Procrea Holdings, Inc.

The Company Group, established through the joint share transfer of The Aomori Bank and The Michinoku Bank in April 2022, may face material adverse effects on its financial position and business performance if integration synergies are not fully realized. Delays in branch consolidation and personnel allocation, deterioration of customer relationships, and decline in external credibility are cited as factors that could hinder the realization of integration effects in terms of revenue. The progress of the second Medium-Term Management Plan, which began in April 2025, will influence the Company Group's growth potential.

Non-performing loans may increase due to deterioration in the Aomori Prefecture economy, changes in the business conditions of borrowers, and declines in real estate prices, potentially resulting in additional credit costs. If actual credit losses deviate from the assumptions and estimates underlying the allowance for doubtful accounts, this could adversely affect business performance and financial condition. In response, the Company Group has established a system of credit screening, internal ratings, and management improvement support for individual cases on a case-by-case basis, with regular reporting to the Management Committee and Board of Directors.

Impairment of bond portfolio value due to interest rate fluctuations, valuation losses or impairment resulting from significant declines in securities prices, and decreases in the value of foreign currency-denominated investments due to yen appreciation may adversely affect the Company Group's business performance and capital adequacy ratio. Risk management is conducted through interest rate risk management via ALM, monitoring of price fluctuation risk using VaR, and deliberations at the monthly ALM and Earnings Management Committee.

The accelerating regional population decline and falling birthrate combined with an aging population pose a risk of significantly reducing loan demand and investment needs for the Company Group, whose primary business base is Aomori Prefecture. The decline of the regional economy may also lead to increased credit risk through the deteriorating performance of business partners, potentially structurally shrinking the Company Group's revenue base. This has been designated as a top risk, and the Company Group is working to understand the impact through stress tests and strengthen its response capabilities.

In Aomori Prefecture, the competitive environment is intensifying due to competition with regional financial institutions, megabanks, and non-bank lenders, as well as new entrants from other industries driven by deregulation and advances in digital technology. If the Company Group is unable to secure a competitive advantage, this may result in higher funding costs and lower investment yields, adversely affecting business performance and financial condition. This has also been designated as a top risk, requiring strategic responses including addressing digital services.

Unauthorized access to information systems by attacker groups, or system failures including those caused by disasters or power outages, could make it impossible to continue business operations, potentially causing material adverse effects on the Company Group's business performance and operations. This has been designated as a top risk, and while a system to prevent failures premised on stable operation has been established, continuous strengthening of countermeasures is required due to the increasing sophistication of cyber threats.

Against the backdrop of the declining birthrate, aging population, and intensifying competition for talent, difficulty in recruiting, developing, and retaining the personnel necessary for management could reduce the Company Group's sustainable growth potential. Factors such as unfair or discriminatory practices in personnel management leading to lower employee morale and turnover are also cited as risk factors. This has been designated as a top risk, and securing human resources in both quality and quantity has become an important management issue.

If the capital adequacy ratio falls below the minimum domestic standard of 4% due to increased costs for disposing of non-performing loans, declines in the value of the securities portfolio, reductions in deferred tax assets, or changes in the standards for calculating the capital adequacy ratio, the Company Group may receive orders from the Commissioner of the Financial Services Agency to suspend all or part of its operations. Deferred tax assets are based on forecasts and assumptions such as expected future taxable income, and if doubts arise regarding their recoverability, there is a risk that the capital adequacy ratio decline and business deterioration could occur simultaneously.

Future changes in laws, regulations, policies, business practices, and interpretations may adversely affect the Company Group's business operations and performance. If compliance violations or illegal acts by officers or employees occur, there is also a risk that dispositions under law or litigation could adversely affect the financial position. While operations are currently conducted in accordance with existing laws and regulations, continuous response to changes in the financial regulatory environment is required.

If human or physical damage occurs due to natural disasters such as earthquakes, tsunamis, or wind and flood damage, continuity of the Company Group's business operations may become difficult, and credit risk may also increase through damage to the factories and facilities of business partners. This has been designated as a top risk, and is recognized as a complex business continuity risk that includes social infrastructure failures and power outages. Efforts are being made to understand the impact through stress tests and to strengthen response capabilities during times of stress.