museum collection) copyright(c) 2005 the bank of saga ...expanded by ¥22,009 million from the...

A late 17th-century flowerpot with overglaze enameling showing flowers and butterflies in a ring pattern (height: 11.3 cm; interior diameter: 25 cm; base diameter: 11.2 cm). Designated an important cultural property of Saga Prefecture, it is in the kakiemon style, with the ko-imari and nabeshima styles, one of three major porcelain styles of the Arita region. (Saga Prefectural Museum collection) Copyright(c) 2005 THE BANK OF SAGA LTD. All rights reserved.

The Bank of Saga is a regional bank whose primary business base comprises Saga and Fukuoka prefectures in northern Kyushu at the western tip of the Japanese archipelago. The Bank benefits from both this region's location in close proximity to Japan's Asian neighbors and Fukuoka Prefecture's position as Kyushu's economic center. The Bank of Saga's history began with the establishment of the Imari Bank in 1882 and continued through the merger of a number of banks, mainly in Saga Prefecture, to its establishment as The Bank of Saga in 1955. The Bank, which celebrated the 50th anniversary of its foundation in July 2005, currently enjoys an overwhelming market share in its home prefecture. Our fundamental management policy calls for maintaining close relationships with customers in our region and for ensuring sound management. This policy underpins our efforts as a regional bank to support the promotion and development of local industries and to help ensure the people of our local community a good standard of living, as well as to offer high-quality services that satisfy our customers. We introduced our 11th medium-term management plan in April 2004 with the objective of establishing a familiar image of the Bank as “Sagin-san” ( a way of referring to The Bank of Saga with affinity or affection ) among our customers. As of March 31, 2005, the Bank's balance of deposits (including negotiable certificates of deposit) stood at ¥1,737,247 million (US$16,176 million) on a non-consolidated basis and its total assets at ¥1,891,204 million (US$17,610 million). It had 1,579 full-time employees serving customers through a network of 113 branches.

We would like to take this opportunity to express our sincere appreciation to all our customers and shareholders for their continued support. The Japanese economy pursued a steady recovery course fueled by private-sector demand in the first half of fiscal 2004 in an environment of improved corporate profits and increased capital investment, primarily by large-scale manufacturing industries. Doubts concerning the longevity of the recovery remained, however, due to such factors as weakness in exports and production influenced by slowdowns in overseas economies and inventory adjustments in information-related fields in the latter half. A look at the economies of Saga and Fukuoka prefectures, our primary business base, reveals that consumer spending was lethargic in Saga Prefecture due to severe employment and income conditions, while a recovery trend was observed in some areas, including increased investment in manufacturing and housing. Fukuoka Prefecture enjoyed a stable recovery centered on private-sector demand, meanwhile, as evidenced by improved corporate profits and increased capital and housing investment accompanied by steady exports, primarily to Asia. As concerns our own operating environment, on the other hand, competition among financial institutions has intensified due to the further lowering of the deposit insurance cap on April 1, 2005, and the difficulty of finding attractive means of fund management continues unalleviated. In April 2004, we introduced our 11th medium-term management plan, a three-year plan scheduled to remain in effect until March 2007, as an appropriate response to these circumstances. We are deploying various measures under this plan in accordance with five basic policies: enhancing profitability, assuring asset soundness, promoting efficiency, reinforcing risk management and developing human resources.

Performance (Non-consolidated)

The balance of deposits amounted to ¥1,708,559 million (US$15,909 million) as of March 31, 2005, an increase of ¥69,716 million from the previous year-end. The balance of loans fell by just ¥23,075 million to a year-end total of ¥1,225,203 million (US$11,408 million), meanwhile. The downturn was held to a minimum through such efforts as increased lending in the form of housing loans to individuals in the amount of ¥40,000 million, despite downward pressure from such factors as continuing sluggish demand for corporate financing and our disposal of a total of ¥32,000 million in nonperforming loans within the past year.As concerns our securities holdings, we moved to diversify our operations in consideration of future interest rate risks in the current low-interest environment. As a result, our holdings rose by ¥33,444 million during the term to a total of ¥464,428 million (US$4,324 million). As regards our profit-and-loss situation in fiscal 2004, profits from funds fell by ¥1,709 million from the previous fiscal year due to the situation concerning loans and securities mentioned above. Ordinary profit grew by ¥24,631 million from the previous fiscal year to ¥9,045 million, however, and current net income expanded by ¥22,009 million from the previous fiscal year to a record-high ¥4,793 million due to our success in trimming operating expenses by ¥1,143 million as compared with the previous fiscal year and in reducing transfers to the reserve for doubtful accounts by a significant ¥29,109 million.

As a result, the Bank's capital ratio stood at 9.46% as of March 31, 2005, compared with 8.87% as of March 31, 2004, measured by domestic standards.

Outlook

With the current difficulties facing financial operations expected to continue for the time being due to slumping demand for funding, the future of the economy does not invite optimism. We are striving to improve our management efficiency and to stabilize profits further, therefore, while continuing to upgrade our responses to risks. In assessing the prospects for operations by the Bank and its consolidated subsidiaries during fiscal 2005 as a whole, we have estimated achievement of ¥9,300 million in ordinary profit and ¥3,400 million in current net income. In celebration of the 50th anniversary of our foundation on July 10, 2005, meanwhile, we plan to distribute a commemorative midterm dividend of ¥1 per share in addition to our usual midterm dividend of ¥2.5 and year-end dividend of ¥2.5. We will be grateful if this annual report enables you to deepen your understanding of our Bank and its operations. We look forward to your continued support and patronage of The Bank of Saga. July 2005

Hiroyasu Sashiyama, Chairman Yasuhiko Matsuo, President

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Disposal of Nonperforming Loans

Having identified disposal of our nonperforming loans as the most pressing issue for management in fiscal 2004, and having pursued this goal through establishment of a reserve for doubtful accounts, we succeeded in paving the way toward their disposal. As a result of this progress in disposing of nonperforming loans in fiscal 2004, the ratio of the Bank's loan assets for which disclosure is mandatory under the Financial Reconstruction Law, or the ratio of nonperforming loans to total receivables, stood at 7.75% as of March 31, 2005, as compared with 9.17% as of March 31, 2004. When this ratio is considered after deduction of the reserve for doubtful accounts, moreover, the ratio was 2.59% as of March 31, 2005, as compared with 3.31% a year earlier. This positions us among financial institutions nationwide as one of the banks with a notably low ratio of nonperforming loans after deduction of the reserve for doubtful accounts. In our commitment to providing the greatest support possible to local corporations in our capacity as a regional bank, we also consider it necessary to pursue nonperforming loan disposal as a two-pronged operation that includes maintaining a sufficient reserve for doubtful accounts, rather than writing off nonperforming loans hastily through such activities as bulk sales.

