Sumitomo Mitsui Financial Group Inc
Annual Report 2005

Plain-text annual report

SMFG_AR05_表1~4_0805入稿 05.8.15 5:25 PM ページ 2 ANNUAL REPORT 2005 YEAR ENDED MARCH 31, 2005 A N N U A L R E P O R T 2 0 0 5 SMFG_AR05_表2~3_0811入稿 05.8.15 5:13 PM ページ 1 Our Mission The Groupwide management philosophy is as follows: • 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, 2005) Company Name: Sumitomo Mitsui Financial Group, Inc. Capital Stock: ¥1,352.6 billion Head Office: 1-2, Yurakucho 1-chome, Chiyoda-ku, Tokyo 100-0006, Japan Chairman of the Board: Masayuki Oku President: (Concurrent President at Sumitomo Mitsui Banking Corporation) Teisuke Kitayama (Concurrent Chairman of the Board at Sumitomo Mitsui Banking Corporation) Business Description: Management of the affairs of subsidiaries and relevant ancillary functions Stock Exchange Listings: Tokyo Stock Exchange (First Section) Osaka Securities Exchange (First Section) Nagoya Stock Exchange (First Section) Shares Issued and Outstanding: Ordinary Shares: Type 1 Preference Shares: Type 2 Preference Shares: Type 3 Preference Shares: Type 4 Preference Shares (1st series): Type 4 Preference Shares (2nd series): 6,273,792 35,000 100,000 695,000 4,175 4,175 Type 4 Preference Shares (3rd series): Type 4 Preference Shares (4th series): Type 4 Preference Shares (5th series): Type 4 Preference Shares (6th series): Type 4 Preference Shares (7th series): Type 4 Preference Shares (8th series): 4,175 4,175 4,175 4,175 4,175 4,175 4,175 Type 4 Preference Shares (9th series): Type 4 Preference Shares (10th series): 4,175 4,175 Type 4 Preference Shares (11th series): Type 4 Preference Shares (12th series): 4,175 Type 4 Preference Shares (13th series): 107,087 (1st series): 70,001 Type 6 Preference Shares Credit Ratings Credit ratings for applicable companies within SMFG as of July 31, 2005 are as follows: ● Sumitomo Mitsui Banking Corporation ● Sumitomo Mitsui Card Company, Limited ● SMBC Leasing Company, Limited Long-term Short-term Long-term Short-term Long-term Short-term Moody’s S&P Fitch R&I JCR A1 A A– A A+ P–1 A–1 F1 a–1 J–1+ JCR A+ J–1+ JCR A J–1 CONTENTS Foreword..................................................................................... 1 President’s Message .................................................................. 2 Group Companies....................................................................... 6 SMFG’s Strengths and Challenges .......................................... 12 Organizational Reforms at SMFG and SMBC .......................... 18 Business Overview ................................................................... 20 Financial Highlights................................................................... 28 Financial Review....................................................................... 31 Asset Quality............................................................................. 39 Risk Management..................................................................... 45 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. Corporate Social Responsibility................................................ 53 Corporate Governance ............................................................. 54 Internal Audit System................................................................ 55 Compliance............................................................................... 56 Environmental Preservation Initiatives...................................... 58 Social Contribution Activities .................................................... 72 Human Resources .................................................................... 76 Financial Section and Corporate Data...................................... 79 SMFG Website ....................................................................... 179 Sumitomo Mitsui Financial Group, Inc. Public Relations Department 1-2, Yurakucho 1-chome, Chiyoda-ku, Tokyo 100-0006, Japan TEL: +81-3-5512-3411 Sumitomo Mitsui Banking Corporation Public Relations Department 1-2, Yurakucho 1-chome, Chiyoda-ku, Tokyo 100-0006, Japan TEL: +81-3-3501-1111 August 2005 Printed on recycled paper Foreword We are pleased to present to you the Annual Report 2005, summarizing our activities and results in fiscal 2004 and our business policy for fiscal 2005 onward. All of us at SMFG, the directors, officers and employees, will continue to make every effort to enhance our customers’ trust and our shareholders’ and the market’s confidence in SMFG. We intend to achieve these goals by quickly and accurately providing new value that answers our cus- tomers’ increasingly diversified and sophisticated needs, thereby leading to greater profitability that will further solidify our financial base. We look forward to your continued support and encouragement as we move forward in the new stage of our development. August 2005 Masayuki Oku Chairman of the Board Teisuke Kitayama President SMFG 2005 1 President’s Message I would like to thank you for your continued interest in and consolidated net loss of ¥234.2 billion, but were able to greatly support for the Sumitomo Mitsui Financial Group (SMFG). As the reduce future risk factors. Meanwhile, to strengthen profitability, new president of SMFG, I would like to explain our policy for we accelerated our offensive in financial consulting for individuals, new-type unsecured loans to small and medium-sized enterprises (SMEs), investment banking business and other strategic busi- nesses, thereby significantly boosting gross banking profits of the Consumer Banking Unit, Middle Market Banking Unit and other marketing units. In addition, we made advances in strategic alliances with other sectors’ leading companies such as Daiwa Securities Group, Promise Co., Ltd. and NTT DoCoMo, Inc. Hand in hand with further enhancing strategic businesses which are contributing significantly to our profit base as earnings drivers with competitive market advantages, we were able to steadily establish new businesses as future earnings drivers. In fiscal 2004, we took measures to ensure earnings recovery from fiscal 2005 onward, and thus, we have now entered a new stage of development. moving the company forward. Fiscal 2004 Highlights: Completion of intensive improvement in asset quality and acceleration of offensive in strategic businesses Looking at the financial and economic environment in fiscal 2004, the U.S. economy stayed firm, supported by a strong household sector, and the Asian economies continued their growth track led by China. Meanwhile, the Japanese economic situation was mixed—corporate earnings and private capital investment gradu- ally grew, but there were inventory adjustments in the IT-related sectors and exports started slowing down—and, overall, the pace of economic recovery was very slow. In that environment, SMFG had set completing “the intensive improvement in asset quality” and enhancing profitability by “accelerating the offensive in strategic businesses” as the pri- mary imperatives for fiscal 2004, and took a number of initiatives to achieve these goals. To complete the intensive improvement in asset quality in order to ensure earnings recovery from fiscal 2005 onward, we took further financial measures both for our non-performing loans and securities portfolio. As a result, we regrettably posted a Fiscal 2003 - 2004 Period of Intensive Measures ■ Intensive Improvement in Asset Quality Results NPLs: Halve problem asset* ratio Stockholdings: Reduce to account for 50% or less of Tier I capital over medium term *Non-performing loans as defined under the Financial Reconstruction Law ■ Further Strengthening Profitability 2 SMFG 2005 Halved problem asset balance and ratio Greater ability to handle future risks through further provisioning for possible loan losses Reduced stockholdings Took financial measures on securities portfolio Took measures to ensure earnings recovery from fiscal 2005 onward Acceleration of Offensive in Strategic Businesses Significantly increased combined gross banking profit of marketing units Established and strengthened strategic businesses through advances in strategic alliances Strengthened collaboration with Daiwa Securities Group Launched new businesses with Promise Entered into business alliance agreement with NTT DoCoMo Entered a new stage of development Business Environment: Gradual economic recovery, intensifying competition in growth markets and advances in deregulation Since the inception of SMBC four years ago, our business environment has been difficult to an unprecedented degree, but recently there have been signs of a gradual economic recovery and business activities, such as private capital investments, have been picking up slowly. Looking at the sectors across the board, cross-sectional and cross-border competition in a wide range of growth markets is expected to intensify further. In the financial sector, besides the implementation of new rules such as Basel II, advances in dereg- ulation are expected to lower business barriers, creating busi- ness opportunities but at the same time lowering obstacles for newcomers and intensifying competition. Under such a business environment, in the Japanese financial industry, horizontal and vertical integration is expected to accel- erate further in the same manner as in the U.S. and Europe, and alliances with companies in other sectors with potential synergy are expected to increase also. Business Mission: Become a globally competitive top bank with the highest trust of our customers, our shareholders, the market and society Our competitive edge derives from our four strengths of (a) solid business franchise in commercial banking, (b) spirit of innovation and transformation, (c) speed in making business profitable, and (d) high efficiency. Under the above business environment, in order to leverage our strengths, grasp the ever-changing needs of our customers and further grow our business, we reflected on what kind of organization we should be and the direction we should take. Teisuke Kitayama President The obvious answer was “to become a globally competitive top bank with the highest trust of our customers, our shareholders, the market and society.” We will formulate and implement our business strategies guided by this mission. We will, however, be flexible in our business management, adjusting strategies in light of current and future situations: con- tinuously predict changes in business environment, establish hypotheses, and examine our businesses in view of the hypotheses. Business Environment Underpinnings of Our Competitive Edge Very slow economic recovery Solid business franchise in commercial banking Intensifying competition in growth markets Spirit of innovation and transformation Implementation of new rules such as Basel II Speed in making business profitable Advances in deregulation High efficiency Become a globally competitive top bank with the highest trust of our customers, our shareholders, the market and society SMFG 2005 3 Medium-Term Management Plan Targets We have established a medium-term management plan, Establishment of solid business base We will establish a solid business base upon which above spanning the four years from fiscal 2005, to realize the mission. business developments will take place. Specifically, based on We will make every effort to achieve the following targets in fiscal our Group’s high top-line earnings power, we aim to expand our 2008, the last year of the plan: on a consolidated basis, ROE of bottom-line profits by normalizing credit cost, and reinforce our more than 15%, net income of more than ¥650 billion, and a financial base by strengthening our capital both qualitatively and capital ratio of about 11%, of which Tier I capital will account for quantitatively by building up retained earnings. Regarding the about 7%. By achieving these targets, we hope to raise the remaining ¥1.1 trillion in public funds, we will complete the foun- market’s evaluation of our profitability and growth potential and dation for repaying the amount completely in the three years to realize a market capitalization worthy of “the top bank” fiscal 2007. designation—more than ¥10 trillion. Strengthening Group strategy to create new value “Strengthening Group strategy in order to create new value” further develop and evolve more effective compliance and internal audit systems in order to reinforce risk management, encompasses not just further boosting the profitability of existing a prerequisite for taking new risks, and corporate governance businesses, but also establishing new business lines in order to for checking whether expanding businesses are suitable and enhance our business portfolio by challenging new risks, new that businesses are being conducted properly. Of course, hand in hand with developing businesses, we will regions, and new business areas and proactively forging strate- gic alliances. We will also strengthen strategic businesses in focus areas on a group basis through strategic investment of resources and improvement in capital efficiency, and thereby achieve ¥1.5 trillion in consolidated net business profit in fiscal 2008. Strengthening Group Strategy to Create New Value 7Challenge new risks, new regions and new business areas 7Proactively forge strategic alliances Establishing a Solid Business Base 7Build strong financial base 7Reinforce risk management 7Strengthen corporate governance Medium-Term Management Plan Targets (Fiscal 2008) Consolidated ROE of more than 15% Consolidated net income of more than ¥650 billion Capital ratio of about 11%, of which Tier I capital accounts for about 7% Realize market capitalization of more than ¥10 trillion 4 SMFG 2005 Fiscal 2005 Business Policy: Secure solid profit level in fiscal 2005; establish and strengthen new strategic businesses During fiscal 2005, the first year of the medium-term management plan, we aim to secure a solid profit level. Specifically, we intend to achieve net income of ¥350 billion on a SMBC non-consolidated basis and ¥460 billion on a SMFG consolidated basis, through revenue growth based on proactive allocation of resources in the focus areas and normalization of credit cost. In Closing Amid intensifying competition, it is becoming increasingly difficult to maintain a competitive edge. Nevertheless, we intend to realize a sustainable increase in corporate value through speedy business development—a combination of enhancement of exist- ing strategic businesses and establishment of new strategic business—based on our medium-and-long-term perspectives. We aim to meet the expectations of our customers, our share- holders, the market and society by steadily producing results. Regarding non-performing loans, we are targeting to reduce outstanding balance of problem assets, nonperforming loans as defined under the Financial Reconstruction Law, to the ¥1 trillion level and ratio of problem assets to total assets to the 2% level as our targets. As for “establishing and strengthening new strategic businesses,” we will further reinforce the investment banking business, further develop the alliances with Promise and NTT Teisuke Kitayama President DoCoMo, and seek various opportunities to form alliances that Sumitomo Mitsui Financial Group, Inc. increase our corporate value regardless of which industries potential partners operate in. August 2005 Fiscal 2005 Plan Secure solid profit level in the first year of the medium-term management plan ● Grow revenues through proactive investment of resources in focus areas SMFG consolidated net income SMBC non-consolidated net income ● Normalization of credit cost SMBC non-consolidated credit cost SMBC non-consolidated problem asset* balance (term end) SMBC non-consolidated problem asset ratio (term end) *Non-performing loans as defined under the Financial Reconstruction Law Fiscal 2004 Results Fiscal 2005 Plan – ¥234.2 billion – ¥136.8 billion ¥460.0 billion ¥350.0 billion Fiscal 2004 Results Fiscal 2005 Plan ¥954.8 billion ¥1.8 trillion 3.3% ¥300.0 billion ¥1 trillion level 2% level Establish and strengthen new strategic businesses ● Further enhance investment banking business: Corporate revitalization, business restructuring, real estate finance ● Quickly establish new business lines: Make business with Promise profitable, early launching of business with Further collaboration with Daiwa Securities SMBC ● Accelerate alliance strategies NTT DoCoMo SMFG 2005 5 Group Companies SUMITOMO MITSUI Banking Corporation Business Environment The Japanese financial industry has resolved the non-perfor ming loan problem and significantly reduced cross-shareholdings, two issues that have plagued the industry for many years. In other words, the intensive improvement in asset quality has been accomplished, and the banks are now shifting their focus from dealing with the past to creating the future. Meanwhile, deregulation has steadily advanced, increasing not only business opportunities but also competition with global competitors and companies from other industries. Fiscal 2004 Earnings Results In fiscal 2004, we took further steps to reinforce our financial base in order to ensure an earnings recov- ery from fiscal 2005 onward, including posting credit cost of more than ¥950 billion and taking fur ther financial measures on our securities portfolio, result- ing in a net loss. However, we reduced the balance of problem assets (nonperforming loans as defined under the Financial Reconstruction Law) at the end of March 2005 by about ¥1 trillion compared to a year earlier, to ¥1.8246 trillion, for a problem asset ratio of 3.3%, thereby over-achieving the target of halving the level at the end of March 2002. Meanwhile, though the profit from ALM operations declined, we continued our efforts to improve cus- tomer service in consulting business for individuals, new-type unsecured loans to SMEs and investment banking business, and thus, significantly increased the combined gross banking profit of the Consumer Banking Unit, Middle Market Unit and other marketing units. Fiscal 2005 Business Policy We were early in focusing on consulting business for individuals and a new type of unsecured loans to SMEs and have gained a competitive edge in these businesses. We will continue to enhance customer I am delighted to speak to you as the new president of Sumitomo Mitsui Banking Corporation (SMBC) and would like to take this opportunity to extend our sincerest thanks for your continued support. ▲ www.smbc.co.jp/global/ Company Name: Business Profile: Establishment: Head Office: Employees: Sumitomo Mitsui Banking Corporation Banking June 6, 1996 1-2, Yurakucho 1-chome, Chiyoda-ku, Tokyo 21,020 (as of March 31, 2005) Network: (as of June 30, 2005) Domestic: 1,392 locations* Branches (including 28 specialized deposit account branches) Subbranches Offices handling 136 472 nonbanking business Automated service centers 16 768 Overseas: Branches Subbranches Representative offices 35 locations 17 3 15 *Excluding the number of ATMs installed at corporate client facilities and convenience stores 6 SMFG 2005 service in these strategic businesses in order to grow profit qualitatively as well as quantitatively. Moreover, the normalization of credit cost will lead to growth in bottom-line profit. For example, we will enhance the consulting business for individuals by increasing the number of SMBC Consulting Plazas to 65 and boosting the number and ability of consultants. In new-type unse- cured loans to SMEs, we have applied the know-how we have gained from Business Select Loan to launch a new loan product aimed at larger enterprises in April of this year. We will continue to proactively take steps to meet the funding needs of a wider range of customers. Forged cash cards, and other crimes using bank accounts, ATMs, and various types of cards, are becoming a social problem. In February of this year, we started issuing IC cash cards, which are difficult to skim data from, to increase card security. We have also developed and evolved our information manage- ment framework to better comply with the Personal Information Protection Law. We will continue to strive to enhance the financial security of our customers. Management Mission The future that we face will be an age of increasing complexity and rapid changes, but our mission is and will remain “becoming a globally competitive top bank with the highest trust of our customers, our share- holders, the market and society.” There are many issues to be addressed, but our primary focus is “the customer first on all points.” Everyone at SMBC, the directors, officers and employees, will face the chal- lenge of making SMBC into a bank that quickly and accurately provides and executes solutions that answer various customer needs with courage and determination. Masayuki Oku President Business Profile: ● Deposit taking ● Lending ● Securities retail sales and trading ● Securities investment ● Fund transfer ● Foreign exchange Insourcing of financial futures transactions ● Corporate bond trustee and custody services ● Trust bank business (money claim trustee services related to asset securitization business) Investment trust sales ● Securities intermediary business ● Retail sales of insurance products ■ Consolidated Billions of yen Year ended March 31 2005 2004 2003 For the Year: Operating income........... ¥ 2,691.3 (99.7) Operating profit (loss) .... (278.9) Net income (loss) ........... ¥ 2,717.0 282.1 301.6 ¥ 3,549.9 (467.5) (429.3) At Year-End: Net assets ...................... ¥ 2,633.9 97,478.3 Total assets .................... ¥ 2,722.1 99,843.2 ¥ 2,142.5 102,394.6 SMFG 2005 7 ● ● Strength as a Group SMFG’s wholly-owned subsidiaries—SMBC, Sumitomo Mitsui Card, SMBC Leasing, and The Japan Research Institute—rank among the top companies in their fields. In addition to strengthening each subsidiary’s business, we have been promoting collaboration among these companies to enhance Group profitability. SUMITOMO MITSUI Financial Group SUMITOMO MITSUI Banking Corporation Consumer Banking Unit Investment Banking Unit Treasury Unit Middle Market Banking Unit Corporate Banking Unit International Banking Unit ● No. 2 in number of cardholders among bank-affiliated credit card companies ● In the process of developing strate- gies to strengthen credit card and consumer finance businesses ● No. 1 in total assets among bank- affiliated leasing companies ● Actively collaborating with SMBC to offer leasing products such as Select Lease to SMEs ● One of the leading think-tanks in Japan ● The core IT specialist within the Group, supporting SMFG’s business strategy 8 SMFG 2005 As the pioneer in the issuance of the Visa Card in Japan and a leader in the domestic credit card industr y, Sumitomo Mitsui Card Company, Limited enjoys the strong support of its many customers. It also plays a major role as one of the strategic businesses of SMFG. Leveraging its strong brand image and its excellent capabilities across a wide range of card-related services, the company meets customers’ credit needs through the provision of settlement and financing services. Sumitomo Mitsui Card’s core priority is to provide customers with the most convenient and user-friendly card ser vices, thereby becoming the card provider of choice. Michiyoshi Kuriyama President ▲ www.smbc-card.com ★ Currently available in Japanese only Company Name: Business Profile: Establishment: Head Office: Tokyo Head Office: Osaka Head Office: Employees: Sumitomo Mitsui Card Company, Limited Credit card services December 26, 1967 5-2-10, Shimbashi, Minato-ku, Tokyo 4-5-15, Imahashi, Chuo-ku, Osaka 1,696 (as of March 31, 2005) Business Profile: ● Credit card services Shopping services for cardholders; settling accounts with affiliated merchants ● Credit finance Loans to cardholders; cashing services; revolving/installment payments; loan guarantee business ● Sales promotion Issuance of gift certificates; other services for cardholders and affiliated merchants ● Ancillary businesses Payment collection agency services; operational service provider (card issuance, invoicing cardholders, settlement of accounts of other cards) Year ended March 31 For the Year: Billions of yen 2005 2004 2003 Revenues from credit card operations...... ¥3,598.7 132.1 Operating revenue ................................. 23.1 Operating profit ...................................... ¥3,258.4 126.3 18.5 ¥3,035.5 122.1 16.0 At Year-End: Number of cardholders (in thousands)...... Number of merchant outlets (in thousands) ..... 13,462 3,089 12,758 2,892 12,118 2,699 SMFG 2005 9 SMBC Leasing Company, Limited, and its subsidiaries specialize in providing tailor-made solutions for corporate customers’ large-scale capital investment needs. The company and its subsidiaries combine a broad spec- trum of leasing products such as energy-saving equipment, commercial real estate properties (shops, factories and warehouses), overseas facilities for Japanese companies expanding abroad, and all types of medical equip- ment for clinics. In addition, we provide online leasing services, including support for the sales activities of manufacturers and dealers. SMBC Leasing offers the “Select Lease” service, which is designed to enable a prompt response to the needs of small and medium-sized busi- nesses. The company and its subsidiaries also lease motor vehicles (for personal as well as commercial use), measuring instruments, PCs, and other IT equipment. In May 2005 we established the subsidiary SMLC Trust Company, Limited to engage in the trust business. This is the first instance in which the sub- sidiary of a company that is not a financial institution has entered the trust business. By effectively employing trust business models, we hope to bring new dynamism to lease syndication transactions while further enhancing our lineup of services. ▲ www.smbcleasing.co.jp Business Profile: ● Corporate leasing Youhei Shiraga President Leasing to meet companies’ domestic and overseas capital investment needs ● Real estate leasing Leasing services that enable owners of commercial real estate such as office buildings and warehouses to more effectively utilize their assets ● Sales-type leasing and product leasing Leasing sales promotion tools for manufacturers and dealers Internet leasing Effective leasing over the Internet ● Select Lease Speedy leasing to small and medium-sized businesses ● Leasing of eco-friendly equipment Leasing in collaboration with companies providing energy conservation services ● Car leasing Car leasing through SMBC Auto Leasing Company, Limited ● Rental business Renting personal computers and other IT equipment Year ended March 31 Revenues from leasing operations ............. Operating revenue...................................... Operating profit........................................... Billions of yen 2005 ¥580.0 589.1 28.0 2004 ¥555.7 553.0 23.2 2003 ¥466.4 515.0 20.4 ★ Currently in Japanese only Company Name: Business Profile: Establishment: Head Office: Tokyo Head Office: Osaka Head Office: Employees: SMBC Leasing Company,Limited Leasing September 2, 1968 3-9-4, Nishishimbashi, Minato-ku, Tokyo 3-10-19, Minamisenba, Chuo-ku, Osaka 922 (as of March 31, 2005) 10 SMFG 2005 ● Institute, Limited (JRI) is a The Japan Research “knowledge engineering” company that offers comprehensive high value-added services, effectively combining the three functions of information systems integrator, consultant, and think-tank. Targeting customers in a wide range of sectors, JRI offers consulting services focusing on management innovation and IT-related issues. It also provides services such as the design and development of strategic information systems, as well as outsourcing. In addition, JRI conducts research and analysis of both domestic and overseas economies, formulates policy recommendations, and assists in the incubation of new businesses. Shunichi Okuyama President ▲ www.jri.co.jp/english/ Business Profile: ● Computer systems development and information processing service Design and development of information systems; outsourcing services ● Consulting business Consulting in the fields of management innovation and information technology ● Think-tank services Economic analyses and strategy design; new business incubation Company Name: Business Profile: Establishment: Head Office: Tokyo Head Office: Osaka Head Office: Employees: The Japan Research Institute, Limited Systems engineering, data processing, and management consulting and economic research November 1, 2002 16, Ichibancho, Chiyoda-ku, Tokyo 1-5-8, Shimmachi, Nishi-ku, Osaka 2,962 (as of March 31, 2005) Year ended March 31 Operating revenue...................................... Operating profit........................................... Billions of yen 2005 ¥111.2 6.3 2004 ¥105.1 7.6 2003 ¥70.2 7.6 SMFG 2005 11 SMFG’s Strengths and Challenges Below, we provide a brief explanation of the strengths of SMFG, and of SMBC in particular, as well as the challenges we currently face in our drive to raise our corporate value. SSMFG’s Strengths Speed, Efficiency, and Profitability (SMBC) Speed in Making Businesses Profitable (page 13) High Efficiency (page 14) Strength in Profitability (page 15) Businesses Established as Earnings Drivers (SMBC) Consulting for Individual Customers (pages 20-21) Unsecured Loans to midsized companies and SMEs (pages 22-23) Investment Banking (page 25) Strength as a Group Collaboration between Strong Group Companies (pages 8-11) Alliances with Leading Companies (page 16) Alliance with the Daiwa Securities Group (page 16) Alliance with Promise (page 17) Alliance with NTT DoCoMo (page 17) SMFG’s Challenges Nurturing New Earnings Drivers Consumer Finance Business (pages 17, 20-21) Securities Intermediary Business (pages 20-25) Businesses in Asia, particularly China (SMBC, page 26) IInitiatives to Improve Asset Quality (SMBC, pages 39-44) 12 SMFG 2005 Speed, Efficiency, and Profitability (SMBC) Speed in Making Businesses Profitable SMBC is working to accelerate the growth of numerous businesses into key earnings drivers, thereby creating one of the best business portfolios among Japanese banks. Many of SMBC’s businesses are growing—now generating an annual gross profit of between ¥20 billion and ¥30 billion. These businesses include financial consulting for individuals (primarily sales of investment trusts and pension-type insurance products), new-type unsecured loans (the Business Select Loan) to small and medium-sized enterprises (SMEs), and the investment banking business (loan syndication, securitization of monetary claims and structured finance). Investment Trust Pension-type insurance Business Select Loan (Commissions) (Commissions) (Interest income) (¥ billion) 30 25 20 15 10 5 00 (¥ billion) 30 25 20 15 10 5 00 (¥ billion) 30 25 20 15 10 5 00 FY2002 FY2003 FY2004 FY2002 FY2003 FY2004 FY2002 FY2003 FY2004 Loan syndication (Commissions) Securitization of monetary claims (Commissions) Structured finance (Commissions) (¥ billion) 50 40 30 20 10 00 (¥ billion) 30 25 20 15 10 5 00 (¥ billion) 30 25 20 15 10 5 00 FY2002 FY2003 FY2004 FY2002 FY2003 FY2004 FY2002 FY2003 FY2004 SMFG 2005 13 High Efficiency To enhance the value of our products and services targeting individual and corporate customers, and to more precisely meet their specific needs, SMBC has made its investment priority the expansion of specialized marketing channels in strategic business areas, such as financial consulting for individuals and new-type unsecured loans to SMEs. At the same time, we were able to substantially curb expenses by integrating overlapping marketing territories and streamlining the workforce. As a result, SMBC’s expense ratio, an important indicator of efficiency, is less than 40%. This shows a high level of efficiency, not only by domestic standards but also by global standards. Expenses and expense ratio Expenses (Billions of yen) Expense ratio (expenses/gross profit) 808.6 56.1% 778.9 53.7% 727.6 50.7% 700.1 46.6% Merger (SMBC) 670.1 647.0 584.0 582.4 36.2% 36.7% 36.9% 38.2% FY1997 FY1998 FY1999 FY2000 FY2001 FY2002 FY2003 FY2004 Number of domestic branches* Number of employees *Excluding sub-branches, agencies, etc. 735 696 Merger (SMBC) 653 578 564 32,531 31,325 Merger (SMBC) 29,298 27,142 25,027 437 435 425 24,024 22,348 21,020 March 31 1998 March 31 1999 March 31 2000 March 31 2001 March 31 2002 March 31 2003 March 31 2004 March 31 2005 March 31 1998 March 31 1999 March 31 2000 March 31 2001 March 31 2002 March 31 2003 March 31 2004 March 31 2005 14 SMFG 2005 their contribution to total banking profit has been rising steadily. Thus, SMBC not only achieved the highest bank- ing profit among Japanese banks, it has also created a stable earnings base that shows a resilient response to fluctuations in interest rates and other capital market trends. Moreover, SMBC is establishing an earnings base that is not wholly dependent on interest income derived from lending and deposit-taking, as non-interest income has been growing steadily. This is mainly due to the increase in fee income generated by providing optimal solutions that meet customers’ needs in businesses such as finan- cial consulting for individuals and the investment banking business. Strength in Profitability SMBC was the only Japanese bank to achieve more than ¥1 trillion in banking profit—the fundamental indicator of a bank’s profitability—for three consecutive years up to fiscal 2003. (This figure is before provisions to the general reserve for possible loan losses.) In fiscal 2004, SMBC’s banking profit was approximately ¥940 billion, which was the best result among Japanese banks. Banking profit comprises the profits of marketing units (the Consumer Banking, Middle Market Banking, Corporate Banking, and International Banking Units) and the Treasury Unit. Interest income from lending and deposit-taking and fee income from various businesses make up the marketing units’ profits. Activities such as ALM operations to control interest rate risk, etc., and trad- ing operations generate the Treasury Unit’s profits. The main factor behind the year-on-year decline in SMBC’s banking profit was a decrease in the Treasury Unit’s profit, which had been high from ALM operations amid falling domestic and overseas interest rates. On the other hand, the marketing units’ profits have continued to grow, and Banking profit* Marketing units’ contribution to total banking profit 1,113.6 72.2％ 1,000.1 54.3％ 1,186.5 48.2％％ (Billions of yen) 86.2％ 940.5 950.0 (plan) Increase in non-interest income* Percentage of non-interest income to Gross Banking Profit 351.6 20.0％％ 271.0 14.5％％ 398.6 225.2％ (Billions of yen) 501.5 32.9％％ FY2001 FY2002 FY2003 FY2004 FY2005 FY2001 FY2002 FY2003 FY2004 * Before provisions to general reserve for possible loan losses * Non-interest income: Fees and commissions, income related to sales of derivative products, etc. SMFG 2005 15 Alliances with Leading Companies SMFG has been enhancing group profitability through full- scale alliances with the Daiwa Securities Group, Promise Co., Ltd., and NTT DoCoMo, Inc., leading companies in the securities, consumer finance, and mobile phone businesses. We believe the keys to successful alliances are to efficiently utilize expertise, optimally leverage business franchises, and speedily make the business profitable. SMFG’s alliances are with leading companies, and are aimed at fully utilizing SMBC’s customer base and market- ing channels as well as its proven strength in speedily bringing new ventures to the point of commercial profitability. Keys to success = Expertise Form alliances with leading companies ＋ Business franchise Mutually share customer bases & marketing channels ＋ Speedily make businesses profitable Daiwa Securities Group Alliance with the Daiwa Securities Group The alliance between SMFG and the Daiwa Securities Group is the only full-scale alliance between a megabank and a major securities company in Japan. Through this collaboration, the two sides have created a framework enabling them to meet the diverse financing needs of corporate customers. Daiwa Securities SMBC—a wholesale securities com- pany jointly established by SMFG and Daiwa Securities Group, Inc.—started business in April 1999. Over the intervening six years, the two groups have created a solid framework of collaboration through initiatives such as active exchange of personnel and organizational ● SMBC’s collaboration with Daiwa Securities SMBC Meeting customers’ varied financing needs Debt finance Asset-backed finance Equity finance SMBC’s Investment Banking Unit Collaboration, exchanges of personnel Daiwa Securities SMBC SMBC’s marketing channels and sales force SMBC’s customer base e s i t r e p x E e s i h c n a r f s s e n s u B i 16 SMFG 2005 restructuring. Daiwa Securities SMBC enjoys top-level market shares in Japan in its core businesses—particularly the underwriting of stocks and bonds—and the earnings of Daiwa Securities SMBC achieved through this collaboration have been increasing at a steady pace. SMBC and Daiwa Securities SMBC continue to seek ways to further strengthen their alliance. For example, in December 2004, SMBC began securities intermediary operations for corporate clients on behalf of Daiwa Securities SMBC. We also reached a basic agreement on collaboration in the private equity investment business in February 2005. Earnings through collaboration with Daiwa Securities SMBC* (¥ billion) 50 40 30 20 10 00 Fiscal 2001 Fiscal 2002 Fiscal 2003 Fiscal 2004 *Earnings of SMBC and Daiwa Securities SMBC through collaboration Alliance with Promise SMFG and Promise signed a strategic alliance agreement in June 2004, and a business alliance contract in September 2004. In April 2005, the partners launched three types of consumer loans, provided at different interest rates. These loan products are being offered by SMBC, At-Loan (an SMBC-Promise joint venture) and Promise. We aim to achieve a loan balance of approxi- mately ¥500 billion* in three years. By leveraging SMBC’s marketing channels and customer base and Promise’s expertise and know-how, SMFG aims to create new demand and secure the No. 1 position in Japan’s consumer finance market. Interest rate Channel Provision of loans Marketing Guarantee, collection Credit monitoring 8% 12% 15% 18% 25.55% ACMs (Automatic Contract Machines): 490 Telephone, Internet SMBC At–Loan (Joint venture) Promise Promise’s expertise in marketing Promise’s expertise in credit monitoring and collection Target loan balance after 3 years *Total for SMBC, At-Loan and Promise ¥500 billion Alliance with NTT DoCoMo In April 2005, SMFG, SMBC and Sumitomo Mitsui Card agreed to form capital and business alliances with NTT DoCoMo, centered on a new credit-payment service utiliz- ing DoCoMo “Mobile Wallet” phones. Sumitomo Mitsui Card and NTT DoCoMo implemented a capital alliance in July 2005. We aim to create a new credit card market using mobile phones by providing new services leveraging both groups’ know-how, brands and customer bases. SUMITOMO MITSUI CARD Capital alliance (SMFG acquired 34% of common shares) Business alliance Expertise in credit card business Network of member retail shops ATM network Mobile-wallet handset technology Customer base (Registered mobile phones: 49 million*) Launch a new credit brand and develop a new credit-payment platform Offer new credit-payment service *As of May 31, 2005 Business alliance SMFG 2005 17 Organizational Reforms at SMFG and SMBC SMFG and SMBC both implemented organizational reforms Organizational Reforms at SMBC during the term under review. The major reforms are as follows (for more details, refer to pages 167, 170, and 171): Organizational Reforms at SMFG (1) Consolidating Management of the Group SMFG has established a new department—the Consumer Business Planning Department—to manage the Group’s credit card and consumer finance businesses, one of its key strategic domains, with the aim of more swiftly consolidating Group management. The new department will supervise consumer finance operations at SMBC and the five group companies engaged in this field, i.e. Sumitomo Mitsui Card Company, Limited (SMCC), Promise Co., Ltd., At-Loan Co., Ltd., Sakura Card Co., Ltd., and QUOQ Inc., and establish consistent, Groupwide strategies in the consumer finance business. (2) Placing Greater Priority on Corporate Social Responsibility (CSR) SMFG has established the Group CSR Committee, chaired by the director responsible for the Corporate Planning Department, to ensure a stronger emphasis on corporate social responsibility within the Group. The Group Environmental Committee was dis- solved, with its functions taken over by the new Group CSR Committee. The committee’s members are drawn from SMFG, SMBC, SMCC, SMBC Leasing Company, and The Japan Research Institute, and they will proactively take a wide range of measures to fulfill the Group’s social responsibilities. (Please refer to page 53 for details.) (3) Ensuring Fuller Disclosure SMFG has established a Disclosure Committee, chaired by the director responsible for the Financial Accounting Department, to oversee the public disclosure of information about the Group and ensure that the appropriate information is disclosed in a timely manner. The committee discusses the appropriateness of the contents of proposed disclosures, the effectiveness of the Group’s internal information control systems, and devises improvements where deemed necessary. 18 SMFG 2005 1. Restructuring Our Business Base (1) Transition to new structure for managing branches SMBC will reorganize its domestic branches under the “New Structure for Managing Branches” (NSMB) framework in order to further improve customer services and accelerate business development. Under the NSMB framework, each domestic branch will be divided into a “branch” and a “service office.” Branches specialize in business promotion targeting individuals, while service offices focus on raising the efficiency of back-office operations in order to improve customer satisfaction, establish advanced compliance and operations management systems. The Shinjuku Branch Service Office and the Nagoya Branch Service Office were newly created within the Shinjuku Branch and Nagoya Branch, and other domestic branches will successively switch to the NSMB framework. The transition of all domestic branches will be completed by the end of fiscal 2006. The service offices will belong to the Corporate Services Unit. SMBC has also established “Business Service Offices” in Branches, “Main Service Offices” in Corporate Business Offices, and “Public Institutions Operations Offices” in the Corporate Services Unit will be responsible for handling public money. In addition to the above, the following revisions were implemented: ● The Operations & Administration Dept. and the Branch Operations Dept. were dissolved, while an Operations Support Dept. was newly established within the Operations Planning Dept. Operations planning and support functions were reorga- nized and centralized into the Operations Planning Dept. and the Operations Support Dept. ● As a marketing channel of the International Banking Unit, a Treasury Dept. was established within the Europe Division to centralize the currently decentralized treasury functions in the Europe Division. ● The Legal Dept. and Customer Relations Dept., within the General Affairs Dept. of the Corporate Staff Unit, were transferred to the Corporate Services Unit. (2) Dissolution of Asset Restructuring Unit Since its establishment in December 2002, the Asset Restructuring Unit (ARU) has concentrated on corporate revital- ization and business restructuring of SMBC borrowers. As a result, SMBC achieved the target of halving the non-performing loan ratio at the end of the first half of fiscal 2004 and strength- ened its financial base, thereby becoming better prepared for future risks. Having resolved its non-performing loan problem, SMBC dissolved the ARU (effective March 31, 2005). The expertise of the ARU has been passed on to other units, enhancing the bank’s ability to establish new business lines related to corporate revitalization and business restructuring, among other areas. The ARU’s fund investment function is being c. An R&D Dept. was newly established in the Planning Dept. of undertaken by the Investment Development Department, a new the Investment Banking Unit to strengthen development of new department established within the Investment Banking Unit to services and products. expand SMBC’s investment activities in corporate revival funds and private equity funds. Along with the dissolution of the ARU, the Tokyo Corporate (2) Bolstering settlements-related business The settlements clearing business, which formerly had been Business Office, the Osaka Corporate Business Office, and the managed by the Operations Planning Dept., was integrated into Credit Dept. III have been newly established within the Middle the Global Investors Services Dept., which is in charge of Market Banking Unit. Within the Corporate Banking Unit, the securities processing services such as custody services, in Tokyo Corporate Banking Dept. VIII and the Credit Dept. II were order to centralize the currently decentralized functions of newly established. The ARU’s Credit Administration Dept., securities processing and settlements-related business. responsible mainly for disposal of problem assets such as loans The Mass Marketing Dept. was renamed the Mass Retail to potentially bankrupt borrowers, was transferred to the Dept., and the Consumer Finance Dept., the Card Loan Dept. Corporate Services Unit. (3) Dissolution of Community Banking Unit SMBC established the Community Banking Unit (CBU) in March 2003, when it merged with the former Wakashio Bank. The CBU took over Wakashio Bank’s branches and related business promotion and management functions. Since then, the CBU has been working to strengthen business with small and medium-sized enterprises and individuals by combining Wakashio Bank’s community-focused approach (which emphasizes the cultivation of ties with the local community and the extension of services with the personal touch) with SMBC’s high capability to provide sophisticated financial products. As considerable progress has been made in integrating these business models, the CBU was dissolved in order to further accelerate the integration and enable SMBC to improve customer services. 3. Preparing for implementation of New Basel Capital Accord (Basel II) (1) Enhancement of operational risk management An Operational Risk Management Dept. was newly established within the General Affairs Dept. to improve the effectiveness of operational risk management in advance of the implementation of the New Basel Capital Accord (Basel II). (2) Achieving a more effective credit portfolio A Credit Risk Management Dept. was newly established within the Credit Planning Dept.* in advance of the implementation of the Basel II, to achieve an optimal credit portfolio (plan and develop active portfolio management), and to establish the framework for managing assets with various risk profiles. * The former Credit Risk Management Dept. was renamed the Credit Planning Dept. Various functions of the CBU will be integrated into other 4. Reinforcing the Corporate Governance System business units, mainly into the Consumer Banking Unit and the Middle Market Banking Unit. The Administrative Services Dept. for Community Banking, the Internal Audit Dept. for Community Banking, and the Credit Review Dept. for Community Banking were also dissolved. (1) Enhancing compliance capabilities in securities business In line with the expansion of securities-related activities, such as the commencement of the securities intermediary business, a Securities Compliance Dept. was newly established within the General Affairs Dept. to centralize currently dispersed functions related to securities compliance, thereby strengthening SMBC’s 2. Accelerating expansion into new lines of business compliance capabilities in securities business. (1) Reinforcing the investment banking business a. The scale of business in the Securitization & Syndication Dept. has been growing. To make the organization more efficient and to clarify its missions, the functions of this department were transferred to two new departments—the Syndication Dept. (in charge of syndication) and the Asset Finance Dept. (in charge (2) Emphasizing CSR SMBC newly established a CSR Dept. within the Corporate Planning Dept. and a CSR Committee operated by the CSR Dept. to strengthen the promotion of CSR. (As a result, the existing Environmental Committee was taken over by the CSR of securitization)—and the Securitization & Syndication Dept. Committee.) was dissolved. b. In view of the expansion of the real estate finance business, which formerly was managed by the Structured Finance Dept., a new department was established (the Real Estate Finance Dept.) to intensively promote the real estate finance business. (3) Strengthening Credit Risk Management A Credit Risk Committee was established to ensure the dynamic and proper management of credit risk and the soundness of the bank’s corporate governance regime on lending operations. SMFG 2005 19 B u s i n e s s O v e r v i e w Consumer Banking Advertisement for SMBC Consulting Plazas Consulting Business In fiscal 2004, SMBC’s Consumer Banking Unit expanded its range of financial products and asset management services. The Unit added a securities intermediary service and a testamentary trust service, and launched new investment trusts. In home mortgages, SMBC in April 2005 launched “My Home Plus,” a new mortgage loan product that meets diversified customer needs by offering a comprehensive range of services, as well as competitive interest rates. The bank now operates 65 SMBC Consulting Plazas. These immensely popular, dedicated service outlets—open until late on weekdays, and also open on weekends and national holidays—offer consultation on asset management and loans. “Announcing My Home Plus” Mortgage Loans (For residential property) Investment Trusts (Outstanding balance, individual customers) Pension-Type Insurance* (Sales) (¥ trillion) 1.2 Amount extended (left scale) Outstanding balance (right scale) (¥ trillion) 9.6 (¥ trillion) 2.5 1.0 0.8 0.6 0.4 0.2 00 2nd half FY2002 1st half FY2003 2nd half FY2003 1st half FY2004 2nd half FY2004 9.4 9.2 9.0 8.8 8.6 8.4 8.2 8.0 7.8 7 67.6 2.0 1.5 1.0 0.5 00 Mar. 2003 Sept. 2003 Mar. 2004 Sept. 2004 Mar. 2005 (¥ trillion) 0.3 0.2 0.1 00 2nd half FY2002 1st half FY2003 2nd half FY2003 1st half FY2004 2nd half FY2004 *Launched in the second half of fiscal 2002 P r o f i l e SMFG, principally through the Consumer Banking high-level expertise—and our area marketing Unit of its banking subsidiary SMBC, offers approach to provide superior financial services to our high value-added financial services under the brand name “One’s next.” This reflects the emphasis we place on helping customers determine the next step customers. Pension-type insurance sales in fiscal 2004 amounted to ¥583.9 billion, for a cumulative total of ¥1,063.5 billion. Sales of foreign bonds came of their financial plans according to their stage of life. to ¥80.8 billion. As of March 31, 2005 the outstanding By creating services that address specific customer balance of investment trusts under management was needs, we are working to make SMFG into the ¥2,264.8 billion, and that of mortgage loans was No. 1 financial group in consumer financial services. ¥13,240.4 billion. These achievements underscore Specifically, we are leveraging our capabilities the popularity of our services. to develop outstanding products and services, our consulting abilities—provided by staff with 20 SMFG 2005 Consumer Finance In September 2004, SMFG formed a business alliance with Promise Co., Ltd., one of Japan’s leading consumer finance companies. Under the alliance, SMFG established Card Loan Plazas in March 2005 to centralize all operations involved in the processing of card loan applications, including the receipt of applications, requests to Promise for credit screening, notification of the evaluation results, and the receipt of inquiries. In addition, SMBC installed 427 ACMs (Automatic Contract Machines) at domestic branches in April 2005, and launched a joint consumer finance business with At-Loan Co., Ltd. and Promise. Settlement and Finance Business We are continuously working to upgrade the features of our popular online service “One’s Direct” by expanding the service menu, thus enhancing customer convenience. This remote banking service was ranked as the industry leader for three consecutive years in the Internet Banking Services ranking by Gomez, Inc., a leading Internet perfor- mance rating company. The number of subscribers to “One’s Direct” as of March 31, 2005 was 5.77 million, an increase of approximately 960,000 from March 31, 2004. Low-Cost Operations In April 2005, SMBC began reorganizing its domestic branch network to improve customer service and enhance operational efficiency. In the new organization, each domestic branch will be divided into a “branch” and a “service office.” Branches specialize in business promotion targeting individuals, while service offices focus on raising the efficiency of back-office operations in order to improve customer satisfaction, establish advanced compliance and operations management systems. “We offer three card loan products.” Cumulative Number of Accounts for “One’s Direct” Online Transactions (Million) 6 5 4 3 2 1 00 March 2003 March 2004 March 2005 Topics Reinforcing Cash Card Security In February 2005, SMBC introduced the IC cash card, a smart card with an embedded IC chip. SMBC also plans to introduce an IC cash card equipped with a biometric authentication system to ensure even tighter security. “One’s Message” Service In April 2005, SMBC launched the new “One’s Message” Service, a service for clients who do not feel the need to leave a formal will, but would like to communicate their last wishes to their families and make sure they know the whereabouts of important documents such as bank passbooks. The bank keeps the form and sends it to the designated person at the time of inheritance. SMFG 2005 21 B u s i n e s s O v e r v i e w Middle Market Banking Business Select Loans (¥ trillion) 1.5 Amount of new loans made Outstanding balance 1.0 0.5 00 2nd half FY2002 1st half FY2003 2nd half FY2003 1st half FY2004 2nd half FY2004 Proactive Stance on Loans to Midsized Companies and SMEs Aware of the importance of the sound development of midsized companies and small and medium-sized enterprises (“SMEs”) to the growth of the Japanese economy, all members of SMFG are strongly committed to extending services that will help such customers enhance their earnings performance while implementing strategies for the expansion of their operations. SMBC, for example, is focused on a new type of unsecured loan to midsized companies and SMEs that does not require collateral or third-party guarantees. In fiscal 2004, SMBC began offering the V-Fund Loan, for which loan approvals depend on eval- uations of the borrower’s technologies and business model. A number of other new loans have been developed as well: Business Select Loans, based on alliances with local governments, such as Osaka Prefecture, to which they give a partial guarantee, and Business Select CLO Loans, guaranteed by the Japan Finance Corporation for Small and Medium Enterprise; and Members’ Business Loans for members of chambers of commerce and industry. In addition, we added 40 offices capable of providing Business Select Loans. Through these fine-tuned approaches, we have been able to meet a broad range of financing needs of middle market companies. As a result, in fiscal 2004, SMBC extended approximately ¥3.7 trillion in new-type unsecured loans to these companies, Business Model for Business Select Loans marking a ¥800 billion increase over fiscal 2003. Even more noteworthy was the growth Promotions targeting new clients in Business Select Loans. We extended a total of ¥1.4 trillion in Business Select Loans in fiscal 2004, raising the outstanding balance to ¥1.2 trillion. Both figures represent large increases over fiscal 2003. In addition, during fiscal 2004 SMBC extended loans totaling ¥1.9 trillion to 21,000 new customers. Call Center e v i t c e p s o r p r o f p u - w o l l o F s r e m o t s u c Corporate Business Offices Business Support Offices Sub-offices i a d e m s s a m a v i n o i t o m o r p s e l a S Individual promotions Individual promotions New clients Current clients Head Office More decision- making authority Quick response to loan applications Monthly portfolio management Aggressive Moves to Raise Customers’ Corporate Value Companies must cope with challenges posed by changes in their operating environments, such as the diversification of funding methods and the need for accounting methods with greater transparency. Accordingly, we need to offer our customers a more diverse range of business solutions. We believe that raising corporate value is the most important issue for our clients. To help clients achieve this goal, we offer high-quality services that are backed by the aggregate resources of the entire group, including those of SMBC and Daiwa Securities SMBC Co., Ltd. Primarily, we provide solutions relating to business revitaliza- tion, spin-offs of business divisions and subsidiaries, real estate securitization, and business succession. In fiscal 2005, SMFG will continue to improve its risk-taking capabilities to respond effectively to the diversifying needs of our clients with the aim of developing this corporate-value-enhancement business into a new earnings driver. P r o f i l e Services for Midsized Companies and SMEs SMFG is leveraging the expertise of the Middle needs of midsized companies and SMEs, thereby Market Banking Unit of SMBC and Group companies supporting the growth of these companies. Our goal to strengthen its capabilities for managing higher lev- is to become Japan’s No. 1 bank in the field of middle els of risk. The aim is to provide even more accurate market banking. and speedy responses to the funding and solution 22 SMFG 2005 2.0 1.0 00 New-Type Unsecured Loans* Our “Double-Front” System Facilitates High-Quality Services SMFG has established a “double-front” system, which focuses on providing a unified response on two fronts—at both branch offices and the head office—to accurately meet (¥ trillion) 3.0 Total amount extended: ¥3.7 trillion specific funding and solution needs of midsized companies and SMEs. With the SMBC Amount of new loans made Outstanding balance Middle Market Banking Unit at its nucleus, this system combines the know-how of corporate business offices, which have a first-hand knowledge of clients, with the specialized knowledge of head office departments to devise solutions, realizing high- quality and speedy services for clients. 2nd half FY2002 1st half FY2003 2nd half FY2003 1st half FY2004 2nd half FY2004 Planning Dept. *Business Select Loans, N-Fund Loans, SMBC-CLO, V-Fund Loans, etc. Supervision, sales promotion Middle Market Banking Divisions “Double-Front” System Middle Market Banking Unit Consumer Banking Unit Product staff (at each division) Staff of International Business Promotion Dept. Electronic commerce staff (in charge of electronic banking) Derivative Sales Engineers Treasury Officers Corporate Business Offices Business Support Offices Customers Group companies Daiwa Securities SMBC SMBC Leasing The Japan Research Institute Sumitomo Mitsui Card SMBC Finance Service SMBC Capital SMBC Consulting Financial Link cooperation Block Consumer Business Offices and Branches International Business Promotion Dept. China Business Promotion Dept. Foreign exchange Electronic Commerce Banking Dept. Domestic fund transfers, domestic cash management services Treasury Marketing Dept. Forward exchange contract (Treasury Officers) Investment Banking Unit Syndication Securitization Real estate non-recourse loans Derivative Sales, M&A Securities intermediation Corporate Research Dept. Enhancing customers’ corporate value Making proposals Business Owner Banking Dept. Public Institutions Banking Dept. SMEs and public sector Credit Dept. Increasing margins Business restructuring Recovery of NPLs Corporate Advisory Office Corporate revitalization Preventing deterioration of business situation Corporate Business Offices* Business Promotion Dept. Cultivating new customers Corporate revitalization Sales promotion to public companies Business restructuring Business mediation Asset management * We have established Corporate Business Offices I-IV, especially designated to cultivate new customers and provide various sophisticated services. Topics Precisely Tailored Services to Satisfy Funding Needs of Midsized Companies and SMEs Development of a new type of unsecured loans SMBC Crecer Loan V-Fund Agri Introduced in April 2005, the SMBC Crecer Loan targets companies with annual sales of up to ¥3 billion. Together with the Business Select Loan and other loans, this new product gives SMBC a seamless lineup of loans that precisely match the scale and funding requirements of each middle market client. V-Fund Agri, a newly developed version of the V-Fund Loan, specifically targets companies in the agriculture sector. As with all V-Fund Loans, we evaluate companies based on their technologies and business models. We will continue to support the growth of middle mar- ket companies by further expanding our lineup of loan products and services. Announcing the SMBC Crecer Loan SMFG 2005 23 B u s i n e s s O v e r v i e w Corporate Banking Employing Diverse Means of Financing In response to the increasingly complex financing needs of leading corporate clients, SMBC’s Corporate Banking Unit contributes to their development of sophisticated financial strategies by devising innovative financing arrangements such as non-recourse loans, as well as equity financing in cooperation with Daiwa Securities SMBC Co., Ltd. The Corporate Banking Unit is working to develop even more innovative financing arrangements for providing financial support for corporate activities in many different fields as corporate earnings rebound amid a general economic recovery. SMBC is also responding to customer expectations that banks increase the level of risk-taking by offering flexible financing terms and developing innovative financing programs, while simultaneously making efforts to adequately manage risk. Providing Comprehensive Financial Services on a Global Scale We offer sophisticated support to clients making proactive moves toward a global presence by providing the latest information collected through SMFG’s extensive net- work of bases in Japan and abroad, in addition to financing, settlement and other services. The staff at our network of bases will continue to work together to offer our customers high-quality financial services. High Value-Added Solutions for Business Strategies The momentum for business restructuring is being seen in many industries and the ability to support companies in their implementation of streamlining strategies is becoming a decisive factor for doing business with large corporations. SMFG fully utilizes the Group’s know-how to propose a broad range of solutions on a continuing basis, thus providing clients with optimum solutions to raise their corporate value. P r o f i l e SMFG, working primarily through SMBC’s Corporate clients, we first take care to obtain a thorough grasp Banking Unit, provides high value-added financial of all needs specific to each company. This enables services to Japan’s top-tier corporations, leveraging us to design the optimal solution for each case, pro- the wide-ranging resources of Group members. viding invaluable support for our customers’ efforts to In proposing solutions for the multifarious man- enhance their corporate value. agement issues facing our large-scale corporate 24 SMFG 2005 B u s i n e s s O v e r v i e w Investment Banking Standardizing Products for General Marketing and Offering in Small Lots Tailor-made products Project finance Product development Solutions for specific customers Semi-tailor-made products Non-recourse loans for real estate projects Competitive Advantage SMBC has a competitive edge in the investment banking business, which provides various financing methods and financial solutions such as M&A and securitization for corporate customers. One of the features of SMBC’s investment banking business is that tailor-made products developed for specific customers are quickly redesigned into small-lot, standardized products to make them available to a wider range of customers. As a Marketing Standardizing Loan syndication result, profits from major investment banking products such as loan syndication, structured finance and securitization of monetary claims have been growing steadily. Standardized products Securitization of monetary claims Profits from Investment Banking Business (¥ billion) 100 80 60 40 20 00 Fiscal 2001 Fiscal 2002 Fiscal 2003 Fiscal 2004 Securitization of monetary claims, etc. Structured finance Loan syndication Alliance with Daiwa Securities Group Daiwa Securities SMBC is a wholesale securities company—jointly established by SMFG and Daiwa Securities Group Inc.—which started business in April 1999. Since then, for six years, the two groups have been creating a solid framework of collaboration through initiatives such as the active exchange of personnel and the establishment of a structure to promote collaboration. The effectiveness of this strong partnership is reflected in the continued steady growth in their fiscal 2004 business results. Accomplishments in Fiscal 2004 SMBC’s Investment Banking Unit and Daiwa Securities SMBC both reported surges in profits for the fiscal year ended March 31, 2005. SMBC was appointed as the financial adviser of the Tokyo Metropolitan Government-sponsored Super Eco-Town Project, Japan’s largest waste-into-electricity facility. SMBC was also mandated as the financial advisor and arranger for the Central Government Office Building No. 7 project, the largest private finance initiative (PFI) pro- ject in Japan. Daiwa Securities SMBC was ranked No. 1 in the league tables by Thomson Financial for secondary public equity offerings and corporate straight bond underwriting. Thus, both companies continued to achieve top-class performance in the key businesses of investment banking. Also, SMBC entered the securities intermediary business upon its deregulation, and results have been better than expected. This indi- cates that the business has great prospects of becoming a major earnings driver for the Investment Banking Unit. League Tables Lead Managers of Corporate Straight Bond Issues (April 1, 2004 - March 31, 2005) Bookrunners for Secondary Public Equity Offerings (April 1, 2004 - March 31, 2005) Bookrunners for Initial Public Equity Offerings (April 1, 2004 - March 31, 2005) Ranking Name Amount (¥ billion) Market share (%) Ranking Name Amount (¥ billion) Market share (%) Ranking Name Amount (¥ billion) Market share (%) Daiwa Securities SMBC 1 2 Nomura Securities 3 Mizuho Securities 4 Nikko Citigroup 5 Mitsubishi Securities Source: Thomson Financial 2,014.8 1,471.4 1,257.6 1,061.2 1,020.4 23.8 17.4 14.9 12.5 12.1 Daiwa Securities SMBC 1 2 Nomura Securities 3 Nikko Citigroup 4 Mizuho Securities 5 Mitsubishi Securities Source: Thomson Financial 590.2 546.8 431.1 140.0 85.8 30.2 27.9 22.0 7.2 4.4 1 Nomura Securities 2 Daiwa Securities SMBC 3 Nikko Citigroup 4 UBS Securities Japan Shinko Securities 5 Source: Thomson Financial 455.1 184.5 159.8 51.4 46.6 43.7 17.7 15.3 4.9 4.5 P r o f i l e Leveraging the collaboration among SMBC’s offer our corporate customers optimum solutions to Investment Banking Unit, Daiwa Securities SMBC meet their various needs, such as fund procurement, and other Group companies, SMFG will be able to asset management, risk hedging and M&As. improve its clients’ corporate value. To this end, we SMFG 2005 25 B u s i n e s s O v e r v i e w International Banking SMBC’s new Hangzhou Branch opened in December 2004 Providing Global Solutions Leveraging the Group’s Strengths ● Expanded investment banking business in Asia, with a focus on China, through close collaboration between SMBC and Daiwa Securities SMBC Co., Ltd. ● Strengthened collaboration between domestic and overseas operations, including cross-company operations in the Americas, through a comprehensive business framework ● Expanded business with U.S. and European companies through the alliance with the Goldman Sachs Group, Inc. ● Promoted global collaboration between the Global Client Business Department (the department responsible for business with foreign corporations operating in Japan), the Global Institutional Banking Department (the department responsible for business with foreign financial institutions), and overseas offices By marshaling the Group’s resources in this way, we provide customers with high value-added services tailored to their specific needs. Building Up Assets with High Profitability and Liquidity Taking into consideration the strict capital adequacy requirements of the New Basel Accord (Basel II), we are focusing on securitized products, particularly the “buy and sell” loan business in Asia. To contribute to the improvement of SMFG’s asset quality, we are also enhancing the features of our fee businesses, such as clearing and custody services. Focusing on Crossover Business Transactions The shift from the hitherto region-/industry-oriented approach to one focused on crossover business transactions will enable us to further expand our earnings base by: ● Gaining a better grasp of commercial flows across the Americas, Europe and Asia. ● Identifying demand for services relating to transactions between Japanese and foreign companies. Raising Profile in Emerging and Growth Markets In addition to the U.S., European and Asian markets, SMFG is moving aggressively into emerging markets. We are adapting our project finance, trade finance and other prod- ucts to best suit the specific needs of each market, taking into account the changing market environments. By seizing every business opportunity in markets worldwide, we aim to be a global financial complex that leverages its strengths in businesses related to Japan and other Asian countries. P r o f i l e The international banking operations of SMFG, We are working to strengthen our worldwide centering on SMBC’s International Banking Unit, network, particularly in Asia, centering on China, with serve all customers operating globally, including the aim of improving customer accessibility. In fiscal Japanese and foreign companies, financial institu- 2004, we opened a new branch in Hangzhou and a tions, sovereign governments, public entities, and representative office in Hanoi. Japanese branches and subsidiaries of multinational corporations. 26 SMFG 2005 B u s i n e s s O v e r v i e w Treasury Markets Supporting Customers’ Transactions SMFG aims to provide its clients with world-class support services for their market transaction needs through the Treasury Unit of SMBC. The Treasury Unit undertakes operations in money, foreign exchange, bond, and derivative markets. Based on a careful evaluation of each client’s needs, we design financial products and services that deliver optimal value-added solutions. Enhancing Customer Convenience In fiscal 2004, responding to customers’ transaction needs, the Treasury Unit took initiatives such as the promotion of currency option transactions and NDF (non-deliverable forwards) for corporate clients, as well as deposits with foreign exchange forward contracts for individuals. i-Deal i-Deal is an easy-to-use online dealing system that allows customers to conclude foreign exchange forward contracts over the Internet. In fiscal 2004, we enhanced the convenience of this service by expanding its functions. We increased the range of currencies handled to include the Thai baht, and offered the additional option of conversion of foreign currency transactions into U.S. dollars, on top of the existing option of conversion into yen. In another move, we started providing deposits with a foreign exchange forward contract to individual customers through our One’s D irect service menu. Customers Corporate Business Offices, Branches Treasury Unit Planning Dept. Treasury Marketing Dept. Enhance customer convenience by improving our services Planning, research Transactions with customers Trading Dept. Efficient operation based on order-initiated trades and ALM hedging Foreign exchange transactions Derivative transactions CD, CP transactions Orders ALM Operations Treasury Dept. International Treasury Dept. Exact ALM operations and liquidity management Deposits Loans Bonds Alternative investments The Treasury Unit will continue working to fulfill all our customers’ market transaction needs by providing comprehensive support services of the highest level. Asset Liability Management and Dealing Operations Through its asset liability management (ALM) and trading operations, the Treasury Unit strives to secure a sufficient level of earnings by investing in a diverse range of portfo- lios, and by conducting well-timed arbitrage operations while effectively managing market risk and liquidity risk. In fiscal 2004, to diversify our revenue sources we began undertaking alternative investments on a full-scale basis in addition to interest rate and foreign exchange trading, and established a new earnings driver. We will continue to pursue optimal capital allocation Trading ALM (Asset Liability Management) with a level of risk exposure appropriate to market Fund and Bond Transactions conditions, with the aim of securing stable profits. Inter-bank Market P r o f i l e The Treasury Unit focuses on expanding transaction assessment of domestic and overseas market trends volume, strengthening ALM operations and diversify- to further strengthen profitability, while effectively ing fund management channels through the accurate managing risk. SMFG 2005 27 Financial Highlights Sumitomo Mitsui Financial Group ■ Consolidated Year ended March 31 For the Year: Total income ................................................................................................................................. Total expenses.............................................................................................................................. Net income (loss).......................................................................................................................... At Year-End: Total stockholders’ equity ............................................................................................................. Total assets................................................................................................................................... Risk-monitored loans.................................................................................................................... Reserve for possible loan losses.................................................................................................. Net unrealized gains (losses) on other securities......................................................................... Capital ratio .................................................................................................................................. Return on Equity........................................................................................................................... Price Earnings Ratio (Times)........................................................................................................ Number of employees .................................................................................................................. Per Share (Yen): ¥ ¥ 2005 3,589,871 3,698,406 (234,201) 2,775,728 99,731,858 2,227,445 1,273,560 696,339 9.94% —% — 40,683 Stockholders’ equity ..................................................................................................................... Net income (loss).......................................................................................................................... Net income — diluted ................................................................................................................... ¥164,821.08 (44,388.07) — Millions of yen 2004 ¥ 3,669,531 3,264,636 330,414 ¥ 3,070,942 102,215,172 3,297,981 1,422,486 575,612 11.37% 31.68% 14.71 42,014 ¥215,454.83 52,314.75 35,865.20 ¥ ¥ 2003 3,518,293 4,109,207 (465,359) 2,424,074 104,607,449 5,770,700 2,243,542 (30,643) 10.10% —% — 42,996 ¥106,577.05 (84,324.98) — Notes: 1. Unrealized gains (losses) on other securities represent the difference between the market prices and acquisition costs (or amortized costs) of “other securities.” In principle, the values of stocks are calculated using the average market prices during the final month. For details, please refer to page 33. 2. Number of employees has been reported on the basis of full-time workers. Number of employees includes locally hired overseas staff members but excludes contract employees and temporary staff. ■ Nonconsolidated Year ended March 31 For the Year: Operating income ......................................................................................................................... Dividends on investments in subsidiaries and affiliates .......................................................... Operating expenses ..................................................................................................................... Net income ................................................................................................................................... Capital stock ................................................................................................................................. Number of shares issued 2005 ¥ 258,866 251,735 2,644 252,228 1,352,651 Preferred stock.................................................................................................................. Common stock .................................................................................................................. 1,057,188 6,273,792 At Year-End: Total stockholders’ equity (A)........................................................................................................ Total assets (B)............................................................................................................................. Stockholders’ equity to total assets (A) / (B) ................................................................................ Return on Equity........................................................................................................................... Price Earnings Ratio (Times)........................................................................................................ Pay-out ratio ................................................................................................................................. Number of employees .................................................................................................................. ¥3,319,615 3,795,110 87.47% 15.47% 18.95 7.81% 115 Per Share (Yen): Millions of yen 2004 ¥ 55,515 47,332 3,044 50,505 1,247,650 1,132,099 5,796,010 ¥3,172,721 3,403,007 93.23% 1.57% 207.86 80.97% 97 2003 ¥ 131,519 128,265 971 124,738 1,247,650 1,132,100 5,796,000 ¥3,156,086 3,413,529 92.46% 8.52% 11.21 15.98% 94 Stockholders’ equity ..................................................................................................................... Dividends: Common stock........................................................................................................................ Preferred stock (Type 1) ......................................................................................................... Preferred stock (Type 2) ......................................................................................................... Preferred stock (Type 3) ......................................................................................................... Preferred stock (1st series Type 4)......................................................................................... Preferred stock (2nd series Type 4)........................................................................................ Preferred stock (3rd series Type 4) ........................................................................................ Preferred stock (4th series Type 4)......................................................................................... Preferred stock (5th series Type 4)......................................................................................... Preferred stock (6th series Type 4)......................................................................................... Preferred stock (7th series Type 4)......................................................................................... Preferred stock (8th series Type 4)......................................................................................... Preferred stock (9th series Type 4)......................................................................................... Preferred stock (10th series Type 4)....................................................................................... Preferred stock (11th series Type 4) ....................................................................................... Preferred stock (12th series Type 4)....................................................................................... Preferred stock (13th series Type 4)....................................................................................... Preferred stock (1st series Type 6)......................................................................................... Net income .................................................................................................................................. Net income — diluted ................................................................................................................... ¥257,487.78 ¥232,550.74 ¥231,899.30 3,000 10,500 28,500 13,700 135,000 135,000 135,000 135,000 135,000 135,000 135,000 135,000 135,000 135,000 135,000 135,000 67,500 728 38,302.88 25,178.44 3,000 10,500 28,500 13,700 135,000 135,000 135,000 135,000 135,000 135,000 135,000 135,000 135,000 135,000 135,000 135,000 67,500 / 3,704.49 3,690.72 3,000 10,500 28,500 13,700 19,500 19,500 19,500 19,500 19,500 19,500 19,500 19,500 19,500 19,500 19,500 19,500 3,750 / 18,918.33 15,691.82 Note: All SMFG employees are on secondment assignment from SMBC and another Group company. 