TOMONY Holdings, Inc.

Approximately 70% of the Group's assets are invested in loans, and if the financial condition of borrowers deteriorates due to a downturn in the domestic or overseas economy, this may result in an increase in non-performing loans and substantial burdens from loan write-offs and provisioning. If collateral values decline or actual loan losses exceed estimates, there is a risk that credit-related costs will increase further. The Group records allowances for loan losses based on estimates derived from collateral values, historical loss ratios, and other factors, and strives to maintain a robust risk management framework.

There is a risk that the interest margin (spread income) between the Group's main sources of revenue—fund management through loans and securities—and fund procurement through deposits and other means may be compressed by interest rate fluctuations. If there is a significant mismatch in amount or duration between fund management and fund procurement, interest rate fluctuations could have a negative impact on earnings. In addition, when long-term interest rates rise, the prices of held bonds such as Japanese government bonds may decline, giving rise to a risk of valuation losses.

The Group is required to maintain a consolidated capital adequacy ratio of 4% or higher under the domestic standard, and if it falls below this level, the Group may be subject to a business suspension order or other measures from the Commissioner of the Financial Services Agency. Factors that could adversely affect the capital adequacy ratio include an increase in the disposal of non-performing loans, valuation losses on held securities, reductions in deferred tax assets, or changes to the capital adequacy ratio standards or calculation methods. The Group recognizes these risks while striving to strengthen its capital base.

While the Group aims to build a strong management foundation and a broad network through business integration, if efforts to strengthen operational collaboration and reallocate management resources do not succeed, the initially expected integration benefits may not be fully realized. Risks recognized as potentially having an adverse effect on business results and financial condition include failure to achieve revenue growth due to deteriorating customer relationships or a decline in external credibility, as well as unexpected additional costs arising from the integration of management infrastructure and failure to achieve targeted cost reductions.

The introduction of measures such as carbon taxes associated with the transition to a decarbonized society (transition risk) may increase response costs for both the Group itself and its borrowers, potentially raising credit-related costs. In addition, if flood damage (physical risk) occurs due to an increase in the frequency and severity of extreme weather events, this could cause severe damage to business locations and other facilities, and may also necessitate an increase in the allowance for loan losses due to impairment of the value of real estate collateral held by borrowers. The Group recognizes these two types of risk as material risks.

If various systems, including the core banking online system, experience downtime or malfunction, or if there is a failure of communication lines or unauthorized use of computers, this could adversely affect business operations and social credibility. The Group operates numerous systems to accommodate the diversification and sophistication of its business, and the risk of a system failure extends across a wide range of operations.

The Group holds a large volume of internal information, including customer information and management information, and if such information were to be leaked externally, this could adversely affect the Group's social credibility, business operations, business results, and financial condition. A leak of customer information carries the risk of undermining the trust relationship with customers and directly damaging the business foundation.

The Group conducts business primarily in Tokushima Prefecture, Kagawa Prefecture, and Osaka Prefecture, with its business locations, officers and employees, and customers concentrated in these regions. As a result, a widespread or localized natural disaster could cause severe damage to the regional economy as well as to facilities and officers and employees. Similarly, if an infectious disease such as a new strain of influenza or COVID-19 were to spread in these regions, this poses a comparable risk, potentially adversely affecting business operations, business results, and financial condition.

The Group records deferred tax assets based on reasonable estimates of future taxable income; however, if actual taxable income differs from these estimates, deferred tax assets may be reduced, which could adversely affect business results and financial condition. A reduction in deferred tax assets is also separately recognized as a factor that could adversely affect the capital adequacy ratio, making it a dual risk factor.

The Group is subject to a wide range of laws and regulations, including the Banking Act, the Financial Instruments and Exchange Act, and the Companies Act, and failure to comply with these could adversely affect business results, financial condition, and social credibility. There is also a risk that future changes to or abolition of existing laws and regulations, or the enactment of new laws and regulations, could adversely affect business operations. While the Group strives to ensure thorough compliance among its officers and employees, responding to changes in the regulatory environment remains an ongoing challenge.