(Billion yen, %)

March 31, 2005 March 31, 2004

Loan assets for which disclosure is mandatory under the Financial Reconstruction Law (A)

96.8 117.1

Reserve for doubtful accounts (B) (Note) 64.4 74.8

Deduction (C) = (A) -(B) 32.3 42.3

Total receivables, including ordinary receivables (D) 1248.1 1277.0

(A) ÷ (D) x 100 7.75% 9.17%

(C) ÷ (D) x 100 2.59% 3.31%

(Note) The reserve for doubtful accounts is a general reserve for doubtful accounts as opposed to an individual reserve for doubtful accounts and claims/receivables requiring supervision.

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Management Soundness

Capital Ratio The capital ratio rose to 9.46% as of March 31, 2005, from 8.87% at the previous fiscal year-end. This ratio is more than double the 4% capital adequacy ratio required of banks, such as The Bank of Saga, whose business operations are limited to Japan (banks to which domestic standards apply). According to the international standards applied by the Bank for International Settlements for banks operating internationally, our capital adequacy ratio would be 11.00% as of March 31, 2005. Although the ratio of deferred tax assets in our total capital accounted for 44.34% compared to Tier I (core capital) as of March 31, 2004, due to our disposal of a large volume of nonperforming loans on a tax-deductible basis, moreover, we reduced deferred tax assets significantly to 28.95% as of March 31, 2005.

(Billion yen, %)

March 31, 2005 March 31, 2004

Basic item (A) (Tier I) 52.8 49.0

Complementary item (B) 30.7 30.8

Capital (A + B) 83.6 79.8

Risk weight-adjusted assets (C) 884.0 900.2

Capital ratio (A + B)/(C) 9.46% 8.87%

Deferred tax assets (balance sheet amount) 15.3 21.7

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Five Basic Policies

1. Enhancing profitability Ensuring our continued ability to attract customers and to maintain ongoing development requires that we further enhance our reputation as a soundly managed bank. We have consequently taken up the challenge of securing accumulation of net profits by boosting our profitability and increasing our net assets. To this end, we are pursuing efforts to reinforce our sales capabilities, including development of an “area sales structure” and “loan-oriented branch strategy.” We also provide diversified forms of support, including business matching, M&A and venture finance, customers require for their corporate operations today.

2. Assuring asset soundness Determined to provide the greatest possible support for local corporations in our capacity as a regional bank, we have centralized our efforts to support corporate revival in the Corporate Support Group of the Loan Management Department ll, while reserving a sufficient reserve for doubtful accounts, rather than hastily disposing of nonperforming loans through such means as bulk sales. Besides deploying such new financial techniques as DES (debt equity swap), DDS (debt debt swap) and corporate reconstruction funding as revitalization support measures, we are making use of the Small and Medium Sized Enterprises Revitalization Support Council of Saga Prefecture. In these and other ways, we are continuing to provide positive support for the management of our corporate customers and for regional business revitalization.

3. Promoting efficiency We expanded the number of branches employing our “area sales structure,” under which sales activities treat the sales areas of multiple branches with shared or overlapping business territories as a single sales area. We have also begun eliminating unprofitable ATMs and reexamining our branch functions in an effort to concentrate and reinforce our sales capabilities and conduct efficient sales activities. We have introduced a seal impression verification system and electronic business form control system as well and taken other measures to reduce back office work at the branches. We will continue to examine and implement measures to enhance the efficiency of our operations.

4. Reinforcing risk management Aware of the growing importance of securing the trust of our customers and shareholders, we are constantly reexamining our risk management techniques and structures and, at the same time, taking steps to raise awareness of the issues involved in risk management, including asset soundness. Each individual executive officer and employee must ascertain clearly before taking action, moreover, that the action is free from problems concerning

compliance with applicable laws or regulations to assure that the Bank maintains a high standard of compliance. Since the enforcement of the Personal Information Protection Law in April 2005, in particular, it is essential that we raise our awareness and level of compliance with relevant laws and regulations. With this in mind, we are adding effective new Bank-wide measures concerning compliance to our current legal compliance structures.

5. Developing human resources Our human resources development efforts include both OJT and various internal and external consultation training activities. In line with our plan to reinforce our relationship banking functions, moreover, we are seeking to upgrade our employees' corporate support and revitalization support capabilities by conducting training in the areas of judgment and business revitalization. As we celebrate the first half-century of our foundation in 2005, moreover, we are working to establish ourselves as a bank to whose name customers append the suffix “san,” as in “Sagin-san” or “Saga Ginko-san.”Each and every executive officer and employee accepts responsibility for discerning the requirements for achieving this purpose and for acting such as to ensure the Bank's popularity among customers and to earn their trust, or to raise the Bank to an even higher level. ( “san” is a suffix that is appended to a name to express affinity or affection, and “Sagin-san” and “Saga Ginko-san” are ways of referring to The Bank of Saga with affinity or affection.)


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Measures with Respect to Corporate Governance

1. Structure for execution of operations and management surveillance We are striving to deepen the deliberations of the Board of Directors and other bodies and to accelerate their decision-making to cope quickly and satisfactorily with rapid changes in the management environment as well as to execute operations appropriately in response to changes. The Board of Directors meets once a month, as a rule, to determine matters prescribed by the Commercial Law and to make important decisions with respect to management. We have also clarified the position of the executive officers and elaborated the content of their reports to the Board of Directors as part of efforts to strengthen the Board's functions. The Executive Committee comprising the President and the managing directors meets twice a week to consider matters concerning the Bank's regular operations at the request of the Board of Directors for purposes of speedy decision-making. The President, managing directors and managers of the departments concerned also gather for monthly and bimonthly meetings of the Management Conference and Compliance Committee, respectively, bodies organized to augment corporate governance through consultations and discussions concerning the promotion of operations and Bank-wide risk management. The auditors attend important management meetings, moreover, including meetings of the Executive Committee and Board of Directors, thus enhancing our “dynamic auditing function.”

