Jimoto Holdings,Inc.

The rise in crude oil prices amid intensifying tensions in the Middle East raises concerns about deterioration in the financial condition of small and medium-sized enterprises, which are the Group's primary business counterparties, potentially increasing non-performing loans and credit-related expenses. The Group extends loans to small and medium-sized enterprises and provides housing loans mainly in Miyagi and Yamagata prefectures, and difficulties in collecting funds from borrowers or an increase in provisions could have a material impact on operating results. As countermeasures, the Group implements credit risk management measures such as diversification of credit into small lots, credit screening of individual transactions, credit ratings, self-assessment, and business revitalization support.

Mismatches between fund management and fundraising due to interest rate fluctuations, impairment or valuation losses on held securities due to stock price declines, and losses on foreign currency-denominated assets and liabilities due to exchange rate fluctuations may occur. There is a risk that valuation losses or realized losses may materialize due to declines in domestic and overseas stock markets, price declines associated with rising interest rates on government bonds and similar instruments, and exchange rate fluctuations. The Group responds through VaR monitoring, stress testing, setting of holding and loss limits, and agile discussions by the Group Risk Management Committee.

The Company has strengthened its capital through public funds based on the "Act on Special Measures for Strengthening Financial Functions," and depending on the status of implementation of the "Management Enhancement Plan" submitted to the Financial Services Agency, the Company may be subject to measures such as a business improvement order. In addition, if preferred shares issued to the Deposit Insurance Corporation of Japan's Resolution and Collection Corporation as the allottee are converted into common shares, dilution of existing common shares may occur due to the increase in the number of issued common shares. Repayment of public funds and implementation of the plan represent significant constraints on the Company's management.

The Group is required to maintain a capital adequacy ratio of 4% or above under domestic standards, and if the ratio falls below this standard, the Group may be subject to orders from regulatory authorities such as suspension of all or part of its business operations. Key factors that could adversely affect the capital adequacy ratio include reductions in deferred tax assets, increases in credit-related expenses, declines in the value of the securities portfolio, and changes in the standards for calculating the capital adequacy ratio. The risk of a reduction in deferred tax assets in the event that actual taxable income diverges from projections is of particular concern.

The Group, established through the joint share transfer of Kirayaka Bank and Sendai Bank in October 2012, aims to fully realize the benefits of integration, but there is a possibility that revenue-side integration benefits may not be realized due to delays in service and product development or deterioration of customer relationships. In addition, unexpected additional costs may arise from the reorganization of operations, information systems, sales branches, and employees, as well as additional costs or losses from unifying accounting standards and provisioning policies. If these risks materialize, they could adversely affect the Group's business performance and financial condition.

The Group's main business base is the Tohoku region, centered on Miyagi and Yamagata prefectures, and a downturn or deterioration in the regional economy could adversely affect business performance and financial condition by hindering business expansion and increasing credit risk. Due to the high degree of business concentration in this region, the Group's structure is susceptible to region-specific economic fluctuations. Sustained development of the regional economy is directly linked to the stability of the Group's revenue base.

The Group's branches, offices, computer centers, and officers and employees are concentrated in Miyagi and Yamagata prefectures, and in the event of a wide-area or localized disaster, the regional economy and the Group's facilities and personnel could suffer severe damage. Given the regional characteristics informed by the experience of the Great East Japan Earthquake, the risk of large-scale disasters such as earthquakes and tsunamis is a particularly significant concern. Although the Group has implemented crisis management measures such as formulating contingency plans, depending on the extent of damage, adverse effects on business performance and financial condition may be unavoidable.

If various computer systems, including core banking systems, experience outages, malfunctions, unauthorized use, cyberattacks, or other incidents resulting in the destruction or leakage of information, this could adversely affect business performance and financial condition through business suspension, damages liability, or administrative sanctions. In light of the recent increase in cyberattack incidents in Japan, the Group is also strengthening its cybersecurity measures. From the perspective of protecting customer information and payment infrastructure as a financial institution, system risk management is an important management issue.

If compliance with laws and regulations is found to be insufficient, or if litigation arising from such issues is filed, this could have a significant impact on the Group's reputation as well as adversely affect its business performance and financial condition. If the Group meets the requirements for revocation of a banking license or suspension of business (Articles 26, 27, and 28 of the Banking Act), there is a risk that the main business activities of Kirayaka Bank and Sendai Bank could be disrupted. The Group regards compliance as an important management issue and is working to strengthen its systems, but future changes to various regulations could also be a factor adversely affecting business performance.

As a bank holding company, the Company depends on dividends and management fees from its banking subsidiaries for the majority of its income, and regulatory restrictions may limit dividends from banking subsidiaries. If the banking subsidiaries fail to generate sufficient profit and are unable to pay dividends or fees to the Company, there is a risk that the Company may face difficulty in paying dividends to its shareholders. This revenue dependency risk, characteristic of holding company structures, is a factor that constrains the financial flexibility of the Group as a whole.