,334 7,608 3,349 7,730 5,404 34,237 187,508 ¥696,775 Millions of yen 2001 ¥242,004 — — 31,142 34,851 41,988 90,716 3,139 10,010 8,551 3,791 12,751 6,838 35,533 190,662 ¥711,987 2000 ¥253,178 39,124 7,186 — 62,765 44,435 101,188 2,367 10,774 8,946 3,621 11,822 6,374 37,546 191,869 ¥781,208 Note: Because expenses reported on page 57 exclude nonrecurring losses, they are not reconciled with the figures reported in the above table. SMBC 2002 — 101 Deposits (Nonconsolidated) Figures as of and for the years ended March 31, 2001 and 2000, are combined figures for the former Sakura Bank and the former Sumitomo Bank. Deposits and Negotiable Certificates of Deposit Year-End Balance 2002 2001 2000 March 31 Domestic operations: Millions of yen Percentage Millions of yen Percentage Millions of yen Percentage Liquid deposits ........................................... ¥31,350,536 19,982,869 Fixed-term deposits ................................... Others ........................................................ 967,330 Subtotal ...................................................... ¥52,300,736 Negotiable certificates of deposit ............... ¥ 6,267,860 Total ........................................................... ¥58,568,596 International operations: Liquid deposits ........................................... ¥ 4,720,017 949,692 Fixed-term deposits ................................... Others ........................................................ 3,081,367 Subtotal ...................................................... ¥ 8,751,076 Negotiable certificates of deposit ............... ¥ 309,679 Total ........................................................... ¥ 9,060,756 Grand total ...................................................... ¥67,629,353 53.5% ¥23,168,824 22,518,100 34.1 720,823 1.7 ¥46,407,750 89.3 ¥11,508,790 10.7 100.0% ¥57,916,540 52.1% ¥ 8,787,766 794,383 10.5 3,051,409 34.0 ¥12,633,562 96.6 ¥ 179,669 3.4 100.0% ¥12,813,232 ¥70,729,773 Notes: 1. Liquid deposits = Current deposits + Ordinary deposits + Savings deposits + Deposits at notice 2. Fixed-term deposits = Time deposits + Installment savings 3. Percentage indicates the composition ratio. 40.0% ¥23,022,951 23,626,565 38.9 1,051,903 1.2 ¥47,701,421 80.1 ¥10,233,960 19.9 100.0% ¥57,935,381 6.2 23.8 98.6 1.4 68.6% ¥ 6,049,476 998,698 2,442,326 ¥ 9,490,503 ¥ 146,600 100.0% ¥ 9,637,103 ¥67,572,486 39.7% 40.8 1.8 82.3 17.7 100.0% 62.8% 10.4 25.3 98.5 1.5 100.0% Average Balance Year ended March 31 Domestic operations: Liquid deposits.......................................................................................................... Fixed-term deposits .................................................................................................. Others....................................................................................................................... Subtotal .................................................................................................................... Negotiable certificates of deposit.............................................................................. Total.......................................................................................................................... International operations: Liquid deposits.......................................................................................................... Fixed-term deposits .................................................................................................. Others....................................................................................................................... Subtotal .................................................................................................................... Negotiable certificates of deposit.............................................................................. Total.......................................................................................................................... Grand total ..................................................................................................................... 2002 ¥24,764,664 21,980,498 514,564 ¥47,259,727 ¥ 9,972,010 ¥57,231,738 ¥ 6,856,855 796,962 2,796,777 ¥10,450,595 ¥ 214,841 ¥10,665,437 ¥67,897,175 Millions of yen 2001 ¥22,677,798 23,964,212 453,687 ¥47,095,702 ¥ 8,813,953 ¥55,909,656 ¥ 7,962,793 983,544 3,006,095 ¥11,952,437 ¥ 176,862 ¥12,129,299 ¥68,038,955 2000 ¥22,320,967 26,853,371 444,216 ¥49,618,558 ¥ 8,342,182 ¥57,960,740 ¥ 5,933,668 1,099,893 2,892,338 ¥ 9,925,900 ¥ 223,458 ¥10,149,358 ¥68,110,098 Notes: 1. Liquid deposits = Current deposits + Ordinary deposits + Savings deposits + Deposits at notice 2. Fixed-term deposits = Time deposits + Installment savings 3. The average balance of foreign-currency-denominated transactions by domestic branches in international operations is calculated by the monthly current method. Balance of Deposits, Classified by Type of Depositor March 31 Millions of yen Individual ......................................................... ¥30,110,733 Corporate ........................................................ 24,503,958 Total ................................................................ ¥54,614,691 Percentage Millions of yen 55.1% ¥28,309,433 20,473,769 44.9 100.0% ¥48,783,202 Percentage Millions of yen 58.0% ¥28,196,230 21,686,841 42.0 100.0% ¥49,883,071 Percentage 56.5% 43.5 100.0% 2002 2001 2000 Notes: 1. Figures are before adjustment on interoffice accounts in transit. 2. Negotiable certificates of deposit are excluded. 3. Accounts at overseas branches and Japan offshore banking accounts are excluded. 4. Percentage indicates the composition ratio. 102 — SMBC 2002 Balance of Investment Trusts, Classified by Type of Customer March 31 Individual ....................................................................................................................... Corporate....................................................................................................................... Total............................................................................................................................... 2002 ¥1,485,311 86,711 ¥1,572,022 Millions of yen 2001 ¥1,192,223 165,848 ¥1,358,072 2000 ¥ 878,348 186,543 ¥1,064,891 Note: Balance of investment trusts is recognized on a contract basis and measured according to each fund’s net asset balance at the fiscal year-end. Balance of Time Deposits, Classified by Maturity March 31 Less than three months ................................................................................................. Fixed interest rates ................................................................................................... Floating interest rates ............................................................................................... Three–six months .......................................................................................................... Fixed interest rates ................................................................................................... Floating interest rates ............................................................................................... Six months–one year ..................................................................................................... Fixed interest rates ................................................................................................... Floating interest rates ............................................................................................... One–two years .............................................................................................................. Fixed interest rates ................................................................................................... Floating interest rates ............................................................................................... Two–three years ............................................................................................................ Fixed interest rates ................................................................................................... Floating interest rates ............................................................................................... Three years or more ...................................................................................................... Fixed interest rates ................................................................................................... Floating interest rates ............................................................................................... Total............................................................................................................................... Fixed interest rates ................................................................................................... Floating interest rates ............................................................................................... Note: The figures above do not include installment savings. 2002 ¥ 8,332,787 7,924,906 — ¥ 3,604,678 3,581,854 — ¥ 5,599,317 5,592,722 — ¥ 1,701,294 1,697,715 — ¥ 1,135,179 1,127,185 1,500 ¥ 559,304 521,985 — ¥20,932,561 20,446,369 1,500 Millions of yen 2001 ¥10,525,269 10,142,426 381 ¥ 4,077,739 4,024,547 96 ¥ 5,559,685 5,553,590 20 ¥ 1,623,113 1,620,630 134 ¥ 951,891 943,425 5,117 ¥ 574,761 532,199 24 ¥23,312,465 22,816,820 5,772 2000 ¥11,399,442 10,499,387 1,179 ¥ 3,993,622 3,937,667 1,066 ¥ 5,804,682 5,792,249 3,360 ¥ 1,510,935 1,499,220 3,292 ¥ 1,450,257 1,445,875 3,252 466,302 423,533 110 ¥24,625,244 23,597,933 12,262 ¥ SMBC 2002 — 103 Loans (Nonconsolidated) In principle, figures as of and for the years ended March 31, 2001 and 2000, are combined figures for the former Sakura Bank and the former Sumitomo Bank. Balance of Loans and Bills Discounted Year-End Balance March 31 Domestic operations: Loans on notes ......................................................................................................... Loans on deeds ........................................................................................................ Overdrafts................................................................................................................. Bills discounted......................................................................................................... Subtotal .................................................................................................................... International operations: Loans on notes ......................................................................................................... Loans on deeds ........................................................................................................ Overdrafts................................................................................................................. Bills discounted......................................................................................................... Subtotal .................................................................................................................... Total............................................................................................................................... Average Balance Year ended March 31 Domestic operations: Loans on notes ......................................................................................................... Loans on deeds ........................................................................................................ Overdrafts................................................................................................................. Bills discounted......................................................................................................... Subtotal .................................................................................................................... International operations: Loans on notes ......................................................................................................... Loans on deeds ........................................................................................................ Overdrafts................................................................................................................. Bills discounted......................................................................................................... Subtotal .................................................................................................................... Total............................................................................................................................... 2002 ¥ 6,895,403 34,298,736 11,567,085 857,189 ¥53,618,414 ¥ 1,002,166 5,136,672 170,476 638 ¥ 6,309,954 ¥59,928,368 2002 ¥ 6,679,940 35,133,057 10,972,299 790,752 ¥53,576,051 ¥ 1,058,147 5,785,859 215,157 383 ¥ 7,059,547 ¥60,635,599 Millions of yen 2001 ¥ 6,888,732 34,780,031 11,843,557 1,104,745 ¥54,617,068 ¥ 1,028,519 5,851,273 249,081 1,937 ¥ 7,130,812 ¥61,747,880 Millions of yen 2001 ¥ 6,230,406 35,031,027 13,098,494 946,115 ¥55,306,043 ¥ 1,052,174 6,159,610 300,275 5,930 ¥ 7,517,989 ¥62,824,034 2000 ¥ 5,500,146 35,200,257 14,426,708 1,000,692 ¥56,127,806 ¥ 977,123 5,837,356 348,098 8,125 ¥ 7,170,706 ¥63,298,512 2000 ¥ 5,893,869 35,080,004 14,904,142 996,742 ¥56,874,762 ¥ 1,159,438 6,683,198 557,704 8,091 ¥ 8,408,433 ¥65,283,195 Note: The average balance of foreign-currency-denominated transactions by domestic branches in international operations is calculated by the monthly current method. Balance of Loans and Bills Discounted, Classified by Purpose Millions of yen March 31 Funds for capital investment ........................... ¥23,277,789 Funds for working capital ................................ 