2. Structure for compliance with laws and regulations The Corporate Management and Coordination Department serves as a supervisory body overseeing our systems for compliance with laws and regulations (compliance). It takes every opportunity to create a climate of compliance with laws and regulations based on our Basic Compliance Objectives and Compliance Standards formulated by the Board of Directors. We established the Compliance Committee under the chairmanship of the President in December 2004, moreover, for the purpose of establishing, propagating and institutionalizing a structure for compliance with laws and regulations. To ensure that every director and employee maintains a high standard with respect to compliance with laws and regulations, furthermore, we are careful to appoint directors and key employees (managers of Headquarters departments and offices and of major branches) who exhibit a strong commitment to compliance. We assure this by employing a “360-degree evaluation” system under which employees evaluate all directors and key employees with respect to their attitude toward legal compliance. In the case of employees, we place greater stress on targeted employees’ attitudes toward compliance with laws and regulations in personnel evaluations. We also intend to increase our emphasis on efforts to comply with laws and regulations in evaluating the branches’ performances.

3. Personal information management With the full enforcement of the Personal Information Protection Law in April

2005, we place the highest priority, as advocated in our Personal Information Protection Declaration (Privacy Policy), on earning the trust of customers (business partners, shareholders and regional residents), complying with the Personal Information Protection Law and related legislation and protecting personal information received from customers. Besides pursuing thorough efforts to ensure appropriate handling of personal information by every employee, we are implementing various organizational, human and technological security measures to achieve these goals. These measures include clarification of management responsibilities, maintenance of rules, introduction of IC card-based building entry/exit control systems, promotion of paperless documentation and limiting use of recording media.


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Measures with Respect to Corporate Governance

4. Risk management The ongoing diversification and advancement of financial operations is generating increasingly varied and complex risks as well. As the accompanying risk management structure diagram shows, we have not only grasped currently existent risks but we have also identified risks with the potential to occur. We are taking steps to prevent the occurrence of these risks and to respond to them should they occur.

Risk Management Structure

5. Information disclosure Besides publishing an annual disclosure brochure for purposes of enhancing our management transparency, we issue a semiannual pamphlet (mini-disclosure brochure) that provides easily understandable explanations of our management. Our positive efforts toward information disclosure also include IR activities (corporate information sessions) as well as a new policy of announcing quarterly results instituted in the first quarter of fiscal 2004.

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The Bank of Saga Ltd. Years ended March 31

Millions of yenThousands ofU.S. dollars

Consolidated 2005 2004 2003 2002 2005Total Assets ¥1,892,234 ¥1,826,280 ¥1,916,281 ¥1,947,914 $17,620,214Deposits (including NCDs)

1,732,135 1,676,920 1,748,690 1,768,844 16,129,399

Loans and Bills Discounted

1,225,203 1,248,278 1,278,917 1,267,393 11,408,916

Securities 464,852 431,407 436,693 440,750 4,328,638Shareholders' Equity 77,366 67,558 87,587 90,307 720,423

Total Income ¥42,895 ¥53,752 ¥49,599 ¥46,350 $399,438Total Expenses 34,385 66,934 45,753 74,951 320,194

Income (Loss) before Income Taxes

8,509 (13,181) 3,845 (28,601) 79,243

Net Income (Loss) 4,855 (17,236) 1,324 (16,635) 45,214

Cash Dividends 855 855 856 864 7,967

U.S. dollar amounts are converted, solely for convenience, at ¥107.39=US$1, the prevailing rate on March 31, 2005.

Millions of yenThousands ofU.S. dollars

Non-Consolidated 2005

2004 2003 2002 2001 2005

Total Assets ¥1,891,204 ¥1,825,192 ¥1,915,209 ¥1,946,783 ¥1,979,199 $17,610,618Deposits (including NCDs)

1,737,247 1,681,031 1,752,182 1,771,822 1,726,549 16,176,995

Loans and Bills Discounted

1,225,203 1,248,278 1,278,917 1,267,393 1,275,952 11,408,916

Securities 464,428 430,984 436,293 440,328 389,738 4,324,686Shareholders' Equity 76,787 67,040 87,047 89,837 112,184 715,032

Total Income ¥41,677 ¥52,664 ¥48,589 ¥45,172 ¥55,716 $388,097Total Expenses 33,678 65,975 45,121 73,982 53,572 313,607


7,999 (13,310) 3,467 (28,810) 2,144 74,490

Net Income (Loss) 4,793 (17,216) 1,293 (16,656) 1,093 44,638

Cash Dividends 856 856 857 864 866 7,967

Yen U.S. dollars

Net Income

(Loss) per Share ¥27.99 ¥(100.49) ¥7.54 ¥(96.39) ¥6.30 $0.261

Cash Dividends per Share

5.00 5.00 5.00 5.00 5.00 0.047

U.S. dollar amounts are converted, solely for convenience, at ¥107.39=US$1, the prevailing rate on March 31, 2005.

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Organization

As of June 30, 2005

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Directors and Corporate Auditors

As of June 30, 2005

Chairman Directors Hiroyasu Sashiyama Yoshikazu Hara

Mitsuki AsaoPresident Kaoru KatagiriYasuhiko Matsuo Hirohisa Furuzono

Managing Directors Corporate Auditors Tsunenori Edayoshi Issei Sagara (Standing)Masanori Uchida Ryouhei SoudaAkihiko Hayashi Fukumaro FukuokaKiyosumi Nishi Naohisa HachiyaYoshihiro Jinnouchi

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Bank Data

As of June 30, 2005

Head Office 7-20, Tojin 2-chome, Saga City, Saga 840-0813, JapanPhone: (0952) 24-5111

Securities & International Administration Department 7-20, Tojin 2-chome, Saga City, Saga 840-0813, JapanTelephone: (0952) 25-4571

Date of Incorporation July 1955

Capital ¥16 Billion

Number of Offices 112

Number of Employees 1,579

Network

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1

Consolidated Balance SheetsThe Bank of Saga Ltd. and its consolidated subsidiaries

March 31, 2005 and 2004

Assets

Cash and Due from Banks

Call Loans and Bills Bought

Commercial Paper and Other Debt Purchased

Trading Assets

Money Held in Trust

Securities

Loans and Bills Discounted (Note 4)

Foreign Exchanges

Other Assets

Premises and Equipment

Deferred Tax Assets

Customers' Liabilities for Acceptances and Guarantees

Reserve for Possible Loan Losses

Total

Liabilities

Deposits

Call Money

Borrowed Money

Foreign Exchanges

Other Liabilities

Accrued Employees' Bonuses

Accrued Retirement Benefits

Deferred Tax Liabilities for Land Revaluation (Note 5)

Acceptances and Guarantees

Total

Minority Interests

Shareholders' Equity

Common Stock (Note 6)

Capital Surplus

Retained Earnings

Land Revaluation Reserve, Net of Tax (Note 5)

