THE FIRST BANK OF TOYAMA,LTD.

There is a risk that non-performing loans and credit-related expenses may increase due to changes in the economic environment, fluctuations in real estate and stock prices, or deterioration in the financial condition of borrowers. If collateral values decline or estimates of the allowance for loan losses diverge from actual outcomes, additional losses may arise, potentially adversely affecting business performance and financial condition. The Bank Group has established a management framework based on its Credit Risk Management Rules and strives to record appropriate allowances utilizing methods such as the cash flow estimation method.

The Bank Group's principal business base is Toyama Prefecture, and loans to borrowers within Toyama Prefecture account for a large proportion of credit extended by region. If the economic condition of Toyama Prefecture deteriorates, credit risk may increase in a concentrated manner, potentially adversely affecting business performance and financial condition. This is a structural risk stemming from a high degree of dependence on the regional economy, with limited diversification remaining a challenge.

There exists a mismatch in interest rates and maturities between loans and securities investments on one hand and deposit funding on the other, and unexpected interest rate fluctuations may adversely affect business performance and financial condition. In addition, if the decrease in economic value of the banking book due to interest rate fluctuations exceeds 20% of core capital, there is a risk that the Financial Services Agency may require corrective measures. The Bank Group has established a management framework based on its Market Risk Management Rules.

The Bank Group holds marketable stocks, bonds, and other securities, and there is a risk of impairment or valuation losses due to declining stock prices, as well as valuation losses or losses on sale of bonds due to bond price declines resulting from rising interest rates. Such losses could directly and adversely affect business performance and financial condition. The Group manages this risk appropriately through sales or portfolio reallocation as needed, but losses may not always be avoidable depending on market conditions.

As a domestic standard bank, the Bank Group is obligated to maintain a non-consolidated and consolidated capital adequacy ratio of 4% or higher, and if this falls below the threshold, the Financial Services Agency may issue orders such as business suspension. Factors that could affect the ratio include increases in credit-related expenses, declines in the value of the securities portfolio, reduced recoverability of deferred tax assets, and changes in the standards for calculating the capital adequacy ratio. The Bank Group has established a capital adequacy management framework based on its Capital Management Rules.

If cyberattacks or failures occur in the core banking system or other various computer systems, this may adversely affect business operations, performance, and financial condition. In addition, if a system failure or information leak occurs at an outsourcing contractor, this could also lead to a loss of public trust. The Group addresses this risk through the establishment of safety and security measures and the formulation of contingency plans, but the impact may not be eliminated depending on the scale and scope of the failure.

The Bank Group holds personal information of a large number of corporate and individual customers, including My Number information, and if such information is leaked due to unauthorized external access or human error by officers, employees, or outsourcing contractors, the Group could face multifaceted risks including reputational damage, administrative sanctions, civil liability, and criminal penalties. The Group implements measures including the development of security policies and personal information protection manuals, education and training for officers and employees, and system-based security measures.

Financial crime is becoming more sophisticated and large-scale through the misuse of AI and social media, and substantial costs may be required to strengthen security and prevent damage. If a large-scale financial crime incident beyond expectations occurs, the resulting countermeasure costs and compensation or damages paid to customers could adversely affect business performance and financial condition. The Group implements various measures, including countermeasures against cash card forgery and theft, prevention of wire transfer fraud, and anti-money laundering measures.

Transition risk associated with climate change (increased credit risk due to deterioration in business activities and performance of client companies) and physical risk (increased operational risk due to a surge in natural disasters) may adversely affect business performance and financial condition. The Bank has established a Sustainability Committee chaired by the President, and is working to identify and assess climate-related risks and opportunities in line with the TCFD framework and reflect them in its risk management.

If competition in Toyama Prefecture intensifies further due to aggressive business expansion by other financial institutions or new entrants from different industries, the Bank Group may be unable to maintain its competitive advantage, potentially adversely affecting business performance and financial condition. In addition, the various management strategies currently being implemented may fail to produce the expected results due to a variety of factors. While the Group seeks to respond by leveraging its community-based business foundation, ongoing strategic review is required to address structural changes in the competitive environment.