The Hyakugo Bank, Ltd.

Deterioration in the creditworthiness of borrowers centered in Mie and Aichi Prefectures, as well as declines in real estate prices, may increase the amount of non-performing loans and credit-related expenses. If the bad debt reserve falls short of actual losses, additional provisions will be required, adversely affecting business performance and financial condition. The Bank has established an appropriate screening and credit management system utilizing VaR and stress tests, among other tools, to mitigate this risk.

Declines in the prices of held stocks and bonds, unexpected rises in market interest rates, unfavorable movements in exchange rates, and deterioration in issuer creditworthiness, among other factors, may result in valuation losses and impairments, adversely affecting business performance and financial condition. Mismatches in foreign-currency-denominated assets and liabilities, as well as the materialization of country risk, are additional risk factors. The Bank has established an appropriate investment execution and risk management system utilizing VaR and stress tests, among other tools.

In addition to large-scale cyberattacks targeting the Bank itself, attacks via group companies or third parties may cause system outages, information leaks, and a decline in social credibility. This was selected as the top risk at the Board of Directors meeting held in February 2026, reflecting recognition of its significant impact on management. The Bank is addressing this through the formulation of contingency plans and the establishment of system monitoring frameworks, but responding to previously unanticipated attack methods remains a challenge.

Rapid changes in industrial structure driven by AI advancement, as well as delays in responding to DX and the digital society, may reduce competitiveness and adversely affect business performance. This has been selected as a top risk, with particular concern that intensifying competition from fintech companies and other industries could erode the Bank's revenue base. The Bank is promoting responses to digitalization as part of its management strategy, but recognizes the risk that its response may prove insufficient in the face of rapid change.

An economic downturn in Mie and Aichi Prefectures, the Bank's core operating base, may lead to deteriorating business conditions among borrowers, resulting in an increase in non-performing loans and credit-related expenses. Decline in the automotive and tourism industries, reduced profitability in the deposit-and-lending business, and depletion of funding sources due to declining deposits are also recognized as top risks. Intensifying competition due to changes in the regulatory environment and sluggish demand for funds, as well as declining market interest rates, are also factors that may reduce profitability.

Mie and Aichi Prefectures, the Bank's main operating areas, are highly susceptible to damage from events such as a Nankai Trough earthquake. In addition to direct damage, this may adversely affect business performance and financial condition through an increase in non-performing loans and credit-related expenses. This has been selected as a top risk, and the spread of infectious diseases is also recognized as a risk that could impede business continuity. The Bank has formulated a business continuity plan to minimize damage, but responding to disasters exceeding anticipated scenarios remains a challenge.

If the capital adequacy ratio falls below the domestic standard (4%) due to an increase in risk assets resulting from deterioration in borrowers' creditworthiness, an increase in credit-related expenses and securities impairments, or restrictions on the inclusion of deferred tax assets, among other factors, the Bank may be subject to an order from the Commissioner of the Financial Services Agency to suspend all or part of its operations. As the Bank does not have overseas business offices, the domestic standard applies. Maintaining the capital adequacy ratio is managed as a critical issue fundamental to management.

If the management framework for money laundering, terrorist financing, and proliferation financing becomes inadequate, the risk of being targeted by criminals increases, potentially leading to the suspension of overseas remittance operations due to the termination of correspondent agreements, administrative penalties such as fines, and reputational and credibility damage. This is also listed as a top risk under "occurrence of credibility-damaging incidents," alongside improper conduct by officers and employees. The Bank is working to prevent financial crimes such as special fraud and to build an effective risk management framework.

If the recruitment and development of highly specialized personnel necessary for stable growth does not proceed as planned, due to regional population decline, an aging workforce, and a decrease in specialized personnel, business performance may be adversely affected. This has been selected as a top risk, and the occurrence of significant litigation or other issues related to labor management or workplace health and safety management is also recognized as a factor that could adversely affect business performance. The Bank has positioned the recruitment and development of human resources as a key management priority.

Physical risks such as an increase in the frequency and severity of natural disasters caused by abnormal weather, and transition risks such as changes in laws and regulations and social conditions accompanying the shift to a low-carbon society, may cause business stagnation, reduced income, or impairment of asset value for the Bank or its business partners. In April 2022, the Bank formulated the "Hyakugo Bank Group Sustainable Finance Policy" and is working to reduce or avoid the impact of financing and investment in sectors with significant environmental and social impacts. If these efforts prove inadequate, business performance and financial condition may be adversely affected through impairment of corporate value and other factors.