Unrealized Gains on Securities Available for Sale

Less: Treasury Stock, at Cost

Total

Total Liabilities, Minority Interests and Shareholders' Equity

¥ 114,380

80,157

790

1,278

995

464,852

1,225,203

1,203

6,021

31,480

16,060

20,555

(70,743)

¥ 1,892,234

¥ 1,732,136

5,154

18,189

152

17,744

710

11,397

6,935

20,555

¥ 1,812,975

1,893

16,062

11,374

27,413

10,273

13,193

(951)

77,366

¥ 1,892,234

¥ 86,209

42,535

845

1,322

995

431,407

1,248,278

3,206

16,376

31,767

22,409

24,283

(83,357)

¥1,826,280

¥1,676,920

5,897

17,698

89

15,102

747

9,404

6,921

24,283

¥1,757,065

1,656

16,062

11,374

23,434

10,252

7,352

(919)

67,558

¥1,826,280

$ 1,065,092

746,411

7,357

11,906

9,269

4,328,638

11,408,916

11,208

56,068

293,139

149,550

191,407

(658,752)

$17,620,214

$16,129,399

48,000

169,377

1,422

165,235

6,612

106,128

64,578

191,407

$16,882,162

17,628

149,568

105,918

255,274

95,665

122,860

(8,864)

720,423

$17,620,214

Thousands ofU.S. dollars

Millions of yen (Note 2) (Note 2)2005 2004 2005

The accompanying notes are an integral part of these financial statements.

2

Consolidated Statements of Operations and Retained EarningsThe Bank of Saga Ltd. and its consolidated subsidiaries

Years ended March 31, 2005 and 2004

Income

Interest Income:

Loans and Discounts

Securities

Others

Fees and Commissions

Other Operating Income

Other Income

Total Income

Expenses

Interest Expenses:

Deposits

Borrowings and Call Money

Others


Other Operating Expenses

General and Administrative Expenses

Other Expenses

Total Expenses


Income Taxes:

Current

Deferred

Minority Interests

Net Income (Loss)

Retained Earnings

Net Cash Provided by (Used in) Operating Activities

Net Income (Loss)

Reversal of Land Revaluation Reserve (Provision)

Appropriations:

Cash Dividends

Total Appropriation

Retained Earnings at End of year

Per Share of Common Stock:

Net Income (Loss)

¥ 26,947

5,984

167

7,062

587

2,146

42,895

690

444

335

2,431

523

24,317

5,642

34,385

8,509

979

2,424

250

¥ 4,855

¥ 23,434

4,855

(20)

855

855

¥ 27,413

¥ 28.35

¥ 28,728

5,880

178

6,855

1,834

10,274

53,752

816

373

259

2,448

981

25,478

36,576

66,934

(13,181)

422

3,544

87

(¥17,236)

¥ 41,418

(17,236)

108

855

855

¥ 23,434

(¥100.62)

$ 250,929

55,728

1,558

65,760

5,475

19,985

399,438

6,429

4,137

3,122

22,645

4,878

226,442

52,538

320,194

79,243

9,121

22,577

2,329

$ 45,214

218,221

45,214

(192)

7,967

7,967

$ 255,274

$ 0.264



U.S. dollarsYen (Note 2)


3

Consolidated Statements of Cash FlowsThe Bank of Saga Ltd. and its consolidated subsidiaries


Cash Flows from Operating Activities:Income (Loss) before Income Taxes and Minority InterestsDepreciationIncome on Equity MethodIncrease in Reserve for Possible Loan Losses(Decrease) Increase in Accrued Bonuses (Decrease) Increase in Accrued Retirement BenefitsInterest on Loans and Discounts ReceivedInterest on Deposits(Income) Loss on Securities Transaction(Income) Loss on Money Trust(Income) Loss on Disposal of PropertiesNet (Increase) Decrease in Trading AssetsNet (Increase) Decrease in Loans and Bills DiscountedNet Increase (Decrease) in DepositsNet Increase (Decrease) in Negotiable Certificates of DepositsNet (Increase) Decrease in Due from Banks (other than The Bank of Japan)Net (Increase) Decrease in Call LoansNet Increase (Decrease) in Call Money and Bills SoldNet (Increase) Decrease in Foreign Exchange AssetsNet Increase (Decrease) in Foreign Exchange LiabilitiesRevenues from Fund OperationsExpenditures on Fund ProcurementOthers

Sub-totalPayment of Income TaxesNet Cash Provided by (Used in) Operating ActivitiesCash Flows from Investing Activities:Purchase of SecuritiesSales of SecuritiesRedemption of SecuritiesIncrease in Money Held in TrustDecrease in Money Held in TrustPurchase of Premises and EquipmentSales of Premises and EquipmentNet Cash Provided by (Used in) Investing ActivitiesCash Flows from Financing Activities:Purchase of treasury stockSales of treasury stockPayment of Cash DividendsPayment of Cash Dividends to Minority InterestsNet Cash Used in Financing ActivitiesTranslation Adjustment of Cash and Cash EquivalentsNet Increase (Decrease) in Cash and Cash EquivalentsCash and Cash Equivalents at Beginning of the YearCash and Cash Equivalents at End of the Year

¥ 8,509 752 (13)

(12,613)(37)

1,992 (33,099)

1,470 112

(0) 72 43

22,939 68,716 (13,500)(1,041)

(37,566)(252)

2,002 63

33,419 (1,419)1,342

41,890 0

41,890

(200,554)26,668

160,548 0 0

(675)145

(13,867)

(37)3

(854)(5)

(894)0

27,128 85,626

¥ 112,754

(¥13,181)837

(6)15,463

(128)(2,088)

(34,788)1,449 (5,481)

(4)334

9,830 27,946 (59,881)(11,739)

(189)20,188

2,636 1,170

7 35,224 (1,732)

496 (13,633)

(2,179)(15,813)

(222,988)85,449

144,354 0 4

(431)354

6,743

(29)0

(855)(5)

(890)(6)

(9,966)95,592

¥ 85,626

$ 79,243 7,006

(129)(117,459)

(349)18,552

(308,216)13,6891,043

(7)671408

213,609 639,875 (125,716)

(9,701)(349,815)

(2,348)18,650

590 311,197 (13,220)12,503

390,079 3

390,079

(1,867,533)248,333

1,495,006 0 0

(6,294)1,350

(129,132)

(347)29

(7,956)(52)

(8,327)1

252,620 797,337

$ 1,049,957




4

Notes to Consolidated Financial StatementsThe Bank of Saga Ltd. and its consolidated subsidiaries

1. Consolidation PolicyThe accompanying consolidated financial statements of The Bankof Saga Ltd. (the “Bank”) have been prepared on the basis ofgenerally accepted principles in Japan and the ConsolidatedFinancial Statements Regulations.

