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Signaling the Start of a New Paradigm for Financial Services in Japan Sanwa Bank ■ Extensive Branch Network in Tokyo and Osaka Areas

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Signaling the Start of a New Paradigm for Financial Services in Japan Sanwa Bank ■ Extensive Branch Network in Tokyo and Osaka Areas ANNUAL REPORT 2001 Signaling the start of a new paradigm for financial services in Japan Sanwa Bank ■ Extensive branch network in Tokyo and Osaka areas ■ Tradition of innovation in financial services ■ Well established global service network ■ Diverse customer base extending from retail to multinational corporations Tokai Bank ■ Number-one bank in Nagoya area with strong presences in Tokyo and Osaka areas ■ Expertise in serving the needs of middle-market companies ■ Large overseas group including companies specializing in highly sophisticated fields ■ Deep roots in many key Asian markets Toyo Trust ■ Skilled in both trust and banking operations ■ High profile in Japan’s growing asset management field ■ One of Japan’s leading corporate agency services ■ Trust-related business firmly positioned as core growth driver Important Dates in the Inception of UFJ Holdings July 2000 April 2001 ● Announcement of integration of Sanwa Bank, ● Establishment of UFJ Holdings and listing of shares Tokai Bank and Toyo Trust on Tokyo, Osaka and Nagoya UFJ Holdings ● Speed and Innovation A financial services group dedicated to addressing all customer needs CONTENTS Defining the Identity of UFJ Holdings • 2 Corporate Citizenship • 86 Financial Highlights • 4 Corporate Data • 88 Message from the President • 6 Sanwa Bank Financial Section • 105 Review of Operations • 9 Tokai Bank Financial Section • 159 New Approach to Financial Services • 29 Toyo Trust Financial Section • 211 Management System • 48 Further Information • 253 Internal Control Framework • 52 January 2002 ● Sanwa Bank and Tokai Bank to be merged as UFJ Bank ● Toyo Trust to be renamed UFJ Trust Bank DEFINING THE IDENTITY OF UFJ HOLDINGS One of the Japan’s largest and most innovative financial organizations, the UFJ Group is taking decisive steps to reinforce its operating base. There are three objectives of particular importance. First is bolstering the UFJ Group’s financial strength, especially its approach to problem loans and cross-shareholdings. Second is becoming more competitive, a drive that includes increasing non-interest income and is supported by advanced technology and highly trained employees. Third is reaping the benefits of the integration, in terms of earnings and cost reductions. 2 Highly Effective Management and Corporate Governance Frameworks Transparency and fairness are the key words in the UFJ Group’s operations. Central to this Comprehensive and Competitive capability is a clear division of responsibilities. Financial Services The Board of Directors formulates policies and As one of Japan’s largest financial institutions, supervises top management. Executive officers the UFJ Group offers a full line of financial are charged with overseeing business activities in services, including banking, trust, securities and line with these policies. Extensive checks and credit cards. Through the Financial One alliance, balances are in place as well. individuals also gain access to life, property and casualty insurance. Aggressive Investments in Computers and Other IT Systems The UFJ Group will launch a next-generation Innovation in the Provision of Services mainframe system in January 2002, when Sanwa and Products Bank and Tokai Bank merge. The new UFJ Bank Through subsidiaries and alliances, the UFJ Group will also be backed by a revolutionary branch is offering financial services from a fresh angle. operating system that streamlines back-office In every case, the goal is identifying and serving tasks and improves the quality of services. specific customer requirements. One illustration of this process is Mobit Co., Ltd., a consumer finance company targeting a new market category. A Well-Balanced Service Network and Customer Base The UFJ Group is the only bank in Japan with com- plete coverage of Tokyo, Osaka and Nagoya. The group boasts millions of relationships in its core sectors: the retail and corporate middle markets. 3 UFJ GROUP FUNCTIONS Investment Trust Banking Trust Banking Asset Management Management Investment Banking Securities Services e-business Card Services Consumer Finance Private Banking Leasing FINANCIAL HIGHLIGHTS UFJ (Combined)1 Billions of Yen Billions of U.S. Dollars 2 Fiscal Years ended March 31 2001 2000 2001 Gross Operating Profit 3 ¥1,276.5 ¥ 1,228.7 $ 10.3 Net Interest Income 879.7 894.3 7.1 Net Fees and Commissions 169.8 137.9 1.4 Trust Fees 3 95.8 132.5 0.8 General and Administrative Expenses 655.1 652.0 5.3 Business Profit (prior to Net Transfer to General Reserve)3 621.3 575.8 5.0 Net Transfers to General Reserve 212.4 10.1 1.7 Business Profit 3 408.9 565.6 3.3 Net Gains on Sales of Stocks and Other Equity Securities 374.0 680.5 3.0 Credit Costs 4 958.0 866.7 7.7 Ordinary Profit (Loss) (267.0) 323.8 (2.2) Net Income (Loss) ¥ (220.1) ¥ 135.5 $ (1.8) 1. Simple aggregate of Sanwa Bank, Tokai Bank and Toyo Trust on a non-consolidated basis. 