28 SMFG 2005 Sumitomo Mitsui Banking Corporation ■ Consolidated Year ended March 31 For the Year: 2005 2004 Total income .............................................................. Total expenses........................................................... Net income (loss)....................................................... ¥ 2,699,202 2,875,897 (278,995) At Year-End: Total stockholders’ equity .......................................... Total assets................................................................ Risk-monitored loans................................................. Reserve for possible loan losses............................... Net unrealized gains (losses) on other securities...... ¥ 2,633,912 97,478,308 2,186,739 1,239,882 678,527 ¥ 2,843,502 2,487,197 301,664 ¥ 2,722,161 99,843,258 3,229,219 1,375,921 568,407 Millions of yen 2003 ¥ 3,561,843 4,104,514 (429,387) ¥ 2,142,544 102,394,637 5,683,134 2,201,830 (27,471) 2002 2001 ¥ 3,809,130 4,413,469 (463,887) ¥ 2,912,619 108,005,001 6,484,367 2,159,649 (495,507) ¥ 4,501,200 4,095,685 132,408 ¥ 4,012,960 119,242,661 3,256,418 1,268,853 (301,106) Sakura Sumitomo Bank Bank 11.31% 10.94% 2.67% 6.05% 43.92 62.36 22,222 24,184 Capital ratio ............................................................... Return on Equity........................................................ Price Earnings Ratio (Times)..................................... Number of employees ............................................... 10.60% —% / 32,868 10.89% 25.38% / 33,895 10.38% —% / 35,523 10.45% —% — 43,793 Per Share (Yen): Stockholders’ equity .................................................. Net income (loss)....................................................... Net income — diluted ................................................ ¥23,977.62 (5,300.46) — ¥25,928.02 5,238.85 5,231.31 ¥15,353.34 (10,429.29) — ¥282.85 (84.12) — ¥333.46 ¥426.32 25.50 24.93 9.22 9.21 Notes: 1. Figures for the years ended March 31, 2001 are combined figures of the former Sakura Bank and the former Sumitomo Bank. 2. Total stockholders’ equity as of March 31, 2005, 2004, 2003 and 2002, includes net unrealized gains (losses) on “other securities.” 3. Unrealized gains (losses) on other securities represent the difference between the market prices and acquisition costs (or amortized costs) of “other securities.” In principle, the values of stocks are calculated using the average market prices during the final month. 4. Number of employees has been reported on the basis of full-time workers. Number of employees includes locally hired overseas staff members but excludes contract employees and temporary staff. 5. Effective from the year ended March 31, 2002, treasury stock is disclosed as a deductive item from stockholders’ equity. 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. (Year ended March 31) Income Summary [Nonconsolidated] (March 31) Stock Holdings [Nonconsolidated] listed equity shares and shares traded over the counter (Billions of yen) (Billions of yen) (Billions of yen) 1,800 900 0 -900 -1,800 2001 2002 2003 2004 2005 7,000 6,000 5,000 4,000 3,000 2,000 1,000 0 2001 2002 2003 2004 2005 2,000 1,500 1,000 500 0 -500 -1,000 Banking profit (before provision for general reserve for possible loan losses) Total credit cost Gains/losses on stocks Net income (loss) Acquisition costs (left scale) Net unrealized gains/losses (right scale) Note: Figures shown for the years ended March 31, 2002 and 2001 are combined Note: Figures shown as of March 31, 2002 and 2001 are combined figures of the figures of the former SMBC and the former Wakashio Bank. former SMBC and the former Wakashio Bank. (March 31) Problem Assets Based on the Financial Reconstruction Law and Problem Asset Ratio [Nonconsolidated] (March 31) Capital Ratio [Consolidated] (Billions of yen) 6,000 5,000 4,000 3,000 2,000 1,000 0 2001 2002 2003 2004 2005 (%) 10.0 8.0 6.0 4.0 2.0 0.0 (%) 12.00 11.00 10.00 9.00 (Billions of yen) 10,000 8,000 6,000 4,000 2,000 0 2001 2002 2003 2004 2005 Bankrupt and quasi-bankrupt assets (left scale) Substandard loans (left scale) Problem asset ratio (right scale) Doubtful assets (left scale) Capital ratio (Consolidated basis)/(left scale) Total capital Tier I capital (right scale) Notes: 1. Figures shown as of March 31, 2002 and 2001 are combined figures of the Notes: 1. Figures shown as of March 31, 2001 are combined figures of the former former SMBC and the former Wakashio Bank. Sakura Bank and the former Sumitomo Bank. 2. Problem asset ratio = Problem assets / (Problem assets + Normal assets) 2. Capital ratios as of March 31, 2005, 2004 and 2003 shown above represent the capital ratio of SMFG on a consolidated basis. SMFG 2005 29 ■ Nonconsolidated Year ended March 31 For the Year: Total income ....................................................... Total expenses.................................................... Net income (loss)................................................ (Appendix) Gross banking profit (A)................................ Banking profit................................................ Banking profit (before provision for general reserve for possible loan losses) ................. Expenses (excluding nonrecurring losses) (B)................................................... Expense ratio (B) / (A) .................................. At Year-End: Total stockholders’ equity.................................... Total assets......................................................... Deposits.............................................................. Loans and bills discounted ................................. Securities............................................................ Risk-monitored loans.......................................... Problem assets based on the Financial Reconstruction Law........................... Reserve for possible loan losses........................ Net unrealized gains (losses) on other securities ............................................ Trust assets and liabilities................................... Loans and bills discounted ........................... Securities ...................................................... 2005 2004 Millions of yen 2003 2002 2001 ¥ 2,290,935 2,391,014 (136,854) ¥ 2,489,187 2,170,341 301,113 ¥ 2,424,023 3,095,011 (478,304) ¥ 1,522,861 1,291,972 ¥ 1,584,127 1,000,132 ¥ 1,760,684 875,511 940,495 1,000,132 1,113,643 582,365 38.2% 583,995 36.9% ¥ 2,752,735 91,129,776 65,591,627 50,067,586 23,676,696 1,735,863 ¥ 2,870,870 94,109,074 63,656,771 50,810,144 26,592,584 2,774,889 1,824,622 989,121 2,811,234 1,250,751 651,385 777,177 9,780 81,840 556,146 429,388 10,000 4,645 647,040 36.7% ¥ 2,279,223 97,891,161 63,524,258 57,282,365 23,656,385 5,169,531 5,261,345 2,074,797 (17,857) 166,976 35,080 — ¥ ¥ 2,818,189 3,354,826 (322,852) 1,853,515 678,811 1,183,369 670,145 36.2% ¥ 3,196,492 102,082,581 67,629,353 59,928,368 20,442,996 5,816,452 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) / / / Sakura Bank Sumitomo Bank Capital stock ....................................................... Number of shares issued (Thousands) Preferred stock........................................ Common stock ........................................ Pay-out ratio ....................................................... Capital ratio ........................................................ Return on Equity................................................. Price Earnings Ratio (Times).............................. Number of employees ........................................ Per Share (Yen): Stockholders’ equity ........................................... Dividends: Common stock.............................................. 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) ............................... Preferred stock (Type 1) ............................... Preferred stock (Type 2) ............................... Preferred stock (Type 3) ............................... Preferred stock (First series Type 6)............. Net income (loss)................................................ Net income — diluted ......................................... ¥ 664,986 ¥ 559,985 ¥ 559,985 ¥ 1,326,746 ¥1,042,706 ¥ 752,848 900 55,212 —% 11.32% —% / 16,338 967 54,811 79.88% 11.36% 22.49% / 17,546 967 54,811 —% 10.49% —% / 19,797 967,000 5,709,424 —% 11.50% —% — 22,464 802,577 4,118,077 34.71% 11.91% 4.86% 33.27 12,558 167,000 3,141,062 36.15% 11.80% 3.72% 67.49 12,173 ¥26,129.71 ¥28,641.10 ¥17,846.95 ¥332.02 ¥358.43 ¥451.35 683 / / / / / 10,500 28,500 13,700 485 (2,718.23) — 4,177 / / / / / 10,500 28,500 13,700 / 5,228.80 5,221.53 19.17 / / 10.50 28.50 13.70 — — — / 68,437.74 66,527.24 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 Notes: 1. Figures for the years ended March 31, 2001 are combined figures of the former Sakura Bank and the former Sumitomo Bank. 2. Figures related to profit or loss for the year ended March 31, 2003 include the former SMBC’s operating results for the period from April 1, 2002 to March 16, 2003 to make possible a substantive comparison with previous years. 3. As a result of the merger of the two banks, total stockholders’ equity as of April 1, 2001, stood at ¥3,772,889 million. 4. Total stockholders’ equity as of March 31, 2005, 2004, 2003 and 2002, includes net unrealized gains (losses) on “other securities.” 5. Please refer to page 153 for the definitions of risk-monitored loans and problem assets based on the Financial Reconstruction Law. 6. Unrealized gains (losses) on other securities represent the difference between the market prices and acquisition costs (or amortized costs) of “other securities.” The values of stocks are calculated using the average market prices during the final month. For details, please refer to page 36. 7. Number of employees has been reported on the basis of full-time workers. Number of employees includes locally hired overseas staff members but excludes contract employees, temporary staff, and executive officers who are not also Board members. 8. The former Sakura Bank’s fiscal year-end dividend per share for 2001 was calculated assuming a dividend payment equivalent to the amount of money resulting from the merger. Dividend per share for the term ended March 31, 2003 represents an interim dividend per share paid by the former SMBC to its holding company. 9. Effective from the year ended March 31, 2002, treasury stock is disclosed as a deductible item from stockholders’ equity. 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. 30 SMFG 2005 Financial Review Sumitomo Mitsui Financial Group (Consolidated) Sumitomo Mitsui Financial Group, Inc. and Subsidiaries The following is a summary of SMFG’s consolidated financial results for fiscal 2004 ended March 31, 2005. 1. Operating Results Business results for fiscal 2004 include the results of 167 consolidated subsidiaries (120 in Japan and 47 overseas) and 53 subsidiaries and affiliates accounted for by the equity method (25 in Japan and 28 overseas). Gross profit showed a year-on-year decrease of ¥44.5 billion, to ¥2,024.9 billion, primarily attributable to declines in net interest income and net trading income, which more than offset increases in net fees and commissions and net other operating income. Ordinary loss totaled ¥30.3 billion, compared with ¥342.8 billion in ordinary profit in fiscal 2003, a year-on- year deterioration of ¥373.1 billion, which is attributable to measures taken to dispose of non-performing loans and write-down securities with the aim of ensuring an earnings recovery in fiscal 2005 onward. Extraordinary gains (losses), income taxes, and minority interests resulted in a net loss of ¥234.2 billion, compared with a ¥330.4 billion gain in the previous term, a year-on- year deterioration of ¥564.6 billion. Deposits (excluding negotiable certificates of deposit) as of March 31, 2005, stood at ¥68,474.8 billion, a ¥3,141.4 billion increase compared with the previous fiscal year-end. Negotiable certificates of deposit stood at ¥2,713.2 billion, a decrease of ¥806.1 billion over the same period. Loans and bills discounted decreased ¥582.9 billion to ¥54,799.8 billion, while securities decreased ¥2,816.2 billion to ¥24,233.7 billion. During the term, stockholders’ equity decreased ¥295.2 billion to ¥2,775.7 billion, due to the posting of a net loss, as well as the repayment of public funds in the form of buybacks of shares held by the government, which more than offset a capital increase through private placement of shares. 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.......................................... 2005 (A) 167 53 2004 (B) 165 48 Increase (decrease) (A) – (B) 2 5 SMFG 2005 31 Income Summary Year ended March 31 Consolidated gross profit .................................................................................................... Net interest income........................................................................................................ Trust fees....................................................................................................................... Net fees and commissions ............................................................................................ Net trading income ........................................................................................................ Net other operating income ........................................................................................... General and administrative expenses ................................................................................ Total credit cost................................................................................................................... Write-off of loans............................................................................................................ Provision for specific reserve......................................................................................... Provision for general reserve for possible loan losses .................................................. Others ............................................................................................................................ Gains (losses) on stocks..................................................................................................... Equity in earnings of affiliates .............................................................................................. Other income (expenses) ................................................................................................... Ordinary profit (loss) ........................................................................................................... Extraordinary gains (losses) ............................................................................................... Income (loss) before income taxes and minority interests.................................................. Income taxes: Current .......................................................................................................................... Refund ........................................................................................................................... Deferred......................................................................................................................... Minority interests in net income (loss) ................................................................................ 2005 (A) ¥2,024,990 1,171,342 2,609 516,109 144,387 190,540 (852,715) (1,196,797) (759,399) (493,947) 201,216 (144,666) (101,918) 27,142 69,005 (30,293) (78,242) (108,535) (30,638) 8,869 (52,912) (50,983) Millions of yen 2004 (B) ¥2,069,501 1,281,070 334 424,176 304,094 59,825 Increase (decrease) (A) – (B) ¥ (44,511) (109,728) 2,275 91,933 (159,707) 130,715 (866,549) (971,455) (660,382) — — (311,072) 101,496 15,700 (5,848) 342,844 62,049 404,894 (24,289) — (8,593) (41,596) 13,834 (225,342) (99,017) (493,947) 201,216 166,406 (203,414) 11,442 74,853 (373,137) (140,291) (513,429) (6,349) 8,869 (44,319) (9,387) Net income (loss)................................................................................................................ ¥ (234,201) ¥ 330,414 ¥(564,615) [Reference] Consolidated banking profit (Billions of yen)....................................................................... ¥ 1,014.4 ¥ 1,090.6 ¥ (76.2) Notes: 1. Consolidated gross profit = (Interest income – Interest expenses) + Trust fees + (Fees and commissions (income) – Fees and commissions (expenses)) + (Trading profits – Trading losses) + (Other operating income – Other operating expenses) 2. Consolidated banking profit = SMBC’s nonconsolidated banking profit (before provision for general reserve for possible loan losses) + SMFG’s ordinary profit + Other subsidiaries’ ordinary profit (excluding nonrecurring factors) + Equity method affiliates’ ordinary profit x Ownership ratio – Internal transactions (dividends, etc.) Assets, Liabilities and Stockholders’ Equity March 31 Assets ................................................................................................................................. Loans and bills discounted ............................................................................................ Securities ....................................................................................................................... Liabilities ............................................................................................................................. Deposits......................................................................................................................... Negotiable certificates of deposit................................................................................... Minority interests................................................................................................................. Stockholders’ equity............................................................................................................ Millions of yen 2005 (A) 2004 (B) ¥ 99,731,858 ¥102,215,172 55,382,800 27,049,901 98,150,534 65,333,426 3,519,464 993,696 3,070,942 54,799,805 24,233,701 95,934,927 68,474,861 2,713,270 1,021,203 2,775,728 Increase (decrease) (A) – (B) ¥(2,483,314) (582,995) (2,816,200) (2,215,607) 3,141,435 (806,194) 27,507 (295,214) 2. Unrealized Gains (Losses) on Securities Net unrealized gains on securities at March 31, 2005 amounted to ¥694.7 billion, which is an increase of ¥126.4 billion from the previous fiscal year-end. Net unrealized gains on other securities (including “other money held in trust”), changes in which are directly credited to stockholders’ equity, increased by ¥120.8 billion over the same period, to ¥696.5 billion, mainly attributable to an improvement in the valuation of bonds. 32 SMFG 2005 Unrealized Gains (Losses) on Securities March 31 Held-to-maturity securities............ Other securities ........................... Stocks...................................... Bonds ...................................... Others...................................... Other money held in trust ............. Total .............................................. Stocks...................................... Bonds ...................................... Others...................................... 2005 Millions of yen ¥ Net unrealized gains (losses) (A) ¥ (1,818) 696,339 705,053 14,961 (23,675) 204 694,724 705,053 12,621 (22,950) (A) – (B) 5,607 120,727 35,269 118,217 (32,759) 83 126,416 35,269 124,404 (33,257) ¥ Unrealized gains 2,114 801,356 750,480 34,971 15,903 300 803,771 750,480 36,554 16,735 Unrealized losses ¥ 3,933 105,017 45,426 20,010 39,579 95 109,046 45,426 23,932 39,686 Net unrealized gains (losses) (B) ¥ (7,425) 575,612 669,784 (103,256) 9,084 121 568,308 669,784 (111,783) 10,307 ¥ 2004 Unrealized gains 2,840 787,517 736,878 18,590 32,047 222 790,580 736,878 20,330 33,371 Unrealized losses ¥ 10,266 211,904 67,094 121,847 22,963 100 222,271 67,094 132,113 23,063 Notes: 1. The figures above include unrealized gains (losses) on negotiable certificates of deposit in “Deposits with banks” and claims on loan trusts in “Commercial paper and other debt purchased.” 2. Unrealized gains (losses) on stocks are mainly calculated using the average market price during the final month of the respective reporting period. The rest of the securities are valuated at the market price as of the balance sheet date. 3. “Other securities” and “Other money held in trust” are valuated and recorded on the consolidated balance sheet at market prices. The figures in the table above indicate the differences between the acquisition costs (or amortized costs) and the balance sheet amounts. “Unrealized gains (losses) on other securities” as of March 31, 2005 include gains of ¥469 million that were recognized as income by applying fair value hedge accounting and valuation gains of ¥82 million on embedded financial instruments in their entirety that were recorded as income because their embedded derivatives are not measured separately. Therefore, ¥551 million was excluded from the amount to be directly included in stockholders’ equity. “Unrealized gains (losses) on other securities” as of March 31, 2004 include gains of ¥23,452 million recognized as income by applying fair value hedge accounting, which are excluded from the amount to be directly included in stockholders’ equity. 3. Consolidated Capital Ratio SMFG’s consolidated capital ratio at March 31, 2005 was 9.94%. (Please refer to “Capital Ratio” section on page 132 for more information.) Total capital, which constitutes the numerator in the capital ratio calculation equation, was ¥6,020.0 billion, representing a ¥717.3 billion decrease from the previous fiscal year-end. This is mainly attributable to the posting of a net loss, as well as the repayment of public funds in the form of buybacks of shares held by the government, which Consolidated Capital Ratio more than offset a capital increase through private placement of newly issued shares. On the other hand, risk-adjusted assets, the denominator in the equation, increased ¥1,348.6 billion to ¥60,552.6 billion from the previous fiscal year-end. This was mainly attributable to the active marketing of mortgage loans and new-type unsecured loans to midsized companies and small and medium-sized enterprises. March 31 Tier I capital (A) .................................................................................................................. Tier II capital included as qualifying capital (B) .................................................................. Deductions (C) ................................................................................................................... 2005 (A) ¥ 3,262,250 3,262,250 (504,430) 2004 (B) ¥ 3,571,604 3,416,547 (250,754) Increase (decrease) (A) – (B) ¥ (309,354) (154,297) (253,676) Total capital (D) = (A) + (B) – (C) ....................................................................................... ¥ 6,020,069 ¥ 6,737,397 ¥ (717,328) Risk-adjusted assets (E) .................................................................................................... Capital ratio = (D) / (E) × 100 ............................................................................................. ¥60,552,620 ¥59,204,015 ¥1,348,605 9.94% 11.37% (1.43)% Millions of yen 4. Dividend Policy Given the public nature of its business and respecting the stockholders’ interests, SMFG subscribes to a fundamental policy of paying dividends as deemed appropriate in view of the need to increase capital and preserve sound operation. After appropriating retained earnings to increase capital, SMFG paid an annual dividend of ¥3,000 per share of common stock. Annual dividends for preferred stock were paid in the predetermined amounts for each category of preferred stock. SMFG did not pay an interim dividend for the reporting term. SMFG 2005 33 Sumitomo Mitsui Banking Corporation (Nonconsolidated) Sumitomo Mitsui Banking Corporation The following is a summary of SMBC’s nonconsolidated financial results for fiscal 2004 ended March 31, 2005. 1. Operating Results Banking profit (before provision for general reserve for possible loan losses) in fiscal 2004 decreased ¥59.6 billion year on year to ¥940.5 billion, as a result of a ¥61.2 billion decrease in gross banking profit to ¥1,522.9 billion, and a ¥1.6 billion decrease in expenses (excluding nonrecurring losses) to ¥582.4 billion. Ordinary loss, calculated by adjusting banking profit (before provision for general reserve for possible loan losses) for nonrecurring items such as total credit cost and losses on stocks, amounted to ¥71.7 billion, compared with ¥185.1 billion profit a year earlier. After adjusting ordinary loss for extraordinary gains (losses) and income taxes, net loss came to ¥136.8 billion, compared with income of ¥301.1 billion a year earlier, a year-on-year decrease of ¥437.9 billion. 2. Income Analysis Gross Banking Profit Gross banking profit in fiscal 2004 declined ¥61.2 billion year-on-year to stand at ¥1,522.9 billion. This was due to a year-on-year decline of ¥114.5 billion in profits posted by the Treasury Unit on the investment of funds, marking a Banking Profit sharp reversal of the extremely strong performance of the previous term. This decline in profits was partially offset by a ¥71.5 billion increase in net revenue from fees and commis- sions. The increase in fees and commissions is the result of growth in sales of investment trusts and pension-type insur- ance products to individuals, and syndicated loans to corpo- rate customers. Expenses Expenses (excluding nonrecurring losses) decreased ¥1.6 billion year on year to ¥582.4 billion. This was mainly due to a decline in personnel expenses resulting from workforce downsizing, which more than offset an increase in taxes from the nationwide adoption of a pro forma standard corporation tax (a local corporation tax that was imposed from fiscal 2004) as well as increased nonpersonnel expenses from investment of resources in core businesses. Banking Profit Banking profit (before provision for general reserve for possible loan losses) decreased ¥59.6 billion year on year to ¥940.5 billion. Year ended March 31 Gross banking profit............................................................................................................ Gross banking profit (excluding gains (losses) on bonds) .................................................. Net interest income........................................................................................................ Trust fees....................................................................................................................... Net fees and commissions ............................................................................................ Net trading income ........................................................................................................ Net other operating income ........................................................................................... Gross domestic banking profit ....................................................................................... Gross international banking profit .................................................................................. Provision for general reserve for possible loan losses ....................................................... Expenses (excluding nonrecurring losses) ......................................................................... Personnel expenses ...................................................................................................... Nonpersonnel expenses ................................................................................................ Taxes ............................................................................................................................. Banking profit...................................................................................................................... Banking profit (before provision for general reserve for possible loan losses) ......................... Banking profit (before provision for general reserve for possible loan losses and gains (losses) on bonds) .......................................................... 2005 (A) ¥1,522,861 1,544,452 972,506 2,609 298,076 131,579 118,088 1,182,811 340,049 351,477 (582,365) (204,146) (341,534) (36,684) ¥1,291,972 940,495 Millions of yen 2004 (B) ¥1,584,127 1,561,386 1,087,060 334 226,568 280,729 (10,565) 1,135,616 448,510 — (583,995) (221,284) (332,238) (30,472) ¥1,000,132 1,000,132 Increase (decrease) (A) – (B) ¥ (61,266) (16,934) (114,554) 2,275 71,508 (149,150) 128,653 47,195 (108,461) 351,477 1,630 17,138 (9,296) (6,212) ¥291,840 (59,637) 962,086 977,391 (15,305) Banking Profit by Business Unit Year ended March 31, 2005 Banking profit (losses) (before provision for general reserve for possible loan losses)..... Billions of yen Consumer Middle Market Corporate International Community Banking Unit Banking Unit Banking Unit Banking Unit Banking Unit Treasury Unit Others Total Year-on-year increase (decrease)................ 35.7 61.7 12.7 ¥118.0 ¥481.0 ¥160.5 ¥46.6 7.7 ¥4.2 1.9 ¥205.0 (152.4) ¥(74.8) (26.9) ¥940.5 (59.6) 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) financing costs on preferred securities and subordinated debt, (2) profit earned on investing the Bank’s own capital, and (3) adjustment of inter-unit transactions, etc. 34 SMFG 2005 Nonrecurring Losses (Credit Costs, etc.) Nonrecurring losses amounted to ¥1,363.7 billion. This is mainly due to the initiatives taken to ensure an earnings recovery in fiscal 2005 onward. In order to reduce future risk factors, the bank took an even more conservative stance than hitherto in assessing assets, resulting in increased provisions for general reserve for possible loan losses. Consequently, credit cost related to disposal of NPLs totaled ¥1,306.3 billion (the amount after addition of gain on reversal of general reserve for possible loan losses was ¥954.8 billion). The bank also took financial measures on securities, such as write-downs totaling ¥227.6 billion (including preferred shares purchased in the past). As a result, losses on stocks totaled ¥118.7 billion. (Please refer to the “Asset Quality” section beginning on page 39 for more information on credit cost and problem assets.) Ordinary Profit (Loss) As a result of the foregoing, ordinary loss totaled ¥71.7 billion, compared with a profit of ¥185.1 billion in the previous period, a year-on-year decrease of ¥256.8 billion. Extraordinary Gains (Losses) Net extraordinary losses amounted to ¥28.4 billion, compared with a ¥133.7 billion gain in the previous period, a year-on-year decrease of ¥162.1 billion. Net Income (Losses) An income tax refund of ¥8.2 billion and deferred income taxes in the amount of ¥38.5 billion were recognized for the reporting period, partly as a result of which the bank reported a net loss of ¥136.8 billion, compared with income of ¥301.1 billion for the previous term, a year-on-year decline of ¥437.9 billion. Ordinary Profit and Net Income Year ended March 31 Banking profit (before provision for general reserve for possible loan losses) ................... Provision for general reserve for possible loan losses (A).................................................. Banking profit...................................................................................................................... Nonrecurring gains (losses)................................................................................................ Credit cost (B)................................................................................................................ Write-off of loans....................................................................................................... Provision for specific reserve.................................................................................... Losses on loans sold to CCPC................................................................................. Losses on sale of delinquent loans .......................................................................... Provision for 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............................................................................... Others ............................................................................................................................ Ordinary profit (loss) ........................................................................................................... Extraordinary gains (losses) ............................................................................................... Gains (losses) on disposal of premises and equipment ................................................ Amortization of net transition obligation from initial application of the new accounting standard for employee retirement benefits ........................................ Reversal of reserve for possible loan losses (C) ........................................................... Reversal of reserve for possible losses on loans sold (D)............................................. Tax refund from the Tokyo government and interest on the tax refund ......................... Gains on return of the entrusted portion of employee pension fund.............................. Income taxes: Current........................................................................................................................... Refund ........................................................................................................................... Deferred......................................................................................................................... 2005 (A) ¥ 940,495 351,477 ¥1,291,972 (1,363,653) (1,306,320) (697,941) (474,155) / (138,052) 3,828 (118,727) 113,059 (4,206) (227,580) 61,394 (71,680) (28,398) (12,495) (16,001) — / / / (6,379) 8,184 (38,579) Millions of yen 2004 (B) ¥1,000,132 — ¥1,000,132 (814,994) (869,234) (566,344) — (806) (302,083) — 103,867 151,170 (36,577) (10,724) (49,627) 185,138 133,707 (11,853) (19,473) 65,342 488 40,363 59,095 (12,752) — (4,980) Increase (decrease) (A) – (B) ¥ (59,637) 351,477 ¥ 291,840 (548,659) (437,086) (131,597) (474,155) 806 164,031 3,828 (222,594) (38,111) 32,371 (216,856) 111,021 (256,818) (162,105) (642) 3,472 (65,342) (488) (40,363) (59,095) 6,373 8,184 (33,599) Net income (loss)................................................................................................................ ¥ (136,854) ¥ 301,113 ¥(437,967) Total credit cost (A) + (B) + (C) + (D) .................................................................................. ¥ (954,843) ¥ (803,403) ¥(151,440) SMFG 2005 35 3. Assets, Liabilities and Stockholders’ Equity Assets SMBC’s total assets at March 31, 2005 stood at ¥91,129.7 billion on a nonconsolidated basis, a ¥2,979.2 billion decrease compared with the previous fiscal year-end. This decline is mainly due to a ¥2,915.8 billion decrease in securities, mostly Japanese government bonds and foreign securities, from interest-rate-related trading operations. Liabilities Liabilities at March 31, 2005 decreased ¥2,861.1 billion to ¥88,377.0 billion from the previous fiscal year-end. This decline was attributable to a ¥2,108.3 billion decrease in payables under securities lending transactions and a Assets, Liabilities and Stockholders’ Equity ¥1,146.9 billion decrease in bills sold. This decline was the result of an intentional reduction in fund procurement in line with our policy of reducing the total amount of our assets. Stockholders’ Equity Stockholders’ equity decreased by ¥118.1 billion to ¥2,752.7 billion at March 31, 2005. This decline is mainly attribut- able to the posting of a net loss and a reduction in retained earnings due to dividend payments to SMFG, the parent company, which were greater than increases in capital stock and capital surplus as a result of capital increase through private placement of shares. March 31 Assets ................................................................................................................................. Loans and bills discounted ............................................................................................ Securities ....................................................................................................................... Liabilities ............................................................................................................................. Deposits......................................................................................................................... Negotiable certificates of deposit................................................................................... Stockholders’ equity............................................................................................................ 2005 (A) ¥91,129,776 50,067,586 23,676,696 88,377,041 62,788,328 2,803,299 2,752,735 Millions of yen 2004 (B) ¥94,109,074 50,810,144 26,592,584 91,238,204 60,067,417 3,589,354 2,870,870 Increase (decrease) (A) – (B) ¥(2,979,298) (742,558) (2,915,888) (2,861,163) 2,720,911 (786,055) (118,135) 4. Unrealized Gains (Losses) on Securities Net unrealized gains on securities at March 31, 2005 amounted to ¥710.0 billion, which was an increase of ¥119.7 billion from the previous fiscal year-end. Net unreal- ized gains on other securities (including “other money held in trust”), changes in which are directly credited to stock- holders’ equity, increased by ¥95.3 billion over the same period, to ¥651.6 billion due to unrealized gains on bonds compared with a loss for the previous business term. Unrealized Gains (Losses) on Securities 2005 Millions of yen Net unrealized gains (losses) (A) March 31 Held-to-maturity securities.................... ¥ (1,844) 60,343 Stocks of subsidiaries and affiliates ..... 651,385 Other securities .................................... 667,326 Stocks ............................................. Bonds .............................................. 7,700 (23,641) Others ............................................. 204 Other money held in trust ..................... Total...................................................... Stocks ............................................. Bonds .............................................. Others ............................................. 710,088 727,669 5,360 (22,941) ¥ (A) – (B) 5,802 18,647 95,239 16,225 109,590 (30,576) 83 119,770 34,871 115,776 (30,878) Unrealized gains ¥ 2,089 60,690 750,143 708,643 27,343 14,155 300 813,222 769,333 28,925 14,963 Unrealized losses ¥ 3,933 347 98,757 41,317 19,642 37,797 95 103,133 41,664 23,565 37,904 Net unrealized gains (losses) (B) ¥ (7,646) 41,696 556,146 651,101 (101,890) 6,935 121 590,318 692,798 (110,416) 7,937 2004 Unrealized gains ¥ 2,618 41,696 757,072 711,514 16,211 29,346 222 801,610 753,211 17,950 30,448 Unrealized losses ¥ 10,265 — 200,925 60,413 118,101 22,410 100 211,291 60,413 128,366 22,510 Notes: 1. The figures above include unrealized gains (losses) on negotiable certificates of deposit in “Deposits with banks.” 2. Unrealized gains (losses) on stocks (excluding stocks of subsidiaries and affiliates) are calculated using the average market price during the final month of the respective reporting period. The rest of the securities are valuated at the market price as of the balance sheet date. 3. “Other securities” and “Other money held in trust” are valuated and recorded on the consolidated balance sheet at market prices. The figures in the table above indicate the differences between the acquisition costs (or amortized costs) and the balance sheet amounts. “Unrealized gains (losses) on other securities” as of March 31, 2005 include gains of ¥469 million that were recognized as income by applying fair value hedge accounting and valuation gains of ¥82 million on embedded financial instruments in their entirety that were recorded as income because their embedded derivatives are not measured separately. Therefore, ¥551 million was excluded from the amount to be directly included in stockholders’ equity. “Unrealized gains (losses) on other securities” as of March 31, 2004 include gains of ¥23,452 million recognized as income by applying fair value hedge accounting, which are excluded from the amount to be directly included in stockholders’ equity. 36 SMFG 2005 5. Deferred Tax Assets Deferred Tax Assets on the Balance Sheet SMBC computes deferred tax assets based on reasonable estimates of the size of tax benefits on collectibility of assets in question in the future in line with Accounting Standards for Tax Effect Accounting (issued by the Business Accounting Deliberation Council dated October 30, 1998) and related practical guidelines. Moreover, SMBC continues to take a conservative stance on the recognition of deferred tax assets from the viewpoint of maintaining a sound financial position, taking into full consideration the opinions expressed in the “Strict Audit to Major Banks,” issued by the Japanese Institute of Certified Public Accountants ( JICPA) on February 24, 2003. Net deferred tax assets at March 31, 2005 amounted to ¥1,502.2 billion, an ¥88.3 billion decrease from the previous term-end. This is mainly attributable to the increase in net unrealized gains on other securities mentioned previously. In addition, the valuation allowance (which was not included in the scope of outstanding deferred tax assets due to taking a conservative stance) amounted to ¥553.3 billion at March 31, 2005. March 31 (A) Total deferred tax assets (B) – (C) (B) Subtotal of deferred tax assets Reserve for possible loan losses Write-off of loans Write-off of securities Reserve for employee retirement benefits Depreciation Net unrealized losses on other securities Net operating loss carryforwards Other (C) Valuation allowance (D) Total deferred tax liabilities Gains on securities contributed to employee retirement benefits trust Net unrealized gains on other securities Other Net deferred tax assets (balance sheet amount) (A) – (D) Amounts corresponding to the estimated taxable income before adjustments Amounts to be realized after more than a certain period (Note 1) Amount corresponding to the deferred tax liabilities shown in 14 above (Note 2) 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 2005 ¥1,825.8 2,379.1 315.4 562.1 533.0 76.9 6.1 — 822.8 62.8 553.3 ¥ 323.6 51.7 264.5 7.4 Change from 2004 ¥ (13.8) 182.2 (113.9) 279.3 154.4 (5.4) (1.0) — (128.6) (2.6) 196.0 ¥ 74.5 26.2 48.0 0.3 (Billions of yen) (Reference) Temporary differences 2004 ¥1,839.6 2,196.9 429.3 282.8 378.6 82.3 7.1 — 951.4 65.4 357.3 2005 ¥5,852.8 776.4 1,383.5 1,311.8 189.2 15.0 — 2,008.8 168.1 ¥ 249.1 ¥ 796.5 25.5 216.5 7.1 127.3 651.1 18.1 ¥1,502.2 ¥ (88.3) ¥1,590.5 1,694.1 72.6 (264.5) (35.5) (4.8) (48.0) 1,729.6 77.4 (216.5) Effective income tax rate 20 40.63% — 40.63% Notes: 1. Deferred tax assets arising from temporary differences that are expected to be reversed after more than five years (such as reserve for employee retirement benefits and depreciation of buildings) may be recognized if there is a high likelihood of such tax benefits being realized. (JICPA Auditing Committee Report No. 66 “Auditing Treatment Regarding Judgment of Realizability of Deferred Tax Assets”) 2. Deferred tax assets are recognized on the balance sheet on a net basis after offsetting against deferred tax liabilities arising from net unrealized gains on other securities. But the collectability is assessed for the gross deferred tax assets, before offsetting against deferred tax liabilities. (JICPA Auditing Committee Report No. 70 “Auditing Treatment Regarding Application of Tax Effect Accounting to Valuation Differences of Other Securities and Losses on Impairment of Fixed Assets”) SMFG 2005 37 Reason for Recognition of Deferred Tax Assets on the Balance Sheet (a) Recognition Criteria Practical Guideline 5 (1), examples (4) proviso (1) SMBC has significant operating loss carryforwards on the tax base. These operating loss carryforwards are due to SMBC taking the below measures in order to quickly strengthen its financial base under the prolonged deflationary pressure, and are accordingly judged to be attributable to extraordinary factors. As a result, SMBC recognized deferred tax assets to the limit of the estimated future taxable income for the period (approximately 5 years) pursuant to the practical guideline on assessing the collectability of deferred tax assets issued by JICPA (“Practical Guideline”) (*). (a) Disposal of Non-performing Loans SMBC established internal standards for write-offs and provisions based on self-assessment in accordance with the “Prompt Corrective Action” adopted in fiscal 1998 pursuant to the law concerning the maintenance of sound management of financial institutions (June 1996). SMBC has been aggressively disposing non-performing loans and bolstering provisions against the risk of asset deterioration under the severe business environment of a prolonged sluggish economy. In addition, pursuant to the “Program for Financial Revival” of October 2002, SMBC accelerated the disposal of non-performing loans in order to reduce the problem asset ratio to half by the end of fiscal 2004. As a result, SMBC achieved this target 6 months ahead of schedule, in the 1st half of fiscal 2004. In the process, taxable disposals that were made in the past were realized, while new taxable disposals were recognized. As a result, taxable disposal of non-performing loans (**) amounted to approximately ¥2.16 trillion as of March 31, 2005. (b) Disposal of Unrealized Losses on Stocks SMBC has been accelerating its effort to reduce stockholdings in order to reduce the risk of stock price fluctuations, and early meet the regulation limiting stockholdings that was adopted in fiscal 2001. During fiscal 2002, SMBC sold stocks and reduced the balance by approximately ¥1.1 trillion and also disposed all at once unrealized losses on stocks of approximately ¥1.2 trillion by writing off impaired stocks and using the gains on the March 2003 merger. Consequently, SMBC met the regulation limiting stockholdings at the end of fiscal 2002, before the deadline. As a result, the outstanding balance of taxable write-off on securities (**) increased (from approximately ¥0.1 trillion as of March 31, 1999 to approximately ¥1.5 trillion as of March 31, 2003). On the other hand, taxable write-off of securities carried out in the past is now being realized through accelerated selling of stocks (In fiscal 2004, approximately ¥130 billion was realized). (2) Consequently, operating loss carryforwards on the tax base amounted to approximately ¥2 trillion as of March 31, 2005, but they are certain to be offset by the end of their carry-over period by the taxable income that will be generated in the future. No material operating loss carryforwards on the tax base have expired in the past. (*) JICPA Auditing Committee Report No. 66 “Auditing Treatment Regarding Judgment of Realizability of Deferred Tax Assets” (**) Corresponds to “(Reference) Temporary differences” of the table on the previous page. (Reference 1) Outline of Practical Guideline 5 (1), examples (4) When a company has material operating loss carryforwards on the tax base as of term-end, deferred tax assets may be considered to be collec- table to the extent of the estimated taxable income for the next fiscal year and relating to the temporary differences expected to be reversed in the next fiscal year. However, when operating loss carryforwards are due to the company’s restructuring efforts, changes in laws, and/or other extraordinary factors, the deferred tax assets may be considered to be collectable to the extent of the estimated taxable income for the estimation period (approximately 5 years) and relating to the temporary differences expected to be reversed over the estimation period. (b) Period for Future Taxable Income to be Estimated: 5 years (c) Accumulated Amount of Estimated Future Taxable Income before Adjustments for the Next 5 Years Banking profit (before provision for general reserve for possible loan losses) A Income before income taxes B Adjustments to taxable income (excluding reversal of temporary differences as of Mar. 2005) Billions of yen Estimates of next 5 years 1 2 3 ¥5,211.0 2,961.0 1,208.6 C Taxable income before adjustments (A + B) 4 ¥4,169.6 Basic Policy on the Estimation of Future Taxable Income (1) Estimate when the temporary differences will be reversed (2) Conservatively estimate the taxable income before adjustments for the next 5 years (a) Rationally make earnings projection for up to fiscal 2009 based on the “Plan for strengthening the financial base (up to fiscal 2006)” (b) Reduce an amount reflecting the uncertainty of the projected amount from the projected amount. (c) Add the adjustments to the above amount Deferred tax assets corresponding to taxable income before adjustments 5 ¥1,694.1 (3) Apply the effective tax rate to the above amount and record the (corresponding to 17 of the table on the previous page) amount as “deferred tax assets” (Reference 2) Income of final return (before deducting operating loss carryforwards) for the last 5 years FY2004 FY2003 Billions of yen FY2002 FY2001 FY2000 Income of final return (before deducting operating loss carryforwards).... ¥316.9 ¥(1,437.8) ¥(745.5) ¥241.9 ¥(176.0) Notes: 1. Income of final return (before deducting operating loss carryforwards) = Taxable income before adjustments for each fiscal year – Temporary differences to be reversed for each fiscal year 2. Since the final declaration for the corporate income tax is being done in the end of June, the figures for March 31, 2005 are estimated income of final return as of March 31, 2005. 3. The figures above include amounts arising from “extraordinary factors” that are specified in the Practical Guideline. Taxable income has been reported each year when these amounts are excluded. 38 SMFG 2005 Asset Quality Current Status of Problem Assets Designated as the year for completing the intensive improvement in asset quality, SMBC made every effort in fiscal 2004 to radically reinforce its financial base by further reducing the non-performing loan (NPL) balance by taking various measures including off- balancing, and revitalization of corporate borrowers. As a result, the balance of NPLs—referred to as “problem assets” under the Financial Reconstruction Law—dropped to ¥1,824.6 billion at the end of March 2005, a sharp reduction from the ¥5,920.3 billion at the end of March 2002. This represents an improvement in the NPL ratio (the ratio of problem assets to total assets) from 8.9% to 3.3%. We will leverage the know-how we have amassed from NPL workouts to proactively develop business in corporate revitalization support services and new business areas. 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 into Borrowers 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 I. Self-Assessment, Write-Offs, and Reserves 1. Self-Assessment SMBC conducts rigorous self-assessment of asset quality 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 using criteria based on the Financial Inspection Manual of the Financial Services Agency and the Practical Guideline published by the Japanese Institute of Certified Public Accountants. Self- assessment is the latter stage of the obligor grading process for determining the borrower’s ability to fulfill debt obligations, and the obligor grade criteria are consistent with the categories used in self-assessment. At the same time, self-assessment is a preparatory task for ensuring SMBC’s asset quality and calculating the appropriate level of write-offs and reserves. Each asset is assessed individu- ally for its security and collectibility. Depending on the borrower’s current situation, the borrower is assigned to one of five cate- gories: Normal Borrowers, Borrowers Requiring Caution, Potentially Bankrupt Borrowers, Effectively Bankrupt Borrowers, and Bankrupt Borrowers. Based on the borrower’s category, claims on the borrower are classified into Classification I, II, III, and IV assets according to their default and impairment risk levels, taking into account such factors as collateral and guarantees. As part of our efforts to bolster risk management throughout the Group, our consolidated subsidiaries carry out self-assessment in substantially the same manner. Classification IV Assets assessed as uncollectible or worthless SMFG 2005 39 2. Asset Write-Offs and Reserves In cases where claims have been determined to be uncollectible, deemed uncollectible, referred to as an indirect write-off. Recognition of indirect write-offs is generally known as provision or deemed to be uncollectible, write-offs signify the recognition of of reserves. losses on the account books with respect to such claims. Write- S M B C ’ s w r i t e - o f f a n d r e s e r v e c r i t e r i a f o r e a c h offs can be made either in the form of loss recognition by self-assessment borrower category are shown in the table below. offsetting uncollectible amounts against corresponding balance As part of our overall measures to strengthen risk management sheet items, referred to as a direct write-off, or else by recognition throughout the Group, all consolidated subsidiaries use substantially of a loan loss provision on a contra-asset account in the amount the same standards as SMBC for write-offs and reserves. 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 historical bankruptcy rate for each obligor grading. These assets are divided into groups according to the risk of default. Amounts are recorded as general reserves in pro- portion to the expected losses based on the historical bankruptcy rate for each group. The groups are “claims to substandard borrowers,’’ and “claims to other borrowers requiring caution’’ excluding claims to substandard borrow- ers. For the latter, the borrower’s financial position and credit situation are additionally taken into account for establishing sub-groups. Additionally, SMBC uses the discounted cash flow (DCF) method to calculate the amount of reserve for possible losses on large-scale claims. SMBC 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. In addition, SMBC applies the discounted cash flow (DCF) method to large-scale claims for calculating individual amounts on the condition of rational estimates of future cash flows. SMBC calculates the amount of Classification III assets and Classification IV assets for each borrower, and 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. Notes General reserve Provisions made in accordance with general inherent default risks of loans, unrelated to specific individual loans or other claims Specific reserve Provisions made for claims that have been found uncollectable in part or in total (individually evaluated claims) Discounted Cash Flow Method SMBC utilizes the discounted cash flow (DCF) method to One of the major advantages of the DCF method over calculate the amount of reserves required to cover possible conventional methods of calculating the amount of reserves losses on large-scale claims to substandard borrowers and poten- required to cover possible loan losses is that it enables effective tially bankrupt borrowers. The DCF method is applied in cases evaluation of each individual borrower. In the case of this method, where it is reasonable to estimate the future cash inflow of the the required amount of reserves may vary according to the basic borrower that can be used for repayment of the principal and the data used in applying the DCF method, such as estimated future payment of interest on the debt. SMBC then makes provisions cash flow based on the borrower’s business reconstruction plan, equivalent to the excess of the book value of the claims over the the applied discount rate, and the probability of the borrower said cash inflow, discounted by the initial contractual interest rate going into bankruptcy. Thus, SMBC makes every effort to utilize or the effective interest rate at the time of origination. In this way, timely and appropriate data to realize the most accurate estimates we provide sufficient reserves against the risk of a future possible. deterioration in asset quality. 40 SMFG 2005 II. Credit Cost The amount required for the disposal of NPLs—known as “credit uncollectible loans and provisions already made in the case of write-offs. The credit cost for fiscal 2004 is shown in the table cost”—refers to the additional provision for loan losses in the case below. of provisioning, and the difference between the amount of ■ Credit Cost (SMBC Nonconsolidated; year ended March 31, 2005) (Billions of yen) Credit cost Write-off of loans Provision for specific reserve Losses on loans sold to CCPC Losses on sale of loans Provision for loan loss reserve for specific overseas countries Provision for general reserve for possible loan losses Total credit cost Reserve for possible loan losses Amount of direct reduction ■ Credit Cost (SMFG Consolidated; year ended March 31, 2005) Total credit cost Reserve for possible loan losses Amount of direct reduction ¥1,306.3 698.0 474.1 — 138.0 (3.8) (351.5) ¥ 954.8 ¥ 989.1 ¥1,531.8 ¥1,196.8 ¥1,273.6 ¥1,782.2 (Billions of yen) ■ Reserve for Possible Loan Losses (March 31, 2005) SMBC (Nonconsolidated) SMFG (Consolidated) (Billions of yen) Reserve for possible loan losses General reserve Specific reserve Loan loss reserve for specific overseas countries ¥989.1 417.6 567.6 3.9 ¥1,273.6 633.6 636.1 3.9 In fiscal 2004, we succeeded in resolving the NPL problem and significantly reduced the degree of risk involved in our loan are now in the next phase, starting from fiscal 2005, in which our operations. efforts will be focused on bringing credit cost back down to a nor- The bank’s total credit cost on a nonconsolidated basis mal level. To this end, during the reporting period, we took various amounted to ¥954.8 billion for the reporting term. initiatives, including the bolstering of reserves, and thus SMFG 2005 41 III. Disclosure of Problem Assets and Off-Balancing 1. Disclosure of Problem Assets Problem assets are loans and other claims of which recovery of (where they are referred to as “problem assets”). Problem assets are classified based on the borrower categories assigned during self-assessment. The following tables explain the asset classifica- either principal or interest appears doubtful, and are disclosed in tion stipulated by the Financial Reconstruction Law and the accordance with the Banking Law (in which they are referred to as differences between risk-monitored loans and problem assets. “risk-monitored loans”) and the Financial Reconstruction Law Classification of Problem Assets Based on the Financial Reconstruction Law Bankrupt and quasi-bankrupt assets This category is defined as the sum of claims on Bankrupt Borrowers and Effectively Bankrupt Borrowers under 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, guarantees, or other means. Doubtful assets Substandard loans Normal assets This category is defined as claims on 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, guarantees, or other means. This category is defined as claims on Borrowers Requiring Caution under self-assessment. This category comprises past due loans (three months or more) and restructured loans. This category is defined as the term-end sum of loans, securities lending, import and export, accrued interest, suspense payments, and customers’ liabilities for acceptances and guarantees that are not included in the other three categories. Note: Based on the borrower’s category under self-assessment, claims on the borrower are categorized as Classification I, II, III, and IV assets according to their default and impairment risk levels. (Please refer to page 39 for the asset classification table.) ❑ 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 Other assets The disclosure of risk-monitored loans corresponds exactly to the disclosure of problem assets based on the Financial Reconstruction Law, except for such non-loan assets as securities lending, import and export, accrued interest, sus- Non-accrual loans Past due loans (3 months or more) Restructured loans (C) pense payments, and customers’ liabilities for acceptances and guaran- tees, which are not subject to disclosure. 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 recognized as accrued interest, the amount is not included in the problem (A) (B) (C) assets disclosed on the basis of the Financial Reconstruction Law. 2. Problem Asset Disclosure Amounts The amounts, as of March 31, 2005, of risk-monitored loans and the balance of problem assets as defined in the Financial Reconstruction Law was ¥1,824.6 billion, down ¥986.6 billion from problem assets are shown on the following page. As we had the end of March 2004. The NPL ratio improved to 3.3% from pledged to make fiscal 2004 the year for completing the intensive 8.9% at the end of March 2002, far exceeding our goal of improvement in asset quality, we took proactive measures to dis- reducing the NPL ratio by half. pose of problem assets while simultaneously facilitating the revitalization and reconstruction of our borrowers. As a result, 42 SMFG 2005 ■ Problem Assets Based on the Financial Reconstruction Law (March 31, 2005) (Billions of yen) Bankrupt and quasi-bankrupt assets Doubtful assets Substandard loans Subtotal Normal assets Total Amount of direct reduction ■ Risk-Monitored Loans (March 31, 2005) Bankrupt loans Non-accrual loans Past due loans (3 months or more) Restructured loans Total Amount of direct reduction SMBC (Nonconsolidated) Compared with March 31, 2004 SMFG (Consolidated) ¥ 448.3 924.4 451.9 ¥ 1,824.6 53,452.6 ¥55,277.2 ¥ 1,531.8 SMBC (Nonconsolidated) ¥ 46.0 1,238.0 26.9 425.0 ¥1,735.9 ¥1,504.6 ¥ 86.7 (278.3) (795.0) ¥(986.6) 578.2 ¥(408.4) Compared with March 31, 2004 ¥ (21.2) (222.8) (20.7) (774.3) ¥(1,039.0) ¥ 481.0 1,074.2 767.8 ¥ 2,323.0 57,094.8 ¥59,417.8 ¥ 1,782.2 (Billions of yen) SMFG (Consolidated) ¥ 68.3 1,399.0 29.4 730.7 ¥2,227.4 ¥1,723.8 ■ Classification under Self-Assessment, Disclosure of Problem Assets, and Write-Offs/Reserves (SMBC Nonconsolidated; March 31, 2005) 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. (5) Fully reserved Effectively Bankrupt Borrowers ¥448.3 ¥432.2 ¥16.1 Direct write-offs (Note 1) ¥22.4 (Note 2) 100% (Note 3) Doubtful assets (2) Portion of claims secured by collateral or guarantees, etc. (6) ¥924.4 ¥348.4 Necessary amount reserved ¥576.0 Potentially Bankrupt Borrowers Borrowers Requiring Caution Substandard loans (3) ¥451.9 (Claims to substandard borrowers) Normal Borrowers Normal assets ¥53,452.6 Portion of substandard loans secured by collateral or guarantees, etc. (7) ¥179.2 Claims to borrowers requiring caution, excluding claims to substandard borrowers Claims to normal borrowers Total (4) ¥55,277.2 (A) = (1) + (2) + (3) ¥1,824.6 Loan loss reserve for specific overseas countries NPL ratio (A) / (4) 3.3% (Note 5) Total reserve for possible loan losses (B) Specific reserve + General reserve for substandard loans Portion secured by collateral or guarantees, etc. (C) = (5) + (6) + (7) ¥959.8 Unsecured portion (D) = (A) - (C) Specific reserve General reserve ¥545.2 (Note 2) 94.6% (Note 3) General reserve for substandard loans ¥124.6 ¥417.6 ¥3.9 ¥989.1 ¥692.2 ¥864.8 45.0% (Note 3) 6.7% [17.9%] (Note 4) 25.5% (Note 3) 0.2% (Note 4) Reserve ratio (B) / (D) 80.0% (Note 6) Notes: 1. Includes amount of direct reduction totaling ¥1,531.8 billion. Coverage ratio { (B) + (C) } / (A) 90.5% 2. Includes reserves for assets that are not subject to disclosure under the Financial Reconstruction Law. (Bankrupt/Effectively Bankrupt Borrowers: ¥6.3 billion; Potentially Bankrupt Borrowers: ¥7.5 billion) 3. Reserve ratios for claims on 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 on 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 for unsecured claims on Borrowers Requiring Caution (excluding claims to Substandard Borrowers) is shown in brackets. 5. Ratio of problem assets to total assets subject to Financial Reconstruction Law 6. Reserve ratio = (Specific reserve + General reserve for substandard loans) ÷ (Bankrupt and quasi-bankrupt assets + Doubtful assets + Substandard loans – Portion secured by collateral or guarantees, etc.) SMFG 2005 43 3. Off-Balancing Problem Assets In the term under review, we continued to focus on off-balancing Specific measures contained in the package include “the radical disposal of problem assets.” This provision requires Japan’s problem assets, and succeeded in off-balancing ¥1,762.4 billion major banks to dispose of loans categorized as “claims to poten- worth of problem assets. In April 2001, the Japanese government tially bankrupt borrowers” and worse. Existing loans must be passed the Emergency Economic Package, with the objective of off-balanced within three years, and steady progress is being simultaneously revitalizing the financial system and industry. ■ Breakdown of Off-Balancing (SMBC Nonconsolidated; March 31, 2005) made. March 31, 2003 Fiscal 2003 March 31, 2004 Fiscal 2004 New occurrences Off-balanced New occurrences Off-balanced (Billions of yen) March 31, 2005 Bankrupt and quasi- bankrupt assets Doubtful assets Total Bankrupt and quasi- bankrupt assets Doubtful assets Total ¥ 524.9 ¥ 125.7 ¥ (289.0) ¥ 361.6 ¥ 311.9 ¥ (225.2) ¥ 448.3 2,129.5 ¥2,654.4 1,227.9 ¥1,353.6 (2,154.7) 1,202.7 1,258.9 (1,537.2) 924.4 ¥(2,443.7) ¥ 1,564.3 ¥1,570.8 ¥(1,762.4) ¥1,372.7 Increase/Decrease (➁ -➀ ) ¥ (163.3) (926.8) ¥ (1,090.1) Increase/Decrease (➂ -➁ ) ¥ 86.7 (278.3) ¥ (191.6) Note: The figures shown in the above table under “new occurrences” and “off-balanced” are simple additions of the figures for the first and second halves of the two periods reviewed. Amounts of ¥395.8 billion for fiscal 2003 and ¥486.8 billion for fiscal 2004, recognized as “new occurrences” in the first halves of the terms, were included in the amounts off-balanced in the respective second halves. 4. Problem Assets by Region and Industry ■ Problem Assets by Domicile of Borrowers (SMBC Nonconsolidated; March 31, 2005) (Billions of yen) Financial Reconstruction Law Basis (Excluding normal assets) Percentage Risk-Monitored Loans Percentage Domestic Overseas Asia Indonesia Hong Kong India China Others North America Central and South America Western Europe Eastern Europe ¥1,787.8 36.8 12.8 3.3 0.4 1.1 0.2 7.8 22.7 0.7 0.6 — 98.0% 2.0 0.7 0.2 0.0 0.1 0.0 0.4 1.3 0.0 0.0 — ¥1,703.6 32.3 9.7 3.3 0.3 1.1 0.2 4.8 21.5 0.5 0.6 — 98.1% 1.9 0.6 0.2 0.0 0.1 0.0 0.3 1.3 0.0 0.0 — Total Note: “Domestic” means the total for domestic branches, excluding the special account for international financial transactions. “Overseas” means the total for ¥1,735.9 ¥1,824.6 100.0% 100.0% overseas branches, including the special account for international financial transactions. The above countries and areas are categorized by the obligor’s domicile. ■ Problem Assets by Type of Borrowers (SMBC Nonconsolidated; March 31, 2005) (Billions of yen) Financial Reconstruction Law Basis (Excluding normal assets) Percentage Risk-Monitored Loans Percentage Domestic Manufacturing Agriculture, forestry, fishery and mining Construction Transportation, communications, and other public enterprises Wholesale and retail Finance and insurance Real estate Services Municipalities Others Overseas Public sector Financial institutions Commerce and industry Others ¥1,787.8 85.5 0.7 396.3 36.2 98.0% 4.7 0.0 21.7 2.0 ¥1,703.6 81.3 0.7 342.2 33.4 98.1% 4.7 0.0 19.7 1.9 105.0 95.8 408.6 456.0 — 203.7 36.8 0.1 0.5 36.2 — ¥1,824.6 ¥ 5.8 5.2 22.4 25.0 — 11.2 2.0% 0.0 0.0 2.0 — 100.0% 103.3 94.5 396.5 450.2 — 201.5 32.3 0.1 0.3 31.9 — ¥1,735.9 ¥ 6.0 5.5 22.8 25.9 — 11.6 1.9% 0.0 0.0 1.9 — 100.0% Total 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. 44 SMFG 2005 ➀ ➁ ➂ Risk Management Basic Principles Financial and economic deregulation, globalization, and advances Planning Department to comprehensively and systematically manage all these categories of risk across the entire Group. in IT are generating new business opportunities for financial Top management plays an active role in determining SMFG’s institutions. The risks accompanying these new business opportu- Groupwide basic policies for risk management. The system works nities are not only increasing in number but also growing in as follows: The basic policies for risk management are determined diversity and complexity. Accordingly, identifying, measuring, and by the Management Committee before being authorized by the controlling risks have never been more important in the manage- Board. The Management Committee, the designated Board mem- ment of a financial holding company. bers, and the relevant risk management departments perform risk SMFG has encapsulated the basic principles to be employed management according to the basic policies. in risk management in the manual entitled Regulations on Risk Risk management systems are in place at the individual Management. In the manual, we have specified the basic policies Group companies in accordance with SMFG’s Groupwide basic for risk management: 1) Set forth SMFG’s Groupwide basic poli- policies for risk management. For example, at SMBC, specific cies for risk management after specifying the categories of risk to departments have been appointed to oversee the handling of the which these policies apply; 2) Provide all necessary guidance to four risk categories listed above, in addition to risks associated Group companies to enable them to follow the basic risk manage- with settlement. Each risk category is managed taking into ment policies set forth by SMFG and set up their own appropriate account the particular characteristics of that category. In addition, risk management systems; 3) Monitor the implementation of risk the Corporate Risk Management Department—independent of management by all Group companies to ensure that their practices the operating units—comprehensively and systematically man- meet the relevant standards. ages all categories of risk in cooperation with the Corporate Types of Risk, and Risk Management System At SMFG, we classify risk into the following categories: (1) credit risk, (2) market risk, (3) liquidity risk and (4) operational risk (including processing risk and systems risk). In addition, we pro- vide individually tailored guidance to help Group companies identify categories of risk that need to be addressed. Risk cate- gories are constantly reviewed, and new categories may be added in response to changes in the operating environment. The Corporate Risk Management Department works with the Corporate Planning Department. Furthermore, under our system top management plays an active role in the drafting of basic policies of risk management. The decision-making process for addressing credit, market and liquidity risks at the operating level is strengthened by the Credit Risk Management Committee and the Market Risk Management Committee, which are subcommittees of the Management Committee. The Management Committee is also attended by the relevant department heads. ■ SMFG’s Risk Management System SMFG Board of Directors Board of Directors Corporate Auditors SMBC Corporate Auditors Management Committee Independent Auditors Guidance for drafting of basic policies Monitoring Designated Board Members Audit Dept. Sumitomo Mitsui Card SMBC Leasing Corporate Risk Management Dept. Report Corporate- Wide Risk Management Corporate Planning Dept./ Corporate Risk Management Dept. Credit Risk Market Risk Liquidity Risk Operational Risk Processing Risk Systems Risk IT Planning Dept. General Affairs Dept. JRI Corporate Planning Dept./Corporate Risk Management Dept. Management Committee Market Risk Management Committee Credit Risk Management Committee Independent Auditors Designated Board Members Board Member in Charge of Corporate Risk Management Dept. Board Member in Charge of Credit Risk Management Dept. Internal Audit Dept. Credit Risk Bank-Wide Risk Management Market Risk Liquidity Risk Settle- ment Risk Credit Risk Management Dept. Corporate Risk Management Dept. Operations Planning Dept. Processing Risk Systems Risk IT Planning Dept. Operational Risk General Affairs Dept. Other Risks Other Departments SMFG 2005 45 Risk Management Methods SMFG’s Groupwide basic policies for risk management stipulate the basic risk management regulations that must be followed, In the case of SMBC, for example, sufficient capital is allocated to cover the bank’s exposure to credit, market, and oper- ational risks. In the credit and market risk categories, in particular, and spell out risk management procedures from various perspec- the maximum risk capital that SMBC can use during a period is set tives. These include managing risk on a consolidated accounting as the risk capital limit within this limit to manage these risks. basis, managing risk using quantification methods, ensuring con- Liquidity risk is managed within the context of maximum limits set sistency with business strategies, setting up a system of checks for asset liability management (ALM) and the funding gap. Other and balances, contingency planning for emergencies and serious risk categories are managed with procedures closely attuned to situations, and verifying of preparedness to handle all conceiv- the nature of the risk, as described in the following paragraphs. able risk situations. In addition, there are specific operational policies for implementing appropriate management of risk by all Group companies. Under SMFG’s Groupwide basic policies for risk management, all Group companies periodically carry out reviews of the basic management policies for each risk category, or whenever deemed necessary, thus ensuring that the policies followed at any time are the most appropriate. The management of SMFG constantly moni- tors the conduct of risk management at Group companies, providing guidance when necessary. Furthermore, in order to maintain a balance between risk and return as well as ensure the soundness of the Group from an over- all perspective, we employ the risk capital-based management method, which allocates capital effectively to each department according to its role in our business strategies to keep total expo- sure to credit, market, and operational risks within the scope of our management resources, i.e., capital. ■ Relationship between Risk Management Framework and Risk Category at SMBC Framework Risk Category Credit Risk Banking Risk/Trading Risk Strategic Equity Investment Risk Credit Risk Credit risk is the possibility of a loss arising from a credit event, such as deterioration in the financial condition of a borrower, that causes an asset (including off-balance sheet transactions) to lose value or become worthless. Overseas credits also include an ele- ment of country risk, which is closely related to credit risk. This is the risk of loss caused by changes in foreign exchange, or politi- cal or economic situations. All Group companies follow the basic policy established by SMFG to assess and manage credit risk on a Groupwide basis and further raise the level of accuracy and comprehensiveness of Groupwide credit risk management. Each Group company must comprehensively manage credit risk according to the nature of its business, and assess and manage credit risk of individual loans and credit portfolios quantitatively and using consistent standards. Credit risk is the most significant risk to which SMFG is exposed. Without effective credit risk management, the impact of the corre- sponding losses on operations can be overwhelming. The purpose of credit risk management is to keep credit risk exposure to a permissible level relative to capital, to maintain the soundness of assets, and to ensure returns commensurate with risk. This leads to a loan portfolio that achieves high returns on capital and assets. SMBC’s credit management policy and system are described below. 1. Credit Policy SMBC’s credit policy comprises clearly stated universal and basic operating concepts, policies, and standards for credit opera- Other Market-Related Risks tions, in accordance with the business mission and rules of conduct. SMBC is promoting the understanding of and strict adherence to its credit policy among all its managers and employees. By conducting credit risk management in line with global standards laid down by the soon-to-be-implemented New Basel Capital Accord, or Basel II, SMBC aims to enhance share- holder value and play a key part in society by providing high value-added financial services. Operational Risk Processing Risk Systems Risk Liquidity Risk Other Risks (Settlement Risk and Others) Risk Capital-Based Management Market Risk ALM/ Funding Gap Management by Risk Type 46 SMFG 2005 2. Credit Risk Assessment and Quantification To effectively manage the risk involved in individual loans as well fluctuations in the value of collateral, such as real estate and securities. This range of data must be analyzed to quantify the as the credit portfolio as a whole, SMBC first acknowledges that risk of an entire portfolio or an individual loan. every extension of credit poses risks, assesses the credit risk To calculate credit risk, historical data on the obligor and posed by each borrower and loan using an internal rating system, facility are entered into a database. Such parameters as and quantifies that risk for control purposes. probability of grade migration, loss given default, and credit quality (1) Internal Rating System SMBC’s internal rating system consists of two indicators: the obligor grading, which indicates the creditworthiness of a borrower; and the facility grading, which shows the probability of collecting for each facility. Facility gradings are assigned based on the borrower’s obligor grading and transaction terms such as guarantee, tenure, and collateral. Overseas credits are subjected to a further analysis that takes into account country ranking, an indicator derived from analyses of each country’s political and economic situation, international balance of payments, and external debt burden. Self- assessment is the obligor grading process for lower categories, and the borrower categories used in self-assessment are consistent with the overall obligor grade criteria. (2) Quantification of Credit Risk Quantifying credit risk is more than just calculating the probability of default for a particular obligor. It must also reflect the concentration of risk on a specific customer or industry and ■ SMBC’s Internal Rating System correlation among obligors are set, and then the probability distrib- ution of losses for the entire portfolio (amount of loss for a particular probability) is computed to determine the potential future loss. Specifically, based on the abovementioned parame- ters, we run a simulation of 10,000 iterations of simultaneous default using the Monte Carlo method to calculate our maximum loss exposure. This quantification enables effective risk capital allocation. By obtaining an accurate understanding of the concentration risk of a credit portfolio, and by carrying out quantitative risk analysis simulations assuming various developments in the macroeconomic situation, SMBC obtains quantified credit risk fig- ures which are used for making optimal decisions across the whole range of business operations, including formulating busi- ness plans and providing a standard against which individual credit applications are assessed. Grading Subrating Obligor Grading Definition Borrower Classification under Self-Assessment 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 probability of redemption High probability of redemption Reasonable probability 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 R Requires management because there are problems meeting loan conditions or with collection, the business is weak or unstable, or the financial position is poor. Borrowers Requiring Caution A Borrowers Requiring Caution B S I II III IV V VI VII a b c a b c a b c A B C A B C A B Normal Assets (Customers requiring caution among this rating) Substandard Borrowers Substandard Loans 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. 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 appear to be no prospects for restructuring. Potentially Bankrupt Borrowers Effectively Bankrupt Borrowers VIII Doubtful Assets IX Bankrupt and Quasi-Bankrupt Assets 10 The debtor is legally and formally bankrupt. Bankrupt Borrowers SMFG 2005 47 3. Framework for Managing Individual Loans (1) Credit Assessment Credit assessment of corporate loans involves a variety of finan- cial analyses, including cash flow, to predict an enterprise’s capability of loan repayment and its growth prospects. These quantitative measures, when combined with qualitative analyses of industrial trends, the enterprise’s R&D capabilities, the competi- tiveness of its products or services, and its management caliber, result in a comprehensive credit assessment. The loan application is analyzed in terms of the intended utilization of the funds and the repayment schedule. Thus, SMBC is able to arrive at an accu- rate and fair credit decision based on an objective examination of all relevant factors. Increasing the understandability of loan conditions and approval standards for specific borrowing purposes and loan cate- gories is a part of SMBC’s ongoing review of lending practices, which includes the revision of loan contract forms with the chief aim of clarifying lending conditions utilizing financial covenants. SMBC is also making steady progress in rationalizing its credit assessment process. To respond proactively and promptly to customers’ funding needs—particularly those of small and medium-sized enterprises (SMEs)—we employ a standardized credit risk assessment process for SMEs that uses a credit-scoring model. With this process we are building a regime for efficiently market- ing our Business Select Loan and SMBC Crecer Loan. In the field of mortgage loans for individuals, we employ a credit assessment model based on credit data amassed and ana- lyzed by SMBC over many years. This model enables our loan officers to efficiently make rational decisions on mortgage loan applications, and to reply to the customers without delay. It also facilitates the effective management of credit risk, as well as the flexible setting of interest rates. We also provide loans to individuals who rent out properties such as apartments. The loan applications are subjected to a pre- cise credit risk assessment process utilizing a risk-assessment model that factors in the projected revenue from the rental ■ SMBC’s Credit Monitoring System business. The process is also used to provide advice to such customers on how to revise their business plans. (2) Credit Monitoring System In addition to analyzing loans at the application stage, the Credit Monitoring System is utilized to reassess obligor grading, and review self-assessment and credit policies 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 conditions change, as indicated in the diagram below. 