In the preparation of these financial statements, certain itemson the domestically issued financial statements have beenreclassified and rearranged, for the convenience of readersoutside Japan.

The Bank had three majority-owned subsidiaries as of March31, 2005. The consolidated financial statements include theaccounts of the Bank and these subsidiaries.

The investments of the Bank in all two affiliated companiesare accounted for by the equity method.

2. Japanese Yen and U.S. Dollar AmountsYen amounts of less than ¥1 million have been disregarded.Accordingly, the sum of each account may in fact not be equal tothe combined sum of the individual items. All U.S. dollar amountsincluded herein are presented solely for the convenience ofreaders, and are nothing more than arithmetical computations.They are converted at the rate of ¥107.39=US$1, the prevailingrate on the Tokyo foreign exchange market on March 31, 2005.

3. Significant Accounting Policies(a) Financial InstrumentsThe Bank and its consolidated subsidiaries apply the AccountingStandards for Financial Instruments to valuation of trading accountsecurities, securities and derivative transactions, and hedgeaccounting.(b) Transactions for Trading PurposesTransactions for “Trading Purposes” (purposes of seeking tocapture gains arising from short-term changes in interest rates,currency exchange rates or market prices of securities and othermarket-related indices or from arbitrage between markets) arevalued at market or fair value as of the balance sheet dates, andincluded in “Trading Assets” on a trade-date basis. Profits andlosses on trading transactions are included in other operatingincome or expenses.(c) Securitiesi. In conformity with the Accounting Standards for Financial

Instruments, securities are stated as follows:Held-to-maturity debt securities are stated at amortized costusing the straight-line method, cost being determined by themoving average method.

“Securities Available for Sale” defined by the standards are stated at fair market value when having market price andare stated at moving average cost or amortized cost whenhaving no market price. Unrealized valuation gains or losses

on securities available for sale, net of applicable incometaxes, are stated as a separate item in the consolidatedbalance sheets. Cost of the securities sold, in principle, iscomputed by the moving average method.

ii. In accordance with the Uniform Rules for Bank Accounting,securities included in “Money Held in Trust,” which aredesignated for investments in securities and separatelymanaged from other beneficiaries are valued by the samemethod as in i. above.

(d) Derivatives and Hedge AccountingUnder the Accounting Standards for Financial Instruments,derivative transactions except for trading purposes transactionsare stated at fair value.

Derivative transactions are executed and managed under theinternal check system of the Bank in accordance with theestablished policies.

The method of hedge accounting used by the Bank is a“macro hedge,” in which the Bank comprehensively managesinterest rate risks arising from various assets and liabilities withderivative transactions as a whole.(e) DepreciationDepreciation of premises and equipment of the Bank is calculatedusing the declining-balance method except for the buildingsacquired after April 1, 1998 which are depreciated using thestraight-line method. Main useful lives of premises and equipmentare as follows:

Buildings 2 to 36 yearsEquipment 2 to 20 years

Premises and equipment held by the consolidated subsidiariesare depreciated over the useful lives of the respective assetsprincipally using the declining-balance method.

Software for internal use held by the Bank is accounted forbased on the guidelines promulgated by the Japanese Institute ofCPAs. During the years ended March 31, 2005 and 2004 nosoftware was capitalized.

Depreciation of software for internal use held by theconsolidated subsidiaries is calculated using the straight-linemethod over the useful lives (principally 3 years).(f) Foreign Currency TranslationThe financial statements of the Bank and its consolidatedsubsidiaries are maintained in or translated into Japanese yen.Foreign currency assets and liabilities are translated into yen atthe prevailing rates on the Tokyo foreign exchange market as ofthe balance sheet date of each fiscal year.(g) Reserve for Possible Loan LossesThe Bank makes provision for possible loan losses in accordancewith predetermined standards for write-offs and reserves. In linewith the Guidelines for Governance on Asset Self-Assessment ofFinancial Institutions and Audits on Write-Offs and Reserves for

5

Possible Loan Losses (JICPA Bank Auditing Special CommitteeReport No.4), the Bank has implemented a self-assessment rule forthe credit quality of assets subject to disclosure under the FinancialReconstruction Law, and has classified them into four riskcategories: bankrupted, doubtful, substandard and normal.

The Bank provides a non-specific reserve for assets classifiedunder “substandard” or “normal,” based on historical defaultrates. For assets classified under “doubtful,” the Bank provides aspecific reserve in an amount deemed necessary after deductionof the estimated recoverable portion through disposition ofcollateral or implementation of guarantees. For assets classifiedunder “bankrupted,” the Bank provides a specific reserve in anamount equivalent to the remaining portion of the assets afterdeduction of the estimated recoverable amounts throughdisposition of collateral or implementation of guarantees.

The consolidated subsidiaries provide a non-specific reservein an amount deemed necessary based on historical default ratesand a specific reserve for loans to potentially bankrupt borrowersand other specific loans in the amount deemed uncollectiblebased on individual fair value assessment of collateral.(h) Accrued Retirement BenefitsThe Bank and its major consolidated subsidiaries have fundedpension plans in addition to lump-sum payment plans.

The Bank and its consolidated subsidiaries apply theAccounting Standards for Post-employment Benefits. Under thestandards accrued retirement benefits are provided to state thepost-employment benefit obligations less the fair value of thepension assets. The excess of benefit obligations over fair value ofthe pension assets of the Bank amounted to ¥6,834 million,which was to be amortized over 5 years.(i) Income TaxesCurrent taxes are accounted for on accrual basis. Deferred taxassets are recorded based on the temporary differences betweenthe financial statement and tax bases of assets and liabilities.

Income taxes comprise corporation, inhabitants’ andenterprise taxes, and the aggregate statutory income tax rate forcalculation of deferred income tax assets and liabilities and anincome tax rate only differ minimal as a percentage the yearended March 2005.

An aggregate income tax rate for calculation of deferredincome tax assets and liabilities was not applicable due to adeficit for the year ended March 2004.

(j) Statement of Cash FlowsThe balances of cash and due from banks on the balance sheetas of March 31, 2005 and 2004 were reconciled with cashand cash equivalents at end of year on the statement of cashflows as follows:

Millions of yen2005 2004

Cash and Due from Banks ¥114,380 ¥ 86,209Deposits with Banks

(other than The Bank of Japan) (1,625) (583)Cash and Cash Equivalents at

End of Year ¥112,754 ¥ 85,626

4. Loans and Bills DiscountedMillions of yen

2005 2004Bills Discounted ¥ 26,691 ¥ 29,822Loans on Notes 153,171 163,794Loans on Deeds 908,116 900,679Overdrafts 137,223 153,982

Total ¥ 1,225,203 ¥1,248,278

As of March 31, 2005 non-performing loans of the Bank,classified in accordance with the Uniform Rules for BankAccounting, consisted of loans in bankruptcy and loans past dueover six months, amounting to ¥3,658 million and ¥80,973million, respectively.