2. Converted into U.S. dollars at ¥123.90 to $1. 3. Before write-offs in trust account (with principal indemnification clause). 4. Including write-offs in trust account (with principal indemnification clause). 4 DATA USING AGGREGATE FIGURES FOR ALL THREE BANKS Gross Operating Profit General and Administrative Expenses Billions of Yen Billions of Yen 1,600 800 1,200 600 800 400 400 200 0 0 FY 00 01 FY 00 01 Net interest income Personnel Net fees and commissions Non-personnel Trust fees Others Others Business Profit Net Income/Loss Billions of Yen Billions of Yen 800 300 600 150 400 0 Business profit before net transfers to general reserve 200 -150 for possible loan losses Business profit 0 -300 FY 00 01 FY 00 01 UFJ (Combined)1 Billions of Yen Billions of U.S. Dollars 2 As of March 31 2001 2000 2001 Total Assets ¥ 96,624.6 ¥ 88,340.6 $ 779.9 Banking Account 92,217.7 82,593.7 744.3 Trust Account 3 4,406.8 5,746.8 35.6 Loans and Bills Discounted 53,961.5 54,983.7 435.5 Banking Account 52,373.2 52,752.7 422.7 Trust Account 3 1,588.3 2,230.9 12.8 Deposits and Trusts 57,489.2 55,646.2 464.0 Deposits 53,133.7 49,960.7 428.8 Trusts 3 4,355.4 5,685.5 35.2 Total Stockholders' Equity ¥ 4,123.9 ¥ 4,396.1 $ 33.3 1. Simple aggregate of Sanwa Bank, Tokai Bank and Toyo Trust on a non-consolidated basis. 2. Converted into U.S. dollars at ¥123.90 to $1. 3. Trust account (with principal indemnification clause). Loans and Bills Discounted Billions of Yen 60,000 5 40,000 BIS Capital Adequacy Ratio (Consolidated) 20,000 % 15 0 Mar. 99 00 01 10 Including trust account (with principal 5 indemnification clause). 0 Mar. 99 00 01 Deposits and Trust Account Products Capital ratio Billions of Yen Tier I ratio 60,000 Capital ratios of Toyo Trust for the fiscal year ended Mar. 31, 2001 are adjusted to 40,000 the BIS international standard. 20,000 CREDIT RATINGS (As of July 31, 2001) 0 Mar. 99 00 01 Sanwa Bank Tokai Bank Toyo Trust Standard & Poor’s (Long Term) BBB+ BBB+ BBB Including trust account (with principal Moody’s (Long Term) A3 A3 Baa1* indemnification clause). *Long-term rating for deposits MESSAGE FROM THE PRESIDENT On April 2, 2001, UFJ Holdings was established to unify the operations of Sanwa Bank, Tokai Bank and Toyo Trust. The significance of this event is far-reaching. We have done much more than integrate three of Japan’s best-known financial institutions. In essence, we have constructed the foundation for an organization capable of taking a new approach to banking and other financial services. The most obvious result of this integration is our much greater scale. We have a broader base of resources to serve customers and communities better and achieve greater efficiencies. But this integration carries more significance than just greater scale. The formation of UFJ Holdings ushers in a new stage in the provision of financial services in Japan. We will take the lead in molding a unified platform capable of offer- ing an unprecedented array of services. We intend to play a central role in the development of Japan’s finan- cial services industry in the coming century. Our corporate vision “to be an innovative financial group with deep commitments to society, growing together with customers,” will guide our actions. Backed by the long and proud traditions of our three constituent banks, we are starting off on a strong footing. FORWARD-LOOKING ACTIONS IMPACT EARNINGS Gross operating profit, an important measure of the underlying earnings of core banking operations, of the UFJ Group’s three banks increased 3.9% to ¥1,276.5 billion in the fiscal year ended March 31, 2001. Each bank has been imple- 6 menting strategies to fundamentally alter the composition of their earnings. Growth in gross operating profit under- scores the progress made. Most notable was the increase in non-interest income. Credit-related expenses of the three banks amounted to ¥1,170.5 billion, including net transfers to the general reserve for possible loan losses. To prepare for the integration, all three banks conducted conservative self-assessments of their loan portfolios based on strict standards. The banks increased their reserves to a level sufficient to factor in an uncertain economic outlook in Japan. These painful, but unavoidable steps to deal with problem loans caused the three banks to report a combined net loss of ¥220.1 billion. Accordingly, all three banks suspended dividend payments applicable to the second half of the fis- cal year in the interest of bolstering their balance sheets and operating bases. This was an extremely difficult decision, made only after careful consideration of all pertinent factors.
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