36,650,579 Total ................................................................ ¥59,928,368 Percentage Millions of yen 38.8% ¥24,367,997 37,379,882 61.2 100.0% ¥61,747,880 Percentage Millions of yen 39.5% ¥24,716,409 38,582,102 60.5 100.0% ¥63,298,512 Percentage 39.0% 61.0 100.0% 2002 2001 2000 Note: Percentage indicates the composition ratio. Breakdown of Loan Collateral March 31 Securities ....................................................................................................................... Commercial claims ........................................................................................................ Commercial goods......................................................................................................... Real estate .................................................................................................................... Others ............................................................................................................................ Subtotal ......................................................................................................................... Guaranteed.................................................................................................................... Unsecured ..................................................................................................................... Total............................................................................................................................... 2002 ¥ 1,171,780 1,098,954 4,430 9,309,699 831,093 ¥12,415,959 ¥23,864,117 23,648,291 ¥59,928,368 ¥ Millions of yen 2001 960,691 1,293,632 15,736 10,419,117 555,680 ¥13,244,861 ¥24,906,661 23,596,356 ¥61,747,880 2000 ¥ 870,350 1,398,270 8,434 11,055,583 928,409 ¥14,261,050 ¥25,919,435 23,118,025 ¥63,298,512 104 — SMBC 2002 Balance of Loans and Bills Discounted, Classified by Maturity March 31 One year or less ............................................................................................................ Floating interest rates ............................................................................................... Fixed interest rates ................................................................................................... One–three years ............................................................................................................ Floating interest rates ............................................................................................... Fixed interest rates ................................................................................................... Three–five years ............................................................................................................ Floating interest rates ............................................................................................... Fixed interest rates ................................................................................................... Five–seven years .......................................................................................................... Floating interest rates ............................................................................................... Fixed interest rates ................................................................................................... More than seven years .................................................................................................. Floating interest rates ............................................................................................... Fixed interest rates ................................................................................................... No designated term ....................................................................................................... Floating interest rates ............................................................................................... Fixed interest rates ................................................................................................... Total............................................................................................................................... Note: Loans with a maturity of one year or less are not classified by floating or fixed interest rates. 2002 ¥16,085,851 / / ¥10,058,898 7,076,540 2,982,358 ¥ 6,058,896 4,401,939 1,656,956 ¥ 2,572,696 1,957,333 615,363 ¥13,527,762 12,854,843 672,918 ¥11,624,262 11,624,262 — ¥59,928,368 Millions of yen 2001 ¥16,357,074 / / ¥10,620,614 6,493,070 4,127,544 ¥ 6,327,100 4,257,520 2,069,581 ¥ 2,868,002 1,937,381 930,620 ¥13,276,286 11,138,333 2,137,951 ¥12,298,801 12,297,681 1,045 ¥61,747,880 2000 ¥14,053,196 / / ¥ 9,304,047 4,965,513 4,338,533 ¥ 6,841,194 4,163,655 2,677,537 ¥ 2,856,409 1,767,945 1,088,463 ¥15,213,736 12,738,214 2,475,520 ¥15,029,927 15,029,175 752 ¥63,298,512 Loan Portfolio, Classified by Industry March 31 Domestic offices: 2002 2001 2000 Millions of yen Percentage Millions of yen Percentage Millions of yen Percentage Manufacturing ............................................ ¥ 7,493,045 Agriculture, forestry, fisheries, and mining ... 183,675 Construction ............................................... 2,841,574 Transportation, communications, and 2,838,889 other public enterprises............................ 7,161,690 Wholesale and retail .................................. Finance and insurance............................... 5,244,899 Real estate ................................................. 8,549,534 6,364,140 Services ..................................................... Municipalities ............................................. 337,514 13,474,520 Others ........................................................ Subtotal ...................................................... ¥54,489,488 Overseas offices: Public sector .............................................. ¥ 182,437 Financial institutions................................... 372,246 Commerce and industry ............................. 4,689,758 Others ........................................................ 194,437 Subtotal ...................................................... ¥ 5,438,880 Total ................................................................ ¥59,928,368 13.8% ¥ 7,455,390 188,821 2,929,161 0.3 5.2 13.4% ¥ 7,418,427 271,288 3,198,134 0.3 5.3 5.2 13.2 9.6 15.7 11.7 0.6 24.7 2,982,196 7,631,138 4,850,179 9,222,242 6,720,406 304,143 13,267,524 100.0% ¥55,551,203 3.4% ¥ 6.8 86.2 3.6 264,021 378,764 5,488,219 65,669 100.0% ¥ 6,196,676 ¥61,747,880 5.4 13.7 8.7 16.6 12.1 0.6 23.9 2,848,209 7,872,269 4,858,979 8,715,561 7,507,905 436,659 13,863,105 100.0% ¥56,990,540 4.3% ¥ 6.1 88.6 1.0 207,853 433,469 5,595,092 71,554 100.0% ¥ 6,307,972 ¥63,298,512 13.0% 0.5 5.6 5.0 13.8 8.5 15.3 13.2 0.8 24.3 100.0% 3.3% 6.9 88.7 1.1 100.0% Notes: 1. Japan offshore banking accounts are included in overseas offices’ accounts. 2. Percentage indicates the composition ratio. Loans to Individuals/Small and Medium-Sized Corporations March 31 Total domestic loans (A) ................................................................................................ Loans to small and medium-sized corporations, etc. (B)............................................... (B)/(A) ............................................................................................................................ 2002 ¥54,489,488 38,780,331 Millions of yen 2001 ¥55,551,203 40,471,298 2000 ¥56,990,540 41,459,140 71.2% 72.9% 72.7% Notes: 1. The figures above exclude outstanding balance of loans at overseas branches and of Japan offshore banking accounts. 2. Small and medium-sized corporations are individuals or companies with capital stock of ¥300 million or less, or an operating staff of 300 or fewer employees. (Exceptions to these capital stock and staff restrictions include wholesalers: ¥100 million, 100 employees; retailers: ¥50 million, 50 employees; and service industry companies: ¥50 million, 100 employees.) SMBC 2002 — 105 Consumer Loans Outstanding March 31 Consumer loans ............................................................................................................ Housing loans........................................................................................................... Housing loans for own housing ........................................................................... Others....................................................................................................................... 2002 ¥13,472,598 11,949,427 7,820,305 1,523,171 Millions of yen 2001 ¥13,484,760 11,791,249 7,445,152 1,693,511 2000 ¥13,683,512 11,829,524 / 1,853,988 Note: Housing loans include general-purpose loans used for housing purposes, such as housing loans and apartment house acquisition loans. Breakdown of Reserve for Possible Loan Losses Year ended March 31, 2002 General reserve for possible loan losses ........ Specific reserve for estimated loan losses on certain doubtful loans ............................... For nonresident loans ................................ Reserve for possible losses on specific overseas loans ................................. 8,358 Total ................................................................ 674,799 [(3,757)] Balance at beginning Amount transferred from Sakura Bank ¥145,197 [(2,370)] of the fiscal year ¥226,830 [(1,877)] Millions of yen Increase during the fiscal year ¥ 872,338 Decrease during the fiscal year Objectives ¥ — Others ¥372,027* Balance at end of the fiscal year ¥ 872,338 439,611 [(1,879)] 24,327 [(1,633)] 270,451 [(109)] 20,137 [(109)] 11,634 [(3)] 427,282 [(2,482)] 1,084,065 289,180 420,881* 1,084,065 39,850 10,641 33,822* 39,850 15,445 — 19,992* 15,445 1,971,849 289,180 812,901 1,971,849 *Transfer from reserves by reversal or origination method Note: Figures in brackets [ ] indicate foreign exchange translation adjustments. The Sakura Bank, Limited Year ended March 31, 2001 General reserve for possible loan losses................................ Balance at beginning of the fiscal year ¥197,263 [1,539] Millions of yen Increase during the fiscal year ¥142,826 Decrease during the fiscal year Objectives — ¥ Others ¥197,263* Balance at end of the fiscal year ¥142,826 Specific reserve for estimated loan losses on certain doubtful loans....................................................... 454,002 270,342 193,454 260,548* 270,342 For nonresident loans ........................................................ 32,990 20,028 11,030 21,960* 20,028 Reserve for possible losses on specific overseas loans......................................................... Total ........................................................................................ 7,660 [(10)] 658,926 [1,528] 11,631 — 7,660* 11,631 424,799 193,454 465,472 424,799 *Transfer from reserves by reversal or origination method Note: Figures in brackets [ ] indicate foreign exchange translation adjustments. The Sumitomo Bank, Limited Year ended March 31, 2001 General reserve for possible loan losses................................ Balance at beginning of the fiscal year ¥362,009 Increase during the fiscal year ¥224,953 Decrease during the fiscal year Objectives — ¥ Others ¥362,009* Balance at end of the fiscal year ¥224,953 Millions of yen Specific reserve for estimated loan losses on certain doubtful loans....................................................... For nonresident loans ........................................................ [(4,435)] 544,349 [(5,235)] 40,498 [(5,027)] 437,731 253,320 291,028* 437,731 22,693 16,110 24,387* 22,693 Reserve for possible losses on specific overseas loans......................................................... 12,351 8,358 — 12,351* 8,358 Total ........................................................................................ 918,709 [(9,670)] 671,042 253,320 665,388 671,042 *Transfer from reserves by reversal or origination method Note: Figures in brackets [ ] indicate foreign exchange translation adjustments. 106 — SMBC 2002 Write-off of Loans Year ended March 31 Write-off of loans ........................................................................................................... 2002 ¥283,895 Note: Write-off of loans includes amount of direct reduction. Millions of yen 2001 ¥741,432 2000 ¥477,838 Specific Overseas Loans March 31 Indonesia ....................................................................................................................... Argentina ....................................................................................................................... Algeria ........................................................................................................................... Others ............................................................................................................................ Total............................................................................................................................... Ratio of the total amounts to total assets ...................................................................... Number of countries ...................................................................................................... 