In addition, loans past due over three months and restructuredloans amounted zero and ¥10,604 million as of March 31,2005, respectively.

5. Land Revaluation ReserveIn accordance with the Law concerning the Revaluation of Land,the Bank revalued land held for its operations on March 31,1998. Net unrealized gain was stated in shareholders’ equity netof applicable income taxes as “Land Revaluation Reserve, Net ofTax,” amounting to ¥10,273 million as of March 31, 2005.

6. Common StockAs of March 31, 2005, Common Stock of the Bank consisted of173,359 thousand shares issued. The authorized number ofshares was 499,142 thousand.

6

Certified Public Accountants’ Report

Certified Public AccountantsHibiya Kokusai Bldg.2-2-3, Uchisaiwai-choChiyoda-ku, Tokyo 100-0011C.P.O. Box 1196, Tokyo 100-8641

Telephone +81(3)3503-1100Facsimile +81(3)3503-1197

To the Board of Directors of The Bank of Saga Ltd.

We have audited the consolidated financial statements, namely, the consolidated balance sheets of

The Bank of Saga Ltd. and its consolidated subsidiaries as of March 31, 2005 and 2004, and the

related consolidated statements of operations and retained earnings and of cash flows for the years

then ended, all expressed in yen.

Our audit was made in accordance with generally accepted auditing standards, procedures and

practices in Japan and all relevant auditing procedures as are normally required ware carried out.

Based on our audit, we express the opinion that the above-mentioned consolidated financial state-

ments present fairly the financial position of The Bank of Saga Ltd. and its subsidiaries as of March

31, 2005 and 2004, and the results of their operations and cash flows for the years then ended in

confor-mity with generally accepted accounting principles in Japan applied on a consistent basis.

The accompanying consolidated financial statements expressed in United States dollars have

been translated into dollars solely for the convenience of the reader. We have recomputed the

translation and, in our opinion, the consolidated financial statements expressed in yen have been

translated into dollars on the basis described in note 2 to the consolidated financial statements.

Tokyo, Japan

June 30, 2005

Shin Nihon & Co.

See note 1 to the consolidated financial statements which explains the basis of preparing the consoli-

dated financial statements of The Bank of Saga Ltd. and its consolidated subsidiaries under Japanese

accounting principles and practices.

7

Non-Consolidated Balance SheetsThe Bank of Saga Ltd.

March 31, 2005 and 2004

Assets

Cash and Due from Banks

Bill Bought

Call Loans

Commercial Paper and Other Debt Purchased

Trading Assets

Money Held in Trust

Securities (Note 3)

Loans and Bills Discounted (Note 4)

Foreign Exchanges (Note 5)

Other Assets (Note 6)

Premises and Equipment (Note 7)

Deferred Tax Assets

Customers' Liabilities for Acceptances and Guarantees

Reserve for Possible Loan Losses

Total

Liabilities

Deposits (Note 8)

Call Money

Borrowed Money (Note 9)

Foreign Exchanges (Note 5)

Other Liabilities (Note 10)

Accrued Employees' Bonuses

Accrued Retirement Benefits

Deferred Tax Liabilities for Land Revaluation (Note 7)

Acceptances and Guarantees

Total

Shareholders' Equity

Common Stock (Note 11)

Capital Surplus

Legal Reserve (Note12)

Voluntary Reserve

Retained Earnings (Deficit) (Note 17)

Land Revaluation Reserve, Net of Tax (Note7)

Unrealized Gains on Securities Available for Sale

Less: Treasury Stock, at Cost

Total

Total Liabilities, Minority Interests and Shareholders' Equity

¥ 114,379

28,600

51,557

790

1,278

995

464,428

1,225,203

1,203

4,684

31,326

15,314

20,550

(69,108)

¥ 1,891,204

¥ 1,737,247

5,154

18,189

152

14,229

671

11,285

6,935

20,550

¥ 1,814,416

16,062

11,374

14,926

6,926

4,979

10,273

13,188

(943)

76,787

¥ 1,891,204

¥ 86,209

–

42,535

845

1,322

995

430,984

1,248,278

3,206

15,035

31,624

21,736

24,278

(81,858)

¥1,825,192

¥1,681,031

5,897

17,698

89

12,228

710

9,296

6,921

24,278

¥1,758,151

16,062

11,374

14,926

23,926

(15,937)

10,252

7,346

(910)

67,040

¥1,825,192

$ 1,065,088

266,319

480,092

7,357

11,906

9,269

4,324,686

11,408,916

11,208

43,622

291,703

142,607

191,364

(643,525)

$17,610,618

$16,176,995

48,000

169,377

1,422

132,507

6,249

105,089

64,578

191,364

$16,895,585

149,568

105,918

138,995

64,494

46,364

95,665

122,810

(8,784)

715,032

$17,610,618




8

Non-Consolidated Statements of Operations and Retained EarningsThe Bank of Saga Ltd.


Income

Interest Income:

Loans and Discounts

Securities

Others


Other Operating Income (Note 13)

Other Income (Note 14)

Total Income

Expenses

Interest Expenses:

Deposits

Borrowings and Call Money

Others


Other Operating Expenses (Note 15)

General and Administrative Expenses

Other Expenses (Note 16)

Total Expenses


Income Taxes:

Current

Deferred

Net Income (Loss)

Retained Earnings

Net Cash Provided by (Used in) Operating Activities

Net Income (Loss)

Reversal of Voluntary Reserve

Reversal of Land Revaluation Reserve (Provision)

Appropriations:

Transfer to Voluntary Reserve

Cash Dividends

Total Appropriation

Retained Earnings (Deficit) at End of year (Note 17)

Per Share of Common Stock:

Net Income (Loss)

Cash Dividends Applicable to the Year

¥ 26,947

5,982

167

6,500

568

1,512

41,677

691

444

335

2,822

523

24,051

4,808

33,678

7,999

713

2,491

¥ 4,793

¥ 1,062

4,793

–

(20)

0

856

856

¥ 4,979

¥ 27.99

5.00

¥ 28,728

5,877

178

6,396

1,820

9,662

52,664

817

373

259

2,843

981

25,194

35,504

65,975

(13,310)

256

3,649

(¥17,216)

¥ 2,029

(17,216)

–

108

1

856

857

(¥15,937)

(¥100.49)

5.00

$ 250,929

55,703

1,558

60,531

5,294

14,080

388,097

6,438

4,137

3,122

26,286

4,878

223,967

44,775

313,607

74,490

6,646

23,205

$ 44,638

$ 9,894

44,638

158,302

(192)

0

7,967

7,967

$ 0.261

0.047



U.S. dollarsYen (Note 2)


9

Notes to Non-ConsoLidated Financial StatementsThe Bank of Saga Ltd.

