The Yamagata Bank,Ltd.

Because the Bank's primary business base is concentrated in specific regions centered on Yamagata Prefecture, stagnation or deterioration of the regional economy could impede business expansion and increase credit-related expenses. In particular, a future contraction of the business base due to population decline poses a risk of directly affecting business results. Due to the effects of globalization, economic trends in the greater Tokyo area and overseas can also indirectly spread through the business conditions of client companies.

If the business performance and financial condition of client companies deteriorate due to fluctuations in domestic and overseas economic trends or the financial and economic environment, non-performing loans and credit-related expenses may increase, adversely affecting business results and financial condition. The allowance for loan losses is calculated based on debtor classification, collateral status, and historical loan-loss experience rates, but a significant deterioration in economic conditions or a decline in collateral values could necessitate additional provisions. Risk volume is controlled through quantification using VaR and a capital allocation plan, and regular stress tests are conducted to confirm maintenance of the regulatory required capital adequacy ratio.

Fluctuations in market risk factors such as interest rates, securities prices, and foreign exchange rates may change the value of held assets (including off-balance-sheet items), resulting in losses. Impairment or valuation losses on equities due to stock price declines, valuation or sale losses on bonds due to price declines from rising domestic and overseas interest rates, and changes in the value of foreign-currency-denominated assets and liabilities due to exchange rate fluctuations may adversely affect business results and financial condition. Risk volume is controlled by category through quantification using VaR and a capital allocation plan, with stress tests conducted regularly.

There are three types of liquidity risk: funding liquidity risk, in which necessary funds cannot be secured and cash flow becomes difficult to manage due to changes in market conditions or deterioration of the Bank's creditworthiness; market liquidity risk arising from market disruption; and settlement risk arising from settlement failure. If any of these materialize, the Bank may be forced to raise funds at significantly higher interest rates or trade on unfavorable terms, resulting in losses. Yen and foreign currency liquidity is monitored on a daily, weekly, and monthly basis, with management systems in place to enable agile responses when necessary.

The Bank's systems are connected via networks to customers and various settlement infrastructures, and if a cyber attack causes service disruption, information leakage, unauthorized money transfers, or similar incidents, there is a risk of reputational damage and losses. Although an in-house CSIRT has been established and various security measures implemented, these measures may not be effective. With the progress of digitalization, attacks continue to become more sophisticated and diverse, requiring continuous strengthening of countermeasures.

Deficiencies in administrative management systems, staffing, or internal processes, or external factors, may result in improper processing of administrative work, leading to accidents, fraud, and the like, causing reputational damage and losses. In addition, misconduct or illegal acts by employees, decline in operational execution capability and efficiency due to talent outflow or difficulty in recruitment, and decline in employee engagement may also lead to losses. With a decline in the number of employees expected, if productivity improvements and business reforms are not sufficiently implemented, there is a risk of adverse effects on business results.

The Bank is required to maintain a consolidated and non-consolidated capital adequacy ratio of 4% or more under domestic standards, and if this falls below the required level, the Bank may receive an order from the Commissioner of the Financial Services Agency for suspension of all or part of its operations. The capital adequacy ratio is affected by changes in risk assets, capital, and changes in calculation standards or methods. Maintenance of the regulatory level is confirmed through risk management using VaR and a capital allocation plan, as well as stress tests.

Future changes in laws, regulations, policies, business practices, legal interpretations, fiscal policy, and the like may adversely affect the Bank's business results and financial condition. While the Bank conducts its operations in accordance with current regulations, delays in responding to changes in the regulatory environment could impede business operations. The Bank has also established a risk-based management framework for anti-money laundering and countering the financing of terrorism, but if a legal violation occurs, it could result in reputational damage and losses.

Natural disasters such as earthquakes, disruptions to social infrastructure such as power outages, and the spread of infectious diseases may cause damage to officers, employees, and business locations, potentially making it difficult or limiting the ability to carry out business operations. If the scale or duration of such risks is significant, it could also lead to an increase in credit risk and market risk through the deterioration of economic conditions and the business conditions of client companies. The Bank strives to ensure financial soundness and management efficiency, aiming to continue sound business operations.

The Bank implements various business strategies to provide financial services centered on banking, but if limited management resources are not allocated appropriately, these strategies may not produce the initially expected results. The consolidated subsidiary TRY Partners Corporation engages in trading operations and may temporarily hold inventory risk on products held, but this is managed so as not to become an excessive risk relative to capital. If the effectiveness of the various measures described in the management plan is impaired, there is a risk that it will become difficult to achieve the goal of enhancing corporate value.