2002 ¥138,482 8,378 4,139 1,300 ¥152,300 Millions of yen 2001 ¥184,611 — 4,480 3,819 ¥192,911 2000 ¥175,999 — 4,536 7,157 ¥187,696 0.15% 9 0.17% 9 0.19% 14 Risk-Monitored Loans March 31 Bankrupt loans............................................................................................................... Non-accrual loans.......................................................................................................... Past due loans (3 months or more) ............................................................................... Restructured loans ........................................................................................................ Total............................................................................................................................... 2002 ¥ 195,653 3,184,459 92,324 2,344,016 ¥5,816,452 Notes: Definition of risk-monitored loans Millions of yen 2001 ¥ 235,654 2,207,504 103,226 186,206 ¥2,732,590 2000 ¥ 229,633 2,503,785 75,598 747,441 ¥3,556,458 1. Bankrupt loans: Credits for which accrued interest is not accounted in revenue, credits extended to borrowers that are undergoing bankruptcy, corporate reorganization and rehabilitation proceedings or debtors receiving orders of disposition by suspension of business at bill clearing houses 2. Non-accrual loans: Credits for which accrued interest is not accounted in revenue, credits, excluding loans to bankrupt borrowers and loans with grace for interest payment to assist in corporate reorganization or to support business 3. Past due loans (3 months or more): Loans with payment of principal or interest in arrears for more than 3 months, calculated from the day following the contractual due date, excluding borrowers in categories 1. and 2. 4. Restructured loans: Loans to borrowers in severe financial condition given certain favorable terms and conditions to assist in corporate rehabilitation or support business, excluding borrowers in categories 1. through 3. Problem Assets Based on the Financial Reconstruction Law March 31 Bankrupt and quasi-bankrupt assets ............................................................................. Doubtful assets ............................................................................................................. Substandard loans......................................................................................................... Total of problem assets ................................................................................................. Normal assets................................................................................................................ Total............................................................................................................................... 2002 ¥ 493.5 2,970.2 2,436.3 ¥ 5,900.0 ¥60,558.9 ¥66,458.9 Notes: Definition of problem assets Billions of yen 2001 ¥ 589.9 1,943.1 289.4 ¥ 2,822.5 ¥66,157.8 ¥68,980.3 2000 ¥ 585.5 2,232.0 823.0 ¥ 3,640.5 ¥66,034.7 ¥69,675.2 These assets are disclosed based on the provisions of Article 7 of the Financial Reconstruction Law (Law No. 132 of 1998) and classified into the 4 categories based on financial position and business performance of obligors in accordance with Article 6 of the Law. Assets in question include loans and bills discounted, foreign exchanges, accrued interest, and advance payment in “other assets,” customers’ liabilities for acceptance and guaran- tees, and securities lent under the loan for consumption or leasing agreements. 1. Bankrupt and quasi-bankrupt assets: Credits to borrowers undergoing bankruptcy, corporate reorganization, and rehabilitation proceedings, as well as claims of a similar nature 2. Doubtful assets: Credits for which final collection of principal and interest in line with original agreements is highly improbable due to deterioration of financial position and business performance, but not insolvency of the borrower 3. Substandard loans: Past due loans (3 months or more) and restructured loans, excluding 1. and 2. 4. Normal assets: Credits to borrowers with good business performance and in financial standing without identified problems and not classified into the three categories above SMBC 2002 — 107 Securities (Nonconsolidated) Figures as of and for the years ended March 31, 2001 and 2000, are combined figures for the former Sakura Bank and the former Sumitomo Bank. Balance of Securities Year-End Balance March 31 Domestic operations: Japanese government bonds ................................................................................... Japanese local government bonds........................................................................... Japanese corporate bonds ....................................................................................... Japanese stocks....................................................................................................... Securities lent ........................................................................................................... Others....................................................................................................................... Foreign bonds ..................................................................................................... Foreign stocks ..................................................................................................... Subtotal .................................................................................................................... International operations: Japanese government bonds ................................................................................... Japanese local government bonds........................................................................... Japanese corporate bonds ....................................................................................... Japanese stocks....................................................................................................... Others....................................................................................................................... Foreign bonds ..................................................................................................... Foreign stocks ..................................................................................................... Subtotal .................................................................................................................... Total............................................................................................................................... 2002 ¥ 9,599,109 429,412 1,183,562 5,595,410 / 21,308 / / ¥16,828,804 ¥ — — — — 3,614,192 2,863,638 750,553 ¥ 3,614,192 ¥20,442,996 Millions of yen 2001 ¥15,271,104 323,252 995,423 7,167,659 / 128,079 / / ¥23,885,523 ¥ — — — — 3,174,454 2,253,757 920,696 ¥ 3,174,454 ¥27,059,978 Notes: 1. Japanese stocks include treasury stocks as of March 31, 2001 and 2000. 2. Securities lent as of March 31, 2002 and 2001, are included in each type of securities by the classification above. Average Balance Year ended March 31 Domestic operations: Japanese government bonds ................................................................................... Japanese local government bonds........................................................................... Japanese corporate bonds ....................................................................................... Japanese stocks....................................................................................................... Others....................................................................................................................... Foreign bonds ..................................................................................................... Foreign stocks ..................................................................................................... Subtotal .................................................................................................................... International operations: Japanese government bonds ................................................................................... Japanese local government bonds........................................................................... Japanese corporate bonds ....................................................................................... Japanese stocks....................................................................................................... Others....................................................................................................................... Foreign bonds ..................................................................................................... Foreign stocks ..................................................................................................... Subtotal .................................................................................................................... Total............................................................................................................................... 2002 ¥11,707,532 393,236 1,061,395 6,494,197 30,941 / / ¥19,687,304 ¥ — — — — 3,738,953 2,851,256 887,696 ¥ 3,738,953 ¥23,426,257 Millions of yen 2001 ¥ 9,091,904 427,162 1,007,948 6,798,958 162,799 / / ¥17,488,774 ¥ — — — — 2,146,468 1,359,686 786,781 ¥ 2,146,468 ¥19,635,244 2000 ¥ 5,291,625 491,698 1,031,827 6,973,606 15,814 160,709 / / ¥13,965,283 ¥ — — — — 1,928,563 1,162,239 766,323 ¥ 1,928,563 ¥15,893,846 2000 ¥ 4,954,402 494,200 982,547 6,457,912 193,254 / / ¥13,082,320 ¥ — — — — 2,023,066 1,261,240 761,825 ¥ 2,023,066 ¥15,105,386 Notes: 1. Japanese stocks include treasury stocks for the years ended March 31, 2001 and 2000. 2. Securities lent are included in each type of securities by the classification above. 3. The average balance of foreign-currency-denominated transactions by domestic branches in international operations is calculated by the monthly current method. 108 — SMBC 2002 Balance of Securities Held, Classified by Maturity March 31 One year or less Japanese government bonds ................................................................................... Japanese local government bonds........................................................................... Japanese corporate bonds ....................................................................................... Others....................................................................................................................... Foreign bonds ..................................................................................................... Securities lent ........................................................................................................... One–three years Japanese government bonds ................................................................................... Japanese local government bonds........................................................................... Japanese corporate bonds ....................................................................................... Others....................................................................................................................... Foreign bonds ..................................................................................................... Securities lent ........................................................................................................... Three–five years Japanese government bonds ................................................................................... Japanese local government bonds........................................................................... Japanese corporate bonds ....................................................................................... Others....................................................................................................................... Foreign bonds ..................................................................................................... Securities lent ........................................................................................................... Five–seven years Japanese government bonds ................................................................................... Japanese local government bonds........................................................................... Japanese corporate bonds ....................................................................................... Others....................................................................................................................... Foreign bonds ..................................................................................................... Securities lent ........................................................................................................... Seven–10 years Japanese government bonds ................................................................................... Japanese local government