4. Framework for Credit Portfolio Management In addition to managing individual loans, SMBC applies the follow- ing basic policies to the management of the entire credit portfolio to maintain and improve its soundness and profitability over the medium to long term. (1) Risk-Taking within the Scope of Capital To keep credit risk exposure to a permissible level relative to capital, SMBC sets credit risk capital limits for internal control purposes. Under these limits, separate guidelines are issued for each business unit and marketing unit. Also issued are special- ized guidelines for each business unit and business type, such as real estate finance, fund investment, and investment in securitiza- tion products. Regular monitoring is conducted to check that these guidelines are being followed, thus ensuring appropriate overall management of credit risk. (2) Controlling Concentration Risk Because concentration of credit risk in an industry or corporate group has the potential to substantially impair capital, SMBC implements measures to prevent excessive concentration of loans in an industry and to control large exposure to individual compa- nies or corporate groups by setting guidelines for maximum loan amounts. To manage country risk, SMBC also has credit limit guidelines based on each country’s creditworthiness. Obligor Information Processing Registration of Financial Statements/ Creation and Revision of Corporate Card 48 SMFG 2005 Flow of Obligor Grading/Grading Outlook/Credit Policies/Action Plans/Facility Grading Assignment Nonconsoli- dated Financial Grade Consolidated Financial Grade Effective Financial Grade Not Flagged Flagging According to Self- Assessment Criteria Flagged Self-Assessment Logic Quantitative Assessment Financial Assessment Credit Status Qualitative Assessment Normal Borrowers Borrowers Requiring Caution Potentially Bankrupt Borrowers Effectively Bankrupt Borrowers Bankrupt Borrowers Final Obligor Grade Grading Outlook Assessment Performance Trends + Qualitative Risk Factors •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 (3) New Type of Unsecured Loans, and Balancing Risk risk controlling functions of i) planning and devising specialized risk and Returns management methods and procedures for new types of transactions Against the background of increasing sophistication in methods of such as securitizations and non-recourse loans and ii) active portfo- managing credit risk, SMBC actively engages in a new type of lio management with the aim of stabilizing the bank’s overall credit unsecured loans. Meanwhile, the bank runs credit operations on portfolio via market transactions, e.g. securitization of bank’s loan the basic principle of earning returns that are commensurate with exposure. the credit risk involved, and makes every effort to reduce capital The Corporate Research Department within the Corporate and credit costs as well as general and administrative expenses. Services Unit performs research on industries as well as investi- (4) Reduction and Prevention of Non-Performing Loans On non-performing loans (NPLs) and potential NPLs, SMBC carries out regular loan reviews to clarify handling policies and action plans, enabling it to swiftly implement measures to prevent deterio- ration of borrowers’ business situations, support business recoveries, collect on loans, and enhance loan security. (5) Toward Active Portfolio Management SMBC makes active use of credit derivatives, loan securitization, and other instruments to proactively manage its portfolio. 5. Credit Risk Management System The Credit Planning Department within the Corporate Staff Unit is responsible for the comprehensive management of credit risk. This department drafts and administers credit policies, the internal rating system, credit authority guidelines, credit application guidelines, and manages NPLs, and other aspects of credit portfolio management. Moreover, in April 2005, we established the Credit Risk Management Department within the Corporate Staff Unit, and aim to gates the business situations of borrower enterprises to detect early signs of problems or growth potential. The Credit Administration Department is responsible for handling NPLs of borrowers classified as potentially bankrupt or lower, and draws up plans for their workouts, including write-offs, and corporate rehabilitation. The department closely liaises with the Group com- pany SMBC Business Servicing Co., Ltd., which engages in related services, and works to efficiently reduce the amount of NPLs by such means as the sell-off of claims. The credit departments within each business unit conduct credit risk management for loans handled by their units and manage their units’ portfolios. The credit limits they use are based on the baseline amounts established for each grading category, with particular attention paid to evaluating and managing customers or loans perceived to have particularly high credit risk. The Credit Review Department, operating independently of the business units, audits asset quality, accuracy of gradings, self-assessment, and state of credit risk management, and reports the results directly to the Board of Directors and the achieve more advanced portfolio management by strengthening our Management Committee. ■ SMBC’s Credit Risk Management System Board of Directors Corporate Auditors Management Committee External Audit (Auditing Firm) Corporate Staff Unit Corporate Risk Management Dept. •Aggregates risk for comprehensive management •Plans and proposes risk quantification methods Credit Planning Dept. •Aggregates credit risk for unified management •Plans and proposes basic credit policies Credit Risk Management Dept. •Undertakes active portfolio management •Plans credit management of specific risk assets •Oversees credit risk businesses Internal Audit Unit Credit Review Dept. •Self-assessment, grading (obligors and loans), audits of write-offs and reserves •Credit risk management auditing Corporate Services Unit Corporate Research Dept. •Industry trend research •Credit assessment of major industry players, grading revisions Credit Administration Dept. •Manages problem assets (plans, implements corporate rehabilitation program, sells off the revitalized company) Consumer Banking Unit Middle Market Banking Unit Corporate Banking Unit International Banking Unit Investment Banking Unit Business Units Credit Dept. Credit Dept. I, II & III Credit Dept. I & II Credit Dept. Credit for Individuals Small and Medium-Sized Businesses Large Domestic Corporations Credit Dept. Credit Dept., The Americas Div. Credit Dept., Europe Div. Overseas Corporations Structured Finance Structured Finance Credit Dept. Domestic Structured Finance SMFG 2005 49 SMBC has established the Credit Risk Committee, a new transparency of the risk management process; clearly separating consultative body, to round out its oversight system for undertak- front-office, middle-office, and back-office operations; and ing flexible and efficient control of credit risk, and ensuring the establishing a highly efficient system of mutual checks and overall soundness of the bank’s loan operations. balances. Market and Liquidity Risks Market and Liquidity Risk Management System 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. 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. SMFG is working to further enhance the effectiveness of its quantitative management of market and liquidity risks across the entire Group by setting allowable risk limits; ensuring the ■ SMBC’s Market Risk and Liquidity Risk Management Organization Chart On the basis of SMFG’s Groupwide basic policies for risk management, SMBC’s Board of Directors authorizes important matters relating to the management of market and liquidity risks, such as basic policies and risk limits, which are decided by the Management Committee. Additionally, the bank’s Corporate Risk Management Department, which is independent of business units that directly handle market transactions, manages market and liq- uidity risks in an integrated manner. The department not only monitors the current risk situations, but also reports regularly to the Management Committee and the Board of Directors. Furthermore, SMBC’s ALM Committee meets on a monthly basis to examine reports on the state of observance of the bank’s limits on market and liquidity risks, and to review and discuss the bank’s ALM policies. To prevent unforeseen errors in operation or the manipulation of transaction data through unauthorized trading, it is important to establish a system of checks on the business units (front office). At SMBC, both the processing departments (back office) and the administrative departments (middle office) conduct the checks. In addition, SMBC’s independent Internal Audit Unit periodically per- forms comprehensive internal audits to verify that the risk Board of Directors management system is functioning properly. Market Risk Manage- ment Management Committee Market Risk Management Committee ALM Committee Board member in charge of Corporate Risk Management Dept. Policy Reporting Liquidity Risk Manage- ment Corporate Auditors Independent Auditors (an auditing firm) Internal Audit Dept. Back Office (Back offices of Japan and 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 Market Risk The bank manages market risk by setting maximum limits for value-at-risk (VaR) and the maximum loss. This is done using the VaR method, in which the maximum potential loss on market transactions for a given probability is calculated. These limits are, themselves, set within the “market risk capital limit,” which is determined taking into account the bank’s shareholders’ equity and other principal indicators of the bank’s financial position and management resources. The SMBC VaR model estimates the maximum loss by running simulations of changes in profit and loss on market fluctuation scenarios based on historical data. Until fiscal 2004, we used the Monte Carlo simulation method, but from fiscal 2005 we have switched to the historical simulation method, which allows us to calculate VaR in a way that more accurately reflects actual market movements. Managing Departments Market risk can be divided into various factors: foreign Other market- related operations Market operations (Treasury Unit) International Banking Unit (ALM of overseas branches and subsidiaries) Group Companies’ market operations exchange rate, interest rate, equity price, and option risks. Fine- tuned management for each risk category is achieved by employing the VaR method in conjunction with suitable indicators for managing the risk of individual financial instruments such as the basis-point-value (BPV) indicator, which measures the poten- Front Office Front/Back/Middle Offices tial change in earnings stated at market value for every 0.01 percentage-point fluctuation in interest rates. At SMBC, exposure limits are set on market risk related to its strategic equity investment and those of its main subsidiaries, and 50 SMFG 2005 reports regarding the observance of exposure limits are made to ■ SMBC’s Back-Testing Results (Trading Accounts) Marginal Profit or Loss (¥ billion) the Board of Directors and the Management Committee on a regular basis. In view of rising interest rates since June 2004, SMBC, after deliberations by the ALM Committee and the Management Committee, reduced the VaR on banking operations, a reflection of the effectiveness of its risk management. The VaR results of the trading and banking accounts on a consolidated basis for fiscal 2004 are shown below. 3.0 2.0 1.0 0 -1.0 -2.0 ■ SMBC’s VaR Results (Billions of yen) -3.0 0 1 2 3 4 VaR (¥ billion) June 2004 Sep. 2004 Dec. 2004 Mar. 2005 Trading Accounts 1.8 2.5 2.5 2.1 SMBC attempts to keep the stock price fluctuation risk related to its strategic equity investment at a level appropriate for the financial strength of the bank. To achieve this, we have been reducing the Banking Accounts 63.5 35.1 25.7 28.0 balance of shares. It was already brought down to within 60% of (Billions of yen) Tier I capital. Henceforth, our efforts over the medium-to-long term will be to further lower the level to approximately 50% of Tier I Maximum Minimum Average Trading Accounts 2.9 Banking Accounts 91.0 1.2 23.9 2.0 46.1 (VaR for a one-day holding period with one-sided confidence interval of 99.0% (computed using Monte Carlo simulation). The VaR model for trading accounts includes major consolidated subsidiaries. Figures for trading accounts exclude specific risks.) The market occasionally undergoes extreme fluctuations that exceed projections. To manage market risk, therefore, it is important to run simulations of situations that may occur only once in many years (stress tests). At SMBC, periodic stress tests are conducted to prepare for unforeseeable swings. The internal model used by SMBC (SMBC VaR) has been peri- odically evaluated by an independent auditing firm and certified as appropriate. In addition, the relationship between the VaR calculated with the model and the actual profit and loss data is back-tested. The back-testing results for SMBC’s trading accounts for fiscal 2004 are shown below. A data point below the diagonal line indicates a loss in excess of the predicted VaR for that day: there were no such excess losses during fiscal 2004. This demonstrates that the SMBC VaR model, with a one-sided confidence interval of 99.0%, is suffi- ciently reliable. capital. ■ Composition, by Industry, of Listed Equity 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, 2005) 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 At SMBC, liquidity risk is regarded as one of the major risks. So as not to be overly dependent on market-based funding to cover short-term cash outflows, SMBC’s liquidity risk management is based on a framework consisting of setting funding gap limits and guidelines, maintaining a system of highly liquid supplementary funding sources, and establishing contingency plans. In daily risk management operations, SMBC prevents a cumulative increase in liquidity risk by adjusting the funding gap limits and guidelines. For emergency situations, there are contin- gency plans in place to reduce the funding gap limits and guidelines and other measures. To prevent the possibility of mar- ket crises interfering with funding, SMBC carries highly liquid assets, such as U.S. Treasury securities, and has emergency bor- rowing facilities in place, which also enable foreign currency-denominated liquidity management. SMFG 2005 51 Operational Risk Operational risk is the possibility of losses arising from inadequate Systems Risk Systems risk is the possibility of a loss arising from the failure, mal- or failed internal processes, people and systems or from external function, or unauthorized use of computer systems. SMFG events. SMFG is working to raise the level of sophistication of its recognizes that reliable computer systems are essential for the management of operational risk across the whole Group by pro- effective implementation of management strategy in view of the IT viding an effective framework for the identification, assessment, revolution. We strive to minimize systems risk by drafting regula- control and monitoring of significant risk factors and by establish- tions and specific management standards, including a security ing systems for contingency and business continuity plans. policy. We also have contingency plans with the goal of minimizing At SMBC, on the basis of SMFG’s Groupwide basic policies losses in the event of a system failure. The development of such a for risk management, the Operational Risk Management systems risk management system ensures that the Group as a Department set up in the General Affairs Department is responsi- whole is undertaking adequate risk management. ble for centrally supervising overall operational risk management, At SMBC, safety measures are strengthened according to risk jointly with the departments specifically responsible for controlling assessment based on the Financial Services Agency’s Financial processing risk and systems risk. Inspection Manual, and the Security Guidelines published by The To facilitate effective operational risk management, these Center for Financial Industry Information Systems (FISC). departments collect and analyze internal historical data on losses, Because computer-related trouble at financial institutions now assess internal control, and undertake risk management according has greater potential to impact the public, and with systems risk to the risk characteristic, such as processing and systems risk. diversifying owing to the IT revolution, the resulting expansion of In addition, SMBC controls its exposure to operational risk networks and the rise in the number of personal computer users, through risk capital allocation based on a quantification model. the necessary steps are taken to ensure the smooth, secure oper- Processing Risk Processing risk is the possibility of losses arising from negligent processing by employees, accidents, or unauthorized activities. SMFG recognizes that all operations entail processing risk. We are therefore working to raise the level of sophistication of our management of processing risk across the whole Group by ensur- ing that each branch conducts its own regular investigations of processing risk; minimizing losses in the event of processing errors or negligence by drafting exhaustive contingency plans; and carrying out thorough quantification of the risk under management. ation of our information systems. We have duplicated all systems and infrastructures, and the computer centers in eastern and western Japan have been fully proofed against earthquakes and other disasters. To maintain the confidentiality of customer infor- mation and prevent information leaks, sensitive information is encrypted, unauthorized external access is blocked, and all known countermeasures to secure data are implemented. There are also contingency plans and training sessions held as neces- sary to ensure full preparedness in the event of an emergency. To maintain security, countermeasures are revised as new technolo- gies and usage patterns emerge. In the administrative regulations of SMBC, in line with SMFG’s Groupwide basic policies for risk management, the basic Settlement Risk Settlement risk is the possibility of a loss arising from a transac- administrative regulations are summarized as “comprehending tion that cannot be settled as planned. Because this risk the risks and costs of administration and transaction processing, comprises elements of several types of risk, including credit, liq- and managing them accordingly,” and “seeking to raise the quality uidity, processing, and systems risk, it requires interdisciplinary of administration to deliver high-quality service to customers.” management. At SMBC, the Operations Planning Department is Adding new policies or making major revisions to existing ones for responsible for coordinating the management of settlement risk processing risk management requires the approval of both the with the Credit Planning Department, which oversees credit risk, Management Committee and the Board of Directors. and the Corporate Risk Management Department, which In the administrative regulations, SMBC has also defined oversees liquidity risk. specific rules for processing risk management. The rules allocate processing risk management tasks among six types of depart- ments: the Operations Planning Department, compliance departments, operations departments, transaction execution departments (primarily front-office departments and branches), the Internal Audit Department, and the Customer Relations Department. In addition, there is a specialized group within the Operations Planning Department to strengthen administrative procedures throughout the SMBC Group. 52 SMFG 2005 Corporate Social Responsibility As a new financial services complex in step with the needs of the In April 2005, SMFG established a Group CSR Committee, and 21st century, SMFG’s goal is to earn the highest trust of society SMBC established its own CSR Committee, as well as a CSR by meeting the public’s expectations and fulfilling its social Department within its Corporate Planning Department. responsibilities. Through these committees, SMFG is taking steps to adopt a Earning the highest level of trust requires the balanced more high-profile stance with regard to corporate social responsibility. provision of value to our four constituencies: customers, share- holders and the market, the environment and society, and employees. Through this process, we aim to contribute to the sustainable development of society as a whole, and to fulfill our corporate social responsiblity. Our framework for fulfilling our obligations to society is described in the Risk Management section and the Business Overview section, as well as the following pages. The main points are as follows. First, we will maintain sound management through the further enhancement of our management structure. To this end, we will further strengthen our capabilities in corporate governance, inter- nal audits, compliance, risk management, information disclosure and other aspects of our business. Second, we will prosper together with our customers by offering high value-added products and services. Third, we are committed to making continuous efforts in social contribution activities and environmental initiatives, to realize a better society and help preserve the integrity of the environment. Fourth, we foster a free and unrestricted working atmosphere that emphasizes respect for individuals and allows employees to realize their full potential. ■ Commitment to CSR by SMFG and SMBC Contributing to the sustainable development of society Customers Shareholders and market Society and environment Employees CSR activities at SMFG High value-added products and services Sound management Social and community activities and environmental activities Corporate culture that respects individuals Solid management structure (corporate governance, internal audits, compliance, risk management, information disclosure, etc.) Newspaper advertisement SMFG 2005 53 Corporate Governance The SMFG Corporate Governance System Further enhancement of corporate governance is a high-priority direct supervision of the Board of Directors and chaired by the president of SMFG, as the top decision-making body on business management issue at SMFG and all Group companies. administration and management supervision of the entire Group. SMFG employs the corporate governance system of the The committee, composed of directors chosen by the president, Japanese Commercial Code, in which the statutory auditors over- considers important matters relating to the execution of business, see the execution of business by the directors. At SMFG, we have and the president has the authority to make the final decision, in five corporate auditors, of whom three are outside auditors. The accordance with the basic policy determined by the Board of auditors monitor the execution of business operations of SMFG Directors, after considering the committee’s recommendations. and its subsidiaries by attending important management-level In addition to the above, SMFG also has a Group Strategy meetings, notably those of the Board of Directors, where business Committee to serve as a forum for the top management staff of all matters are reported on by the directors and executive officers. Group companies to exchange opinions and information on their They also peruse documents relating to important decisions, and respective business plans. With regard to the three Group companies are reported to by staff members of the internal audit depart- Sumitomo Mitsui Card Company, Limited, SMBC Leasing Company, ments, representatives of subsidiaries of SMFG, and independent Limited, and the Japan Research Institute, Limited, the director in auditors (certified public accountants). The Chairman of SMFG serves as the Chairman of the Board of Directors of SMFG. This is to separate the role of the president of SMFG, whose responsibility is to exercise overall supervision of the execution of business activities of SMFG and other Group companies from the role of supervising management. We also have outside directors to improve the effectiveness of the Board, as well as four committees—the Auditing Committee, the Risk Management Committee, the Compensation Committee, and the Nominating Committee—to improve its oversight function. Outside charge of each subsidiary serves as a part-time director of these com- panies to strengthen the supervision of SMFG over their operations. The SMBC Corporate Governance System To ensure sound and transparent management, SMBC separates the two functions of management: decision-making at the opera- tional level, and supervision of the management of the bank from a longer-term perspective. For this purpose, the bank employs a system in which executive officers are responsible for operational duties, while the supervisory function is exercised principally by directors are appointed to all these committees to facilitate the the Board of Directors. implementation of corporate governance from a suitably objective perspective. As the need for objectivity is particularly acute in the case of the Auditing Committee and the Compensation Committee, the chairmanship of these committees is assigned to outside directors. To ensure that the execution of the Group’s business operations is in conformity with the law, the outside directors are chosen from among the ranks of specialists such as certified public accountants and lawyers. The committees are delegated by the Board the responsibility for considering the issues listed below, and report to the Board. • Auditing Committee Significant issues relating to Groupwide internal auditing • Risk Management Committee Significant issues relating to Groupwide risk management and compliance • Compensation Committee Remuneration of Board members and executive officers of SMFG and SMBC 1. Issues related to remuneration, salaries, and incentive program 2. Other remuneration issues • Nominating Committee Appointment of directors of SMFG and SMBC 1. Issues related to the selection of candidates for Board directorships 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 SMFG has created the Management Committee, under the The chairman of the bank serves as the chairman of the Board of Directors, and to clearly separate his functions from those of the president of the bank, whose responsibility is to exercise overall supervision of the bank’s activities, the chairman does not simultaneously serve as an executive officer; instead, he is primarily responsible for supervising management in their exe- cution of operational duties. Following the practice at SMFG, outside directors—two in this case—are appointed to the Board of Directors of SMBC, with the aim of introducing an objective view- point so as to strengthen the supervision of corporate governance. Executive officers are selected by the Board to manage each of SMBC’s businesses. As of June 30, 2005, there were 68 exec- utive officers, including the president, 10 of whom concurrently serve as directors. The Management Committee, under the direct supervision of the Board of Directors, is the highest decision-mak- ing body at the operational level. The president chairs the committee and selects its members from the executive officers. The committee members consider important management issues in light of the policies laid down by the Board of Directors, and the president has the authority to make the final decision after considering the committee’s recommendations. The president designates certain members of the Management Committee as Authorized Management Committee Members in charge of particular head office departments, as well as supervisory officers, who are responsible for overseeing the operations of each business unit. All of these designated individu- als are charged with implementing the directives of the Management Committee within the businesses they oversee. 54 SMFG 2005 Internal Audit System An Outline of the Internal Audit System The Audit Department of SMFG is responsible for conducting Auditing of operations at each head office department focuses on the crucial themes that arise in the management of specific internal audits for the Group in a process separate from business operations and risk categories and emphasizes the oversight exercised by the Board of Directors on the verification of “Target Audits” across the whole of the bank’s orga- shareholders’ behalf. The Auditing Committee, which reports nization. Moreover, audits of branches and offices include the directly to the Board of Directors, was established in June 2005. verification of compliance and operational risk management The Internal Auditing Committee, which reports to the Group frameworks, as well as the checking of operations, and recom- Management Committee, has also been set up to raise the profile mendations are made in the case of problems. of internal auditing and facilitate the effective conduct of audits. The Credit Review Department audits credit risk management, The Internal Auditing Committee meets every quarter, and the including the accuracy of ratings and self-assessment. members discuss important matters relating to internal auditing Internal auditing departments have been set up at other based on reports prepared by the Audit Department. Group companies, according to the respective nature of each With the objective of helping realize optimal management and company’s line of business. business operations of the Group and ensuring the soundness of the Group’s assets, the Audit Department conducts internal audits of the operations of all units and departments. The audits have the additional aim of verifying that the Group’s internal control system, including compliance and risk management, is appropri- ate and effective. The Audit Department is also responsible for supervising the internal auditing systems of each Group company. It monitors the implementation of internal audits at each company and carries out its own audits directly when deemed necessary. By these means, we are able to verify the appropriateness and effectiveness of internal control of each Group company. Based on the results of these audits, suggestions are made and/or guid- ance provided, as necessary, to sections or departments of SMFG, or to Group companies. At SMBC, we have set up auditing departments independent of bank units involved in marketing activities. We established the Internal Audit Department and the Credit Review Department within the Internal Audit Unit. As at SMFG, in June 2005 the bank set up the Internal Auditing Committee, which reports to the Enhancing Efficiency of the Internal Auditing Process The Audit Department has adopted auditing methods in line with the standards of the Institute of Internal Auditors (IIA)*, an international body. It conducts risk-based audits and spreads the concepts and methods to the Group companies. Additionally, to effectively fulfill its role as the central body for internal auditing, the staff of the Audit Department constantly work to collect the latest information on internal auditing from inside and outside Japan and to distribute it to all Group companies. They also organize training courses, which are conducted by out- side experts, for all the staff of Group companies, and encourage the staff to obtain international qualifications, to raise their level of specialist expertise in internal auditing. To improve the effec- tiveness of auditing still further, we are also taking active steps to ensure that our internal auditing standards are in line with those set forth by the IIA, and these auditing standards are being introduced on a graduated basis at all Group companies. Management Committee. The committee receives reports on * The Institute of Internal Auditors (IIA) was founded in 1941 in the United important matters from the auditing departments and deliberates States as an organization dedicated to helping raise the level of special- on them. The Internal Audit Department is responsible for auditing the state of legal compliance, and the management of market, liquid- ity, operational, and systems risks at SMBC’s head office departments and domestic and overseas branches, and at all other business offices of SMBC subsidiaries in Japan and overseas. ization and professionalism of internal auditing staff. In addition to conducting theoretical and practical research, the IIA administers exami- nations for Certified Internal Auditor ® (CIA), which is the globally accepted qualification in the field. Group Strategy Committee [Subject of Audit] SMFG Shareholders’ Meeting Nominating Committee Board of Directors Risk Management Compensation Committee Committee Auditing Committee SMBC Shareholders’ Meeting Board of Directors Management Committee Internal Auditing Committee Corporate Auditors/ Board of Corporate Auditors Office of Corporate Auditors Corporate Auditors/ Board of Corporate Auditors Office of Corporate Auditors Management Committee Internal Auditing Committee [Subject of Audit] All Departments Internal Audits Audit Dept. Head Office/Business Units Internal Audits Internal Audit Unit Internal Audit Dept. Credit Review Dept. Audit Monitoring SMFG 2005 55 Compliance Compliance at SMFG Basic Compliance Policies At SMFG, as shown below, we have set out our Business Management of Legal Risk Legal risk, which refers to the possibility of loss (including Ethics—basic principles of social responsibility that we follow— reputational loss) arising from acts that break the law or violate the positioning the strengthening of the compliance system as one of conditions of contracts, principally as a result of failure to the Group’s top management priorities. Business Ethics I. Satisfactory Customer Services We intend to be a financial services complex that has the trust and support of our customers. For this purpose, we will always provide services that meet the true needs of our customers in order to obtain their satisfaction and confidence in the Group. II. Sound Management We intend to be a financial services complex which maintains fair, transparent, and sound management based on the principle of self-responsibility. For this purpose, along with obtaining the firm confidence of our shareholders, our customers, and the general public, we take a long-term view of our business and operate it efficiently, and actively disclose accurate business information about the Group. Through these procedures, we will maintain continuous growth on a sound financial basis. III. Contribution to Social Development We intend to be a financial services complex which contributes to the healthy development of society. For this purpose, we recog- nize the importance of our mission to serve as a crucial part of the public infrastructure and also our social responsibilities. With such recognition, we undertake business operations that con- tribute to the steady development of Japan and the rest of the world, and endeavor, as a good corporate citizen, to make a positive contribution to society. IV. Free and Active Business Environment We intend to be a financial services complex for which all officers and other employees work proudly and with great spirit. For this purpose, we respect people, and train and produce employees with professional knowledge and ability, thereby creating a free and active business environment. V. Compliance We intend to be a financial services complex that always keeps in mind the importance of compliance. For this purpose, we con- stantly reflect our awareness of these Business Ethics in our business activities. In addition, we respond promptly to directives from auditors and inspectors. Through these actions, we observe all laws and regulations, and uphold moral standards in our business practices. To carry out our mission of serving as a crucial part of the public infrastructure, and to fulfill our important social responsibilities as a financial services complex, we continuously strive to develop and evolve a more effective compliance system, and with this, become an outstanding global corporate group. 56 SMFG 2005 sufficiently examine the legal implications before taking action, has become a matter requiring even greater attention in recent years, owing to the widespread deregulation of the financial sector. Consequently, SMFG has laid down procedures for managing legal risk, collecting information on business laws and ordinances and examining the legal implications of new products, services and contracts under consideration. In these ways, SMFG is enhancing legal risk management. Group Management of the Compliance System Since the establishment of SMFG as a financial holding company in December 2002, we have been providing appropriate directions and guidance, as well as monitoring each Group company’s com- pliance system, from the perspective of ensuring the sound and proper conduct of business activities throughout the entire Group. Sumitomo Mitsui Financial Group, Inc. Corporate Auditors Audit Board of Directors Management Committee Outside Experts Guidance Directions Report Report on Results of Audit Audit Dept. Directions Compliance Committee Directions Report Compliance Group, General Affairs Dept. Monitoring Perform Audits Compliance System Oversight and Legal Support Report Departments and Offices General Manager responsible for compliance Compliance Officers to assist General Manager Management Report Management Report Group Companies SMBC, Sumitomo Mitsui Card, SMBC Leasing, and JRI Compliance at SMBC Strengthening the Compliance System: A Top Management Priority Compliance with laws, regulations, and other social standards is a To make this basic structure effective, the bank conducts the following operations. matter of course for corporations. Ensuring compliance is a partic- ularly important issue for banks because of their central role in the Compliance Manual Set out in accordance with the resolution of the Board of financial system and socioeconomic infrastructure. Directors, the Compliance Manual lays out specific Rules of Consequently, in accordance with the basic concept of Conduct. These Rules of Conduct comprise 60 items describing compliance instituted throughout the Group, SMBC expects and relevant laws and regulations, as well as providing procedural demands that all directors, officers, and other employees assign guidelines and specific examples of conduct that must be followed utmost value to maintaining people’s trust, abide by laws and reg- ulations, maintain high ethical standards, and act fairly and sincerely. SMBC’s Compliance System and Management As shown below, SMBC employs a dual structure whereby, firstly, by all directors, officers and employees of SMBC. Compliance Program The program’s primary objective is to effectively implement the compliance system at SMBC and its consolidated subsidiaries. The Board of Directors annually updates the compliance program. The Board of Directors decides concrete annual plans regarding each department and office is individually responsible for ensuring compliance, which include a review of rules and regulations, as that its conduct complies with laws and regulations, and secondly, well as the content and schedule of training programs, to further the independent Internal Audit Unit conducts impartial audits of department and branch compliance. strengthen the compliance system. Appointment of Compliance Officers A compliance officer has been assigned to each department and branch to ensure the integrity of the compliance system. Compliance Committee The Compliance Committee is a cross-sectional organization, ensuring that compliance issues are reviewed and discussed widely. It is chaired by the director responsible for compliance issues and includes the heads of relevant departments. To enhance objectivity, the Committee includes an outside legal expert who serves as an advisor. ■ Compliance System Overview Audit Reports Management Directions Auditing Role (Internal Audit Unit) Strict check as independent unit Directions Directions Autonomous Role (Business Units) Thorough advance check based on self-regulation Support Role (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. Responsible for planning the compliance system. Investigates legal issues in support of each unit. SMFG 2005 57 Environmental Preservation Initiatives SMFG and Environmental Issues SMFG assigns a high management priority to environmental issues. Our Group Environmental Policy sets out the Group’s basic action guidelines. We also have a Group CSR Committee which promotes coordinated, Groupwide environmental activities. The Group Environmental Policy Basic Concepts Recognizing the importance of realizing a sustainable society, SMFG is making continuous efforts to harmonize environmental preserva- tion and corporate activities, in order to support the economy and contribute to the general well-being of society as a whole. Specific Environmental Policies • We provide environment-friendly financial products, information, and solutions that help our customers in their efforts to preserve the eco-system • We devise ways to reduce levels of environmental risk posed by our own activities and those of society at large • We are determined to fulfill our social responsibilities through the conservation of resources, energy saving, and the reduction of waste • We enforce a policy of strict adherence to environment-related laws and regulations • We practice a high level of disclosure of information relating to the Group’s environmental activities, and make ceaseless efforts to improve our contribution to environmental preservation, incorporating the views of our staff and concerned persons from outside the Group • We place a high priority on thoroughly educating our staff in our environmental principles, and in ensuring that they conform to these principles in the performance of their work • We actively and effectively conduct environmentally aware management, and make continuous efforts to improve our system for tackling environmental issues, including by setting targets for each business term and reviewing them when deemed advisable • These policies are published on the Group’s website, and are also available in printed form upon request June 29, 2005 Teisuke Kitayama President Sumitomo Mitsui Financial Group, Inc. SMFG’s Environmental Action Plan The Group CSR Committee promotes coordinated Groupwide environmental activities. Based on our Group Environmental Policy, we have a three-pronged action plan focusing on: 1) The reduction of environmental impact 2) The practice of environmental risk management 3) The promotion of environment-related businesses The Group CSR Committee systematically follows the PDCA cycle of planning, performing, checking and improving in pursuing environmen- tal activities centered on these three areas. Group CSR Committee SMFG’s Environmental Action Plan and the PDCA Cycles Chairman Director of SMFG Supervisory Unit SMFG Corporate Planning Dept. Group CSR Committee • Committee members SMFG SMBC Sumitomo Mitsui Card SMBC Leasing JRI • Strategy Adviser JRI The Group Environmental Policy Implement environmental initiatives Reduce environmental impact Manage environmental risk Promote environment-related businesses PLAN DO CHECK ACT 58 SMFG 2005 ■ ■ ■ ■ ■ ■ SMFG Group Initiatives We have been focusing on providing information to our customers to raise their awareness of environmental issues. The major initiatives are as follows. ● Publication of Environmental Magazine SAFE This magazine, through which we provide environment-related information to our corporate clients, has been published on a bimonthly basis since 1996. Current circulation is approximately 4,000 copies, and it is sent to clients of our Group companies as well as customers that have participated in past “Environmental Seminars” (described later) and others. An Overview of SAFE Magazine ● 1st edition: April 1996 ● Published by: SMFG Public Relations Department ● Circulation: Approximately 4,000 per edition ● Major recipients: Each issue of this publication includes interviews with the top management of companies at the forefront of the environmental Clients of each company Central and local government offices, etc. preservation movement. It also introduces environmental tech- Available on SMFG’s Japanese-language website only nologies, highlights trends in legal regulations, and examines other current topics. ● SMFG Environmental Seminars The third SMFG environmental seminar was held on March 10 and 11, 2005, with the attendance of about 480 participants from around the country, primarily clients of Group companies. Lecture topics included “Climate Change and Financing.” A survey of participants indicated that they would like SMFG to provide information on environment-related issues. In the future, we intend to continue to support our customers’ environ- mental projects by holding more seminars, issuing magazines and periodicals, and publishing books. Environmental Initiatives Demanded of SMFG Environmental consulting etc. Information Funding Eco-funds, etc. 52% 18% 14% 16% ●Signatory to the UNEP Statement by Financial Institutions ● Inclusion of SMFG Shares in SRI* Index Funds SMFG’s stock is included in four of the world’s five major global The United Nations Environment Programme (UNEP), a UN indexes of socially responsible companies, reflecting SMFG’s organization dedicated to advancing environmental issues, has excellent reputation for environmental conservation initiatives and established a support structure for the promotion of the environ- social contribution activities (described later). mental preservation movement within each industry. Our company is a signatory to the UNEP Statement by Financial Institutions. ● Signatory to Carbon Disclosure Project (CDP) SMBC became a signatory to the Carbon Disclosure Project (CDP) in February 2005. The CDP serves a secretariat function in a process whereby institutional investors and financial institutions concerned over the issue of climate change cooperate in request- ing global corporations to disclose their worldwide policies and initiatives on environmental issues. * SRI (Socially Responsible Investment) refers to investment in companies that demonstrate responsible business conduct. Included in: FTSE4Good Global Index FTSE4Good Global 100 Index Ethibel Sustainability Index Global Morningstar Socially Responsible Investment Index Not Included in: Dow Jones Sustainability World Index SMFG 2005 59 Major Initiatives by Group Companies The chart below shows the various environment-related initiatives of Group companies, centered around the three prongs of our Environmental Action Plan: 1. The reduction of environmental impact 2. The practice of environmental risk management 3. The promotion of environment-related businesses Objectives Initiatives Reduce Reducing energy usage, such as electric power and water usage environmental Promoting green purchasing impact Reducing paper consumption Providing training on environmental issues Practice Establishing credit rules on companies with high environmental risk environmental Selling items that can be reused risk management Proposing policies and measures related to the environment Promote Promoting soil decontamination and helping companies apply for ISO environment-related certification businesses Promoting energy-conserving projects, such as ESCOs and ESPs Providing information (publishing books, etc.) SMBC Sumitomo Mitsui Card SMBC Leasing JRI ◯ ◯ ◯ ◯ ◯ — — ◯ — — ◯ ◯ ◯ ◯ — — — — — — ◯ ◯ ◯ ◯ ◯ ◯ — — ◯ — ◯ ◯ ◯ ◯ — — ◯ ◯ ◯ ◯ Reducing Environmental Impact Activities such as energy conservation in the office and reduction of paper consumption directly decrease the environmental impact of business activities. Specific measures focus on conserving natural resources by curbing the use of energy and paper, ratio- nalizing office work and minimizing expenses. In addition, each Group company has set certain targets for curbing the usage of electricity and other forms of energy (described later on pages 68-71). ● Aiming for a paperless office SMBC and the Japan Research Institute (JRI) are aiming for a paperless office through the widespread use of IT and the imple- mentation of business process reviews. Through the creation of databases, they are computerizing their in-house administrative operations. SMBC has installed an electronic forms system and has been switching to electronic forms for bank branches. Through these initiatives, the SMFG Group reduced its paper consumption by 66% as of March 31, 2005. ● Environmentally Friendly Direct Mail At SMBC, we use envelopes with glassine paper over the window formulate environmental measures. Electricity generated from April 2004 through March 2005 amounted to 912,000kWh. Green Power Certification System The Certificate of Green Power represents, in con- crete form, the merit of reducing the use of fossil fuels and CO 2 emissions, and increasing the use of natural forms of energy. SMBC has adopted this cer- tificate system as part of its voluntary energy conserva- tion and environmental measures. Practicing Environmental Risk Management Energy consumption and waste disposal are the immediate, obvi- ous detrimental effects of business activities on the environment. A less obvious impact is soil contamination. When the environ- mental impact of business activities becomes substantial enough portion when sending transaction statements and other direct mail to attract public attention, companies face increased expenses to individual customers. Because glassine paper does not emit and liabilities, such as declining sales and asset values as a result dioxin when burned, the envelopes can be recycled together with of legal and social requirements. As our clients are exposed to ordinary paper. ● Certificate of Green Power SMBC has adopted Japan Natural Energy Company Limited’s Green Power Certification System to conserve energy and greater risks, these risks pose greater risks to SMFG as well, and there is the possibility that the bank will have to make a decision to limit the credit it can extend to a client company. It is necessary for financial institutions to take such considerations into account when making credit decisions. 60 SMFG 2005 Environmental Risks Corporate Risk (Business Risk) Latent environmental impact (e.g. soil contamination, etc.) Obvious environmental impact (e.g. waste disposal) Legal and social requirements Reduced sales and asset values, higher expenses and liabilities SMFG’s risk Impact on credit-limit decisions An SMFG response for controlling credit limits In March 2004, SMBC concluded an “Environmental Inquiry Written Agreement” with the Japan Bank for International Cooperation (JBIC) to assist in strengthening environmental assessments. Under this agreement, when SMBC undertakes co-financing with JBIC, SMBC can have access to JBIC’s envi- ronmental assessment data. In November 2004, SMBC Leasing received the highest rating from the Development Bank of Japan for the company’s environ- mentally sensitive management promotion and investment sys- tem. Receiving this highest rating is evidence of the high regard in which the company’s environmental risk management and envi- ronmental business are held. JRI sounds the alarm about the environmental impact of cor- porate and household activities through media interviews and arti- cles, involvement in the activities of government and municipal committees, and by making announcements at various events. Moreover, JRI advises on policies related to these effects on the environment and recommends ways for coping with environmen- tal risks as part of the wide range of activities it undertakes to raise awareness about the environment Promoting Environment-Related Businesses Making use of each subsidiary’s special characteristics, SMFG conducts various environment-related business activities. Through these activities, we are planning to further strengthen relationships with our clients. Types of Environmental Businesses Environmental businesses Main target products and services Funding environment-related corporations (Project finance, syndicated loans, etc.) Introduction of environmental equipment, e.g. eco-cars Wind power generation, biomass power generation, etc. Risk hedging for bad weather Weather derivatives Providing investment products and operations-related services Eco-fund and Web Passbook Consulting Addressing soil contamination, facilitating the acquisition of ISO certification Incubating environment-related projects and services Soil decontamination, ESCO and ESP projects, etc. Providing information Publishing informational periodicals; holding seminars SMBC’s Activities ●Funding (Project Finance, Syndicated Loans, etc.) Project No. 1 On July 6, 2004, SMBC, as one of the lead arrangers, announced project financing worth ¥23 billion for a power generation pro- ject on the shore of Tokyo Bay that utilizes recycled industrial waste as fuel, and is part of the Super Eco-Town Project sponsored by the Tokyo Metropolitan Government. The power generation project is the largest of its kind in Japan. The initial invest- ment is scheduled to be recouped principally from waste treatment fees charged to the companies discharging the waste. This is the first case in Japan of the project finance method being employed by banks to fund the construction and operation of a waste treat- ment facility, which is subject to the full range of market risks. Project Structure Sponsor(s) Financial institutions The Government Contractors for construction, operation, and maintenance Contract for construction, operation, and maintenance Companies discharging waste Industrial waste Intermediate treatment companies Medical institutions Waste treatment contract Waste treatment contract I n v e s t m e n t Loan contract s si d ie b u S r g a l e s i c a d s n a B l a t , n a t r t c e e m e o s c n Tokyo Metropolitan Government Invitation of bids for Super Eco-Town Project contract Tokyo Waterfront Recycle Power Corp. Electric power facility Thermal recycling Power sales contract Sales contract (slag) Electric power company Construction materials suppliers Material recycling Recycling companies Industrial waste furnace Furnace for infectious medical waste Sales contract (metals, etc.) m Non-co fused ash Residual ash bustible m aterials, Landfill fees Disposal site SMFG 2005 61 Project No. 2 Syndication with local financial institutions is underway in Iwakuni ● Providing Financing (Mortgage Loans) SMBC is working with leading housing construction companies to City, in Yamaguchi Prefecture, for Iwakuni Wood Power Co., a provide mortgage loans that encourage people to purchase envi- wood biomass power generating company. Power generation ronmentally friendly houses. plants using wood chips made from the waste products of forestry projects and construction byproducts as fuel have been receiving much attention nationwide. The “carbon neutral” properties of bio- ● Weather Derivatives SMBC’s product lineup includes weather derivatives. Weather deriv- mass are also discussed in the Biomass Nippon Strategy issued atives are derivative instruments based on weather conditions such by a cabinet resolution in December 2002. Applying this property as temperature, rainfall, snowfalls, etc. They are used to hedge the to power generation can contribute to reducing the CO2 that is the risk of deterioration in operating profit resulting from unseasonable byproduct of energy. Project Structure for Iwakuni Wood Power Co. The First Energy Service Company Investment Green Energy Holdings, Inc. Investment Fuel suppliers Wood chips Biomass power generation company Iwakuni Wood Power Co. Electricity sales Suppliers of specified scale power generators, power retailers Syndicated loans Renewable Portfolio Standard (RPS) sales SMBC, regional banks Electric power utility companies and extraordinary weather caused by global warming, etc. SMBC is expanding its product lineup to further enhance customer conve- nience. Weather Derivatives Factors causing fluctuations in operating profit Economic factors (business trends, interest rates, exchange rate movements) Market factors (product development, market share) Social factors (fiscal policy, tax system) Factors due to natural phenomena Hedge against mild winters, cool summers and rainfall Project No. 3 In March 2003, SMBC supported funding of a wind-power genera- tion project in the Hibikinada area of Kitakyushu City through the Weather Derivative Needs project finance method. Project Structure Insurance company Electric power company Insurance contract Power sales contract City Grants permission for use of municipal land EPC contract and operation & maintenance contract Nippon Steel Corp. and 3 other companies Investment Sponsor support contract NS Wind Power Hibiki (SPC) Loan contract SMBC, regional banks Industry Major risk Hedge basis Gas Temperature Consumption declines due to fierce heat in summers and mild winters Electric power Temperature Air conditioning equipment manufacturing & sales Food and drink Restaurant industry Department store Tourism and leisure industries Sales declines due to cool summers and mild winters Fewer customers due to bad weather Slump in sales of seasonal products Fewer customers due to bad weather Refunds due to event cancellations Poor crops due to low or high rainfall, fierce heat or cool summers Rainfall Temperature Rainfall Temperature Snowfall Rainfall Temperature SMBC will continue to provide strong support to companies Outdoor theme parks engaged in building the infrastructure of a sustainable society, such as alternative energy sources like wind power and the com- Agriculture-related bustion of waste materials, for which demand is expected to rise steeply over the foreseeable future. 62 SMFG 2005 ● Sales of Eco-Funds SMBC’s investment trust product lineup includes the equity eco-fund “Eco Japan,” which is managed by UBS Global Asset Management (Japan) Ltd. The eco-fund is an investment trust that targets companies with excellent environmental management. JRI has been con- Record of deposits & withdrawals Customizing feature Web Passbook Calender Record of transactions signed the research for this fund, and donates a part of the profit ●Promoting Web21 (Internet banking for corporate relating to the research contract from the UBS eco-fund to the clients) Japan Committee of the World Wide Fund for Nature (WWF). SMBC is promoting Web21—Internet banking for companies— Eco Japan Structure JRI UBS Tokyo Stock Exchange 1st Section (approx. 1,500 companies) ⇒ Eco-selection (approx. 250 companies) Group selection (approx. 100 companies) SMBC Eco Japan sale ● Using “MC Stations” SMBC has set up “MC (Money-Lifestyle Consulting) Stations,” dedicated PC terminals that allow easy and paperless transac- tions at “MC Desks.” This takes advantage of the company’s know-how regarding the consultation-window work process culti- vated through “One’s D irect” Internet banking. It has substantially reduced the paperwork involved in the purchase of investment trusts and the repayment of loans ahead of maturity. This, in turn, has improved customer satisfaction, by reducing waiting times and enabling the provision of in-depth consultations. The and successor to the previous Exchange EB (Electronic Banking) Services system. This will ensure the provision of upgraded ser- vices, such as inquiries for trading account transaction statements and lump-sum remittances. Internet banking will contribute to reducing the volume of paper used for manuals and other docu- ments, as well as the number of CD-ROMs needed for software installation. Your firm Internet Inquiries, deposits, transfers, data transmission SMBC Database Depositing, fund transfers, and payment of taxes and various other charges Conduct banking transactions from your office Encrypted transmissions (128-bit SSL) Internet Banking Web21 Customer/Transaction Period ● Deposit or transfer (reservations for same-day processing, and also for the following business day). ● Lump-sum remittances (specified-date remittances made as a single package) ● Payment of taxes, various other charges Employment insurance premiums, corporate taxes, government employment insurance and national pension premiums, health insurance premiums, income taxes, consumption taxes, withholding tax introduction of this sys- tem has substantiallyre- duced the volume of paper used for applica- tion forms and various fliers, and thus con- tributes to environmental preservation. ● “Web Passbook ” Promotion Instead of issuing an ordinary bank passbook, SMBC has started issuing the “Web Passbook,” which allows for checking the con- tent of transactions via the Internet. This has helped the bank to greatly reduce its paper consumption. The system has yielded the benefit that the bank and passbook user simultaneously con- tribute to the preservation of the environment. A “Web Passbook” campaign held from May–July 2004 yielded around 130,000 appli- cations. A donation of ¥10 was made to the WWF for each appli- cant, for a total donation of roughly ¥1.3 million. SMFG 2005 63 ● Eco-Consulting Through collaboration between SMBC and JRI, SMFG ● Bio Net. Consortium JRI is actively promoting the commercialization of new fuels. undertakes eco-consulting, providing client companies with com- Following ratification of the Kyoto Protocol, Japan is committed to prehensive support for dealing with environmental reducing emissions of greenhouse gases by 6% from the level of management issues. Depending on the client’s needs, SMBC will 1990. Energy conservation alone will not enable us to meet this introduce JRI, which employs staff with a broad range of specialties difficult target. Japan must also promote the use of alternative to help the client. Such a system enables an appropriate and power sources, such as wind power, solar power and biomass. high-level response to customers’ diverse and sophisticated The Bio Net. Consortium aims at creating an infrastructure to needs. Consulting Structure Customer 1) Discussion deliver biogas generated from livestock waste, wastewater sludge and food waste to hospitals, manufacturing plants, restaurants and other facilities. Biogas is a carbon-neutral fuel (a fuel that will not increase atmospheric carbon dioxide when burned). The Bio Net. Consortium plans to conduct field tests in Hokkaido, the northern Japanese island where stock farming is a major industry. If the Hokkaido field tests prove successful, the next move will be to construct a nationwide network spanning ● Assistance in acquiring ISO 14001 certification ● Environmental accounting ● Soil contamination concerns SMBC 3) Consulting ● Energy conservation dairy farming areas from Tohoku to Kanto, and on to Kyushu, as well as food processing facilities and wastewater treatment facilities. Establish and maintain biogas facility Management company Livestock farmer Biogas 1) Establish small biogas facility for power generation Livestock farmer Information management Ascertain supply and demand Consumer (factories, hospitals etc.) 3) Supplied via gas cylinder 2) Retrieve only biogas Biogas Meal services factory (Meal service center) Biogas Livestock farmer Livestock farmer Digestion gas Sewage processing plant 2) Introduction JRI ● Eco-marketplace ● Environment-related private finance initiatives (Revised in March 2005) JRI’s Activities Apart from the aforementioned eco-consulting, JRI is actively promoting the incubation of environment-related start-ups. ● Soil Decontamination Consulting JRI provides a consulting service on soil contamination for clients holding land assets. Specifically, JRI’s experts conduct a simple assessment of the degree of contamination of the soil on the cus- tomer’s property, including an estimate of decontamination costs, and help the customer draw up a strategy for the usage of the property. In the event of the sale of the property, JRI provides sup- port services for more detailed soil contamination assessment and decontamination. This service enables customers to preserve environmental integrity without hindering the vigorous development of their business operations. ● Energy Service Provider (ESP) Initiatives An ESP provides energy conservation services for changing electricity charges from a fixed to a variable cost. The company E-cubic Co., Ltd., established by the JRI consortium, is Japan’s first ESP company. It uses as its main tools the gathering and analysis of electric power consumption data, and has developed a system that automatically draws up management reports to enable the “visualization” of energy consumption. This company’s corporate customers can obtain an accurate grasp of their daily levels of electricity consumption, and it is pos- sible for them to produce precise guidelines to identify and reduce energy wastage. Moreover, the service fees are paid for by the savings on energy costs. The potential market for this service, which targets mainly private-sector clients, is estimated at ¥100 billion (US$909 million). 64 SMFG 2005 ● MATICS Consortium The MATICS (Material Tracing IC System) Consortium has ● Micro Grid Business JRI runs the DESS (Decentralized Energy System & Software) developed systems and services employing IC tags for controlling Consortium, a group that investigates new business using micro the process by which waste is designated for reuse, recycling, or disposal. IC tags contain IC chips encrypted with data for system users, and data can be read or added without having to actually grids (control technology for a dispersed power supply network). Presently, as part of the policy to reduce CO2 emissions in the residential housing sector, the consortium is conducting research make contact. The use of IC tags makes it easy to trace the to ascertain the optimum control systems for realizing: reused or recycled product’s history. In addition, transport and 1) improved energy efficiencies processing details on a discarded item can be easily traced. The 2) improved power supply reliability (maintaining continuous consortium intends to apply this system to the recycling of auto- power supply even during power grid outages), and mobile parts, focusing on management of product quality data. 3) reduced energy costs using a model in which a small fuel cell is Management of disposed waste materials does not end with located in each housing unit inside multiple-unit buildings. tracing. A system is being developed to provide comprehensive By fiscal 2004, research activities had confirmed that these disposal management services that include reducing disposal aims are technically feasible. In fiscal 2005, actual development costs, increasing efficiency at disposal sites, and risk manage- and verification of the required software began. The consortium ment. In fiscal 2004, trials to verify the tracing of waste articles hopes to use the system in multiple-unit buildings by 2008. Apartment Building (Multiple units) 301 201 101 Power generator Heat-collecting layer Power generator Heat-collecting layer Power generator Heat-collecting layer 302 202 102 Power generator Heat-collecting layer Power generator Heat-collecting layer Power generator Heat-collecting layer Battery Controls Power line 1) Maintain balanced power supply and demand 2) Maximize power generation efficiency 3) Prioritized thermal loading operations Individual control device from medical organizations and factories were conducted at a large-scale hospital and an environmentally conscientious food industry firm. These trials confirmed the effectiveness of the system in improving operational efficiency. ● Energy Service Company (ESCO) Initiatives An ESCO is an integrated energy service company that carries out energy conservation audits of a building or facility, draws up conservation proposals, plans, designs and builds energy con- servation facilities and also guarantees energy reduction amounts. The First Energy Service Company, Limited (FESCO) was established by the JRI consortium, and is the first energy service company in Japan. It proposes measures for demand-side energy reductions ranging from lighting, air-conditioning, transformers and motive power to the supply of energy from dispersed sources (such as energy co-generation from all types of engines, fuel cells, biomass generation, etc.). ESCO corporations are a type of enterprise that have not existed in Japan until now, though in the U.S. they have formed a market that is valued in excess of ¥100 billion (US$909 million). The Ministry of Economy, Trade and Industry estimates that the market in Japan will expand to ¥130 billion (US$1.2 billion) in 10 years. ESCO was listed on the Tokyo Stock Exchange “Mothers” market in March 2005. SMFG 2005 65 ●Participation in a voluntary emissions trading system—an initiative of the Ministry of the Environment of Japan SMBC Leasing’s Activities ● ESCO Enterprise Initiatives SMBC Leasing supports ESCO companies indirectly by proposing JRI and SMBC are jointly participating in the voluntary emissions leases when energy-conservation equipment is to be installed trading system led by the Ministry of the Environment of Japan. based on FESCO’s energy-conservation proposals. SMBC This system enables participants to sell excess credits or pur- Leasing proposes arrangements whereby the energy service fee chase credits to make up for insufficiencies, depending on their and the lease fee are fixed within the range of cost-savings, and progress toward achieving their CO2 emissions reduction targets would therefore produce no additional cash-flow burden for (applied for in advance). Participating in the system helps compa- clients. nies deepen their understanding of the emissions trading process. ESCO Business Model Overview diagram 1. 2. 3. 4. 5. Set fiscal 2006 emissions targets, taking the average emissions volume for the period 2002 through 2004 as the standard (from among applicants, select participants showing the most substantial reductions in emissions). Fiscal 2005: Period for installing equipment (Environment Ministry provides subsidy). Fiscal 2006: Work to achieve reduction. At fiscal year-end: Verify achievement of target. Companies failing to achieve their target can consider repaying the subsidy, or offset shortfalls by trading emissions credits. Government 5-1. Subsidy termination 1. Setting CO2 reduction targets Subsidize 1/3 of expenses Company 2. Install energy- conserving facilities Not achieved 3. Efforts to reduce in one year (Emissions trading market) Company failing to achieve target Sale of excess credits 5-2. Purchase price Select 5-1, 5-2 Target achieved Company achieving target Buy and sell Other participants 4. Verify Target achieved Environment Ministry-related site http://www.env.go.jp/earth/ondanka/det/ 66 SMFG 2005 Facility owner Energy service fees Energy service contract Equipment manufacturer JRI Consortium FESCO Equipment delivery Equipment installment Installation contractor Lease fees Lease contract SMBC Leasing ●Business Collaboration with Development Bank of Japan Since the nineties, SMBC Leasing has been involved in activities to reduce environmental load. Through collaboration with compa- nies participating in the ESCO program, the company is leasing energy-saving equipment and raising lease renewal and resale rates. Through these and other initiatives, SMBC Leasing has been promoting its 3R (Reduce, Reuse and Recycle) program, part of initiatives to contribute to the realization of a recycling- oriented society. Through a new project financing system established in fiscal 2004, the Development Bank of Japan (DBJ) extends financial support to companies for which environmental considerations are emphasized as a management priority. SMBC Leasing has also received financing under this system. Moreover, SMBC Leasing and the DBJ entered into a business collaboration agreement, which they hope will lead to the expansion of business in the environment-related fields and contribute to the development of Japan’s economy. Specific Initiatives: 1. Popularizing the use of environmentally friendly equipment through collaboration in financing leases for such equipment 2. Developing financing programs, with leasing firms’ asset valuation and asset management know-how and socially responsible investment (SRI) as the key concept 3. Promoting environmentally friendly management at leasing firms in local areas ●Lease-up Eco Town Homepage SMBC Leasing on July 22, 2004 established a website, Lease-up Toward a Sustainable Society At SMBC and JRI, instruction on environmental management sys- Eco Town, a portal for selling equipment on which the leases have tems (EMS) is included as part of the annual training program. expired. Site Description ●Site name: Lease-up Eco Town (LET) ●Participating companies: SMBC Leasing Co., Ltd. Diamond Lease Co., Ltd. IBJ Leasing Co., Ltd. Fuyo General Lease Co., Ltd. ● Products offered: —Products on which lease periods have expired or lease contracts have been terminated, etc. —Industrial machinery, business equipment, forklifts and other equipment ● Target audience: Clients of the four participating companies, other companies (including sole-proprietorships), trading companies specializing in recycled items. (This service is not available to the general public.) Site Features ●This site is the first of its kind operated jointly by major leasing companies in the industry. ●It is an eco-site, in that it promotes the reuse of items on which the leases have expired, and extends their useful lives. ●This site offers a broad lineup of products which only a major leasing company is capable of providing. ●Participation in voluntary emissions trading system led by Japan’s Environment Ministry SMBC Leasing is participating in the Environment Ministry’s vol- untary emissions trading system together with Obihiro Matsushita Electric Works, Ltd. and Matsushita Electric Works Engineering Co., Ltd. This system enables participants to trade emissions credits by selling excess credits and purchasing insufficient cred- its, depending on progress made toward the achievement of their CO 2 emissions reduction targets (applied for in advance). Participating in the system helps companies deepen their under- standing of the emissions trading process. Acquisition of ISO 14001 Certification SMBC and JRI have acquired ISO 14001 certification, the interna- tional standard for environmental management systems. JRI also offers environmental management training programs through its e-learning systems. SMBC and SMBC Leasing are also considering the introduction of e-learning systems for envi- ronment issues. Corporate actions and individual actions must both function effectively if a sustainable society is to be achieved. We are pur- suing a wide range of activities to enhance the effectiveness of corporate and individual initiatives for achieving a sustainable society. Aiming at a Sustainable Society Corporate activities SMFG’s EMS Activities Clients (maximization of customer satisfaction) Regional community (continuous improvement of corporate image) Maximization of corporate value Investors (long-term improvement of shareholder value) Within the company (knowledge of EMS, etc.) Contributing as a corporate citizen to the realization of a sustainable society Directors, officers and employees raise their awareness of social and economic considerations Individual activities SMFG 2005 67 Appraisal standard .....Reached the objective .....Did not reach target but results have improved (over 80% of fixed numerical targets reached) .....Did not reach objectives Environmental Objectives and Achievements Fiscal 2004 SMBC Items Energy usage Waste processing load reduction Paper consumption Objectives Achievements Reduce power, water, gas usage by 6% from fiscal 2001 base value at headquarter buildings in Tokyo (Hibiya and Otemachi), Osaka and Kobe Reduced power by 10.3%, water by 10.5%, and gas by 8.2% — — — Reduce paper consumption at each head-office department by 2% compared to the base value (base value: average monthly usage for January-June 2004) Increased 0.2% over the base value Reduction of environmental impact Green purchasing Expand purchasing of stationery items that are covered under the Green Purchasing Law Materials distributed to customers Consider whether it is possible to draft guidelines for incorporating eco-friendly materials in the production of pamphlets and posters, etc. Employee training Conduct environmental management systems (EMS) training to teach all bank employees how to deal with environmental issues and raise awareness of environmental concerns Environmental risk measures Reduce the impact of clients’ environmen- tal risk on the bank’s credit risk Implement measures aimed at reducing environment risk for customers and the bank by controlling credit environment risk Switched over to 13 new eco-friendly items in fiscal 2004 (compared with fiscal 2003) Note: We have nearly completed the switchover. No targets have been set for fiscal 2005. (It is, however, being handled as a management issue.) Decided against drafting guidelines because the use of such materials is not cost effective. Achievements: 1) Increased usage of recycled paper 2) As much as possible, used eco-friendly materials for distributed printed matter and advertisements, etc. 1) Included an environmental awareness course in the training curriculum for new employees from fiscal 2004 2) Conducted EMS training at all branches, implementing EMS training beginning with senior staff first, then junior staff 1) Enforced credit-related regulations throughout the bank 2) Exchanged information with Japan Bank for International Cooperation (June 2004) Promote Web Passbook 1) Implement a program to promote “One’s Style,” a service targeting customers in their 20s and 30s (February-April 2004) 2) Implement Web Passbook campaign (May-July 2004) 3) Improve convenience of Web Passbook Initiatives were implemented as planned. Regarding the Web Passbook campaign, the bank donated ¥10 to the World Wide Fund for Nature (WWF) for each Web Passbook application. (During the campaign, the bank received approximately 130,000 applications, resulting in a donation of approximately ¥1.3 million). Provision of services Environment- related businesses — — — — — — — — — Client support 1) Offer clients support (soil contamination consulting, etc.) 2) Provide environment-related information (hold environmental seminars for clients) 3) Extend financial support to environmentally aware companies Product lineup Expand lineup of environment-related products and services 1) Raise awareness of environmental issues by conducting educational activities within the bank 2) Conduct PR events outside the bank 1) Witnessed a decline in the number of consulting contracts. 2) Implemented environmental seminars (March 2005). Extended the previous half-day session to a day-and-a-half session. Registered attendees: 480. 