Kyushu Financial Group,Inc.

Changes in domestic and overseas economic trends, deterioration in the financial condition of borrowers, and declines in the value of collateral assets could lead to increases in the balance of non-performing loans and total credit costs, affecting business results. Additional provisions for allowance for doubtful accounts may be required, and this risk could materialize if there is a significant economic deterioration or a decline in real estate prices beyond assumed conditions. In response, the Group continuously monitors individual borrowers and manages its portfolio, and also supports the formulation of business turnaround plans.

The Company and its subsidiaries, Higo Bank and Kagoshima Bank, are legally required to maintain a capital adequacy ratio of at least the domestic standard (4%), and if the ratio falls below this standard, the Commissioner of the Financial Services Agency may issue an order for suspension of business or other measures. Factors that could lower the ratio include an increase in total credit costs, an increase in impairment losses on securities, and changes in the standards for calculating the capital adequacy ratio. The most recent consolidated capital adequacy ratio (domestic standard) remained at a high level of 11.34% for FY2026 (ending March 2026), but caution is required regarding sudden changes in market conditions.

Net interest income, the Group's primary source of revenue, depends on the interest margin among loans, securities, and deposits, and if this margin narrows due to interest rate fluctuations, business results could be affected. In particular, sharp fluctuations in domestic interest rates significantly impact the earnings structure through the revaluation of both assets and liabilities. To optimize risk-return, the Group quantitatively identifies and evaluates interest rate fluctuation risk and takes proactive and reactive measures as necessary.

The Group holds government bonds and other bonds as well as stocks with market prices, and a rise in bond yields or a decline in stock prices could result in valuation losses that affect business results. As of the end of FY2026 (ending March 2026), the total unrealized losses on other securities reached ¥215.2 billion (bonds: ¥133.0 billion, others: ¥81.3 billion, stocks: ¥0.8 billion), expanding from ¥175.4 billion at the end of the previous fiscal year. The Group controls risk within prescribed risk limits and loss limits, and conducts daily quantitative monitoring.

If a cyberattack results in service disruption, information leakage, unauthorized money transfers, or similar incidents, it could affect business operations and results through damages, administrative sanctions, reputational damage, and other consequences. Cyberattacks targeting financial institutions are becoming increasingly sophisticated day by day, requiring ongoing group-wide response. The Group has formulated a "Cybersecurity Management Declaration" and established a CSIRT under the CISO to strengthen its management framework and prevent the spread of damage.

In Kumamoto, Kagoshima, and Miyazaki Prefectures, the Group's primary operating base, competition with Japan Post Bank, megabanks, and other regional financial institutions is intensifying, and competition crossing prefectural borders is also expanding. If the Group is unable to secure a competitive advantage, its main sources of revenue, such as deposits, loans, and fee income, could be squeezed, affecting business results. Against the backdrop of a deteriorating environment across the financial industry as a whole, the competitive landscape is expected to become even more severe.

Failure to comply with laws and regulations, or future changes in laws, regulations, or their interpretation, could affect operations and business results. As a financial institution, the Group is subject to a wide range of regulations, and costs may also arise in responding to changes in the regulatory environment. The Group is working to strengthen its systems through the establishment of a Compliance and Customer Protection Committee chaired by the President and the formulation of compliance programs.

If the Group fails to prevent fraudulent or inappropriate transactions in advance, it could suffer unforeseen losses or loss of credibility, affecting business results. The risk of violations of sanctions related to money laundering, terrorist financing, and foreign exchange laws and regulations is increasing amid a global trend toward stricter regulation. The Group continuously implements risk-reduction measures, including the development of group-wide basic policies and regulations, thorough customer identification at the time of transactions, system-based detection of abnormal transactions, and reporting of suspicious transactions.

As a holding company, the Company's income depends largely on dividends and management fees from its banking subsidiaries, and dividends from subsidiaries could be restricted due to regulatory or contractual limitations. If the banking subsidiaries are unable to record sufficient profits, there is a risk that it may become difficult for the Company to pay dividends to its shareholders. While the Group seeks to reduce this risk through overall group earnings management, the structural dependency continues.

If deferred tax assets are partially or fully written down due to changes in accounting standards or reassessment of recoverability, this could affect business results and the capital adequacy ratio. The balance of deferred tax assets decreased significantly from ¥8.9 billion at the end of the previous consolidated fiscal year to ¥1.1 billion at the end of the current consolidated fiscal year, limiting the scope for further fluctuation going forward. While the Group records these assets based on current accounting standards, the risk of standard changes continues to exist.