THE TOWA BANK, LTD.

As of the end of March 2026, disclosed claims under the Financial Reconstruction Act stood at ¥39.7 billion (2.39% of total credit outstanding). Non-performing loans may increase more than expected due to fluctuations in economic conditions, the regional economy, and real estate prices. If additional provisions for loan losses become necessary, this could adversely affect business performance, financial condition, and capital adequacy.

There is a mismatch in amount and maturity between fund management through loans, securities investment, etc., and fund procurement through deposits and other means. If interest rates fluctuate due to changes in monetary policy or other factors, this could adversely affect earnings and financial condition. The Bank measures risk volume using VaR (99% confidence interval) and manages it through capital allocation to remain within the scope of capital adequacy.

The Bank holds securities such as government bonds, municipal bonds, and listed stocks as investment assets. In the event of a significant price decline due to an economic downturn or other factors, impairment losses or valuation losses may occur. Although risk is measured using VaR and managed through capital allocation, a sudden change in market conditions could adversely affect business performance and financial condition.

As a domestic standard bank, the Bank is required to maintain consolidated and non-consolidated capital adequacy ratios of 4% or higher. As of the end of March 2026, the non-consolidated ratio was 6.68% and the consolidated ratio was 6.72%. If credit-related expenses increase due to a rise in non-performing loans, or if the standards for calculating the capital adequacy ratio are changed, the ratio could decline, creating a risk of receiving a business suspension order or other administrative action from the Financial Services Agency.

If domestic and overseas economic conditions or market environments change significantly, this could affect fund management and force the Bank to procure funds under significantly less favorable conditions than usual. Although stable liquidity management is being implemented, if such a situation materializes, it could adversely affect business performance and financial condition.

There is a risk that computer systems may stop functioning or malfunction, or that information may be destroyed or leaked, due to cyberattacks, unauthorized access, or program defects. This could lead to the suspension of settlement functions or services and a loss of social trust, potentially adversely affecting business performance. The Bank is developing its management framework in parallel with system risk management.

The Bank conducts its operations in accordance with various regulations such as the Banking Act and the Financial Instruments and Exchange Act. If officers or employees commit legal violations or misconduct, there is a risk of administrative dispositions, penalties, business restrictions, or claims for damages. The Bank has positioned the strengthening of its compliance and internal control frameworks as an important management priority and has established a monitoring system.

The Bank has built its branch network centered on Gunma Prefecture and Saitama Prefecture, and its business performance and financial condition are highly dependent on the economic conditions of the local region. A deterioration in the regional economy could also lead to increased credit risk through the worsening business conditions of borrowers.

Damage to client properties from natural disasters such as wind and flood damage, as well as the impact on client businesses from regulations and social demands related to climate change response, could lead to increased credit risk. In October 2021, the Bank announced its support for the TCFD recommendations and is advancing responses and disclosures covering both opportunities and risks across the categories of governance, strategy, risk management, and metrics and targets.

Competition with other financial institutions has intensified amid progress in financial deregulation, creating a risk that the Bank may be unable to secure the earnings it had anticipated. Intensifying competition with fintech companies and major financial institutions could put pressure on the earnings base of regional banks, potentially adversely affecting business performance and financial condition.