Yokohama Financial Group, Inc.

In addition to the risk of increasing non-performing loans due to changes in domestic and overseas economic conditions and the financial and economic environment, the ratio of loans to the real estate industry within the loan portfolio is high compared to other industries, which could have a significant impact on business performance and financial condition when the operating environment for the real estate industry deteriorates. The ratio of loans to small and medium-sized enterprises and individuals is also high, and a decline in collateral real estate prices or deterioration in household conditions could lead to increased credit-related costs. The Group manages this risk through strict self-assessment, setting discussion points for credit balances by industry, and regular monitoring of real estate loans.

There is a risk that yen interest rates may fluctuate due to factors beyond the Group's control, including the Bank of Japan's monetary policy. When interest rates decline, income from deposit and lending operations may decrease, and when interest rates rise, losses on sales or valuation losses on held Japanese government bonds and other securities may occur, which could have a significant impact on business performance and financial condition in either direction. This risk spans both deposit/lending operations and market operations, and the Group continues to monitor and respond to it through the ALM/Risk Management Committee.

If a serious failure occurs in core systems, including the account processing system, caused by cyberattacks, negligence, accidents, or system updates, it could have a significant impact on business operations, performance, and financial condition. At the March 2025 Board of Directors meeting, "large-scale damage caused by cyberattacks" and "large-scale damage caused by system failures" were selected as top risks. Countermeasures include the formulation of a "Cybersecurity Management Declaration," the establishment of a "Cyber Defense Center," duplication of equipment and lines, establishment of a backup center, and security posture assessments of the supply chain.

The Group, which has overseas business locations, is obligated to maintain the required level of consolidated capital adequacy ratio based on internationally uniform standards, and changes in calculation standards due to revisions of Financial Services Agency notifications, etc., could affect the capital adequacy ratio. If the capital adequacy ratio falls below the required level including the capital buffer, there is a risk of receiving orders from the Financial Services Agency, including restrictions on dividends and other outflows, or suspension of all or part of operations. The Group strives to appropriately manage capital levels across the entire Group.

The transition to a decarbonized society and the impact of nature loss on the business and financial conditions of business partners, as well as the intensification of natural disasters due to extreme weather, could affect business performance and financial condition through damage to collateral properties and increased credit-related costs. At the March 2025 Board of Directors meeting, "occurrence of a large-scale natural disaster" was selected as a top risk, and the risk of damage to head office and branches is also recognized. Furthermore, if efforts and disclosures regarding climate change risk are deemed insufficient, this could lead to reputational deterioration.

There is a risk of intensifying competition for the Group, whose main business base is in Kanagawa Prefecture and Tokyo, due to aggressive business expansion by other financial institutions and new entry by FinTech companies utilizing digital technology. A deteriorating competitive environment could have a significant impact on business operations, performance, and financial condition, and could make it difficult to maintain and expand the existing business base. The Group is pursuing strategic initiatives while leveraging its strong business base in the highly growth-oriented Tokyo metropolitan market as a strength.

If the Group fails to comply with laws and regulations related to money laundering and other matters, as well as foreign exchange laws and regulations, there is a risk of receiving administrative dispositions such as surcharge orders or business improvement orders. There is also a risk of violating extraterritorially applied regulations, such as U.S. laws related to Iran sanctions, and the materialization of reputational risk could lead to a loss of trust from customers and the market. The Group has established an AML/CFT response and foreign exchange law compliance framework through continuous customer management and transaction monitoring.

There is a risk that mismatches in the maturity of investments and funding, or unexpected fund outflows, could make it difficult to secure necessary funds, or could force the Group to raise funds at higher interest rates than usual. Negative reports about the Group or the financial industry in general, or changes in the external environment, could lead to increased funding costs or difficulty in securing funds, and at the March 2025 Board of Directors meeting, "deterioration of cash flow due to deposit acquisition competition, etc." was selected as a top risk. Countermeasures include setting risk limits and regular monitoring of investment/funding gaps, and management of liquidity coverage ratio and stable funding ratio guidelines.

If customer data leakage, fraud, or misuse occurs, this could result in direct damages such as compensation to customers, as well as the materialization of reputational risk. There is also a risk that non-compliance with laws and regulations or misconduct by officers and employees could lead to administrative dispositions, compensation claims, or loss of customer trust. The Group strives to foster a strong corporate culture through the development of information management regulations and systems, and through the revision of its "Code of Ethics" and establishment of "Standards of Conduct for Officers and Employees."

In corporate acquisitions and investments aimed at improving corporate value over the medium to long term, changes in the business environment or unexpected problems could cause the performance of subsidiaries and the effects of collaboration within the Group to fall below expectations. Depending on the performance and outlook of subsidiaries, a substantial write-down of held shares and goodwill may become necessary, which could affect business operations, performance, and financial condition. The Group states that it may conduct similar corporate acquisitions in the future, requiring continuous risk management.