Mebuki Financial Group,Inc.

As the Group's main operating base is Ibaraki Prefecture, Tochigi Prefecture and adjacent areas, there is a risk that a decline in the regional economy could reduce deposit and loan balances and weaken profitability. A decline in regional industries could also directly increase credit costs through the deterioration of business performance among client companies. If the contraction of regional GDP progresses further, the weakening of the management base could make it difficult to continue operations.

As of the end of March 2026, the amount of non-performing loans under the Financial Reconstruction Act basis was ¥176.5 billion (1.24% of total credit), and there is a risk that non-performing loans could increase beyond expectations depending on fluctuations in the economy, monetary policy, the regional economy, and real estate prices. Lending is concentrated in the real estate and manufacturing industries at a higher ratio than other sectors, and credit-related expenses increase when the business environment for these industries deteriorates. Although the allowance for doubtful accounts is recorded based on collateral value and the business conditions of borrowers, additional provisions may be required due to declines in collateral value or other factors.

There is a risk that a significant rise in interest rates could worsen valuation gains/losses on held bonds, while intensifying competition among banks for deposits could increase funding costs. On the other hand, a return to deflation and a zero-interest-rate environment due to an economic downturn would reduce profitability. Held assets such as stocks, investment trusts, and derivatives may also incur losses such as impairment when stock prices fall or markets become disrupted.

There is a risk that political turmoil or the materialization of geopolitical risks in various countries could spread instability in financial markets, causing stock and bond prices to fall and worsening valuation gains/losses on securities. Supply chain disruptions and surging commodity prices could also worsen the business performance of client companies, potentially increasing credit costs. It is explicitly stated that a prolonged situation in the Middle East may affect business performance and financial condition through the materialization of market risk, credit risk, and other risks.

If the Group fails to keep pace with the rapid development of digital technologies such as AI and fintech, there is a risk that the level of its products and services could decline, undermining competitiveness. If digital investments fail to yield operational efficiency gains commensurate with their cost, profitability will decline. Increased entry into the banking business by companies from other industries and accelerating consolidation in the financial industry could intensify competition for deposits and loans, potentially further reducing profitability.

There is a risk that cyberattacks or large-scale system failures could make it difficult to continue business operations, potentially resulting in leaks of customer information, losses related to restoring system functionality, and damage to social credibility. In addition to internal factors such as program defects, equipment failures, and defects on the part of outsourcing partners, system outages or malfunctions due to external factors are also anticipated. Administrative errors or information leaks at outsourcing partners pose similar risks.

There is a risk that physical damage from abnormal weather and natural disasters associated with climate change could adversely affect the business and financial condition of the Group and its borrowers. If the Group is slow to respond to tightening regulations related to the transition to a low-carbon society, it may miss opportunities to support client companies' climate change response needs, and credit costs may increase due to delays in clients' low-carbon transitions. Delayed response could also damage corporate value through deteriorating stakeholder evaluations.

There is a risk that changes in work styles and values, along with the declining appeal of the banking industry, could make it difficult to secure necessary talent, causing strategies to fail to function effectively. If investment in human capital does not produce the expected effects, such as employees' autonomous growth and improved engagement, competitiveness will decline. The progression of labor market fluidity is a factor further heightening these human resource risks.

The consolidated capital adequacy ratio as of the end of March 2026 was 12.30%, and there is a risk that if it falls below the minimum domestic standard requirement of 4%, the Financial Services Agency could issue orders such as business suspension. Future changes in laws, regulations, accounting standards, and policies may also affect business performance. In addition, changes in the assumptions underlying the recoverability of deferred tax assets could worsen the capital adequacy ratio.

There is a risk that financial crimes such as cash card forgery and remittance fraud, as well as delays or deficiencies in anti-money laundering measures, could adversely affect customers and damage social credibility. If misconduct cannot be prevented due to inadequate compliance or dysfunction in risk management and internal audit systems, the resulting costs such as damages and loss of credibility could adversely affect business performance. The occurrence of practices inconsistent with customer-oriented business conduct similarly poses a risk of damaging credibility.