bonds........................................................................... Japanese corporate bonds ....................................................................................... Others....................................................................................................................... Foreign bonds ..................................................................................................... Securities lent ........................................................................................................... More than 10 years Japanese government bonds ................................................................................... Japanese local government bonds........................................................................... Japanese corporate bonds ....................................................................................... Others....................................................................................................................... Foreign bonds ..................................................................................................... Securities lent ........................................................................................................... No designated term Japanese government bonds ................................................................................... Japanese local government bonds........................................................................... Japanese corporate bonds ....................................................................................... Japanese stocks....................................................................................................... Others....................................................................................................................... Foreign bonds ..................................................................................................... Foreign stocks ..................................................................................................... Securities lent ........................................................................................................... Total Japanese government bonds ................................................................................... Japanese local government bonds........................................................................... Japanese corporate bonds ....................................................................................... Japanese stocks....................................................................................................... Others....................................................................................................................... Foreign bonds ..................................................................................................... Foreign stocks ..................................................................................................... Securities lent ........................................................................................................... 2002 ¥2,155,760 25,433 87,161 219,992 218,291 / ¥3,613,404 41,395 340,745 1,784,002 1,783,941 / ¥2,392,875 69,013 469,994 160,972 160,315 / ¥ 465,271 96,921 133,812 68,426 67,652 / ¥ 771,568 196,077 149,948 57,934 57,289 / ¥ 200,230 570 1,900 510,543 508,912 / ¥ — — — 5,595,410 833,629 67,236 750,553 / ¥9,599,109 429,412 1,183,562 5,595,410 3,635,501 2,863,638 750,553 / Millions of yen 2001 ¥ 7,020,507 24,803 132,201 470,765 461,148 / ¥ 4,135,860 30,372 219,562 677,665 658,274 / ¥ 1,507,521 24,187 368,357 443,331 414,947 / ¥ 482,210 58,671 87,960 99,217 69,085 / ¥ 2,125,002 184,652 184,339 186,710 157,090 / ¥ — 563 3,000 497,940 493,209 / ¥ — — — 7,167,659 926,900 — 920,696 / ¥15,271,104 323,252 995,423 7,167,659 3,302,535 2,253,757 920,696 / 2000 ¥1,187,598 24,973 310,069 285,242 268,405 663 ¥1,515,682 45,987 235,906 350,292 317,754 1,023 ¥ 986,540 20,311 212,834 145,111 122,810 677 ¥ 685,670 28,781 119,113 76,616 48,799 — ¥ 916,130 371,074 144,896 166,387 133,814 — ¥ — 566 9,004 276,408 270,650 — ¥ — — — 6,973,606 789,209 — 766,323 13,451 ¥5,291,625 491,698 1,031,827 6,973,606 2,089,273 1,162,239 766,323 15,814 Notes: 1. Japanese stocks include treasury stocks as of March 31, 2001 and 2000. 2. Securities lent as of March 31, 2002 and 2001, are included in each type of securities by the classification above. SMBC 2002 — 109 Capital Ratio Consolidated Capital Ratio March 31 Tier I capital: Tier II capital: 2002 Common stockholders’ equity............. ¥ 2,735,278 984,088 Minority interests................................. Subtotal (A) ......................................... ¥ 3,719,366 45% of unrealized gains on land......... ¥ 82,931 General reserve for 929,461 possible loan losses.......................... 2,577,490 Qualifying subordinated debt .............. Subtotal............................................... ¥ 3,589,883 Tier II capital included as Millions of yen 2001 2000 Sakura Bank ¥ 2,112,528 383,921 ¥ 2,496,449 46,670 ¥ Sumitomo Bank ¥ 1,652,114 606,147 ¥ 2,258,261 122,193 ¥ Sakura Bank Sumitomo Bank ¥ 2,121,368 ¥ 1,625,039 578,865 ¥ 2,440,605 ¥ 2,203,904 51,672 ¥ 126,143 ¥ 319,237 163,151 1,141,806 ¥ 1,351,627 232,707 1,653,197 ¥ 2,008,098 227,338 1,382,246 365,408 1,652,889 ¥ 1,661,257 ¥ 2,144,442 qualifying capital (B).......................... ¥ 3,504,772 (C) ....................................................... ¥ 163,331 Deductions: (D) = (A) + (B) - (C)............................ ¥ 7,060,807 Total capital: Risk-adjusted assets: On-balance-sheet ............................... ¥62,532,180 Off-balance-sheet ............................... 4,803,181 Asset equivalent of market risk ........... 212,650 Subtotal (E) ......................................... ¥67,548,012 ¥ 1,351,627 ¥ 13,752 ¥ 3,834,324 ¥31,812,599 1,924,737 154,078 ¥33,891,414 ¥ 1,995,364 ¥ 103,632 ¥ 4,149,993 ¥34,609,029 3,096,291 219,900 ¥37,925,221 999 ¥ ¥ 1,661,257 ¥ 2,144,442 ¥ — ¥ 4,100,864 ¥ 4,348,346 ¥30,676,736 ¥34,744,749 2,510,855 221,112 ¥32,721,599 ¥37,476,716 1,824,204 220,657 Capital ratio (BIS guidelines) = (D)/(E) × 100... 10.45% 11.31% 10.94% 12.53% 11.60% Nonconsolidated Capital Ratio March 31 Tier I capital: Tier II capital: 2002 Common stockholders’ equity............. ¥ 3,057,390 Others ................................................. 869,793 Subtotal (A) ......................................... ¥ 3,927,183 73,568 45% of unrealized gains on land......... ¥ General reserve for possible loan losses.......................... 872,338 Qualifying subordinated debt .............. 2,544,424 Subtotal............................................... ¥ 3,490,330 Tier II capital included as Millions of yen 2001 2000 Sakura Bank ¥ 2,238,502 285,575 ¥ 2,524,077 31,596 ¥ Sumitomo Bank ¥ 1,738,916 567,059 ¥ 2,305,975 121,230 ¥ Sakura Bank Sumitomo Bank ¥ 2,185,522 ¥ 1,700,055 531,070 ¥ 2,470,975 ¥ 2,231,125 36,450 ¥ 125,180 ¥ 285,453 142,826 1,111,006 ¥ 1,285,429 224,953 1,651,808 ¥ 1,997,991 198,802 1,286,823 357,574 1,651,168 ¥ 1,522,076 ¥ 2,133,922 qualifying capital (B).......................... ¥ 3,409,200 (C) ....................................................... ¥ 55,349 Deductions: Total capital: (D) = (A) + (B) - (C)............................ ¥ 7,281,033 Risk-adjusted assets: On-balance-sheet ............................... ¥57,965,018 5,192,299 Off-balance-sheet ............................... Asset equivalent of market risk ........... 139,300 Subtotal (E) ......................................... ¥63,296,617 ¥ 1,285,429 ¥ 16,999 ¥ 3,792,507 ¥29,547,565 2,157,620 135,433 ¥31,840,619 ¥ 1,997,991 ¥ 58,766 ¥ 4,245,199 ¥32,166,297 3,654,538 125,350 ¥35,946,185 999 ¥ ¥ 1,522,076 ¥ 2,133,922 ¥ 53,766 ¥ 3,992,051 ¥ 4,311,281 ¥29,627,511 ¥31,682,488 2,787,025 110,350 ¥31,917,316 ¥34,579,863 2,151,879 137,925 Capital ratio (BIS guidelines) = (D)/(E) × 100... 11.50% 11.91% 11.80% 12.50% 12.46% 110 — SMBC 2002 Ratios (Nonconsolidated) In principle, figures as of and for the year ended March 31, 2001, are combined figures for the former Sakura Bank and the former Sumitomo Bank. Income Ratio Year ended March 31 Operating profit to total assets....................................................................................... Operating profit to stockholders’ equity ......................................................................... Net income to total assets ............................................................................................. Net income to stockholders’ equity ................................................................................ Percentage 2001 Sakura Bank 0.42% 12.29 0.18 4.86 Sumitomo Bank 0.32% 11.78 0.10 3.72 2002 — — — — Notes: 1. Operating profit (net income) to total assets = Operating profit (net income)/Average balance of total assets excluding customers’ liabilities for acceptances and guarantees ✕ 100 2. Operating profit (net income) to stockholders’ equity = (Operating profit (net income) – Preferred dividends) / {(Stockholders’ equity at beginning of Issue price) + (Stockholders’ equity at end of the the fiscal year – Number of shares of preferred stock outstanding at beginning of the fiscal year ✕ fiscal year – Number of shares of preferred stock outstanding at end of the fiscal year ✕ Issue price)} divided by 2 ✕ 100 3. Figures for 2002 are not shown due to operating loss (net loss). Yield/Interest Rate Year ended March 31 Domestic operations Percentage 2002 2001 Interest-earning assets (A) .................................................................................................................... Interest-bearing liabilities (B) ................................................................................................................. (A) - (B)................................................................................................................................................. International operations Interest-earning assets (A) .................................................................................................................... Interest-bearing liabilities (B) ................................................................................................................. (A) - (B)................................................................................................................................................. Total Interest-earning assets (A) .................................................................................................................... Interest-bearing liabilities (B) ................................................................................................................. (A) - (B)................................................................................................................................................. 1.53% 0.98 0.55 5.96% 3.79 2.17 2.39% 1.59 0.80 1.76% 1.13 0.63 5.95% 6.07 (0.12) 2.54% 2.03 0.51 SMBC 2002 — 111 Loan-Deposit Ratio March 31 Domestic operations Millions of yen 2002 2001 Loan amount (A) .................................................................................................................................... Deposit amount (B)................................................................................................................................ Loan-deposit ratio (%) ¥53,618,414 58,568,596 ¥54,617,068 57,916,540 (A)/(B) ............................................................................................................................................... Ratio by average balance for the fiscal year .................................................................................... 91.54% 93.61 94.30% 98.92 International operations Loan amount (A) .................................................................................................................................... Deposit amount (B)................................................................................................................................ Loan-deposit ratio (%) ¥ 6,309,954 9,060,756 ¥ 7,130,812 12,813,232 (A)/(B) ............................................................................................................................................... Ratio by average balance for the fiscal year .................................................................................... 69.64% 66.19 55.65% 61.98 Total Loan amount (A) .................................................................................................................................... Deposit amount (B)................................................................................................................................ Loan-deposit ratio (%) ¥59,928,368 67,629,353 ¥61,747,880 70,729,773 (A)/(B) ............................................................................................................................................... Ratio by average balance for the fiscal year .................................................................................... 