Hokkoku Financial Holdings,Inc.

Non-performing loans may increase due to economic trends, fluctuations in real estate prices and stock prices, and deterioration in the financial condition of borrowers, potentially resulting in credit costs exceeding expectations. There may also be cases where the exercise of security interests becomes difficult due to declines in collateral value or a lack of liquidity in the real estate market. The Group practices risk management through risk quantification using VaR (99.9% confidence interval, one-year period) and a capital allocation system.

There is a mismatch in interest rates and maturities between assets and liabilities such as loans, securities, and deposits, which are core businesses, and fluctuations in interest rates may cause a decline in net interest margin income or result in losses. The Group measures and manages market risk using VaR (99.9% confidence interval, six-month period). Sudden changes in the interest rate environment may adversely affect business results and financial condition.

The Company and its subsidiary Hokkoku Bank are obligated to maintain a capital adequacy ratio above the domestic standard (currently 4%) under the Banking Act, and if the ratio falls below the standard, they may be subject to orders such as business suspension from the Commissioner of the Financial Services Agency. Factors cited as affecting the capital adequacy ratio include increases in non-performing loan disposal costs, declines in the value of the securities portfolio, reversal of deferred tax assets, and changes in the criteria for calculating the capital adequacy ratio. Costs associated with responding to regulatory changes may also affect business results.

The main subsidiary, Hokkoku Bank, has Ishikawa Prefecture as its primary business base, with loans to the region accounting for approximately three-quarters of total loans. If the economic conditions in Ishikawa Prefecture deteriorate, the Group's business results may be directly and adversely affected through a decrease in loans and an increase in credit risk. The high degree of dependence on the regional economy limits diversification effects and is a factor contributing to risk concentration.

Competition with other financial institutions has intensified further against the backdrop of substantial deregulation of the financial system, and if the Group is unable to maintain its competitive advantage, this may lead to a decline in profitability. There is a risk that changes in the competitive environment, including the entry of fintech companies and firms from other industries, may adversely affect business results.

If a computer system outage or malfunction, or a cyberattack resulting in the destruction or leakage of information, occurs, this may lead to the suspension of various services and a loss of public trust. The Group strives to mitigate risk through infrastructure development based on cloud systems, but if a large-scale failure occurs in the cloud, it may adversely affect business results and financial condition.

The Group regards the establishment of a compliance framework as one of its most important management priorities; however, if a violation of laws or regulations occurs, business results may be adversely affected due to economic losses and a loss of public trust. There is also regulatory and institutional change risk, whereby future changes in laws, regulations, or policies may adversely affect business operations and financial condition.

The Company and Hokkoku Bank have obtained credit ratings from external rating agencies, and if the ratings are downgraded due to a decline in profitability or asset quality, this may lead to higher funding costs or difficulty in raising funds. A ratings downgrade could also lead to a loss of confidence in the market, posing a risk of compound adverse effects on business results and financial condition.

As a bank holding company, the Company relies on dividends and other payments from its subsidiary bank for the majority of its income, and the amount of such payments may be restricted by regulatory or contractual limitations. If the subsidiary bank is unable to record sufficient profit and pay dividends, the Company may be unable to pay dividends to its shareholders.

In the event of a large-scale natural disaster, business continuity may become difficult, which could adversely affect business results and financial condition. Given that Hokkoku Bank's main business base is concentrated in Ishikawa Prefecture, there is a regionally concentrated disaster risk. The Group strives to manage this risk by continuously developing systems, conducting training, and making improvements in preparation for emergencies.