3) Promoted individual projects related to environmental businesses. Example: Organized project financing for a power generation project on the shore of Tokyo Bay that uses recycled industrial waste as fuel 1) Reviewed our eco-consulting lineup of services (March 2005) 2) Failed to develop standardized loan products for companies undertaking environmental initiatives 1) Distributed EMS cards to all officers and employees (July 2004) 2) Expanded environment-related section in the fiscal 2004 annual report (increased from 2 pages to 10 pages) − – − Public relations Inside and outside bank Consider eco- related social contributions, devise new measures 68 SMFG 2005 Fiscal 2005 SMBC Items Energy usage Objectives Specific Plans Reduce power, water and gas usage by 6% compared to 2001 base levels at headquarters buildings in Tokyo (Hibiya and Otemachi), Osaka, and Kobe. (Targets were set in line with the action plan submitted to the Tokyo Municipal government.) Encourage strict adherence to rules governing usage of electricity, gas and water ● — New ■ — Ongoing Waste processing load reduction Reduce waste by 2% compared with the fiscal 2004 level at all headquarter buildings. (Targets were set in line with an action plan submitted to the authorities.) Consider recycling and reuse of discarded waste Paper consumption Each head-office department will reduce its paper consumption by 2% compared with the fiscal 2004 level All head-office departments will work to meet targets Reduction of environmental impact Green purchasing — — — Materials distributed to customers Employee training 1) Produce eco-friendly advertising materials 2) Use eco-friendly envelopes for direct mailings 1) Continuously monitor the rate of usage of recycled paper and consider eco-friendly materials when ordering advertising and PR materials 2) Use envelopes with glassine paper over the window portion when sending transaction statements and other direct mailings to individual customers Conduct EMS training to teach all bank employees how to deal with environmental issues and raise awareness of environmental concerns 1) Introduce e-learning at all branches as part of employee training 2) Consider including an environmental awareness course (CSR training) in the curriculum for training new staff from fiscal 2006 Environmental risk measures Reduce the impact of clients’ environmen- tal risk on the bank’s credit risk 1) Continue to raise awareness about the risks of soil contamination 2) Collect information on environmental studies 1) Promote widespread use of e-learning in employee training at all branches 2) Consider measures concerning the collection and handling of data on environmental studies in line with an agreement with the Japan Bank for International Cooperation Promote Web Passbook 1) Promote Web Passbook in conjunction with One’s Style accounts 2) Promote Web Passbook in conjunction with One’s plus accounts Provision of services Promote Internet Banking Web21 1) Within the department handling Web21, established a team to work on promotion of this service 2) Promote business process reengineering at branches Make transactions with bank tellers paperless —Minimize the use of application forms at MC stations 1) Increase the number of MC stations 2) Implement training conducted by MC coaches, one bloc at a time Make card loan statements paperless —Discontinue the issuance of paper-based statements 1) Enable users to access their credit card loan balance and interest statement via a remote channel 2) Stop sending quarterly transaction statements via mail unless otherwise requested at the time of application Environment- related businesses Client support 1) Send environment-related information 2) Provide support to eco-friendly companies 1) Hold study sessions and regularly provide information 2) Improve eco-consulting performance over fiscal 2004 level Product lineup Provide full range of environment-related products 1) Investigate and developed new loan products 2) Consider hosting gatherings to promote discussions on environment-related businesses 1) Publicize within the bank through in-house publications, such as Public relations Inside and outside bank Consider eco- related social contributions, devise new measures 1) Raise awareness of environmental issues by conducting distributing EMS cards, etc. educational activities within the bank 2) Conduct PR events outside the bank 1) Encourage employees to participate in environment-related projects as volunteers 2) Devise new projects and means for furthering environmen- tal preservation efforts and making social contribution activities that contribute to society 2) Effectively disclose information by publishing environment- related magazines, posting information on the bank’s website, and including it in the online annual report 1) Hold riverbank clean-up, beach clean-up events 2) Devise new projects and measures, drawing on the examples of other companies SMFG 2005 69 ● ● ● ● ■ ■ ■ ■ ■ ■ ■ ■ ● ■ Fiscal 2004 Sumitomo Mitsui Card Company, Limited Appraisal standard .....Reached the objective .....Did not reach target but results have improved (over 80% of fixed numerical targets reached) .....Did not reach objectives Items Energy usage Objectives Achievements Reduce power usage per square meter by 2% from the fiscal 2002 base level Reduce water usage by 2% per employee from the fiscal 2002 level (excluding branches and service centers) Reduced power usage by 10%; reduced water usage by 24% Reduction of environmental load Paper consumption Reduce the per-employee consumption of copier paper from the fiscal 2002 base level Reduced power usage by 6% Green purchasing Introduce the exclusive use of recycled copier paper Exclusively using recycled copier paper Employee training Educate employees about environmental concerns on an ongoing basis, and provide them with environment-related information Held study meetings at each branch for all employees (December) Environment- related businesses Provision of services SMBC Leasing Company, Limited — — — Reduction of environmental impact Energy usage Reduce power usage Reduce water usage Paper consumption Reduce paper consumption (calculated on a purchase-price basis) Reduce usage per employee by 8% from fiscal 2001 base levels at Tokyo headquarters Reduced by 28.6% Reduced by 24.0% Reduced by 31.6% Number of employees at Tokyo headquarters: 272 (as of March 31, 2002) 343 (as of March 31, 2005) Green purchasing Employee training Expand green purchasing of stationery items Switching over to such items Conduct training to raise awareness of environmental issues and teach about initiatives being undertaken Publicized the company’s environment-related initiatives through in-house publications and training programs for new employees Environmental risk measures Promote reuse Improved the reuse rate (acquisition price ÷ scrap value at lease-expiration date) Targeting a reuse rate of 9% Reuse rate: 8% (down 0.5% from the previous year), however sales-and-reuse rate improved 0.8% Environment- related businesses JRI Reduction of environmental impact Client support Promote leases that contribute to environment-related businesses Provided low-energy-consumption leases (¥4.7 billion) Energy usage Reduce ordinary power usage: reduce the usage per square meter by 3% from the fiscal 2002 base level Reduced 2.6% from the base level Achievement rate: 86.7% Paper consumption Reduce per-person paper consumption of copier paper by 6% from the 2002 base level Per-person paper consumption declined 1.7% compared with the base-year level. Achievement rate: 28.3% Green purchasing Promote continuous green purchasing of stationery items and PCs, etc. Achievement rate: over 99% Realized an achievement rate of 99.6% for target items Employee Training Conduct training sessions about environmental issues on an ongoing basis, and provide employees with information on environment-related topics Conducted group training sessions, posted information on the intranet, thereby achieving objectives as planned Environmental risk measures Proposal of policies and measures Propose policies and publicize environment-related performances through various media announcements and events (820 points) Against a target of 820 points, realized an achievement rate of 92.0% Environment- related businesses Client support Develop new businesses in environmental fields; actively promote businesses related to the environment (target: 60 projects) Established 63 projects, surpassing the target of 60, for an achievement rate of 105% Provision of information Provide information through the publication of books on environmental issues; hold lectures and host seminars Proceeding as planned 70 SMFG 2005 Fiscal 2005 Sumitomo Mitsui Card Company, Limited ● — New ■ — Ongoing Items Objectives Specific Plans Energy usage Reduce power, water usage by 6% from fiscal 2002 base levels Hold study sessions in which employees are taught “eco” rules Reduction of environmental load Paper consumption Green purchasing Employee training Environment- related businesses Provision of services SMBC Leasing Company, Limited Reduction of environmental impact Energy usage Paper consumption Green purchasing Employee training Reduce paper consumption by 2% from the fiscal 2002 base level Continue efforts to raise employees’ awareness (e.g. encourage employees to use both sides of paper when photocopying) Expand green purchasing of stationery items Consider items other than copier paper as items for green procurement Conduct training sessions in each department and branch focusing on environmental issues on an ongoing basis, and provide employees with information on environment-related topics Continue to hold study meetings at headquarters and branches Promote the accessing of statements via the Internet — Reduce power usage Reduce water usage Reduce paper consumption Reduce usage per employee (in the Tokyo headquarters) by 20% from fiscal 2001 base levels Reduce overtime; prevent excessive air-conditioning Reduce handouts and materials, promote use of projectors Expand green purchasing of stationery items Continue policy to expand green purchasing Conduct training sessions about environmental issues on an ongoing basis, and provide employees with information on environment-related topics Conduct training sessions for new employees; consider the introduction of an e-learning system Environmental risk measures Promote reuse Reduce number of articles discarded following expiration of leases Effectively use Lease-up Eco Town (LET), an Internet site for selling used leasing equipment Environment- related businesses Client support JRI Promote leasing of eco-friendly equipment Develop and promote environmental alliances Energy usage Reduce ordinary power usage: reduce the usage per square meter by 5% from the 2002 base level Continue to promote business activities that take advantage of opportunities provided by the trend toward environmental preservation Form an alliance with the Development Bank of Japan; promote business alliances with the Tokyo Metropolitan Government and other public bodies In addition to ongoing measures, introduce new measure to reduce power consumption of equipment on standby status; considered measures for promoting low energy consumption year-round, instead of just in summer and winter Reduction of environmental impact Paper consumption Green purchasing Employee Training Reduce paper usage per employee by 6% compared with the fiscal 2002 base level Strictly implement the practice of printing on both sides of paper; consider making meetings “paperless” Continue green purchasing of stationery items and PCs, etc. (Target an achievement rate of over 99%) Consider ways to realize greater cost-effectiveness Conduct training sessions about environmental issues on an ongoing basis, and provide employees with information on environment-related topics Make greater use of Intranet; conduct review of e-learning education Environmental risk measures Proposal of policies and measures Propose policies and publicize environment-related performance through various media announcements and events To be undertaken by the think-tank consulting department; consider conducting a review of target points by reducing the number of departments to which this system is applied Environment- related businesses Client support Develop new businesses in environmental fields; actively promote businesses related to the environment (target: 60 projects) To be undertaken by the think-tank consulting department Provision of information Provide information by publishing environment-related material, holding lectures and seminars To be undertaken by the think-tank consulting department SMFG 2005 71 ● ● ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ Social Contribution Activities Our Three-Pronged Approach As a responsible corporate citizen, each SMFG company undertakes a wide range of activities to contribute to the welfare of society as a whole. By placing particular emphasis on social welfare activities and international cooperation, working together with private-sec- tor non-profit organizations that have expertise in these two areas, we are making various efforts to contribute to the develop- ment of a prosperous society worldwide. Volunteer activities play an important part in maintaining and improving the welfare of soci- ety as a whole, and we actively support the volunteer activities of our employees. We will continue to undertake social contribution activities with the hope of creating a better society for all. Social welfare activities International cooperation Employee volunteer activities Social Welfare Activities Group companies organize and participate in a wide range of social welfare activities, and also support organizations devoted to such causes to help create a more benevolent society. ● Donation of Voided Postcards SMBC collects voided or otherwise unusable postcards from employees of each Group company, exchanges them for new postal stamps and donates these stamps to volunteer organizations. ● SMBC Volunteer Fund The SMBC Volunteer Fund makes donations to volunteer organizations dedicated to providing assistance in cases of disas- ter and economic hardship. This fund is raised by SMBC employ- ees who make a voluntary contribution of ¥100 each month. About 9,400 employees were participating in the program as of June 2005. 72 SMFG 2005 Major Donations by the Fund in Fiscal 2004: ✱ The medical staff costs at institutions in Cambodia caring for orphans infected with AIDS. ✱ Donations for projects to in support rural villagers Bangladesh, including educa- tional programs to raise the level of literacy and improve hygienic conditions, and projects to generate income. ✱ Publishing costs for a book of Cambodian folktales entitled The Three Brothers, as well as the cost of hosting training semi- nars on reading for teachers in Cambodia, where books for children are extremely scarce. ✱ Scholarships for elementary school students in Laos and Cambodia, where many children are unable to attend school for economic and other reasons. ✱ Annual operating costs for a medical center in the slums of Haiti, where malaria, tuberculo- sis and other contagious dis- eases are rampant. ✱ Donations to cover the cost of medical equipment, medicines and other supplies for projects to prevent the spread of AIDS in poverty-stricken regions of Indonesia where minority ethnic groups live. ✱ Emergency Disaster Relief • Donations for disaster relief for people in Hyogo, Kyoto and other prefectures affected by powerful typhoons in October 2004 • Donations for disaster relief for areas affected by a major earth- quake that struck Niigata Prefecture in October 2004 • Donations for disaster relief for areas affected by the massive tsunami that struck northern Sumatra in December 2004 ● Donation of Unused Prepaid Telephone Cards SMBC collects unused prepaid telephone cards from employees each year, and donates them to volunteer organizations. ● Donation of Used Postal Stamps and Prepaid Cards Sumitomo Mitsui Card collects used postal stamps and prepaid cards from employees each year, and donates them to volunteer organizations. ✱ Donations to set up school libraries in Laos, where books for children are scarce, and also operating costs for children’s cultural centers for art education. ✱ Medical costs for people in Northern Afghanistan who have been injured in conflicts or by land mines. ✱ Donations to build elementary schools in poverty-stricken regions of Tanzania. ✱ Scholarships for girls in rural areas of China, where many chil- dren are unable to attend school for economic and other reasons. ✱ Financial support for the small businesses of poverty-stricken people in the Philippines. SMBC’s donations covered the production of training manuals and costs for microfinancing and consulting services. SMFG 2005 73 ● Support for Economic Education Program “Finance Park” SMBC has also implemented the UNICEF Donation Account program, through which customers donate their net interest to In June 2005, SMBC became a sponsor of the “Finance Park” economic UNICEF and SMBC donates a matching amount. ✱ Through its World Present points service for members of the VISA Japan Association, Sumitomo Mitsui Card collects education program, sup- donations from VISA cardholders every year and presents them ported by firms in the finan- to the Japan Committee for UNICEF. Total donations have cial, telecommunications, reached ¥216.2 million since the start of the program in 1992. restaurant, supermarket Sumitomo Mitsui Card also issues cards incorporating donations and other sectors. Working to specific charities, such as the UNICEF VISA Card and the Red closely with Junior Feather VISA Card (offered in cooperation with the Central Achievement Japan, an economic education organization that Community Chest of Japan). The company makes its own teaches youth about free enterprise, and the Shinagawa Ward donations to the working funds of all these organizations from its Office, the sponsors have built and operate booths modeled after card business revenues. actual retail stores. The booths have been set up in a vacant classroom in a junior high school in Shinagawa Ward in Tokyo. After learning the basics of finance, students get hands-on experi- ence through a variety of economic activities conducted at the booths in this make-believe shopping center, and learn about free enterprise. International Cooperation SMBC engages in a variety of international cooperation activities. ● Supporting UNICEF ✱ As a member of the steering committee for UNICEF’s “Change for Good” program, SMBC cooperates in the organization’s fundraising activities. Foreign coin collection boxes are placed at SMBC branches and offices in Japan, to encourage donations by the general public. The collected coins are sorted by currency with the cooperation of SMBC Green Service, one of our Group companies, before being sent to UNICEF. Total donations have reached ¥490.8 million since 1992, when the program started. (Please see photos and captions below.) 〜 Foreign Coins Collected for UNICEF 〜 ● SMBC GLOBAL FOUNDATION SMBC Global Foundation, Inc. awards financial grants to hundreds of students each year as part of scholarship programs with numerous universities in China, Indonesia, Thailand, Singapore, and other parts of Asia, as well as supporting the educational goals of Asian students abroad. In recent years, the Foundation has also been active in supporting educational institutions and community service organizations within the United States. ● SMBC Foundation Through its education and international exchange programs, the SMBC Foundation aims to help nurture the human resources nec- essary to achieve sustainable development in developing economies. The foundation offers scholarships to students from Asian countries attending universities in Japan and provides sub- sidies to research institutes around the world undertaking projects related to developing countries. Foreign coin collection boxes are placed at SMBC branches and offices. The coins are sent to SMBC Green Service, a Group member, along with those collected at airports and other locations nationwide, to be sorted by currency. ©UNICEF ©UNICEF Coins are sent back to their countries with the cooperation of all member companies of the steering committee of UNICEF’s ”Change for Good” program. These coins are then changed into U.S. dollars, and the funds are used by UNICEF for projects benefiting children worldwide. 74 SMFG 2005 Supporting Employees’ Volunteer Activities SMFG actively supports employees’ participation in volunteer ● Seminars for Experiencing Volunteer Activities SMBC holds events for its staff after working hours as well as on activities. We believe volunteer activities will help raise employ- weekends and holidays, enabling them to experience volunteer ees’ awareness of social issues. ● YUI—an SMBC Volunteer Organization At SMBC, we actively support YUI, an in-house volunteer organization. As members of YUI, SMBC employees plan and carry out a variety of welfare activities. The name derives from the Japanese word yui, a term describing a mutual support system among farmers that dates back to the Edo Period. The name indicates the group’s desire to cultivate ties with people from all walks of life. YUI undertook the following activities in fiscal 2004: ✱ Since fiscal 2002, the organization has been offer- ing computer courses for school children with impaired hearing every six months. These children are instructed using pen and paper and also sign language. ✱ Since fiscal 2001, YUI has held an annual bazaar, selling items collected from employees. Proceeds are donated to volunteer organizations. ✱ Since fiscal 2002, YUI has been hosting an annual variety show at a senior citizens center, presenting the senior citizens who regularly attend classes and other social activities at the center an opportunity to sing and perform on stage. ● Sign-Language Courses SMBC has been offering sign-language courses annually to its employees since fiscal 1997. These courses help employees to communicate better with hearing-impaired customers and improve customer service, while simultaneously enabling SMBC to make a social contribution through its business activities. In fis- cal 2004, 179 bank employees enrolled in the course. In April 2005, SMBC arranged a lecture in which the guest speaker, who was hearing impaired, shared her impressions about her daily life using sign language. The lecture, facilitated by an interpreter, was attended by 73 employees. After completing the course, employ- activities. SMBC also provides employees with information on var- ious volunteer activities, and encourages their participation in such events. The following initiatives were undertaken in fiscal 2004: ✱ An event was held for parents and children, teaching them how to provide support for people with complete or partial lack of sight. Demonstrations showed the proper use of seeing-eye dogs. Also, participants put on eye masks and tried to do simple tasks, like walking or eating. ✱ SMBC jointly hosted with other firms an event that gave disabled individuals an opportunity to enjoy sports like wheelchair bas- ketball, goal ball and boccia with athletes. ✱ SMBC jointly hosted with other companies an event in which vol- unteers were taught how to record lifestyle information col- lected from newspapers and magazines and post it on Internet websites for users with impaired vision. ● Neighborhood Cleanup Programs ees use what they have learned in various ways, such as in deal- In April 2005, approximately 170 employees took part in a ing with customers at the bank, or by participating in volunteer cleanup held along the banks of the Arakawa River in Tokyo. activities in which sign language is used, and also by teaching Participants also tested the quality of the water as part of the sign-language classes for beginners. event. ✱ At SMBC Leasing Company, Limited, the staff at the Osaka headquarters make extensive efforts to beautify the surround- ing area. Such efforts include a regular neighborhood cleanup conducted along Midosuji Street, a major thoroughfare. SMFG 2005 75 ✱ Human Resources Recognizing the vital role of human resources in its business operations, SMBC makes utmost efforts to help employees ● Job Categories The distinguishing feature of human resource management at realize their full potential and make optimum use of their skills. SMBC is a system based on a wide variety of job categories, SMBC Human Resources (HR) ● Objectives One of the crucial considerations in an HR system is that it embodies the company’s management philosophy. The primary goal of SMBC is to grow and prosper together with its three main stakeholder groups—its customers, shareholders and employees—and to achieve this goal, SMBC has established the following objectives for its HR system: ● Support the building of an even more powerful business base that can successfully compete on a global scale ● Cultivate staff with specialized skills who can provide customers with value-added services ● Motivate employees more strongly by respecting their individuality and encouraging them to seek personal fulfillment ● Foster a corporate culture that rewards a forward-looking and creative attitude responding to the diverse scope of our business activities and our need to cultivate specialists, as well as our desire to respect the preferences and priorities of each employee. ● Basic Policy on Job Evaluations, Remuneration and Promotions Employee evaluations are based on two factors. The first is performance, meaning the results that an individual delivers while performing a specific job. The second factor has two elements. One is aptitude, meaning the jobs for which an individual appears best suited. The other is potential, meaning the level of results that an individual appears capable of achieving. Concerning remuneration, SMBC uses as its basic framework a unique sys- tem called a “rank-based job grading system.” This system com- bines evaluations of both performance and potential based on a job grading system. Performance (scale of job and results) How did an individual perform in a particular job? Aptitude and Potential ● For what type of job is this individual best suited? ● What is this individual’s potential in this particular job? Job importance Degree of success Job aptitude Potential Job evaluation Evaluation of results Personnel evaluations (job aptitude, evaluation of potential) Remuneration and promotion Remuneration system (salary, bonus, other benefits) HR management (transfers, assignments, etc.) Rank-based job grading system 76 SMFG 2005 ● HR Management ● Putting the right staff in the right jobs At SMBC, we make efforts to place each person in the right job. HR Development ● Training Policy The basic policy for HR development is to cultivate staff with This is based on each individual’s aptitude and potential as specialized skills, in line with our management philosophy of pro- assessed by tests and other evaluation tools. Age does not figure viding customers with high value-added services. In accordance as a factor, and talented young employees are quickly given posi- with this basic policy, our training policy is to speedily foster pro- tions of responsibility to inject vitality into the workplace. fessionals who can help us compete successfully. ● Performance-weighted evaluations Under our comprehensive HR evaluation system, staff are ● Group Training To complement on-the-job training, SMBC offers a variety of assessed in accordance with their on-the-job performance, in a training courses to help employees obtain the practical skills they manner that all can understand and accept. Remuneration and require. The training system is divided into two major categories: promotions are then determined on the basis of these evalua- training by job category and training by job rank. tions. Furthermore, by reviewing evaluations in a timely and flexi- Training by Job Category ble manner according to an individual’s performance and other These courses give individuals knowledge and skills that are considerations, we facilitate an HR system that takes into full linked directly to their jobs. The following courses have been account each employee’s performance and skills. Through this established, with the stated objective, in each business unit. approach, SMBC aims to create a competitive and motivating employment framework. Corporate Banking ● Training to help new, young employees to quickly acquire useful skills ● Career development system One of the main features of the SMBC’s HR system is that every employee is encouraged to cultivate highly specialized skills befit- ting a financial professional. Each employee must have a thor- ● Support for executing key Corporate Banking initiatives ● Enhancing skills to create new sources of competitiveness Consumer Banking ● Quickly make newly appointed employees productive and ough awareness of his or her job aptitude and future career goals. raise their output It is vital that employees be able to realize their full potential. SMBC’s HR system includes a framework for providing support to ● Ensure that branch office managers acquire Financial Planner qualifications, as required by the new branch organizational enable each employee to take responsibility for advancing his or structure her career, known as the Professional Career System. The core ● Help employees to upgrade their skills concepts of this system are as follows. Training by Job Rank Basic Policy on Career Development Foster development of 価値提供を実現できるプロフェッショナルの養成 professionals who can provide value Help individuals to realize their full potential Professional career system Basic concept a. Cultivate skilled professionals b. Encourage individuals to design their own careers Programs a. Career development based on a framework of career categories b. An internal recruiting system for filling positions allows employees to design their own careers c. Career planning that incorporates the results of job aptitude tests This training is given to all employees having the same duties, seniority or job rank. There are two categories. First is training for specific jobs: this is aimed at increasing understanding of each job’s responsibilities and roles, as well as how to fulfill them. Second is seniority-based training to assist individuals in develop- ing their careers and skills in accordance with their seniority and job ranks. ● Applying for Training Programs Every employee drafts a career plan, and then submits applica- tions to undergo the training programs required for achieving the objectives specified in the career plan. ● Support for Self-Education As tools for self-education, SMBC provides e-learning, assistance in acquiring qualifications, correspondence courses and an inter- nal examination system. SMFG 2005 77 Employee Benefits System SMBC has an employee benefits system to create a safe and ● Helping Employees Balance Work and Family Life SMBC has the following programs to assist employees in leading pleasant working environment. The system also helps employees fulfilling lives at work and at home. to lead healthy and fulfilling lives. ● Health Management SMBC has health development centers at three locations, System for rehiring former employees SMBC has a system under which employees who have resigned due to marriage, childbirth, child raising or care of a parent can including the head office. Responsible for managing the health of apply to be rehired within three years of their resignations. employees, the centers are staffed by industrial physicians, Leave for child raising nurses, hygienists and other professionals. Each health develop- SMFG allows employees to take leave for child raising until the ment center includes a medical clinic. On-site health consultations child becomes one and half years old. Shorter working hours In addition to conducting periodic medical examinations for all SMFG offers the possibility of shorter working hours to employees employees, hygienists and nurses visit business sites that do not who need to drop children off at a daycare facility and pick them have a health development center to provide health consultations. up at the end of the day. There are two types of shortened work Health checkups schedules: one that allows employees to specify a six-hour work- To detect diseases at an early stage and maintain good health, ing period each day, and another that allows employees to desig- SMBC conducts not only the annual health checkups required by nate one day each week as a holiday. law, but also adult disease medical checkups for detection of Support for child care/healthcare chronic diseases, complete medical checkups and other check- To reduce the economic burden on employees of child raising and ups according to age in cooperation with the SMFG health insur- other family requirements, SMBC offers, at a discount child care, ance association. baby-sitting, elderly parental care, health-related assistance and Annual health checkups: Ages 18 to 27, 29, 30, 31, 33, 34 other services provided by employee benefit service providers. Extensive annual medical checkups: Ages 28, 32, 36, 37, 39, 41, 43 Adult disease medical checkups: Ages 38, 42, 44 to 60 (except years for complete medical checkups) Complete medical checkups: Ages 35, 40, 45, 50, 55 Dental check-ups: Mental healthcare Ages 38, 42, 46 To help employees monitor their own mental health, SMBC has made available a stress-checking system on the Group’s intranet. In addition, the SMFG health insurance association provides tele- phone consultations and face-to-face consultations. Staff Profile March 31 Number of Employees Male Female Average age Male Female Average years of service Male Female 2003 24,024 17,158 6,866 38.6 40.5 32.9 16.6 18.3 12.4 2004 22,348 15,750 6,598 38.7 40.9 33.3 16.6 18.3 12.8 2005 21,020 14,635 6,385 39.0 41.2 33.7 16.9 18.5 13.2 Handicapped employee ratio (% of total) 2.04% 2.03% 2.09% 78 SMFG 2005 Financial Section and Corporate Data Financial Section SMFG Consolidated Balance Sheets ................................... 80 Consolidated Statements of Operations................... 81 Consolidated Statements of Stockholders’ Equity ................................................ 82 Corporate Data Sumitomo Mitsui Financial Group, Inc. Board of Directors, Corporate Auditors, and Executive Officers .......................................... 167 SMFG Organization ................................................ 167 Consolidated Statements of Cash Flows.................. 83 Sumitomo Mitsui Banking Corporation Notes to Consolidated Financial Statements ........... 85 Independent Auditors’ Report ................................... 116 Summary of Significant Differences between Japanese GAAP and U.S. GAAP .............. 117 SMBC Board of Directors, Corporate Auditors, and Executive Officers .......................................... 168 SMBC Organization ................................................ 170 Principal Subsidiaries and Affiliates Principal Domestic Subsidiaries ............................. 172 Supplemental Information.......................................... 122 Principal Overseas Subsidiaries ............................. 173 Principal Affiliates ................................................... 174 International Directory................................................ 175 SMFG Income Analysis (Consolidated) ................................ 126 Assets and Liabilities (Consolidated) ........................ 129 Capital Ratio (Consolidated) ...................................... 132 Capital (Nonconsolidated) ......................................... 133 SMBC Income Analysis (Consolidated) ................................ 138 Assets and Liabilities (Consolidated) ........................ 141 Income Analysis (Nonconsolidated) .......................... 143 Deposits (Nonconsolidated) ...................................... 148 Loans (Nonconsolidated) ........................................... 150 Securities (Nonconsolidated)..................................... 154 Capital Ratio ............................................................... 156 Ratios (Nonconsolidated)........................................... 157 Capital (Nonconsolidated) ......................................... 159 Others (Nonconsolidated) .......................................... 162 Trust Assets and Liabilities (Nonconsolidated)......... 164 SMFG 2005 79 Consolidated Balance Sheets Sumitomo Mitsui Financial Group, Inc. and Subsidiaries March 31 Assets Cash and due from banks (Note 9) ...................................................................... Deposits with banks (Notes 9 and 29) ................................................................. Call loans and bills bought .................................................................................. Receivables under resale agreements................................................................. Receivables under securities borrowing transactions .......................................... Commercial paper and other debt purchased (Note 29)...................................... Trading assets (Notes 3, 9 and 29)...................................................................... Money held in trust (Note 29)............................................................................... Securities (Notes 4, 9 and 29).............................................................................. Loans and bills discounted (Notes 5 and 9) ......................................................... Foreign exchanges............................................................................................... Other assets (Notes 6 and 9) ............................................................................... Premises and equipment (Notes 7, 9 and 16)...................................................... Lease assets (Note 8) .......................................................................................... Deferred tax assets (Note 25) .............................................................................. Deferred tax assets for land revaluation (Notes 16 and 25)................................. Goodwill ............................................................................................................... Customers’ liabilities for acceptances and guarantees ........................................ Reserve for possible loan losses ......................................................................... Total assets ........................................................................................................ Liabilities, minority interests and stockholders’ equity Liabilities Deposits (Notes 9 and 10) ................................................................................... Call money and bills sold (Note 9) ....................................................................... Payables under repurchase agreements (Note 9) ............................................... Payables under securities lending transactions (Note 9) ..................................... Commercial paper................................................................................................ Trading liabilities (Notes 9 and 11)....................................................................... Borrowed money (Notes 9 and 12) ...................................................................... Foreign exchanges............................................................................................... Short-term bonds (Note 13) ................................................................................. Bonds (Note 13) ................................................................................................... Due to trust account ............................................................................................. Other liabilities (Notes 9 and 14).......................................................................... Reserve for employee bonuses ........................................................................... Reserve for employee retirement benefits (Note 26) ........................................... Reserve for expenses related to EXPO 2005 Japan ........................................... Other reserves (Note 15) ..................................................................................... Deferred tax liabilities (Note 25)........................................................................... Deferred tax liabilities for land revaluation (Notes 16 and 25) ............................. Acceptances and guarantees (Note 9)................................................................. Total liabilities .................................................................................................... Millions of yen Millions of U.S. dollars (Note 1) 2005 2004 2005 ¥ 2,930,645 2,059,168 1,004,512 124,856 568,340 606,032 3,769,073 3,832 24,233,701 54,799,805 895,586 3,110,454 836,053 1,007,015 1,598,158 — 13,381 3,444,799 (1,273,560) ¥99,731,858 ¥71,188,131 4,971,462 405,671 3,868,001 374,100 2,110,473 2,142,873 478,482 1,000 4,339,497 50,457 2,363,786 23,816 34,792 231 1,093 45,259 90,994 3,444,799 95,934,927 ¥ 3,529,479 1,799,471 360,509 152,070 1,009,328 480,847 3,306,780 3,749 27,049,901 55,382,800 743,957 3,034,182 984,060 991,781 1,706,586 706 21,706 3,079,738 (1,422,486) ¥102,215,172 ¥ 68,852,890 6,292,495 1,098,449 5,946,346 282,700 1,873,245 2,360,474 572,755 — 4,002,965 36,032 3,591,818 22,226 40,842 116 862 40,181 56,391 3,079,738 98,150,534 $ 27,308 19,187 9,360 1,163 5,296 5,647 35,120 36 225,808 510,621 8,345 28,983 7,790 9,383 14,891 — 125 32,098 (11,867) $929,294 $663,326 46,324 3,780 36,042 3,486 19,665 19,967 4,459 9 40,435 470 22,026 222 324 2 10 422 848 32,098 893,915 Minority interests (Note 17) ............................................................................... 1,021,203 993,696 9,515 Stockholders’ equity Capital stock (Note 18)......................................................................................... Capital surplus ..................................................................................................... Retained earnings ................................................................................................ Land revaluation excess (Note 16) ...................................................................... Net unrealized gains on other securities (Notes 25 and 29) ................................ Foreign currency translation adjustments ............................................................ Treasury stock (Note 18)...................................................................................... Total stockholders’ equity................................................................................. Total liabilities, minority interests and stockholders’ equity......................... See accompanying notes to consolidated financial statements. 1,352,651 974,346 329,963 57,853 410,653 (79,883) (269,857) 2,775,728 ¥99,731,858 1,247,650 865,282 611,189 96,527 325,013 (71,764) (2,956) 3,070,942 ¥102,215,172 12,604 9,079 3,075 539 3,826 (744) (2,515) 25,864 $929,294 80 SMFG 2005 Consolidated Statements of Operations Sumitomo Mitsui Financial Group, Inc. and Subsidiaries Year ended March 31 Income Interest income: Interest on loans and discounts ...................................................................... Interest and dividends on securities................................................................ Interest on receivables under resale agreements........................................... Interest on receivables under securities borrowing transactions .................... Interest on deposits with banks....................................................................... Other interest income...................................................................................... Trust fees ............................................................................................................. 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 payables under securities lending transactions ............................ Interest on bonds ........................................................................................... Other interest expenses.................................................................................. Fees and commissions (Note 19) ........................................................................ Trading losses (Note 20)...................................................................................... Other operating expenses (Note 23).................................................................... General and administrative expenses.................................................................. Provision for reserve for possible loan losses...................................................... Other expenses (Note 24).................................................................................... Total expenses ................................................................................................... Income (loss) before income taxes and minority interests............................ Income taxes (Note 25): Current ............................................................................................................ Refund ............................................................................................................ Deferred .......................................................................................................... Minority interests in net income (loss).................................................................. Net income (loss) ............................................................................................... Millions of yen Millions of U.S. dollars (Note 1) 2005 2004 2005 ¥1,152,749 256,396 3,163 185 36,183 73,050 2,609 596,086 144,587 1,058,289 266,569 3,589,871 135,212 40,935 3,472 51,853 84,694 34,217 79,976 199 867,748 852,715 288,902 1,258,478 3,698,406 (108,535) 30,638 (8,869) 52,912 50,983 ¥ (234,201) ¥1,171,663 256,600 2,542 104 12,687 147,740 334 501,028 305,011 946,474 325,344 3,669,531 108,180 46,397 4,212 48,622 76,202 26,653 76,851 916 886,649 866,549 — 1,123,401 3,264,636 404,894 24,289 — 8,593 41,596 ¥ 330,414 $10,741 2,389 30 2 337 681 24 5,554 1,347 9,861 2,484 33,450 1,260 381 32 483 789 319 745 2 8,086 7,946 2,692 11,726 34,461 (1,011) 286 (83) 493 475 $ (2,182) Yen U.S. dollars (Note 1) Per share data: Net income (loss) ............................................................................................ Net income — diluted...................................................................................... Declared dividends on common stock ............................................................ Declared dividends on preferred stock (Type 1) ............................................. Declared dividends on preferred stock (Type 2) ............................................. Declared dividends on preferred stock (Type 3) ............................................. Declared dividends on preferred stock (First to Twelfth series Type 4) .......... Declared dividends on preferred stock (Thirteenth series Type 4) ................. Declared dividends on preferred stock (First series Type 6) .......................... ¥(44,388.07) — 3,000 10,500 28,500 13,700 135,000 67,500 728 ¥52,314.75 35,865.20 3,000 10,500 28,500 13,700 135,000 67,500 / $ (413.60) — 27.95 97.84 265.56 127.66 1,257.92 628.96 6.78 See accompanying notes to consolidated financial statements. SMFG 2005 81 Consolidated Statements of Stockholders’ Equity Sumitomo Mitsui Financial Group, Inc. and Subsidiaries Millions of yen Year ended March 31, 2005 and 2004 Capital stock Capital surplus Retained earnings Balance at March 31, 2003 ............................................. ¥1,247,650 Merger of consolidated subsidiaries ................................. Change due to decrease of affiliates ................................ Gains on disposal of treasury stock.................................. Transfer of land revaluation excess.................................. Change in tax rate and others .......................................... Cash dividends paid ......................................................... Net income ....................................................................... Change in net unrealized gains on other securities.......... Change in foreign currency translation adjustments ........ Change in treasury stock.................................................. Balance at March 31, 2004 ............................................. 1,247,650 Issuance of preferred stocks ............................................ 105,001 Change due to decrease of consolidated subsidiaries ..... Change due to decrease of affiliates ................................ Gains on disposal of treasury stock.................................. Transfer of land revaluation excess.................................. Transfer to deferred tax liabilities for land revaluation and others ............................................ Cash dividends paid ......................................................... Net loss............................................................................. Change in net unrealized gains on other securities.......... Change in foreign currency translation adjustments ........ Change in treasury stock.................................................. Balance at March 31, 2005 ............................................. ¥1,352,651 Land revaluation excess ¥101,440 ¥856,237 ¥311,664 (2,066) 54 9,044 (4,428) (484) 4,428 (33,306) 330,414 865,282 105,001 4,063 611,189 96,527 3 (2,719) 2,111 (2,111) (36,562) (46,421) (234,201) Net unrealized Foreign gains (losses) currency translation adjustments on other securities Treasury stock Total ¥ (24,197) ¥(53,515) ¥ (15,204) ¥2,424,074 (2,066) 54 9,044 — (484) (33,306) 330,414 349,211 (18,248) 12,248 3,070,942 210,003 3 (2,719) 4,063 — 12,248 (2,956) (18,248) (71,764) 349,211 325,013 (36,562) (46,421) (234,201) 85,639 (8,119) (266,900) (266,900) ¥(79,883) ¥ (269,857) ¥2,775,728 (8,119) 85,639 ¥974,346 ¥329,963 ¥ 57,853 ¥410,653 Year ended March 31, 2005 Balance at March 31, 2004 ............................................. Issuance of preferred stocks ............................................ Change due to decrease of consolidated subsidiaries ..... Change due to decrease of affiliates ................................ Gains on disposal of treasury stock.................................. Transfer of land revaluation excess.................................. Transfer to deferred tax liabilities for land revaluation and others ............................................ Cash dividends paid ......................................................... Net loss............................................................................. Change in net unrealized gains on other securities.......... Change in foreign currency translation adjustments ........ Change in treasury stock.................................................. Balance at March 31, 2005 ............................................. Capital stock $11,626 978 Millions of U.S. dollars (Note 1) Capital surplus Retained earnings Land revaluation excess Net unrealized Foreign gains (losses) currency translation adjustments on other securities Treasury stock $8,063 978 38 $5,695 $900 $3,028 $(669) $ (28) 0 (25) 20 (433) (2,182) (20) (341) $12,604 $9,079 $3,075 $539 $3,826 $(744) (2,487) $ (2,515) 798 (75) Total $28,615 1,956 0 (25) 38 — (341) (433) (2,182) 798 (75) (2,487) $25,864 See accompanying notes to consolidated financial statements. 82 SMFG 2005 Consolidated Statements of Cash Flows Sumitomo Mitsui Financial Group, Inc. and Subsidiaries Year ended March 31 1. Cash flows from operating activities: Millions of yen Millions of U.S. dollars (Note 1) 2005 2004 2005 Income (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 ........................... Net change in reserve for expenses related to EXPO 2005 Japan ........... Interest income .......................................................................................... Interest expenses....................................................................................... Net (gains) losses on securities ................................................................. Net gains from money held in trust ............................................................ Net exchange (gains) losses...................................................................... Net losses from disposal of premises and equipment ............................... Net gains from disposal of lease assets .................................................... 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, receivables under resale agreements, and commercial paper and other debt purchased ............. Net change in receivables under securities borrowing transactions .......... Net change in call money, bills sold and payables under repurchase agreements .......................................... Net change in commercial paper ............................................................... Net change in payables under securities lending transactions .................. Net change in foreign exchanges (assets)................................................. Net change in foreign exchanges (liabilities) ............................................. Net change in short-term bonds (liabilities)................................................ Issuance and redemption of bonds (excluding subordinated bonds)......... Net change in due to trust account ............................................................ Interest received ........................................................................................ Interest paid ............................................................................................... Net change in payable on trading and securities contracts ....................... Other, net ................................................................................................... Subtotal..................................................................................................... Income taxes paid...................................................................................... Net cash (used in) provided by operating activities................................. ¥ (108,535) 84,120 340,777 10,017 (27,142) (140,104) — 1,497 134,819 114 (1,521,728) 350,385 102,784 (0) (105,603) 63,973 (3,345) (468,577) 246,434 468,339 3,137,797 (806,192) (180,888) (245,726) (743,218) 440,987 (2,013,905) 91,400 (2,078,345) (151,254) (94,405) 1,000 130,498 14,424 1,553,995 (336,234) (1,020,879) (350,488) (3,223,208) (56,914) (3,280,122) ¥ 404,894 82,464 336,271 (4,260) (15,700) (824,917) (20,665) 221 (40,069) 116 (1,591,338) 310,267 (67,928) (121) 407,340 30,697 (1,870) 1,131,864 (929,787) 6,198,239 1,829,914 (1,338,888) (112,211) (1,299,305) (318,516) 971,914 (5,704,903) 94,900 1,139,101 5,016 175,444 — 152,514 30,078 1,636,935 (336,704) 1,188,672 27,099 3,546,782 (24,664) 3,522,118 $ (1,011) 784 3,175 93 (253) (1,306) — 14 1,256 1 (14,179) 3,265 958 (0) (984) 596 (31) (4,366) 2,296 4,364 29,238 (7,512) (1,686) (2,290) (6,925) 4,109 (18,765) 852 (19,366) (1,409) (880) 9 1,216 134 14,480 (3,133) (9,512) (3,266) (30,034) (530) (30,564) SMFG 2005 83 (Continued) Year ended March 31 2. Cash flows from investing activities: Millions of yen Millions of U.S. dollars (Note 1) 2005 2004 2005 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 stocks of subsidiaries........................................................... Net cash provided by (used in) investing activities ................................. ¥(46,309,832) 36,134,383 13,118,211 — 0 (56,945) 93,474 (396,497) 43,702 (2,970) 2,623,525 ¥(47,305,660) 30,688,033 13,967,819 (21,225) 42,259 (80,932) 20,839 (368,159) 37,678 (8,999) (3,028,346) $(431,512) 336,698 122,235 — 0 (531) 871 (3,694) 407 (28) 24,446 336 (673) 4,102 (2,189) 1,957 (433) 196 (368) (2,507) 84 505 (4) (5,617) 32,888 37 — 3. Cash flows from financing activities: Proceeds from issuance of subordinated debt........................................... Repayment of subordinated debt............................................................... Proceeds from issuance of subordinated bonds and bonds with stock acquisition rights ............................................................................ Repayment of subordinated bonds and bonds with stock acquisition rights ..................................................................................... Proceeds from issuance of stocks ............................................................. Dividends paid ........................................................................................... Proceeds from minority stockholders......................................................... Dividends paid to minority stockholders..................................................... Purchases of treasury stock....................................................................... Proceeds from sale of treasury stock......................................................... Net cash provided by financing activities ................................................. 4. Effect of exchange rate changes on cash and due from banks.............. 36,000 (72,212) 89,500 (195,000) 440,237 436,453 (234,983) 210,003 (46,463) 21,024 (39,457) (269,012) 9,063 54,199 (378) (150,713) — (33,360) 25 (33,196) (632) 24,058 137,134 (2,417) 628,488 5. Net change in cash and due from banks................................................... (602,776) 6. Cash and due from banks at beginning of year........................................ 3,529,479 2,900,991 7. Change in cash and due from banks due to merger of consolidated subsidiaries ........................................... 8. Change in cash and due from banks due to decrease of consolidated subsidiaries........................................ 3,941 — — (0) 9. Cash and due from banks at end of year .................................................. ¥ 2,930,645 ¥ 3,529,479 $ 27,308 See accompanying notes to consolidated financial statements. 84 SMFG 2005 Notes to Consolidated Financial Statements Sumitomo Mitsui Financial Group, Inc. and Subsidiaries Years ended March 31, 2005 and 2004 1. Basis of Presentation Sumitomo Mitsui Financial Group, Inc. (“SMFG”) was established on December 2, 2002 as a holding company for the SMFG group through a statutory share transfer (kabushiki iten) of all of the outstand- ing equity securities of the former Sumitomo Mitsui Banking Corporation (“former SMBC”) in exchange for SMFG’s newly issued securities. SMFG is a joint stock corporation with limited liability (Kabushiki Kaisha) incorporated under the Commercial Code of Japan. Upon formation of SMFG and completion of the statutory share trans- fer, the former SMBC became a direct wholly owned subsidiary of SMFG. SMFG has prepared the accompanying consolidated financial state- ments in accordance with the provisions set forth in the Japanese Securities and Exchange Law and its related accounting regulations, and in conformity with accounting principles generally accepted in Japan (“Japanese GAAP”), which are different in certain respects as to application and disclosure requirements of International Financial Reporting Standards. The accounts of overseas subsidiaries are based on their accounting records maintained in conformity with generally accepted accounting principles prevailing in the respective countries of domicile. The accompanying consolidated financial statements have been restructured and translated into English (with some expanded descriptions and the inclusion of consolidated statements of stock- holders’ equity) from the consolidated financial statements of SMFG 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 consoli- dated financial statements. Amounts less than one million yen have been omitted. As a result, the totals in Japanese yen shown in the financial statements do not necessarily agree with the sum of the individual amounts. The translation of the Japanese yen amounts into U.S. dollars are included solely for the convenience of readers outside Japan, using the prevailing exchange rate at March 31, 2005, which was ¥107.32 to US$1. The convenience translations should not be construed as representations that the Japanese yen amounts have been, could have been, or could in the future be, converted into U.S. dollars at that rate. 2. Significant Accounting Policies (1) Consolidation and equity method (a) Scope of consolidation Japanese accounting standards on consolidated financial state- ments 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. (i) Consolidated subsidiaries Number of consolidated subsidiaries is as follows: March 31 Consolidated subsidiaries ................... 2005 167 2004 165 Principal subsidiaries: Sumitomo Mitsui Banking Corporation (“SMBC”) THE MINATO BANK, LTD. (“MINATO”) Kansai Urban Banking Corporation Sumitomo Mitsui Banking Corporation Europe Limited Manufacturers Bank SMBC Leasing Company, Limited Sumitomo Mitsui Card Company, Limited (“SMCC”) SMBC Capital Co., Ltd. SMBC Finance Service Co., Ltd. SMBC Friend Securities Co., Ltd. The Japan Research Institute, Limited SMBC Capital Markets, Inc. Changes in consolidated subsidiaries in the fiscal year ended March 31, 2005 are as follows: Twenty-one companies including SMBC Financial Business Planning Co., Ltd. were newly consolidated due to establishment. At-loan Co., Ltd. was excluded from the scope of consoli- dation and treated as an affiliated company accounted for by the equity method because it became a consolidated sub- sidiary of Promise Co., Ltd. Five companies including Minato Card Co., Ltd. were excluded from the scope of consolidation because they were no longer a subsidiary due to merger. Thirteen companies including SMLC Indus Co., Ltd. became unconsolidated sub- sidiaries that are not accounted for by the equity method because they became silent partnerships for lease transactions. (ii) Unconsolidated subsidiaries Principal company: SBCS Co., Ltd. One hundred and seventeen subsidiaries including S.B.L. Mercury Co., Ltd. are silent partnerships for lease transac- tions and their assets and profits/losses do not belong to them substantially. Therefore, they were excluded from the scope of consolidation pursuant to Article 5 Paragraph 1 Item 2 of Consolidated Financial Statements Regulation. Total assets, ordinary income, net income and retained earnings of other unconsolidated subsidiaries have no mater- ial impact on the consolidated financial statements. (b) Application of the equity method Japanese accounting standards also require any unconsolidated subsidiaries and affiliates on which SMFG is able to exercise material influence over their financial and operating policies to be accounted for by the equity method. (i) Unconsolidated subsidiaries accounted for by the equity method Number of unconsolidated subsidiaries accounted for by the equity method is as follows: March 31 Unconsolidated subsidiaries ............... Principal company: SBCS Co., Ltd. 2004 4 2005 4 SMFG 2005 85 2005 49 (ii) Affiliates accounted for by the equity method Number of affiliates accounted for by the equity method is as follows: March 31 Affiliates ............................................ Principal companies: Promise Co., Ltd. Daiwa Securities SMBC Co. Ltd. Daiwa SB Investments Ltd. Sumitomo Mitsui Asset Management Company, Limited QUOQ Inc. Changes in affiliates in the fiscal year ended March 31, 2004 44 2005 are as follows: Eight companies including Promise Co., Ltd. newly became affiliated companies accounted for by the equity method due to acquisition of shares. Three companies including Sony Bank Incorporated were excluded from the scope of affiliated companies due to decrease in ratio of voting share ownership and other reasons. (iii) Unconsolidated subsidiaries that are not accounted for by the equity method One hundred and seventeen subsidiaries including S.B.L. Mercury Co., Ltd. are silent partnerships for lease transac- tions and their assets and profits/losses do not belong to them substantially. Therefore, they are not treated as affili- ated companies accounted for by the equity method pur- suant to Article 10 Paragraph 1 Item 2 of Consolidated Financial Statements Regulation. (iv) Affiliates that are not accounted for by the equity method Principal company: Daiwa SB Investments (USA) Ltd. Net income and retained earnings of unconsolidated subsidiaries and affiliates that are not accounted for by the equity method have no material impact on the consolidated financial statements. (c) The balance sheet dates of consolidated subsidiaries (i) The balance sheet dates of the consolidated subsidiaries are as follows: March 31 September 30..................................... October 31 ........................................ December 31...................................... January 31 ......................................... March 31 ........................................... 2004 5 1 65 2 92 2005 5 1 70 2 89 A consolidated domestic subsidiary changed its balance sheet date from December 31 to March 31 from the fiscal year ended March 31, 2004. Therefore, SMFG’s consoli- dated financial statements for the fiscal year ended March 31, 2004 include the subsidiary’s profit or loss for the period from January 1, 2003 to March 31, 2004. However, this change had no material impact on the consolidated financial statements. (ii) As for the companies whose balance sheet dates are September 30 and October 31, the accounts were provisionally 86 SMFG 2005 closed as of March 31 and January 31 for the purpose of consoli- dation, respectively. The other companies were consolidated on the basis of their respective balance sheet dates. Appropriate adjustments were made for material transactions during the periods from their respective bal- ance sheet dates to the consolidated closing dates. (2) Statements of cash flows For the purposes of the consolidated statements of cash flows, cash and cash equivalents represent cash and due from banks. (3) Trading assets/liabilities and trading profits/losses Transactions for trading purposes (seeking gains arising from short-term changes in interest rates, currency exchange rates, or market prices of securities and other market related indices or from variation among markets) are included in “Trading assets” or “Trading liabilities” on the consolidated balance sheet on a trade date basis. Profits and losses on trading- purpose transactions are recognized on a trade date basis, and recorded as “Trading profits” and “Trading losses.” Securities and monetary claims purchased for trading purposes are stated at the fiscal year-end market value, and financial derivatives such as swaps, futures and options are stated at amounts that would be settled if the transactions were terminated at the consolidated balance sheet date. “Trading profits” and “Trading losses” include interest received or paid during the fiscal year. The year-on-year valua- tion differences of securities and monetary claims are also recorded in the above-mentioned accounts. As for the deriva- tives, assuming that the settlement will be made in cash, the year-on-year valuation differences are also recorded in the above-mentioned accounts. SMBC accounts for foreign currency translation differences arising from currency swaps for trading purposes as “Trading assets” or “Trading liabilities” on a gross basis, pursuant to the “Treatment of Accounting and Auditing Concerning Accounting for Foreign Currency Transactions in Banking Industry” (JICPA Industry Audit Committee Report No. 25). (4) Securities As for securities other than trading purposes, debt securities that consolidated subsidiaries have the positive intent and ability to hold to maturity are classified as held-to-maturity securities and are carried at amortized cost (straight-line method) using the moving-average method. Investments in unconsolidated subsidiaries and affiliates that are not accounted for by the equity method are carried at cost using the moving-average method. Securities other than trading purpose securities, held-to- maturity securities and investments in unconsolidated subsidiaries and affiliates are classified as “other securities” (available-for-sale securities). Stocks in other securities that have market prices are carried at their average market prices during the final month of the fiscal year, and bonds and others that have market prices are carried at their fiscal year-end market prices (cost of securities sold is calculated using primarily the moving- average method). Other securities with no available market prices are carried at cost or amortized cost using the moving-average method. Net unrealized gains (losses) on other securities, net of income taxes, are included in “Stockholders’ equity,” after deduct- ing the amount that is reflected in the fiscal year’s earnings because of application of fair value hedge accounting. Securities included in money held in trust are carried in the same method as for securities mentioned above. (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 their local accounting standards. (6) Hedge accounting (a) Hedging against interest rate changes As for the hedge accounting method applied to hedging trans- actions for interest rate risk arising from financial assets and liabilities, SMBC applies deferred hedge accounting or fair value hedge accounting. SMBC applies the basic provisions of “Treatment for Accounting and Auditing of Application of Accounting Standard for Financial Instruments in Banking Industry” (JICPA Industry Audit Committee Report No. 24) to hedges on groups of large-volume, small-value monetary claims and debts with similar risk characteristics. SMBC assesses the effectiveness of such hedges in offsetting fluctuation in fair value arising from changes in interest rates, by classifying the hedged items (such as deposits and loans) and the hedging instruments (such as interest rate swaps) by their maturity. As for cash flow hedges, SMBC assesses the effectiveness of such hedges in fixing cash flows by verifying the correlation between the hedged items and the hedging instruments. SMBC also assesses the effectiveness of individual hedges. As for the accounting method, SMBC applies fair value hedge accounting to hedging transactions for reducing the exposure to market volatility of bonds classified as other secu- rities that are held for the purpose of Asset and Liability Management in order to more properly reflect the effectiveness of hedging transactions in the financial statements. offsetting the risk of changes in currency exchange rates by verifying that there are foreign-currency monetary claims and debts corresponding to the foreign-currency positions. In order to hedge risk arising from volatility of exchange rates for stocks of subsidiaries and affiliates and other securi- ties (excluding bonds) denominated in foreign currencies, SMBC applies deferred hedge accounting or fair value hedge accounting, on the conditions that the hedged securities are designated in advance and that sufficient on-balance (actual) or off-balance (forward) liability exposure exists to cover the cost of the hedged securities denominated in the same foreign currencies. (c) Transactions between consolidated subsidiaries As for derivative transactions between consolidated subsidiaries or internal transactions between trading accounts and other accounts (or among internal sections), SMBC man- ages the interest rate swaps and currency swaps that are desig- nated as hedging instruments in accordance with the strict criteria for external transactions stipulated in JICPA Industry Audit Committee Report No. 24 and No. 25. Therefore, SMBC accounts for the gains or losses that arise from interest rate swaps and currency swaps in its earnings or defers them, rather than eliminating them. Certain other consolidated subsidiaries apply the deferred hedge accounting or the short-cut method (exceptional treat- ment for interest rate swaps). A consolidated domestic sub- sidiary (a leasing company) partly applies the accounting method that is permitted by “Temporary Treatment for Accounting and Auditing of Application of Accounting Standard for Financial Instruments in Leasing Industry” (JICPA Industry Audit Committee Report No. 19). (7) Non-accrual loans Loans are generally placed on non-accrual status when their borrowers are classified as Bankrupt, Effectively Bankrupt or Potentially Bankrupt under the self-assessment rule (see (11) Reserve for possible loan losses). A portion of deferred hedge losses and gains, which was pre- (8) Bills discounted viously under the macro hedge, is no longer subject to hedge accounting. The deferred hedge losses and gains related to hedging instruments to which SMBC discontinued the appli- cation of hedge accounting or applied fair value hedge accounting as a result of the change mentioned above are rec- ognized as “Interest income” or “Interest expenses” over a 12- year period (maximum) from the fiscal year ended March 31, 2004 according to their maturity. Gross amounts of deferred hedge losses and gains on “macro hedge” at March 31, 2005 were ¥197,872 million ($1,844 million) and ¥167,948 mil- lion ($1,565 million), respectively. (b) Hedging against currency fluctuations SMBC applies deferred hedge accounting stipulated in JICPA Industry Audit Committee Report No. 25 to currency swap and foreign exchange swap transactions executed for the pur- pose of lending or borrowing funds in different currencies. Pursuant to JICPA Industry Audit Committee Report No. 25, SMBC assesses the effectiveness of currency swap and foreign exchange swap transactions executed for the purpose of Bills discounted are accounted for as financial transactions in accordance with JICPA Industry Audit Committee Report No. 24. SMFG’s banking subsidiaries have rights to sell or pledge bank acceptance bought, commercial bills discounted, documentary bills and foreign exchanges bought without restrictions. The total face value at March 31, 2005 and 2004 was ¥966,552 million ($9,006 million) and ¥1,023,057 mil- lion, respectively. (9) Premises and equipment Premises and equipment owned by SMFG and SMBC are gen- erally stated at cost less accumulated depreciation. Depreciation of premises is calculated using the straight-line method over the estimated useful lives of the respective assets. They calculated the depreciation cost for the fiscal year by pro- portionally allocating the estimated annual cost to the fiscal year. The estimated useful lives of major items are as follows: Buildings: 7 to 50 years Equipment: 2 to 20 years SMFG 2005 87 Other consolidated subsidiaries depreciate premises and equipment, and lease assets primarily using the straight-line method over the estimated useful lives of the respective assets and the straight-line method over the lease term based on the residual value of assets at the end of the lease term, respectively. (10) Software costs Capitalized software for internal use owned by SMFG and its consolidated domestic subsidiaries is depreciated using the straight-line method over its estimated useful life (basically five years). (11) Reserve for possible loan losses Reserve for possible loan losses of major consolidated sub- sidiaries is provided as detailed below in accordance with the internal standards for write-offs and provisions. doubtful claims in the amount deemed uncollectible based on assessment of each claim. For collateralized or guaranteed claims on bankrupt borrow- ers and effectively bankrupt borrowers, the amount exceeding the estimated value of collateral and guarantees is deemed to be uncollectible and written off against the total outstanding amount of the claims. The amount of write-off was ¥1,782,244 million ($16,607 million) and ¥1,236,148 mil- lion at March 31, 2005 and 2004, respectively. (12) 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. For claims on borrowers that have entered into bankruptcy, (13) Reserve for expenses related to EXPO 2005 Japan special liquidation proceedings or similar legal proceedings (“bankrupt borrowers”) or borrowers that are not legally or formally insolvent but are regarded as substantially in the same situation (“effectively bankrupt borrowers”), a reserve is provided based on the amount of claims, after the write-off stated below, net of the expected amount of recoveries from collateral and guarantees. For claims on borrowers that are not currently bankrupt but are perceived to have a high risk of falling into bankruptcy (“potentially bankrupt borrowers”), a reserve is provided in the amount deemed necessary based on an overall solvency assess- ment of the claims, net of the expected amount of recoveries from collateral and guarantees. Discounted Cash Flows (DCF) method is used for claims on borrowers whose cash flows from collection of principals and interest can be rationally estimated and SMBC applies it to claims on large potentially bankrupt borrowers and claims on large borrowers requiring close monitoring that have been classified as “Past due loans (3 months or more)” or “Restructured loans” whose total loans from SMBC exceed a certain amount. SMBC establishes a reserve for possible loan losses using the DCF method for such claims in the amount of the difference between the present value of principal and inter- est (calculated using the rationally estimated cash flows dis- counted at the initial contractual interest rate) and the book value. In the fiscal year ended March 31, 2004, the DCF method was not applied to the claims on large potentially bankrupt borrowers. For other claims, a reserve is provided based on the histori- cal loan-loss ratio. For claims originated in specific overseas countries, an addi- tional reserve is provided in the amount deemed necessary based on the assessment of political and economic conditions. Branches and credit supervision departments assess all claims in accordance with the internal rules for self-assessment of assets, and the Credit Review Department, independent from these operating sections, audits their assessment. The reserves are provided based on the results of these assessments. Reserve for possible loan losses of other consolidated sub- sidiaries for general claims is provided in the amount deemed necessary based on the historical loan-loss ratios, and for SMBC accounts for the exhibition expenses related to “The 2005 World Exposition, Aichi, Japan” as “Reserve for expenses related to EXPO 2005 Japan,” which includes the reserve that is stipulated in Article 57-2 of the Specific Taxation Measures Law. (14) Reserve for employee bonuses Reserve for employee bonuses is provided for payment of bonuses to employees, in the amount of estimated bonuses, which are attributable to the respective fiscal year. (15) Reserve for employee retirement benefits Reserve for employee retirement benefits is provided for pay- ment of retirement benefits to employees, in the amount deemed accrued at the fiscal year-end, based on the projected retirement benefit obligation and the fair value of plan assets at the fiscal year-end. Unrecognized prior service cost is amortized using the straight-line method, primarily over 10 years within the employees’ average remaining service period at incurrence. Unrecognized net actuarial gain (loss) is amortized using the straight-line method, primarily over 10 years within the employees’ average remaining service period, commencing from the next fiscal year of incurrence. Unrecognized net transition obligation from the initial application of the new accounting standard for employee retirement benefits is amortized primarily using the straight- line method over five years. A part of “Accounting Standards for Retirement Benefits” (issued by the Business Accounting Deliberation Council on June 16, 1998) was revised on March 16, 2005. As a result, the amount by which the plan assets exceed the projected ben- efit obligation (“unrecognized plan assets”) due to excess of the actual return on the plan assets over the expected return on the plan assets, or occurrence of prior service costs due to lowering of pension benefit levels was permitted to be recognized as assets and gains. SMBC implemented an early adoption of the revised standards from the fiscal year ended March 31, 2005 and treated the unrecognized plan assets as actuarial differ- ences. This accounting change had no impact on profit and loss accounts. 88 SMFG 2005 (16) Other reserves Reserves required by special laws are provided as follows: (a) Reserve for contingent liabilities from financial futures transactions is provided in accordance with Article 82 of the Financial Futures Transaction Law, in order to cover losses arising from financial futures transactions. (b) Reserve for contingent liabilities from securities transac- tions is provided in accordance with Article 51 of the Securities and Exchange Law in provision for losses arising from securities transactions. transactions and income/expenses on installment sales are as follows: (a) Recognition of lease-related income on lease transactions Primarily, 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. (b) Recognition of income and expenses on installment sales Primarily, installment-sales-related income and installment- sales-related expenses are recognized on a due-date basis over the full term of the installment sales. (17) Translation of foreign currency assets and liabilities (19) Valuation of consolidated subsidiaries’ assets and liabilities SMBC’s assets and liabilities denominated in foreign curren- cies 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. As for the accounting method of foreign currency transac- tions, SMBC and other domestic consolidated banking sub- sidiaries apply the hedge accounting pursuant to the basic provisions of JICPA Industry Audit Committee Report No. 25. Currency swaps and foreign exchange swaps for the purpose of lending or borrowing funds in different currencies are valu- ated at fair value and their fair-valued assets and liabilities are recognized on the consolidated balance sheet. Foreign currency translation differences arising from cur- rency swaps and forward foreign exchange transactions are accounted for as “Other assets” or “Other liabilities” on a gross basis pursuant to JICPA Industry Audit Committee Report No. 25. Other 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. (18) Lease transactions Financing leases of SMFG and its consolidated domestic sub- sidiaries, excluding those in which the ownership of the prop- erty is transferred to the lessee, are accounted for in the same method as operating leases. Standards for recognizing lease-related income on lease Assets and liabilities of consolidated subsidiaries including the portion attributable to the minority shareholders are valuated for consolidation at fair value when SMFG acquires control. (20) Amortization of goodwill Goodwill on Sumitomo Mitsui Card Company, Limited and SMBC Leasing Company, Limited is amortized using the straight-line method over five years and goodwill on other companies is charged or credited to income directly when incurred. (21) Appropriation of retained earnings Payments of dividends are accounted for as appropriations of retained earnings in the fiscal year when such appropriations are approved at the general shareholders’ meeting or, in the case of interim dividends, at the meeting of the Board of Directors. Cash dividends charged to retained earnings are those actu- ally paid during the fiscal year and consist of year-end divi- dends applicable to the preceding year and interim dividends for the current year. (22) Amounts per share Net income (loss) per share is calculated 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 outstanding during each fiscal year. Diluted net income per share reflects the potential dilution that could occur if preferred stocks and other contracts to issue common stocks were exercised. Declared dividends represent the cash dividends declared applicable to respective fiscal years, including dividends to be paid after the end of the fiscal year. 3. Trading Assets Trading assets at March 31, 2005 and 2004 consisted of the following: March 31 Trading securities ................................................................................................ Derivatives of trading securities........................................................................... Derivatives of securities related to trading transactions ........................................ Trading-related financial derivatives.................................................................... Other trading assets............................................................................................. Millions of yen 2005 ¥ 269,678 812 2,033 2,440,254 1,056,293 ¥3,769,073 2004 ¥ 80,766 139 595 2,135,318 1,089,960 ¥3,306,780 Millions of U.S. dollars 2005 $ 2,513 8 19 22,738 9,842 $35,120 SMFG 2005 89 4. Securities Securities at March 31, 2005 and 2004 consisted of the following: March 31 Japanese government bonds*1.............................................................................. Japanese local government bonds......................................................................... Japanese corporate bonds ..................................................................................... Japanese stocks*1, 2 .............................................................................................. Other*2 ............................................................................................................... Millions of yen 2005 2004 ¥13,636,577 486,884 3,243,443 3,516,280 3,350,515 ¥24,233,701 ¥14,448,940 506,263 2,651,971 3,637,892 5,804,833 ¥27,049,901 Millions of U.S. dollars 2005 $127,065 4,537 30,222 32,764 31,220 $225,808 *1 Unsecured loaned securities for which borrowers have the right to sell or pledge in the amount of ¥8,774 million ($82 million) are included in Japanese government bonds at March 31, 2005, and such securities in the amount of ¥15,849 million are included in Japanese government bonds and Japanese stocks at March 31, 2004. Loaned securities for which bor- rowers only have the right to pledge and not to sell in the amount of ¥99 million are included in Japanese government bonds at March 31, 2004. As for the unsecured borrowed securities for which SMBC has the right to sell or pledge and the securities which SMBC purchased under resale agreements, that are permitted to be sold or pledged without restrictions, ¥467,647 million ($4,358 million) of securities are pledged, and ¥192,791 million ($1,796 million) of securities are held in hand at March 31, 2005. The respective amounts at March 31, 2004 were ¥1,022,170 million and ¥165,047 million. *2 Japanese stocks and other include investments in unconsolidated subsidiaries and affiliates of ¥395,984 million ($3,690 million) and ¥208,201 million at March 31, 2005 and 2004, respectively. 5. Loans and Bills Discounted (1) Loans and bills discounted at March 31, 2005 and 2004 consisted of the following: March 31 Bills discounted................................................................................................... Loans on notes ..................................................................................................... Loans on deeds..................................................................................................... Overdrafts ........................................................................................................... Millions of yen 2005 2004 ¥ 525,763 4,847,367 42,211,430 7,215,244 ¥54,799,805 ¥ 644,002 6,296,717 40,919,508 7,522,572 ¥55,382,800 (2) Loans and bills discounted includes the following “Risk-monitored loans” stipulated in the Banking Law: March 31 Risk-monitored loans: Bankrupt loans*1............................................................................................ Non-accrual loans*2........................................................................................ Past due loans (3 months or more)*3............................................................... Restructured loans*4 ...................................................................................... Millions of yen 2005 2004 ¥ 68,337 1,398,964 29,441 730,701 ¥2,227,445 ¥ 96,413 1,767,862 51,538 1,382,168 ¥3,297,981 Millions of U.S. dollars 2005 $ 4,899 45,168 393,323 67,231 $510,621 Millions of U.S. dollars 2005 $ 637 13,035 274 6,809 $20,755 *1 “Bankrupt loans” are loans, after write-off, to legally bankrupt borrowers as defined in Article 96-1-3 and 96-1-4 of the Enforcement Ordinance No. 97 of the Japanese Corporate Tax Law (issued in 1965) and on which accrued interest income is not recognized as there is substantial doubt about the ultimate collectabil- ity of either principal or interest because they are past due for a considerable period of time or for other reasons. *2 “Non-accrual loans” are loans on which accrued interest income is not recognized, excluding “Bankrupt loans” and loans on which interest payments are deferred in order to support the borrowers’ recovery from financial difficulties. *3 “Past due loans (3 months or more)” are loans on which the principal or interest is past due for three months or more, excluding “Bankrupt loans” and “Non- accrual loans.” *4 “Restructured loans” are loans on which terms and conditions have been amended in favor of the borrowers (e.g. reduction of the original interest rate, deferral of interest payments, extension of principal repayments or debt forgiveness) in order to support the borrowers’ recovery from financial difficulties, excluding “Bankrupt loans,” “Non-accrual loans” and “Past due loans (3 months or more).” The amounts above include the trusted amount with the Resolution and Collection Corporation of ¥41 million ($0 million) and ¥7,522 mil- lion at March 31, 2005 and 2004, respectively, which is treated as off-balancing. 90 SMFG 2005 (3) Commitment line contracts on overdrafts and loans are agreements to lend to customers, up to a prescribed amount, as long as there is no violation of any condition established in the contracts. The amount of unused commitments at March 31, 2005 and 2004 was ¥37,440,642 million ($348,869 million) and ¥32,634,541 million, respectively, and the amount of unused commitments whose original contract terms are within one year or unconditionally cancelable at any time at March 31, 2005 and 2004 was ¥33,204,890 million ($309,401 million) and ¥29,806,280 million, respectively. Since many of these commitments are expected to expire without being drawn upon, the total amount of unused commitments does not nec- essarily represent actual future cash flow requirements. Many of these commitments include clauses under which SMBC and other consolidated subsidiaries can reject an application from customers or reduce the contract amounts in the event that economic conditions change, SMBC and other consolidated subsidiaries need to secure claims, or other events occur. In addition, SMBC and other consolidated subsidiaries may request the customers to pledge collateral such as premises and securities at the time of the contracts, and take necessary measures such as monitoring customers’ financial positions, revising contracts when need arises and securing claims after the contracts are made. 6. Other Assets Other assets at March 31, 2005 and 2004 consisted of the following: March 31 Prepaid expenses.................................................................................................. Accrued income................................................................................................... Deferred assets..................................................................................................... Financial derivatives* .......................................................................................... Other................................................................................................................... Millions of yen 2005 ¥ 37,677 264,704 597,825 792,007 1,418,239 ¥3,110,454 2004 ¥ 37,943 238,454 518,913 1,010,355 1,228,515 ¥3,034,182 Millions of U.S. dollars 2005 $ 351 2,467 5,570 7,380 13,215 $28,983 * Net amount of deferred unrealized losses on hedging instruments to which deferred hedge accounting is applied is reported as deferred losses on hedge and is included in “Financial derivatives.” Gross deferred unrealized losses and gains on hedging instruments before netting at March 31, 2005 were ¥527,374 mil- lion ($4,914 million) and ¥429,751 million ($4,004 million), respectively. The respective amounts at March 31, 2004 were ¥663,546 million and ¥564,122 million. 7. Premises and Equipment Premises and equipment at March 31, 2005 and 2004 consisted of the following: March 31 Land* .................................................................................................................. Buildings............................................................................................................. Equipment and others ......................................................................................... Total ................................................................................................................... Accumulated depreciation ................................................................................... * Includes land revaluation excess referred to in Note 16. 8. Lease Assets Lease assets at March 31, 2005 and 2004 were as follows: March 31 Equipment and others ......................................................................................... Accumulated depreciation ................................................................................... Millions of yen 2005 ¥ 411,545 487,686 465,828 1,365,060 (529,007) ¥ 836,053 2004 ¥ 513,874 534,250 523,115 1,571,240 (587,180) ¥ 984,060 Millions of yen 2005 ¥2,563,586 (1,556,570) ¥1,007,015 2004 ¥2,520,092 (1,528,311) ¥ 991,781 Millions of U.S. dollars 2005 $ 3,835 4,544 4,341 12,720 (4,930) $ 7,790 Millions of U.S. dollars 2005 $23,887 (14,504) $ 9,383 SMFG 2005 91 9. Assets Pledged as Collateral Assets pledged as collateral at March 31, 2005 and 2004 consisted of the following: March 31 Assets pledged as collateral Millions of yen 2005 2004 Cash and due from banks and Deposits with banks ......................................... Trading assets................................................................................................. Securities ........................................................................................................ Loans and bills discounted .............................................................................. Other assets .................................................................................................... Premises and equipment................................................................................. ¥ Liabilities corresponding to assets pledged as collateral Deposits ......................................................................................................... Call money and bills sold................................................................................ Payables under repurchase agreements ............................................................ Payables under securities lending transactions ................................................ Trading liabilities........................................................................................... Borrowed money ............................................................................................ Other liabilities .............................................................................................. Acceptances and guarantees ............................................................................ 75,769 630,553 6,492,047 1,524,286 1,080 — 12,745 3,976,469 393,895 3,283,601 143,819 7,566 14,072 144,023 ¥ 112,778 540,579 10,723,663 1,375,426 1,056 524 15,276 5,175,669 1,055,508 5,700,206 203,599 4,451 1,122 141,835 Millions of U.S. dollars 2005 $ 706 5,875 60,492 14,203 10 — 119 37,052 3,670 30,596 1,340 70 131 1,342 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, 2005 and 2004: March 31 Cash and due from banks and Deposits with banks .............................................. Trading assets...................................................................................................... Securities ............................................................................................................. Loans and bills discounted ................................................................................... Millions of yen 2005 ¥ 5,613 126,821 6,659,318 27,500 2004 ¥ 42,537 3,908 6,801,910 55,000 Millions of U.S. dollars 2005 $ 52 1,182 62,051 256 Premises and equipment included surety deposits and intangibles of ¥100,014 million ($932 million) and ¥112,628 million at March 31, 2005 and 2004, respectively. Other assets included initial margins of futures markets of ¥9,582 million ($89 million) and ¥8,130 million at March 31, 2005 and 2004, respectively. 10. Deposits Deposits at March 31, 2005 and 2004 consisted of the following: March 31 Current deposits .................................................................................................. Ordinary deposits ................................................................................................ Savings deposits................................................................................................... Deposits at notice ................................................................................................ Time deposits ...................................................................................................... Negotiable certificates of deposit ......................................................................... Other deposits ..................................................................................................... 11. Trading Liabilities Trading liabilities at March 31, 2005 and 2004 consisted of the following: March 31 Trading securities sold for short sales................................................................... Derivatives of trading securities........................................................................... Derivatives of securities related to trading transactions ........................................ Trading-related financial derivatives.................................................................... Millions of yen 2005 2004 ¥ 6,172,889 31,159,513 1,090,677 4,319,669 21,157,264 2,713,270 4,574,846 ¥71,188,131 ¥ 5,382,068 29,299,240 1,206,013 3,800,841 20,870,829 3,519,464 4,774,432 ¥68,852,890 Millions of yen 2005 ¥ 69,419 524 2,061 2,038,468 ¥2,110,473 2004 ¥ 32,658 242 940 1,839,404 ¥1,873,245 Millions of U.S. dollars 2005 $ 57,519 290,342 10,163 40,250 197,142 25,282 42,628 $663,326 Millions of U.S. dollars 2005 $ 647 5 19 18,994 $19,665 92 SMFG 2005 12. Borrowed Money Borrowed money at March 31, 2005 and 2004 consisted of the following: Millions of yen March 31 Bills rediscounted............................................................ ¥ Other borrowings*2......................................................... 2004 2005 11,576 ¥ — 2,131,297 2,360,474 ¥2,142,873 ¥2,360,474 Millions of U.S. dollars 2005 108 $ 19,859 $19,967 Average interest rate*1 Due 2.97% Apr. 2005 — Aug. 2005 1.47 Jan. 2005 — Perpetual 1.48% *1 Average interest rate represents the weighted average interest rate based on the balances and rates at respective year-end of SMBC and other consolidated subsidiaries. *2 Includes subordinated debt obligation of ¥734,097 million ($6,840 million) and ¥770,003 million at March 31, 2005 and 2004, respectively. The repayment schedule within five years on borrowed money at March 31, 2005 was as follows: March 31 Millions of yen 2005 Millions of U.S. dollars 2005 Within 1 year ...................................................................................................................... After 1 year through 2 years.................................................................................................. After 2 years through 3 years ................................................................................................ After 3 years through 4 years ................................................................................................ After 4 years through 5 years ................................................................................................ ¥703,518 224,614 151,415 119,289 120,220 $6,555 2,093 1,411 1,112 1,120 Millions of yen* 2005 2004 Millions of U.S. dollars 2005 Interest rate (%) Due ¥2,070,089 [366,976] 5,000 73,983 ($700,000 thousand) $20,490 0.51–2.60 Apr. 2005–Sep. 2024 89 700 2.50–3.00 Mar. 2012–Sep. 2024 4.32–6.02 May 2005–Sep. 2005 13. Bonds Bonds at March 31, 2005 and 2004 consisted of the following: March 31 Issuer Description SMBC: 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 ..................... Subordinated bonds, payable in British pound sterling ..... Subordinated bonds, payable in Euro................................ Other 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 ..................... Short-term bonds ............................................................. ¥2,198,996 [491,666] 9,500 75,124 ($700,000 thousand) [75,124] 400,000 664,900 174,287 350,000 483,100 171,640 ($1,624,000 thousand) ($1,624,000 thousand) 2,317 (£12,000 thousand) — 2,422 (£12,000 thousand) 173,437 (€1,250,000 thousand) 181,753 [92,403] 5,270 ($48,000 thousand) [1,209] 113 (A$2,000 thousand) 180,823 [67,865] 3,950 ($38,000 thousand) [521] 113 (A$2,000 thousand) [113] 3,007 [1,596] 345,613 [36,649] 107,320 1,000 [1,000] ¥4,340,497 4,872 [1,990] 546,491 [12,000] 108,332 ($1,000,000 thousand) ($1,025,000 thousand) — 1.71–2.62 Jun. 2010–Oct. 2014 3,727 6,195 0.4175–2.685 May 2011–Perpetual 5.93–8.15 Nov. 2011–Perpetual 1,624 23 1,616 6.98 4.375 Perpetual Oct. 2014 1,685 0.04–3.65 Feb. 2005–Oct. 2024 37 1.55–7.35 Jun. 2005–May 2009 1 7.00 Oct. 2005 28 3.90–4.35 Oct. 2005–Jun. 2018 3,220 0.00–6.00 Apr. 2005–Perpetual 1,000 8.50 9 0.14995 Jun. 2009 May 2005 ¥4,002,965 $40,444 * 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. SMFG 2005 93 The redemption schedule within five years on bonds at March 31, 2005 was as follows: March 31 Millions of yen 2005 Millions of U.S. dollars 2005 Within 1 year ...................................................................................................................... After 1 year through 2 years.................................................................................................. After 2 years through 3 years ................................................................................................ After 3 years through 4 years ................................................................................................ After 4 years through 5 years ................................................................................................ ¥674,536 409,086 421,960 422,335 554,863 14. Other Liabilities Other liabilities at March 31, 2005 and 2004 consisted of the following: March 31 Accrued expenses................................................................................................. Unearned income................................................................................................. Income taxes payable ........................................................................................... Financial derivatives ............................................................................................ Other................................................................................................................... 15. Other Reserves Other reserves at March 31, 2005 and 2004 consisted of the following: March 31 Reserve for contingent liabilities from financial futures transactions .................... Reserve for contingent liabilities from securities transactions............................... Millions of yen 2005 ¥ 128,568 178,394 33,190 689,318 1,334,314 ¥2,363,786 2004 ¥ 111,725 172,066 27,490 897,731 2,382,804 ¥3,591,818 Millions of yen 2005 ¥ 18 1,075 ¥1,093 2004 ¥ 18 843 ¥862 $6,285 3,812 3,932 3,935 5,170 Millions of U.S. dollars 2005 $ 1,198 1,663 309 6,423 12,433 $22,026 Millions of U.S. dollars 2005 $ 0 10 $10 16. Land Revaluation Excess SMBC revaluated its own land for business activities in accordance with the “Law Concerning Land Revaluation” (the “Law”) effective March 31, 1998 and the law concerning amendment of the Law effec- tive March 31, 2001. The income taxes corresponding to the net unrealized gains are deferred and reported in “Liabilities” as “Deferred tax liabilities for land revaluation,” and the net unrealized gains, net of deferred taxes, are reported as “Land revaluation excess” in “Stockholders’ equity.” Certain other consolidated subsidiaries revaluated their own land for business activities in accordance with the Law. The income taxes corresponding to the net unrealized gains (losses) are deferred and reported in “Liabilities” or “Assets” as “Deferred tax liabilities for land revaluation” or “Deferred tax assets for land revaluation” and the net unrealized gains (losses), net of deferred taxes, are reported as “Land revaluation excess” in “Stockholders’ equity.” Date of the revaluation SMBC: March 31, 1998 and March 31, 2002 Certain other consolidated subsidiaries: March 31, 1999 and March 31, 2002. Method of revaluation (provided in Article 3-3 of the Law) SMBC: Fair values were determined by applying appropriate adjustments for land shape and timing of appraisal to the values stipulated in Article 2-3, 2-4 or 2-5 of the Enforcement Ordinance of the Law concerning Land Revaluation (the Enforcement Ordinance No. 119) effec- tive March 31, 1998. Certain other consolidated subsidiaries: Fair values were determined based on the values stipulated in Article 2-3 and 2-5 of the Enforcement Ordinance No. 119. Total fair value of land used for business activities at March 31, 2005 and 2004, whose book value had been revaluated pursuant to Article 10 of the Law, was ¥21,022 million ($196 million) and ¥16,497 million lower than the book value, respectively. 17. Minority Interests SB Treasury Company L. L. C., a subsidiary of SMBC, issued noncu- mulative perpetual preferred securities, totaling $1,800 million in February 1998. SB Equity Securities (Cayman), Limited, a subsidiary of SMBC, issued noncumulative perpetual preferred securities, total- ing ¥340,000 million in February and March 1999. Sakura Preferred 94 SMFG 2005 Capital (Cayman) Limited, a subsidiary of SMBC, issued noncumula- tive perpetual 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. Capital Stock Capital stock consists of common stock and preferred stock. Common stock and preferred stock at March 31, 2005 and 2004 were as follows: Number of shares 2005 2004 March 31 Common stock.......................................................................................... Preferred stock (Type 1)............................................................................ Preferred stock (Type 2)............................................................................ Preferred stock (Type 3)............................................................................ Preferred stock (Type 4)............................................................................ Preferred stock (Type 5)............................................................................ Preferred stock (Type 6)............................................................................ Total......................................................................................................... Authorized 15,000,000 35,000 100,000 695,000 242,087 250,000 300,000 16,622,087 Issued and outstanding 6,273,792.49 35,000 100,000 695,000 157,187 — 70,001 7,330,980.49 Authorized 15,000,000 67,000 100,000 800,000 249,999 250,000 300,000 16,766,999 Issued and outstanding 5,796,010.53 67,000 100,000 800,000 165,099 — — 6,928,109.53 All of the preferred stock is noncumulative and nonparticipating for dividend payments, and shareholders of the preferred stock are not entitled to vote at a general meeting of shareholders except when the proposal to pay the prescribed dividends to shareholders is not sub- mitted to the general meeting of shareholders or is rejected at the general meeting of shareholders. Annual dividends per share of preferred stock (Type 1, Type 2, Type 3, First to Twelfth series Type 4, Thirteenth series Type 4 and First series Type 6) are paid to shareholders by ¥10,500, ¥28,500, ¥13,700, ¥135,000, ¥67,500 and ¥88,500, respectively. In cases of liquidation distribution, shareholders of preferred stock (Type 1, Type 2, Type 3, Type 4 and First series Type 6) will receive ¥3,000,000, ¥3,000,000, ¥1,000,000, ¥3,000,000 and ¥3,000,000 per share, respectively, and will not have the right to participate in any further liquidation distribution. SMFG may, at any time, purchase and retire preferred stocks out of earnings available for distribution to the shareholders. Shareholders of preferred stock may request SMFG to convert their preferred stocks into common stocks. The period during which the conversion may be requested (the “conversion period”) and the terms and conditions of conversion with respect to preferred stock (Type 1, Type 2 and Type 3) were determined by the resolution made in accor- dance with the provisions of Article 365 of the Commercial Code, of a shareholders meeting of SMBC. The conditions of conversion of pre- ferred stock (First to Twelfth series Type 4 and Thirteenth series Type 4) were determined by the resolution of the board of directors relating to the issuance of the relevant preferred stocks. The conversion period and conversion price* of each type of preferred stock are as follows: Preferred stock (Type 1): December 2, 2002 to February 26, 2009 ¥947,100 Preferred stock (Type 2): August 1, 2005 to February 26, 2009 Initial conversion price will be determined by a formula based on the average of the daily closing prices per share of common stock in regular transactions at the Tokyo Stock Exchange on each of the 30 consecutive trading days (excluding any day on which the closing price is not avail- able) commencing on the 45th trading day prior to August 1, 2005. (Initial conversion floor price: ¥947,100) Preferred stock (Type 3): December 2, 2002 to September 30, 2009 ¥644,200 Preferred stock (First to Twelfth series Type 4): February 8, 2003 to February 7, 2028 ¥322,300 Preferred stock (Thirteenth series Type 4): April 14, 2003 to July 12, 2005 ¥312,000 * Conversion prices are reset and adjusted pursuant to the appointed rules governing conversion of the preferred stocks. Any preferred stock (Type 1, Type 2, Type 3 and Type 4) with respect to which conversion has not been requested during the con- version period shall be mandatorily converted, as of the date immedi- ately following the last day of the conversion period (the “mandatory conversion date”), into such number of common stocks as is obtained by dividing the corresponding amount set forth below by the average of the daily closing prices per share of common stock in regular trans- actions at the Tokyo Stock Exchange on each of the 30 consecutive trading days (excluding any day on which the closing price is not available) commencing on the 45th trading day preceding the mandatory conversion date. If such average price is less than ¥500,000, in the case of preferred stock (Type 1, Type 2 and Type 4), or less than ¥258,330, in the case of preferred stock (Type 3), then the preferred stock shall be converted into such number of common stocks as is obtained by dividing the corresponding amount set forth below by the relevant amount described above: Preferred stock (Type 1): ¥3,000,000 per share Preferred stock (Type 2): ¥3,000,000 per share Preferred stock (Type 3): ¥1,000,000 per share Preferred stock (Type 4): ¥3,000,000 per share Shares of common stock held by SMFG and consolidated sub- sidiaries, and equity method unconsolidated subsidiaries and affiliates are as follows: March 31 Common stock ......................................... Number of shares (thousand) 2005 404 2004 14 SMFG 2005 95 Following stock option are granted to directors and employees at March 31, 2005: March 31 2005 Number of shares granted ................ 1,620 shares Type of stock.................................... Common stock Issue price ........................................ ¥673,000 per share Amount capitalized when shares are issued .................... ¥337,000 per share Exercise period ................................. From June 28, 2004 to June 27, 2012 The stock option had been issued by former SMBC pursuant to the resolution of the ordi- nary general meeting of shareholders held on June 27, 2002. SMFG succeeded the obliga- tions related to the stock options at the time of its establishment pursuant to the resolution of the preferred shareholders’ meetings held on September 26, 2002 and the extraordinary shareholders’ meeting held on September 27, 2002. 19. Fees and Commissions Fees and commissions for the years ended March 31, 2005 and 2004 consisted of the following: Millions of yen 2005 2004 Millions of U.S. dollars 2005 Year ended March 31 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 ............................................................................................................. ¥ 45,105 124,289 51,973 19,304 6,735 39,442 93,768 45,574 169,891 ¥596,086 ¥ 24,215 55,760 ¥ 79,976 ¥ 34,587 118,444 43,883 16,239 5,927 33,503 90,506 35,214 122,722 ¥501,028 ¥ 23,553 53,298 ¥ 76,851 20. Trading Income Trading income for the years ended March 31, 2005 and 2004 consisted of the following: Year ended March 31 Trading profits: Gains on trading securities ............................................................................. Gains on trading-related financial derivatives ................................................. Other ............................................................................................................. Trading losses: Losses on securities related to trading transactions .......................................... Other ............................................................................................................. Millions of yen 2005 2004 ¥ 7,857 136,224 504 ¥144,587 ¥ ¥ 199 — 199 ¥ 6,735 298,275 — ¥305,011 ¥ ¥ 904 11 916 21. Other Operating Income Other operating income for the years ended March 31, 2005 and 2004 consisted of the following: Year ended March 31 Gains on sale of bonds ......................................................................................... Gains on redemption of bonds ............................................................................. Lease-related income............................................................................................ Gains on foreign exchange transactions................................................................ Gains on financial derivatives .............................................................................. Other .................................................................................................................. Millions of yen 2005 ¥ 85,683 583 691,864 118,840 — 161,318 ¥1,058,289 2004 ¥132,651 65 654,218 — 11,472 148,066 ¥946,474 96 SMFG 2005 $ 420 1,158 484 180 63 367 874 425 1,583 $5,554 $ 226 519 $ 745 Millions of U.S. dollars 2005 $ 73 1,269 5 $1,347 $ $ 2 — 2 Millions of U.S. dollars 2005 $ 798 6 6,447 1,107 — 1,503 $9,861 22. Other Income Other income for the years ended March 31, 2005 and 2004 consisted of the following: Year ended March 31 Gains on sale of stocks and other securities .......................................................... Gains on money held in trust............................................................................... Equity in earnings of affiliates ............................................................................. Gains on disposal of premises and equipment ...................................................... Collection of written-off claims............................................................................ Gains on securities contributed to retirement benefits trust ................................. Gains on return of the entrusted portion of employee pension fund...................... Tax refund from the Tokyo Metropolitan Government ........................................ Interest on the tax refund from the Tokyo Metropolitan Government .................. Gains on reversal of reserve for possible loan losses............................................... Gains on reversal of reserve for possible losses on loans sold ................................. Other................................................................................................................... Millions of yen 2005 ¥129,258 0 27,142 4,909 1,032 75,275 — — — — — 28,951 ¥266,569 2004 ¥159,037 338 15,700 1,545 1,147 — 59,095 38,236 2,127 14,378 489 33,247 ¥325,344 23. Other Operating Expenses Other operating expenses for the years ended March 31, 2005 and 2004 consisted of the following: Year ended March 31 Losses on sale of bonds ......................................................................................... Losses on redemption of bonds............................................................................. Losses on devaluation of bonds............................................................................. Bond issuance costs.............................................................................................. Lease-related expenses.......................................................................................... Losses on foreign exchange transactions ............................................................... Losses on financial derivatives .............................................................................. Other................................................................................................................... Millions of yen 2005 ¥105,828 693 255 1,898 626,387 — 3,904 128,779 ¥867,748 2004 ¥107,950 764 110 1,070 588,504 56,960 — 131,288 ¥886,649 24. Other Expenses Other expenses for the years ended March 31, 2005 and 2004 consisted of the following: Year ended March 31 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 .............................................................................. Losses on sale of delinquent loans......................................................................... Losses on disposal of premises and equipment...................................................... Amortization of unrecognized net transition obligation for employee retirement benefits ....................................................... Provision for reserve for contingent liabilities from securities transactions ........... Other................................................................................................................... Millions of yen 2005 ¥ 759,399 6,910 224,266 — 147,984 68,883 17,876 23 33,133 ¥1,258,478 2004 ¥ 660,382 38,016 19,524 962 269,059 32,242 21,348 212 81,653 ¥1,123,401 Millions of U.S. dollars 2005 $1,204 0 253 46 10 701 — — — — — 270 $2,484 Millions of U.S. dollars 2005 $ 986 7 2 18 5,837 — 36 1,200 $8,086 Millions of U.S. dollars 2005 $ 7,076 64 2,090 — 1,379 642 166 0 309 $11,726 SMFG 2005 97 25. Income Taxes (1) Significant components of deferred tax assets and liabilities at March 31, 2005 and 2004 were as follows: March 31 Deferred tax assets: Millions of yen 2005 2004 Net operating loss carryforwards ........................................................... Write-off of loans.................................................................................. Reserve for possible loan losses .............................................................. Write-off of securities ........................................................................... Reserve for employee retirement benefits............................................... Depreciation ......................................................................................... Other .................................................................................................... Subtotal ................................................................................................ Valuation allowance .............................................................................. Total deferred tax assets ........................................................................ Deferred tax liabilities: Net unrealized gains on other securities ................................................ Gains on securities contributed to employee retirement benefits trust ... Leveraged lease...................................................................................... Undistributed earnings of subsidiaries................................................... Other .................................................................................................... Total deferred tax liabilities .................................................................. Net deferred tax assets .............................................................................. ¥ 926,210 545,008 470,016 401,414 92,852 8,389 109,942 2,553,833 (598,451) 1,955,381 (281,966) (53,001) (49,651) (9,108) (8,754) (402,482) ¥1,552,898 ¥1,030,860 286,808 549,411 351,143 95,722 8,642 114,996 2,437,585 (441,060) 1,996,524 (225,246) (26,808) (50,522) (11,818) (15,724) (330,119) ¥1,666,405 Millions of U.S. dollars 2005 $ 8,630 5,078 4,380 3,740 865 78 1,025 23,796 (5,576) 18,220 (2,627) (494) (463) (85) (81) (3,750) $14,470 (2) A reconciliation of the effective income tax rate reflected in the accompanying consolidated statements of operations to the statutory tax rate for the years ended March 31, 2005 and 2004 was as follows: Statutory tax rate.............................................................................................................................. Valuation allowance ................................................................................................................... Change in the effective statutory tax rate due to the revision of the local tax law ........................ Difference in the effective statutory tax rate between SMFG and consolidated domestic banking subsidiaries ....................................................................... Difference in the effective statutory tax rate between SMFG and consolidated overseas subsidiaries ...................................................................................... Equity in earnings of affiliates.................................................................................................... Dividends exempted for income tax purposes ............................................................................. Other......................................................................................................................................... Effective income tax rate .................................................................................................................. (3) External based-corporate enterprise taxes 2005 40.69% (140.70) — — 16.96 9.82 4.15 0.27 (68.81)% 2004 42.05% (18.93) (5.15) (2.70) — (1.47) (2.67) (3.02) 8.12% With the implementation of the “Revision of the Local Tax Law” (Legislation No. 9, 2003) on March 31, 2003, a part of the tax basis of enterprise taxes comprises “amount of added value” and “amount of capital” from the fiscal year commenced April 1, 2004. As a result, enterprise taxes that are calculated based on “amount of added value” and “amount of capital” are included in “General and administrative expenses” from the fiscal year ended March 31, 2005 pursuant to “Practical Treatment for Presentation of External Based-Corporate Enterprise Taxes in the Statement of Income” (Accounting Standards Board, Practical Solution Report No. 12). 26. Employee Retirement Benefits (1) Outline of employee retirement benefits Consolidated subsidiaries in Japan have contributory funded defined benefit pension plans such as employee pension plans, qualified pension plans and lump-sum severance indemnity plans. Some domestic consolidated subsidiaries have general type of employee pension plans. They may grant additional benefits in cases where certain requirements are met when employees retire. A consolidated subsidiary in Japan adopts defined-contribution pension plan. SMBC and some consolidated subsidiaries in Japan con- tributed some of their marketable equity securities to employee retirement benefit trusts. 98 SMFG 2005 (2) Projected benefit obligation March 31 Millions of yen 2005 2004 Millions of U.S. dollars 2005 — 1,632 (645) $(8,305) 8,465 160 17,876 215,420 (78,022) — 175,153 (69,163) ¥(892,421) 709,353 (183,068) ¥(891,311) 908,453 17,141 (D) .................................. (E)................................... (F)................................... (A) .................................. (B) .................................. (C)=(A)+(B) .................... (G)=(C)+(D)+(E)+(F)....... (H).................................. (G)–(H)........................... Projected benefit obligation Plan assets Unfunded projected benefit obligation Unrecognized net transition obligation from initial application of the new accounting standard Unrecognized net actuarial gain or loss Unrecognized prior service cost Net amount recorded on the consolidated balance sheet Prepaid pension cost (other assets) Reserve for employee retirement benefits (a) On January 26, 2004, SMBC received the approval from the Minister of Health, Labor and Welfare for exemption from future retirement benefit obligations with respect to the entrusted portion of the employee pension fund, in accordance with the implementation of the “Defined benefit enterprise pension plan law.” As a result, SMBC applied the temporary treatment stipulated in Article 47-2 of “Practical Guidelines of Accounting for Retirement Benefits (Interim Report)” (JICPA’s Accounting Committee Report No. 13), and derecognized retirement benefit liabilities on the entrusted portion and plan assets equivalent to the amount be returned on the day of approval. The amount of expected return of plan assets (minimum legal reserves) was ¥184,014 million at March 31, 2004. (b) On January 17, 2003, some domestic consolidated subsidiaries received the approval from the Minister of Health, Labor and Welfare for exemption from future retirement benefit obligations with respect to the entrusted portion of the employees pension fund, in accordance with the implementation of the “Defined benefit enterprise pension plan law.” On May 1, 2004, the subsidiaries also received the approval from the Minister of Health, Labor and Welfare for exemption from past retirement benefit obligations with respect to the entrusted portion, and adopted defined benefit pension plan. (c) Plan assets related to the general type of welfare pension plan at March 31, 2005 and 2004, amounted to ¥14,057 million ($131 million) and ¥32,501 million, respectively, and were not included in the “Plan assets” shown above. 123,131 157,924 ¥ (34,792) (27,792) 13,049 ¥ (40,842) 1,147 1,471 $ (324) (3) Pension expenses Year ended March 31 Service cost ............................................................................................... Interest cost on projected benefit obligation.............................................. Expected return on plan assets .................................................................. Amortization of unrecognized net transition obligation from initial application of the new accounting standard .................................. Amortization of unrecognized net actuarial gain or loss............................. Amortization of unrecognized prior service cost.......................................... Other (nonrecurring additional retirement allowance paid and other)........ Pension expenses....................................................................................... Gains on return of the entrusted portion of employee pension fund ........... Total......................................................................................................... (4) Assumptions Millions of yen 2005 ¥22,109 22,041 (21,048) 17,876 26,828 (9,159) 8,139 66,788 — ¥66,788 2004 ¥25,748 32,702 (23,033) 21,348 35,785 (6,062) 6,953 93,442 (59,095) ¥34,347 Millions of U.S. dollars 2005 $206 205 (196) 166 250 (85) 76 622 — $622 The principal assumptions used in determining benefit obligation and pension expenses at or for the years ended March 31, 2005 and 2004 were as follows: Year ended March 31 Discount rate ...................................................................................................... Expected rate of return on plan assets.................................................................. Allocation of estimated amount of retirement benefits ........................................ Term to amortize unrecognized prior service cost................................................ Term to amortize unrecognized net actuarial gain or loss .................................... Term to amortize unrecognized net transition obligation from initial application of new accounting standard............................................................. 2005 2004 1.5% to 2.5% 0.0% to 4.0% Allocated to each period by the straight-line method Mainly 10 years Mainly 10 years 1.5% to 2.5% 0.0% to 4.0% Allocated to each period by the straight-line method Mainly 10 years Mainly 10 years Mainly 5 years Mainly 5 years SMFG 2005 99 27. Cash Flows Assets and liabilities of the companies that were newly consolidated through acquisition of stocks in the fiscal year ended March 31, 2004 were as follows: Assets and liabilities at the time of consolidation and the expense (net) for acquisition with respect to acquisition of the three companies including former The Kansai Sawayaka Bank, Limited were as follows: March 31 Assets............................................................................................................................................................... Loans and bills discounted ............................................................................................................................ Liabilities ......................................................................................................................................................... Deposits ....................................................................................................................................................... Minority interests............................................................................................................................................. Goodwill.......................................................................................................................................................... Acquisition costs for the three companies’ stocks (a) ......................................................................................... Cash and due from banks of the three companies (b) ......................................................................................... Cash expenditure for acquisition of the three companies (a) – (b) ...................................................................... Millions of yen 2004 ¥800,118 593,042 (724,759) (682,774) (23,450) (13,136) 38,773 (29,773) 8,999 ¥ 28. Lease Transactions (1) Financing leases A summary of assumed amounts of acquisition cost, accumulated depreciation and net book value for financing leases without transfer of ownership at March 31, 2005 and 2004 was as follows: (a) Lessee side Millions of yen Millions of U.S. dollars 2005 2004 Acquisition Accumulated Net book Acquisition Accumulated Net book Acquisition Accumulated Net book 2005 March 31 cost depreciation value cost depreciation value Equipment .............. Other ...................... Total ....................... ¥4,779 392 ¥5,171 ¥2,716 234 ¥2,950 ¥2,063 157 ¥2,221 ¥11,705 606 ¥12,312 ¥6,848 357 ¥7,206 ¥4,856 249 ¥5,106 cost $44 4 $48 depreciation value $25 2 $27 $19 2 $21 Future minimum lease payments excluding interests at March 31, 2005 and 2004 were as follows: March 31 Due within one year.................................................................................. Due after one year ..................................................................................... Millions of yen 2005 ¥ 880 1,437 ¥2,318 2004 ¥2,070 3,251 ¥5,322 Millions of U.S. dollars 2005 $ 8 14 $22 Total lease expenses for the years ended March 31, 2005 and 2004 were ¥1,589 million ($15 million) and ¥2,296 million, respectively. Assumed depreciation for the years ended March 31, 2005 and 2004 amounted to ¥1,449 million ($14 million) and ¥2,132 million, respectively. Assumed depreciation is calculated using the straight-line method over the lease term of the respective assets without salvage values. The difference between the minimum lease payments and the acquisition costs of the lease assets represents interest expenses. The allocation of such interest expenses over the lease term is calculated using the effective interest method. Interest expenses for the years ended March 31, 2005 and 2004 amounted to ¥144 million ($1 million) and ¥162 million, respectively. (b) Lessor side Millions of yen Millions of U.S. dollars 2005 2004 Acquisition Accumulated Net book Acquisition Accumulated Net book Acquisition Accumulated Net book 2005 March 31 cost depreciation value cost depreciation value cost depreciation value Equipment .............. ¥1,911,595 ¥1,204,282 ¥707,313 ¥1,908,945 Other ...................... 580,899 Total ....................... ¥2,522,949 ¥1,546,997 ¥975,952 ¥2,489,845 611,354 342,715 268,639 ¥1,197,471 ¥711,474 257,319 ¥1,521,051 ¥968,794 323,580 $17,812 5,697 $23,509 $11,221 3,194 $14,415 $6,591 2,503 $9,094 Future lease payments receivable excluding interests at March 31, 2005 and 2004 were as follows: March 31 Due within one year.................................................................................. Due after one year ..................................................................................... Millions of yen 2005 ¥319,727 668,731 ¥988,459 2004 ¥318,916 674,752 ¥993,669 Millions of U.S. dollars 2005 $2,979 6,231 $9,210 100 SMFG 2005 Total lease income for the years ended March 31, 2005 and 2004 was ¥412,550 million ($3,844 million) and ¥410,953 million, respectively. Depreciation for the years ended March 31, 2005 and 2004 amounted to ¥348,971 million ($3,252 million) and ¥331,032 million, respectively. Interest income represents the difference between the sum of the lease payments receivable and estimated salvage values, and the acquisition costs of the lease assets. The allocation of such interest income over the lease term is calculated using the effective interest method. Interest income for the years ended March 31, 2005 and 2004 amounted to ¥66,591 million ($620 million) and ¥60,905 million, respectively. (2) Operating leases (a) Lessee side Future minimum lease payments at March 31, 2005 and 2004 were as follows: March 31 Due within one year.................................................................................. Due after one year ..................................................................................... (b) Lessor side Future lease payments receivable at March 31, 2005 and 2004 were as follows: March 31 Due within one year.................................................................................. Due after one year ..................................................................................... Millions of yen 2005 ¥17,692 81,546 ¥99,238 2004 ¥ 17,136 83,638 ¥100,774 Millions of yen 2005 ¥ 7,584 13,623 ¥21,207 2004 ¥ 4,189 9,804 ¥13,993 Millions of U.S. dollars 2005 $165 760 $925 Millions of U.S. dollars 2005 $ 71 127 $198 Future lease payments receivable at March 31, 2005 and 2004 amounting to ¥74,176 million ($691 million) and ¥87,900 million, respectively, on the lessor side referred to in (1) and (2) above were pledged as collateral for borrowings. 29. Market Value of Securities and Money Held in Trust (1) Securities The market value of securities at March 31, 2005 and 2004 was as follows: The amounts shown in the following tables include trading securities, commercial paper and short-term corporate bonds classified as “Trading assets,” negotiable certificates of deposit bought classified as “Deposits with banks,” and beneficiary claims on loan trusts clas- sified as “Commercial paper and other debt purchased,” in addition to “Securities” stated in the consolidated balance sheets. (a) Securities classified as trading purposes March 31 2005 Consolidated balance sheet amount .......................................................... Valuation losses included in the earnings for the fiscal year ...................... ¥1,325,972 3,717 2004 ¥1,170,727 1,707 Millions of yen (b) Bonds classified as held-to-maturity with market value March 31 Japanese government bonds.................................. Japanese local government bonds.......................... Japanese corporate bonds ...................................... Other ................................................................... Total .................................................................... March 31 Japanese government bonds.................................. Japanese local government bonds.......................... Japanese corporate bonds ...................................... Other ................................................................... Total .................................................................... Consolidated balance sheet amount ¥507,342 — — 28,859 ¥536,201 Consolidated balance sheet amount ¥509,458 — — 17,272 ¥526,731 Market value ¥505,002 — — 29,380 ¥534,382 Market value ¥500,930 — — 18,374 ¥519,305 Millions of yen 2005 Net unrealized gains (losses) ¥(2,339) — — 520 ¥(1,818) Millions of yen 2004 Net unrealized gains (losses) ¥(8,527) — — 1,101 ¥(7,425) Unrealized gains ¥1,582 — — 531 ¥2,114 Unrealized gains ¥1,739 — — 1,101 ¥2,840 Millions of U.S. dollars 2005 $12,355 35 Unrealized losses ¥3,922 — — 11 ¥3,933 Unrealized losses ¥10,266 — — — ¥10,266 SMFG 2005 101 March 31 Japanese government bonds.................................. Japanese local government bonds.......................... Japanese corporate bonds ...................................... Other ................................................................... Total .................................................................... Millions of U.S. dollars 2005 Consolidated balance sheet amount $4,727 — — 269 $4,996 Market value $4,705 — — 274 $4,979 Net unrealized gains (losses) $(22) — — 5 $(17) Unrealized gains $15 — — 5 $20 Unrealized losses $37 — — 0 $37 Note: Market value is calculated by using market prices at the fiscal year-end. (c) Other securities with market value March 31 Stocks ............................................................................ Bonds ............................................................................ Japanese government bonds...................................... Japanese local government bonds.............................. Japanese corporate bonds.......................................... Other............................................................................. Total.............................................................................. March 31 Stocks ............................................................................ Bonds ............................................................................ Japanese government bonds...................................... Japanese local government bonds.............................. Japanese corporate bonds.......................................... Other............................................................................. Total.............................................................................. March 31 Stocks................................................................... Bonds................................................................... Japanese government bonds............................. Japanese local government bonds..................... Japanese corporate bonds................................. Other ................................................................... Total .................................................................... Acquisition cost Consolidated balance sheet amount ¥ 1,992,711 ¥ 2,697,765 14,749,222 14,734,261 13,129,235 13,116,068 486,884 488,423 1,133,102 1,129,770 2,756,295 2,779,971 ¥19,506,944 ¥20,203,283 Acquisition cost Consolidated balance sheet amount ¥ 2,234,577 ¥ 2,904,362 15,501,515 15,604,771 13,939,482 14,028,689 506,263 515,362 1,055,769 1,060,720 5,363,406 5,354,322 ¥23,193,672 ¥23,769,285 Millions of yen 2005 Net unrealized gains (losses) ¥705,053 14,961 13,167 (1,538) 3,332 (23,675) ¥696,339 Millions of yen 2004 Net unrealized gains (losses) ¥669,784 (103,256) (89,207) (9,098) (4,950) 9,084 ¥575,612 Millions of U.S. dollars 2005 Acquisition cost $ 18,568 137,293 122,214 4,552 10,527 25,904 $181,765 Consolidated balance sheet amount $ 25,138 137,432 122,337 4,537 10,558 25,683 $188,253 Net unrealized gains (losses) $6,570 139 123 (15) 31 (221) $6,488 Unrealized gains ¥750,480 34,971 27,115 2,061 5,794 15,903 ¥801,356 Unrealized gains ¥736,878 18,590 14,225 1,075 3,289 32,047 ¥787,517 Unrealized gains $6,993 326 253 19 54 148 $7,467 Unrealized losses ¥ 45,426 20,010 13,948 3,600 2,462 39,579 ¥105,017 Unrealized losses ¥ 67,094 121,847 103,432 10,173 8,240 22,963 ¥211,904 Unrealized losses $423 187 130 34 23 369 $979 Notes: 1. Net unrealized gains at March 31, 2005 include gains of ¥469 million ($4 million) that is recognized in the fiscal year’s earnings because of the application of fair value hedge accounting and gains of ¥82 million ($1 million) on embedded financial instruments in their entirety that are recognized in the earnings because their embedded derivatives are not measured separately. Of the total net unrealized gains for 2004, ¥23,452 million is included in the earnings for the year ended March 31, 2004 because of the application of fair value hedge accounting. 2. Consolidated balance sheet amount is calculated as follows: Stocks Bonds and other Market prices at the fiscal year-end Average market prices during one month before the fiscal year-end 3. Other securities with market value are considered as impaired if the market value decreases materially below the acquisition cost and such decline is not considered as recoverable. The market value is recognized as the consolidated balance sheet amount and the amount of write-down is accounted for as valuation loss for the fis- cal year. Valuation loss for the fiscal years ended March 31, 2005 and 2004 was ¥172 million ($2 million) and ¥5,625 million, respectively. The rule for determin- ing “material decline” is as follows and is based on the classification of issuing company under self-assessment of assets. Bankrupt/Effectively bankrupt/Potentially bankrupt issuers: Issuers requiring caution: Normal issuers: Bankrupt issuers: Issuers that are legally bankrupt or formally declared bankrupt. Effectively bankrupt issuers: Issuers that are not legally bankrupt but regarded as substantially bankrupt. Potentially bankrupt issuers: Issuers that are not bankrupt now, but are perceived to have a high risk of falling into bankruptcy. Issuers requiring caution: Issuers that are identified for close monitoring. Normal issuers: Issuers other than the above four categories of issuers. Market value is lower than acquisition cost. Market value is 30% or more lower than acquisition cost. Market value is 50% or more lower than acquisition cost. 102 SMFG 2005 (d) Held-to-maturity bonds sold during the years ended March 31, 2005 and 2004 Millions of yen Cost of securities sold 2005 Sales amount Gains on sales Cost of securities sold 2004* Sales amount Gains on sales Millions of U.S. dollars 2005 Sales amount Gains on sales Cost of securities sold — — — — — — — — — ¥21,063 ¥21,709 ¥ 645 23,060 ¥44,123 23,796 ¥45,506 736 ¥1,382 — — — — — — — — — Year ended March 31 Japanese government bonds .................... Japanese local government bonds... Total ....................... * Reason for sales: A consolidated subsidiary, MINATO, changed its investment policy. (e) Other securities sold during the years ended March 31, 2005 and 2004 Year ended March 31 Millions of yen 2005 2004 Sales amount ............................................................................................ Gains on sales........................................................................................... Losses on sales .......................................................................................... ¥36,133,895 214,022 90,314 ¥30,640,639 281,085 154,031 (f) Securities with no available market value March 31 Bonds classified as held-to-maturity Millions of yen Consolidated balance sheet amount 2005 2004 Unlisted foreign securities..................................................................... Other .................................................................................................... ¥ 2,400 8,566 ¥ 3,371 9,713 Other securities Unlisted stocks (excluding OTC stocks) ................................................ Unlisted bonds...................................................................................... Unlisted foreign securities..................................................................... Other .................................................................................................... 429,658 2,110,338 412,118 221,982 532,446 1,596,199 316,217 144,433 Millions of U.S. dollars 2005 $336,693 1,994 842 Millions of U.S. dollars Consolidated balance sheet amount 2005 $ 22 80 4,004 19,664 3,840 2,068 (g) Change of classification of securities In the fiscal year ended March 31, 2004, MINATO changed its investment policy and sold some of the held-to-maturity bonds before their maturities. As a result, MINATO changed the classification of the remaining bonds that MINATO holds, ¥28,281 mil- lion, from “held-to-maturity” to “other securities” pursuant to Article 83 of the “Practical Guidelines for Accounting for Financial Instruments” (JICPA Accounting Committee Report No. 14). In addition, ¥12,063 million in reclassified bonds were sold in the fis- cal year ended March 31, 2004 and net gains on sale of ¥18 million were recorded. (h) Redemption schedule of other securities with maturities and held-to-maturity bonds March 31 Bonds ............................................................................................................ Japanese government bonds...................................................................... Japanese local government bonds ............................................................. Japanese corporate bonds.......................................................................... Other............................................................................................................. Total.............................................................................................................. March 31 Bonds ............................................................................................................ Japanese government bonds...................................................................... Japanese local government bonds ............................................................. Japanese corporate bonds.......................................................................... Other............................................................................................................. Total.............................................................................................................. Millions of yen 2005 Within 1 year ¥3,110,902 2,818,917 20,003 271,981 600,124 ¥3,711,027 After 1 year through 5 years ¥ 9,065,255 6,414,993 264,369 2,385,892 1,625,706 ¥10,690,962 After 5 years through 10 years ¥2,237,616 1,482,528 202,016 553,071 258,965 ¥2,496,581 Millions of yen 2004 Within 1 year ¥2,879,079 2,706,787 7,759 164,531 441,373 ¥3,320,453 After 1 year through 5 years ¥ 9,470,889 7,223,369 263,194 1,984,324 4,212,911 ¥13,683,800 After 5 years through 10 years ¥3,999,979 3,266,491 234,789 498,698 457,429 ¥4,457,409 After 10 years ¥2,953,130 2,920,138 494 32,497 725,965 ¥3,679,096 After 10 years ¥1,257,227 1,252,292 519 4,415 538,094 ¥1,795,322 SMFG 2005 103 March 31 Bonds ............................................................................................................ Japanese government bonds...................................................................... Japanese local government bonds ............................................................. Japanese corporate bonds.......................................................................... Other............................................................................................................. Total.............................................................................................................. Within 1 year $28,987 26,267 186 2,534 5,592 $34,579 Millions of U.S. dollars 2005 After 1 year through 5 years $84,469 59,774 2,463 22,232 15,149 $99,618 After 5 years through 10 years $20,850 13,814 1,882 5,154 2,413 $23,263 After 10 years $27,517 27,210 4 303 6,765 $34,282 (2) Money held in trust (a) Money held in trust classified as trading purposes There are no corresponding transactions. (b) Money held in trust classified as held-to-maturity There are no corresponding transactions. (c) Other money held in trust March 31 Acquisition cost ....................................................................................... Consolidated balance sheet amount .......................................................... Net unrealized gains................................................................................. Unrealized gains....................................................................................... Unrealized losses ...................................................................................... (3) Net unrealized gains on other securities and other money held in trust Millions of yen 2005 ¥3,628 3,832 204 300 95 2004 ¥3,628 3,749 121 222 100 Millions of yen March 31 Net unrealized gains................................................................................. Other securities..................................................................................... Other money held in trust..................................................................... (–) Deferred tax liabilities ........................................................................ Net unrealized gains on other securities (before following adjustment)................................................................. (–) Minority interests ............................................................................... (+) SMFG’s interest in net unrealized gains on valuation of other securities held by affiliates accounted for by the equity method .............. Net unrealized gains on other securities.................................................... 2005 ¥695,951 695,746 204 282,389 413,561 7,982 5,074 ¥410,653 2004 ¥552,271 552,149 121 225,309 326,962 3,207 1,258 ¥325,013 Millions of U.S. dollars 2005 $34 36 2 3 1 Millions of U.S. dollars 2005 $6,485 6,483 2 2,631 3,854 75 47 $3,826 Notes: 1. Net unrealized gains at March 31, 2005 include gains of ¥469 million ($4 million) that is recognized in the fiscal year’s earnings because of the application of fair value hedge accounting and gains of ¥82 million ($1 million) on embedded financial instruments in their entirety that are recognized in the earnings because their embedded derivatives are not measured separately. Of the total net unrealized gains for 2004, ¥23,452 million is included in the earnings for the year ended March 31, 2004 because of the application of fair value hedge accounting. 2. Net unrealized gains (losses) included foreign currency translation adjustments on nonmarketable securities denominated in foreign currency. 104 SMFG 2005 30. Derivative Transactions Interest rate derivatives (1) March 31 Transactions listed on exchange Interest rate futures: Millions of yen 2005 Contract amount Total Over 1 year Market value Valuation gains (losses) Sold.......................................................................................................... Bought..................................................................................................... ¥ 39,978,468 42,079,595 ¥ 866,455 1,915,442 ¥ 45,530 (52,737) ¥ 45,530 (52,737) Interest rate options: Sold.......................................................................................................... Bought..................................................................................................... — 250,080 — 250,080 — 21 — 21 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 .......................................... 613,308 9,782,626 391,811,677 186,359,947 185,522,906 19,847,624 456,503 56,503 291,895,257 140,866,355 136,402,214 14,605,046 (60) (4) 156,432 2,048,207 (1,885,274) (3,515) Interest rate swaptions: Sold.......................................................................................................... Bought .................................................................................................... Caps: Sold.......................................................................................................... Bought .................................................................................................... Floors: Sold ......................................................................................................... Bought .................................................................................................... Other: Sold.......................................................................................................... Bought ................................................................................................... Total ............................................................................................................. 2,720,750 2,807,739 7,957,445 5,131,777 287,377 310,056 — 639,798 / 1,358,410 1,970,731 5,140,360 3,276,916 123,982 167,044 — 105,311 / (60) (4) 156,432 2,048,207 (1,885,274) (3,515) (31,840) 39,263 (8,601) 6,496 (3,373) 3,673 (31,840) 39,263 (8,601) 6,496 (3,373) 3,673 — 4,989 ¥ 159,789 — 4,989 ¥ 159,789 March 31 Transactions listed on exchange Interest rate futures: Millions of yen 2004 Contract amount Total Over 1 year Market value Valuation gains (losses) Sold.......................................................................................................... Bought..................................................................................................... ¥ 87,393,679 91,880,414 ¥ 2,662,913 3,624,247 ¥ (111,937) 110,424 ¥ (111,937) 110,424 Interest rate options: Sold.......................................................................................................... Bought..................................................................................................... 554,768 984,778 267,333 267,333 (218) 241 (218) 241 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 .......................................... 3,576,364 13,028,083 385,010,824 184,435,337 178,700,873 21,727,688 430,000 1,640,000 290,122,316 138,971,508 135,278,747 15,792,166 952 (2,001) 235,969 1,624,354 (1,380,548) 518 Interest rate swaptions: Sold.......................................................................................................... Bought .................................................................................................... Caps: Sold.......................................................................................................... Bought .................................................................................................... Floors: Sold ......................................................................................................... Bought .................................................................................................... Other: Sold.......................................................................................................... Bought ................................................................................................... Total ............................................................................................................. 2,224,743 2,589,152 5,408,280 3,602,677 224,688 302,366 — 306,408 / 968,959 1,173,273 3,469,422 2,345,784 190,319 240,371 — 72,854 / 952 (2,001) 235,969 1,624,354 (1,380,548) 518 (37,880) 41,346 (6,543) 5,628 (5,321) 5,040 (37,880) 41,346 (6,543) 5,628 (5,321) 5,040 — 4,402 ¥ 240,101 — 4,402 ¥ 240,101 SMFG 2005 105 March 31 Transactions listed on exchange Interest rate futures: Millions of U.S. dollars 2005 Contract amount Total Over 1 year Market value Valuation gains (losses) Sold ......................................................................................................... Bought .................................................................................................... $ 372,516 392,095 $ 8,074 17,848 $ 424 (491) $ 424 (491) Interest rate options: Sold.......................................................................................................... Bought .................................................................................................... — 2,330 — 2,330 — 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............................................ Interest rate swaptions: Sold ......................................................................................................... Bought..................................................................................................... Caps: Sold ......................................................................................................... Bought .................................................................................................... Floors: Sold ......................................................................................................... Bought..................................................................................................... Other: Sold ......................................................................................................... Bought..................................................................................................... Total.............................................................................................................. 5,715 91,154 3,650,873 1,736,489 1,728,689 184,939 4,254 526 2,719,859 1,312,583 1,270,986 136,089 25,352 26,162 74,147 47,818 2,678 2,889 — 5,962 / 12,658 18,363 47,898 30,534 1,155 1,557 — 981 / (1) (0) 1,458 19,085 (17,567) (33) (297) 366 (80) 61 (31) 34 (1) (0) 1,458 19,085 (17,567) (33) (297) 366 (80) 61 (31) 34 — 46 $ 1,489 — 46 $ 1,489 Notes: 1. The above transactions are valuated at market value and the valuation gains (losses) are accounted for in the consolidated statement of operations. Derivative transactions to which deferred 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. Such transactions are not included in the amounts above. Net unrealized losses at March 31, 2005 amounted to ¥2,344 million ($22 million). Net unrealized gains at March 31, 2004 amounted to ¥13 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. (2) Currency derivatives March 31 Over-the-counter transactions Currency swaps ............................................................................................. Currency swaptions Sold.......................................................................................................... Bought .................................................................................................... Forward foreign exchange ............................................................................. Currency options Sold ......................................................................................................... Bought..................................................................................................... Other Sold ........................................................................................................ Bought..................................................................................................... Total ............................................................................................................. Millions of yen 2005 Contract amount Total Over 1 year Market value Valuation gains (losses) ¥18,581,388 ¥12,017,760 ¥188,219 ¥122,850 985,339 1,218,665 41,706,257 2,620,171 2,633,024 3,176 188 / 979,291 1,208,413 2,301,053 1,229,664 1,193,964 — — / (22,071) 42,475 6,194 (83,225) 103,782 17 0 ¥235,392 (22,071) 42,475 6,194 (83,225) 103,782 17 0 ¥170,023 106 SMFG 2005 March 31 Over-the-counter transactions Currency swaps ............................................................................................. Currency swaptions Sold.......................................................................................................... Bought .................................................................................................... Forward foreign exchange ............................................................................. Currency options Sold ......................................................................................................... Bought..................................................................................................... Other Sold ........................................................................................................ Bought..................................................................................................... Total ............................................................................................................. March 31 Over-the-counter transactions Currency swaps ............................................................................................. Currency swaptions Sold ......................................................................................................... Bought .................................................................................................... Forward foreign exchange ............................................................................. Currency options Sold ......................................................................................................... Bought .................................................................................................... Other Sold ........................................................................................................ Bought..................................................................................................... Total ............................................................................................................. Millions of yen 2004 Contract amount Total Over 1 year Market value Valuation gains (losses) ¥16,317,980 ¥10,396,658 ¥ 82,675 ¥131,136 646,230 1,135,123 33,748,772 2,911,936 2,883,999 7,957 — / 623,671 1,112,563 1,368,595 898,824 907,272 882 — / (16,259) 40,495 (38,814) (90,113) 107,026 51 — ¥ 85,060 (16,259) 40,495 (38,814) (90,113) 107,026 51 — ¥133,521 Millions of U.S. dollars 2005 Contract amount Total Over 1 year Market value Valuation gains (losses) $173,140 $111,981 $1,754 $1,145 9,181 11,355 388,616 24,415 24,534 30 2 / 9,125 11,260 21,441 11,458 11,125 — — / (206) 396 58 (776) 967 0 0 $2,193 (206) 396 58 (776) 967 0 0 $1,584 Notes: 1. The above transactions are valuated at market value and the valuation gains (losses) are accounted for in the consolidated statement of operations. The amounts above do not include the following: (a) Derivative transactions to which deferred hedge accounting method is applied; (b) Those that are allotted to financial assets/liabilities denominated in foreign currency and whose market values are already reflected to the consolidated balance sheet; and (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. Some consolidated overseas subsidiaries account for currency derivatives in accordance with local accounting standards. Such transactions are not included in the amounts above. Net unrealized gains at March 31, 2005 amounted to ¥698 million ($7 million). Net unrealized losses at March 31, 2004 amounted to ¥442 million. 2. Market value is calculated mainly using discounted present value. 3. Forward foreign exchange and currency options that were formerly revaluated at the fiscal year-end are included in the table above from the fiscal year ended March 31, 2004. (3) Equity derivatives March 31 Transactions listed on exchange Equity price index futures: Sold.......................................................................................................... Bought..................................................................................................... Equity price index options: Sold.......................................................................................................... Bought..................................................................................................... Over-the-counter transactions Equity options: Sold.......................................................................................................... Bought..................................................................................................... Equity price index swaps: Receivable equity index/payable floating rate ........................................... Receivable floating rate/payable equity index ........................................... Other: Sold.......................................................................................................... Bought..................................................................................................... Total.............................................................................................................. Millions of yen 2005 Contract amount Total Over 1 year Market value Valuation gains (losses) ¥ 233 594 — — 17,500 17,000 — — 22,834 66,278 / ¥ — — — — 17,500 17,000 — — — 8,583 / ¥ — (0) — — (277) 271 — — (1,146) 4,887 ¥3,735 ¥ — (0) — — (277) 271 — — (1,146) 4,887 ¥3,735 SMFG 2005 107 March 31 Transactions listed on exchange Equity price index futures: Millions of yen 2004 Contract amount Total Over 1 year Market value Valuation gains (losses) Sold.......................................................................................................... Bought..................................................................................................... ¥ — 3,349 ¥ — — ¥ — 63 ¥ — 63 Equity price index options: Sold.......................................................................................................... Bought..................................................................................................... Over-the-counter transactions Equity options: Sold.......................................................................................................... Bought..................................................................................................... Equity price index swaps: Receivable equity index/payable floating rate ........................................... Receivable floating rate/payable equity index ........................................... Other: — — — — — — — — — — — — — — — — — — Sold.......................................................................................................... Bought..................................................................................................... Total.............................................................................................................. 