88.61% 89.30 87.30% 92.33 Note: Deposits include negotiable certificates of deposit. Securities-Deposit Ratio March 31 Domestic operations Millions of yen 2002 2001 Securities amount (A) ............................................................................................................................ Deposit amount (B)................................................................................................................................ Securities-deposit ratio (%) ¥16,828,804 58,568,596 ¥23,885,523 57,916,540 (A)/(B) ............................................................................................................................................... Ratio by average balance for the fiscal year .................................................................................... 28.73% 34.39 41.24% 31.28 International operations Securities amount (A) ............................................................................................................................ Deposit amount (B)................................................................................................................................ Securities-deposit ratio (%) ¥ 3,614,192 9,060,756 ¥ 3,174,454 12,813,232 (A)/(B) ............................................................................................................................................... Ratio by average balance for the fiscal year .................................................................................... 39.88% 35.05 24.77% 17.69 Total Securities amount (A) ............................................................................................................................ Deposit amount (B)................................................................................................................................ Securities-deposit ratio (%) ¥20,442,996 67,629,353 ¥27,059,978 70,729,773 (A)/(B) ............................................................................................................................................... Ratio by average balance for the fiscal year .................................................................................... 30.22% 34.50 38.25% 28.85 Note: Deposits include negotiable certificates of deposit. 112 — SMBC 2002 Capital (Nonconsolidated) Changes in Number of Shares Outstanding and Capital Stock March 31, 1999 .............................. April 2, 2001 ................................... March 9, 2002 ................................ March 15, 2002 .............................. April 1, 2001 – March 31, 2002 ...... April 1, 2001 – March 31, 2002 ...... Thousands of shares Number of shares outstanding Changes 167,000 3,273,423 — — 91,324 3,614 Outstanding balances 3,308,062 6,581,485 6,581,485 6,581,485 6,672,810 6,676,424 Millions of yen Capital stock Capital surplus Changes ¥250,500 523,851 — — 50,045 — Balances ¥ 752,848 1,276,700 1,276,700 1,276,700 1,326,746 1,326,746 Changes ¥250,500 991,326 (357,614) 11 49,954 — Balances ¥ 643,080 1,634,407 1,276,792 1,276,804 1,326,758 1,326,758 Remarks: March 31, 1999: Allotment to third parties: Preferred stock (First series Type 1): 67,000 thousand shares Issue price: Capitalization: ¥3,000 ¥1,500 Preferred stock (Second series Type 1): 100,000 thousand shares Issue price: Capitalization: ¥3,000 ¥1,500 April 2, 2001: March 9, 2002: March 15, 2002: April 1, 2001 – March 31, 2002: April 1, 2001 – March 31, 2002: Merger with The Sakura Bank, Limited (merger ratio: 1-to-0.6) Withdrawal from capital reserve pursuant to Article 289-2 of the Commercial Code of Japan and Article 18-2 of the Bank Law Merger with SMBC Property Management Service Co., Ltd., a wholly owned subsidiary of the Bank Conversion of convertible bonds into common stock Conversion of preferred stock into common stock Balance of Outstanding Convertible Bonds Type and issue date US$ convertible bonds Issue amount Interest rate Maturity Outstanding balance at March 31, 2002 Conversion price (May 31, 2002) January 30, 1989...................... US$300 million 3.125% March 31, 2004 US$8,660,000 ¥3,606.90 Total Outstanding Shares March 31, 2002 Common stock .............................................................................................................................................................. Preferred stock (First series Type 1) ............................................................................................................................. Preferred stock (Second series Type 1) ........................................................................................................................ Preferred stock (Type 5) ................................................................................................................................................ Total .............................................................................................................................................................................. Number of shares issued 5,709,424,395 67,000,000 100,000,000 800,000,000 6,676,424,395 Stock Exchange Listings Tokyo Stock Exchange (First Section) Osaka Securities Exchange (First Section) Nagoya Stock Exchange (First Section) Sapporo Securities Exchange London Stock Exchange SMBC 2002 — 113 Number of Shares, Classified by Type of Shareholders a. Common Stock March 31, 2002 Japanese government and local government................................................................ Financial institutions ...................................................................................................... Securities companies .................................................................................................... Other institutions............................................................................................................ Foreign institutions ........................................................................................................ Individuals................................................................................................................. Individuals and others.................................................................................................... Total............................................................................................................................... Less than one unit (shares) ........................................................................................... Number of shareholders 7 449 122 8,508 761 57 137,618 147,465 / Number of share units held 4,897 2,199,770 95,306 2,176,809 642,653 278 554,360 5,673,795 35,629,395 Percentage of total 0.09% 38.77 1.68 38.36 11.33 0.00 9.77 100.00% / Notes: 1. Of 449,559 shares in treasury stock, 449 units are included in “individuals and others” and the remaining 559 shares are included in “less than one unit.” Treasury stock (449,559 shares) is carried on the shareholders’ register, and the actual number of shares as of March 31, 2002, is 434,559 shares. 2. “Other institutions” includes 200 units held by the Securities Custody Association. 3. One unit consists of 1,000 shares. b. Preferred Stock (First series Type 1) March 31, 2002 Financial institutions ...................................................................................................... Number of shareholders 1 Number of share units held 67,000 Percentage of total 100.00% c. Preferred Stock (Second series Type 1) March 31, 2002 Financial institutions ...................................................................................................... Number of shareholders 1 Number of share units held 100,000 Percentage of total 100.00% d. Preferred Stock (Type 5) March 31, 2002 Financial institutions ...................................................................................................... Number of shareholders 1 Number of share units held 800,000 Percentage of total 100.00% Number of Voting Rights Total Outstanding Shares Number of shares of nonvoting stock Number of shares of voting stock with restriction (Treasury stock, etc.) Number of shares of voting stock with restriction (Others) Voting stock (Treasury stock, etc.) Voting stock (Others) Shares less than one unit Total outstanding shares Total voting rights Number of shares Number of voting rights Preferred stock 967,000,000 (Treasury stock) Common stock (Cross-holding shares) Common stock Common stock Common stock — — 434,000 13,620,000 5,659,741,000 35,629,395 6,676,424,395 — — — — — 5,659,741 — — 5,659,741 Notes: 1. “Voting stock (Others)” includes 200,000 shares (200 voting rights) held by the Security Custody Association. 2. “Shares less than one unit” includes 559 shares of the Bank’s treasury stock and cross-holding shares held by the Bank’s consolidated subsidiaries, as follows: March 31, 2002 THE MINATO BANK, LTD. .................................................................... SMBC Leasing Company, Limited ........................................................ Sumitomo Mitsui Card Company, Limited ............................................ The Bank of Kansai, Ltd. ....................................................................... SMBC Mortgage Co., Ltd. ..................................................................... Sakura Friend Securities Co., Ltd. ........................................................ Number of shares held 97 384 270 179 414 600 114 — SMBC 2002 Number of Shares of Treasury Stock March 31, 2002 Holders of treasury stock Sumitomo Mitsui Banking Corporation .................................................... THE MINATO BANK, LTD. ...................................................................... Daiwa Securities SMBC Co. Ltd. ............................................................. SMBC Leasing Company, Limited ........................................................... Sumitomo Mitsui Card Company, Limited ............................................... The Bank of Kansai, Ltd. .......................................................................... SMBC Mortgage Co., Ltd. ........................................................................ Sakura Friend Securities Co., Ltd. ........................................................... Total.......................................................................................................... Number of shares held in the name of Holder 434,000 5,260,000 3,159,000 2,276,000 1,314,000 1,114,000 292,000 205,000 14,054,000 Others — — — — — — — — — Total 434,000 5,260,000 3,159,000 2,276,000 1,314,000 1,114,000 292,000 205,000 14,054,000 Percentage of total shares outstanding 0.00% 0.09 0.05 0.03 0.02 0.01 0.00 0.00 0.24% Notes: 1. The above figures do not include 15,000 shares (15 voting rights) held in the Bank’s nominee name. They are included in “Voting stock (Others)” in the table of “Number of Voting Rights.” 2. Percentage of total shares outstanding is calculated based on the total number of shares of common stock outstanding. Principal Shareholders a. Common Stock March 31, 2002 Shareholders Sumitomo Life Insurance Company .................................................................................................... Japan Trustee Services Bank, Ltd. (Trust Account) ............................................................................ Nippon Life Insurance Company ......................................................................................................... The Mitsubishi Trust and Banking Corporation (Trust Account) .......................................................... The Taiyo Mutual Life Insurance Company ......................................................................................... UFJ Trust Bank Limited (Trust Account A) .......................................................................................... Matsushita Electric Industrial Co., Ltd. ................................................................................................ Mitsui Mutual Life Insurance Company................................................................................................ The Chase Manhattan Bank, N.A. London ......................................................................................... SANYO ELECTRIC CO., LTD. ........................................................................................................... Mitsui Sumitomo Insurance Company, Limited ................................................................................... The Dai-ichi Mutual Life Insurance Company ...................................................................................... TOYOTA MOTOR CORPORATION ................................................................................................... SUMITOMO CORPORATION ............................................................................................................ The Sumitomo Trust and Banking Company, Limited ........................................................................ Euroclear Bank S.A./N.V. .................................................................................................................... Mitsui Asset Trust and Banking Company, Limited (Pension Trust Account)...................................... KUBOTA CORPORATION ................................................................................................................. Takeda Chemical Industries, Ltd. ....................................................................................................... Mitsui Fudosan Co., Ltd. ..................................................................................................................... The SMBC Employee Stockholders’ Association ................................................................................ MITSUI & CO., LTD. ........................................................................................................................... Kondo Cotton Spinning Co., Ltd. ........................................................................................................ State Street Bank and Trust Company ................................................................................................ Composite Trust Trustee Mitsui Asset Trust and Banking Company, Limited (Entrust TOSHIBA CORPORATION)................................................................................................. NIPPON STEEL CORPORATION ...................................................................................................... SUMITOMO CHEMICAL COMPANY, LIMITED ................................................................................. The Tokyo Electric Power Company, Incorporated ............................................................................ The Kansai Electric Power Company, Incorporated ........................................................................... KAJIMA CORPORATION ................................................................................................................... Number of shares held (thousands) 228,378 210,918 204,364 184,993 122,109 107,002 103,570 76,651 67,979 64,113 60,200 53,771 53,753 52,008 51,203 49,888 43,486 39,499 39,074 33,934 31,927 30,166 30,056 29,290 29,253 29,147 28,544 28,313 28,026 26,776 Percentage of shares outstanding 4.00% 3.69 3.57 3.24 2.13 1.87 1.81 1.34 1.19 1.12 1.05 0.94 0.94 0.91 0.89 0.87 0.76 0.69 0.68 0.59 0.55 0.52 0.52 0.51 0.51 0.51 0.49 0.49 0.49 0.46 b. Preferred Stock (First series Type 1) March 31, 2002 Shareholder The Resolution and Collection Corporation ......................................................................................... Number of shares held (thousands) 67,000 Percentage of shares outstanding 100.00% SMBC 2002 — 115 c. Preferred Stock (Second series Type 1) March 31, 2002 Shareholder The Resolution and Collection Corporation ......................................................................................... Number of shares held (thousands) 100,000 Percentage of shares outstanding 100.00% d. Preferred Stock (Type 5) March 31, 2002 Shareholder The Resolution and Collection Corporation ......................................................................................... Number of shares held (thousands) 800,000 Percentage of shares outstanding 100.00% Common Stock Price Range Five-Year Stock Price Performance Year ended March 31 High........................................................................................ Low ........................................................................................ Notes: 1. Stock prices of common shares as quoted on the Tokyo Stock Exchange (First Section). 2002 ¥1,240 406 2001 ¥1,640 867 Yen 2000 ¥1,902 1,271 1999 ¥1,710 860 1998 ¥1,950 1,100 2. Preferred stock (First series Type 1), Preferred stock (Second series Type 1), and Preferred stock (Type 5) are neither listed on exchanges nor regis- tered with the Securities Dealers Association of Japan as trading securities on the over-the-counter market. 3. The former Sumitomo Bank’s stock prices are shown up to the year ended March 31, 2001. The high and low stock prices for each year in the four-year period ended March 31, 2001, for the former Sakura Bank are as follows: The Sakura Bank, Limited Year ended March 31 High ........................................................................................................... Low ............................................................................................................ Yen 2001 ¥858 477 2000 ¥1,045 358 1999 ¥404 165 1998 ¥975 325 Six-Month Performance March 2002 High ................................................................ Low................................................................. Notes: 1. Stock prices of common shares as quoted on the Tokyo Stock Exchange (First Section). ¥640 490 February 2002 ¥509 406 January 2002 ¥587 466 Yen December 2001 November 2001 October 2001 ¥674 479 ¥775 618 ¥916 699 2. Preferred stock (First series Type 1), Preferred stock (Second series Type 1), and Preferred stock (Type 5) are neither listed on exchanges nor regis- tered with the Securities Dealers Association of Japan as trading securities on the over-the-counter market. 116 — SMBC 2002 Others (Nonconsolidated) In principle, figures as of and for the years ended March 31, 2001 and 2000, are combined figures for the former Sakura Bank and the former Sumitomo Bank. Employees March 31 Number of employees............................................................. Average age (years–months).................................................. Average length of employment (years–months) ..................... Average monthly salary (thousands of yen)............................ Notes: 1. Temporary, part-time, and overseas local staff are excluded from the above calculations. 2002 25,027 38–3 16–4 ¥496 Sakura Bank 13,632 38–7 16–10 ¥515 2001 2000 Sumitomo Bank 13,526 37–5 15–5 ¥504 Sakura Bank 14,930 37–11 16–2 ¥502 Sumitomo Bank 14,394 36–11 14–11 ¥493 2. Average monthly salary includes overtime pay in March but excludes bonus. 3. Employees are required to retire at the end of the month when they reach 60. 4. Number of employees as of March 31, 2002, including locally hired overseas staff members but excluding employees temporarily transferred to other companies, totaled 22,464. Number of Offices March 31 Domestic network: 2002 2001 2000 Main offices and branches........................................................................................ Subbranches ............................................................................................................ Agency...................................................................................................................... Overseas network: Branches .................................................................................................................. Subbranches ............................................................................................................ Representative offices .............................................................................................. Total............................................................................................................................... 590 96 5 21 2 16 730 593 79 5 33 5 21 736 666 87 5 36 5 23 822 Note: “Main offices and branches” includes International Business Operations Dept. (2002, 2 branches; 2001, 2 branches; 2000, 2 branches), specialized deposit account branch (2002, 23 branches; 2001, 12 branches; 2000, 10 branches), and ATM administration branch (2002, 1 branch; 2001, 1 branch; 2000, 1 branch). Number of Automated Service Centers March 31 Automated service centers ............................................................................................ 2002 11,479 2001 3,222 2000 1,509 Domestic Exchange Transactions Year ended March 31 Exchange for remittance: Destined for various parts of the country: 2002 Millions of yen 2001 2000 Number of accounts (thousands) ........................................................................ 377,380 Amount ................................................................................................................ ¥ 625,250,208 ¥ 786,592,817 ¥ 761,830,689 350,579 339,801 Received from various parts of the country: Number of accounts (thousands) ........................................................................ Amount ................................................................................................................ 264,008 754,026,135 241,455 883,811,562 267,288 884,459,621 Collection: Destined for various parts of the country: Number of accounts (thousands) ........................................................................ Amount ................................................................................................................ ¥ 19,552,377 ¥ 6,376 7,293 19,690,632 ¥ 7,866 19,930,046 Received from various parts of the country: Number of accounts (thousands) ........................................................................ Amount ................................................................................................................ 2,982 9,731,710 Total............................................................................................................................... ¥1,406,521,112 ¥1,700,597,387 ¥1,675,952,069 2,978 10,502,373 2,584 7,692,390 SMBC 2002 — 117 Foreign Exchange Transactions Year ended March 31 Outward exchanges: 2002 Millions of U.S. dollars 2001 2000 Foreign bills sold....................................................................................................... Foreign bills bought .................................................................................................. $ 529,638 101,593 $ 822,512 200,260 $ 756,381 164,362 Incoming exchanges: Foreign bills payable................................................................................................. Foreign bills receivable............................................................................................. Total............................................................................................................................... $ 635,462 20,854 $1,287,548 $ 771,801 24,234 $1,818,810 $ 838,912 24,052 $1,783,712 Note: The above figures include foreign exchange transactions by overseas branches. Breakdown of Collateral for Customers’ Liabilities for Acceptances and Guarantees March 31 Securities ....................................................................................................................... Commercial claims ........................................................................................................ Commercial goods......................................................................................................... Real estate .................................................................................................................... Others ............................................................................................................................ Subtotal ......................................................................................................................... Guaranteed.................................................................................................................... Unsecured ..................................................................................................................... Total............................................................................................................................... 2002 ¥ 13,322 257,213 13,456 58,580 47,386 ¥ 389,958 571,126 4,568,910 ¥5,529,996 Millions of yen 2001 ¥ 4,908 258,005 7,966 51,828 32,677 ¥ 355,390 584,587 5,353,048 ¥6,293,027 2000 ¥ 5,692 170,088 6,731 59,661 28,410 ¥ 270,588 1,202,691 3,974,588 ¥5,447,870 118 — SMBC 2002 Corporate Data Organization .................................................................... 120 Directors, Corporate Auditors, and Executive Officers ... 122 Principal Subsidiaries and Affiliates ................................ 124 International Directory ..................................................... 