1. Basis of PresentationThe accompanying non-consolidated financial statements of TheBank of Saga Ltd. (the “Bank”) are prepared in accordance withthe Japanese Commercial Code, Banking Law, and in conformitywith generally accepted accounting principles and, whereapplicable, with the accounting and reporting guidelinesprescribed by banking regulatory authorities.

In the preparation of these financial statements, certain itemson the domestically issued financial statements have beenreclassified and rearranged, for the convenience of readersoutside Japan.

Yen amounts of less than ¥1 million have been disregarded.Accordingly, the sum of each account may in fact not be equal tothe combined sum of the individual items. All U.S. dollar amountsincluded herein are presented solely for the convenience ofreaders, and are nothing more than arithmetical computations.They are converted at the rate of ¥107.39=US$1, the prevailingrate on the Tokyo foreign exchange market on March 31, 2005.

2. Significant Accounting Policies(a) Financial InstrumentsThe Bank applies the Accounting Standards for FinancialInstruments to valuation of trading account securities, securitiesand derivative transactions, and hedge accounting.(b) Transactions for Trading PurposesTransactions for “Trading Purposes” (purposes of seeking tocapture gains arising from short-term changes in interest rates,currency exchange rates or market prices of securities and othermarket-related indices or from arbitrage between markets) arevalued at market or fair value as of the balance sheet dates, andincluded in “Trading Assets” on a trade-date basis. Profits andlosses on trading transactions are included in other operatingincome or expenses.(c) Securitiesi. In conformity with the Accounting Standards for Financial

Instruments, securities are stated as follows:Held-to-maturity debt securities are stated at amortized costusing the straight-line method, cost being determined by themoving average method.

Investments in subsidiaries and affiliated companies arestated at moving average cost.

“Securities Available for Sale” defined by the standardsare stated at fair market value when having market price andare stated at moving average cost or amortized cost whenhaving no market price. Unrealized valuation gains or losseson securities available for sale, net of applicable incometaxes, are stated as a separate item in the non-consolidatedbalance sheets. Cost of the securities sold, in principle, iscomputed by the moving average method.

ii. In accordance with the Uniform Rules for Bank Accounting,securities included in “Money Held in Trust,” which aredesignated for investments in securities and separatelymanaged from other beneficiaries are valued by the samemethod as in i. above.

(d) Derivatives and Hedge AccountingUnder the Accounting Standards for Financial Instruments,derivative transactions except for trading purposes transactionsare stated at fair value.

Derivative transactions are executed and managed under theinternal check system of the Bank in accordance with theestablished policies.

The method of hedge accounting used by the Bank is a“macro hedge,” in which the Bank comprehensively managesinterest rate risks arising from various assets and liabilities withderivative transactions as a whole.(e) DepreciationDepreciation of premises and equipment of the Bank is calculatedusing the declining-balance method except for the buildingsacquired after April 1, 1998 which are depreciated using thestraight-line method. Main useful lives of premises and equipmentare as follows:

Buildings 2 to 36 yearsEquipment 2 to 20 years

Software for internal use held by the Bank is accounted forbased on the guidelines promulgated by the Japanese Institute ofCPAs. During the years ended March 31, 2005 and 2004 nosoftware was capitalized.(f) Foreign Currency TranslationThe financial statements of the Bank are maintained in ortranslated into Japanese yen. Foreign currency assets andliabilities are translated into yen at the prevailing rates on theTokyo foreign exchange market as of the balance sheet date ofeach fiscal year.(g) Reserve for Possible Loan LossesThe Bank makes provision for possible loan losses in accordancewith predetermined standards for write-offs and reserves. In linewith the Guidelines for Governance on Asset Self-Assessment ofFinancial Institutions and Audits on Write-Offs and Reserves forPossible Loan Losses (JICPA Bank Auditing Special CommitteeReport No.4), the Bank has implemented a self-assessment rule forthe credit quality of assets subject to disclosure under the FinancialReconstruction Law and classified them into four risk categories:bankrupted, doubtful, substandard and normal.

The Bank provides a non-specific reserve for assets classifiedunder “substandard” and “normal,” based on historical defaultrates. For assets classified under "doubtful," the Bank provides aspecific reserve in an amount deemed necessary after deductionof the estimated recoverable portion through disposition of

10

collateral or implementation of guarantees. For assets classifiedunder “bankrupted,” the Bank provides a specific reserve in anamount equivalent to the remaining portion of the assets afterdeduction of the estimated recoverable amounts throughdisposition of collateral or implementation of guarantees.(h) Accrued Retirement BenefitsThe Bank has a funded pension plan in addition to a lump-sumpayment plan.

The Bank applies the Accounting Standards for Pos-employment Benefits. Under the standards accrued retirementbenefits are provided to state the post-employment benefitobligations less the fair value of the pension assets.(i) Income TaxesCurrent taxes are accounted for on accrual basis. Deferred taxassets are recorded based on the temporary differences betweenthe financial statement and tax bases of assets and liabilities.Income taxes comprise corporation, inhabitants’ and enterprisetaxes, and the aggregate statutory income tax rate for calculationof deferred income tax assets and liabilities and an income taxrate only differ minimal as a percentage the year ended March2005.

An aggregate income tax rate for calculation of deferredincome tax assets and liabilities was not applicable due to adeficit for the year ended March 2004.

3. SecuritiesMillions of yen

2005 2004Government Bonds ¥ 194,418 ¥ 191,042Municipal Bonds 149,152 136,315Corporate Bonds and Debentures 47,896 46,723Stocks 44,678 38,351Other Securities 28,282 18,551Total ¥ 464,428 ¥ 430,984

4. Loans and Bills DiscountedMillions of yen

2005 2004Bills Discounted ¥ 26,691 ¥ 29,822Loans on Notes 153,171 163,794Loans on Deeds 908,116 900,679Overdrafts 137,223 153,982Total ¥ 1,225,203 ¥1,248,278

As of March 31, 2005 non-performing loans of the Bank,classified in accordance with the Uniform Rules for BankAccounting, consisted of loans in bankruptcy and loans past dueover six months, amounting to ¥2,504 million and ¥80,973million, respectively.