4,791 7,336 / — 3,005 / (231) 311 ¥143 — — — — — — (231) 311 ¥143 March 31 Transactions listed on exchange Equity price index futures: Sold.......................................................................................................... Bought..................................................................................................... Equity price index options: Sold.......................................................................................................... Bought..................................................................................................... Over-the-counter transactions Equity options: Sold.......................................................................................................... Bought..................................................................................................... Equity price index swaps: Receivable equity index/payable floating rate ........................................... Receivable floating rate/payable equity index ........................................... Other: Sold.......................................................................................................... Bought..................................................................................................... Total.............................................................................................................. Millions of U.S. dollars 2005 Contract amount Total Over 1 year Market value Valuation gains (losses) $ 2 6 — — 163 158 — — 213 618 / $ — — — — 163 158 — — — 80 / $— (0) — — (3) 3 — — (11) 46 $35 $— (0) — — (3) 3 — — (11) 46 $35 Notes: 1. The above transactions are valuated at market value and the valuation gains (losses) are accounted for in the consolidated statement of operations. Derivative transactions to which deferred 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. 108 SMFG 2005 (4) Bond derivatives March 31 Transactions listed on exchange Bond futures: Millions of yen 2005 Contract amount Total Over 1 year Market value Valuation gains (losses) Sold.......................................................................................................... Bought..................................................................................................... ¥598,657 823,707 ¥ Bond futures options: Sold.......................................................................................................... Bought..................................................................................................... 17,500 15,000 — — — — Over-the-counter transactions Forward bond agreements: Sold.......................................................................................................... Bought..................................................................................................... Bond options: Sold.......................................................................................................... Bought..................................................................................................... Total.............................................................................................................. — 263,054 702,330 691,518 / — 243,588 11,851 — / ¥(1,720) 6,645 (50) 21 — 1,485 (4,141) 1,144 ¥ 3,383 ¥(1,720) 6,645 (50) 21 — 1,485 (4,141) 1,144 ¥ 3,383 March 31 Transactions listed on exchange Bond futures: Millions of yen 2004 Contract amount Total Over 1 year Market value Valuation gains (losses) Sold.......................................................................................................... Bought..................................................................................................... ¥1,485,848 3,473,003 ¥ Bond futures options: Sold.......................................................................................................... Bought..................................................................................................... 333,500 5,000 — — — — Over-the-counter transactions Forward bond agreements: Sold.......................................................................................................... Bought..................................................................................................... Bond options: Sold.......................................................................................................... Bought..................................................................................................... Total.............................................................................................................. 296,334 — 2,821,954 2,420,812 / 273,251 — 14,114 2,972 / ¥ 5,213 (16,918) (769) 66 1,746 — (6,020) 18,216 ¥ 1,533 ¥ 5,213 (16,918) (769) 66 1,746 — (6,020) 18,216 ¥ 1,533 March 31 Transactions listed on exchange Bond futures: Sold.......................................................................................................... Bought..................................................................................................... Bond futures options: Sold.......................................................................................................... Bought..................................................................................................... Over-the-counter transactions Forward bond agreements: Sold.......................................................................................................... Bought..................................................................................................... Bond options: Sold.......................................................................................................... Bought..................................................................................................... Total.............................................................................................................. Millions of U.S. dollars 2005 Contract amount Total Over 1 year Market value Valuation gains (losses) $5,578 7,675 163 140 — 2,451 6,544 6,444 / $ — — — — — 2,270 110 — / $(16) 62 (0) 0 — 14 (39) 11 $ 32 $(16) 62 (0) 0 — 14 (39) 11 $ 32 Notes: 1. The above transactions are valuated at market value and the valuation gains (losses) are accounted for in the consolidated statement of operations. Derivative transactions to which deferred 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. SMFG 2005 109 (5) Commodity derivatives March 31 Transactions listed on exchange Commodity futures: Millions of yen 2005 Contract amount Total Over 1 year Market value Valuation gains (losses) Sold.......................................................................................................... Bought..................................................................................................... ¥ — 310 ¥ — — ¥ — (16) ¥ — (16) Over-the-counter transactions Commodity swaps: Receivable fixed price/payable floating price ............................................ Receivable floating price/payable fixed price ............................................ 142,921 139,453 140,114 136,482 Commodity options: Sold.......................................................................................................... Bought..................................................................................................... Total.............................................................................................................. 6,861 6,095 / 6,854 5,925 / (57,396) 67,597 (4,873) 5,056 ¥10,367 (57,396) 67,597 (4,873) 5,056 ¥10,367 March 31 Over-the-counter transactions Commodity swaps: Millions of yen 2004 Contract amount Total Over 1 year Market value Valuation gains (losses) Receivable fixed price/payable floating price ............................................ Receivable floating price/payable fixed price ............................................ ¥86,127 87,038 ¥84,270 84,985 Commodity options: Sold.......................................................................................................... Bought..................................................................................................... Total.............................................................................................................. 4,457 4,448 / 4,318 4,309 / ¥(5,742) 9,932 (1,645) 1,667 ¥ 4,211 ¥(5,742) 9,932 (1,645) 1,667 ¥ 4,211 March 31 Transactions listed on exchange Commodity futures: Millions of U.S. dollars 2005 Contract amount Total Over 1 year Market value Valuation gains (losses) Sold.......................................................................................................... Bought..................................................................................................... $ — 3 $ — — Over-the-counter transactions Commodity swaps: Receivable fixed price/payable floating price ............................................ Receivable floating price/payable fixed price ............................................ Commodity options: Sold.......................................................................................................... Bought..................................................................................................... Total.............................................................................................................. 1,332 1,299 64 57 / 1,306 1,272 64 55 / $ — (0) (535) 630 (45) 47 $ 97 $ — (0) (535) 630 (45) 47 $ 97 Notes: 1. The above transactions are valuated at market value and the valuation gains (losses) are accounted for in the consolidated statement of operations. Derivative transactions to which deferred 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. 3. Commodity derivatives are transactions on fuel and metal. (6) Credit derivative transactions March 31 Over-the-counter transactions Credit default options: Millions of yen 2005 Contract amount Total Over 1 year Market value Valuation gains (losses) Sold.......................................................................................................... Bought..................................................................................................... ¥45,468 76,405 ¥37,132 62,558 Other: Sold.......................................................................................................... Bought..................................................................................................... Total.............................................................................................................. 923 1,481 / — — / ¥ (779) 1,552 (84) 115 ¥ 803 ¥ (779) 1,552 (84) 115 ¥ 803 110 SMFG 2005 March 31 Over-the-counter transactions Credit default options: Millions of yen 2004 Contract amount Total Over 1 year Market value Valuation gains (losses) Sold.......................................................................................................... Bought..................................................................................................... ¥38,891 57,308 ¥36,213 52,627 Other: Sold.......................................................................................................... Bought..................................................................................................... Total.............................................................................................................. 1,504 1,389 / — — / ¥ (826) 1,580 (23) 27 ¥ 757 ¥ (826) 1,580 (23) 27 ¥ 757 March 31 Over-the-counter transactions Credit default options: Millions of U.S. dollars 2005 Contract amount Total Over 1 year Market value Valuation gains (losses) Sold.......................................................................................................... Bought..................................................................................................... Other: Sold.......................................................................................................... Bought..................................................................................................... Total.............................................................................................................. $424 712 9 14 / $346 583 — — / $ (7) 14 (1) 1 $ 7 $ (7) 14 (1) 1 $ 7 Notes: 1. The above transactions are valuated at market value and the valuation gains (losses) are accounted for in the consolidated statement of operations. Derivative transactions to which deferred 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 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. 31. Segment Information (1) Business segment information Millions of yen 2005 Year ended March 31 I. Ordinary income Banking business Leasing Other Total Elimination and unallocated corporate assets Consolidated (1) External customers ....................... (2) Intersegment ................................ ¥ 2,447,122 41,862 ¥ 706,860 19,723 Total ................................................. Ordinary expenses ................................ 2,488,984 2,643,533 726,583 684,652 ¥ 426,813 190,226 617,040 505,793 ¥ 3,580,796 251,812 3,832,609 3,833,979 ¥ — (251,812) (251,812) (222,889) ¥ 3,580,796 — 3,580,796 3,611,089 Ordinary profit (loss)............................ ¥ (154,548) ¥ 41,931 ¥ 111,246 ¥ (1,370) ¥ (28,922) ¥ (30,293) II. Assets, depreciation and capital expenditure Assets ................................................ Depreciation...................................... Capital expenditure ........................... ¥96,420,384 60,568 66,189 ¥1,924,019 343,134 400,119 ¥5,649,310 24,248 27,112 ¥103,993,713 427,951 493,421 ¥(4,261,855) 14 9 ¥99,731,858 427,966 493,430 Notes: 1. The business segmentation is classified based on SMFG’s internal administrative purpose. Ordinary income and ordinary profit are presented as counterparts of sales and operating profit of companies in other industries. 2. “Other” includes securities, credit card, investment banking, loans, venture capital, system development and information processing. 3. As for assets, unallocated corporate assets that were included in “Elimination and unallocated corporate assets” mainly consisted of investments in affiliates of ¥3,806,067 million ($35,465 million). 4. Ordinary income represents total income excluding gains on disposal of premises and equipment, collection of written-off claims and reversals of other reserves. Ordinary expenses represent total expenses excluding losses on disposal of premises and equipment, amortization of unrecognized net transition obligation for employee retirement benefits and other extraordinary expenses. SMFG 2005 111 Millions of yen 2004 Year ended March 31 I. Ordinary income Banking business Leasing Other Total Elimination and unallocated corporate assets Consolidated (1) External customers ....................... (2) Intersegment ................................ ¥ 2,492,168 26,911 ¥ 674,243 18,466 Total ................................................. Ordinary expenses ................................ 2,519,079 2,295,451 692,709 658,092 ¥ 386,098 182,955 569,054 472,737 ¥ 3,552,510 228,333 3,780,844 3,426,281 ¥ — ¥ (228,333) (228,333) (216,616) 3,552,510 — 3,552,510 3,209,665 Ordinary profit .................................... ¥ 223,627 ¥ 34,616 ¥ 96,317 ¥ 354,562 ¥ (11,717) ¥ 342,844 II. Assets, depreciation and capital expenditure Assets ................................................ Depreciation...................................... Capital expenditure ........................... ¥99,062,021 66,809 91,870 ¥1,815,963 336,392 371,350 ¥5,940,301 19,043 28,906 ¥106,818,286 422,245 492,127 ¥(4,603,113) 9 33 ¥102,215,172 422,255 492,161 Notes: 1. The business segmentation is classified based on SMFG’s internal administrative purpose. Ordinary income and ordinary profit are presented as counterparts of sales and operating profit of companies in other industries. 2. “Other” includes securities, credit card, investment banking, loans, venture capital, system development and information processing. 3. As for assets, unallocated corporate assets that were included in “Elimination and unallocated corporate assets” mainly consisted of investments in affiliates of ¥3,409,122 million. 4. Ordinary income represents total income excluding gains on disposal of premises and equipment, collection of written-off claims and reversals of other reserves. Ordinary expenses represent total expenses excluding losses on disposal of premises and equipment, amortization of unrecognized net transition obligation for employee retirement benefits and other extraordinary expenses. Millions of U.S. dollars 2005 Year ended March 31 I. Ordinary income Banking business Leasing Other Total Elimination and unallocated corporate assets (1) External customers ....................... (2) Intersegment ................................ Total ................................................. Ordinary expenses ............................... $ 22,802 390 23,192 24,632 $ 6,587 184 6,771 6,380 $ 3,977 1,772 5,749 4,713 $ 33,366 2,346 35,712 35,725 $ — (2,346) (2,346) (2,077) Consolidated $ 33,366 — 33,366 33,648 Ordinary profit (loss) ........................... $ (1,440) $ 391 $ 1,036 $ (13) $ (269) $ (282) II. Assets, depreciation and capital expenditure Assets ................................................ Depreciation ..................................... Capital expenditure ........................... (2) Geographic segment information $898,438 565 617 $17,928 3,197 3,728 $52,640 226 253 $969,006 3,988 4,598 $(39,712) 0 0 $929,294 3,988 4,598 Millions of yen 2005 Year ended March 31 I. Ordinary income Japan The Americas Europe Asia and Oceania Total Elimination and unallocated corporate assets Consolidated (1) External customers ........ (2) Intersegment................. ¥ 3,331,194 59,278 ¥ 109,639 46,789 ¥ Total.................................. Ordinary expenses ................ 3,390,472 3,494,330 156,429 107,027 62,959 6,189 69,148 63,254 ¥ 77,003 26,013 103,016 60,692 ¥ 3,580,796 138,270 ¥ — ¥ 3,580,796 — (138,270) 3,719,067 3,725,305 (138,270) (114,215) 3,580,796 3,611,089 Ordinary profit (loss) ............ ¥ (103,857) ¥ 49,401 ¥ 5,894 ¥ 42,323 ¥ (6,238) ¥ (24,055) ¥ (30,293) II. Assets ................................. ¥91,564,408 ¥4,704,584 ¥2,462,266 ¥3,253,758 ¥101,985,019 ¥(2,253,160) ¥99,731,858 Notes: 1. The geographic segmentation is classified based on the degrees of following factors: geographic proximity, similarity of economic activities and relationship of busi- ness activities among regions. Ordinary income and ordinary profit are presented as counterparts of sales and operating profit of companies in other industries. 2. The Americas includes the United States, Brazil, Canada and others; Europe includes the United Kingdom, Germany, France and others; Asia and Oceania includes Hong Kong, Singapore, Australia and others except Japan. 3. As for assets, unallocated corporate assets that were included in “Elimination and unallocated corporate assets” mainly consisted of investments in affiliates of ¥3,806,067 million ($35,465 million). 4. Ordinary income represents total income excluding gains on disposal of premises and equipment, collection of written-off claims and reversals of other reserves. Ordinary expenses represent total expenses excluding losses on disposal of premises and equipment, amortization of unrecognized net transition obligation for employee retirement benefits and other extraordinary expenses. 112 SMFG 2005 Millions of yen 2004 Year ended March 31 I. Ordinary income Japan The Americas Europe Asia and Oceania Total Elimination and unallocated corporate assets Consolidated (1) External customers ........ (2) Intersegment................. ¥ 3,250,452 50,138 ¥ 135,908 39,129 ¥ Total.................................. Ordinary expenses ................ 3,300,591 3,067,985 175,038 109,837 75,566 6,113 81,680 65,586 ¥ 90,582 11,360 101,942 59,397 ¥ 3,552,510 106,742 3,659,252 3,302,806 ¥ — ¥ (106,742) (106,742) (93,140) 3,552,510 — 3,552,510 3,209,665 Ordinary profit..................... ¥ 232,606 ¥ 65,201 ¥ 16,093 ¥ 42,545 ¥ 356,446 ¥ (13,601) ¥ 342,844 II. Assets ................................. ¥95,318,870 ¥4,826,318 ¥2,177,644 ¥2,731,299 ¥105,054,133 ¥(2,838,960) ¥102,215,172 Notes: 1. The geographic segmentation is classified based on the degrees of following factors: geographic proximity, similarity of economic activities and relationship of busi- ness activities among regions. Ordinary income and ordinary profit are presented as counterparts of sales and operating profit of companies in other industries. 2. The Americas includes the United States, Brazil, Canada and others; Europe includes the United Kingdom, Germany, France and others; Asia and Oceania includes Hong Kong, Singapore, Australia and others except Japan. 3. As for assets, unallocated corporate assets that were included in “Elimination and unallocated corporate assets” mainly consisted of investments in affiliates of ¥3,409,122 million. 4. Ordinary income represents total income excluding gains on disposal of premises and equipment, collection of written-off claims and reversals of other reserves. Ordinary expenses represent total expenses excluding losses on disposal of premises and equipment, amortization of unrecognized net transition obligation for employee retirement benefits and other extraordinary expenses. Millions of U.S. dollars 2005 Year ended March 31 I. Ordinary income Japan The Americas Europe Asia and Oceania Total Elimination and unallocated corporate assets Consolidated (1) External customers........ (2) Intersegment ................ Total ................................. Ordinary expenses ................ $ 31,040 552 31,592 32,560 Ordinary profit (loss) ............ $ (968) II. Assets ................................ $853,191 $ 1,022 436 1,458 997 $ 461 $43,837 $ $ 586 58 644 589 55 $ $ 718 242 960 566 394 $22,943 $30,318 $ 33,366 1,288 34,654 34,712 $ (58) $950,289 $ — (1,288) (1,288) (1,064) $ (224) $(20,995) $ 33,366 — 33,366 33,648 $ (282) $929,294 (3) Ordinary income from overseas operations Year ended March 31 Consolidated ordinary income from overseas operations (A) ...................... Consolidated ordinary income (B)............................................................. (A) / (B).................................................................................................... Millions of yen 2005 ¥ 249,602 3,580,796 2004 ¥ 302,057 3,552,510 Millions of U.S. dollars 2005 $ 2,326 33,366 7.0% 8.5% 7.0% Notes: 1. Consolidated ordinary income from overseas operations are presented as counterparts of overseas sales of companies in other industries. 2. The above table shows ordinary income from transactions of overseas branches of SMBC and transactions of overseas consolidated subsidiaries, excluding internal income. These extensive transactions are not categorized by transaction party and the geographic segment information is not presented because such information is not available. 32. Subsequent Events (1) The following appropriations of retained earnings of SMFG at March 31, 2005 were approved by the general meeting of shareholders held on June 29, 2005: Cash dividends, ¥3,000 per share on common stock......................................................... ¥10,500 per share on preferred stock (Type 1) ........................................ ¥28,500 per share on preferred stock (Type 2) ........................................ ¥13,700 per share on preferred stock (Type 3) ........................................ ¥135,000 per share on preferred stock (First to Twelfth series Type 4).... ¥67,500 per share on preferred stock (Thirteenth series Type 4) ............. ¥728 per share on preferred stock (First series Type 6)............................ Millions of yen ¥17,607 367 2,850 9,521 6,763 7,228 50 Millions of U.S. dollars $164 3 27 89 63 67 0 (2) On April 27, 2005, SMFG, SMCC and SMBC agreed with NTT DoCoMo, Inc. to form a strategic, business and capital alliance for the launch of a credit-payment service using mobile phones. Pursuant to the agreement, NTT DoCoMo plans to acquire 34% of SMCC’s common shares issued and outstanding for approximately ¥98 billion ($913 million). SMFG 2005 113 33. Parent Company (1) Nonconsolidated Balance Sheets Sumitomo Mitsui Financial Group, Inc. March 31 Assets Millions of yen Millions of U.S. dollars (Note 1) 2005 2004 2005 Current assets .......................................................................................... ¥ 134,989 ¥ 110,948 Cash and due from banks..................................................................... 44,021 98,159 Prepaid expenses ................................................................................. Deferred tax assets............................................................................... Accrued income .................................................................................... Current portion of long-term loans to subsidiaries and affiliates........... Accrued income tax refunds ................................................................. Other current assets ............................................................................. 21 40 443 40,000 50,349 112 21 17 424 — 12,179 145 $ 1,258 410 0 1 4 373 469 1 Fixed assets ............................................................................................. 3,659,517 3,291,153 34,099 Premises and equipment ...................................................................... Buildings ........................................................................................... Equipment......................................................................................... Intangible assets................................................................................... Software............................................................................................ 2 0 1 41 41 0 0 — 47 47 Investments and other assets............................................................... 3,659,472 3,291,105 Investments in securities................................................................... 10 76 Investments in subsidiaries and affiliates.......................................... 3,656,465 3,246,462 Long-term loans to subsidiaries and affiliates................................... Deferred tax assets........................................................................... Deferred charges ...................................................................................... Organization cost.................................................................................. — 2,997 603 603 40,000 4,565 905 905 0 0 0 0 0 34,099 0 34,071 — 28 6 6 Total assets ............................................................................................. ¥3,795,110 ¥3,403,007 $35,363 Liabilities Current liabilities ....................................................................................... ¥ 475,494 ¥ 230,286 Short-term borrowings .......................................................................... 475,000 230,000 $ 4,431 4,426 Accounts payable ................................................................................. Accrued expenses ................................................................................ Income taxes payable........................................................................... Business office taxes payable .............................................................. Reserve for employees bonuses .......................................................... Other current liabilities .......................................................................... 67 286 31 5 66 36 47 97 1 5 84 48 1 3 0 0 1 0 Total liabilities......................................................................................... 475,494 230,286 4,431 Stockholders’ equity Capital stock ............................................................................................ Capital surplus .......................................................................................... Capital reserve...................................................................................... Other capital surplus............................................................................. Retained earnings .................................................................................... Voluntary reserve.................................................................................. Special voluntary earned reserves.................................................... Unappropriated retained earnings ........................................................ Treasury stock .......................................................................................... 1,352,651 1,852,293 1,352,764 499,529 384,527 30,420 30,420 354,107 (269,857) Total stockholders’ equity ..................................................................... 3,319,615 Total liabilities and stockholders’ equity ............................................. ¥3,795,110 1,247,650 1,747,273 1,247,762 499,510 178,720 30,420 30,420 148,300 (921) 3,172,721 ¥3,403,007 12,604 17,260 12,605 4,655 3,583 283 283 3,300 (2,515) 30,932 $35,363 114 SMFG 2005 (2) Nonconsolidated Statements of Income Sumitomo Mitsui Financial Group, Inc. Millions of yen Millions of U.S. dollars (Note 1) Year ended March 31 Operating income ................................................................................... Dividends on investments in subsidiaries and affiliates........................ Fees and commissions received from subsidiaries .............................. Interest income on loans to subsidiaries and affiliates ......................... Operating expenses ............................................................................... General and administrative expenses .................................................. 2005 ¥258,866 251,735 6,289 841 2,644 2,644 Operating profit .................................................................................... 256,222 Nonoperating income............................................................................. Interest income on deposits.................................................................. Fees and commissions income ............................................................ Other nonoperating income .................................................................. Nonoperating expenses ......................................................................... Interest on borrowings .......................................................................... Amortization of organization costs........................................................ Stock issuance costs ............................................................................ Fees and commissions expenses......................................................... Other nonoperating expenses .............................................................. 134 45 17 70 2,908 1,274 301 788 537 6 2004 ¥55,515 47,332 7,341 841 3,044 3,044 52,470 121 101 9 11 1,403 874 301 — 206 21 2005 $2,412 2,346 58 8 25 25 2,387 2 1 0 1 27 12 3 7 5 0 Income before income taxes ................................................................. 253,448 51,188 2,362 Income taxes: Current............................................................................................. Refund ............................................................................................. Deferred........................................................................................... 3 (329) 1,545 3 — 679 0 (3) 15 Net income .............................................................................................. ¥252,228 ¥50,505 $2,350 Per share data: Net income............................................................................................... ¥38,302.88 Net income — diluted............................................................................... 25,178.44 ¥3,704.49 3,690.72 $356.90 234.61 Yen U.S. dollars (Note 1) SMFG 2005 115 Independent Auditors’ Report To the Board of Directors of Sumitomo Mitsui Financial Group, Inc. We have audited the accompanying consolidated balance sheets of Sumitomo Mitsui Financial Group, Inc. (“SMFG”) and subsidiaries as of March 31, 2005 and 2004, and the related consolidated statements of operations, stockholders’ equity and cash flows for the years then ended, expressed in Japanese yen. These consolidated financial statements are the responsibility of SMFG’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in Japan. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclo- sures in the financial statements. An audit also includes assessing the accounting principles used and significant esti- mates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the con- solidated financial position of SMFG and subsidiaries as of March 31, 2005 and 2004, and the consolidated results of their operations and their cash flows for the years then ended, in conformity with accounting principles generally accepted in Japan. The consolidated financial statements as of and for the year ended March 31, 2005 have been translated into United States dollars solely for the convenience of the reader. We have recomputed the translation and, in our opinion, the consolidated financial statements expressed in Japanese yen have been translated into United States dollars on the basis set forth in Note 1 to the consolidated financial statements. Tokyo, Japan June 29, 2005 116 SMFG 2005 Summary of Significant Differences between Japanese GAAP and U.S. GAAP The consolidated financial statements of SMFG 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 below. These differences are not necessarily the only differences and other differences may exist: 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 SMFG has material influ- ence with respect to their financial and operating policies. Investments in nonconsolidated subsidiaries or affiliates are accounted for by the equity method in the consolidated financial statements. Consolidated Subsidiaries Statement of Financial Accounting Standards (“SFAS”) No. 94 requires a parent company to consolidate all of its majority-owned subsidiaries in which it holds more than 50% of the outstanding voting shares, subject to certain exceptions related to temporary control or the parent com- pany’s inability to exercise control over the subsidiary. SFAS No. 140 defines the criteria of a qualifying special purpose entity (“QSPE”), a trust or other legal vehicle that may be the recipient of a transfer of financial assets from an enterprise and that is not to be consolidated in the financial statements of a transferor or its affiliates. An SPE is qualify- ing only if it is demonstrably distinct from the transferor and its activities are strictly limited. A QSPE generally may hold only passive financial assets and may be permitted to dispose of them only in automatic response to certain objectively-defined events. Generally, for nonconsolidation of non-qualifying SPEs to be appropriate, the majority own- ers of the SPE must be independent third parties who have made a substantive capital investment in the SPE, have con- trol of the SPE, and have substantive risks and rewards of ownership of the assets of the SPE. FASB Interpretation No. 46R (“FIN 46R”) addresses consolidation of what are termed variable interest entities, where the voting interest approach is not effective in identi- fying controlling financial interests in entities that are not controllable through voting interests or in which the equity investors do not bear the residual economic risks. An entity is considered a variable interest entity that shall be subject to consolidation if (i) the entity’s total equity at risk is insuf- ficient to permit the entity to finance its activities without additional subordinated support, or (ii) as a group, the hold- ers of the equity investment at risk lack any of three charac- teristics of a controlling financial interest. An enterprise shall consolidate a variable interest entity if that enterprise has a variable interest, that will absorb a majority of the entity’s expected losses, receive a majority of the entity’s residual returns, or both, where variable interests are defined as contractual, ownership or other pecuniary interests in an entity that change with changes in the fair value of the entity’s net assets exclusive of variable interests. Equity Method of Accounting Investments representing ownership of 20% to 50% of the outstanding voting shares are accounted for by the equity method. In addition, investments representing ownership of less than 20% are accounted for by the equity method if the investor has the ability to exercise significant influence over the entity in which it invests. SMFG 2005 117 Business Combinations Accounting treatment that is similar to the pooling- of-interest method is normally used for business combina- tions 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. The Accounting Standards Board of Japan published “Opinion Concerning Establishment of Accounting Standard for Business Combination” in October 2003. According to the opinion, from the fiscal year starting April 1, 2006, new accounting standard is required to be applied. Under the new accounting standard, the purchase method is the basic method. The pooling-of-interests-method is applied only to exceptionally limited circumstances when strict criteria are met. Securities Debt securities that consolidated subsidiaries have 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. Other securities (available-for-sale securities) are carried at fair value with unrealized gains or losses recorded directly to stockholders’ equity, net of taxes. Accounting for Derivatives and Hedging Activities Derivative instruments are carried at fair value with changes included in the current period income unless certain hedge accounting criteria are met. In general, if derivative instru- ments are used as hedges and meet certain hedging criteria, a company defers recognition of gains or losses resulting from changes in fair value of derivative instruments as either an asset or liability until the related losses or gains on the hedged items are recognized. As a result of assessing and measuring effectiveness of hedges, changes in fair values of ineffective portion of derivatives can be deferred if only the total portion is recognized as effective. As for fair value hedge accounting to hedging transac- tions for reducing the exposure to market volatility of bonds classified as other securities, a company can select either of following treatment. (a) A company defers recognition of gains or losses resulting from changes in fair value of derivative instruments as either an asset or liability until the related losses or gains on the hedged items are recognized. (b) A company recognizes gains or losses resulting from changes in fair value of derivative instruments in earn- ings in the period of change together with the offsetting fair value loss or gain on the hedged item. A bank was permitted to adopt “Macro Hedge Accounting” as 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. The treatment was temporarily permitted until fiscal year starting April 1, 2002. 118 SMFG 2005 Business Combinations SFAS No. 141, Accounting for Business Combinations, pre- scribes 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 val- ues of the net assets and the consideration given represents goodwill. 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 recognized in income. Available-for-sale securi- ties should be marked to fair value, with the resulting unre- alized gain or loss recorded in other comprehensive income. Held-to-maturity securities are carried at amortized cost. Other than temporary declines in value are charged to earn- ings when incurred. Accounting for Derivatives and Hedging Activities SFAS No. 133, Accounting for Derivative Instruments and Hedging Activities requires the recognition of all derivatives as assets or liabilities in the balance sheet measured at fair value. Changes in the fair values of derivatives are included in earnings unless the derivative qualifies for hedge account- ing criteria. As a result of assessing and measuring effective- ness of hedges, changes in fair values of ineffective portion of derivatives are included in earnings and to be disclosed. The changes in the fair value of derivatives qualifying for hedge accounting criteria depend on the intended use. 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 fair value 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. Gains and losses of cash flow hedges included in other comprehensive income are reclassified into earnings in the same period or periods during which the hedged cash flows affects earnings. 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. SFAS No. 133 was partially amended by SFAS No. 138 and SFAS No. 149. From the fiscal year starting April 1, 2003, Japanese banks are required to apply the basic provision of JICPA Industry Audit Committee Report No. 24 to hedges on groups of large-volume, small-value monetary and debts with similar risk characteristics. 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 had not been historically used to measure impairment of a loan. Reserves for restructured loans were computed based on historical loss experience. From the fiscal year ended at March 31, 2003, pursuant to “Audit considerations with respect to the discounted cash flow method used to determine allowance for credit losses by banks and other financial institutions” (issued by JICPA on February 24, 2003), major banks are required to provide reserves for possible loan losses using the Discounted Cash Flows method as follows for loans to large borrowers classi- fied as “Past due loans (3 months or more)” or “Restructured loans”: (a) A bank rationally estimates the cash flows of principal and interest, and measures their present values by dis- counting the cash flows using the initial contractual interest rate. (b) A bank recognizes the difference between the present value and its book value as estimated losses and provides reserve for possible loan losses. Accrued Interest on Non-Performing Loans Consolidated subsidiaries place into the non-accrual status loans which management assesses as “Bankrupt,” “Effectively Bankrupt” or “Potentially Bankrupt.” Accrued interest related to such loans is written-off. Impairment of Long-Lived Assets In August 2002, the Business Accounting Deliberation Council issued “Opinion Concerning Establishment of Accounting Standard for Impairment of Fixed Assets.” The opinion requires that an impairment loss be recognized only if there are indications of impairment loss and the carrying amount of a fixed asset is lower than its aggregate undis- counted future cash flows. The amount of impairment loss to be recognized is the difference between the carrying amount Accounting for Sales of Loans with Recourse Under U.S. GAAP, pursuant to SFAS No. 140, financial assets are generally recorded as sold and removed from the balance sheet only when the following conditions have been met: legal title has passed; the financial assets are beyond the reach of the transferor’s creditors, even in bankruptcy or receivership; the purchaser obtains the asset free of conditions that constrain it from taking advantage of the right to pledge or sell the asset; and the transferor does not maintain effective control over the assets as defined. Sales that are not free of such constraints are recorded as a financ- ing. A transfer of assets qualifying as a sale under U.S. GAAP but in connection with which the seller has assumed a limited recourse obligation would result in the recording of a liability for the estimated recourse. Restructured Loans SFAS No. 114 requires that impairment of a loan, including a troubled debt restructuring, be measured based on the pre- sent value of expected future cash flows discounted at the loan’s effective interest rate or, as practicably expedient, at the loan’s observable market price or the fair value of the col- lateral if the loan is collateral-dependent. Accrued Interest on Non-Performing Loans Loans are placed on non-accrual status when they are deemed uncollectible based on management’s assessment. Accrued interest related to such loans is reversed against interest income. Income is generally recognized on such loans using either a cost-recovery method, cash-basis method or some combination of those methods. Impairment of Long-Lived Assets SFAS No. 144 requires that an impairment loss be recog- nized only if the carrying amount of a long-lived asset is not recoverable from its undiscounted future cash flows and be measured 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. SMFG 2005 119 of fixed asset and the greater of: (i) the aggregate discounted future cash flows, (ii) the expected resale price of the fixed assets. The impairment loss shall be included in the current period income. This new accounting standard becomes effective for fiscal years beginning after March 31, 2005. Earlier adoption is permitted for the fiscal year ended March 31, 2004. 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. According to the “Opinion Concerning Establishment of Accounting Standard for Business Combination” issued in October 2003, goodwill is strictly amortized within 20 years using a systematic method, with impairment test in addition. Employee Pension and Post-Retirement Benefits Reserve for employee retirement benefit is recorded based on an actuarial computation, which uses the present value of the projected benefit obligation and pension assets, based on an employee’s credited years of services at the balance sheet date. Contributions are charged to the income statement as a decrease in pension costs when paid. All unrecognized actuarial gains/losses are strictly sub- ject to amortization. There is no requirement of additional minimum liability under Japanese GAAP. Accounting for the transfer of the Substitutional Portion of Employee Pension Fund Liabilities In general, accounting for any gain on transfer to the Japanese Government of the Substitutional Portion of Employee Pension Fund Liabilities is recognized when the obligation is settled and actually transferred. As an alterna- tive, the gain on the return of the entrusted portion of the employee pension fund is allowed if the transfer is resolved by board of delegates and there are plan assets equivalent to the amount that should be transferred to the Japanese Government. This treatment is allowed from June 15, 2001 to March 31, 2004. 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. Effective October 1, 2001, such earned surplus reserve is recorded until total of both earned surplus reserve and capi- tal surplus equals 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. 120 SMFG 2005 Goodwill Under SFAS No. 142, goodwill is not amortized but tested at least annually for impairment. Employee Pension and Post-Retirement Benefits U.S. GAAP generally requires the use of actuarial methods for measuring annual employee benefit costs, including the use of assumptions as to the rate of salary progression and discount rate, the amortization of prior service costs over the remaining service period of active employees and the immediate recogni- tion of a liability when the accumulated benefit obligation exceeds the fair market value of plan assets. Unrecognized actuarial gains/losses that are equal to the greater of 10% of the present value of benefit obligation (PBO) and 10% of the fair value (market related value) of plan assets, do not need to be amortized (corridor amortization). Liability that is at least equal to unfunded accumulated benefit obligation is recognized as additional minimum liability. Accounting for the transfer of the Substitutional Portion of Employee Pension Fund Liabilities In accordance with Emerging Issues Task Force Issue No. 03-02 “Accounting for the Transfer to the Japanese Government of the Substitutional Portion of Employee Pension Fund Liabilities,” the entire separation process and transfer will be accounted for at the time the transfer of the benefit obligation and related plan assets is completed. The ultimate determination of any gain or loss will be made as of the date the transfer has been completed in accordance with Statement of Financial Accounting Standards No. 88 “Employers’ Accounting for Settlements and Curtailments of Defined Benefit Pension Plans and for Termination Benefits.” Earned Surplus Reserve Such earned surplus reserve is not provided for under U.S. GAAP. 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 from March 31, 1998 to March 31, 2002. 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 if the fair value declined. From the fiscal year commencing after March 31, 2005, Accounting Standard for Impairment of Fixed Assets will become effective. This new accounting standard stipulates that when the impairment loss is recognized on revaluated land under certain conditions, corresponding land revalua- tion excess should be transferred to retained earnings. Guarantees Notional amounts of guarantees, including standby letters of credit and the related reimbursement obligations of cus- tomers, are presented on the balance sheet with assets of equal amounts. Loan Fees Loan origination fees and costs are recognized when income is received and costs are incurred. Land Revaluation Excess Such land revaluation excess is not permissible. Guarantees In November 2002, the Financial Accounting Standards Board (FASB) issued interpretation No. 45, “Guarantor’s Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others,” which, among other provisions, applies to guarantees issued or modified after December 31, 2002. The issuer of a guar- antee is required to recognize, at the inception of the guar- antee, an initial liability for fair value of its obligations under the guarantee basically. The above-mentioned treat- ment is required for letters, such as financial standby letters of credit and contracts that contingently require the guaran- tor to make payments to the guaranteed party. Loan Fees Loan origination fees are deferred and recognized over the life of the related loan as an adjustment of yield based on the effective interest method. Certain direct loan origination costs are also deferred and recognized over the life of the related loan as a reduction of the loan’s yield based on the effective interest method. Directors’ Bonuses Directors’ bonuses are charged directly to retained earnings by resolution of stockholders. Directors’ Bonuses Directors’ compensation is expensed on an accrual basis as earned. Leases Unless transfer of ownership occurs, financing leases may be accounted for as operating leases accompanied with suffi- cient footnote disclosure. Comprehensive Income There are no specific accounting principles for reporting comprehensive income. Leases Leases are classified as either capital lease or operating lease, based on specified criteria. A lease which transfers substan- tially 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. 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. SMFG 2005 121 Supplemental Information Consolidated Balance Sheets (Unaudited) Sumitomo Mitsui Banking Corporation and Subsidiaries March 31 Assets Cash and due from banks ................................................................................... Deposits with banks ............................................................................................ Call loans and bills bought ................................................................................... Receivables under resale agreements................................................................. Receivables under securities borrowing transactions ......................................... 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 .............................................................................................. Deferred tax assets for land revaluation .............................................................. 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 ............................................................. Payables under securities lending transactions ................................................... Commercial paper................................................................................................ Trading liabilities .................................................................................................. Borrowed money .................................................................................................. Foreign exchanges............................................................................................... Bonds ................................................................................................................... Due to trust account ............................................................................................ Other liabilities...................................................................................................... Reserve for employee bonuses ........................................................................... Reserve for employee retirement benefits ........................................................... Reserve for expenses related to EXPO 2005 Japan ........................................... Other reserves ..................................................................................................... Deferred tax liabilities........................................................................................... Deferred tax liabilities for land revaluation ........................................................... Acceptances and guarantees............................................................................... Total liabilities .................................................................................................... Millions of yen Millions of U.S. dollars 2005 2004 2005 ¥ 2,926,227 2,059,337 1,004,512 124,856 568,340 606,032 3,769,073 3,832 24,018,612 55,148,929 895,586 1,801,341 753,295 26,736 1,550,213 — 3,461,263 (1,239,882) ¥97,478,308 ¥71,269,641 4,971,462 405,671 3,868,001 4,500 2,110,473 1,016,438 478,482 4,196,483 50,457 1,798,047 17,879 23,235 231 1,093 45,086 90,994 3,461,263 93,809,446 ¥ 3,525,056 1,797,817 360,509 152,070 1,009,328 481,547 3,306,780 3,749 26,863,501 55,428,967 743,957 1,892,274 896,614 24,835 1,646,920 706 3,084,542 (1,375,921) ¥99,843,258 ¥68,981,540 6,292,495 1,098,449 5,946,346 3,000 1,873,245 1,223,881 572,755 3,863,343 36,032 2,991,734 16,152 30,918 116 862 39,797 56,391 3,084,542 96,111,607 $ 27,266 19,189 9,360 1,163 5,296 5,647 35,120 36 223,803 513,874 8,345 16,785 7,019 249 14,445 — 32,252 (11,553) $908,296 $664,085 46,324 3,780 36,042 42 19,665 9,471 4,458 39,103 470 16,754 167 217 2 10 420 848 32,252 874,110 Minority interests ............................................................................................... 1,034,950 1,009,489 9,643 Stockholders’ equity Capital stock......................................................................................................... Capital surplus ..................................................................................................... Retained earnings (deficit) ................................................................................... Land revaluation excess ...................................................................................... Net unrealized gains on other securities .............................................................. Foreign currency translation adjustments ............................................................ Total stockholders’ equity................................................................................. Total liabilities, minority interests and stockholders’ equity......................... Notes: 1. Amounts less than one million yen have been omitted. 664,986 1,603,512 (6,281) 57,772 394,973 (81,050) 2,633,912 ¥97,478,308 559,985 1,298,511 519,354 96,393 319,780 (71,861) 2,722,161 ¥99,843,258 6,196 14,942 (58) 538 3,680 (755) 24,543 $908,296 2. 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 ¥107.32 to US$1, the exchange rate prevailing at March 31, 2005. 122 SMFG 2005 Consolidated Statements of Operations (Unaudited) Sumitomo Mitsui Banking Corporation and Subsidiaries Year ended March 31 Income Interest income: Interest on loans and discounts ...................................................................... Interest and dividends on securities ............................................................... Interest on receivables under resale agreements........................................... Interest on receivables under securities borrowing transactions .................... Interest on deposits with banks....................................................................... Other interest income...................................................................................... Trust fees ............................................................................................................. 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 ..................................... Interest on payables under securities lending transactions ............................ Interest on bonds ............................................................................................ Other interest expenses.................................................................................. Fees and commissions ........................................................................................ Trading losses...................................................................................................... Other operating expenses.................................................................................... General and administrative expenses ................................................................. Provision for reserve for possible loan losses...................................................... Other expenses.................................................................................................... Total expenses ................................................................................................... Income (loss) before income taxes and minority interests............................ Income taxes: Current ............................................................................................................ Refund ............................................................................................................ Deferred ......................................................................................................... Minority interests in net income (loss).................................................................. Net income (loss) ............................................................................................... Millions of yen Millions of U.S. dollars 2005 2004 2005 ¥1,120,390 256,520 3,163 185 36,183 74,076 2,609 511,824 144,587 312,852 236,808 2,699,202 135,317 30,523 3,472 51,853 83,444 33,244 92,669 199 172,751 769,239 284,362 1,218,820 2,875,897 (176,695) 16,331 (8,539) 45,261 49,246 ¥ (278,995) ¥1,139,037 256,601 2,542 104 12,679 149,740 334 422,066 305,011 231,017 324,367 2,843,502 108,286 33,687 4,212 48,622 74,855 25,410 91,455 916 223,464 776,106 — 1,100,179 2,487,197 356,304 13,970 — 293 40,376 ¥ 301,664 $10,440 2,390 30 2 337 690 24 4,769 1,347 2,915 2,207 25,151 1,261 284 32 483 777 310 863 2 1,610 7,168 2,650 11,357 26,797 (1,646) 152 (79) 422 459 $ (2,600) Yen U.S. dollars Per share data: Net income (loss) ............................................................................................ ¥(5,300.46) Net income — diluted...................................................................................... Declared dividends on common stock ............................................................ Declared dividends on preferred stock (Type 1) ............................................. Declared dividends on preferred stock (Type 2) ............................................. Declared dividends on preferred stock (Type 3) ............................................. Declared dividends on preferred stock (First series Type 6) .......................... — 683 10,500 28,500 13,700 485 ¥5,238.85 5,231.31 4,177 10,500 28,500 13,700 / $ (49.39) — 6.36 97.84 265.56 127.66 4.52 Notes: 1. Amounts less than one million yen have been omitted. 2. 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 ¥107.32 to US$1, the exchange rate prevailing at March 31, 2005. SMFG 2005 123 Nonconsolidated Balance Sheets (Unaudited) Sumitomo Mitsui Banking Corporation March 31 Assets Cash and due from banks .................................................................................... Deposits with banks ............................................................................................. Call loans and bills bought ................................................................................... Receivables under resale agreements................................................................. Receivables under securities borrowing transactions .......................................... Commercial paper and other debt purchased...................................................... Trading assets...................................................................................................... Money held in trust............................................................................................... Securities ............................................................................................................. Loans and bills discounted................................................................................... Foreign exchanges............................................................................................... Other assets......................................................................................................... Premises and equipment ..................................................................................... Deferred tax assets .............................................................................................. Customers’ liabilities for acceptances and guarantees ........................................ Reserve for possible loan losses ......................................................................... Total assets ........................................................................................................ Liabilities and stockholders’ equity Liabilities Deposits ............................................................................................................... Call money and bills sold ..................................................................................... Payables under repurchase agreements ............................................................. Payables under securities lending transactions ................................................... Trading liabilities .................................................................................................. Borrowed money .................................................................................................. Foreign exchanges............................................................................................... Bonds ................................................................................................................... Due to trust account ............................................................................................ Other liabilities...................................................................................................... Reserve for employee bonuses ........................................................................... Reserve for employee retirement benefits ........................................................... Reserve for expenses related to EXPO 2005 Japan ........................................... Other reserves ..................................................................................................... Deferred tax liabilities for land revaluation ........................................................... Acceptances and guarantees............................................................................... Total liabilities .................................................................................................... Stockholders’ equity Capital stock......................................................................................................... Capital surplus ..................................................................................................... Retained earnings ................................................................................................ Land revaluation excess ...................................................................................... Net unrealized gains on other securities .............................................................. Total stockholders’ equity................................................................................. Total liabilities and stockholders’ equity......................................................... Notes: 1. Amounts less than one million yen have been omitted. Millions of yen Millions of U.S. dollars 2005 2004 2005 ¥ 2,689,806 1,835,023 946,397 88,021 568,340 126,682 3,363,376 3,832 23,676,696 50,067,586 840,923 1,446,439 660,469 1,502,153 4,303,148 (989,121) ¥91,129,776 ¥65,591,627 4,811,207 365,127 3,838,031 1,711,030 2,267,602 477,845 3,718,372 50,457 1,143,206 9,092 — 231 18 90,043 4,303,148 88,377,041 664,986 1,367,548 291,311 42,345 386,543 2,752,735 ¥91,129,776 ¥ 3,355,519 1,511,401 287,262 130,337 1,009,328 133,081 2,958,990 3,749 26,592,584 50,810,144 720,840 1,480,776 688,325 1,590,518 4,086,964 (1,250,751) ¥94,109,074 ¥63,656,771 6,204,833 1,071,114 5,946,346 1,504,465 2,531,973 576,958 3,177,741 36,032 2,368,824 8,752 11,748 116 18 55,541 4,086,964 91,238,204 559,985 1,237,307 676,064 81,158 316,354 2,870,870 ¥94,109,074 $ 25,063 17,099 8,819 820 5,296 1,180 31,340 36 220,618 466,526 7,836 13,478 6,154 13,997 40,096 (9,217) $849,141 $611,178 44,831 3,402 35,763 15,943 21,129 4,453 34,648 470 10,652 85 — 2 0 839 40,096 823,491 6,196 12,743 2,714 395 3,602 25,650 $849,141 2. 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 ¥107.32 to US$1, the exchange rate prevailing at March 31, 2005. 124 SMFG 2005 Nonconsolidated Statements of Operations (Unaudited) Sumitomo Mitsui Banking Corporation Year ended March 31 Income Interest income: Interest on loans and discounts ...................................................................... Interest and dividends on securities ............................................................... Interest on receivables under resale agreements........................................... Interest on receivables under securities borrowing transactions .................... Interest on deposits with banks....................................................................... Other interest income...................................................................................... Trust fees ............................................................................................................. 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 ..................................... Interest on payables under securities lending transactions ............................ Interest on bonds ............................................................................................ Other interest expenses.................................................................................. Fees and commissions ........................................................................................ Trading losses...................................................................................................... Other operating expenses.................................................................................... General and administrative expenses ................................................................. Provision for reserve for possible loan losses...................................................... Other expenses.................................................................................................... Total expenses ................................................................................................... Income (loss) before income taxes .................................................................. Income taxes: Current ............................................................................................................ Refund ............................................................................................................ Deferred ......................................................................................................... Net income (loss) ............................................................................................... Millions of yen Millions of U.S. dollars 2005 2004 2005 ¥ 939,895 262,640 1,955 181 33,651 80,375 2,609 399,434 131,779 228,005 210,408 2,290,935 110,763 89,059 2,786 51,818 60,483 31,283 101,358 199 109,916 603,477 117,688 1,112,179 2,391,014 (100,079) ¥ 975,130 249,594 818 104 11,167 155,507 334 322,075 283,611 149,209 341,633 2,489,187 88,122 94,186 3,089 48,621 49,441 21,822 95,506 2,881 159,774 623,098 — 983,795 2,170,341 318,846 6,379 (8,184) 38,579 ¥ (136,854) 12,752 — 4,980 ¥ 301,113 $ 8,758 2,447 18 2 314 749 24 3,722 1,228 2,124 1,961 21,347 1,032 830 26 483 564 291 944 2 1,024 5,623 1,097 10,363 22,280 (933) 59 (76) 359 $ (1,275) Per share data: Net income (loss) ............................................................................................ ¥(2,718.23) Net income — diluted...................................................................................... — ¥5,228.80 5,221.53 $ (25.33) — Notes: 1. Amounts less than one million yen have been omitted. 2. 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 ¥107.32 to US$1, the exchange rate prevailing at March 31, 2005. Yen U.S. dollars SMFG 2005 125 Income Analysis (Consolidated) Sumitomo Mitsui Financial Group, Inc. and Subsidiaries Operating Income, Classified by Domestic and Overseas Operations 2005 2004 Millions of yen Year ended March 31 Domestic Overseas operations operations Interest income .................................................... ¥1,352,588 ¥219,685 Interest expenses ................................................ 111,651 268,947 108,034 1,083,640 Net interest income.................................................... Elimination and unallocated Domestic Overseas corporate operations operations assets ¥238,922 ¥(50,545) ¥1,521,728 ¥1,394,426 100,641 241,565 (30,216) 350,382 138,280 1,152,860 (20,329) 1,171,345 Total Elimination and unallocated corporate assets ¥(42,010) ¥1,591,338 310,246 1,281,091 (31,961) (10,049) Total Trust fees................................................................... ¥ 2,609 ¥ — ¥ — ¥ 2,609 ¥ 334 ¥ — ¥ — ¥ 334 Fees and commissions (income) ......................... ¥ 558,734 Fees and commissions (expenses) ..................... 78,271 480,462 Net fees and commissions ........................................ Trading profits...................................................... ¥ 138,258 Trading losses ..................................................... 1,260 136,997 Net trading income .................................................... Other operating income ....................................... ¥1,044,604 Other operating expenses ................................... 863,933 ¥ 40,169 4,535 35,633 ¥ 9,401 2,011 7,389 ¥ 14,363 4,365 ¥ (2,817) ¥ 596,086 ¥ 471,941 73,172 79,976 398,769 516,109 (2,831) 13 ¥ (3,073) ¥ 144,587 ¥ 289,432 8,628 280,804 199 144,387 (3,073) — ¥ (678) ¥1,058,289 ¥ 927,894 877,113 (550) 867,748 ¥ 30,604 4,309 26,294 ¥ 23,302 11 23,290 ¥ 19,006 10,729 ¥ (1,517) ¥ 501,028 76,851 424,176 (629) (887) ¥ (7,723) ¥ 305,011 916 304,094 (7,723) — ¥ (425) ¥ 946,474 886,649 (1,193) Net other operating income ....................................... 180,670 9,998 (127) 190,540 50,780 8,277 767 59,825 Notes: 1. Domestic operations comprise the operations of SMFG, its domestic consolidated banking subsidiaries (excluding overseas branches) and other domestic consolidated subsidiaries. Overseas operations comprise the operations of the overseas branches of domestic consolidated banking subsidiaries and overseas consolidated subsidiaries. 2. Income and expenses resulting from money held in trust are included in “Other income” and “Other expenses.” Therefore, “Interest expenses” are shown after deduction of expenses (2005, ¥3 million; 2004, ¥21 million) related to the management of money held in trust. 3. Intersegment transactions are reported in “Elimination and unallocated corporate assets” column. Average Balance, Interest and Earnings Yield of Interest-Earning Assets and Interest-Bearing Liabilities Domestic Operations Millions of yen Average balance Year ended March 31 Interest-earning assets.................................... ¥77,847,730 Loans and bills discounted......................... 50,766,858 Securities ................................................... 23,316,850 587,437 Call loans and bills bought ......................... Receivables under resale agreements ...... 92,885 Receivables under securities borrowing transactions ............................. Deposits with banks ................................... 874,138 1,226,375 Interest-bearing liabilities ................................ ¥83,983,565 Deposits .................................................... 62,961,909 3,561,190 Negotiable certificates of deposit ............... 4,836,442 Call money and bills sold ........................... Payables under repurchase agreements ... 572,714 Payables under securities lending transactions ................................. Commercial paper...................................... Borrowed money ........................................ Short-term bonds ....................................... Bonds ......................................................... 4,645,843 305,731 2,942,159 263 3,623,970 2005 Interest ¥1,352,588 1,007,194 247,782 4,116 6 185 20,671 ¥ 268,947 67,476 800 1,436 18 51,853 224 61,702 0 55,676 Earnings yield Average balance 2004 Interest ¥1,394,426 1,049,707 230,992 1,840 3 Earnings yield 1.74% 1.93 1.00 0.34 0.01 ¥80,192,186 54,448,334 23,160,633 547,686 33,898 515,980 676,807 104 7,071 ¥84,942,920 59,883,938 4,229,710 7,186,407 1,711,425 ¥ 241,565 50,917 837 1,242 105 5,090,264 193,420 3,242,418 — 2,921,709 48,622 236 71,950 — 44,624 0.02 1.04 0.28% 0.09 0.02 0.02 0.01 0.96 0.12 2.22 — 1.53 1.74% 1.98 1.06 0.70 0.01 0.02 1.69 0.32% 0.11 0.02 0.03 0.00 1.12 0.07 2.10 0.14 1.54 Notes: 1. Domestic operations comprise the operations of SMFG, its domestic consolidated banking subsidiaries (excluding overseas branches) and other domestic consolidated subsidiaries. 2. In principle, average balances are calculated 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 balance of noninterest earning deposits (2005, ¥1,674,507 million; 2004, ¥1,322,675 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 balance of money held in trust (2005, ¥3,629 million; 2004, ¥21,933 million). “Interest-bearing liabilities” are shown after deduction of amounts equivalent to the average balance of money held in trust (2005, ¥3,629 million; 2004, ¥21,933 million) and corre- sponding interest (2005, ¥3 million; 2004, ¥21 million). 126 SMFG 2005 2.73% 3.09 3.20 2.46 2.03 — 1.74 2.04% 1.61 2.39 1.55 1.62 — — 3.08 — 3.79 1.79% 2.07 1.05 1.00 1.27 0.02 1.71 0.40% 0.20 0.10 0.08 0.44 1.12 0.07 1.61 0.14 1.93 Overseas Operations Average balance Year ended March 31 Interest-earning assets.................................... ¥8,043,184 5,388,426 904,213 121,023 155,602 Loans and bills discounted......................... Securities ................................................... Call loans and bills bought ......................... Receivables under resale agreements ...... Receivables under securities 2005 Interest ¥219,685 166,477 28,944 2,979 3,157 borrowing transactions ............................. Deposits with banks ................................... — 1,020,309 — 17,709 Interest-bearing liabilities ................................ ¥5,483,853 4,105,888 122,085 160,044 212,983 Deposits .................................................... Negotiable certificates of deposit ............... Call money and bills sold ........................... Payables under repurchase agreements ... Payables under securities lending transactions ................................. Commercial paper...................................... Borrowed money ........................................ Short-term bonds ....................................... Bonds ......................................................... — — 100,866 — 765,713 ¥111,651 66,220 2,912 2,480 3,454 — — 3,109 — 29,017 Millions of yen Earnings yield Average balance 2004 Interest ¥238,922 148,501 35,639 2,200 2,538 Earnings yield 3.23% 2.93 3.44 2.16 1.99 ¥7,391,661 5,064,994 1,036,961 101,843 127,275 — 703,330 — 7,008 ¥5,109,984 3,404,225 96,735 123,925 354,094 — — 113,752 — 1,004,354 ¥100,641 55,119 2,697 1,355 4,107 — — 2,179 — 31,577 — 1.00 1.97% 1.62 2.79 1.09 1.16 — — 1.92 — 3.14 Notes: 1. Overseas operations comprise the operations of the overseas branches of domestic consolidated banking subsidiaries and overseas consolidated subsidiaries. 2. In principle, average balances are calculated 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 balance of noninterest earning deposits (2005, ¥34,722 million; 2004, ¥29,738 million). Total of Domestic and Overseas Operations Average balance Year ended March 31 Interest-earning assets.................................... ¥85,168,708 Loans and bills discounted......................... 55,390,830 Securities ................................................... 24,398,088 708,460 Call loans and bills bought ......................... 248,487 Receivables under resale agreements ...... Receivables under securities borrowing transactions ............................. Deposits with banks ................................... 874,138 2,112,078 Interest-bearing liabilities ................................ ¥88,566,822 Deposits .................................................... 66,931,833 Negotiable certificates of deposit ............... 3,683,275 4,996,487 Call money and bills sold ........................... 785,698 Payables under repurchase agreements ... Payables under securities lending transactions ................................. Commercial paper...................................... Borrowed money ........................................ Short-term bonds ....................................... Bonds ......................................................... 4,645,843 305,731 2,278,563 263 4,389,684 2005 Interest ¥1,521,728 1,145,653 256,396 7,095 3,163 185 36,183 ¥ 350,382 131,498 3,713 3,917 3,472 51,853 224 36,793 0 84,694 Millions of yen Earnings yield Average balance 2004 Interest ¥1,591,338 1,167,622 256,600 4,040 2,542 Earnings yield 1.84% 1.99 1.05 0.62 1.58 ¥86,714,682 58,643,284 24,355,276 649,529 161,173 515,980 1,224,157 104 12,687 ¥89,009,467 63,115,626 4,326,445 7,310,332 2,065,520 ¥ 310,246 104,644 3,535 2,598 4,212 5,090,264 193,420 2,486,093 — 3,926,064 48,622 236 43,561 — 76,202 0.02 1.04 0.35% 0.17 0.08 0.04 0.20 0.96 0.12 1.75 — 1.94 Notes: 1. The figures above comprise totals for domestic and overseas operations after intersegment eliminations. 2. In principle, average balances are calculated 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 balance of noninterest earning deposits (2005, ¥1,708,177 million; 2004, ¥1,336,284 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 balance of money held in trust (2005, ¥3,629 million; 2004, ¥21,933 million). “Interest-bearing liabilities” are shown after deduction of amounts equivalent to the average balance of money held in trust (2005, ¥3,629 million; 2004, ¥21,933 million) and corre- sponding interest (2005, ¥3 million; 2004, ¥21 million). SMFG 2005 127 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 ........................................................... 2005 2004 Millions of yen Elimination and unallocated corporate assets Domestic Overseas operations operations ¥40,169 ¥558,734 23,974 23,448 7,009 117,282 0 51,973 — 19,304 3 6,732 3,463 36,399 — 93,768 Total ¥596,086 45,105 124,289 51,973 19,304 6,735 39,442 93,768 Domestic Overseas operations operations ¥30,604 ¥471,941 17,995 17,470 5,756 113,302 0 43,883 — 16,239 3 5,923 2,845 30,668 — 90,506 ¥(2,817) (2,317) (2) — — — (419) — Elimination and unallocated corporate assets ¥(1,517) (878) (614) — — — (10) — Total ¥501,028 34,587 118,444 43,883 16,239 5,927 33,503 90,506 Fees and commissions (expenses) ........................... Remittances and transfers................................... ¥ 78,271 23,071 ¥ 4,535 1,529 ¥(2,831) (384) ¥ 79,976 24,215 ¥ 73,172 21,952 ¥ 4,309 2,128 ¥ (629) (527) ¥ 76,851 23,553 Notes: 1. Domestic operations comprise the operations of SMFG, its domestic consolidated banking subsidiaries (excluding overseas branches) and other domestic consolidated subsidiaries. Overseas operations comprise the operations of the overseas branches of domestic consolidated banking subsidiaries and overseas consolidated subsidiaries. 2. Intersegment transactions are reported in “Elimination and unallocated corporate assets” column. Trading Income Year ended March 31 Trading profits............................................................ Gains on trading securities .................................. Gains on securities related to 2005 2004 Millions of yen Domestic Overseas operations operations ¥9,401 ¥138,258 — 7,857 Elimination and unallocated corporate assets ¥(3,073) — Total ¥144,587 7,857 Domestic Overseas operations operations ¥23,302 ¥289,432 — 6,735 Elimination and unallocated corporate assets ¥(7,723) — Total ¥305,011 6,735 trading transactions ........................................... Gains on trading-related financial derivatives...... Others .................................................................. — 129,965 435 — 9,332 68 — (3,073) — — 136,224 504 — 282,697 — — 23,302 — — (7,723) — — 298,275 — Trading losses ........................................................... Losses on trading securities ................................ Losses on securities related to trading transactions ........................................... Losses on trading-related financial derivatives.... Others .................................................................. ¥ 1,260 — ¥2,011 — ¥(3,073) — ¥ 189 1,071 — 10 2,001 — — (3,073) — 199 — 199 — — ¥ 8,628 — ¥ 904 7,723 — 11 — — — 11 ¥(7,723) — ¥ — (7,723) — 916 — 904 — 11 Notes: 1. Domestic operations comprise the operations of SMFG, its domestic consolidated banking subsidiaries (excluding overseas branches) and other domestic consolidated subsidiaries. Overseas operations comprise the operations of the overseas branches of domestic consolidated banking subsidiaries and overseas consolidated subsidiaries. 2. Intersegment transactions are reported in “Elimination and unallocated corporate assets” column. 128 SMFG 2005 Assets and Liabilities (Consolidated) Sumitomo Mitsui Financial Group, Inc. and Subsidiaries Deposits and Negotiable Certificates of Deposit Year-End Balance March 31 Domestic operations: 2005 Millions of yen 2004 2003 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 ..................................................................................................................... ¥39,010,945 20,513,332 4,566,079 ¥64,090,357 ¥ 2,579,986 ¥66,670,344 ¥ 3,731,804 643,931 8,767 ¥ 4,384,503 ¥ 133,283 ¥ 4,517,787 ¥71,188,131 ¥36,825,754 20,308,162 4,766,396 ¥61,900,312 ¥ 3,423,393 ¥65,323,706 ¥ 2,862,410 562,667 8,036 ¥ 3,433,114 ¥ 96,070 ¥ 3,529,184 ¥68,852,890 ¥34,752,737 20,588,039 4,256,263 ¥59,597,040 ¥ 4,740,264 ¥64,337,305 ¥ 2,732,304 591,572 10,089 ¥ 3,333,966 ¥ 112,753 ¥ 3,446,720 ¥67,784,025 Notes: 1. Domestic operations comprise the operations of SMFG, its domestic consolidated banking subsidiaries (excluding overseas branches) and other domestic consolidated subsidiaries. Overseas operations comprise the operations of the overseas branches of domestic consolidated banking subsidiaries 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 2005 2004 2003 March 31 Domestic operations: Millions of yen Percentage Millions of yen Percentage Millions of yen Percentage Manufacturing ............................................ ¥ 5,659,954 Agriculture, forestry, fisheries and mining ... 134,289 Construction............................................... 1,829,895 Transportation, communications 2,872,776 and public enterprises.............................. 5,692,582 Wholesale and retail .................................. 4,089,586 Finance and insurance .............................. 6,948,475 Real estate................................................. Services ..................................................... 6,271,962 Municipalities ............................................. 656,386 Others ........................................................ 15,895,492 Subtotal...................................................... ¥50,051,402 Overseas operations: Public sector .............................................. ¥ 83,325 406,015 Financial institutions .................................. Commerce and industry............................. 4,060,708 Others ........................................................ 198,353 Subtotal...................................................... ¥ 4,748,403 Total ................................................................ ¥54,799,805 11.31% 0.27 3.66 5.74 11.37 8.17 13.88 12.53 1.31 31.76 100.00% 1.75% 8.55 85.52 4.18 100.00% — ¥ 6,136,783 142,576 1,950,595 3,275,122 5,884,109 3,828,350 7,965,230 6,136,593 765,690 15,328,834 ¥51,413,887 ¥ 81,737 338,375 3,304,282 244,516 ¥ 3,968,912 ¥55,382,800 11.94% ¥ 6,326,227 207,518 2,631,272 0.28 3.79 6.37 11.44 7.45 15.49 11.94 1.49 29.81 3,082,989 6,251,344 4,214,205 9,038,117 6,150,192 577,184 17,968,160 100.00% ¥56,447,214 2.06% ¥ 8.53 83.25 6.16 141,741 312,632 3,898,656 282,701 100.00% ¥ 4,635,732 ¥61,082,946 — 11.21% 0.37 4.66 5.46 11.07 7.47 16.01 10.90 1.02 31.83 100.00% 3.06% 6.74 84.10 6.10 100.00% — Notes: 1. Domestic operations comprise the operations of SMFG, its domestic consolidated banking subsidiaries (excluding overseas branches) and other domestic consolidated subsidiaries. Overseas operations comprise the operations of the overseas branches of domestic consolidated banking subsidiaries and overseas consolidated subsidiaries. 2. Japan offshore banking accounts are included in overseas operations’ accounts. 3. Percentage indicates the composition ratio. SMFG 2005 129 Risk-Monitored Loans March 31 Bankrupt loans............................................................................................................... Non-accrual loans.......................................................................................................... Past due loans (3 months or more) ............................................................................... Restructured loans ........................................................................................................ ............................................................................................................................ Total 2005 ¥ 68,337 1,398,964 29,441 730,701 ¥2,227,445 Notes: Definition of risk-monitored loan categories Millions of yen 2004 ¥ 96,413 1,767,862 51,538 1,382,168 ¥3,297,981 2003 ¥ 201,392 2,710,164 130,353 2,728,791 ¥5,770,700 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: 2005 Millions of yen 2004 2003 Japanese government bonds ................................................................................... Japanese local government bonds........................................................................... Japanese corporate bonds ....................................................................................... Japanese stocks....................................................................................................... Others....................................................................................................................... Subtotal .................................................................................................................... Overseas operations: Japanese government bonds ................................................................................... Japanese local government bonds........................................................................... Japanese corporate bonds ....................................................................................... Japanese stocks....................................................................................................... Others....................................................................................................................... Subtotal .................................................................................................................... Total of domestic and overseas operations: Japanese government bonds ................................................................................... Japanese local government bonds........................................................................... Japanese corporate bonds ....................................................................................... Japanese stocks....................................................................................................... Others....................................................................................................................... Subtotal .................................................................................................................... Total............................................................................................................................... ¥13,636,577 486,884 3,243,443 3,325,372 2,576,031 ¥23,268,309 ¥ ¥ — — — — 774,484 774,484 ¥ — — — 190,907 0 ¥ 190,907 ¥24,233,701 ¥14,377,379 506,263 2,651,971 3,473,577 4,908,958 ¥25,918,150 ¥ ¥ 71,560 — — — 895,875 967,436 ¥ — — — 164,314 — ¥ 164,314 ¥27,049,901 ¥12,813,396 375,204 2,369,698 3,321,531 3,346,246 ¥22,226,077 ¥ 88,250 — 854 — 1,650,405 ¥ 1,739,510 ¥ — — — 152,932 — ¥ 152,932 ¥24,118,520 Notes: 1. Domestic operations comprise the operations of SMFG, its domestic consolidated banking subsidiaries (excluding overseas branches) and other domestic consolidated subsidiaries. Overseas operations comprise the operations of the overseas branches of domestic consolidated banking subsidiaries and overseas consolidated subsidiaries. 2. “Others” include foreign bonds and foreign stocks. 130 SMFG 2005 Trading Assets and Liabilities March 31 2005 2004 Millions of yen Domestic Overseas operations operations Elimination and unallocated corporate assets Total Domestic Overseas operations operations Elimination and unallocated corporate assets Total Trading assets: ......................................................... ¥3,368,619 198,646 812 — Trading securities ................................................ Derivatives of trading securities........................... Securities related to trading transactions............. Derivatives of securities related to trading transactions ........................................... Trading-related financial derivatives .................... Other trading assets ............................................ 2,033 2,110,833 1,056,293 Trading liabilities: ...................................................... ¥1,717,521 34,540 524 — 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 ......................................... 2,061 1,680,394 — ¥411,698 71,032 — — — 340,666 — ¥404,196 34,878 — — — 369,318 — ¥(11,244) ¥3,769,073 ¥2,959,570 32,516 269,678 139 812 — — — — — — 2,033 (11,244) 2,440,254 — 1,056,293 595 1,836,358 1,089,960 ¥(11,244) ¥2,110,473 ¥1,518,119 19,855 69,419 242 524 — — — — — — 2,061 (11,244) 2,038,468 — — 940 1,497,081 — ¥366,802 48,250 — — — 318,552 — ¥374,718 12,802 — — — 361,915 — ¥(19,592) ¥3,306,780 80,766 139 — — — — — (19,592) 595 2,135,318 — 1,089,960 ¥(19,592) ¥1,873,245 32,658 242 — — — — — (19,592) — 940 1,839,404 — Notes: 1. Domestic operations comprise the operations of SMFG, its domestic consolidated banking subsidiaries (excluding overseas branches) and other domestic consolidated subsidiaries. Overseas operations comprise the operations of the overseas branches of domestic consolidated banking subsidiaries and overseas consolidated subsidiaries. 2. Intersegment transactions are reported in “Elimination and unallocated corporate assets” column. SMFG 2005 131 Capital Ratio (Consolidated) Sumitomo Mitsui Financial Group, Inc. and Subsidiaries March 31 Tier I capital: Tier II capital: Deductions: Total capital: Risk-adjusted assets: Capital ratio: Capital stock....................................................................... Capital reserve ................................................................... Retained earnings .............................................................. Minority interests ................................................................ Valuation losses on other securities................................... Treasury stock.................................................................... Foreign currency translation adjustments .......................... Goodwill and others............................................................ Subtotal (A) ........................................................................ 45% of unrealized gains on other securities....................... 45% of unrealized gains on land ........................................ General reserve for possible loan losses ........................... Qualifying subordinated debt.............................................. Subtotal .............................................................................. Tier II capital included as qualifying capital (B) .................. (C) ...................................................................................... (D) = (A) + (B) - (C) ............................................................ On-balance-sheet............................................................... Off-balance-sheet............................................................... Asset equivalent of market risk .......................................... Subtotal (E) ........................................................................ (D) / (E) × 100..................................................................... 2005 ¥ 1,352,651 974,346 285,573 1,012,949 — (269,857) (79,883) (13,531) ¥ 3,262,250 317,053 ¥ 67,103 633,515 2,537,304 ¥ 3,554,977 ¥ 3,262,250 ¥ 504,430 ¥ 6,020,069 ¥54,897,868 5,300,875 353,876 ¥60,552,620 9.94% Millions of yen 2004 ¥ 1,247,650 865,282 564,767 990,426 — (2,956) (71,764) (21,800) ¥ 3,571,604 249,401 ¥ 68,524 837,679 2,358,572 ¥ 3,514,177 ¥ 3,416,547 ¥ 250,754 ¥ 6,737,397 ¥54,649,899 4,283,294 270,821 ¥59,204,015 11.37% 2003 ¥ 1,247,650 856,237 278,357 996,892 (24,197) (15,204) (53,515) (30,282) ¥ 3,255,936 — ¥ 71,699 1,173,927 2,150,334 ¥ 3,395,961 ¥ 2,961,619 ¥ 238,633 ¥ 5,978,922 ¥55,417,663 3,525,419 223,781 ¥59,166,864 10.10% 132 SMFG 2005 Capital (Nonconsolidated) Sumitomo Mitsui Financial Group, Inc. Change in Number of Shares Outstanding and Capital Stock Number of shares outstanding Capital stock Capital reserve Millions of yen Changes Balances Changes Balances December 2, 2002.......................... February 3, 2003 ............................ February 8, 2003 ............................ March 12, 2003 .............................. April 1, 2003 — March 31, 2004..... August 8, 2003 ............................... April 1, 2004 — March 31, 2005..... March 29, 2005 .............................. — 86,576.53 50,100 115,000 8.61 — 332,869.96 70,001 6,676,424.39 6,763,000.92 6,813,100.92 6,928,100.92 6,928,109.53 6,928,109.53 7,260,979.49 7,330,980.49 ¥ — — 75,150 172,500 — — — 105,001 ¥1,000,000 1,000,000 1,075,150 1,247,650 1,247,650 1,247,650 1,247,650 1,352,651 Changes ¥ — 3,069 75,150 172,500 — (499,503) — 105,001 Balances ¥1,496,547 1,499,616 1,574,766 1,747,266 1,747,266 1,247,762 1,247,762 1,352,764 Remarks: February 3, 2003: February 8, 2003: Increase in the number of common stock as a result of merger with The Japan Research Institute Holdings, Ltd. (merger ratio: 1-to-0.021) Allotment to third parties: Preferred stock (1st to 12th series Type 4) Issue price: Capitalization: ¥3,000,000 ¥1,500,000 March 12, 2003: Allotment to third parties: Preferred stock (13th series Type 4) Issue price: Capitalization: ¥3,000,000 ¥1,500,000 April 1, 2003 — March 31, 2004: Conversion of a share of preferred stock (13th series Type 4) to 9.61 shares of common stock. Capital reserve was transferred to other capital surplus pursuant to Article 289-2 of the Commercial Code. August 8, 2003: April 1, 2004 — March 31, 2005: Conversion of 32,000 shares of preferred stock (Type 1), 105,000 shares of preferred stock (Type3), and March 29, 2005: 7,912 shares of preferred stock (13th series Type 4) to 477,781.96 shares of common stock. Allotment to third parties: Preferred stock (1st series Type 6) ¥3,000,000 ¥1,500,000 Issue price: Capitalization: Note: During the period from April 1 to May 31, 2005, SMFG converted 92,979 shares of preferred stock (13th series Type 4) into 894,027.10 shares of common stock. Total Outstanding Shares March 31, 2005 Common stock............................................................................................................................................................... Preferred stock (Type 1) ................................................................................................................................................ Preferred stock (Type 2) ................................................................................................................................................ Preferred stock (Type 3) ................................................................................................................................................ Preferred stock (1st series Type 4)................................................................................................................................ Preferred stock (2nd series Type 4) ............................................................................................................................. Preferred stock (3rd series Type 4) .............................................................................................................................. Preferred stock (4th series Type 4) .............................................................................................................................. Preferred stock (5th series Type 4) .............................................................................................................................. Preferred stock (6th series Type 4) .............................................................................................................................. Preferred stock (7th series Type 4) .............................................................................................................................. Preferred stock (8th series Type 4) .............................................................................................................................. Preferred stock (9th series Type 4) .............................................................................................................................. Preferred stock (10th series Type 4) ............................................................................................................................ Preferred stock (11th series Type 4) ............................................................................................................................ Preferred stock (12th series Type 4) ............................................................................................................................ Preferred stock (13th series Type 4) ............................................................................................................................. Preferred stock (1st series Type 6)................................................................................................................................ Total............................................................................................................................................................................... Number of shares issued 6,273,792.49 35,000 100,000 695,000 4,175 4,175 4,175 4,175 4,175 4,175 4,175 4,175 4,175 4,175 4,175 4,175 107,087 70,001 7,330,980.49 Stock Exchange Listings Tokyo Stock Exchange (First Section) Osaka Securities Exchange (First Section) Nagoya Stock Exchange (First Section) SMFG 2005 133 Number of Shares, Classified by Type of Shareholders a. Common Stock March 31, 2005 Japanese government and local government................................................................ Financial institutions ...................................................................................................... Securities companies .................................................................................................... Other institutions............................................................................................................ Foreign institutions ........................................................................................................ Foreign individuals......................................................................................................... Individuals and others.................................................................................................... Total............................................................................................................................... Fractional shares ........................................................................................................... Number of shareholders 7 350 88 7,217 859 46 142,791 151,358 — Number of shares 4,897 2,038,829 54,258 1,619,383 1,494,278 264 1,033,430 6,245,339 Percentage of total 0.08% 32.64 0.87 25.93 23.93 0.00 16.55 100.00% 28,453.49 — Notes: 1. Of 404,503.97 shares in treasury stock, 404,503 shares are included in “Individuals and others” and the remaining 0.97 shares are included in “Fractional shares.” 2. “Other institutions” and “Fractional shares” include 637 and 0.20 shares, respectively, held by the Securities Custody Association. b. Preferred Stock (Type 1) k. Preferred Stock (7th series Type 4) March 31, 2005 Financial institutions ...... Number of shareholders 1 Number of shares 35,000 Percentage of total 100.00% March 31, 2005 Foreign institutions......... Number of shareholders 1 Number of shares 4,175 Percentage of total 100.00% c. Preferred Stock (Type 2) l. Preferred Stock (8th series Type 4) March 31, 2005 Financial institutions ...... Number of shareholders 1 Number of shares 100,000 Percentage of total 100.00% March 31, 2005 Foreign institutions......... Number of shareholders 1 Number of shares 4,175 Percentage of total 100.00% d. Preferred Stock (Type 3) m. Preferred Stock (9th series Type 4) March 31, 2005 Financial institutions ...... Number of shareholders 1 Number of shares 695,000 Percentage of total 100.00% March 31, 2005 Foreign institutions......... Number of shareholders 1 Number of shares 4,175 Percentage of total 100.00% e. Preferred Stock (1st series Type 4) n. Preferred Stock (10th series Type 4) March 31, 2005 Foreign institutions......... Number of shareholders 1 Number of shares 4,175 Percentage of total 100.00% March 31, 2005 Foreign institutions......... Number of shareholders 1 Number of shares 4,175 Percentage of total 100.00% f. Preferred Stock (2nd series Type 4) o. Preferred Stock (11th series Type 4) March 31, 2005 Foreign institutions......... Number of shareholders 1 Number of shares 4,175 Percentage of total 100.00% March 31, 2005 Foreign institutions......... Number of shareholders 1 Number of shares 4,175 Percentage of total 100.00% g. Preferred Stock (3rd series Type 4) p. Preferred Stock (12th series Type 4) March 31, 2005 Foreign institutions......... Number of shareholders 1 Number of shares 4,175 Percentage of total 100.00% March 31, 2005 Foreign institutions......... Number of shareholders 1 Number of shares 4,175 Percentage of total 100.00% h. Preferred Stock (4th series Type 4) q. Preferred Stock (13th series Type 4) March 31, 2005 Foreign institutions......... Number of shareholders 1 Number of shares 4,175 Percentage of total 100.00% March 31, 2005 Foreign institutions......... Number of shareholders 1 Number of shares 107,087 Percentage of total 100.00% i. Preferred Stock (5th series Type 4) r. Preferred Stock (1st series Type 6) March 31, 2005 Foreign institutions......... Number of shareholders 1 Number of shares 4,175 Percentage of total 100.00% March 31, 2005 Financial institutions ...... Number of shareholders 4 Number of shares 70,001 Percentage of total 100.00% j. Preferred Stock (6th series Type 4) March 31, 2005 Foreign institutions......... Number of shareholders 1 Number of shares 4,175 Percentage of total 100.00% 134 SMFG 2005 Principal Shareholders a. Common Stock March 31, 2005 Shareholders Number of shares Percentage of shares outstanding Japan Trustee Services Bank, Ltd. (Trust Account)........................................................................................ 438,816.00 6.99% The Master Trust Bank of Japan, Ltd. (Trust account).................................................................................... 431,664.00 Nippon Life Insurance Company..................................................................................................................... 154,388.42 Sumitomo Life Insurance Company ................................................................................................................ 108,241.00 Matsushita Electric Industrial Co., Ltd. ........................................................................................................... 103,570.98 Hero & Company (Standing agent: SMBC Global Investor Services Dept., International Banking Unit) ........................................................................................................................... 91,529.00 The Chase Manhattan Bank N.A. London (Standing agent: Mizuho Corporate Bank, Ltd.’s Kabutocho Custody & Proxy Department within the Settlement & Clearing Services Division).................... 89,864.00 Japan Trustee Services Bank, Ltd. (The Sumitomo Trust and Banking Company Retrust Portion, Sumitomo Life Insurance Company Pension Trust)...................................................................................... 58,000.00 TOYOTA MOTOR CORPORATION .............................................................................................................. 53,753.12 Trust & Custody Services Bank, Ltd. (Trust Account B) ................................................................................. 51,729.00 State Street Bank and Trust Company (Standing agent: Mizuho Corporate Bank, Ltd.’s Kabutocho Custody & Proxy Department within the Settlement & Clearing Services Division).................... 50,129.00 The Sumitomo Trust and Banking Company, Limited (Trust Account B)........................................................ 46,918.00 The Mitsubishi Trust and Banking Corporation (Trust Account) ..................................................................... 43,883.00 Japan Trustee Services Bank, Ltd. (Trust Account No. 4) .............................................................................. 41,069.00 The Chase Manhattan Bank 385036 (Standing agent: Mizuho Corporate Bank, Ltd.’s Kabutocho Custody & Proxy Department within the Settlement & Clearing Services Division).................... 40,505.00 State Street Bank and Trust Company 505103 (Standing agent: Mizuho Corporate Bank, Ltd.’s Kabutocho Custody & Proxy Department within the Settlement & Clearing Services Division).................... 40,054.00 KUBOTA CORPORATION.............................................................................................................................. 39,499.00 Takeda Chemical Industries, Ltd. ................................................................................................................... 39,074.89 JPMCB USA Residents Pension Jasdec Lend 385051 (Standing agent: Mizuho Corporate Bank, Ltd.’s Kabutocho Custody & Proxy Department within the Settlement & Clearing Services Division).................... 38,857.00 The Nomura Trust and Banking Co., Ltd. (Investment Trust Account) ........................................................... 36,433.00 The SMFG Employee Stockholders’ Association............................................................................................ 34,564.03 Dresdner Bank AG (Standing agent: Dresdner Kleinwort Wasserstein (Japan) Limited) ............................... 34,026.00 The Bank of New York, Treaty JASDEC Account (Standing agent: Bank of Tokyo-Mitsubishi Ltd.’s Global Securities Service Division) ............................................................ 33,163.00 UFJ Trust Bank Limited (Trust Account A)...................................................................................................... 32,176.00 SANYO ELECTRIC CO., LTD. ....................................................................................................................... 32,063.44 Japan Trustee Services Bank, Ltd. (Mitsui Asset Trust and Banking Company Retrust Portion, Toshiba Corporation Employee Pension Trust) ............................................................................................ 31,463.00 The Chase Manhattan Bank N.A. London SL Omnibus Account (Standing agent: Mizuho Corporate Bank, Ltd.’s Kabutocho Custody & Proxy Department within the Settlement & Clearing Services Division) .......... 29,805.00 JPMCB Omnibus USA Pension Treaty Jasdec 380052 (Standing agent: Mizuho Corporate Bank, Ltd.’s Kabutocho Custody & Proxy Department within the Settlement & Clearing Services Division).................... 28,978.00 The Tokyo Electric Power Company, Incorporated......................................................................................... 28,313.38 Mitsui Asset Trust and Banking Company, Limited (Individually Operated Designated Money Trusts) ......... 28,030.00 6.88 2.46 1.72 1.65 1.45 1.43 0.92 0.85 0.82 0.79 0.74 0.69 0.65 0.64 0.63 0.62 0.62 0.61 0.58 0.55 0.54 0.52 0.51 0.51 0.50 0.47 0.46 0.45 0.44 SMFG 2005 135 b. Preferred Stock (Type 1) March 31, 2005 Shareholder The Resolution and Number of shares Percentage of shares outstanding Collection Corporation ...................... 35,000 100.00% i. Preferred Stock (5th series Type 4) March 31, 2005 Shareholder The GSSM Holding Corporation (Standing agent: Goldman Sachs (Japan) Ltd.) .......................... Number of shares Percentage of shares outstanding 4,175 100.00% c. Preferred Stock (Type 2) March 31, 2005 Shareholder The Resolution and Number of shares Percentage of shares outstanding Collection Corporation ...................... 100,000 100.00% j. Preferred Stock (6th series Type 4) March 31, 2005 Shareholder The GSSM Holding Corporation (Standing agent: Goldman Sachs (Japan) Ltd.) .......................... Number of shares Percentage of shares outstanding 4,175 100.00% d. Preferred Stock (Type 3) March 31, 2005 Shareholder The Resolution and Number of shares Percentage of shares outstanding Collection Corporation ...................... 695,000 100.00% k. Preferred Stock (7th series Type 4) March 31, 2005 Shareholder The GSSM Holding Corporation (Standing agent: Goldman Sachs (Japan) Ltd.) .......................... Number of shares Percentage of shares outstanding 4,175 100.00% e. Preferred Stock (1st series Type 4) March 31, 2005 Shareholder The GSSM Holding Corporation (Standing agent: Goldman Sachs (Japan) Ltd.) .......................... Number of shares Percentage of shares outstanding 4,175 100.00% l. Preferred Stock (8th series Type 4) March 31, 2005 Shareholder The GSSM Holding Corporation (Standing agent: Goldman Sachs (Japan) Ltd.) .......................... Number of shares Percentage of shares outstanding 4,175 100.00% f. Preferred Stock (2nd series Type 4) m. Preferred Stock (9th series Type 4) March 31, 2005 Shareholder The GSSM Holding Corporation (Standing agent: Goldman Sachs (Japan) Ltd.) .......................... Number of shares Percentage of shares outstanding 4,175 100.00% March 31, 2005 Shareholder The GSSM Holding Corporation (Standing agent: Goldman Sachs (Japan) Ltd.) .......................... Number of shares Percentage of shares outstanding 4,175 100.00% g. Preferred Stock (3rd series Type 4) n. Preferred Stock (10th series Type 4) March 31, 2005 Shareholder The GSSM Holding Corporation (Standing agent: Goldman Sachs (Japan) Ltd.) .......................... Number of shares Percentage of shares outstanding 4,175 100.00% March 31, 2005 Shareholder The GSSM Holding Corporation (Standing agent: Goldman Sachs (Japan) Ltd.) .......................... Number of shares Percentage of shares outstanding 4,175 100.00% h. Preferred Stock (4th series Type 4) o. Preferred Stock (11th series Type 4) March 31, 2005 Shareholder The GSSM Holding Corporation (Standing agent: Goldman Sachs (Japan) Ltd.) .......................... Number of shares Percentage of shares outstanding 4,175 100.00% March 31, 2005 Shareholder The GSSM Holding Corporation (Standing agent: Goldman Sachs (Japan) Ltd.) .......................... Number of shares Percentage of shares outstanding 4,175 100.00% 136 SMFG 2005 p. Preferred Stock (12th series Type 4) r. Preferred Stock (1st series Type 6) March 31, 2005 Shareholder The GSSM Holding Corporation (Standing agent: Goldman Sachs (Japan) Ltd.) .......................... Number of shares Percentage of shares outstanding 4,175 100.00% q. Preferred Stock (13th series Type 4) March 31, 2005 Shareholder JPMorgan Chase Bank, London Number of shares Percentage of shares outstanding (Agent of SMFG Finance (Cayman) Limited) (Standing agent: Operations & Administration Dept., SMBC) .............................................. 107,087 100.00% March 31, 2005 Shareholder Sumitomo Life Insurance Company.... Nippon Life Insurance Company ........ MITSUI LIFE INSURANCE Number of shares 23,334 20,000 Percentage of shares outstanding 33.33% 28.57 COMPANY LIMITED ........................ 16,667 23.81 Mitsui Sumitomo Insurance Company, Limited............................. Total.................................................... 10,000 70,001 14.29 100.00% Note: The following reports on shareholdings (including their amendment reports) were submitted to the authorities. However, as we could not confirm how many shares are in beneficial possession of the submit- ters as of March 31, 2005, we did not include them in the list of prin- cipal shareholders shown above. The contents of the reports are summarized as follows: Percentage Submitters Fidelity Investments Filing date Number of of shares outstanding shares* Japan Limited....................... Oct. 14, 2003 298,948 Nomura Securities Co., Ltd. ... Sep. 15, 2004 312,458 Resona Holdings, Inc. ............ Mar. 22, 2005 75,476 Goldman Sachs 5.16% 5.39 1.04 (Japan) Ltd. .......................... Apr. 14, 2005 563,991 7.69 * Includes shares held by co-shareholders. Stock Options March 31 Number of shares granted .......................................................................................................... Type of stock................................................................................................................................ Issue price.................................................................................................................................... Amount capitalized when shares are issued................................................................................ Exercise period of stock options .................................................................................................. Note: Former SMBC issued and granted stock options to certain directors and employees pursuant to the resolution of the ordinary general meeting of share- 1,620 shares Common stock ¥673,000 per share ¥337,000 per share From June 28, 2004 to June 27, 2012 2005 holders held on June 27, 2002. SMFG succeeded the obligations related to the stock options at the time of its establishment pursuant to the resolution of the preferred shareholders’ meetings held on September 26, 2002 and the extraordinary shareholders’ meeting held on September 27, 2002. Common Stock Price Range 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). 2005 ¥854,000 599,000 Yen 2004 ¥780,000 162,000 2003 ¥452,000 206,000 2. Preferred stock (Type 1), Preferred stock (Type 2), Preferred stock (Type 3), Preferred stock (1st to 12th series Type 4), Preferred stock (13th series Type 4) and Preferred stock (1st series Type 6) are not listed on exchanges. Six-Month Performance Yen High ................................................................ Low................................................................. Notes: 1. Stock prices of common shares as quoted on the Tokyo Stock Exchange (First Section). October 2004 ¥701,000 632,000 November 2004 December 2004 ¥744,000 666,000 ¥751,000 693,000 January 2005 ¥745,000 708,000 February 2005 ¥730,000 678,000 March 2005 ¥754,000 716,000 2. Preferred stock (Type 1), Preferred stock (Type 2), Preferred stock (Type 3), Preferred stock (1st to 12th series Type 4), Preferred stock (13th series Type 4) and Preferred stock (1st series Type 6) are not listed on exchanges. SMFG 2005 137 Income Analysis (Consolidated) Sumitomo Mitsui Banking Corporation and Subsidiaries Operating Income, Classified by Domestic and Overseas Operations 2005 2004 Millions of yen Year ended March 31 Domestic Overseas operations Interest income .................................................... ¥1,320,829 Interest expenses ................................................ 255,867 1,064,962 Net interest income.................................................... ¥219,685 111,651 108,034 Total Domestic Overseas operations ¥(49,996) ¥1,490,519 ¥1,363,268 225,847 (29,666) 337,851 1,137,420 (20,329) 1,152,667 ¥238,922 100,641 138,280 operations Elimination operations Elimination Total ¥(41,485) ¥1,560,705 295,053 1,265,651 (31,435) (10,049) Trust fees................................................................... ¥ 2,609 ¥ — ¥ — ¥ 2,609 ¥ 334 ¥ — ¥ — ¥ 334 Fees and commissions (income) ......................... ¥ 474,455 Fees and commissions (expenses) ..................... 90,943 383,511 Net fees and commissions ........................................ Trading profits...................................................... ¥ 138,258 Trading losses ..................................................... 1,260 136,997 Net trading income .................................................... Other operating income ....................................... ¥ 298,745 Other operating expenses ................................... 168,482 130,263 Net other operating income ....................................... ¥ 40,169 4,535 35,633 ¥ 9,401 2,011 7,389 ¥ 14,310 4,365 9,944 ¥ (2,799) ¥ 511,824 ¥ 392,956 87,775 92,669 305,180 419,155 (2,809) 10 ¥ (3,073) ¥ 144,587 ¥ 289,432 8,628 280,804 199 144,387 (3,073) — ¥ (203) ¥ 312,852 ¥ 212,128 213,614 (1,486) 172,751 140,101 (96) (107) ¥ 30,604 4,309 26,295 ¥ 23,302 11 23,290 ¥ 19,006 10,729 8,277 ¥ (1,495) ¥ 422,066 91,455 330,610 (629) (865) ¥ (7,723) ¥ 305,011 916 304,094 (7,723) — ¥ (117) ¥ 231,017 223,464 (878) 7,552 761 Notes: 1. Domestic operations comprise the operations of SMBC (excluding overseas branches) and its domestic consolidated subsidiaries. Overseas operations comprise the operations of SMBC’s overseas branches and its overseas consolidated subsidiaries. 2. Income and expenses resulting from money held in trust are included in “Other income” and “Other expenses.” Therefore, “Interest expenses” are shown after deduction of expenses (2005, ¥3 million; 2004, ¥21 million) related to the management of money held in trust. 3. Intersegment transactions are reported in “Elimination” column. Average Balance, Interest and Earnings Yield of Interest-Earning Assets and Interest-Bearing Liabilities Domestic Operations Millions of yen Average balance Year ended March 31 Interest-earning assets.................................... ¥77,870,320 Loans and bills discounted......................... 50,866,716 Securities ................................................... 23,248,647 587,437 Call loans and bills bought ......................... 92,885 Receivables under resale agreements ...... Receivables under securities borrowing transactions ............................. Deposits with banks ................................... 874,138 1,217,735 Interest-bearing liabilities ................................ ¥82,499,517 Deposits .................................................... 62,999,470 3,620,709 Negotiable certificates of deposit ............... Call money and bills sold ........................... 4,836,442 Payables under repurchase agreements ... 572,714 Payables under securities lending transactions ................................. Commercial paper...................................... Borrowed money ........................................ Short-term bonds ....................................... Bonds ......................................................... 4,645,843 4,528 1,798,989 136 3,487,399 2005 Interest ¥1,320,829 974,378 247,905 4,116 6 185 20,579 ¥ 255,867 67,477 813 1,436 18 51,853 1 51,055 0 54,426 Earnings yield Average balance 2004 Interest ¥1,363,268 1,016,646 230,993 1,840 3 Earnings yield 1.70% 1.87 1.00 0.34 0.01 ¥80,116,238 54,452,750 23,090,843 547,686 33,898 515,980 666,233 104 6,972 ¥83,510,193 59,917,916 4,281,885 7,186,407 1,711,425 ¥ 225,847 50,922 847 1,242 105 5,090,264 6,997 2,050,391 — 2,781,324 48,622 4 59,038 — 43,278 0.02 1.05 0.27% 0.08 0.02 0.02 0.01 0.96 0.07 2.88 — 1.56 1.70% 1.92 1.07 0.70 0.01 0.02 1.69 0.31% 0.11 0.02 0.03 0.00 1.12 0.04 2.84 0.12 1.56 Notes: 1. Domestic operations comprise the operations of SMBC (excluding overseas branches) and its domestic consolidated subsidiaries. 2. In principle, average balances are calculated 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 balance of noninterest earning deposits (2005, ¥1,670,430 million; 2004, ¥1,318,691 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 balance of money held in trust (2005, ¥3,629 million; 2004, ¥21,933 million). “Interest-bearing liabilities” are shown after deduction of amounts equivalent to the average balance of money held in trust (2005, ¥3,629 million; 2004, ¥21,933 million) and corre- sponding interest (2005, ¥3 million; 2004, ¥21 million). 138 SMFG 2005 2.73% 3.09 3.20 2.46 2.03 — 1.74 2.04% 1.61 2.39 1.55 1.62 — — 3.08 — 3.79 1.75% 2.01 1.06 1.00 1.27 0.02 1.72 0.39% 0.20 0.10 0.08 0.44 1.12 0.04 2.30 0.12 1.96 Overseas Operations Average balance Year ended March 31 Interest-earning assets.................................... ¥8,043,184 5,388,426 904,213 121,023 155,602 Loans and bills discounted......................... Securities ................................................... Call loans and bills bought ......................... Receivables under resale agreements ...... Receivables under securities 2005 Interest ¥219,685 166,477 28,944 2,979 3,157 borrowing transactions ............................. Deposits with banks ................................... — 1,020,309 — 17,709 Interest-bearing liabilities ................................ ¥5,483,853 4,105,888 122,085 160,044 212,983 Deposits .................................................... Negotiable certificates of deposit ............... Call money and bills sold ........................... Payables under repurchase agreements ... Payables under securities lending transactions ................................. Commercial paper...................................... Borrowed money ........................................ Short-term bonds ....................................... Bonds ......................................................... — — 100,866 — 765,713 ¥111,651 66,220 2,912 2,480 3,454 — — 3,109 — 29,017 Millions of yen Earnings yield Average balance 2004 Interest ¥238,922 148,501 35,639 2,200 2,538 Earnings yield 3.23% 2.93 3.44 2.16 1.99 ¥7,391,661 5,064,994 1,036,961 101,843 127,275 — 703,330 — 7,008 ¥5,109,984 3,404,225 96,735 123,925 354,094 — — 113,752 — 1,004,354 ¥100,641 55,119 2,697 1,355 4,107 — — 2,179 — 31,577 — 1.00 1.97% 1.62 2.79 1.09 1.16 — — 1.92 — 3.14 Notes: 1. Overseas operations comprise the operations of SMBC’s overseas branches and its overseas consolidated subsidiaries. 2. In principle, average balances are calculated 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 balance of noninterest earning deposits (2005, ¥34,722 million; 2004, ¥29,738 million). Total of Domestic and Overseas Operations Average balance Year ended March 31 Interest-earning assets.................................... ¥85,037,716 Loans and bills discounted......................... 55,510,427 Securities ................................................... 24,152,860 708,460 Call loans and bills bought ......................... Receivables under resale agreements ...... 248,487 Receivables under securities borrowing transactions ............................. Deposits with banks ................................... 874,138 2,107,140 Interest-bearing liabilities ................................ ¥87,106,414 Deposits .................................................... 66,973,294 3,742,795 Negotiable certificates of deposit ............... Call money and bills sold ........................... 4,996,487 785,698 Payables under repurchase agreements ... Payables under securities lending transactions ................................. Commercial paper...................................... Borrowed money ........................................ Short-term bonds ....................................... Bonds ......................................................... 4,645,843 4,528 1,155,133 136 4,253,112 2005 Interest ¥1,490,519 1,113,294 256,520 7,095 3,163 185 36,183 ¥ 337,851 131,591 3,726 3,917 3,472 51,853 1 26,603 0 83,443 Millions of yen Earnings yield Average balance 2004 Interest ¥1,560,705 1,134,996 256,601 4,040 2,542 Earnings yield 1.80% 1.93 1.06 0.62 1.58 ¥86,501,290 58,663,957 24,127,804 649,529 161,173 515,980 1,217,563 104 12,679 ¥87,597,113 63,153,721 4,378,620 7,310,332 2,065,520 ¥ 295,053 104,741 3,545 2,598 4,212 5,090,264 6,997 1,310,322 — 3,785,679 48,622 4 31,084 — 74,855 0.02 1.04 0.34% 0.17 0.08 0.04 0.20 0.96 0.07 2.37 — 1.98 Notes: 1. The figures above comprise totals for domestic and overseas operations after intersegment eliminations. 2. In principle, average balances are calculated 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 balance of noninterest earning deposits (2005, ¥1,703,992 million; 2004, ¥1,332,007 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 balance of money held in trust (2005, ¥3,629 million; 2004, ¥21,933 million). “Interest-bearing liabilities” are shown after deduction of amounts equivalent to the average balance of money held in trust (2005, ¥3,629 million; 2004, ¥21,933 million) and corre- sponding interest (2005, ¥3 million; 2004, ¥21 million). SMFG 2005 139 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 ........................................................... 2005 2004 Millions of yen operations Elimination Domestic Overseas operations ¥474,455 23,458 118,292 51,973 19,305 6,732 36,153 7,078 ¥40,169 23,974 7,009 0 — 3 3,463 — Total ¥511,824 45,116 125,299 51,973 19,305 6,736 39,213 7,078 Domestic Overseas operations ¥392,956 18,449 114,231 43,884 16,247 5,923 30,377 8,820 operations Elimination ¥(1,495) (878) (613) — — — (2) — ¥30,604 17,995 5,756 0 — 3 2,845 — Total ¥422,066 35,566 119,374 43,884 16,247 5,927 33,221 8,820 ¥(2,799) (2,317) (2) — — — (402) — Fees and commissions (expenses) ........................... Remittances and transfers................................... ¥ 90,943 23,071 ¥ 4,535 1,529 ¥(2,809) (363) ¥ 92,669 24,236 ¥ 87,775 21,952 ¥ 4,309 2,128 ¥ (629) (527) ¥ 91,455 23,553 Notes: 1. Domestic operations comprise the operations of SMBC (excluding overseas branches) and its domestic consolidated subsidiaries. Overseas operations comprise the operations of SMBC’s overseas branches and its overseas consolidated subsidiaries. 2. Intersegment transactions are reported in “Elimination” column. Trading Income Year ended March 31 Trading profits............................................................ Gains on trading securities .................................. Gains on securities related to 2005 2004 Millions of yen Domestic Overseas operations ¥138,258 7,857 ¥ 9,401 — Total ¥144,587 7,857 Domestic Overseas operations ¥289,432 6,735 operations Elimination ¥(7,723) — ¥23,302 — Total ¥305,011 6,735 ¥(3,073) — operations Elimination trading transactions ........................................... Gains on trading-related financial derivatives...... Others .................................................................. — 129,965 435 — 9,332 68 — (3,073) — — 136,224 504 — 282,697 — — 23,302 — — (7,723) — — 298,275 — Trading losses ........................................................... Losses on trading securities ................................ Losses on securities related to trading transactions ........................................... Losses on trading-related financial derivatives.... Others .................................................................. ¥ 1,260 — ¥ 2,011 — ¥(3,073) — ¥ 189 1,071 — 10 2,001 — — (3,073) — 199 — 199 — — ¥ 8,628 — ¥ 904 7,723 — 11 — — — 11 ¥(7,723) — ¥ — (7,723) — 916 — 904 — 11 Notes: 1. Domestic operations comprise the operations of SMBC (excluding overseas branches) and its domestic consolidated subsidiaries. Overseas operations comprise the operations of SMBC’s overseas branches and its overseas consolidated subsidiaries. 2. Intersegment transactions are reported in “Elimination” column. 140 SMFG 2005 Assets and Liabilities (Consolidated) Sumitomo Mitsui Banking Corporation and Subsidiaries Deposits and Negotiable Certificates of Deposit Year-End Balance March 31 Domestic operations: 2005 Millions of yen 2004 2003 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 ..................................................................................................................... ¥39,038,245 20,513,692 4,566,079 ¥64,118,017 ¥ 2,627,486 ¥66,745,504 ¥ 3,736,715 645,371 8,767 ¥ 4,390,853 ¥ 133,283 ¥ 4,524,137 ¥71,269,641 ¥36,880,645 20,308,522 4,766,398 ¥61,955,566 ¥ 3,491,393 ¥65,446,960 ¥ 2,865,697 564,776 8,036 ¥ 3,438,510 ¥ 96,070 ¥ 3,534,580 ¥68,981,540 ¥34,812,728 20,588,487 4,258,026 ¥59,659,242 ¥ 4,776,264 ¥64,435,507 ¥ 2,733,493 593,179 10,089 ¥ 3,336,761 ¥ 112,753 ¥ 3,449,515 ¥67,885,022 Notes: 1. Domestic operations comprise the operations of SMBC (excluding overseas branches) and its domestic consolidated subsidiaries. Overseas operations comprise the operations of SMBC’s overseas branches and its 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 2005 2004 2003 March 31 Domestic operations: Millions of yen Percentage Millions of yen Percentage Millions of yen Percentage Manufacturing ............................................ ¥ 5,657,329 Agriculture, forestry, fisheries and mining... 134,289 Construction ............................................... 1,829,553 Transportation, communications and public enterprises .............................. 2,868,583 5,681,187 Wholesale and retail .................................. 4,543,387 Finance and insurance............................... Real estate ................................................. 6,937,379 6,356,210 Services ..................................................... 656,366 Municipalities ............................................. Others ........................................................ 15,720,093 Subtotal ...................................................... ¥50,384,379 Overseas operations: 83,325 Public sector .............................................. ¥ 406,025 Financial institutions................................... 4,077,950 Commerce and industry ............................. Others ........................................................ 197,247 Subtotal ...................................................... ¥ 4,764,549 Total ................................................................ ¥55,148,929 11.23% ¥ 6,133,208 142,574 1,950,119 0.27 3.63 11.92% ¥ 6,321,452 207,514 2,630,118 0.28 3.79 5.69 11.28 9.02 13.77 12.61 1.30 31.20 3,270,116 5,871,202 4,035,142 7,948,701 6,177,383 765,640 15,153,844 100.00% ¥51,447,932 6.36 11.41 7.84 15.45 12.01 1.49 29.45 3,076,295 6,235,896 4,543,927 9,015,365 6,172,685 577,100 17,789,591 100.00% ¥56,569,948 1.75% ¥ 8.52 85.59 4.14 81,737 338,458 3,317,645 243,193 100.00% ¥ 3,981,034 ¥55,428,967 — 2.05% ¥ 8.50 83.34 6.11 141,742 314,695 3,912,861 280,369 100.00% ¥ 4,649,668 ¥61,219,617 — 11.17% 0.37 4.65 5.44 11.02 8.03 15.94 10.91 1.02 31.45 100.00% 3.05% 6.77 84.15 6.03 100.00% — Notes: 1. Domestic operations comprise the operations of SMBC (excluding overseas branches) and its domestic consolidated subsidiaries. Overseas operations comprise the operations of SMBC’s overseas branches and its overseas consolidated subsidiaries. 2. Japan offshore banking accounts are included in overseas operations’ accounts. 3. Percentage indicates the composition ratio. SMFG 2005 141 Risk-Monitored Loans March 31 Bankrupt loans............................................................................................................... Non-accrual loans.......................................................................................................... Past due loans (3 months or more) ............................................................................... Restructured loans ........................................................................................................ Total............................................................................................................................... 2005 ¥ 68,238 1,367,785 29,441 721,273 ¥2,186,739 Notes: Definition of risk-monitored loan categories Millions of yen 2004 ¥ 96,101 1,710,575 51,019 1,371,524 ¥3,229,219 2003 ¥ 199,794 2,665,675 128,493 2,689,172 ¥5,683,134 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....................................................................................................................... Subtotal .................................................................................................................... Overseas operations: Japanese government bonds ................................................................................... Japanese local government bonds........................................................................... Japanese corporate bonds ....................................................................................... Japanese stocks....................................................................................................... Others....................................................................................................................... Subtotal .................................................................................................................... Total............................................................................................................................... 2005 ¥13,636,577 486,884 3,243,443 3,316,551 2,560,671 ¥23,244,127 ¥ — — — — 774,484 ¥ 774,484 ¥24,018,612 Millions of yen 2004 ¥14,377,379 506,263 2,651,971 3,468,250 4,892,200 ¥25,896,065 ¥ 71,560 — — — 895,874 ¥ 967,435 ¥26,863,501 2003 ¥12,813,386 375,204 2,369,698 3,326,510 3,334,211 ¥22,219,011 ¥ 88,250 — 854 — 1,650,405 ¥ 1,739,510 ¥23,958,521 Notes: 1. Domestic operations comprise the operations of SMBC (excluding overseas branches) and its domestic consolidated subsidiaries. Overseas operations comprise the operations of SMBC’s overseas branches and its overseas consolidated subsidiaries. 2. “Others” include foreign bonds and foreign stocks. Trading Assets and Liabilities March 31 Domestic Overseas operations operations Elimination Total Domestic Overseas operations operations Elimination Total 2005 2004 Millions of yen Trading assets: ......................................................... ¥3,368,619 198,646 812 — Trading securities ................................................ Derivatives of trading securities........................... Securities related to trading transactions............. Derivatives of securities related to trading transactions ........................................... Trading-related financial derivatives .................... Other trading assets ............................................ 2,033 2,110,833 1,056,293 Trading liabilities:....................................................... ¥1,717,521 34,540 524 — 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 ......................................... 2,061 1,680,394 — ¥411,698 71,032 — — — 340,666 — ¥404,196 34,878 — — — 369,318 — ¥(11,244) ¥3,769,073 ¥2,959,570 32,516 269,678 139 812 — — — — — — 2,033 (11,244) 2,440,254 — 1,056,293 595 1,836,358 1,089,960 ¥(11,244) ¥2,110,473 ¥1,518,119 19,855 69,419 242 524 — — — — — — 2,061 (11,244) 2,038,468 — — 940 1,497,081 — ¥366,802 48,250 — — — 318,552 — ¥374,718 12,802 — — — 361,915 — ¥(19,592) ¥3,306,780 80,766 139 — — — — — (19,592) 595 2,135,318 — 1,089,960 ¥(19,592) ¥1,873,245 32,658 242 — — — — — (19,592) — 940 1,839,404 — Notes: 1. Domestic operations comprise the operations of SMBC (excluding overseas branches) and its domestic consolidated subsidiaries. Overseas operations comprise the operations of SMBC’s overseas branches and its overseas consolidated subsidiaries. 2. Intersegment transactions are reported in “Elimination” column. 142 SMFG 2005 Income Analysis (Nonconsolidated) Sumitomo Mitsui Banking Corporation Gross Banking Profit, Classified by Domestic and International Operations Millions of yen Year ended March 31 Domestic operations Interest income .......................................... ¥ 979,246 2005 International operations ¥339,934 Interest expenses....................................... 64,674 282,000 Net interest income ......................................... Trust fees ........................................................ ¥ 914,572 2,607 Fees and commissions (income) ............... ¥ 335,368 88,570 Fees and commissions (expenses) ........... 246,798 Net fees and commissions .............................. 1,787 — 1,787 87,832 Other operating income ............................. ¥ 70,786 Other operating expenses.......................... Net other operating income............................. 17,045 Gross banking profit ........................................ ¥1,182,811 Gross banking profit rate (%) .......................... Trading profits ............................................ ¥ Trading losses............................................ Net trading income .......................................... 1.75% 57,933 2 ¥ ¥ 64,066 12,788 51,277 ¥129,991 199 129,792 ¥142,007 40,963 101,043 ¥340,049 Total ¥1,318,698 [483] 346,191 [483] 972,506 2,609 ¥ ¥ 399,434 101,358 298,076 ¥ 131,779 199 131,579 ¥ 228,005 109,916 118,088 ¥1,522,861 Domestic operations ¥1,017,456 2004 International operations ¥375,344 69,570 236,170 Total ¥1,392,322 [478] 305,262 [478] 1,087,060 334 ¥ 322,075 95,506 226,568 ¥ 283,611 2,881 280,729 ¥ 149,209 159,774 (10,565) ¥1,584,127 — ¥ 139,174 ¥ ¥ 59,081 11,679 47,401 ¥282,944 904 282,039 ¥ 68,412 88,517 (20,105) ¥448,510 ¥ 947,885 334 ¥ ¥ 262,993 83,827 179,166 667 1,977 (1,309) 84,531 74,991 9,540 ¥1,135,616 ¥ 2.61% 1.92% 1.62% 3.70% 1.95% 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 amounts equivalent to interest expenses on money held in trust (2005, ¥3 million; 2004, ¥21 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. “Total” column for “Other operating income” and “Other operating expenses” are lower than the corresponding combined sums under “Domestic operations” and “International operations” (2005, by ¥1,834 million; 2004, by ¥3,734 million). This is because income figures for financial derivatives are given net. 5. 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 Year ended March 31 Interest-earning assets.................................... ¥67,225,756 Average balance Interest ¥979,246 Earnings yield Average balance 1.45% ¥70,034,584 2005 Loans and bills discounted......................... 46,859,345 Securities ................................................... 19,087,657 155,150 Call loans .................................................. Receivables under resale agreements ...... 57,949 Receivables under securities borrowing transactions ............................. Bills bought ................................................ Deposits with banks ................................... 869,496 192,027 3,380 Interest-bearing liabilities ................................ ¥70,248,699 [1,130,805] Deposits ..................................................... 54,621,893 3,754,306 Negotiable certificates of deposit ............... 2,179,425 Call money ................................................. Payables under repurchase agreements ... 580,878 Payables under securities lending transactions ................................. Bills sold ..................................................... Commercial paper...................................... Borrowed money ........................................ Bonds ......................................................... 1,890,175 2,430,812 2,054 853,945 2,633,634 829,425 131,157 24 0 181 3 0 ¥ 64,674 [483] 12,145 792 58 18 196 105 0 21,498 28,843 1.77 0.68 0.01 0.00 0.02 0.00 0.00 0.09% 0.02 0.02 0.00 0.00 0.01 0.00 0.00 2.51 1.09 2004 Interest ¥1,017,456 883,037 111,185 103 0 104 5 77 69,570 [478] 14,501 831 73 104 219 876 0 26,743 25,243 50,475,233 18,598,661 203,991 11,508 515,919 184,953 42,471 ¥ ¥71,856,302 [1,000,541] 52,485,951 4,324,976 2,407,003 1,723,557 2,020,607 4,702,846 2,192 936,408 2,213,020 Earnings yield 1.45% 1.75 0.59 0.05 0.00 0.02 0.00 0.18 0.09% 0.02 0.01 0.00 0.00 0.01 0.01 0.01 2.85 1.14 Notes: 1. “Interest-earning assets” are shown after deduction of the average balance of noninterest earning deposits (2005, ¥1,569,397 million; 2004, ¥1,247,575 million). “Interest-bearing liabilities” are shown after deduction of amounts equivalent to the average balance of money held in trust (2005, ¥3,629 million; 2004, ¥21,921 million) and corresponding interest (2005, ¥3 million; 2004, ¥21 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. SMFG 2005 143 International Operations Average balance Year ended March 31 Interest-earning assets.................................... ¥13,027,122 [1,130,805] 3,949,563 4,615,337 262,361 124,900 Loans and bills discounted......................... Securities ................................................... Call loans .................................................. Receivables under resale agreements ...... Receivables under securities borrowing transactions ............................. Bills bought ................................................ Deposits with banks ................................... — — 1,882,820 2005 Interest ¥339,934 [483] 105,467 131,482 4,973 1,954 — — 32,631 Millions of yen Earnings yield Average balance 2.60% 2.67 2.84 1.89 1.56 — — 1.73 ¥12,103,251 [1,000,541] 3,769,716 5,216,457 160,609 88,578 — — 979,681 2004 Interest ¥375,344 [478] 89,853 138,408 2,130 818 — — 11,090 Earnings yield 3.10% 2.38 2.65 1.32 0.92 — — 1.12 Interest-bearing liabilities ................................ ¥12,979,499 ¥282,000 2.17% ¥12,062,826 ¥236,170 1.95% Deposits ..................................................... Negotiable certificates of deposit ............... Call money ................................................. Payables under repurchase agreements ... Payables under securities lending transactions ................................. Bills sold ..................................................... Commercial paper...................................... Borrowed money ........................................ Bonds ......................................................... 6,789,387 62,015 206,703 176,152 2,718,747 — — 1,583,555 939,345 95,572 2,253 3,321 2,767 51,621 — — 64,074 31,640 1.40 3.63 1.60 1.57 1.89 — — 4.04 3.36 5,678,463 64,031 138,887 291,723 3,060,699 — — 1,704,931 654,400 70,632 2,156 1,494 2,984 48,401 — — 64,999 24,197 1.24 3.36 1.07 1.02 1.58 — — 3.81 3.69 Notes: 1. “Interest-earning assets” are shown after deduction of the average balance of noninterest earning deposits (2005, ¥27,509 million; 2004, ¥30,603 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. 4. The average balance of foreign-currency-denominated transactions by domestic branches in international operations is calculated by the monthly current method, under which the TT 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.................................... ¥79,122,073 Loans and bills discounted......................... 50,808,908 Securities ................................................... 23,702,994 417,511 Call loans .................................................. 182,849 Receivables under resale agreements ...... Receivables under securities borrowing transactions ............................. Bills bought ................................................ Deposits with banks ................................... 869,496 192,027 1,886,200 Interest-bearing liabilities ................................ ¥82,097,393 Deposits ..................................................... 61,411,281 3,816,321 Negotiable certificates of deposit ............... Call money ................................................. 2,386,128 Payables under repurchase agreements ... 757,031 Payables under securities lending transactions ................................. Bills sold ..................................................... Commercial paper...................................... Borrowed money ........................................ Bonds ......................................................... 4,608,922 2,430,812 2,054 2,437,501 3,572,980 2005 Interest ¥1,318,698 934,892 262,640 4,998 1,955 181 3 32,631 ¥ 346,191 107,718 3,045 3,380 2,786 51,818 105 0 85,573 60,483 Millions of yen Earnings yield Average balance 2004 Interest ¥1,392,322 972,891 249,594 2,233 818 104 5 11,167 ¥81,137,294 54,244,949 23,815,118 364,601 100,087 515,919 184,953 1,022,152 ¥82,918,587 58,164,414 4,389,008 2,545,891 2,015,281 ¥ 305,262 85,133 2,988 1,567 3,089 5,081,306 4,702,846 2,192 2,641,340 2,867,421 48,621 876 0 91,742 49,441 1.66% 1.84 1.10 1.19 1.06 0.02 0.00 1.73 0.42% 0.17 0.07 0.14 0.36 1.12 0.00 0.00 3.51 1.69 Earnings yield 1.71% 1.79 1.04 0.61 0.81 0.02 0.00 1.08 0.36% 0.14 0.06 0.06 0.15 0.95 0.01 0.01 3.47 1.72 Notes: 1. “Interest-earning assets” are shown after deduction of the average balance of noninterest earning deposits (2005, ¥1,596,906 million; 2004, ¥1,278,178 million). “Interest-bearing liabilities” are shown after deduction of amounts equivalent to the average balance of money held in trust (2005, ¥3,629 million; 2004, ¥21,921 million) and corresponding interest (2005, ¥3 million; 2004, ¥21 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. 144 SMFG 2005 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...................................... Interest expenses............................................ Deposits ..................................................... Negotiable certificates of deposit ............... Call money ................................................. Payable under repurchase agreements ..... Bills sold ..................................................... Commercial paper...................................... Borrowed money ........................................ Bonds............................................................ Volume-related Rate-related 2005 increase (decrease) ¥(40,908) (63,897) 2,988 (20) 0 0 (37) ¥ (1,532) 570 (115) (6) (50) (297) 0 (2,236) 4,639 increase (decrease) ¥ 2,698 10,284 16,983 (57) 0 (2) (40) ¥ (3,363) (2,925) 76 (8) (35) (472) 0 (3,008) (1,040) Note: Volume/rate variance is prorated according to changes in volume and rate. Millions of yen Net increase (decrease) ¥(38,209) (53,612) 19,972 (78) 0 (2) (77) ¥ (4,896) (2,355) (39) (15) (85) (770) 0 (5,244) 3,599 Volume-related Rate-related 2004 increase (decrease) ¥(67,656) (59,105) (1,615) (54) (1) (7) (109) ¥ (2,362) 354 (435) (37) 41 (165) (43) (2,574) 2,369 increase (decrease) ¥(20,009) 9,680 (11,172) (139) 0 (21) (20) ¥ (7,391) (7,410) (801) (208) (13) 694 (38) (236) (1,579) Net increase (decrease) ¥(87,666) (49,424) (12,787) (193) (1) (29) (130) ¥ (9,754) (7,055) (1,236) (246) 28 528 (82) (2,811) 790 International Operations Year ended March 31 Interest income................................................ Loans and bills discounted......................... Securities ................................................... Call loans ................................................... Receivables under resale agreements ...... Bills bought ................................................ Deposits with banks...................................... Interest expenses............................................ Deposits ..................................................... Negotiable certificates of deposit ............... Call money ................................................. Payable under repurchase agreements ..... Bills sold ..................................................... Commercial paper...................................... Borrowed money ........................................ Bonds............................................................ Volume-related Rate-related 2005 increase (decrease) ¥27,174 4,433 (16,666) 1,695 422 — 14,688 ¥18,752 14,906 (69) 908 (1,451) — — (4,779) 9,757 increase (decrease) ¥(62,584) 11,181 9,739 1,147 714 — 7,872 ¥ 27,077 10,034 166 918 1,234 — — 3,854 (2,314) Millions of yen Net increase (decrease) ¥(35,409) 15,614 (6,926) 2,843 1,136 — 22,560 ¥ 45,830 24,940 97 1,827 (216) — — (925) 7,443 Volume-related Rate-related 2004 increase (decrease) ¥(55,644) (46,445) 26,560 292 230 — (11,969) ¥(29,673) (21,383) (2,045) (725) (8,944) — — (12,151) 7,782 increase (decrease) ¥(110,980) (30,565) (22,017) (727) 137 — (11,344) ¥ (78,586) (32,332) (80) (825) (4,710) — — (185) (1,111) Net increase (decrease) ¥(166,625) (77,011) 4,543 (434) 367 — (23,314) ¥(108,260) (53,715) (2,125) (1,551) (13,654) — — (12,337) 6,670 Note: Volume/rate variance is prorated according to changes in volume and rate. SMFG 2005 145 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...................................... Interest expenses............................................ Deposits ..................................................... Negotiable certificates of deposit ............... Call money ................................................. Payable under repurchase agreements ..... Bills sold ..................................................... Commercial paper...................................... Borrowed money ........................................ Bonds............................................................ Volume-related Rate-related 2005 increase (decrease) ¥(34,120) (62,759) (1,180) 365 828 0 13,703 ¥ (3,051) 4,959 (418) (104) (2,762) (297) 0 (7,146) 11,959 increase (decrease) ¥(39,504) 24,761 14,226 2,399 308 (2) 8,779 ¥ 43,980 17,625 475 1,916 2,459 (472) 0 977 (916) Net increase (decrease) ¥ (73,624) (37,998) 13,046 2,764 1,136 (2) 22,483 ¥ 40,929 22,584 57 1,812 (302) (770) 0 (6,169) 11,042 Volume-related Rate-related 2004 increase (decrease) ¥(127,946) (93,082) 7,481 (258) (207) (7) (12,241) ¥ (20,830) (1,258) (1,381) (428) (487) (165) (43) (14,206) 7,092 increase (decrease) ¥(126,822) (33,352) (15,724) (369) 573 (21) (11,203) ¥ (97,662) (59,512) (1,979) (1,369) (13,139) 694 (38) (941) 367 Net increase (decrease) ¥(254,769) (126,435) (8,243) (627) 366 (29) (23,444) ¥(118,492) (60,771) (3,361) (1,797) (13,626) 528 (82) (15,148) 7,460 Note: Volume/rate variance is prorated according to changes in volume and rate. 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 ¥335,368 11,034 93,623 22,098 16,576 6,333 15,016 2005 International operations ¥64,066 22,381 23,156 702 — — 5,620 Total ¥399,434 33,415 116,780 22,801 16,576 6,333 20,636 Domestic operations ¥262,993 11,331 91,054 19,492 13,656 5,532 9,214 2004 International operations ¥59,081 16,950 21,163 763 — — 5,014 Total ¥322,075 28,282 112,218 20,256 13,656 5,532 14,228 Fees and commissions (expenses)................. Remittances and transfers ......................... ¥ 88,570 17,912 ¥12,788 4,678 ¥101,358 22,590 ¥ 83,827 17,429 ¥11,679 4,489 ¥ 95,506 21,918 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 ........................................................ Millions of yen Domestic operations ¥1,787 1,352 2005 International operations ¥129,991 — Total ¥131,779 1,352 Domestic operations ¥ 667 — 2004 International operations ¥282,944 — Total ¥283,611 — — — 435 — — 129,991 — 129,991 435 — — 667 — — 282,944 — 282,944 667 Trading losses................................................. Losses on trading securities ...................... Losses on securities related to trading transactions.................................. Losses on trading-related financial derivatives.................................. Others ........................................................ ¥ — — ¥ — — — 199 — 199 — — ¥ 199 — 199 — — Note: Figures represent net gains (losses) after offsetting income against expenses. ¥1,977 1,977 ¥ — — — 904 — 904 — — ¥ 2,881 1,977 904 — — 146 SMFG 2005 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 ¥ 17,045 (6,100) 2005 International operations ¥ 101,043 (15,490) Total ¥118,088 (21,590) Domestic operations ¥9,540 291 2004 International operations ¥(20,105) 22,449 Total ¥(10,565) 22,741 — 115,580 115,580 — — — Millions of yen Year ended March 31 Salaries and related expenses ....................................................................................................... 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................................................................................................................................................ 2005 ¥164,812 37,677 27,222 53,038 47,476 4,323 5,219 5,025 2,422 6,855 4,952 36,684 207,766 ¥603,477 2004 ¥171,026 62,742 26,019 53,490 48,188 3,485 6,215 5,222 2,370 7,245 4,059 34,076 198,956 ¥623,098 Note: Because expenses reported on page 34 exclude nonrecurring losses, they are not reconciled with the figures reported in the above table. SMFG 2005 147 Deposits (Nonconsolidated) Sumitomo Mitsui Banking Corporation Deposits and Negotiable Certificates of Deposit Year-End Balance 2005 2004 2003 March 31 Domestic operations: Millions of yen Percentage Millions of yen Percentage Millions of yen Percentage Liquid deposits ........................................... ¥37,156,757 17,793,187 Fixed-term deposits ................................... Others ........................................................ 1,214,592 Subtotal ...................................................... ¥56,164,537 Negotiable certificates of deposit ............... ¥ 2,732,344 Total ........................................................... ¥58,896,881 International operations: Liquid deposits ........................................... ¥ 2,861,884 490,122 Fixed-term deposits ................................... Others ........................................................ 3,271,783 Subtotal ...................................................... ¥ 6,623,790 Negotiable certificates of deposit ............... ¥ 70,955 Total ........................................................... ¥ 6,694,746 Grand total ...................................................... ¥65,591,627 63.1% ¥35,103,333 17,519,187 30.2 1,165,818 2.1 ¥53,788,339 95.4 ¥ 3,534,978 4.6 100.0% ¥57,323,318 7.3 48.9 98.9 1.1 42.7% ¥ 2,126,160 638,098 3,514,818 ¥ 6,279,077 54,376 ¥ 100.0% ¥ 6,333,453 ¥63,656,771 — 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. Average Balance Year ended March 31 Domestic operations: 61.2% ¥33,336,625 18,519,788 30.6 1,209,703 2.0 ¥53,066,116 93.8 ¥ 4,841,982 6.2 100.0% ¥57,908,099 33.5% ¥ 2,130,354 438,213 10.1 2,976,046 55.5 ¥ 5,544,614 99.1 71,544 ¥ 0.9 100.0% ¥ 5,616,159 ¥63,524,258 — 57.5% 32.0 2.1 91.6 8.4 100.0% 37.9% 7.8 53.0 98.7 1.3 100.0% — 2005 Millions of yen 2004 2003 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 ..................................................................................................................... ¥36,234,814 17,828,904 558,174 ¥54,621,893 ¥ 3,754,306 ¥58,376,199 ¥ 2,522,440 676,719 3,590,227 ¥ 6,789,387 ¥ 62,015 ¥ 6,851,402 ¥65,227,602 ¥34,022,602 17,928,748 534,600 ¥52,485,951 ¥ 4,324,976 ¥56,810,927 ¥ 1,905,787 467,222 3,305,452 ¥ 5,678,463 ¥ 64,031 ¥ 5,742,494 ¥62,553,422 ¥32,011,369 19,057,788 553,391 ¥51,622,549 ¥ 5,776,955 ¥57,399,504 ¥ 3,414,692 725,366 2,912,225 ¥ 7,052,284 ¥ 124,731 ¥ 7,177,016 ¥64,576,521 Notes: 1. Figures for the year ended March 31, 2003, include those of the former SMBC for the period from April 1, 2002 to March 16, 2003. 2. Liquid deposits = Current deposits + Ordinary deposits + Savings deposits + Deposits at notice 3. Fixed-term deposits = Time deposits + Installment savings 4. 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 ......................................................... ¥32,154,014 Corporate ........................................................ 28,455,616 Total ................................................................ ¥60,609,630 Percentage Millions of yen 53.1% ¥31,631,834 27,047,368 46.9 100.0% ¥58,679,202 Percentage Millions of yen 53.9% ¥31,210,201 25,261,571 46.1 100.0% ¥56,471,772 Percentage 55.3% 44.7 100.0% 2005 2004 2003 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. 148 SMFG 2005 Balance of Investment Trusts, Classified by Type of Customer March 31 Individual ....................................................................................................................... Corporate....................................................................................................................... Total............................................................................................................................... 2005 ¥2,264,844 83,383 ¥2,348,227 Millions of yen 2004 ¥1,920,024 85,660 ¥2,005,684 2003 ¥1,598,577 77,507 ¥1,676,084 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. 2005 ¥ 5,981,869 5,532,337 6,900 ¥ 2,991,485 2,973,753 — ¥ 4,939,115 4,923,087 500 ¥ 1,680,496 1,675,518 — ¥ 1,383,422 1,377,490 1,000 ¥ 1,306,857 1,111,275 191,262 ¥18,283,246 17,593,462 199,662 Millions of yen 2004 ¥ 4,934,527 4,578,876 11,500 ¥ 3,179,150 3,155,985 — ¥ 5,273,003 5,256,668 — ¥ 2,377,402 2,352,455 — ¥ 1,448,562 1,438,749 — ¥ 944,564 873,226 59,650 ¥18,157,210 17,655,962 71,150 2003 ¥ 9,331,860 8,981,521 501 ¥ 2,391,469 2,372,360 — ¥ 3,964,513 3,955,873 1 ¥ 1,397,409 1,389,250 — ¥ 1,320,298 1,280,986 5,500 ¥ 545,563 516,255 10,650 ¥18,951,114 18,496,247 16,654 SMFG 2005 149 Loans (Nonconsolidated) Sumitomo Mitsui Banking Corporation 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............................................................................................................................... 2005 ¥ 3,816,186 33,611,639 8,096,806 450,719 ¥45,975,351 ¥ 444,509 3,536,778 105,735 5,211 ¥ 4,092,234 ¥50,067,586 2005 ¥ 4,764,916 33,381,278 8,237,709 475,440 ¥46,859,345 ¥ 447,208 3,390,644 108,728 2,981 ¥ 3,949,563 ¥50,808,908 Millions of yen 2004 ¥ 5,273,254 33,177,784 8,249,108 572,371 ¥47,272,518 ¥ 436,046 3,007,477 93,462 639 ¥ 3,537,625 ¥50,810,144 Millions of yen 2004 ¥ 6,007,354 35,527,330 8,392,655 547,893 ¥50,475,233 ¥ 439,060 3,148,040 181,726 889 ¥ 3,769,716 ¥54,244,949 2003 ¥ 6,660,286 37,400,695 8,410,644 649,463 ¥53,121,090 ¥ 550,369 3,495,523 115,210 172 ¥ 4,161,274 ¥57,282,365 2003 ¥ 6,987,204 36,317,903 9,914,028 639,612 ¥53,858,748 ¥ 802,842 4,572,375 156,554 882 ¥ 5,532,654 ¥59,391,403 Notes: 1. Figures for the year ended March 31, 2003, include those of the former SMBC for the period from April 1, 2002 to March 16, 2003. 2. 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 March 31 Millions of yen Funds for capital investment ........................... ¥20,800,237 Funds for working capital ................................ 29,267,348 Total ................................................................ ¥50,067,586 Percentage Millions of yen 41.5% ¥21,632,436 29,177,708 58.5 100.0% ¥50,810,144 Percentage Millions of yen 42.6% ¥22,156,745 35,125,619 57.4 100.0% ¥57,282,365 Percentage 38.7% 61.3 100.0% 2005 2004 2003 Note: Percentage indicates the composition ratio. Breakdown of Loan Collateral March 31 Securities ....................................................................................................................... Commercial claims ........................................................................................................ Commercial goods......................................................................................................... Real estate .................................................................................................................... Others ............................................................................................................................ Subtotal ......................................................................................................................... Guaranteed.................................................................................................................... Unsecured ..................................................................................................................... Total............................................................................................................................... ¥ 2005 965,238 1,191,558 — 7,127,468 433,650 ¥ 9,717,916 ¥22,332,670 18,016,999 ¥50,067,586 Millions of yen 2004 ¥ 1,025,755 1,311,345 2,595 7,490,743 363,678 ¥10,194,118 ¥22,103,891 18,512,134 ¥50,810,144 2003 ¥ 805,685 1,253,179 4,579 8,531,366 479,374 ¥11,074,186 ¥22,177,530 24,030,649 ¥57,282,365 150 SMFG 2005 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. 2005 ¥ 8,686,277 / / ¥ 8,106,563 6,278,298 1,828,265 ¥ 6,233,570 4,732,079 1,501,490 ¥ 2,593,547 2,118,091 475,456 ¥16,245,085 15,496,800 748,285 ¥ 8,202,541 8,202,541 — ¥50,067,586 Millions of yen 2004 ¥10,666,356 / / ¥ 8,223,191 5,500,484 2,722,707 ¥ 5,451,873 3,950,114 1,501,759 ¥ 2,237,279 1,715,055 522,223 ¥15,888,872 14,822,715 1,066,156 ¥ 8,342,570 8,342,570 — ¥50,810,144 2003 ¥15,605,752 / / ¥ 9,400,680 6,347,133 3,053,547 ¥ 5,876,286 3,973,971 1,902,314 ¥ 2,502,737 1,683,355 819,382 ¥15,492,524 14,629,478 863,046 ¥ 8,404,383 8,399,298 5,084 ¥57,282,365 Balance of Loan Portfolio, Classified by Industry March 31 Domestic offices: 2005 2004 2003 Millions of yen Percentage Millions of yen Percentage Millions of yen Percentage Manufacturing ............................................ ¥ 5,321,715 Agriculture, forestry, fisheries and mining... 125,574 1,618,372 Construction ............................................... Transportation, communications and 2,737,386 public enterprises ..................................... 5,310,881 Wholesale and retail .................................. 5,158,754 Finance and insurance............................... 5,982,960 Real estate ................................................. Services ..................................................... 