127 SMBC 2002 — 119 Corporate Data Organization (As of June 30, 2002) Corporate Staff Unit Public Relations Dept. Corporate Citizenship Dept. Corporate Planning Dept. Investor Relations Dept. Financial Research Dept. Financial Accounting Dept. Subsidiaries and Affiliates Dept. Portfolio Management Dept. Equity Portfolio Management Dept. Corporate Risk Management Dept. Market Risk Management Dept. Risk Management Systems Dept. Credit Risk Management Dept. General Affairs Dept. Kobe General Affairs Dept. Legal Dept. Customer Relations Dept. Human Resources Dept. Training Institute Counseling Dept. Human Resources Development Dept. Shareholders’ Meeting Board of Directors Management Committee Corporate Auditors/ Board of Corporate Auditors Corporate Services Unit Administrative Services Dept. Secretariat IT Planning Dept. Systems Development Dept. I Systems Development Dept. II International and Market Systems Dept. Operations Planning Dept. International and Market Operations Dept. Settlement and Clearing Services Dept. e-Business Planning Dept. Electronic Commerce Banking Dept. Global Cash Management Dept. e-Business Patent Dept. Corporate Research Dept. Credit Administration Dept. Operations Supporting Dept. Loan Administration and Operations Dept. Consumer Loan Administration and Operations Dept. International Business Operations Dept. Capital Markets and Treasury Operations Dept. Corporate Accounting Operations Dept. Office of Corporate Auditors Internal Audit Unit Audit Dept. Audit Dept. for the Americas Audit Dept. for Europe Inspection Dept. Credit Review Dept. 120 — SMBC 2002 Consumer Banking Unit Planning Dept., Consumer Banking Unit Block Consumer Business Office Sales Channel Planning Dept., Consumer Banking Unit Branch Banking Dept., Consumer Banking Unit Corporate Employees Business Promotion Dept. Products and Marketing Dept., Consumer Banking Unit Consumer Loan Business Dept. Investment Products Business Dept., Consumer Banking Unit Private Banking Dept. Operations and Systems Dept., Consumer Banking Unit Credit Dept., Consumer Banking Unit Middle Market Banking Unit Planning Dept., Middle Market Banking Unit Middle Market Banking Division Operations and Systems Dept., Middle Market Banking Unit Business Promotion Dept., Middle Market Banking Unit Business Reengineering Dept. International Business Promotion Dept., Middle Market Banking Unit New Business Promotion Dept., Middle Market Banking Unit Public Institutions Banking Dept. Kobe Public Institutions Banking Dept. Business Owner Banking Dept. Credit Dept. I, Middle Market Banking Unit Credit Dept. II, Middle Market Banking Unit Credit Dept. III, Middle Market Banking Unit Credit Supervision Dept. I, Middle Market Banking Unit Credit Supervision Dept. II, Middle Market Banking Unit Branch Public Institutions Operations Office Consumer Loan Promotion Office Call Center Consumer Loan Servicing Center Corporate Business Office Public Institutions Business Office Business Support Office Business Promotion Office Corporate Banking Unit Planning Dept., Corporate Banking Unit Credit Dept. I, Corporate Banking Unit Credit Dept. II, Corporate Banking Unit Credit Dept. III, Corporate Banking Unit Tokyo Corporate Banking Division I Tokyo Corporate Banking Division II Osaka Corporate Banking Division Nagoya Corporate Banking Division Corporate Banking Dept. International Banking Unit Planning Dept., International Banking Unit Asia Pacific Division Operations and Systems Dept., International Banking Unit Asia Pacific Dept. Global Institutional Banking Dept. Global Investors Services Dept. Credit Dept., International Banking Unit The Americas Division Planning Dept., The Americas Division Credit Dept., The Americas Division Europe Division Planning Dept., Europe Division Credit Dept., Europe Division Global Client Business Dept. Branch/Representative Office in Asia Pacific Departments of the Americas Division Departments of Europe Division Treasury Unit Planning Dept., Treasury Unit Treasury Dept. International Treasury Dept. Trading Dept. Treasury Marketing Dept. Investment Banking Unit Planning Dept., Investment Banking Unit Structured Finance Credit Dept. Asset Management Planning Dept., Investment Banking Unit Structured Finance Dept. Financial Solutions Dept., Investment Banking Unit Derivatives and Financial Engineering Dept. Syndications Dept. M&A Advisory Services Dept. Corporate Finance Services Dept. e-Business, Media and Telecom Dept. SMBC 2002 — 121 Directors, Corporate Auditors, and Executive Officers (As of June 30, 2002) BOARD OF DIRECTORS CORPORATE AUDITORS Chairman of the Board Akishige Okada President Yoshifumi Nishikawa* Deputy Presidents Michiyoshi Kuriyama* General Affairs Dept., Kobe General Affairs Dept., Legal Dept., Customer Relations Dept., Human Resources Dept., Human Resources Development Dept., Administrative Services Dept. Takeharu Nagata* Corporate Research Dept., Credit Administration Dept., Credit Dept. II, Corporate Banking Unit and Credit Dept. III, Corporate Banking Unit Hidenori Hiramatsu* Audit Dept., Audit Dept. for the Americas, Audit Dept. for Europe, Inspection Dept., Credit Review Dept. Senior Managing Directors Tadashi Inoue* Corporate Banking Unit Masayuki Oku* Public Relations Dept., Corporate Planning Dept., Financial Accounting Dept., Subsidiaries and Affiliates Dept., and e-Business Planning Dept. Hideharu Kadowaki* Portfolio Management Dept., Corporate Risk Management Dept., and Credit Risk Management Dept. Takemasa Tsukamoto* IT Planning Dept., Systems Development Dept. I, Systems Development Dept. II, International and Market Systems Dept., Operations Planning Dept., and Electronic Commerce Banking Dept. Managing Directors Teisuke Kitayama* International Banking Unit Shigetada Takahashi* Credit Dept. I, Middle Market Banking Unit, Credit Dept. II, Middle Market Banking Unit, and Credit Supervision Dept. I, Middle Market Banking Unit Kenjiro Noda* Treasury Unit and Investment Banking Unit Mutsuhiko Matsumoto* Consumer Banking Unit Toichiro Mizushima* Middle Market Banking Unit Directors Yoshiaki Yamauchi Yoichiro Yamakawa *Executive Officers 122 — SMBC 2002 Corporate Auditors Hiroshi Kii Toyosaburo Hirano Tomoyuki Watanabe Kinrou Nakamura Shoh Nasu Katsuya Onishi Josei Itoh EXECUTIVE OFFICERS Managing Directors Jumpei Ishii Head of Tokyo Middle Market Banking Division V and Head of Kanagawa Middle Market Banking Division Koji Ishida Head of Tokyo Corporate Banking Division I Takao Umino Head of Nagoya Corporate Banking Division and Head of Tokai Middle Market Banking Division Morio Kusunoki Credit Dept. III, Middle Market Banking Unit, Credit Supervision Dept. II, Middle Market Banking Unit, and General Manager, Credit Supervision Dept. II, Middle Market Banking Unit Koichi Tsukihara Middle Market Banking Unit Shinpei Nihei Middle Market Banking Unit (stationed at Tokyo) Masahide Hirasawa General Affairs Dept., Kobe General Affairs Dept., Legal Dept., and Customer Relations Dept., General Manager, General Affairs Dept. and Kobe General Affairs Dept. Mitsuaki Yahagi Head of Tokyo Corporate Banking Division II Yasuyuki Kimoto Head of Europe Division Kenjiro Nakano Head of Osaka Corporate Banking Division Shigeru Nishiyama Credit Dept. I, Corporate Banking Unit Koichi Maeda Credit Dept. II, Corporate Banking Unit Hitoshi Yoshimatsu General Manager, Singapore Branch Directors Shiro Kawajiri IT Planning Dept., Systems Development Dept. I, Systems Development Dept. II, International and Market Systems Dept., and Operations Planning Dept. Shigenobu Aikyo General Manager, Planning Dept., Middle Market Banking Unit Hitoshi Inuga Head of Kobe Middle Market Banking Division Osamu Endo Head of Tokyo Middle Market Banking Division III Sadao Kobayashi Head of Asia Pacific Division Jun Suzuki General Manager, Audit Dept. Shuntaro Higashi Head of The Americas Division Kengo Miyauchi General Manager, Credit Dept. I, Middle Market Banking Unit Hiromichi Miyauchi Head of Osaka Middle Market Banking Division I Shigeo Imafuku General Manager, Credit Dept. II, Corporate Banking Unit Yusaku Omori General Manager, Credit Review Dept. Shunji Ono General Manager, Public Institutions Banking Dept. Shigeru Kawamura General Manager, Operations Planning Dept. Junji Tanehashi General Manager, Corporate Planning Dept. Mitsumasa Wada General Manager, IT Planning Dept. Takeshi Sawaizumi Head of Osaka Middle Market Banking Division II Masaaki Shimojima Head of Regional Cities Corporate Banking Division Masanobu Tomitaka General Manager, Credit Dept. III, Middle Market Banking Unit Yuji Harada General Manager, Planning Dept., International Banking Unit Takahiro Matsusaka General Manager, Himeji Corporate Business Office Takashi Yamaguchi General Manager, Business Promotion Dept., Middle Market Banking Unit Takashi Ueda General Manager, Osaka Corporate Banking Division I Wataru Ohara General Manager, Credit Dept. II, Middle Market Banking Unit Nobuyuki Kameoka General Manager, Credit Dept. I, Corporate Banking Unit Toshiaki Kawai General Manager, International Treasury Dept. Hiroaki Shukuzawa Treasury Unit and General Manager, Planning Dept., Treasury Unit Yoshinori Kawamura General Manager, Structured Finance Dept. Hirosumi Tsusue Human Resources Dept. and Human Resources Development Dept. Hideo Shimada General Manager, Planning Dept., Investment Banking Unit Kohei Katsukawa Head of Tokyo Middle Market Banking Division IV Kazuhisa Kishikawa General Manager, Planning Dept., Consumer Banking Unit Hiroki Nishio General Manager, Planning Dept., Corporate Banking Unit Hajime Yamashita Head of Tokyo Middle Market Banking Division I Yoshihiro Yoshimura General Manager, Bangkok Branch, Chonburi Branch, and Ayudhya Branch Masato Ueda Head of Tokyo Middle Market Banking Division II Hitoshi Sogabe General Manager (Osaka), Planning Dept., Middle Market Banking Unit Katsumi Tamai General Manager, Branch Banking Dept., Consumer Banking Unit Tsutomu Harata General Manager, Osaka Corporate Banking Division II Yasuhisa Furukawa General Manager, Tokyo Corporate Banking Dept. VI Fukuzo Yasuo General Manager, Tokyo Corporate Banking Dept. II SMBC 2002 — 123 Principal Subsidiaries and Affiliates (As of March 31, 2002) Domestic Principal Subsidiaries Company Name SMBC Staff Service Co., Ltd. SMBC Learning Support Co., Ltd. SMBC Center Service Co., Ltd. SMBC Delivery Service Co., Ltd. SMBC Business Service Co., Ltd. SMBC Green Service Co., Ltd. SMBC International Operations Co., Ltd. SMBC International Business Co., Ltd. SMBC Consumer Loan Operations Co., Ltd. SMBC Property Research Service Co., Ltd. SMBC Total Maintenance Co., Ltd. Issued Capital Percentage of Bank’s (Millions of Yen) Voting Rights* (%) 90 10 100 30 40 30 40 20 30 30 450 100 100 100 100 100 100 100 100 100 100 100 Established Main Business July 15, 1982 Temporary manpower service May 27, 1998 Seminar organizer October 16, 1995 Banking clerical work January 31, 1996 Banking clerical work September 24, 1976 Banking clerical work March 15, 1990 Banking clerical work December 21, 1994 Banking clerical work September 28, 1983 Banking clerical work November 7, 1997 Banking clerical work February 1, 1984 Banking clerical work October 7, 1994 Disposal of real estate collateral Sumitomo Mitsui Card Company, Limited 79,115 46.9 (53.1) December 26, 1967 Credit card services SAKURA CARD CO., Ltd. At-Loan Co., Ltd. 7,438 68.5 (27.3) February 23, 1983 Credit card services 17,500 52.0 June 8, 2000 Loans SMBC Loan Adviser Co., Ltd. 10 100 April 1, 1998 Consulting and agency services for consumer loans The Japan Net Bank, Limited Sakura Guarantee Co., Ltd. ** Sansei Guarantee Co., Ltd. SMBC Loan Servicer Co., Ltd. SB Auto Leasing Company SMBC Finance Co., Ltd. 20,000 57.0 September 19, 2000 Commercial banking via Internet 87,720 0 (100) July 14, 1976 Credit guarantee 48 100 April 1, 1974 Credit guarantee 500 0 (100) July 28, 1999 Servicer Leasing Leasing 200 0 (90) January 6, 1995 71,705 80.7 (18.5) December 5, 1972 Mortgage securities, factoring, and loans SMBC Leasing Company, Limited 57,600 37.5 (47.7) September 2, 1968 SMBC FACTORS CO., LTD. 3,000 100 August 16, 2000 Factoring SMBC Capital Co., Ltd. SMBC Consulting Co., Ltd. SMBC Mortgage Co., Ltd. 2,500 39.8 (60.2) August 1, 1995 Venture capital 1,100 50.0 (50.0) May 1, 1981 Management consulting and information service 18,182 47.0 (10.7) October 14, 1983 Mortgage securities Mitsui Finance Service Co., Ltd. 1,100 43.6 (34.5) December 22, 1979 Collecting agent and factoring Sakura Finance Service Co., Ltd. SMBC Business Servicing Co., Ltd. 200 500 40.0 (10.5) July 12, 1979 Collecting agent and factoring 100 March 11, 1999 Servicer Sakura Friend Securities Co., Ltd. 26,139 37.5 (6.3) April 20, 1932 Securities SAKURA INVESTMENT MANAGEMENT CO., LTD. 1,280 100 September 27, 1993 The Japan Research Institute, Limited 3,000 4.9 (49.3) February 20, 1969 Investment advisory and investment trust management Economic research, system engineering, data processing, and management consulting Sakura Information Systems Co., Ltd. 600 5.0 (35.0) November 29, 1972 System engineering and data processing SAKURA KCS Corporation THE MINATO BANK, LTD. The Bank of Kansai, Ltd. 2,054 5.0 (47.9) March 29, 1969 System engineering and data processing 24,908 48.4 (1.7) September 6, 1949 Commercial banking 32,500 49.9 (19.3) July 1, 1922 Commercial banking THE WAKASHIO BANK, LTD. 20,831 100 June 6, 1996 Commercial banking * Figures in parentheses indicate voting rights held by the Bank’s nonconsolidated subsidiaries and affiliates as a percentage of total voting rights. ** Sakura Guarantee Co., Ltd., changed its name to SMBC Guarantee Co., Ltd., on April 1, 2002. 