THE AKITA BANK, LTD.

There is a risk that non-performing loans will increase due to a decline in collateral value resulting from a deterioration in domestic and overseas economic conditions or a decline in real estate and stock prices. The Bank records allowance for loan losses based on the financial condition of borrowers and historical loan loss ratios, but in the event of an economic downturn, additional provisions may be required, increasing credit costs and potentially adversely affecting business performance and financial condition. The Bank strives to maintain the soundness of its loan assets through continuous guidance and support for borrowers undergoing management improvement efforts.

There is a mismatch in interest rates and maturities between assets and liabilities such as loans, securities, and deposits, which are the Bank's core businesses, and an unfavorable change in interest rates would reduce net interest income, the Bank's primary source of earnings. The Bank measures the amount of risk within its integrated risk management framework and manages operations using a capital allocation system to keep risk within the scope of its capital.

The Bank invests a portion of its funds in securities such as government bonds and other bonds and stocks with market prices, and an unfavorable change in prices may adversely affect business performance and financial condition. There is also market liquidity risk, whereby market disruptions could force transactions at prices significantly less favorable than usual. This risk is measured within the integrated risk management framework and managed through the capital allocation system.

Under the domestic standard based on the Banking Act, the Bank is required to maintain a non-consolidated and consolidated capital adequacy ratio of 4% or higher, and if this falls below the required level, the Bank may be subject to various orders from the Commissioner of the Financial Services Agency, including suspension of all or part of its business operations. Factors that could contribute to this include an increase in credit-related expenses, a decline in the value of the securities portfolio, and changes in the capital adequacy ratio standards or calculation methods. This is managed within the integrated risk management framework from the perspective of ensuring soundness.

The Bank is a regional financial institution whose primary business base is Akita Prefecture, and increases or decreases in loan interest income and credit-related expenses are directly affected by economic trends within Akita Prefecture. If the Akita Prefecture economy stagnates or deteriorates, it could adversely affect the Bank's business performance. There is also a risk that intensifying competition with other financial institutions and cross-industry competition resulting from deregulation could affect the Bank's business and performance.

In the event of computer system downtime or malfunction, or service disruption, data tampering, information leakage, or fraudulent money transfers resulting from increasingly sophisticated and elaborate cyberattacks, the Bank's credibility and business performance could be affected through damages compensation and reputational harm. The Bank recognizes stable system operation as a top priority issue and is working to strengthen its cybersecurity management framework.

If important information such as customers' personal information is leaked, lost, tampered with, or fraudulently used, it could adversely affect business performance through a loss of social credibility. In addition, if measures against financial crimes such as cash card forgery and remittance fraud, as well as anti-money laundering measures, fail to be effective, there is a risk of increased compensation costs and loss of credibility. The Bank has established a system for appropriately protecting and managing personal information and has implemented security enhancement measures.

The Bank recognizes both transition risk, whereby credit risk related to the businesses of certain customers increases due to stricter regulations and changing consumer preferences amid the transition to a decarbonized society, and physical risk, whereby operational risk increases due to collateral damage, impacts on customers' businesses, and damage to branch offices resulting from an increase in natural disasters such as flooding. If these risks materialize, they could adversely affect business performance, financial condition, and business operations.

If administrative errors, accidents, or misconduct by officers and employees occur, they could adversely affect business performance through economic losses and a loss of social credibility. There is also a risk that a deterioration in the working environment, due to loss of personnel or declining employee morale, could adversely affect business operations and performance. The Bank strives to ensure strict administrative handling, improve administrative quality, and maintain a favorable working environment and appropriate labor management.

Deferred tax assets are recorded based on forecasts and assumptions regarding future taxable income trends, and if they are determined to be unrecoverable, a reversal could adversely affect business performance. There is also a risk that future retirement benefit expenses could increase due to a decline in the market value of pension assets, lower investment yields, or changes in actuarial assumptions such as the discount rate. These are recognized as financial risks that directly affect business performance and financial condition.