5,705,901 583,515 Municipalities ............................................. Others ........................................................ 14,128,584 Subtotal ...................................................... ¥46,673,647 Overseas offices: Public sector .............................................. ¥ 75,824 237,276 Financial institutions................................... Commerce and industry ............................. 2,994,018 Others ........................................................ 86,819 Subtotal ...................................................... ¥ 3,393,938 Total ................................................................ ¥50,067,586 11.4% ¥ 5,794,191 133,833 1,717,184 0.3 3.5 12.1% ¥ 6,031,262 192,795 2,385,278 0.3 3.6 5.9 11.4 11.0 12.8 12.2 1.2 30.3 3,134,713 5,492,168 4,892,526 6,995,060 5,470,887 688,159 13,632,796 100.0% ¥47,951,522 6.5 11.5 10.2 14.6 11.4 1.4 28.4 2,968,971 5,812,485 5,419,634 8,240,327 5,622,703 508,144 16,614,280 100.0% ¥53,795,885 2.2% ¥ 7.0 88.2 2.6 63,654 227,393 2,395,989 171,583 100.0% ¥ 2,858,622 ¥50,810,144 — 2.2% ¥ 8.0 83.8 6.0 119,468 236,116 2,945,122 185,772 100.0% ¥ 3,486,479 ¥57,282,365 — 11.2% 0.4 4.4 5.5 10.8 10.1 15.3 10.5 0.9 30.9 100.0% 3.4% 6.8 84.5 5.3 100.0% — 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 individuals, and small and medium-sized corporations (B)............................. (B) / (A) .......................................................................................................................... 2005 ¥46,673,647 35,291,150 Millions of yen 2004 ¥47,951,522 35,427,834 2003 ¥53,795,885 36,733,241 75.6% 73.9% 68.3% 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.) SMFG 2005 151 Consumer Loans Outstanding March 31 Consumer loans ............................................................................................................ Housing loans........................................................................................................... Housing loans for own housing ........................................................................... Others....................................................................................................................... 2005 ¥14,230,648 13,240,449 9,451,330 990,198 Millions of yen 2004 ¥13,875,878 12,725,041 8,891,575 1,150,837 2003 ¥13,665,876 12,339,291 8,346,632 1,326,585 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 Millions of yen Year ended March 31, 2005 General reserve for possible loan losses ................................ ¥ 770,194 of the fiscal year Balance at beginning Increase during the fiscal year ¥417,555 Decrease during the fiscal year Objectives — ¥ Others ¥770,194* Balance at end of the fiscal year ¥417,555 Specific reserve for estimated loan losses on certain doubtful loans ....................................................... For nonresident loans ........................................................ [(1,161)] 474,310 [(350)] 27,626 [(350)] 567,636 380,829 93,480* 567,636 23,515 5,707 21,918* 23,515 Reserve for possible losses on specific overseas loans ......................................................... 7,758 Total ........................................................................................ ¥1,252,262 3,930 ¥989,121 — ¥380,829 7,758* ¥871,433 3,930 ¥989,121 *Transfer from reserves by reversal or origination method Note: Figures in brackets [ ] indicate foreign exchange translation adjustments. [(1,511)] Millions of yen Year ended March 31, 2004 General reserve for possible loan losses ................................ ¥1,106,970 [6,265] of the fiscal year Balance at beginning Increase during the fiscal year ¥ 769,033 Decrease during the fiscal year Objectives ¥ — Others Balance at end of the fiscal year ¥1,106,970* ¥ 769,033 Specific reserve for estimated loan losses on certain doubtful loans ....................................................... For nonresident loans ........................................................ 945,345 [4,650] 62,841 [4,650] 473,959 747,788 197,556* 473,959 27,276 51,033 11,808* 27,276 Reserve for possible losses on specific overseas loans ......................................................... 11,566 Total ........................................................................................ ¥2,063,881 [10,916] *Transfer from reserves by reversal or origination method Note: Figures in brackets [ ] indicate foreign exchange translation adjustments. 7,758 ¥1,250,751 — ¥747,788 11,566* ¥1,316,093 7,758 ¥1,250,751 Write-off of Loans Year ended March 31 Write-off of loans ........................................................................................................... 2005 ¥697,941 Note: Write-off of loans includes amount of direct reduction. Millions of yen 2004 ¥566,344 2003 ¥284,418 Specific Overseas Loans March 31 Indonesia ....................................................................................................................... Argentina ....................................................................................................................... Others ............................................................................................................................ Total............................................................................................................................... Ratio of the total amounts to total assets ...................................................................... Number of countries ...................................................................................................... 2005 ¥39,959 25 180 ¥40,164 0.04% 5 Millions of yen 2004 ¥73,826 514 346 ¥74,688 2003 ¥104,744 2,180 1,153 ¥108,077 0.07% 6 0.11% 9 152 SMFG 2005 Risk-Monitored Loans March 31 Bankrupt loans............................................................................................................... Non-accrual loans.......................................................................................................... Past due loans (3 months or more) ............................................................................... Restructured loans ........................................................................................................ Total............................................................................................................................... ¥ 2005 45,931 1,238,022 26,902 425,006 ¥1,735,863 Notes: Definition of risk-monitored loan categories ¥ Millions of yen 2004 67,183 1,460,787 47,618 1,199,301 ¥2,774,889 2003 ¥ 172,403 2,390,173 114,756 2,492,199 ¥5,169,531 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. 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............................................................................................................................... 2005 ¥ 448.3 924.4 451.9 ¥ 1,824.6 ¥53,452.6 ¥55,277.2 Notes: Definition of problem asset categories Billions of yen 2004 ¥ 361.6 1,202.7 1,246.9 ¥ 2,811.2 ¥52,874.4 ¥55,685.6 2003 ¥ 524.9 2,129.5 2,606.9 ¥ 5,261.3 ¥57,313.4 ¥62,574.7 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 SMFG 2005 153 Securities (Nonconsolidated) Sumitomo Mitsui Banking Corporation Balance of Securities Year-End Balance March 31 Domestic operations: 2005 Millions of yen 2004 2003 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............................................................................................................................... ¥13,000,401 400,686 2,976,060 3,536,869 343,706 / / ¥20,257,723 ¥ — — — — 3,418,972 2,499,669 919,303 ¥ 3,418,972 ¥23,676,696 ¥13,897,044 417,831 2,371,760 3,660,522 129,442 / / ¥20,476,601 ¥ — — — — 6,115,982 5,187,456 928,525 ¥ 6,115,982 ¥26,592,584 ¥12,349,063 294,274 2,081,107 3,508,151 88,295 / / ¥18,320,892 ¥ — — — — 5,335,492 4,409,837 925,655 ¥ 5,335,492 ¥23,656,385 Average Balance Year ended March 31 Domestic operations: 2005 Millions of yen 2004 2003 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............................................................................................................................... ¥13,068,691 419,803 2,447,549 2,919,805 231,806 / / ¥19,087,657 ¥ — — — — 4,615,337 3,659,676 955,660 ¥ 4,615,337 ¥23,702,994 ¥12,820,808 354,229 2,141,145 3,207,224 75,254 / / ¥18,598,661 ¥ — — — — 5,216,457 4,303,429 913,027 ¥ 5,216,457 ¥23,815,118 ¥11,355,059 334,482 1,443,106 5,655,162 59,250 / / ¥18,847,060 ¥ — — — — 4,283,361 3,565,089 718,271 ¥ 4,283,361 ¥23,130,421 Notes: 1. Figures for the year ended March 31, 2003, include those of the former SMBC for the period from April 1, 2002 to March 16, 2003. 2. The average balance of foreign-currency-denominated transactions by domestic branches in international operations is calculated by the monthly current method. 154 SMFG 2005 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 ..................................................................................................... One — three years Japanese government bonds ................................................................................... Japanese local government bonds........................................................................... Japanese corporate bonds ....................................................................................... Others....................................................................................................................... Foreign bonds ..................................................................................................... Three — five years Japanese government bonds ................................................................................... Japanese local government bonds........................................................................... Japanese corporate bonds ....................................................................................... Others....................................................................................................................... Foreign bonds ..................................................................................................... Five — seven years Japanese government bonds ................................................................................... Japanese local government bonds........................................................................... Japanese corporate bonds ....................................................................................... Others....................................................................................................................... Foreign bonds ..................................................................................................... Seven — 10 years Japanese government bonds ................................................................................... Japanese local government bonds........................................................................... Japanese corporate bonds ....................................................................................... Others....................................................................................................................... Foreign bonds ..................................................................................................... More than 10 years Japanese government bonds ................................................................................... Japanese local government bonds........................................................................... Japanese corporate bonds ....................................................................................... Others....................................................................................................................... Foreign bonds ..................................................................................................... No designated term Japanese government bonds ................................................................................... Japanese local government bonds........................................................................... Japanese corporate bonds ....................................................................................... Japanese stocks....................................................................................................... Others....................................................................................................................... Foreign bonds ..................................................................................................... Foreign stocks ..................................................................................................... Total Japanese government bonds ................................................................................... Japanese local government bonds........................................................................... Japanese corporate bonds ....................................................................................... Japanese stocks....................................................................................................... Others....................................................................................................................... Foreign bonds ..................................................................................................... Foreign stocks ..................................................................................................... 2005 Millions of yen 2004 2003 ¥ 2,759,480 2,493 224,265 438,456 425,671 ¥ 2,520,074 106,877 916,972 1,077,233 1,029,853 ¥ 3,634,470 97,413 1,264,285 393,547 322,997 ¥ 1,219,564 14,158 273,476 50,033 37,793 ¥ 164,265 179,248 265,060 203,029 150,233 ¥ 2,702,545 494 32,000 561,803 494,336 ¥ — — — 3,536,869 1,038,575 38,783 919,303 ¥13,000,401 400,686 2,976,060 3,536,869 3,762,679 2,499,669 919,303 ¥ 2,586,741 1,174 122,080 255,415 251,402 ¥ 2,349,136 24,549 697,926 2,923,707 2,898,312 ¥ 4,658,046 169,736 1,066,954 1,201,085 1,179,263 ¥ 2,026,179 12,662 258,241 165,856 141,726 ¥ 1,175,114 209,189 223,592 277,458 261,747 ¥ 1,101,824 519 2,964 386,108 362,180 ¥ — — — 3,660,522 1,035,792 92,822 928,525 ¥13,897,044 417,831 2,371,760 3,660,522 6,245,424 5,187,456 928,525 ¥ 3,224,334 6,119 128,939 159,914 129,200 ¥ 1,802,741 6,910 627,709 2,003,382 1,995,829 ¥ 4,175,621 95,742 826,585 795,661 780,435 ¥ 1,113,572 39,278 272,594 168,291 164,803 ¥ 1,878,410 145,642 223,378 585,142 569,753 ¥ 154,383 580 1,900 707,823 706,385 ¥ — — — 3,508,151 1,003,572 63,429 925,655 ¥12,349,063 294,274 2,081,107 3,508,151 5,423,788 4,409,837 925,655 SMFG 2005 155 Capital Ratio Sumitomo Mitsui Banking Corporation and Subsidiaries Consolidated Capital Ratio March 31 Tier I capital: Tier II capital: Deductions: Total capital: Risk-adjusted assets: Capital ratio: Capital stock....................................................................... Capital reserve ................................................................... Retained earnings .............................................................. Minority interests ................................................................ Valuation losses on other securities................................... Treasury stock.................................................................... Foreign currency translation adjustments .......................... Goodwill and others............................................................ Subtotal (A) ........................................................................ 45% of unrealized gains on other securities....................... 45% of unrealized gains on land ........................................ General reserve for possible loan losses ........................... Qualifying subordinated debt.............................................. Subtotal .............................................................................. Tier II capital included as qualifying capital (B) .................. (C) ...................................................................................... (D) = (A) + (B) - (C) ........................................................... On-balance-sheet............................................................... Off-balance-sheet............................................................... Asset equivalent of market risk .......................................... Subtotal (E) ........................................................................ (D) / (E) × 100...................................................................... Nonconsolidated Capital Ratio March 31 Tier I capital: Tier II capital: Deductions: Total capital: Risk-adjusted assets: Capital ratio: Capital stock....................................................................... Capital reserve ................................................................... Other capital surplus .......................................................... Earned surplus reserve ...................................................... Voluntary reserves ............................................................. Retained earnings carried forward to next year ................. Others................................................................................. Valuation losses on other securities................................... Treasury stock.................................................................... Subtotal (A) ........................................................................ 45% of unrealized gains on other securities....................... 45% of unrealized gains on land ........................................ General reserve for possible loan losses ........................... Qualifying subordinated debt.............................................. Subtotal .............................................................................. Tier II capital included as qualifying capital (B) .................. (C) ...................................................................................... (D) = (A) + (B) - (C) ........................................................... On-balance-sheet............................................................... Off-balance-sheet............................................................... Asset equivalent of market risk .......................................... Subtotal (E) ........................................................................ (D) / (E) × 100...................................................................... ¥ 2005 664,986 1,603,512 (6,315) 1,026,138 — — (81,050) (8) ¥ 3,207,262 305,401 ¥ 67,103 612,032 2,537,304 ¥ 3,521,842 ¥ 3,207,262 ¥ 238,920 ¥ 6,175,605 ¥52,589,471 5,303,085 351,964 ¥58,244,521 Millions of yen 2004 ¥ 559,985 1,298,511 319,345 1,005,824 — — (71,861) — ¥ 3,111,804 245,500 ¥ 68,524 815,520 2,358,572 ¥ 3,488,117 ¥ 3,111,804 ¥ 24,634 ¥ 6,198,974 ¥52,359,312 4,264,272 268,179 ¥56,891,764 2003 ¥ 559,985 1,298,511 258,690 1,025,217 (21,559) — (54,419) (74) ¥ 3,066,351 — ¥ 71,699 1,149,150 2,150,334 ¥ 3,371,184 ¥ 2,887,170 ¥ 25,684 ¥ 5,927,837 ¥53,313,337 3,523,317 221,156 ¥57,057,811 10.60% 10.89% 10.38% ¥ 2005 664,986 1,009,933 357,614 — 221,532 68,483 784,252 — — ¥ 3,106,803 292,983 ¥ 59,575 417,555 2,498,304 ¥ 3,268,419 ¥ 3,106,803 ¥ 95,559 ¥ 6,118,047 ¥48,910,692 4,818,865 304,929 ¥54,034,487 Millions of yen 2004 ¥ 559,985 879,693 357,614 — 221,540 253,068 764,546 — — ¥ 3,036,448 239,783 ¥ 61,515 769,033 2,321,172 ¥ 3,391,504 ¥ 3,036,448 ¥ 55,666 ¥ 6,017,230 ¥48,816,691 3,925,351 197,621 ¥52,939,664 2003 ¥ 559,985 879,693 357,614 — 221,540 191,507 738,878 (17,864) — ¥ 2,931,354 — ¥ 64,438 1,113,235 2,126,658 ¥ 3,304,332 ¥ 2,771,778 ¥ 55,378 ¥ 5,647,753 ¥50,297,673 3,322,458 187,014 ¥53,807,146 11.32% 11.36% 10.49% 156 SMFG 2005 Ratios (Nonconsolidated) Sumitomo Mitsui Banking Corporation Income Ratio Year ended March 31 Ordinary profit to total assets...................................................................................................................... Ordinary profit to stockholders’ equity ........................................................................................................ Net income to total assets .......................................................................................................................... Net income to stockholders’ equity ............................................................................................................. 2005 — — — — 2004 0.20% 13.39 0.33 22.49 Notes: 1. Ordinary profit (net income) to total assets = Ordinary profit (net income) / Average balance of total assets excluding customers’ liabilities for accep- tances and guarantees ✕ 100 Percentage 2. Ordinary profit (net income) to stockholders’ equity = (Ordinary profit (net income) – Preferred dividends) / {(Stockholders’ equity at beginning of the Issue price) + (Stockholders’ equity at end of the fiscal fiscal year – Number of shares of preferred stock outstanding at beginning of the fiscal year ✕ year – Number of shares of preferred stock outstanding at end of the fiscal year ✕ Issue price)} divided by 2 ✕ 100 3. Figures for 2005 are not shown due to ordinary loss (net loss). Yield/Interest Rate Year ended March 31 Domestic operations Percentage 2005 2004 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)................................................................................................................................................. 1.45% 0.84 0.61 2.60% 2.57 0.03 1.66% 1.12 0.54 1.45% 0.83 0.62 3.10% 2.38 0.72 1.71% 1.07 0.64 Loan-Deposit Ratio March 31 Domestic operations Millions of yen 2005 2004 Loan amount (A) .................................................................................................................................... Deposit amount (B)................................................................................................................................ Loan-deposit ratio (%) ¥45,975,351 58,896,881 ¥47,272,518 57,323,318 (A) / (B) ............................................................................................................................................. Ratio by average balance for the fiscal year .................................................................................... 78.06% 80.27 82.46% 88.84 International operations Loan amount (A) .................................................................................................................................... Deposit amount (B)................................................................................................................................ Loan-deposit ratio (%) ¥ 4,092,234 6,694,746 ¥ 3,537,625 6,333,453 (A) / (B) ............................................................................................................................................. Ratio by average balance for the fiscal year .................................................................................... 61.12% 57.64 55.85% 65.64 Total Loan amount (A) .................................................................................................................................... Deposit amount (B)................................................................................................................................ Loan-deposit ratio (%) ¥50,067,586 65,591,627 ¥50,810,144 63,656,771 (A) / (B) ............................................................................................................................................. Ratio by average balance for the fiscal year .................................................................................... 76.33% 77.89 79.81% 86.71 Note: Deposits include negotiable certificates of deposit. SMFG 2005 157 Securities-Deposit Ratio March 31 Domestic operations Millions of yen 2005 2004 Securities amount (A) ............................................................................................................................ Deposit amount (B)................................................................................................................................ Securities-deposit ratio (%) ¥20,257,723 58,896,881 ¥20,476,601 57,323,318 (A) / (B) ............................................................................................................................................. Ratio by average balance for the fiscal year .................................................................................... 34.39% 32.69 35.72% 32.73 International operations Securities amount (A) ............................................................................................................................ Deposit amount (B)................................................................................................................................ Securities-deposit ratio (%) ¥ 3,418,972 6,694,746 ¥ 6,115,982 6,333,453 (A) / (B) ............................................................................................................................................. Ratio by average balance for the fiscal year .................................................................................... 51.06% 67.36 96.56% 90.83 Total Securities amount (A) ............................................................................................................................ Deposit amount (B)................................................................................................................................ Securities-deposit ratio (%) ¥23,676,696 65,591,627 ¥26,592,584 63,656,771 (A) / (B) ............................................................................................................................................. Ratio by average balance for the fiscal year .................................................................................... 36.09% 36.33 41.77% 38.07 Note: Deposits include negotiable certificates of deposit. 158 SMFG 2005 Capital (Nonconsolidated) Sumitomo Mitsui Banking Corporation Changes in Number of Shares Outstanding and Capital Stock Thousands of shares Number of shares outstanding Changes Balances March 30, 2001 .............................. June 28, 2001................................. March 13, 2003 .............................. March 14, 2003 .............................. March 17, 2003 .............................. April 1, 2004 ................................... September 21, 2004....................... March 30, 2005 .............................. April 1, 2004 — March 31, 2005..... (383) — 1,245 1,080 53,037 — 0 70 264 416 416 1,661 2,741 55,778 55,778 55,778 55,848 56,112 Millions of yen Capital stock Capital reserve Changes ¥ (19,169) — 32,121 27,864 479,169 — — 105,001 — Balances ¥ 20,831 20,831 52,952 80,816 559,985 559,985 559,985 664,986 664,986 Changes ¥ 4,881 (4,881) 32,121 27,864 819,708 (220,966) 246,205 105,001 — ¥ Balances 4,881 0 32,121 59,985 879,693 658,726 904,932 1,009,933 1,009,933 Remarks: March 30, 2001: June 28, 2001: March 13, 2003: Pursuant to the resolution of the Extraordinary General Meeting of Shareholders held on February 26, 2001, the former Wakashio Bank retired 383,380 shares after acquisition without compensation in order to reduce capital and write off losses carried forward from the previous fiscal year. The difference between the amount of capital reduction and the amount of losses written off is included in “Capital reserve” as gain on capital reduction. Compensation for the deficit Allotment to third parties: Common stock: 1,245 thousand shares Issue price: Capitalization: ¥51,600 ¥25,800 March 14, 2003: Allotment to third parties: Common stock: 1,080 thousand shares Issue price: Capitalization: ¥51,600 ¥25,800 March 17, 2003: April 1, 2004: September 21, 2004: March 30, 2005: Merger with Sumitomo Mitsui Banking Corporation (merger ratio: 1-to-0.007) Reduction in capital stock due to a corporate split resulting from the spin-off of certain subsidiaries. Exchange of stock due to a restructuring of Group companies Allotment to third parties: Preferred stock (1st series Type 6): 70 thousand shares Issue price: ¥3,000,000 Capitalization: ¥1,500,000 April 1, 2004 — March 31, 2005: Conversion of 32 thousand shares of preferred stock (Type 1) and 105 thousand shares of preferred stock (Type 3) to 401 thousand shares of common stock SMFG 2005 159 The following table shows total number of shares issued and outstanding, capital stock, and capital reserve of the former SMBC for the period up to March 16, 2003. April 2, 2001 ................................... March 9, 2002 ................................ March 15, 2002 .............................. April 1, 2001 — March 31, 2002..... April 1, 2001 — March 31, 2002..... February 3, 2003 ............................ February 5, 2003 ............................ February 12, 2003 .......................... March 13, 2003 .............................. Thousands of shares Number of shares outstanding Millions of yen Capital stock Capital reserve Changes 3,273,423 — — 91,324 3,614 — 313,556 454,078 961,538 Balances 6,581,485 6,581,485 6,581,485 6,672,810 6,676,424 6,676,424 6,989,980 7,444,059 8,405,597 Changes ¥523,851 — — 50,045 — (494,100) — 75,377 149,999 Balances ¥1,276,700 1,276,700 1,276,700 1,326,746 1,326,746 832,646 832,646 908,023 1,058,023 Changes ¥991,326 (357,614) 11 49,954 — — 94,680 74,922 149,999 Balances ¥1,634,407 1,276,792 1,276,804 1,326,758 1,326,758 1,326,758 1,421,438 1,496,361 1,646,361 Remarks: April 2, 2001: March 9, 2002: March 15, 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 and Article 18-2 of the Banking Law Merger with SMBC Property Management Service Co., Ltd., a wholly owned subsidiary of the former SMBC April 1, 2001 — March 31, 2002: Conversion of convertible bonds into common stock April 1, 2001 — March 31, 2002: Conversion of preferred stock into common stock February 3, 2003: February 5, 2003: February 12, 2003: Reduction in capital stock due to a corporate split for the transfer of management business to the wholly owned parent company, Sumitomo Mitsui Financial Group, Inc. Increase in capital reserve due to conversion of SMBC Guarantee Co., Ltd. into a wholly owned sub- sidiary through an exchange of stock. Allotment to third parties: Common stock: 454,078 thousand shares Issue price: Capitalization: ¥331 ¥166 March 13, 2003: Allotment to third parties: Common stock: 961,538 thousand shares Issue price: Capitalization: ¥312 ¥156 160 SMFG 2005 Total Outstanding Shares March 31, 2005 Common stock............................................................................................................................................................... Preferred stock (Type 1) ................................................................................................................................................ Preferred stock (Type 2) ................................................................................................................................................ Preferred stock (Type 3) ................................................................................................................................................ Preferred stock (1st series Type 6)................................................................................................................................ Total............................................................................................................................................................................... Note: The shares above are not listed on any stock exchange. Number of shares issued 55,212,947 35,000 100,000 695,000 70,001 56,112,948 Number of Voting Rights Total Outstanding Shares Number of shares Number of voting rights 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.)................................................................. 55,212,947 Voting stock (Others) ..................................................................................... — Fractional shares ........................................................................................... — Total outstanding shares................................................................................ 55,212,947 Total voting rights........................................................................................... Note: The articles of incorporation concerning the fractional shares stipulate that “The bank shall not make an entry of any share which is less than one share, — Common stock 55,212,947 — 56,112,948 — 900,001 — — Preferred stock — — — whether in writing or digital record, as a fractional share in any register of fractional shares.” Treasury stock, etc. There are no corresponding items. Principal Shareholders a. Common Stock March 31, 2005 Shareholder Number of shares Percentage of shares outstanding Sumitomo Mitsui Financial Group, Inc. ................................................................................................ 55,212,947 100.00% b. Preferred Stock (Type 1) March 31, 2005 Shareholder Sumitomo Mitsui Financial Group, Inc. ................................................................................................ Number of shares 35,000 Percentage of shares outstanding 100.00% c. Preferred Stock (Type 2) March 31, 2005 Shareholder Sumitomo Mitsui Financial Group, Inc. ................................................................................................ Number of shares 100,000 Percentage of shares outstanding 100.00% d. Preferred Stock (Type 3) March 31, 2005 Shareholder Sumitomo Mitsui Financial Group, Inc. ................................................................................................ Number of shares 695,000 Percentage of shares outstanding 100.00% e. Preferred Stock (1st series Type 6) March 31, 2005 Shareholder Sumitomo Mitsui Financial Group, Inc. ................................................................................................ Number of shares 70,001 Percentage of shares outstanding 100.00% SMFG 2005 161 Others (Nonconsolidated) Sumitomo Mitsui Banking Corporation Employees March 31 Number of employees ................................................................................................... Average age (years–months) ........................................................................................ Average length of employment (years–months) ............................................................ Average monthly salary (thousands of yen) .................................................................. Notes: 1. Figures as of March 31, 2003, include those of the former SMBC for the period from April 1, 2002 to March 16, 2003. 2005 21,020 39–0 16–11 ¥494 2004 22,348 38–9 16–8 ¥496 2003 24,024 38–8 16–8 ¥508 2. Temporary, part-time, and overseas local staff are excluded from the above calculations. 3. “Average monthly salary” includes overtime pay in March but excludes bonus. 4. Employees are required to retire at the end of the month when they reach 60. Number of Offices March 31 Domestic network: 2005 2004 2003 Main offices and branches........................................................................................ Subbranches ............................................................................................................ Agency...................................................................................................................... Overseas network: Branches .................................................................................................................. Subbranches ............................................................................................................ Representative offices .............................................................................................. Total............................................................................................................................... 472 133 — 17 3 15 640 482 132 — 20 3 14 651 468 100 2 20 3 14 607 Note: “Main offices and branches” includes International Business Operations Dept. (2005, 2 branches; 2004, 2 branches; 2003, 2 branches), specialized deposit account branch (2005, 28 branches; 2004, 28 branches; 2003, 28 branches) and ATM administration branch (2005, 17 branches; 2004, 17 branch; 2003, 1 branch). Number of Automated Service Centers March 31 Automated service centers ............................................................................................ 2005 20,580 2004 17,877 2003 14,572 Domestic Exchange Transactions Year ended March 31 Exchange for remittance: Destined for various parts of the country: 2005 Millions of yen 2004 2003 368,430 Number of accounts (thousands) ........................................................................ Amount ................................................................................................................ ¥ 627,550,374 ¥ 613,885,514 ¥ 664,425,453 391,059 358,035 Received from various parts of the country: Number of accounts (thousands) ........................................................................ 279,228 Amount ................................................................................................................ ¥ 683,691,666 ¥ 721,215,425 ¥ 717,489,853 269,543 281,410 Collection: Destined for various parts of the country: Number of accounts (thousands) ........................................................................ Amount ................................................................................................................ ¥ 4,118 10,365,156 ¥ 4,297 10,655,556 ¥ 5,095 12,620,267 Received from various parts of the country: Number of accounts (thousands) ........................................................................ Amount ................................................................................................................ ¥ 3,987 6,513,720 Total............................................................................................................................... ¥1,327,371,880 ¥1,349,894,665 ¥1,401,049,294 1,535 4,138,169 ¥ 1,441 5,764,683 ¥ Note: Figures for the year ended March 31, 2003, include those of the former SMBC for the period from April 1, 2002 to March 16, 2003. 162 SMFG 2005 Foreign Exchange Transactions Year ended March 31 Outward exchanges: 2005 Millions of U.S. dollars 2004 2003 Foreign bills sold....................................................................................................... Foreign bills bought .................................................................................................. $ 621,165 247,970 $ 459,458 153,098 $ 545,156 122,309 Incoming exchanges: Foreign bills payable................................................................................................. Foreign bills receivable............................................................................................. Total............................................................................................................................... $ 480,880 24,987 $1,375,004 $ 395,277 19,143 $1,026,977 $ 548,607 21,684 $1,237,757 Notes: 1. Figures for the year ended March 31, 2003, include those of the former SMBC for the period from April 1, 2002 to March 16, 2003. 2. The figures above 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............................................................................................................................... 2005 ¥ 17,619 16,966 11,362 35,792 30,420 ¥ 112,162 481,552 3,709,432 ¥4,303,148 ¥ Millions of yen 2004 24,086 25,168 10,689 33,579 15,837 ¥ 109,361 368,604 3,608,998 ¥4,086,964 2003 ¥ 14,376 29,253 13,464 178,806 13,225 ¥ 249,125 636,661 3,530,504 ¥4,416,292 SMFG 2005 163 Trust Assets and Liabilities (Nonconsolidated) Sumitomo Mitsui Banking Corporation Statement of Trust Assets and Liabilities March 31 Assets: Loans and bills discounted .................................................................................................................... Loans on deeds ................................................................................................................................ Securities ............................................................................................................................................... Japanese government bonds ........................................................................................................... Foreign securities ............................................................................................................................. Securities held in custody accounts ...................................................................................................... Monetary claims .................................................................................................................................... Monetary claims for housing loans ................................................................................................... Other monetary claims ..................................................................................................................... Other claims .......................................................................................................................................... Due from banking account..................................................................................................................... Total assets ........................................................................................................................................... Liabilities: Money trusts .......................................................................................................................................... Security trusts ........................................................................................................................................ Monetary claims trusts........................................................................................................................... Composite trusts.................................................................................................................................... Total liabilities ........................................................................................................................................ Notes: 1. Amounts less than one million yen have been omitted. 2. SMBC has no co-operative trusts under other trust bank’s administration as of year-end. 3. SMBC does not deal with any trusts with principal indemnification. Millions of yen 2005 2004 ¥ 9,780 9,780 81,840 34,510 47,329 34,166 600,618 160,074 440,543 315 50,457 ¥777,177 ¥101,323 34,166 480,147 161,539 ¥777,177 ¥ 10,000 10,000 4,645 4,645 — — 378,710 — 378,710 0 36,032 ¥429,388 ¥ 17,007 — 371,476 40,904 ¥429,388 Year-End Balance of Money Trusts and Others March 31 Money trusts ............................................................................................................................................... Pension trusts ............................................................................................................................................. Asset formation benefit trusts ..................................................................................................................... Loan trusts .................................................................................................................................................. Total............................................................................................................................................................ 2005 ¥101,323 — — — ¥101,323 2004 ¥17,007 — — — ¥17,007 Note: Money trusts and others include money trusts, pension trusts, asset formation benefit trusts and loan trusts. Millions of yen Year-End Balance of Trusts with Principal Indemnification There are no corresponding items. Risk-Monitored Loans Related with Trusts with Principal Indemnification There are no corresponding items. Balance of Principal Amounts of Money Trusts and Loan Trusts, Classified by Maturity March 31 Money trusts: Millions of yen 2005 2004 Less than one year ................................................................................................................................ One — two years ................................................................................................................................... Two — five years ................................................................................................................................... Five years and more .............................................................................................................................. No designated term ............................................................................................................................... Total....................................................................................................................................................... Loan trusts: Less than one year ................................................................................................................................ One — two years ................................................................................................................................... Two — five years ................................................................................................................................... Five years and more .............................................................................................................................. No designated term ............................................................................................................................... Total....................................................................................................................................................... ¥10,928 7,622 38,436 38,192 — ¥95,179 ¥ ¥ — — — — — — ¥11,834 527 4,600 — — ¥16,962 ¥ ¥ — — — — — — 164 SMFG 2005 Year-End Balance of Money Trusts and Others March 31 Money trusts: Millions of yen 2005 2004 Loans and bills discounted .................................................................................................................... Securities ............................................................................................................................................... Subtotal ................................................................................................................................................. ¥ 9,780 81,840 ¥91,620 ¥10,000 4,645 ¥14,645 Pension trusts: Loans and bills discounted .................................................................................................................... Securities ............................................................................................................................................... Subtotal ................................................................................................................................................. Asset formation benefit trusts: Loans and bills discounted .................................................................................................................... Securities ............................................................................................................................................... Subtotal ................................................................................................................................................. Loan trusts: Loans and bills discounted .................................................................................................................... Securities ............................................................................................................................................... Subtotal ................................................................................................................................................. Total of loans and bills discounted.............................................................................................................. Total of securities ....................................................................................................................................... Total............................................................................................................................................................ ¥ ¥ ¥ ¥ — — — — — — ¥ — — ¥ — ¥ 9,780 ¥81,840 ¥91,620 ¥ ¥ ¥ ¥ — — — — — — ¥ — — ¥ — ¥10,000 ¥ 4,645 ¥14,645 Year-End Balance of Loans and Bills Discounted March 31 Loans on deeds .......................................................................................................................................... Loans on notes ........................................................................................................................................... Bills discounted........................................................................................................................................... Total............................................................................................................................................................ 2005 ¥9,780 — — ¥9,780 2004 ¥10,000 — — ¥10,000 Millions of yen Year-End Balance of Loans and Bills Discounted, Classified by Maturity March 31 Loans and bills discounted Millions of yen 2005 2004 One year or less .................................................................................................................................... One — three years ................................................................................................................................ Three — five years ................................................................................................................................ Five — seven years ............................................................................................................................... More than seven years .......................................................................................................................... Total....................................................................................................................................................... ¥1,480 4,300 4,000 — — ¥9,780 ¥ 7,000 — 3,000 — — ¥10,000 Balance of Loan Collateral March 31 Securities .................................................................................................................................................... Commercial claims ..................................................................................................................................... Real estate.................................................................................................................................................. Factory........................................................................................................................................................ Fund............................................................................................................................................................ Ships and vessels ...................................................................................................................................... Others ......................................................................................................................................................... Subtotal....................................................................................................................................................... Guaranteed................................................................................................................................................. Unsecured .................................................................................................................................................. Total............................................................................................................................................................ 2005 ¥ — — — — — — — ¥ — ¥3,000 6,780 ¥9,780 2004 ¥ — — — — — — — — ¥ ¥ 3,000 7,000 ¥10,000 Millions of yen SMFG 2005 165 Balance of Loans and Bills Discounted, Classified by Purpose March 31 Funds for capital investment............................................................................ Funds for working capital................................................................................. Total................................................................................................................. Millions of yen ¥7,000 2,780 ¥9,780 Percentage 71.57% 28.43 100.00% Millions of yen ¥ 3,000 7,000 ¥10,000 Percentage 30.00% 70.00 100.00% 2005 2004 Breakdown of Loan Portfolio, Classified by Industry 2005 2004 March 31 Manufacturing.................................................................................................. Agriculture, forestry, fisheries and mining ....................................................... Construction .................................................................................................... Transportation, communications and public enterprises ................................. Wholesale and retail ........................................................................................ Finance and insurance .................................................................................... Real estate ...................................................................................................... Services ........................................................................................................... Municipalities ................................................................................................... Others.............................................................................................................. Total................................................................................................................. Millions of yen ¥4,000 — — 4,780 1,000 — — — — — ¥9,780 Percentage 40.90% — — 48.88 10.22 — — — — — 100.00% Millions of yen ¥ 3,500 — — 6,500 — — — — — — ¥10,000 Percentage 35.00% — — 65.00 — — — — — — 100.00% Loans to Individuals/Small and Medium-Sized Corporations Balance of Loans March 31 Total to individuals, and small and medium-sized corporations (A)............................................................ Total loans (B) ............................................................................................................................................ (A) / (B) ....................................................................................................................................................... Number of Loans Lent March 31 Total to individuals, and small and medium-sized corporations (C) ........................................................... Total loans (D) ............................................................................................................................................ (C) / (D)....................................................................................................................................................... Millions of yen 2005 ¥4,780 9,780 48.87% 2004 ¥ 4,500 10,000 45.00% Number of loans 2005 2004 4 6 2 4 66.66% 50.00% Note: 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 employ- ees; and service industry companies: ¥50 million, 100 employees.) Year-End Balance of Securities Related with Money Trusts and Others March 31 Japanese government bonds .......................................................................... Japanese local government bonds.................................................................. Short-term Japanese corporate bonds ............................................................ Japanese corporate bonds .............................................................................. Japanese stocks.............................................................................................. Others.............................................................................................................. Total................................................................................................................. Millions of yen ¥ 34,510 — — — — 47,329 ¥ 81,840 Percentage 42.17% — — — — 57.83 100.00% Millions of yen ¥4,645 — — — — — ¥4,645 Percentage 100.00% — — — — — 100.00% 2005 2004 166 SMFG 2005 Corporate Data Sumitomo Mitsui Financial Group, Inc. ■ Board of Directors, Corporate Auditors, and Executive Officers (as of June 29, 2005) BOARD OF DIRECTORS CORPORATE AUDITORS Masayuki Oku Chairman of the Board and Representative Director Koji Ishida Corporate Auditor Teisuke Kitayama President and Representative Director Morio Kusunoki Deputy President and Representative Director, Audit Dept. Masahide Hirasawa Director, General Affairs Dept., Human Resources Dept., Corporate Risk Management Dept. Shigeru Nishiyama Director Sadao Kobayashi Corporate Auditor Katsuya Onishi Corporate Auditor (outside) Hiroshi Araki Corporate Auditor (outside) Ikuo Uno Corporate Auditor (outside) Junji Tanehashi Director, Public Relations Dept., Corporate Planning Dept., Financial Accounting Dept., Subsidiaries & Affiliates Dept. EXECUTIVE OFFICERS Koichi Tsukihara Deputy President, Consumer Business Planning Dept. Yoshiaki Yamauchi Director (outside) Yoichiro Yamakawa Director (outside) ■ SMFG Organization (as of June 30, 2005) Yasuyuki Kimoto Senior Managing Director, IT Planning Dept., Investor Relations Dept., Corporate Risk Management Dept. Shareholders’ Meeting Board of Directors Auditing Committee Risk Management Committee Compensation Committee Nominating Committee Group Strategy Committee Public Relations Dept. Corporate Planning Dept. Investor Relations Dept. Financial Accounting Dept. Management Committee Subsidiaries & Affiliates Dept. Consumer Business Planning Dept. Corporate Auditors/ Board of Corporate Auditors IT Planning Dept. General Affairs Dept. Human Resources Dept. Corporate Risk Management Dept. Office of Corporate Auditors Audit Dept. SMFG 2005 167 Sumitomo Mitsui Banking Corporation ■ Board of Directors, Corporate Auditors, and Executive Officers (as of June 29, 2005) BOARD OF DIRECTORS Chairman of the Board Teisuke Kitayama President Masayuki Oku* Deputy Presidents Koichi Tsukihara* Head of Consumer Banking Unit, Operations Planning Dept., Operations Support Dept. Masahide Hirasawa* General Affairs Dept., Human Resources Dept., Human Resources Development Dept., Administrative Services Dept., Corporate Research Dept., Legal Dept., Customer Relations Dept. Mitsuaki Yahagi* Head of Corporate Banking Unit Senior Managing Directors Yasuyuki Kimoto* Corporate Risk Management Dept., Credit Planning Dept., Credit Risk Management Dept., IT Planning Dept., Electronic Commerce Banking Dept., Trust Services Dept., Director of The Japan Research Institute Kenjiro Nakano* Head of Middle Market Banking Unit Shigeru Nishiyama* Credit Administration Dept., Credit Dept. II, Corporate Banking Unit Hitoshi Yoshimatsu* Head of International Banking Unit, Head of Treasury Unit, Head of Asia Pacific Division Managing Directors Shigenobu Aikyo* Head of Investment Banking Unit Osamu Endo* Internal Audit Dept., Credit Review Dept. Directors (outside) Yoshiaki Yamauchi Yoichiro Yamakawa *Executive Officers CORPORATE AUDITORS Yoshiyuki Nagahara Tatsumasa Matsumoto Katsuya Onishi Koji Ishida Sadao Kobayashi EXECUTIVE OFFICERS Managing Directors Shuntaro Higashi Head of Europe Division, and President of Sumitomo Mitsui Banking Corporation Europe Limited Hiroaki Shukuzawa Deputy Head of Middle Market Banking Unit (in charge of West Japan) Hirosumi Tsusue Deputy Head of Middle Market Banking Unit (in charge of East Japan) Junji Tanehashi Public Relations Dept., Corporate Planning Dept., Financial Accounting Dept., Subsidiaries & Affiliates Dept. Shunji Ono Internal Audit Dept., Credit Review Dept. (in charge of West Japan) Kohei Katsukawa Deputy Head of Middle Market Banking Unit (in charge of East Japan) Kazuhisa Kishikawa Deputy Head of Consumer Banking Unit (in charge of East Japan) Hiroki Nishio Human Resources Dept., Human Resources Development Dept. Hajime Yamashita Head of Tokyo Corporate Banking Division I Takashi Yamaguchi Head of Tokyo Corporate Banking Division II Takashi Ueda Head of Osaka Corporate Banking Division Yoshinori Kawamura Head of The Americas Division Fukuzo Yasuo Head of Nagoya Corporate Banking Division, and Head of Tokai Middle Market Banking Division 168 SMFG 2005 Directors Wataru Ohara Deputy Head of Middle Market Banking Unit (Credit Dept. II, Middle Market Banking Unit) Hideo Shimada General Manager, IT Planning Dept. Akira Kitamura Deputy Head of Middle Market Banking Unit (Credit Dept. I and III, Middle Market Banking Unit) Kenji Ikeda Head of West Japan Middle Market Banking Division III Keiichi Ando Deputy Head of Corporate Banking Unit (Credit Dept. I, Corporate Banking Unit), Credit Dept. II, Corporate Banking Unit Takeshi Kunibe General Manager, Corporate Planning Dept. Tetsuya Kubo General Manager, Planning Dept., International Banking Unit Masami Tashiro General Manager, Singapore Branch Fumihiko Tanizawa General Manager, Credit Planning Dept. Koki Nomura Head of East Japan Middle Market Banking Division I Junsuke Fujii General Manager, Human Resources Dept. Koichi Miyata General Manager, Planning Dept., Treasury Unit Yasushi Terao General Manager, Global Corporate Investment Dept. Ryozo Yoshida Head of West Japan Middle Market Banking Division II Shoji Ishida General Manager, Himeji Corporate Business Office Satoru Nakanishi General Manager, Tokyo Corporate Banking Dept. V Yoshio Narukage General Manager, Credit Dept. I, Middle Market Banking Unit Kazumasa Hashimoto Head of West Japan Middle Market Banking Division I Jun Mizoguchi General Manager, Structured Finance Dept. Tatsuo Yamanaka General Manager, Tokyo Corporate Banking Dept. I Ken Kubo Deputy Head of Consumer Banking Unit (in charge of West Japan) Makoto Nakao General Manager, Planning Dept., Consumer Banking Unit Keizo Umemoto General Manager, Business Promotion Dept., Middle Market Banking Unit Yoshihiko Shimizu General Manager, Planning Dept., Middle Market Banking Unit Koichi Danno General Manager, Planning Dept., Investment Banking Unit Mitsunori Watanabe Head of East Japan Middle Market Banking Division III Naoyuki Kawamoto General Manager, Corporate Risk Management Dept. and Risk Management Systems Dept. Akifumi Imanishi General Manager, Public Institutions Banking Dept. Makoto Nakagawa General Manager, M&A Advisory Services Dept. Kozo Masaki General Manager, Shanghai Branch Kazuhiko Kashikura General Manager, Internal Audit Dept. Kazuya Jono General Manager, Tokyo Corporate Banking Dept. II Keiji Takamasu Head of West Japan Middle Market Banking Division IV Hideo Hiyama General Manager, Hong Kong Branch Koichi Minami General Manager, Credit Dept. II, Middle Market Banking Unit Tsuyoshi Isono General Manager, Treasury Dept. Masaya Kawabe Head of East Japan Middle Market Banking Division IV Yuichiro Takada General Manager, Planning Dept., Corporate Banking Unit Masahiko Hasumi General Manager, Credit Dept. II, Corporate Banking Unit Hiroshi Minoura General Manager, Tokyo Corporate Banking Dept. III Yujiro Ito General Manager, General Affairs Dept. Seiichiro Takahashi General Manager, International Treasury Dept. Hidetoshi Furukawa General Manager, Bangkok Branch, Chonburi Branch, and Ayudhya Branch Nobuo Tsukuni Head of East Japan Middle Market Banking Division II Ikuhiko Morikawa General Manager, Mass Retail Dept. SMFG 2005 169 Internal Audit Unit Internal Audit Dept. Credit Review Dept. Corporate Staff Unit Public Relations Dept. Corporate Citizenship Dept. Corporate Planning Dept. Financial Research Dept. CSR Dept. Financial Accounting Dept. Equity Portfolio Management Dept. Subsidiaries & Affiliates Dept. Corporate Risk Management Dept. Risk Management Systems Dept. Credit Planning Dept. Credit Risk Management Dept. General Affairs Dept. Operational Risk Management Dept. Securities Compliance Dept. Human Resources Dept. Training Institute Counseling Dept. Human Resources Development Dept. Corporate Services Unit Administrative Services Dept. Secretariat IT Planning Dept. Operations Planning Dept. Operations Support Dept. Electronic Commerce Banking Dept. Global Cash Management Dept. Corporate Research Dept. Legal Dept. Customer Relations Dept. Credit Administration Dept. Trust Services Dept. ■ SMBC Organization (as of June 30, 2005) Shareholders’ Meeting Board of Directors Management Committee Corporate Auditors/ Board of Corporate Auditors Office of Corporate Auditors 170 SMFG 2005 Block Consumer Business Office Middle Market Banking Division Branch Consumer Loan Promotion Office Consumer Loan Servicing Center Private Banking Dept. Direct Banking Dept. Life Planning Service Dept. Consumer Finance Promotion Office Corporate Business Office Business Promotion Office Corporate Advisory Office Public Institutions Business Office Business Support Office Tokyo Corporate Banking Division I Tokyo Corporate Banking Division II Osaka Corporate Banking Division Nagoya Corporate Banking Division Corporate Banking Dept. Asia Pacific Division The Americas Division Europe Division Global Institutional Banking Dept. Global Investors Services Dept. Global Client Business Dept. Branches/Representative Offices in Asia Pacific Division Departments of the Americas Division Departments of Europe Division Consumer Banking Unit Planning Dept., Consumer Banking Unit Financial Consulting Dept. Consumer Loan Dept. Mass Retail Dept. Card Loan Dept. Credit Dept., Consumer Banking Unit Middle Market Banking Unit Planning Dept., Middle Market Banking Unit Business Promotion Dept., Middle Market Banking Unit International Business Promotion Dept., Middle Market Banking Unit China Business Promotion Dept., Middle Market Banking Unit Public Institutions Banking Dept. Business Owner Banking Dept. Credit Dept. I–III, Middle Market Banking Unit Corporate Banking Unit Planning Dept., Corporate Banking Unit Credit Dept. I-II, Corporate Banking Unit International Banking Unit Planning Dept., International Banking Unit IT & Business Administration Planning Dept. Planning Dept., The Americas Division Credit Dept., The Americas Division Planning Dept., Europe Division Credit Dept., Europe Division Credit Dept., International Banking Unit 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. R&D Dept. Syndication Dept. Asset Finance Dept. Derivatives & Financial Engineering Dept. Structured Finance Dept. Real Estate Finance Dept. M&A Advisory Services Dept. Corporate Finance Services Dept. Securities Marketing Dept. Investment Development Dept. Branch Service Office Head /Main Service Office Public Institutions Operations Office SMFG 2005 171 Principal Subsidiaries and Affiliates (as of March 31, 2005) All companies shown hereunder are consolidated subsidiaries or affiliates of Sumitomo Mitsui Financial Group, Inc. Those printed in green ink are consolidated subsidiaries or affiliates of Sumitomo Mitsui Banking Corporation. ■ Principal Domestic Subsidiaries Company Name Issued Capital (Millions of Yen) Percentage of SMFG’s Voting Rights (%) Percentage of SMBC’s Voting Rights (%) Established Main Business Sumitomo Mitsui Banking Corporation Sumitomo Mitsui Card Company, Limited* SMBC Leasing Company, Limited 664,986 10,000 82,600 100 100 100 SMBC Auto Leasing Company, Limited 4,200 0 (100) — — — — — — June 6, 1996 Commercial banking Dec. 26, 1967 Credit card services Sept. 2, 1968 Leasing Jan. 6, 1995 Leasing Nov. 1, 2002 System engineering, data processing, management consulting, and economic research Nov. 5, 2003 Corporate recovery consulting and servicer 100 52 The Japan Research Institute, Limited SMFG Corporate Recovery Servicer Co., Ltd. SAKURA CARD CO., Ltd. The Japan Net Bank, Limited SMBC Loan Business Planning Co., Ltd. SMBC Loan Adviser Co., Ltd. SMBC Guarantee Co., Ltd. SMBC Loan Servicer Co., Ltd. SMBC Finance Business Planning Co., Ltd. SMBC Finance Service Co., Ltd. SMBC Business Support Co., Ltd. Financial Link Company, Limited SMBC Capital Co., Ltd. SMBC Consulting Co., Ltd. SMBC Support & Solution Co., Ltd. SMBC Mortgage Co., Ltd.** SMBC Business Servicing Co., Ltd. SMBC Friend Securities Co., Ltd. Sakura Information Systems Co., Ltd. SAKURA KCS Corporation THE MINATO BANK, LTD. Kansai Urban Banking Corporation SMBC Staff Service Co., Ltd. SMBC Learning Support Co., Ltd. SMBC PERSONNEL SUPPORT CO., LTD. SMBC Center Service Co., Ltd. SMBC Delivery Service Co., Ltd. SMBC Green Service Co., Ltd. SMBC International Business Co., Ltd. SMBC International Operations Co., Ltd. SMBC Loan Business Service Co., Ltd. SMBC Market Service Co., Ltd. SMBC Loan Administration and Operations Service Co., Ltd. SMBC Property Research Service Co., Ltd. 10,000 500 7,438 20,000 100,010 10 187,720 500 10 71,705 10 160 2,500 1,100 10 18,182 500 27,270 600 2,054 24,908 32,500 90 10 10 100 30 30 20 40 70 10 10 30 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 (95.74) 77.78 (17.95) Feb. 23, 1983 Credit card services (57) (100) (100) (100) (100) (100) (100) (100) (100) 57 100 0 0 0 Sept. 19, 2000 Commercial banking April 1, 2004 Management support services (100) April 1, 1998 Consulting and agency services for consumer loans (100) July 14, 1976 Credit guarantee (100) July 28, 1999 Servicer 100 April 1, 2004 Management support services 0 0 0 (100) Dec. 5, 1972 Factoring, loans and collecting agent (100) July 1, 2004 Clerical work outsourcer (100) Sept. 29, 2000 Data processing service and e-trading consulting (100) 39.80 (50.20) Aug. 1, 1995 Venture capital (100) 50 (25) May 1, 1981 Management consulting and information service (100) 100 April 1, 1996 Help desk and system support (53.58) 47.00 (6.58) Oct. 14, 1983 Loans (100) 100 Mar. 11, 1999 Servicer (46.78) 42.18 (4.05) Mar. 2, 1948 Securities (69) 37.48 (31.51) Nov. 29, 1972 System engineering and data processing (52.89) 25.75 (9.46) Mar. 29, 1969 System engineering and data processing (50.06) 48.41 (1.58) Sept. 6, 1949 Commercial banking (60.49) 44.12 (6.45) July 1, 1922 Commercial banking (100) (100) (100) (100) (100) (100) (100) (100) (100) (100) (100) (100) 100 100 100 100 100 100 100 100 100 100 100 100 July 15, 1982 Temporary manpower service May 27, 1998 Seminar organizer April 15, 2002 Banking clerical work Oct. 16, 1995 Banking clerical work Jan. 31, 1996 Banking clerical work Mar. 15, 1990 Banking clerical work Sept. 28, 1983 Banking clerical work Dec. 21, 1994 Banking clerical work Sept. 24, 1976 Banking clerical work Feb. 3, 2003 Banking clerical work Feb. 3, 2003 Banking clerical work Feb. 1, 1984 Banking clerical work * The percentage of SMFG’s voting rights in Sumitomo Mitsui Card Company became 66% on July 11, 2005, as a result of a capital alliance made between Sumitomo Mitsui Card Company and NTT DoCoMo. ** SMBC Mortgage was dissolved on June 30, 2005. Note: Figures in parentheses ( ) in the voting rights column indicate voting rights held indirectly via subsidiaries and affiliates. 172 SMFG 2005 ■ Principal Overseas Subsidiaries Company Name Country Issued Capital Percentage of SMFG’s Voting Rights (%) Percentage of SMBC’s Voting Rights (%) Established Main Business Sumitomo Mitsui Banking Corporation Europe Limited Manufacturers Bank Sumitomo Mitsui Banking Corporation of Canada Banco Sumitomo Mitsui Brasileiro S.A. PT Bank Sumitomo Mitsui Indonesia U.K. U.S.A. Canada Brazil US$1,700 million US$80.786 million C$121.870 million R$309.356 million 0 0 0 0 (100) (100) (100) (100) 100 100 100 100 Mar. 5, 2003 Commercial banking June 26, 1962 Commercial banking April 1, 2001 Commercial banking Oct. 6, 1958 Commercial banking Indonesia Rp1,502.4 billion 0 (98.29) 98.29 Aug. 22, 1989 Commercial banking SMBC Leasing and Finance, Inc. U.S.A. SMBC Capital Markets, Inc. SMBC Securities, Inc. SMBC Financial Services, Inc. U.S.A. U.S.A. U.S.A. US$1,620 US$100 US$100 US$300 SMBC Cayman LC Limited * British West Indies US$1,375 million Sumitomo Finance (Asia) Limited British West Indies US$35 million SBTC, Inc. SB Treasury Company L.L.C. SB Equity Securities (Cayman), Limited U.S.A. U.S.A. US$1 US$470 million British West Indies ¥25,000 million SFVI Limited British Virgin Islands US$300 Sakura Finance (Cayman) Limited British West Indies US$100,000 Sakura Capital Funding (Cayman) Limited Sakura Preferred Capital (Cayman) Limited British West Indies US$100,000 British West Indies ¥10 million SMBC International Finance N.V. Netherlands Antilles US$200,000 SMBC Leasing Investment LLC U.S.A. US$332.088 million SMBC Capital Partners LLC U.S.A. US$1,000 SMBC MVI SPC British West Indies US$30 million SMBC DIP Limited British West Indies US$10,000 SMBC Capital Markets Limited SMBC Derivative Products Limited Sumitomo Finance International plc Sumitomo Mitsui Finance Dublin Limited U.K. U.K. U.K. US$297 million US$300 million £200 million Ireland US$18 million Sakura Finance Asia Limited P.R.C. Sumitomo Mitsui Finance Australia Limited Sakura Merchant Bank (Singapore) Limited Australia Singapore US$65.5 million A$156.5 million S$4 million 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 (100) 89.69 (7.69) Nov. 9, 1990 Leasing, investments (100) 99.9 (0.1) Dec. 4, 1986 Derivatives and investments (100) 90 (10) Aug. 8, 1990 Securities, investments (100) (100) (100) (100) 100 100 100 100 Aug. 8, 1990 Feb. 7, 2003 Investments, investment advisor Credit guarantee, bond investment Sept. 26, 1973 Investments Jan. 26, 1998 Investments (100) 0 (100) Jan. 26, 1998 Loans (100) (100) (100) (100) (100) (100) 100 100 100 100 100 100 Dec. 15, 1998 Finance July 30, 1997 Investments Feb. 11, 1991 Finance July 15, 1992 Finance Nov. 12, 1998 Finance June 25, 1990 Finance (100) 0 (100) April 7, 2003 Investments in leasing (100) (100) (100) (100) 100 100 100 100 Dec. 18, 2003 Holding and trading securities Sept. 9, 2004 Mar. 16, 2005 Loans, buying/ selling of monetary claims Loans, buying/ selling of monetary claims April 18, 1995 Derivatives (100) 0 (100) April 18, 1995 Derivatives (100) (100) (100) (100) (100) 100 100 100 100 100 July 1, 1991 Investments Sept. 19, 1989 Finance Oct. 17, 1977 Investments June 29, 1984 Investments April 18, 1990 Investments * SMBC Cayman LC Limited, like other subsidiaries of SMBC, is a separate corporate entity with its own separate creditors and the claims of such creditors are prior to the claims of SMBC, as the direct or indirect holder of the equity in such subsidiary. Note: Figures in parentheses ( ) in the voting rights column indicate voting rights held indirectly via subsidiaries and affiliates. SMFG 2005 173 ■ Principal Affiliates Company Name Daiwa Securities SMBC Co. Ltd. Daiwa Securities SMBC Principal Investments Co. Ltd. Issued Capital (Millions of Yen) Percentage of SMFG’s Voting Rights (%) Percentage of SMBC’s Voting Rights (%) Established Main Business 205,600 40 2,000 0 (100) — — — Feb. 5, 1999 Securities Sept. 4, 2001 Investments April 1, 1999 Investment advisory and investment trust management Daiwa SB Investments Ltd. 2,000 43.96 Sumitomo Mitsui Asset Management Company, Limited Japan Pension Navigator Co., Ltd. QUOQ Inc. Promise Co., Ltd. At–Loan Co., Ltd. SMFC Holdings (Cayman) Limited SMFG Finance (Cayman) Limited Investment advisory and investment trust management Operation and administration of defined contribution pension plans 2,000 0 (17.50) 17.50 Dec. 1, 2002 0 0 0 0 4,000 1,000 80,737 10,912 1.5 0.01 (30) 30 Sept. 21, 2000 (39.85) 13.75 (10.20) April 5, 1978 Credit card services (16.04) 16.04 Mar. 20, 1962 Consumer loans (100) 49 (51) June 8, 2000 Personal loans 49 0 [100] — — Feb. 13, 2003 Finance Feb. 13, 2003 Finance Note: Figures in parentheses ( ) in the voting rights column indicate voting rights held indirectly via subsidiaries and affiliates; the figures in square brackets [ ] refer to voting rights held by companies under the de facto control of SMBC. 174 SMFG 2005 International Directory (as of July 31, 2005) Asia and Oceania SMBC Branches and Representative Offices Hong Kong Branch 7th and 8th Floor, 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, 200120 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, 300050 The People’s Republic of China Tel: 86 (22) 2330-6677 Fax: 86 (22) 2319-2111 Guangzhou Branch 31F, Office Tower, CITIC Plaza, 233 Tianhe North Road, Guangzhou, Guangdong 510613 The People’s Republic of China Tel: 86 (20) 8752-0168 Fax: 86 (20) 8752-0672 Suzhou Branch 10th Floor-D, Kings Tower, 1156 Bin he Road, Suzhou New District, Suzhou, Jiangsu, 215011 The People’s Republic of China Tel: 86 (512) 6825-8205 Fax: 86 (512) 6825-6121 Hangzhou Branch 23F, Golden Plaza, 118 Qing Chun Road, Xia Cheng District, Hangzhou, Zhejiang 310006 The People’s Republic of China Tel: 86 (571) 2889-1111 Fax: 86 (571) 2889-6699 Beijing Representative Office 2902, Jing Guang Centre, Hujialou, Chaoyang District, Beijing, 100020 The People’s Republic of China Tel: 86 (10) 6597-3351 Fax: 86 (10) 6597-3002 Dalian Representative Office Senmao Building 9F, 147 Zhongshan Lu, Dalian, Liaoning 116011 The People’s Republic of China Tel: 86 (411) 8370-7873 Fax: 86 (411) 8370-7761 Chongqing Representative Office 5F, Holiday Inn Yangtze Chongqing, 15 Nan Ping Bei Lu, Chongqing, 400060 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, Liaoning 110013 The People’s Republic of China Tel: 86 (24) 2252-8310 Fax: 86 (24) 2252-8769 Taipei Branch Aurora International Building 9F, No. 2, Hsin Yi Rd. Sec. 5, 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, The Republic of Singapore Tel: 65-6882-0000/0001 Fax: 65-6887-0220/0330 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 was closed on July 31, 2005. SMFG 2005 175 SMBC Leasing (Singapore) Pte. Ltd. 152 Beach Road, Gateway East #21-5, Singapore 189721 Tel: 65-6224-2955 Fax: 65-6225-3570 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 SMFG Network 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 12190, Indonesia Tel: 62 (21) 522-7011 Fax: 62 (21) 522-7022 SMBC Metro Investment Corp. 20th Floor, Rufino Pacific Tower, 6784 Ayala Avenue, Makati City, Metro Manila, The Philippines Tel: 63 (2) 811-0845 Fax: 63 (2) 811-0876 BSL Leasing Co., Ltd. 19th Fl. Sathorn City Tower, 175 South Sathorn Road, Bangkok, Thailand Tel: 66 (2) 679-6161 Fax: 66 (2) 679-6160 SBCS Co., Ltd. 7th Floor Unit A3 and B5-6, Boon-Mitr Building, 138 Silom Road, Bangkok 10500, Thailand Tel: 66 (2) 237-6295~8 Fax: 66 (2) 237-6299 SMBC Capital Markets Limited Hong Kong Branch 7th Floor, 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 Hanoi Representative Office Suite 1001, 10th Floor, Hanoi Central Office Building, 44B Ly Thuong Kiet Street, Hanoi, Vietnam Tel: 84 (4) 936-3830 Fax: 84 (4) 936-3831 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. 717/718, Traders Hotel, 223 Sule Pagoda Road, Pabedan Township, Yangon, Myanmar Tel: 95 (1) 242828 ext.7717 Fax: 95 (1) 381227 Bangkok Branch Boon-Mitr Building, 138 Silom Road, Bangkok 10500, Thailand Tel: 66 (2) 353-8000 Fax: 66 (2) 353-8100 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 176 SMFG 2005 Sumitomo Finance (Asia) Limited P.O. Box 694, Edward Street, George Town, Grand Cayman, Cayman Islands JRI America, Inc. 277 Park Avenue, New York, NY 10172, U.S.A. Tel: 1 (212) 224-4200 Fax: 1 (212) 224-4611 Americas SMBC 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, British West Indies 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 SMFG Network 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, Toronto Dominion Centre, Suite 1400, P.O. Box 172, 222 Bay Street, Toronto, Ontario M5K 1H6, Canada Tel: 1 (416) 368-4766 Fax: 1 (416) 367-3565 Banco Sumitomo Mitsui Brasileiro S.A. Avenida Paulista, 37, São Paulo, Brazil Tel: 55 (11) 3178-8000 Fax: 55 (11) 3289-1668 SMBC Capital Markets, Inc. 277 Park Avenue, New York, NY 10172, U.S.A. Tel: 1 (212) 224-5100 Fax: 1 (212) 224-5181 SMBC Leasing and Finance, Inc. 277 Park Avenue, New York, NY 10172, U.S.A. Tel: 1 (212) 224-5210 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 SFVI Limited P.O. Box 961, 30 De Castro Street, Road Town, Tortola, British Virgin Islands SMFG 2005 177 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 JRI Europe, Limited Market Towers, 1 Nine Elms Lane, London SW8 5NQ, U.K. Tel: 44 (20) 7819-6200 Fax: 44 (20) 7819-6249 Europe, Middle-East, and Africa SMBC Branches and Representative Offices 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 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: 973-1722-3211 Fax: 973-1722-4424 Tehran Representative Office 4th Floor, 80 Nezami Gangavi Street, Vali-e-Asr Avenue, Tehran 14348, Islamic Republic of Iran Tel: 98 (21) 8879-4586 Fax: 98 (21) 8879-4569 Cairo Representative Office Flat No. 6, 14th Fl., 3 Ibn Kasir Street, Cornish El Nile, Giza, Arab Republic of Egypt Tel: 20 (2) 761-7657 Fax: 20 (2) 761-7658 Johannesburg Representative Office Suite No. 2, Ground Floor, Gleneagles Building, Fairway Office Park, 52 Grosvenor Road, Bryanston, Sandton, South Africa Tel: 27 (11) 706-8675 Fax: 27 (11) 706-4927 SMFG Network Sumitomo Mitsui Banking Corporation Europe Limited Temple Court, 11 Queen Victoria Street, London EC4N 4TA, U.K. Tel: 44 (20) 7786-1000 Fax: 44 (20) 7236-0049 Sumitomo Mitsui Banking Corporation Europe Limited 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 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 178 SMFG 2005 SMFG_AR05_表2~3_0811入稿 05.8.15 5:14 PM ページ 179 SMFG Website The SMFG website contains the latest information regarding Group businesses and investor relations, as well as news releases and important financial data ● http://www.smfg.co.jp/english/ ● SMFG’s Basic Information IR Materials SMFG’s Strengths and Challenges Links to SMFG Subsidiaries • SMBC http://www.smbc.co.jp/global/ • Sumitomo Mitsui Card* http://www.smbc-card.com • SMBC Leasing* http://www.smbcleasing.co.jp • JRI http://www.jri.co.jp/english/ *Currently available in Japanese only ● FAQ ● News Release Subscription Service Register here to automatically receive the latest SMFG news releases via email SMFG 2005 179 ● ● ● SMFG_AR05_表1~4_0805入稿 05.8.15 5:25 PM ページ 1 www.smfg.co.jp/english A N N U A L R E P O R T 2 0 0 5 Printed in Japan 

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