124 — SMBC 2002 Overseas Principal Subsidiaries Company Name Country Issued Capital Percentage of Bank’s Voting Rights* (%) Established Main Business Manufacturers Bank Sumitomo Mitsui Banking Corporation of Canada Banco Sumitomo Mitsui Brasileiro S.A. PT Bank Sumitomo Mitsui Indonesia U.S.A. Canada Brazil US$80.78 million 100 June 26, 1962 Commercial banking C$121.87 million 100 April 1, 2001 Commercial banking R$200.88 million 100 October 6, 1958 Commercial banking Indonesia Rp1,502.4 billion 97.6 August 22, 1989 Commercial banking SMBC Leasing and Finance, Inc. U.S.A. US$1,620 89.7 (10.3) November 9, 1990 Leasing Sumitomo Mitsui Finanz (Deutschland) GmbH SMBC Capital Markets, Inc. SMBC Securities, Inc. Germany U.S.A. U.S.A. €25,000 100 June 14, 1985 Leasing US$100 90.0 (10.0) December 4, 1986 Investments and derivatives US$100 90.0 (10.0) August 8, 1990 Securities SMBC Financial Services, Inc. U.S.A. US$300 100 August 8, 1990 Investments Sumitomo Finance (Asia) Limited British West Indies US$35 million 100 September 26, 1973 Investments SBTC, Inc. U.S.A. US$1 100 January 26, 1998 Investments SB Equity Securities (Cayman), Limited British West Indies ¥1 million 100 December 15, 1998 Finance SFVI Limited British Virgin Islands US$300 100 July 30, 1997 Investments Sakura Finance (Cayman) Limited British West Indies US$100,000 100 February 11, 1991 Finance Sakura Capital Funding (Cayman) Limited Sakura Preferred Capital (Cayman) Limited British West Indies US$100,000 100 July 15, 1992 Finance British West Indies ¥10 million 100 November 12, 1998 Finance SMBC International Finance N.V. Netherlands Antilles US$200,000 100 June 25, 1990 Finance SMBC Capital Markets Limited U.K. US$297 million 100 April 18, 1995 Derivatives SMBC Derivative Products Limited Sumitomo Finance International plc U.K. U.K. US$300 million 0 (100) April 18, 1995 Derivatives £200 million 100 July 1, 1991 Investments Sakura Trust International Limited** U.K. £250,000 100 May 25, 1984 Trustee business and fiscal agency business Sumitomo Mitsui Finance Dublin Limited Ireland US$12 million 100 September 19, 1989 Finance Sakura Finance Asia Limited P.R.C. US$65 million 100 October 17, 1977 Finance Sumitomo Mitsui Finance Australia Limited Australia A$62 million 100 June 29, 1984 Finance Sakura Finance Australia Limited Australia A$54 million 100 March 27, 1986 Finance Sakura Merchant Bank (Singapore) Limited Singapore S$4 million 100 April 18, 1990 Finance * Figures in parentheses indicate voting rights held by the Bank’s nonconsolidated subsidiaries and affiliates as a percentage of total voting rights. ** Sakura Trust International Limited was liquidated on May 24, 2002. SMBC 2002 — 125 Domestic Principal Affiliates Company Name Issued Capital Percentage of Bank’s (Millions of Yen) Voting Rights* (%) Established Main Business Daiwa Securities SMBC Co. Ltd. 205,600 40.0 February 5, 1999 Wholesale securities Daiwa Securities SMBC Principal Investment Co. Ltd. 500 — (100) September 4, 2001 Investments Meiko National Securities Co., Ltd. 27,270 20.6 (7.6) March 2, 1948 Securities DLJdirect SFG Securities Inc. 3,000 21.3 March 24, 1999 Securities via Internet Daiwa SB Investments Ltd. 2,000 30.4 (13.6) April 1, 1999 Investment advisory and investment trust Japan Pension Navigator Co., Ltd. 2,500 30.0 September 21, 2000 QUOQ Inc. 1,000 5.0 (34.9) April 5, 1978 Operation and administration of defined contribution pension plans Purchase of monetary assets and credit guarantee * Figures in parentheses indicate voting rights held by the Bank’s nonconsolidated subsidiaries and affiliates as a percentage of total voting rights. 126 — SMBC 2002 International Directory (As of June 30, 2002) Asia, Oceania Branches and Representative Offices Hong Kong Branch 7th & 8th Floors, One International Finance Centre, 1 Harbour View Street, Central, Hong Kong Special Administrative Region, The People’s Republic of China Tel: 852 (2206) 2000 Fax: 852 (2206) 2888 Shanghai Branch 30F, HSBC Tower, 101 Yin Cheng East Road, Pudong New Area, Shanghai, The People’s Republic of China Tel: 86 (21) 6841-5000 Fax: 86 (21) 6841-0144 Tianjin Branch Room No. 1210, Tianjin International Building, No. 75 Nan Jing Lu, Tianjin, The People’s Republic of China Tel: 86 (22) 2330-3334 Fax: 86 (22) 2331-3834 Guangzhou Branch 31F, Office Tower, CITIC Plaza, 233 Tianhe North Road, Guangzhou, The People’s Republic of China Tel: 86 (20) 8752-0168 Fax: 86 (20) 8752-0672 Suzhou Branch 10th Floor-D, Kings Tower, 12 Shishan Road, Suzhou New District, Suzhou, Jiangsu, The People’s Republic of China Tel: 86 (512) 825-8205 Fax: 86 (512) 825-6121 General Representative Office in China 2902, Jing Guang Centre, Hujialou, Chaoyang District, Beijing, The People’s Republic of China Tel: 86 (10) 6597-3351 Fax: 86 (10) 6597-3002 Dalian Representative Office Room No. 703, Dalian Civil Aviation Hotel, 143 Zhong Shan Lu, Dalian, The People’s Republic of China Tel: 86 (411) 363-7611 Fax: 86 (411) 363-7615 Chongqing Representative Office 3F, Holiday Inn Yangtze Chongqing, 15 Nan Ping Bei Lu, Chongqing, The People’s Republic of China Tel: 86 (23) 6280-3394 Fax: 86 (23) 6280-3748 Shenyang Representative Office Room No. 606, Gloria Plaza Hotel Shenyang, No. 32 Yingbin Street, Shenhe District, Shenyang, The People’s Republic of China Tel: 86 (24) 2252-8310 Fax: 86 (24) 2252-8769 Taipei Branch Aurora International Building 9F, No. 2, Sec. 5 Hsin Yi Rd., Taipei, Taiwan Tel: 886 (2) 2720-8100 Fax: 886 (2) 2720-8287 Seoul Branch Young Poong Bldg. 7F, 33, Seorin-Dong, Jongno-gu, Seoul, 110-752, Korea Tel: 82 (2) 732-1801 Fax: 82 (2) 399-6330 Singapore Branch 3 Temasek Avenue, #06-01, Centennial Tower, Singapore 039190, Singapore Tel: 65-882-0000/0001 Fax: 65-887-0220/0330 Labuan Branch Level 12 (B&C), Main Office Tower, Financial Park Labuan, Jalan Merdeka, 87000 Labuan, Federal Territory, Malaysia Tel: 60 (87) 410955 Fax: 60 (87) 410959 Labuan Branch Kuala Lumpur Marketing Office Letter Box No. 25, 29th Floor, UBN Tower, 10, Jalan P. Ramlee, 50250 Kuala Lumpur, Malaysia Tel: 60 (3) 2026-8392 Fax: 60 (3) 2026-8395 Kuala Lumpur Representative Office Letter Box No. 25, 29th Floor, UBN Tower, 10, Jalan P. Ramlee, 50250 Kuala Lumpur, Malaysia Tel: 60 (3) 2026-8392 Fax: 60 (3) 2026-8395 Jakarta Representative Office Summitmas II, 8th Floor, JI. Jendral, Sudirman Kav. 61-62, Jakarta 12190, Indonesia Tel: 62 (21) 525-1733 Fax: 62 (21) 525-1770 Ho Chi Minh Representative Office Unit C, 4th Floor, OSIC Building, 8 Nguyen Hue Street, District 1, Ho Chi Minh City, Vietnam Tel: 84 (8) 8231244 Fax: 84 (8) 8231241 Yangon Representative Office Room No. 603-604, 6th Floor, FMI Centre, 380 Bogyoke Aung San Street, Yangon, Myanmar Tel: 95 (1) 248060 Fax: 95 (1) 248061 Bangkok Branch Boon-Mitr Building, 138 Silom Road, Bangkok 10500, Thailand Tel: 66 (2) 353-8000 Fax: 66 (2) 353-8100 SMBC 2002 — 127 Ayudhya Branch 3rd Floor, Bank of Asia Building, 5-255, Pailing, Ayudhya District, Ayudhya Province, Thailand Tel: 66 (35) 245842 Fax: 66 (35) 212547 Chonburi Branch 6th Floor, Bangkok Bank Building, 98, Sukhumvit Road, Sriracha District, Chonburi Province, Thailand Tel: 66 (38) 770584~7 Fax: 66 (38) 770588 Manila Representative Office 20th Floor, Rufino Pacific Tower, 6784 Ayala Avenue, Makati City, Metro Manila, The Philippines Tel: 63 (2) 841-0098/9 Fax: 63 (2) 811-0877 Mumbai Branch Jolly Maker Chambers No. 2, 15th Floor, 225, Nariman Point, Mumbai 400021, India Tel: 91 (22) 288-0025 Fax: 91 (22) 288-0026 New Delhi Branch Dr. Gopal Das Bhawan, Ground Floor, 28 Barakhamba Road, New Delhi 110001, India Tel: 91 (11) 373-7637~41 Fax: 91 (11) 373-7642 Subsidiaries Sumitomo Mitsui Finance Australia Limited Level 40, The Chifley Tower 2, Chifley Square, Sydney, NSW 2000, Australia Tel: 61 (2) 9376-1800 Fax: 61 (2) 9376-1863 PT Bank Sumitomo Mitsui Indonesia Summitmas II, 10th Floor, JI. Jendral, Sudirman Kav. 61-62, Jakarta 12069, Indonesia Tel: 62 (21) 522-7011 Fax: 62 (21) 522-7022 China International Finance Company Limited (Shenzhen) 33F International Financial Building, 23 Jian She Road, Shenzhen, The People’s Republic of China Tel: 86 (755) 225-1509 Fax: 86 (755) 223-7566 SMBC Metro Investment Corp. 20th Floor, Rufino Pacific Tower, 6784 Ayala Avenue, Makati City, Metro Manila, The Philippines Tel: 63 (2) 811-0845~52 Fax: 63 (2) 811-0876~77 Sakura Finance Asia Limited 7th & 8th Floors, One International Finance Centre 1 Harbour View Street, Central, Hong Kong Special Administrative Region, The People’s Republic of China Tel: 852 (2864) 9300 Fax: 852 (2861) 2316 Sakura Finance Australia Limited Level 40, The Chifley Tower 2, Chifley Square, Sydney, NSW 2000, Australia Sakura Merchant Bank (Singapore) Limited 3 Temasek Avenue, #07-04, Centennial Tower, Singapore 039190, Singapore P.T. Perjahl Leasing Indonesia Mid Plaza Building LT 9, JI. Jendral, Sudirman Kav. 10-11, Jakarta 10220, Indonesia Tel: 62 (21) 570-6221, 6225 Fax: 62 (21) 570-6199 China United International Leasing Co., Ltd. Room 3313, Office Tower, CITIC Plaza, 233 Tianhe North Road, Guangzhou, The People’s Republic of China Tel: 86 (20) 8752-0177 Fax: 86 (20) 8752-0397 BSL Leasing Co., Ltd. 19th Fl. Sathorn City Tower, 175 South Sathorn Road, Bangkok, Thailand Tel: 66 (2) 679-6144 Fax: 66 (2) 679-6160 Bangkok SMBC Systems Ltd. 19th Floor, Q, House Sathorn Building, 11 South Sathorn Road, Bangkok, 10120 Thailand Tel: 66 (2) 679-1878~80 Fax: 66 (2) 679-1882 SMBC Management Service Co., Ltd. 7th Floor Unit B6, Boon-Mitr Building, 138 Silom Road, Suriyawongse, Bangrak, Bangkok 10500, Thailand Tel: 66 (2) 632-9610 Fax: 66 (2) 632-9611 Bangkok SMBC Consulting Company Limited Boon-Mitr Building, 138 Silom Road, Suriyawongse, Bangrak, Bangkok 10500, Thailand Tel: 66 (2) 632-9210 SBCS Co., Ltd. 7th Floor Unit A3 and B5-6, Boon- Mitr Building, 138 Silom Road, Suriyawongse, Bangrak, Bangkok 10500, Thailand Tel: 66 (2) 237-6295~8 Fax: 66 (2) 237-6299 SMSB Co.,Ltd. 7th Floor Unit B6, Boon-Mitr Building, 138 Silom Road, Suriyawongse, Bangrak, Bangkok 10500, Thailand 128 — SMBC 2002 Americas Subsidiaries Branches and Representative Offices New York Branch 277 Park Avenue, New York, NY 10172, U.S.A. Tel: 1 (212) 224-4000 Fax: 1 (212) 593-9522 Cayman Branch P.O. Box 694, Edward Street, George Town, Grand Cayman, Cayman Islands Los Angeles Branch 777 South Figueroa Street, Suite 2600, Los Angeles, CA 90017, U.S.A. Tel: 1 (213) 955-0800 Fax: 1 (213) 623-6832 San Francisco Branch 555 California Street, Suite 3350, San Francisco, CA 94104, U.S.A. Tel: 1 (415) 616-3000 Fax: 1 (415) 397-1475 Seattle Representative Office 1201 Third Avenue, Suite 5320, Seattle, WA 98101, U.S.A. Tel: 1 (206) 625-1010 Fax: 1 (206) 623-8551 Manufacturers Bank 515 South Figueroa Street, Los Angeles, CA 90071, U.S.A. Tel: 1 (213) 489-6200 Fax: 1 (213) 489-6254 Sumitomo Mitsui Banking Corporation of Canada Ernst & Young Tower, Suite 1400, P.O. Box 172, Toronto Dominion Centre, Toronto, Ontario M5K 1H6, Canada Tel: 1 (416) 368-4766 Fax: 1 (416) 367-3565 Banco Sumitomo Mitsui Brasileiro S.A. Av. Paulista, 37 São Paulo, Brazil Tel: 55 (11) 3178-8000 Fax: 55 (11) 289-1668 SMBC Capital Markets, Inc. 277 Park Avenue, New York, NY 10172, U.S.A. Tel: 1 (212) 224-5000 Fax: 1 (212) 224-5111 SMBC Leasing and Finance, Inc. 277 Park Avenue, New York, NY 10172, U.S.A. Tel: 1 (212) 224-5200 Fax: 1 (212) 224-5222 SMBC Securities, Inc. 277 Park Avenue, New York, NY 10172, U.S.A. Tel: 1 (212) 224-5300 Fax: 1 (212) 224-5333 SMBC Leasing (Singapore) Pte. Ltd. 1 Shenton Way, #19-05, Singapore 068803, Singapore Tel: 65-224-2955 Fax: 65-225-3570 Sumitomo Mitsui Finance Australia (Securities) Limited Level 40, The Chifley Tower 2, Chifley Square, Sydney, NSW 2000, Australia SMBC Leasing (Hong Kong) Limited 21st Floor, World-wide House, 2104B, 19 Des Voeux Road, Central, Hong Kong Special Administrative Region, The People’s Republic of China Tel: 852 (2523) 4155 Fax: 852 (2845) 9246 SMBC Leasing (Thailand) Co., Ltd. 19th Floor, Ramaland Building, 952 Rama IV Road, Suriyawong, Bangrak, Bangkok 10500, Thailand Tel: 66 (2) 632-9250 Fax: 66 (2) 632-9258 SMBC Leasing (Guangzhou) Co., Ltd. Room 1211-1212, Metro Plaza, 183, Tian He Bei Lu, Guangzhou, The People’s Republic of China Tel: 86 (20) 8755-0021 Fax: 86 (20) 8755-0422 SMBC Leasing (Malaysia) Sdn. Bhd. Letter Box No. 58, 11th Floor, UBN Tower, 10, Jalan P. Ramlee, 50250 Kuala Lumpur, Malaysia Tel: 60 (3) 2026-2619 Fax: 60 (3) 2026-2627 SMBC Capital Markets Limited Hong Kong Branch 7th & 8th Floors, One International Finance Centre, 1 Harbour View Street, Central, Hong Kong Special Administrative Region, The People’s Republic of China Tel: 852 (2532) 8500 Fax: 852 (2532) 8505 SMBC 2002 — 129 Sumitomo Finance International plc Temple Court, 11 Queen Victoria Street, London EC4N 4UQ, U.K. Tel: 44 (20) 7842-3000 Fax: 44 (20) 7842-3090 Sumitomo Mitsui Finanz (Deutschland) GmbH Prinzenallee 7, 40549 Düsseldorf, Federal Republic of Germany Principal Affiliate P.T. Exim SB Leasing Summitmas I, 8th Floor, JI. Jendral, Sudirman Kav. 61-62, Jakarta 12069, Indonesia Tel: 62 (21) 520-1265 Fax: 62 (21) 520-0154 Europe, Middle-East, Africa Branches and Representative Offices London Branch Temple Court, 11 Queen Victoria Street, London EC4N 4TA, U.K. Tel: 44 (20) 7786-1000 Fax: 44 (20) 7236-0049 Düsseldorf Branch Prinzenallee 7, 40549 Düsseldorf, Federal Republic of Germany Tel: 49 (211) 3619223 Fax: 49 (211) 3619236 Brussels Branch Avenue des Arts, 58, Bte. 18, 1000 Brussels, Belgium Tel: 32 (2) 551-5000 Fax: 32 (2) 513-4100 Paris Branch 20, Rue de la Ville l’Evêque, 75008 Paris, France Tel: 33 (1) 44 (71) 40-00 Fax: 33 (1) 44 (71) 40-50 Madrid Representative Office Serrano 16, 28001 Madrid, Spain Tel: 34 (91) 576-6196 Fax: 34 (91) 577-7525 Bahrain Representative Office No. 406 & 407 (Entrance 3, 4th Floor) Manama Centre, Government Road, Manama, State of Bahrain Tel: 973 223211 Fax: 973 224424 Tehran Representative Office 4th Floor, 80 Nezami Gangavi Street, Vali-e-Asr Avenue, Tehran 14348, Islamic Republic of Iran Tel: 98 (21) 879-4586 Fax: 98 (21) 879-4569 Cairo Representative Office 12th Floor, Nile Tower Building, 21-23 Giza Street, Giza, Cairo, Arab Republic of Egypt Tel: 20 (2) 570-3644 Fax: 20 (2) 570-3655 Johannesburg Representative Office Suite No. 2, Ground Floor, Gleneagles Building, Fairway Office Park, 52 Grosvenor Road, Bryanston, Sandton, South Africa (Postal address: Private Bag x134 Bryanston 2021, South Africa) Tel: 27 (11) 706-8675 Fax: 27 (11) 706-4927 Subsidiaries Sumitomo Mitsui Finance Dublin Limited La Touche House, International Financial Services Centre, Custom House Docks, Dublin 1, Ireland Tel: 353 (1) 670-0066 Fax: 353 (1) 670-0353 SMBC Capital Markets Limited Temple Court, 11 Queen Victoria Street, London EC4N 4TA, U.K. Tel: 44 (20) 7786-1400 Fax: 44 (20) 7248-5905 SMBC Derivative Products Limited Temple Court, 11 Queen Victoria Street, London EC4N 4TA, U.K. Tel: 44 (20) 7786-1400 Fax: 44 (20) 7248-5905 Sakura Trust International Limited Temple Court, 11 Queen Victoria Street, London EC4N 4TA, U.K. Tel: 44 (20) 7248-3076 Fax: 44 (20) 7329-4934 130 — SMBC 2002 SMBC Website ➤ http://www.smbc.co.jp/global/ Printed in Japan 

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