In addition, loans past due over three months and restructuredloans amounted zero and ¥10,604 million as of March 31,2005, respectively.

5. Foreign Exchange (Assets and Liabilities)Millions of yen

2005 2004(Assets)Due from Foreign Correspondents ¥ 540 ¥ 450Foreign Bills of Exchange Bought 125 213Foreign Bills of Exchange Receivable 537 2,542Total ¥ 1,203 ¥ 3,206

Millions of yen2005 2004

(Liabilities)Foreign Exchange Bills Sold ¥ 75 ¥ 33Foreign Bills Payable 77 56Total ¥ 152 ¥ 89

6. Other AssetsMillions of yen

2005 2004Prepaid Expenses ¥ 25 ¥ 26Accrued Income 1,958 2,599Derivative Assets 253 404Deferred Hedge Loss 359 836Others 2,087 11,169Total ¥ 4,684 ¥ 15,035

7. Premises and Equipment, and Land Revaluation ReserveMillions of yen

2005 2004Land, Buildings and Equipment ¥ 53,446 ¥ 53,247Guarantees and Premiums 1,286 1,361Total 54,733 54,608Accumulated Depreciation 23,407 22,984Net Premises and Equipment ¥ 31,326 ¥ 31,624

In accordance with the Law concerning the Revaluation of Landthe Bank revalued land held for its operations on March 31,1998.

Net unrealized gain was stated in shareholders’ equity net ofapplicable income taxes as “Land Revaluation Reserve, Net ofTax,” amounting to ¥10,273 million as of March 31, 2005.

11

8. DepositsMillions of yen

2005 2004Current Deposits ¥ 64,475 ¥ 55,612Ordinary Deposits 751,768 683,370Savings Deposits 8,530 9,503Deposits at Notice 3,538 3,779Time Deposits 839,288 846,720Installment Savings 12,266 13,358Other Deposits 28,692 26,498Negotiable Certificates

of Deposit 28,687 42,188Total ¥ 1,737,247 ¥1,681,031

9. Borrowed MoneyBorrowed money consisted of loans from other banks, including asubordinated loan in the amount of ¥17,500 million as of March31, 2005.

10. Other LiabilitiesMillions of yen

2005 2004Domestic Exchange Settlement

Account Cr. ¥ 104 ¥ 142Income Taxes Payable 311 –Accrued Expenses 833 801Unearned Income 1,181 1,181Provisions for Benefits 2 3Derivative Liabilities 809 832Others 10,987 9,266Total ¥ 14,229 ¥ 12,228

11. Common StockAs of March 31, 2005, Common Stock of the Bank consisted of173,359 thousand shares issued. The authorized number ofshares was 499,142 thousand.

12. Legal ReserveThe Banking Law provides that at least 20% of cash dividendsand bonuses to directors and statutory auditors must beappropriated as a legal reserve until total of such reserve andcapital surplus equals the amount of the Bank’s paid-up capital.Legal Reserve is, in principle, not available for dividends but maybe used to reduce a deficit by resolution of shareholders or maybe capitalized by resolution of the Board of Directors.

13. Other Operating IncomeMillions of yen

2005 2004Gain on Foreign Exchange Transactions ¥ 169 ¥ 167Gain on Trading Purpose Transactions 320 321Gain on Sales of Bonds 78 1,331Gain on Derivative Instruments – –Total ¥ 568 ¥ 1,820

14. Other IncomeMillions of yen

2005 2004Gain on Sales of Stocks andOther Securities ¥ 38 ¥ 5,049

Gain on Money Held in Trust 0 4Gain on Return of the SubstitutionalPortion of Pension Insurance – 3,583

Others 1,470 1,025Total ¥ 1,509 ¥ 9,662

15. Other Operating ExpensesMillions of yen

2005 2004Losses on Sales of Bonds ¥ 78 ¥ 531Loss on Devaluation of Bonds 36 –Losses on Derivative Instruments 409 450Total ¥ 523 ¥ 981

16. Other ExpensesMillions of yen

2005 2004Provision for Reserve for PossibleLoan Losses ¥ 2,766 ¥ 31,876Written-off Loans 31 36Losses on Sales of Stocks and Other Securities 5 136Losses on Devaluation of Stocksand Other Securities 109 230Loss on Adopting Post-Employment Accounting 976 976Others 919 2,248Total ¥ 4,808 ¥ 35,504

17. Subsequent EventThe following proposal of Appropriation of Profit was approvedat the shareholders’ meeting held on June 29, 2005.

Millions of yenUnappropriated Retained Earnings at End of Year ¥ 4,979Profit Appropriated as Follows: Cash Dividends 428Voluntary Reserves 3,000Balance of Retained Earnings Carried Forward ¥ 1,551

12

Certified Public Accountants’ Report

Certified Public AccountantsHibiya Kokusai Bldg.2-2-3, Uchisaiwai-choChiyoda-ku, Tokyo 100-0011C.P.O. Box 1196, Tokyo 100-8641

Telephone +81(3)3503-1100Facsimile +81(3)3503-1197

To the Board of Directors of The Bank of Saga Ltd.

We have audited the non-consolidated financial statements, namely, the non-consolidated balance

sheets of The Bank of Saga Ltd. as of March 31, 2005 and 2004, and the related non-consolidated

statements of operations and retained earnings for the years then ended, all expressed in yen.

Our audit was made in accordance with generally accepted auditing standards, procedures and

practices in Japan and all relevant auditing procedures as are normally required ware carried out.

Based on our audit, we express the opinion that the above-mentioned non-consolidated financial

statements present fairly the financial position of The Bank of Saga Ltd. as of March 31, 2005 and

2004, and the results of its operations for the years then ended in conformity with generally accepted

accounting principles in Japan applied on a consistent basis.

The accompanying non-consolidated financial statements expressed in United States dollars have

been translated into dollars solely for the convenience of the reader. We have recomputed the

transla-tion and, in our opinion, the non-consolidated financial statements expressed in yen have

been trans-lated into dollars on the basis described in note 1 to the non-consolidated financial

statements.

Tokyo, Japan

June 30, 2005

Shin Nihon & Co.

See note 1 to the non-consolidated financial statements which explains the basis of preparing the

non-consolidated financial statements of The Bank of Saga Ltd. under Japanese accounting principles

and practices.

museum collection) copyright(c) 2005 the bank of saga ...expanded by ¥22,009 million from the...

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